UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20222023

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to _______________. 

Commission file number 002-76219-NY

VICTORY OILFIELD TECH, INC.

(Exact Name of Registrant as Specified in its Charter)

(512)-347-7300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No☐No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 14, 2022,2023, there were 28,037,71328,591,593 shares of common stock, par value $0.001, issued and outstanding.

VICTORY OILFIELD TECH, INC.

TABLE OF CONTENTS 

Part I – Financial Information

Item 1. Consolidated Financial Statements

VICTORY OILFIELD TECH, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

VICTORY OILFIELD TECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

VICTORY OILFIELD TECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

VICTORY OILFIELD TECH, INC.

STATEMENTCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

VICTORY OILFIELD TECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 20222023

(Unaudited)

1. Organization and Basis of Presentation

Organization and nature of operations

Victory Oilfield Tech, Inc. (“Victory”), a Nevada corporation, is an oilfield technology products company offering patented oil and gas drilling products designed to improve well performance and extend the lifespan of the industry’s most sophisticated and expensive equipment. On July 31, 2018, Victory entered into an agreement to acquire Pro-Tech Hardbanding Services, Inc., an Oklahoma corporation (“Pro-Tech”), which provides various hardbanding solutions to oilfield operators for drill pipe, weight pipe, tubing and drill collars.

Agreement and Plan of Merger

On July 25, 2023, Victory and Victory H2EG Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Victory (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with H2 Energy Group Inc., a Delaware corporation (“H2EG”). Pursuant to the Merger Agreement, H2EG agreed to merge with and into Merger Sub, the separate corporate existence of Merger Sub will cease, and H2EG will continue as a surviving corporation and as a wholly owned subsidiary of Victory (the “Proposed Merger). The consideration to be paid by Victory in the Proposed Merger will consist of shares of Victory’s common stock, par value $0.001 per share (the “common stock”) equal to 70% of the issued and outstanding common stock of Victory on a fully diluted basis.

The Merger Agreement is subject to customary closing conditions, including, without limitation, the completion of accounting and legal due diligence investigations; the receipt of all authorizations and consents; the release of any security interests; the Company obtaining the requisite acquisition financing; conversion of all outstanding securities, notes, or other agreements or commitments which are convertible into securities of both the Company and H2EG, subject to exclusions within the Merger Agreement, and delivery of all opinions and documents required for the transfer of the equity interests of Victory to H2EG’s shareholders.

Additionally, within 30 days of the Closing, the Company expects to enter a definitive agreement in which it will transfer its ownership of Pro-Tech to Pro Tech so long as Flagstaff International, LLC a Delaware limited liability company (“Flagstaff”) commits, pursuant to a binding agreement, to invest $4,000,000 in Victory on terms to be mutually agreed upon by Flagstaff and Victory.

Effective August 31, 2023, H2EG and Victory executed a Forgivable Promissory Note in the principal amount of up to Five Million Dollars ($5,000,000), due on October 31, 2023 which bears interest at the rate of five percent (5%) per annum on any amount outstanding and which interest shall be due and payable upon the final payment of the principal amount outstanding under the note (the “H2EG Note”). During August and September 2023, Victory advanced a total of $255,000 to H2EG pursuant to the H2EG Note for working capital. The H2EG Note is recorded as a current asset on the accompanying consolidated balance sheet as of September 30, 2023 in the amount of $255,000, net of an allowance for credit losses of $0.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Victory and Pro-Tech, its wholly owned subsidiary, for all periods presented. All significant intercompany transactions and accounts between Victory and Pro-Tech (together, the “Company”) have been eliminated.

The preparation of the Company’s consolidated financial statements is in conformity with U.S. generally accepted accounting principles (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Company’s Annual Report on formForm 10-K for the year ended December 31, 2021.2022.

In the opinion of the Company’s management, the unaudited consolidated interim financial statements contained herein includes all normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2022,2023, and the results of its operations and cash flows for the three and nine months ended September 30, 20222023 and 2021.2022.

The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the full year or any future periods.

Going Concern

Historically the Company has experienced, and continues to experience, net losses, net losses from operations, negative cash flow from operating activities and working capital deficits. The Company has incurred an accumulated deficit of $(99,133,427)$(99,626,538) through September 30, 2022,2023, and has a working capital deficit of $(3,784,446)$(4,330,209) at September 30, 2022.2023. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of issuance of the consolidated financial statements. The consolidated financial statements do not reflect any adjustments that might result if the Company was unable to continue as a going concern.

The Company anticipates that operating losses will continue in the near term as management continues efforts to leverageintegrates the Company’s intellectual property throughoperations of H2EG upon the platform provided byclosing of the acquisition of Pro-Tech and, potentially, other acquisitions.Proposed Merger. The Company intends to meet near-term obligations through funding under the New VPEG Note (See Note 8, Related Party Transactions)with private placement offerings along with cash flow generated by Pro-Tech Hardbanding as it seeks to generateincrease positive cash flow from operations.

In addition to increasing cash flow from operations, we will be required to obtain other liquidity resources in order to support ongoing operations. We are addressing this need by developing additional capital sources, which we believe will enable us to execute our recapitalization and growth plan. This plan includes, upon the expansionclosing of Pro-Tech’s core hardbanding business through additional drilling services and the developmentProposed Merger, the operations of additional products and services including wholesale materials, RFID enclosures and mid-pipe coating solutions.H2EG which are primarily the use of proprietary technology to produce low-cost Green Hydrogen from a wide variety of biomass sources.

Based upon anticipated new sources of capital, and ongoing near-term funding provided through the New VPEG Note, we believe we will have enough capital to cover expenses through at least the next twelve months. We will continue to monitor liquidity carefully. In the event we do not have enough capital to cover expenses, we will make the necessary and appropriate reductions in spending to remain cash flow positive. While management believes our plans, including the Proposed Merger, help mitigate the substantial doubt that we are a going concern, there is no guarantee that our plans will be successful or if they are, will fully alleviate the conditions that raise substantial doubt that we are a going concern.

Capital Resources

During the nine months ended September 30, 2022, the Company received loan proceeds of $152,000 from Visionary Private Equity Group I, LP (“VPEG”) through the New VPEG Note. As of the date of this report and for the foreseeable future the Company expects to cover operating shortfalls, if any, with new sources of funding through the New VPEG Note while we enact our strategy to become a technology-focused oilfield services companyproduce low-cost Green Hydrogen from sustainable and seek additional sources of capital.renewable woody biomass. As of the date of this report, the remaining amount available for the Company for additional borrowings on the New VPEG Note was $282,524. The Company is actively seeking additional capital from VPEG and potential sources of equity and/or debt financing.$131,274.

2. Summary of Significant Accounting Policies

Fair Value

Financial Accounting Standard Board, or FASB, Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures, established a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by FASB ASC Topic 820 hierarchy are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Leve1 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Leve1 2 input must be observable for substantially the full term of the asset or liability; and

Leve1 3 - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).

Accounts and Notes Receivable are carried at amounts that approximate fair value.

Accounts Receivable are recognized net of an allowance for doubtful accounts receivable. The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the financial asset, based on historical experience, current conditions and reasonable forecasts of future economic conditions. Accounts receivable are written down or off when a portion or all of such account receivable is determined to be uncollectible.

As permitted under ASC 825, Financial Instruments (“ASC 825”), the Company has elected the fair value option for the H2EG Note. See Note 1, Organization and Basis of Presentation, for more information. In accordance with ASC 825, the Company recognizes notes receivable at fair value with changes in fair value recognized in the consolidated statements of operations. The fair value option may be applied instrument by instrument, but it is irrevocable. The estimated fair value of the Company’s notes receivable is determined by utilizing a scenario-based analysis considering possible outcomes available to the holders.

The estimated fair value of the Company’s Convertible Notes Payable is measured according to significant observable inputs (Level 3) including common share class volatility, applied discount rate, and probability weighting assigned to automatic and optional conversion scenarios. See Note 5, Notes Payable, and Note 1, Organization and Basis of Presentation, for more information.

At September 30, 2023 and December 31, 2022, the carrying value of the Company’s financial instruments such as accounts receivable, notes receivable, accounts payable, and notes payable approximated their fair values based on the short-term nature of these instruments. The carrying value of short-term notes and advances approximated their fair values because the underlying interest rates approximated market rates at the balance sheet dates.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification 606, Revenue from contracts with customers (ASC606)(ASC 606) as it satisfies contractual performance obligations by transferring promised goods or services to the customers. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for those promised goods or services. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service.

The Company has one revenue stream, which relates to the provision of hardbanding services by its subsidiary Pro-Tech. All performance obligations of the Company’s contracts with customers are satisfied over the duration of the contract as customer-owned equipment is serviced and then made available for immediate use as completed during the service period. The Company has reviewed its contracts with Pro-Tech customers and determined that due to their short-term nature, with durations of several days of service at the customer’s location, it is only those contracts that occur near the end of a financial reporting period that will potentially require allocation to ensure revenue is recognized in the proper period. The Company has reviewed all such transactions and recorded revenue accordingly.

For the three and nine months ended September 30, 20222023 and 2021,2022, all of the Company’s revenue was recognized from contracts with oilfield operators. See Note 9 Segment and Geographic Information and Revenue Disaggregation for further information.

Because the Company’s contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not disclose information about its remaining performance obligations.

Concentration of Credit Risk, Accounts Receivable and Allowance for Doubtful Accounts

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents placed with high credit quality institutions and accounts receivable due from Pro-Tech’s customers. Management evaluates the collectability of accounts receivable based on a combination of factors. If management becomes aware of a customer’s inability to meet its financial obligations after a sale has occurred, the Company records an allowance to reduce the net receivable to the amount that it reasonably believes to be collectable from the customer. Accounts receivable are written off at the point they are considered uncollectible. An allowance of $0 and $5,002$0 has been recorded at September 30, 20222023 and December 31, 2021,2022, respectively. The Company suffered no bad debt losses in the three and nine months ended September 30, 20222023 and 2021,2022, respectively. If the financial conditions of Pro-Tech’s customers were to deteriorate or if general economic conditions were to worsen, additional allowances may be required in the future. 

As of September 30, 20222023 and December 31, 2021,2022, three and three customers comprised 50%86% and 65%78% of the Company’s gross accounts receivables,receivable, respectively. For the three months ended September 30, 20222023 and 2021,2022, three and fourthree customers comprised 45%81% and 71%45% of the Company’s total revenue, respectively. For the nine months ended September 30, 2023 and 2022, four and 2021, three and four customers comprised 54%67% and 71%54% of the Company’s total revenue, respectively.

Notes Receivable

The Company has elected the fair value option for recognition of its notes receivable. As such, notes receivable are recognized at their estimated fair value with changes in fair value recognized in the consolidated statements of operations. No gain or loss related to change in fair value of the H2EG Note was recognized in the nine months ended September 30, 2023. The Company performs a review of its notes receivable on a quarterly basis. In determining the expected losses on notes receivable, we utilize the probability of default and discounted cash flow methods. Further, we stress-test the results to reflect the impact of unknown adverse future events including recessions. During the three and nine months ended September 30, 2023, the Company recorded no change in fair value for credit losses. To date, the Company has recorded no actual credit losses on notes receivable. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments as we do not deem it probable that we will receive substantially all interest on outstanding notes receivable.

Property, Plant and Equipment

Property, Plant and Equipment is stated at cost. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. When property, plant and equipment is disposed of, the cost and related accumulated depreciation are removed from the consolidated balance sheets and any gain or loss is included in Other income/(expense) in the consolidated statements of operations.

Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, as follows:

See Note 3, Property, Plant and Equipment, for further information.

Goodwill and Other Intangible Assets

Finite-lived intangible assets are recorded at cost, net of accumulated amortization, and if applicable, impairment charges. Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis or the pattern in which economic benefits are consumed, if reliably determinable. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We performThe Company performs an impairment test of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. We haveThe Company has determined that the Companyit is comprised of one reporting unit at September 30, 20222023 and December 31, 2021,2022, and the goodwill balances of $145,149 are included in the single reporting unit. The carrying value of the single reporting unit is negative. To date, an impairment of goodwill has not been recorded. For the year ended December 31, 2021, we2022, the Company bypassed the qualitative assessment, and proceeded directly to the quantitative test for goodwill impairment.

The Company’s Goodwill balance consists of the amount recognized in connection with the acquisition of Pro-Tech. The Company’s other intangible assets are comprised of contract-based and marketing-related intangible assets, as well as acquisition-related intangibles. Acquisition-related intangibles include the value of Pro-Tech’s trademark and customer relationships, both of which are being amortized over their expected useful lives of 10 years beginning August 2018.

PPP Loans

The Company accounts foras debt any portion of loans issued pursuant to the Paycheck Protection Program (PPP) of the U.S. Small Business Administration as debt. The Company will continuewhich are not subject to record the Second PPP Note as debt until either (1) the Second PPP Note is partially or entirely forgiven and the Company has been legally released, at which point the amount forgiven will be recorded as income or (2) the Company pays off the Second PPP Note.forgiveness. See Note 5, Notes Payable, for further information.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date in the Company’s consolidated financial statements. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill.

Share-Based Compensation

The Company from time to time may issue stock options, warrants and restricted stock as compensation to employees, directors, officers and affiliates, as well as to acquire goods or services from third parties. In all cases, the Company calculates share-based compensation using the Black-Scholes option pricing model and expenses awards based on fair value at the grant date on a straight-line basis over the requisite service period. In the case of third-party suppliers, the service period is the shorter of the period over which services are to be received or the vesting period. For employees, directors, officers and affiliates, the service period is typically the vesting period. Share-based compensation is included in general and administrative expenses in the consolidated statements of operations. See Note 6, Stockholders’ Equity, for further information.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Deferred tax assets, if any, include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Earnings per Share

Basic earnings (loss) per share are computed usingcalculated by dividing the Company’s net income (loss) applicable to common stockholders by the weighted average number of shares of common sharesstock outstanding at September 30, 2022 and December 31, 2021, respectively. Theduring the period. Diluted earnings (loss) per share are based on the weighted average number of common shares outstanding was 28,037,713 and 28,037,713, respectively, at September 30, 2022 and September 30, 2021. Diluted earnings per share reflect the potential dilutive effects of common stock equivalentsoutstanding during the period plus potentially dilutive shares of common stock outstanding during the period such as options, warrants and convertible securities. Given the historical and projected future losses of the Company, all potentially dilutive common stock equivalents are considered anti-dilutive.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt -– Modifications and Extinguishments (Subtopic 470-50), Compensation -– Stock Compensation (Topic 718), and Derivatives and Hedging -– Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, and has since issued various amendments including ASU No. 2018-19, ASU No. 2019-04, and ASU No. 2019-05. The guidance and related amendments modify the accounting for credit losses for most financial assets and require the use of an expected loss model, replacing the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The Company adopted ASU-2016-13 effective January 1, 2023. The adoption of ASU 2016-13 had no material impact on our consolidated financial statements.

3. Property, Plant and Equipment

Property, plant and equipment, at cost, consisted of the following: 

Depreciation expense for the three months ended September 30, 2023 and 2022 was $13,224 and 2021 was $39,606, and $33,561, respectively.

Depreciation expense for the nine months ended September 30, 2023 and 2022 was $92,046 and 2021 was $112,248, and $100,683 respectivelyrespectively.

4. Goodwill and Other Intangible Assets

The Company has determined that it is comprised of one reporting unit at September 30, 2023 and December 31, 2022. The carrying value of the single reporting unit is negative. The Company recorded $4,312$4,313 and $4,313$4,312 of amortization of intangible assets for the three months ended September 30, 2023 and 2022, and 2021, respectively.

The Company recorded $12,939 and $12,939 of amortization of intangible assets for the nine months ended September 30, 20222023 and 2021,2022, respectively.

The following table shows intangible assets other than goodwill and related accumulated amortization as of September 30, 20222023 and December 31, 2021.2022.

5. Notes Payable

Convertible Notes Payable

During August and September 2023, the Company authorized the issuance of a series of 5% Convertible Promissory Notes with an aggregate principal of up to $5,000,000 (the “Convertible Notes Payable”). Upon completion of the Proposed Merger involving H2EG (See Note 1 Organization and Basis of Presentation, the outstanding principal amount (but not any accrued interest thereon) of the Convertible Notes Payable shall automatically convert in whole to shares of common stock. The conversion price shall be equal to the quotient resulting from dividing $28,333,333 by the number of outstanding shares of common stock of the Company issued and outstanding immediately after the consummation of the Proposed Merger. All unpaid interest and principal shall be due and payable upon request of the majority holders on or after the six-month anniversary of the date of each of the Convertible Notes Payable.

The Company elected to account for the Convertible Notes Payable at fair value with any changes in fair value being recognized through the consolidated statements of operations until the convertible notes are settled. The estimated fair value of the Convertible Notes Payable is measured according to significant observable inputs (Level 3) including common share class volatility, applied discount rate, and probability weighting assigned to automatic and optional conversion scenarios.

The Company issued an aggregate of $255,000 of Convertible Promissory Notes as of September 30, 2023 as follows:

In connection with the Convertible Notes Payable, the Company has accrued interest of $1,416 during the three and nine months ended September 30, 2023.

The Company used the proceeds to invest in the H2EG Note in connection with the Proposed Merger. See Note 1 Organization and Basis of Presentation, for more information.

Paycheck Protection Program Loan

On April 15, 2020,February 1, 2021, the Company received loan proceeds in the amount of $168,800$98,622 pursuant to a second draw loan under the Paycheck Protection Program (the “PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) and administered by the U.S. Small Business Administration (the “SBA”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The unsecured loan (the “First PPP Loan”) is evidenced by a promissory note (the “First PPP Note”) issued by the Company, dated April 14, 2020, in the principal amount of $168,800 with Arvest Bank.

As of August 6, 2021, the Company received notice from Arvest Bank and the SBA that the full amount of the First PPP Loan had been forgiven. The amount forgiven, including principal of $168,800 and accrued interest of $2,373, was recorded as other income in the consolidated statements of operations for the three and nine months ended September 30, 2021. The entire amount of recorded gain on forgiveness of the First PPP Loan was excluded from income for tax purposes.

The foregoing description of the First PPP Note does not purport to be complete and is qualified in its entirety by reference to the full text of the First PPP Note, a copy of which is filed as Exhibit 10.5 to the Quarterly Report on Form 10-Q for the periods ended June 30, 2020.

On February 1, 2021, the Company received loan proceeds in the amount of $98,622 pursuant to a second draw loan under the PPP. The unsecured loan (the “Second PPP Loan”) is evidenced by a promissory note (the “Second PPP Note”) issued by the Company, dated January 28, 2021, in the principal amount of $98,622 with Arvest Bank.

As of April 18, 2023, the Company received notice from Arvest Bank and the SBA that $92,653 of the $98,622 amount of the Second PPP Loan had been forgiven. The amount forgiven, including principal of $92,653 and accrued interest has been recorded as other income in the consolidated statements of operations. The Company has recorded the remaining principal balance of $5,969 as debt, and it will record interest expense on the outstanding balance at a rate of one percent per annum until all principal and interest has been repaid. The company is making payments of principal and interest of $192.47 per month until the note is paid in full.

Under the terms of the Second PPP Note and the PPP, interest accrues on the outstanding principal at the rate of 1.0% per annum with a deferral of payments for the first 10 months. The term of the Second PPP Note is five years, though it may be payable sooner in connection with an event of default under the Second PPP Note. To the extent the amount of the Second PPP LoanThe Company is not forgiven under the PPP, the Company will be obligated to make equal monthly payments of principal and interest beginning after a ten-month deferral period provided in the Second PPP Note and through January 28, 2026.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for forgiveness for all or a part of the Second PPP Loan. The amount of the Second PPP Loan proceeds eligible for forgiveness is based on a formula established by the SBA. Subject to the other requirements and limitations on the Second PPP Loan forgiveness, only that portion of the Second PPP Loan proceeds spent on payroll and other eligible costs during the covered twenty-four-week period will qualify for forgiveness. Although the Company has used the entire amount of the Second PPP Loan for qualifying expenses, and although the Company has already obtained forgiveness for the full amount borrowed pursuant to the First PPP Loan, no assurance is provided that the Company will obtain forgiveness of the Second PPP Loan in whole or in part.

The Second PPP Note may be prepaid in part or in full, at any time, without penalty. The Second PPP Note provides for certain customary events of default, including the Company’s: (i) failure to make a payment when due; (ii) breach of the note terms; (iii) default on any other loan with the Lender; (iv) filing of a bankruptcy petition by or against the Company; (v) reorganization merger, consolidation or other change in ownership or business structure without the Lender’s prior written consent; (vi) adverse change in financial condition or business operation that the Lender believes may affect the Company’s ability to pay the Second PPP Note; and (vii) default on any loan or agreement with another creditor, if the Lender believes the default may materially affect the Company’s ability to pay the Second PPP Note. Upon the occurrence of an event of default, the Lender has customary remedies and may, among other things, require immediate payment of all amounts owed under the Second PPP Note, collect all amounts owing from the Company and file suit and obtain judgment against the Company.

The foregoing description of the Second PPP Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Second PPP Note, a copy of which is filed as Exhibit 10.7 to the Quarterly Report on Form 10-Q for the periods ended June 30, 2020.

Economic Injury Disaster Loan

Additionally, on June 15, 2020, the Company received $150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated June 11, 2020 (the “EIDL Note”) in the original principal amount of $150,000 with the SBA, the lender.

Under the terms of the EIDL Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL Note is 30 years, though it may be payable sooner upon an event of default under the EIDL Note. Under the EIDL Note, the Company is obligated to make equal monthly payments of principal and interest beginning in December 2022 through the maturity date of June 11, 2050. The EIDL Note may be prepaid in part or in full, at any time, without penalty.

The Company made interest-only payments of $2,193 and $0 on the EIDL Note during the three months ended September, 2023 and 2022, respectively.

The Company made interest-only payments of $7,310 and $2,193 on the EIDL Note during the three and nine months ended September, 30,2023 and 2022, respectively. The Company made no payments on the EIDL Note during the three and nine months ended September 30, 2021

The Company recorded interest expense of $1,437 and $1,437 related to the EIDL Note for the three months ended September 30, 20222023 and 2021,2022, respectively.

The Company recorded interest expense of $4,266 and $4,266 related to the EIDL Note for the nine months ended September 30, 20222023 and 2021,2022, respectively.

The EIDL Note provides for certain customary events of default, including: (i) a failure to comply with any provision of the EIDL Note, the related Loan Authorization and Agreement, or other EIDL loan documents; (ii) a default on any other SBA loan; (iii) a sale or transfer of, or failure to preserve or account to SBA’s satisfaction for, any of the collateral or its proceeds; (iv) a failure of the Company or anyone acting on its behalf to disclose any material fact to SBA; (v) the making of a materially false or misleading representation to SBA by the Company or anyone acting on their behalf; (vi) a default on any loan or agreement with another creditor, if SBA believes the default may materially affect the Company’s ability to pay the EIDL Note; (vii) a failure to pay any taxes when due; (viii) if the Company becomes the subject of a proceeding under any bankruptcy or insolvency law; (ix) if a receiver or liquidator is appointed for any part of the Company’s business or property; (x) the making of an assignment for the benefit of creditors; (xi) has any adverse change in financial condition or business operation that SBA believes may materially affect the Company’s ability to pay the EIDL Note; (xii) effects any reorganization, merger, consolidation, or other transaction changing ownership or business structure without SBA’s prior written consent; or (xiii) becomes the subject of a civil or criminal action that SBA believes may materially affect the Company’s ability to pay the EIDL Note. The foregoing description of the EIDL Note does not purport to be complete and is qualified in its entirety by reference to the full text of the EIDL Note, a copy of which is filed as Exhibit 10.6 to the Quarterly Report on Form 10-Q for the periods ended June 30, 2020.

New VPEG Note

See Note 8, Related Party Transactions, for a description of the New VPEG Note. The outstanding balance on the New VPEG Note was $3,717,476 and $3,550,276 at$3,868,726 as of September 30, 20222023 and $3,717,476 as of December 31, 2021, respectively.2022.

The Company recorded interest expense of $1,000$4,800 and $7,500$1,000 related to the New VPEG Note for the three months ended September 30, 20222023 and 2021,2022, respectively, and $15,200$13,750 and $29,600$15,200 for the nine months ended September 30, 20222023 and 2021,2022, respectively.

Vehicle Loan

On June 14, 2022, Pro-Tech, the Company’s wholly-owned subsidiary, entered into a Promissory Note and Security Agreement in the amount of $31,437 with Arvest Bank for a vehicle loan (the “Vehicle Loan”). The Vehicle Loan, which is secured by the vehicle, is repayable over five years, matures June 15, 2027, and is repayable at the rate of $586 per month including principal and interest at a rate of 4.5% per annum. The monthly payments began on July 15, 2022. The remaining balance of the Vehicle Loan was $30,035$24,187 and $0$31,438 as of September 30, 20222023 and 2021,December 31, 2022, respectively.

Arvest Loan

On July 11, 2022, Pro-Tech, the Company’s wholly-owned subsidiary, entered into a Promissory Note and Security Agreement with Arvest Bank for a revolving loan for up to $30,000 (the “Arvest Loan”). The Arvest Loan matures on July 11, 2023 and bears interest at 5.5% per annum, subject to change in accordance with the Variable Rate (as defined in the Promissory Note and Security Agreement), the calculation for which is the Wall Street Journal U.S. Prime Rate plus 0.75%.  Pursuant to the terms of the Arvest Loan, Pro-Tech is required to make monthly payments beginning on August 11, 2022 and until the maturity date, at which time all unpaid principal and interest will be due. Pro-Tech may prepay the loan in full or in part at any time without penalty. The Arvest Loan contains customary representations, warranties, affirmative and negative covenants and events of default for a loan of this type. The Arvest Loan is secured by Pro-Tech’s inventory and equipment, accounts and other rights of payments, and general intangibles, as such terms are defined in the Uniform Commercial Code. During the nine months ended September 30, 2023 and 2022, the Company borrowed $20,000, and $0, respectively, pursuant to the Arvest Loan. As of September 30, 20222023 and November 14,December 31, 2022, Pro-Tech had not requested any advances pursuant tobalances of $30,000 and $10,000, respectively, on the Arvest Loan and accordingly the principal balance was $0.credit line.

The Company made no principal payments on the Arvest Loan during the three and nine months ended September 30, 2023 and 2022, respectively.

The Company made interest payments of $1,206 and $0 related to the Arvest Loan for the three months ended September 30, 2023 and 2022, respectively, and $1,799 and $0 for the nine months ended September 30, 2023 and 2022, respectively.

6. Stockholders’ Equity

Preferred Series D Stock

During the nine months ended September 30, 2023 and 2022, the Company did not issue any shares of its Preferred Series D Stock.

Common Stock

On September 11, 2023, the Company issued 553,880 shares of its restricted common stock with a total grant date fair value of $155,086, or $0.28 per share, to Bevilacqua PLLC in exchange for services.

During the three and nine months ended September 30, 2022, and 2021, the Company did not issue any shares of its common stock.

Stock Options

During the three and nine months ended September 30, 20222023 and 2021,2022, the Company did not grant any stockequity awards to directors, officers, or employees.

As of September 30, 2023 and December 31, 2022, all share-based compensation for unvested options, net of expected forfeitures, was fully recognized.

Warrants for Stock

During the three and nine months ended September 30, 20222023 and 2021,2022, the Company did not grant any warrants to purchase shares of its common stock.

7. Commitments and Contingencies

Rent expense for the three months ended September 30, 2023 and 2022 was $558 and $417, respectively, and $4,524 and $4,251 for the nine months ended September 30, 2023 and 2022, respectively. The Company’s office space in Austin, Texas is leased on a month-to-month basis, and the lease agreement for the Pro-Tech facility in Oklahoma County, Oklahoma is cancellable at any time by giving notice of 90 days. As such there are no future annual minimum payments of September 30, 2023 and December 31, 2022, respectively.

The Company is subject to legal claims and litigation in the ordinary course of business, including but not limited to employment, commercial and intellectual property claims. The outcome of any such matters is currently not determinable, and the Company is not actively involved in any ongoing litigation as of the date of this report.

Rent expense for the three months ended September 30, 2022 and 2021 was $417and $312, respectively, and $4,251 and $3,885 for the nine months ended September 30, 2022 and 2021, respectively. The Company’s office space is leased on a month-to-month basis, and as such there are no future annual minimum payments as of September 30, 2022 and 2021, respectively.

determinable.

8. Related Party Transactions

Settlement Agreement

On August 21, 2017, the Company entered into a secured convertible original issue discount promissory note issued by the Company to VPEG (the “VPEG Note”). The VPEG Note was subsequently amended on October 11, 2017 and again on January 17, 2018. On April 10, 2018, the Company and Visionary Private Equity Group I, LP, a Missouri limited partnership (“VPEG”) entered into a settlement agreement and mutual release (the “Settlement Agreement”), pursuant to which VPEG agreed to release and discharge the Company from its obligations under the VPEG Note (see below). Pursuant to the Settlement Agreement, and in consideration and full satisfaction of the outstanding indebtedness of $1,410,200 under the VPEG Note, the Company issued to VPEG 1,880,267 shares of its common stock and a five-year warrant to purchase 1,880,267 shares of its common stock at an exercise price of $0.75 per share, to be reduced to the extent the actual price per share in a proposed future private placement (the “Proposed Private Placement”) is less than $0.75. The Company recorded share-based compensation of $11,281,602 in connection with the Settlement Agreement.

On April 10, 2018, in connection with the Settlement Agreement, the Company and VPEG entered into a loan Agreement (the “New Debt Agreement”), pursuant to which VPEG loaned to the Company $2,000,000 under a secured convertible original issue discount promissory note (the “New VPEG Note”). The loans made pursuant to the New VPEG Note reflect a 10% original issue discount, do not bear interest in addition to the original issue discount, are secured by a security interest in all of the Company’s assets, and at the option of VPEG are convertible into shares of the Company’s common stock at a conversion price equal to $0.75 per share or, such lower price as shares of Common Stockcommon stock are sold to investors in the Proposed Private Placement. On October 30, 2020, the Company and VPEG amended the New Debt Agreement to increase the loan amount to up to $3,000,000. On January 31, 2021, the Company and VPEG amended the New Debt Agreement to increase the loan amount to up to $3,500,000. On September 3, 2021, the Company and VPEG amended the New Debt Agreement to increase the loan amount to up to $4,000,000. See Note 5, Notes Payable, for further information.

Inspire Diagnostics

On March 24, 2023 the Company received a short-term non-interest bearing advance from Inspire Diagnostics, an affiliated entity, in the amount of $33,500, which is due and payable upon demand.

Shareholder Loan

Ronald Zamber, a Director and shareholder of the Company, provided non-interest bearing working capital loans to the Company during 2019 in the aggregate amount of $185,150. During 2021, the Company repaid $5,000 of the outstanding loan balance to Mr. Zamber. During the three months ended September 30, 2023, the Company repaid $52,100 of the outstanding loan balance to Mr. Zamber. As of September 30, 2023, the outstanding balance owed to Mr. Zamber by the Company is $128,050.

9. Segment and Geographic Information and Revenue Disaggregation

The Company has one reportable segment:segment as of September 30, 2023 and December 31, 2022: Hardband Services. Hardband Services provides various hardbanding solutions to oilfield operators for drill pipe, weight pipe, tubing and drill collars. All Hardband Services revenue is generated in the United States, and all assets related to Hardband Services are located in the United States. Because the Company operates with only one reportable segment in one geographical area, there is no supplementary revenue or asset information to present.

To provide users of the financial statements with information depicting how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors, we have disaggregated revenue by customer, with customers representing more than five percent of total annual revenues comprising the first category, and those representing less than five percent of total annual revenues comprising the second category.

10. Net Loss Per Share

Basic loss per share is computed using the weighted average number of shares of common sharesstock outstanding at September 30, 20222023 and 2021,2022, respectively. Diluted loss per share reflects the potential dilutive effects of common stock equivalents such as options, warrants and convertible securities. Basic and diluted weighted average number of shares of common sharesstock outstanding was 28,037,71328,154,643 and 28,037,713 for the three months ended September 30, 2023, and 2022, respectively. Basic and diluted weighted average number of shares of common stock outstanding was 28,076,546 and 28,037,713 for the nine months ended September 30, 2022,2023, and 2021,2022, respectively.

The following table sets forth the computation of net loss per share of common sharestock – basic and diluted: 

11. Other Income

The Company reported other income for the nine months ended September 30, 20222023 of $155,527.$96,681. This amount is primarily attributable to forgiveness of the Second PPP Loan. Other income of $155,527 which the Company reported for the nine months ended September 30, 2022 was primarily attributable to refunds of federal payroll taxes as a result of provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020) and the Coronavirus Response and Consolidated Appropriations Act (2021). Other income of $172,513 which the Company reported for the nine months ended September 30, 2021 was primarily attributable to interest received on a refund of overpayment of income taxes.

12. Subsequent Events

In January 2020,During the World Health Organization declared the outbreakperiod of a novel coronavirus (COVID-19) as a “Public Health Emergency of International Concern,” which continues to spread throughout the world and has adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The coronavirus outbreak and government responses are creating disruption in global supply chains and adversely impacting many industries. The situation remains highly uncertain for any further outbreak or resurgence of COVID-19 and its new variants. It is therefore difficult forOctober 1, 2023 through November 14, 2023 the Company to estimate the impact on our business or operating results that might be adversely affected by any further outbreak or resurgencereceived additional proceeds of COVID-19 and its new variants. Nevertheless, the outbreak presents uncertainty and risk with respect$477,000 pursuant to the Company, its performance, and its financial results. We remain alert to the potential impacts of new variants, shutdowns or restrictions put in place on our future results of operations, financial condition and cash flows.

The Company continues to actively monitor and manage supply chain challenges, including logistics, but thus far, there have been no significant disruptions caused by COVID-19. The Company is coordinating with its suppliers to identify and mitigate potential areas of risk and manage inventories.Convertible Promissory Notes offering. See Note 5, Notes Payable, for further information.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Victory Oilfield Tech, Inc. MD&A is presented in the following seven sections:

MD&A summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flow as of and for the periods presented below and is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and Items 7 and 8 of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

In MD&A, we use “we,” “our,” “us,” “Victory” and “the Company” to refer to Victory Oilfield Tech. and its wholly-owned subsidiary, unless the context requires otherwise. Amounts and percentages in tables may not total due to rounding. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. We caution readers that important facts and factors described in MD&A and elsewhere in this document sometimes have affected, and in the future could affect our actual results, and could cause our actual results during the remainder of 20222023 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us.

As reported in the Report of Independent Registered Public Accounting Firm on our December 31, 20212022 consolidated financial statements, we have suffered recurring losses from operations which raises substantial doubt about our ability to continue as a going concern.

On July 31, 2018, we purchased 100% of the issued and outstanding common stock of Pro-Tech, a hardbanding service provider.

Cautionary Information about Forward-Looking Statements

Many statements made in the following discussion and analysis of our financial condition and results of operations and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are “forward-looking statements” within the meaning of federal securities laws and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan, strategies and capital structure. In particular, the words “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,” “may,” “will,” “forecast,” variations of such words, and other similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions, including, but not limited to, the risks and uncertainties described in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20212022 and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Quarterly Report on Form 10-Q. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

Business Overview

General

Victory Oilfield Tech, Inc. (“Victory”, the “Company”, “we”), a Nevada corporation, is an Austin, Texas based publicly held oilfield energy technology products company that has historically focused on improving well performance and extending the lifespan of the industry’s most sophisticated and expensive equipment. America’s resurgence in oil and gas production is largely driven by new innovative technologies and processes as most dramatically and recently demonstrated by fracking. We provide and apply wear-resistant alloys for use in the global oilfield services industry which are mechanically stronger, harder and more corrosion resistant than typical alloys found in the market today. This combination of characteristics creates opportunities for drillers to dramatically improve lateral drilling lengths, well completion time and total well costs.

On July 31, 2018, we entered into a stock purchase agreement to purchase 100% of the issued and outstanding common stock of Pro-Tech Hardbanding Services, Inc., an Oklahoma corporation (“Pro-Tech”), which provides various hardbanding solutions to oilfield operators for drill pipe, weight pipe, tubing and drill collars and servicing Oklahoma, Texas, Kansas, Arkansas, Louisiana, and New Mexico. We believe that the acquisition of Pro-Tech will create opportunities to leverage its existing portfolio of intellectual property to fulfill its mission of operating as a technology-focused oilfield services company. The stock purchase agreement was included as Exhibit 10.1 on the Form 8-K filed by us on August 2, 2018.

Our wear-resistant alloys reduce drill-string torque, friction, wearAgreement and corrosion in a cost-effective manner, while protecting the integrityPlan of the base metal. We apply our coatings using advanced welding techniques and thermal spray methods. We also utilize common materials, such as tungsten carbide to chromium carbide, to deliver the optimal solution to the customers. Some of our hardbanding processes protect wear in tubulars using materials that achieve a low coefficient of friction to protect the drill string and casing from abrasion.

Growth Strategy

We plan to continue our U.S. oilfield services company acquisition initiative, aimed at companies which are already recognized as high-quality service providers to strategic customers in the major North American oil and gas basins. When completed, we expect that each of these oilfield services company acquisitions will provide immediate revenue from their current regional customer base, while also providing us with a foundation for channel distribution and product development of our existing products. We intend to grow each of these established oilfield services companies by providing better access to capital, more disciplined sales and marketing development, integrated supply chain logistics and infrastructure build out that emphasizes outstanding customer service and customer collaboration, future product development and planning.

We believe that a well-capitalized technology-enabled oilfield services business will provide the basis for more accessible financing to grow the Company and execute our oilfield services company acquisitions strategy. We anticipate new innovative products will come to market as we collaborate with drillers to solve their other down-hole needs.

Recent Developments

Impact of Coronavirus PandemicMerger

In December 2019,On July 25, 2023, Victory and Victory H2EG Merger Sub Inc., a novel strainDelaware corporation and wholly owned subsidiary of coronavirus was reported to have surfaced in Wuhan, China. The virus has since spread to over 150 countriesthe Company (“Merger Sub”), entered into an Agreement and every state in the United States. On March 11, 2020, the World Health Organization declared the outbreakPlan of Merger (the “Merger Agreement”) with H2 Energy Group Inc., a pandemic, and on March 13, 2020, the United States declared a national emergency. Most states and cities have reacted by instituting quarantines, restrictions on travel, “stay-at-home” rules and restrictions on the types of businesses that may continue to operate, as well as guidance in responseDelaware corporation (“H2EG”). Pursuant to the pandemicMerger Agreement, H2EG agreed to merge with and into Merger Sub; the need to contain it.separate corporate existence of Merger Sub will cease, and H2EG will continue as a surviving corporation and as a wholly owned subsidiary of Victory( the Proposed Merger)

We do not expect

The consideration to experience any material impairments or changesbe paid by Victory in accounting judgements relatedthe Proposed Merger will consist of shares of Victory’s common stock equal to COVID-19. Although we continue to face a period of uncertainty regarding the ongoing impact70% of the COVID-19 pandemicissued and emergenceoutstanding common stock of new variantsVictory on projected customer demand, market conditions continue to gradually improve. In the midst of this challenging environment, we remain focused on taking the necessary steps to respond appropriately to changes in our business through specific contingency plans including (but not limited to): reviewing and monitoring planned capital expenditures, reviewing all operating expenses for opportunities to reduce and/or defer spending, and exploring new sources of revenue.a fully diluted basis.

We continueThe Merger Agreement is subject to monitorcustomary closing conditions, including, without limitation, the evolving situation relatedcompletion of accounting and legal due diligence investigations; the receipt of all authorizations and consents; the release of any security interests; the Company obtaining the requisite acquisition financing; conversion of all outstanding securities, notes, or other agreements or commitments which are convertible into securities of both the Company and H2EG, subject to COVID-19 including guidance from federal, state,exclusions within the Merger Agreement, and local public health authoritiesdelivery of all opinions and may take additional actions based on these recommendations. In these circumstances, there may be developments outside our control requiring usdocuments required for the transfer of the equity interests of Victory to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 or the emergence of new variants on our results of operations, cash flows and liquidity in the future, but they could be material.H2EG’s shareholders.

Two additional issues continueAdditionally, within 30 days of the Closing, Victory expects to affect national and global market conditions. First, supply chain disruptions have become more frequententer a definitive agreement, in recent months. Thus far, we have not experienced material adverse effects from materials shortages; however, timely sourcingwhich it will transfer its ownership of certain materials is of increased concern. Second, published articles and corporate announcements continuePro-Tech to address the global semiconductor chip shortage, which is anticipatedPro Tech so long as Flagstaff International, LLC, a Delaware limited liability company (“Flagstaff”) commits, pursuant to continue fora binding agreement, to invest at least the remainder of 2022. This shortage could affect some of our customers which could impact our revenue, volume,$4,000,000 in Victory on terms to be mutually agreed upon by Flagstaff and profitability. We continue to actively monitor these developments, including ongoing contact with our suppliers and customers, and adapting to their specific circumstances and forecasts. Victory.

Forgivable Promissory Note

Effective August 31, 2023, H2EG and Victory executed a Forgivable Promissory Note in the principal amount of up to Five Million Dollars ($5,000,000), due on October 31, 2023 which bears interest at the rate of five percent (5%) per annum on any amount outstanding and which interest shall be due and payable upon the final payment of the principal amount outstanding under the note (the “H2EG Note”). During August and September, Victory advanced a total of $255,000 to H2EG pursuant to the H2EG Note for working capital. The H2EG Note is recorded as a current asset on the accompanying consolidated balance sheet in the amount of $255,000, net of an allowance for credit losses of $0.

Issuance of Common Stock

On September 11, 2023, we issued 553,880 shares of common stock to Bevilacqua PLLC as consideration for past services rendered and deferment of legal fees.

VPEG Note

During the period of October 1, 2023 through November 14, 2023, we received no additional loan proceeds from VPEG pursuant to the New VPEG Note (See Note 8, Related Party Transactions, to the consolidated financial statements for a definition and description of the New VPEG Note).

Arvest Loan

On July 11, 2022, Pro-Tech, our wholly-owned subsidiary, entered into a Promissory Note and Security Agreement with Arvest Bank for a revolving loan for up to $30,000 (the “Arvest Loan”).  During the nine months ended September 30, 2023 and 2022, we borrowed $30,000 and $0, respectively, pursuant to the Arvest Loan. During the period of October 1, 2023 through November 14, 2023, we received no additional loan proceeds pursuant to the Arvest Loan. See LIQUIDITY AND CAPITAL RESOURCES“Liquidity and Capital Resources” below and Note 5, Notes Payable, to the consolidated financial statements for a definition and description of the Arvest LoanLoan.

Inspire Diagnostics

On March 24, 2023, the Company received a short-term advance from Inspire Diagnostics, an affiliated entity, in the amount of $33,500 (See Note 8, Related Party Transactions, to the consolidated financial statements more information).

Market Conditions

Our financial results depend on many factors, including commodity prices and the ability of our customers to market their production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by pipeline capacity constraints, inventory storage levels, basis differentials, weather conditions and other factors.

In recent months, the conflict between Russia and Ukraine has driven oil and natural gas prices up significantly, in part because of sanctions by the European Union, the United Kingdom and the U.S. on imports of oil and gas from Russia, and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Recent Russian actions have further contributed to global uncertainties for the future, causing even higher oil and natural gas prices. The ultimate impact of the war in Ukraine will depend on future developments and the timing and extent to which normal economic and operating conditions resume.

Although the current outlook on oil and natural gas prices is generally favorable and our operations have not been significantly impacted in the short-term, in the event further disruptions occur and continue for an extended period of time, our operations could be adversely impacted, and our costs may increase.

Factors Affecting our Operating Results

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

Total revenue

We generate revenue from hardbanding solutions to oilfield operators for drill pipe, weight pipe, tubing and drill collars and grinding services.

Our revenues are generally impacted by the following factors:

Total cost of revenue

The costs associated with generating our revenue fluctuate as a result of changes in sales volumes, average selling prices, product mix, and changes in the price of raw materials and consist primarily of the following:

Selling, general and administrative expenses (“SG&A”)

Our selling, general and administrative expense consists of all expenditures incurred in connection with the sales and marketing of our products, as well as administrative overhead costs, including:

These expenses are not expected to materially increase or decrease directly with changes in total revenue.

Depreciation and amortization

Depreciation and amortization expenses consist of amortization of intangible assets, depreciation of property, plant and equipment, net of depreciation of hardbanding equipment which is reported in Total cost of revenuerevenue.

Interest expense

Interest expense, net consists primaryprimarily of interest expense and loan fees on borrowings, amortization of debt issuance costs, and debt discounts associated with our indebtedness.

Other (income) expense,income/(expense), net

Other (income) expense,income/(expense), net represents costs incurred, net of income, from various non-operating items including costs incurred in conjunction with our debt refinancing and extinguishment transactions, interest income, gain or loss on disposal of fixed assets, as well as non-operational gains and losses unrelated to our core business.

Income tax benefit (provision)

We are subject to income tax in the various jurisdictions in which we operate. While the extent of our future tax liability is uncertain, our operating results, the availability of any net operating loss carryforwards, any future business combinations, and changes to tax laws and regulations are key factors that will determine our future book and taxable income.

RESULTS OF OPERATIONSResults of Operations

The following discussion should be read in conjunction with the information contained in the accompanying unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our historical results of operations summarized and analyzed below may not necessarily reflect what will occur in the futurefuture.

Three Months Ended September 30, 20222023 compared to the Three Months Ended September 30, 20212022