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)

VICTORY OILFIELD TECH, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada 87-0564472
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
   
3355 Bee Caves Road Suite 608, Austin, Texas 78746
(Address of principal executive offices) (Zip Code)

 

(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.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company

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 

 

  Page
  
Part I – Financial Information1
   
Item 1.Financial Statements1
 Consolidated Balance Sheets as of September 30, 20222023 (unaudited) and December 31, 202120221
 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 20222023 and 20212022 (unaudited)2
 Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2023 and 2022 and 2021 (unaudited)3
 StatementConsolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 and 2021 (unaudited)4
 Notes to Consolidated Financial Statements (unaudited)5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations15
Item 3.Qualitative and Quantitative Discussions about Market Risk3229
Item 4.Controls and Procedures3229
   
Part II – Other Information3431
   
Item 1.Legal Proceedings3431
Item 1A.Risk Factors3431
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3431
Item 3.Default Upon Senior Securities3431
Item 4.Mine Safety Disclosures3431
Item 5.Other Information3431
Item 6.Exhibits3531

 

i

 

Part IFinancial Information

 

Item 1. Consolidated Financial Statements

 

VICTORY OILFIELD TECH, INC.

CONSOLIDATED BALANCE SHEETS

 September 30, December 31,  September 30, December 31, 
 2022  2021  2023  2022 
 (Unaudited)    (Unaudited)   
ASSETS          
Current Assets          
Cash and cash equivalents $101,153  $52,908  $32,660  $73,636 
Accounts receivable, net  152,004   153,383   222,643   163,196 
Notes receivable, net  255,000   - 
Inventory  39,810   24,915   17,486   32,269 
Prepaid and other current assets  44,209   31,271   23,476   20,517 
Total current assets  337,176   262,477   551,265   289,618 
Property, plant and equipment, net  201,950   243,205   70,297   162,343 
Goodwill  145,149   145,149   145,149   145,149 
Other intangible assets, net  100,636   113,575   83,384   96,323 
Total Assets $784,911  $764,406  $850,095  $693,433 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable $113,911  $100,754  $223,695  $149,505 
Accrued and other short-term liabilities  94,268   66,826 
Accrued and other short term liabilities  69,376   62,827 
Short term advance from shareholder  180,150   180,150   128,050   180,150 
Current portion of long-term notes payable  15,817   8,772 
Convertible notes payable  255,000   - 
Current portion of long term notes payable  18,127   15,589 
Short term notes payable, net  63,500   10,000 
Short term convertible notes payable - affiliate, net  3,717,476   3,550,276   3,868,726   3,717,476 
Total current liabilities  4,121,622   3,906,778   4,626,474   4,135,547 
                
Long term notes payable, net  262,840   239,850   161,197   261,592 
Total long-term liabilities  262,840   239,850 
Total long term liabilities  161,197   261,592 
                
Total Liabilities  4,384,462   4,146,628   4,787,671   4,397,139 
                
Stockholders’ Equity                
Preferred Series D stock, $0.001 par value, 20,000 shares authorized, 8,333 shares and 8,333 shares issued and outstanding at September 30, 2022 and December 31, 2021 respectively  8   8 
Common stock, $0.001 par value, 300,000,000 shares authorized, 28,037,713 shares and 28,037,713 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively  28,038   28,038 
Preferred Series D stock, $0.001 par value, 20,000 shares authorized, 8,333 shares and 8,333 shares issued and outstanding at September 30, 2023 and December 31, 2022 respectively  8   8 
Common stock, $0.001 par value, 300,000,000 shares authorized, 28,591,513 shares and 28,037,713 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively  28,592   28,038 
Receivable for stock subscription  (245,000)  (245,000)  (245,000)  (245,000)
Additional paid-in capital  95,750,830   95,750,830   95,905,362   95,750,830 
Accumulated deficit  (99,133,427)  (98,916,098)  (99,626,538)  (99,237,582)
Total stockholders’ equity  (3,599,551)  (3,382,222)  (3,937,576)  (3,703,706)
Total Liabilities and Stockholders’ Equity $784,911  $764,406  $850,095  $693,433 

 

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

 


 

VICTORY OILFIELD TECH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 For the Three Months Ended September 30,  For the Nine Months Ended September 30,  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
 
 2022  2021  2022  2021  2023  2022  2023  2022 
Total revenue $327,573  $257,225  $1,218,485  $619,492  $350,634  $327,573  $1,203,787  $1,218,485 
                                
Total cost of revenue  237,312   144,139   701,226   356,250   137,541   237,312   554,250   701,226 
                                
Gross profit  90,261   113,086   517,259   263,242   213,093   90,261   649,537   517,259 
                                
Operating expenses                                
Selling, general and administrative  272,699   311,490   849,150   763,011   476,444   272,699   1,091,195   849,150 
Depreciation and amortization  5,483   5,126   16,227   15,379   4,313   5,483   14,890   16,227 
Total operating expenses  278,182   316,616   865,377   778,390   480,757   278,182   1,106,085   865,377 
Loss from operations  (187,921)  (203,530)  (348,118)  (515,148)  (267,664)  (187,921)  (456,548)  (348,118)
Other income (expense)                                
Other income  49,527   171,173   155,527   172,513   935   49,527   96,681   155,527 
Interest expense  (4,653)  (18,838)  (24,738)  (42,464)  (12,779)  (4,653)  (29,089)  (24,738)
Total other income (expense)  44,874   152,335   131,789   130,049   (11,844)  44,874   67,592   130,789 
Loss applicable to common stockholders $(143,047) $(51,195) $(217,329) $(385,099) $(279,508) $(143,047) $(388,956) $(217,329)
                                
Loss per share applicable to common shareholders                                
Loss per share, basic and diluted $(0.01) $(0.00) $(0.01) $(0.01) $(0.01) $(0.01) $(0.01) $(0.01)
Weighted average shares, basic and diluted  28,037,713   28,037,713   28,037,713   28,037,713 
Weighted average common stock, basic and diluted  28,154,643   28,037,713   28,076,546   28,037,713 

 

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


 

VICTORY OILFIELD TECH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 For the Nine Months Ended September 30,  For the Nine Months Ended
September 30,
 
 2022  2021  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss $(217,329) $(385,099) $(388,956) $(217,329)
Adjustments to reconcile net loss to net cash used in operating activities                
Amortization of original issue discount  15,200   29,600   13,750   15,200 
Amortization of intangible assets  12,939   12,939   12,939   12,939 
Depreciation  112,247   100,683   92,046   112,247 
Common stock issued for services  155,086   - 
Paycheck Protection Program loan forgiveness  -   (171,173)  (92,653)  - 
Changes in operating assets and liabilities:                
Other Receivables  -   48,560 
Accounts receivable  1,379   (60,268)  (59,447)  1,379 
Inventory  (14,895)  (21,752)  14,783   (14,895)
Prepaids and other current assets  (12,938)  (91,920)  (2,959)  (12,938)
Accounts payable  13,157   (59,959)  74,190   13,157 
Accrued and other short-term liabilities  27,443   82,089 
Accrued and other short term liabilities  6,549   27,443 
Net cash used in operating activities  (62,797)  (516,300)  (174,672)  (62,797)
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Investment in notes receivable  (255,000)  - 
Investment in fixed assets  (70,993)  (32,998)  -   (70,993)
Net cash used in investing activities  (70,993)  (32,998)  (255,000)  (70,993)
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from notes payable - affiliate  152,000   296,000   137,500   152,000 
Proceeds from long-term note payable  31,438   98,622 
Payments on long-term note payable  (1,403)  - 
Payment on advance from shareholder  (52,100)  - 
Payment on long-term notes payable  (5,204)  (1,403)
Proceeds from convertible notes payable  255,000   - 
Proceeds from short term notes payable  53,500   - 
Proceeds from long-term note payable, net  -   31,438 
Net cash provided by financing activities  182,035   394,622   388,696   182,035 
Net change in cash and cash equivalents  48,245   (154,676)  (40,976)  48,245 
Beginning cash and cash equivalents  52,908   192,337   73,636   52,908 
Ending cash and cash equivalents $101,153  $37,661  $32,660  $101,153 

 

 For the Nine Months Ended
September 30,
  For the Nine Months Ended
September 30,
 
 2022  2021  2023  2022 
Supplemental cash flow information:                
Cash paid for:                
Interest $24,738  $2,364  $29,089  $24,738 

 

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

 


 

VICTORY OILFIELD TECH, INC.

STATEMENTCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  

Receivable

for Stock
  Additional
Paid In
  Accumulated    
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Total Equity 
July 1, 2021 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(98,989,143) $(3,455,267)
Loss attributable to common stockholders  -   -   -          -   -   -   (51,195)  (51,195)
September 30, 2021 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(99,040,338) $(3,506,462)
  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  Receivable for Stock  Additional
Paid In
  Accumulated  Total 
  Number  Amount  Number  Amount  Subscription   Capital  Deficit  Equity 
July 1, 2022 Balance  28,037,713  $28,038   8,333  $      8  $(245,000) $95,750,830  $(98,990,380) $(3,456,504)
Loss attributable to common stockholders  -   -   -   -   -   -   (143,047)  (143,047)
September 30, 2022 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(99,133,427) $(3,599,551)

 

  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  

Receivable

for Stock
  

Additional

Paid In

  Accumulated   
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Total Equity 
July 1, 2022 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(98,990,380) $(3,456,504)
Loss attributable to common stockholders  -   -   -   -   -   -   (143,047)  (143,047)
September 30, 2022 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(99,133,427) $(3,599,551)
  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  Receivable for Stock  Additional
Paid In
  Accumulated  Total 
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Equity 
July 1, 2023 Balance  28,037,713  $28,038   8,333  $      8  $(245,000) $95,750,830  $(99,347,030) $(3,813,154)
Common stock issued for services  553,800  $554   -  $-  $-  $154,532  $-  $155,086 
Loss attributable to common stockholders  -   -   -   -   -   -   (279,508)  (279,508)
September 30, 2023 Balance  28,591,513  $28,592   8,333  $8  $(245,000) $95,905,362  $(99,626,538) $(3,937,576)

  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  Receivable for Stock  Additional
Paid In
  Accumulated  Total 
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Equity 
January 1, 2022 Balance  28,037,713  $28,038   8,333  $       8  $(245,000) $95,750,830  $(98,916,098) $(3,382,222)
Loss attributable to common stockholders  -   -   -   -   -   -   (217,329)  (217,329)
September 30, 2022 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(99,133,427) $(3,599,551)

  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  

Receivable

for Stock

  

Additional

Paid In

  Accumulated   
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Total Equity 
                         
January 1, 2021 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(98,655,239) $(3,121,363)
Loss attributable to common stockholders  -   -   -   -   -   -   (385,099)  (385,099)
September 30, 2021 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(99,040,338) $(3,506,462)
  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  Receivable for Stock  Additional
Paid In
  Accumulated  Total 
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Equity 
January 1, 2023 Balance  28,037,713  $28,038   8,333  $        8  $(245,000) $95,750,830  $(99,237,582) $(3,703,706)
Common stock issued for services  553,800  $554   -  $-  $-  $154,532  $-  $155,086 
Loss attributable to common stockholders  -   -   -   -   -   -   (388,956)  (388,956)
September 30, 2023 Balance  28,591,513  $28,592   8,333  $8  $(245,000) $95,905,362  $(99,626,538) $(3,937,576)

  Common Stock
$0.001 Par Value
  Preferred D
$0.001 Par Value
  

Receivable

for Stock

  

Additional

Paid In

  Accumulated   
  Number  Amount  Number  Amount  Subscription  Capital  Deficit  Total Equity 
January 1, 2022 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(98,916,098) $(3,382,222)
Loss attributable to common stockholders  -   -   -   -   -   -   (217,329)  (217,329)
September 30, 2022 Balance  28,037,713  $28,038   8,333  $8  $(245,000) $95,750,830  $(99,133,427) $(3,599,551)

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:

 

Asset category Useful Life
Welding equipment, Trucks, Machinery and equipment 5 years
Office equipment 5 - 7 years
Computer hardware and software 7 years

 

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: 

 

  September 30,  December 31, 
  2023  2022 
  (unaudited)    
Trucks $464,048  $464,048 
Welding equipment  285,991   285,991 
Office equipment  23,408   23,408 
Machinery and equipment  18,663   18,663 
Furniture and equipment  12,767   12,767 
Computer hardware  8,663   8,663 
Computer software  22,191   22,191 
Total property, plant and equipment, at cost  835,731   835,731 
Less – accumulated depreciation  (765,434)  (673,388)
Property, plant and equipment, net $70,297  $162,343 

 

  September 30,  December 31, 
  2022  2021 
Trucks $464,047  $393,055 
Welding equipment  285,991   285,991 
Office equipment  23,408   23,408 
Machinery and equipment  18,663   18,663 
Furniture and equipment  12,768   12,768 
Computer hardware  8,663   8,663 
Computer software  22,191   22,191 
Total property, plant and equipment, at cost  835,731   764,739 
Less -- accumulated depreciation  (633,781)  (521,534)
Property, plant and equipment, net $201,950  $243,205 

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.

  September 30, 2023  December 31, 2022 
  (unaudited)    
Pro-Tech customer relationships $129,680  $129,680 
Pro-Tech trademark  42,840   42,840 
Accumulated amortization and impairment  (89,136)  (76,197)
Other intangible assets, net $83,384  $96,323 

 

  September 30, 2022  December 31, 2021 
Pro-Tech customer relationships $129,680  $129,680 
Pro-Tech trademark  42,840   42,840 
Accumulated amortization and impairment  (71,883)  (58,945)
Other intangible assets, net $100,636  $113,575 

 

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:

Holder Date Issued Principal Amount 
Flagstaff International LLC August 11, 2023 $100,000.00 
JLP Partners August 12, 2023 $50,000.00 
Richard Ducharme August 16, 3023 $25,000.00 
Laurie Benezra August 23, 2023 $50,000.00 
Kevin Huss September 28, 2023 $30,000.00 

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.

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
Category 2022  2021  2022  2021 
             
> 5% $253,277  $200,948  $790,416  $372,488 
< 5%  74,296   56,277   428,068   247,004 
                 
  $327,573  $257,225  $1,218,485  $619,492 

  Three Months Ended September 30,  Nine Months Ended September 30, 
Category 2023  2022  2023  2022 
             
> 5% $308,975  $253,277  $394,724  $790,416 
< 5%  41,659   74,296   809,063   428,069 
                 
  $350,634  $327,573  $1,203,787  $1,218,485 

 

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: 

 

  

Three months ended
September 30,

  

Nine months ended
September 30,

 
  2022  2021  2022  2021 
Numerator:            
Net loss $(143,047) $(51,195) $(217,329) $(385,009)
Denominator                
Basic weighted average common shares outstanding  28,037,713   28,037,713   28,037,713   28,037,713 
Diluted weighted average common shares outstanding  28,037,713   28,037,713   28,037,713   28,037,713 
                 
Net loss per common share                
Basic $(0.01) $(0.00) $(0.01) $(0.01)
Diluted $(0.01) $(0.00) $(0.01) $(0.01)


  Three months ended
September 30,
  Nine months ended
September 30,
 
  2023  2022  2023  2022 
Numerator:            
Net loss $(279,508) $(143,047) $(388,956) $(217,329)
Denominator                
Basic weighted average common stock outstanding  28,154,643   28,037,713   28,076,546   28,037,713 
Diluted weighted average common stock outstanding  28,154,643   28,037,713   28,076,546   28,037,713 
                 
Net loss per share of common stock                
Basic $(0.01) $(0.01) $(0.01) $(0.01)
Diluted $(0.01) $(0.01) $(0.01) $(0.01)

 

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:

 

Cautionary Information about Forward-Looking Statements;

 

Business Overview;

 

Results of Operations;

 

Liquidity and Capital Resources;

 

Critical Accounting Policies and Estimates; and

 

Recently Adopted Accounting Standards; and

 

Recently Issued Accounting Standards.

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:

 

continued operating losses;

 

Risks associated with the Merger Agreement (see Management’s Discussion and Analysis of Financial Condition and Results of Operations-Business Overview);


adverse developments in economic conditions and, particularly, in conditions in the oil and gas industries;

 

 volatility in the capital, credit and commodities markets;

 

 our inability to successfully execute on our growth strategy;

 

 the competitive nature of our industry;

 

 credit risk exposure from our customers;

 

 price increases or business interruptions in our supply of raw materials;

 

 failure to develop and market new products and manage product life cycles;

 

 business disruptions, security threats and security breaches, including security risks to our information technology systems;

 

 terrorist acts, conflicts, wars, natural disasters, pandemics and other health crises that may materially adversely affect our business, financial condition and results of operations;

 

 failure to comply with anti-terrorism laws and regulations and applicable trade embargoes;

 

 risks associated with protecting data privacy;


 

 significant environmental liabilities and costs as a result of our current and past operations or products, including operations or products related to our licensed coating materials;

 

 transporting certain materials that are inherently hazardous due to their toxic nature;

 

 litigation and other commitments and contingencies;

 

 ability to recruit and retain the experienced and skilled personnel we need to compete;

 

 work stoppages, labor disputes and other matters associated with our labor force;

 

 delays in obtaining permits by our future customers or acquisition targets for their operations;

 

 our ability to protect and enforce intellectual property rights;

 

 intellectual property infringement suits against us by third parties;

 

 our ability to realize the anticipated benefits of any acquisitions and divestitures;

 

 risk that the insurance we maintain may not fully cover all potential exposures;

 

 risks associated with changes in tax rates or regulations, including unexpected impacts of the U.S. TCJA legislation, which may differ with further regulatory guidance and changes in our current interpretations and assumptions;

 


 our substantial indebtedness;

 

 the results of pending litigation;

 

 our ability to obtain additional capital on commercially reasonable terms may be limited;

 

 any statements of belief and any statements of assumptions underlying any of the foregoing;

 

 other factors disclosed in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission; and

 

 other factors beyond our control.

 

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:

 

our ability to successfully develop and launch new solutions and services

 

changes in buying habits of our customers

 

changes in the level of competition faced by our products

 

domestic drilling activity and spending by the oil and natural gas industry in the United States


 

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:

 

hardbanding production materials purchases

 

hardbanding supplies

 

labor

 

depreciation expense for hardbanding equipment

 

field expenses


 

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:

 

compensation and benefit costs for management, sales personnel and administrative staff, which includes share-based compensation expense

 

rent expense, communications expense, and maintenance and repair costs

 

legal fees, accounting fees, consulting fees and insurance expenses.

 

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

 

 For the Three Months Ended
September 30,
     Percentage  For the Three Months Ended
September 30,
     Percentage 
($ in thousands) 2022  2021  Change  Change  2023  2022  Change Change 
Total revenue $327.6  $257.2  $70.3   27% $350.6  $327.6  $23.0  7%
                                
Total cost of revenue  237.3   144.1   93.2   65%  137.5   237.3   (99.8)  -42%
                                
Gross profit  90.3   113.1   (22.8)  -20%  213.1   90.3   122.8   136%
                                
Operating expenses                                
Selling, general and administrative  272.7   311.5   (38.8)  -12%  476.4   272.7   203.7   75%
Depreciation and amortization  5.5   5.1   0.4   7%  4.3   5.5   (1.2)  -21%
Total operating expenses  278.2   316.6   (38.4)  -12%  480.7   278.2   202.5   73%
Loss from operations  (187.9)  (203.5)  15.6   -8%  (267.6)  (187.9)  (79.7)  42%
Other income (expense)                                
Other income  49.5   171.2   (121.7)  -71%  0.9   49.5   (48.6)  -98%
Interest expense  (4.7)  (18.8)  14.1   -75%  (12.8)  (4.7)  (8.1)  175%
Total other expense  44.8   152.3   (107.5)  -71%  (11.9)  44.8   (56.7)  -126%
Loss applicable to common stockholders $(143.1) $(51.2) $(91.9)  180% $(279.5) $(143.1) $(136.4)  95%

Total Revenue

 

Total revenue increased by $70,348,$23,061, or 27%7%, in the three months ended September 30, 20222023 as compared to the three months ended September 30, 20212022 due to an increasea decrease in the number of drilling rigs driving hardbanding and grinding revenue generated by Pro-Tech.

 


Total Cost of Revenue

 

Total cost of revenue increaseddecreased by $93,173,$99,771, or 65%42%, in the three months ended September 30, 20222023 as compared to the three months ended September 30, 20212022 due primarily to increasesdecreases in materials, direct labor, and other direct costs resulting from increasesdecreases in Pro-Tech’s revenue generating activities. Our gross profit margin decreasedincreased to 61% during the three months ended September 30, 2023 as compared to a gross profit margin of 28% during the three months ended September 30, 2022 as compared to a gross profit margin of 44% during the three months ended September 30, 2021 as a result of higher labor and material costs.decreased cost of revenue.

 

Selling, general and administrative

 

Selling, general and administrative expenses decreasedincreased by $38,791,$203,745, or 12%75%, induring the three months ended September 30, 20222023 as compared to the three months ended September 30, 2021 due2022 primarily toas a decreaseresult of increased legal expenses associated with the Proposed Merger and issuance of stock. This increase was partially offset by decreases in accountinginsurance and audit fees.consulting expenses.

 

Depreciation and amortization

 

Depreciation and amortization increaseddecreased by 7%$1,170, or 21%, in the three months ended September 30, 20222023 as compared to the three months ended September 30, 20212022 due to fixed asset additions.assets that became fully depreciated during the 2023 period.


 

Loss from Operations

 

We reported a loss from operations for the three months ended September 30, 20222023 of $(187,921)$(267,664), which was a decreasean increase of 8%$79,743, or (79.7%), compared to the operating loss from operations of $(203,530)$(187,921) for the three months ended September 30, 2021.2022 due primarily to the decrease in total cost of revenue described above.

Other income

 

Other income for the three months ended September 30, 2023 was $935 and is primarily attributable to interest income on the H2EG Note. Other income for the three months ended September 30, 2022 was $49,527 and is attributable to a refund 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 $171,173 for the three months ended September 30, 2021 was attributable to a gain on forgiveness of debt and interest recognized in connection with the forgiveness of the First PPP Loan. See Note 5, Notes Payable, to the consolidated financial statements for more information.

Interest expense

 

Interest expense decreasedincreased by $14,185,$8,126, or 75%175%, to $4,653$12,779 in the three months ended September 30, 20222023 as compared to $18,838$4,653 for the three months ended September 30, 2021.2022. The overall decreaseincrease resulted from a reduction in advances pursuant toincreased borrowing on the New VPEG Note.Note and the Arvest Loan. See Note 5, Notes Payable, to the consolidated financial statements for more information.

 

Loss Applicable to Common Stockholders

 

As a result of the foregoing, loss applicable to common stockholders for the three months ended September 30, 20222023 was $(143,047)$(279,508), or $(0.01) per share, as compared to a loss applicable to common stockholders of $(51,195)$(143,047), or $(0.00)$0.01 per share, for the three months ended September 30, 20212022 on weighted average shares of 28,037,713common stock of 28,154,643 and 28,037,713, respectively.


 

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

 

 For the Nine Months Ended September 30,    Percentage  For the Nine Months Ended
September 30,
     Percentage 
($ in thousands) 2022 2021  Change Change  2023  2022  Change  Change 
Total revenue $1,218.5  $619.5  $599.0   97% $1,203.8  $1,218.5  $(14.7)  -1%
                                
Total cost of revenue  701.2   356.3   345.0   97%  554.3   701.2   (146.9)  -21%
                                
Gross profit  517.3   263.2   254.0   96%  649.5   517.3   132.2   26%
                                
Operating expenses                                
Selling, general and administrative  849.2   763.0   86.1   11%  1,091.2   849.2   242.0   29%
Depreciation and amortization  16.2   15.4   0.8   6%  14.9   16.2   (1.3)  -8%
Total operating expenses  865.4   778.4   87.0   11%  1,106.1   865.4   240.7   28.1%
Loss from operations  (348.1)  (515.1)  167.0   -32%  (456.6)  (348.1)  (108.5)  31%
Other income (expense)                                
Other income  155.5   172.5   (17.0)  -10%  96.7   155.5   (58.8)  -38%
Interest expense  (24.7)  (42.5)  17.7   -42%  (29.1)  (24.7)  (4.4)  18%
Total other expense  130.8   130.0   0.7   1%  67.6   130.8   (63.2)  -48%
Loss applicable to common stockholders $(217.3) $(385.1) $167.8   -44% $(389.0) $(217.3) $(171.7)  79%

 

Total Revenue

 

Total revenue increaseddecreased by $598,993,$14,698, or 97%1%, in the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 20212022 due to an increasea decrease in the number of drilling rigs driving hardbanding and grinding revenue generated by Pro-Tech.

 

Total Cost of Revenue

 

Total cost of revenue increaseddecreased by $344,976,$146,976, or 97%21%, in the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 20212022 due primarily to increasesdecreases in materials, direct labor, and other direct costs resulting from increasesdecreases in Pro-Tech’s revenue generating activities. Our gross profit margin wasincreased to 54% during the nine months ended September 30, 2023 as compared to a gross profit margin of 42% during each of the nine months ended September 30, 2022 and the nine months ended September 30, 2021.as a result of decreased cost of revenue.


 

Selling, general and administrative

 

Selling, general and administrative expenses increased by $86,139,$242,045, or 11%29%, induring the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 2021 due primarily2022 as a result of accounting and audit fees related to the audit for the year ended December 31, 2022 in addition to an increase in legal fees associated with the Proposed Merger. These increases were partially offset by decreases in salesinsurance and marketing personnel and insurance costs.consulting expenses.

 

Depreciation and amortization

 

Depreciation and amortization increaseddecreased by 6%$1,337, or 8%, in the nine months ended September 30, 20222023 as compared to the nine months ended September 30, 20212022 due to fixed asset additions.assets that became fully depreciated during the 2023 period.

 

Loss from Operations

 

We reported a loss from operations for the nine months ended September 30, 20222023 of $(348,118)$(456,548), which was a decrease of 32%$79,743, or 29%, compared to the operating loss from operations of $(515,148)$(348,118) for the nine months ended September 30, 2021.2022 due primarily to the decrease in Total cost of revenue described above.

Other income

 

Other income for the nine months ended September 30, 2023 was $96,681 and is primarily attributable to partial forgiveness of our PPP loan. See Note 5, Notes Payable, to the consolidated financial statements for more information. Other income for the nine months ended September 30, 2022 was $155,527 and is attributable to a refund 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 for the nine months ended September 30, 2021 was primarily attributable to a gain on forgiveness of debt and interest recognized in connection with the forgiveness of the First PPP Loan. See Note 5, Notes Payable, to the consolidated financial statements for more information.


 

Interest expense

 

Interest expense decreasedincreased by $17,726,$4,351, or 42%18%, to $24,738$29,089 in the nine months ended September 30, 20222023 as compared to $42,464$24,738 for the nine months ended September 30, 2021.2022. The overall decreaseincrease resulted from decreases related to forgiveness of the First PPP Note and a reduction in advances pursuant toincreased borrowing on the New VPEG Note.Note and the Arvest Loan. See Note 5, Notes Payable, to the consolidated financial statements for more information.

 

Loss Applicable to Common Stockholders

 

As a result of the foregoing, loss applicable to common stockholders for the nine months ended September 30, 20222023 was $(217,329)$(388,956), or $(0.01) per share, as compared to a loss applicable to common stockholders of $(385,099)$(217,329), or $(0.01) per share, for the nine months ended September 30, 20212022 on weighted average shares of 28,037,713common stock of 28,076,546 and 28,037,713, respectively.

 

LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources

 

Going Concern

 

Historically we have experienced, and we continue to experience, net losses, net losses from operations, negative cash flow from operating activities, and working capital deficits. These conditions raise substantial doubt about our 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 we are unable to continue as a going concern.

 

Management anticipatesWe anticipate that operating losses will continue in the near term as we continue effortsintegrate the operations of H2EG upon the closing of the Proposed Merger. We intend to leverage our intellectual property through the platform providedmeet near-term obligations with private placement offerings along with cash flow generated by the acquisition of Pro-Tech and, potentially, other acquisitions. In the near term, we are relying on financing obtained from VPEG through the New VPEG Note to fund operationsHardbanding as we seek to generateincrease positive cash flow from operations. See Note 5 Notes Payable, and Note 8 Related Party Transactions, to the accompanying consolidated financial statements for additional information regarding the New VPEG Note.


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, formation activities as well as the 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, and incarefully. 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, upon the closing of 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.

Material Cash Requirements

 

Our material short-term cash requirements include recurring payroll and benefits obligations for our employees, capital and operating expenditures and other working capital needs. Working capital, defined as total current assets less total current liabilities, fluctuates depending on borrowing as well as effective management of receivables from our purchasers and payables to our vendors. We do not anticipate any material capital expenditures during the twelve months following September 30, 2022.2023. We believe that material cash requirements for operating expenditures in excess of cash provided by operations may range from $0 per month to $20,000 per month during the twelve months following September 30, 2022.2023.

 

Our long-term material cash requirements from currently known obligations consist of repayment of outstanding borrowings and interest payment obligations.

 


The following table summarizes our estimated material cash requirements for known obligations as of November 14, 2022.2023. This table does not include amounts payable under obligations where we cannot forecast with certainty the amount and timing of such payments. The following table does not include any cash requirements related to our office space in Texas or the Pro-Tech facility in Oklahoma because the office space in Texas is leased on a month-to-month basis, and the lease agreement for the Pro-Tech facility in Oklahoma is cancellable at any time by giving notice of 90 days.

 

($ in thousands) Payments Due by Period  Payments Due by Period 
Material Cash Requirements Total  <1 Year  1-3 Years  3-5 Years  >5 Years  Total  <1 Year  1-3 Years  3-5 Years  >5 Years 
Economic Injury Disaster Loan repayment $150.0  $8.8  $17.5  $17.5  $106.2  $150.0  $8.8  $17.5  $17.5  $106.2 
Paycheck Protection Program Loan (1)  98.6   -   49.3   49.3   -   5.1   2.2   2.9   -   - 
Arvest Loan  30.0   30.0   -   -   - 
Vehicle Loan  31.4   7.0   14.1   10.3   -   24.2   5.9   11.8   6.5   - 
New VPEG Note  3,717.5   3,717.5   -   -   -   3,868.7   3,868.7   -   -   - 
 $3,997.5  $3,733.3  $80.9  $77.1  $106.2  $4,078.0  $3,915.6  $32.2  $24.0  $106.2 

 

(1)As of April 18, 2023, we have applied for full forgivenessreceived notification that $92,653 of the $98,622 principal amount of this loan had been forgiven

 

We believe it will be necessary to obtain additional liquidity resources to satisfy our material cash requirements. We are addressing our liquidity needs by seeking to generate positive cash flows from operations and developing additional backup capital sources.

 

Capital Resources

 

During the nine months ended September 30, 2022, we obtained $152,000 from VPEG through the New VPEG Note.

As of the date of this Quarterly Report on Form 10-Q and for the foreseeable future, we expect 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 November 14, 2022,the date of this report, the remaining amount available to us for additional borrowings on the New VPEG Note was approximately $282,524.$131,274 and the remaining amount available for additional borrowings on the Arvest note was $0.

 

Paycheck Protection Program Loans

 

On April 15, 2020,February 1, 2021, we 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 us, dated April 14, 2020, in the principal amount of $168,800 with Arvest Bank. As of August 6, 2021, we 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, has been recorded as other income in the accompanying consolidated financial statements. The entire amount of recorded gain on forgiveness of the First PPP Loan has been 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, we 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 us, dated January 28, 2021, in the principal amount of $98,622 with Arvest Bank.


As of April 18, 2023, we 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. We have recorded the remaining principal balance of $5,969 as debt, and we 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 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 Loan is not forgiven under the PPP, we will be obligated to make equal monthly payments of principal and interest beginning after a 10-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, we may apply for forgiveness for all or a part of the Second PPP Loan. The amount of Second PPP Loan proceeds eligible for forgiveness is based on a formula established by the SBA. Subject to the other requirements and limitations on 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 we have used the entire amount of the PPP Loans 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 we 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 our: (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 us; (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 our 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 our 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 us and file suit and obtain judgment against us.

 

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, we 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, we are obligated to make equal monthly payments of principal and interest beginning December, 2021 through the maturity date of June 11, 2050. The EIDL Note may be prepaid in part or in full, at any time, without penalty.

 

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


 

The CompanyWe made interest-only payments of $0$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, 2022 and 2021, respectively.

The Company recorded interest expense of $4,266 and $4,266 related to the EIDL Note for the nine months ended September 30, 2022 and 2021, 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 us 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 us or anyone acting on our behalf; (vi) a default on any loan or agreement with another creditor, if SBA believes the default may materially affect our ability to pay the EIDL Note; (vii) a failure to pay any taxes when due; (viii) if we become the subject of a proceeding under any bankruptcy or insolvency law; (ix) if a receiver or liquidator is appointed for any part of our 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 our 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 our 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, to the consolidated financial statements for a definition and description of the New VPEG Note. The outstanding balance on the New VPEG Note was $3,868,726 as of September 30, 2023 and $3,717,476 as of December 31, 2022.

We recorded interest expense of $4,800 and $1,000 related to the New VPEG Note for the three months ended September 30, 2023 and 2022, respectively, and $13,750 and $15,200 for the nine months ended September 30, 2023 and 2022, respectively.

Vehicle Loan

 

On June 14, 2022, Pro Tech our wholly-owned subsidiary Pro-Tech Hardbanding Services, Inc. entered into a Promissory Note and Security Agreement in the amount of $31,437.60$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 $586.23 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, 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”). 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, we 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 pursuantbalances of $30,000 and $10,000, respectively, on the credit line.

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

We recorded interest expense of $1,206 and $0 related to the Arvest Loan for the three months ended September 30, 2023 and accordingly2022, respectively, and $1,799 and $0 for the principal balance was $0.


nine months ended September 30, 2023 and 2022, respectively.

 

Cash Flow

 

The following table provides detailed information about our net cash flow for the nine months ended September 30, 20222023 and 2021:2022:

 

 Nine Months Ended
September 30,
  Nine Months Ended
September 30,
 
 2022  2021  2023  2022 
Net cash used in operating activities $(62,797) $(516,300) $(174,672) $(62,797)
Net cash used in investing activities  (70,993)  (32,998)  (255,000)  (70,993)
Net cash provided by financing activities  182,035   394,622   388,696   182,035 
Net increase (decrease) in cash and cash equivalents  48,245   (154,676)
Net decrease in cash and cash equivalents  (40,976)  48,245 
Cash and cash equivalents at beginning of period  52,908   192,337   73,636   52,908 
Cash and cash equivalents at end of period $101,153  $37,661 
Cash and cash equivalent at end of period $32,660  $101,153 


 

Net cash used in operating activities for the nine months ended September 30, 2023 was $174,672. Net loss adjusted for non-cash items (depreciation and amortization, amortization of original issue discount, common stock issued for services, and loan forgiveness) used cash of $207,788. Changes in operating assets and liabilities provided cash of $33,116. The most significant uses of cash were increases in accounts receivable and decreases in prepaids and other current assets. These changes were offset by cash provided by a decrease in inventory and increases in accounts payable and accrued and other short-term liabilities.

This compares to net cash used in operating activities for the nine months ended September 30, 2022 wasof $62,797. Net loss adjusted for non-cash items (depreciation and amortization) used cash of $76,943. Changes in operating assets and liabilities provided cash of $14,146. The most significant uses of cash were increases in inventory and prepaids and other current assets. These changes were partially offset by cash provided by increases in accounts payable and accrued and other short-term liabilities and a decrease in accounts receivable.

 

This compares to netNet cash used in operatingby investing activities for the nine months ended September 30, 2021 of $516,300. Net loss adjusted for non-cash items (depreciation, amortization, and Paycheck Protection Program loan forgiveness) used cash of $413,050. Changes in operating assets and liabilities used cash of $103,250. The most significant uses of cash were increases in accounts receivable due to timing of collections, inventory due to purchases, and prepaids and other current assets, as well2023 was $255,000 as a decreaseresult of investment in accounts payable. These changes were partially offset by cash provided by a decrease in other receivables due to a refund of a receivable for tax overpayment and an increase in accrued and other short-term liabilities.

notes receivable. Net cash used in investing activities for the nine months ended September 30, 2022 was $70,993 resulting from fixed asset purchases. This compares to $32,998 used by investing activities for the nine months ended September 30, 2021 due to fixed asset purchases.

 

Net cash provided by financing activities for the nine months ended September 30, 20222023 was $182,035$388,696 and resulted from debt financing proceeds from an affiliatethe New VPEG Note of $137,500 debt financing proceeds from convertible notes payable of $255,000, debt financing proceeds from short-term notes payable of $53,500, net of payments on advance from shareholder of $52,100 and a new vehicle loan netrepayments of vehicle loan repayments.$5,204. This compares to $394,622$182,035 in net cash provided by financing activities during the nine months ended September 30, 20212022 resulting from debt financing proceeds from affiliates in addition to debt financing proceeds from the Second PPP Note.


and a new vehicle loan, net of vehicle loan repayments.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

 

Revenue Recognition

 

We recognize revenue as it satisfies contractual performance obligations by transferring promised goods or services to the customers. The amount of revenue recognized reflects the consideration we expect 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.

 

We have one revenue stream, which relates to the provision of hardbanding services by its subsidiary Pro-Tech. All performance obligations of our 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. We have reviewed our 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. We have reviewed all such transactions and recorded revenue accordingly.

 

For the three and nine months ended September, 30,2023 and 2022, and 2021, all of our revenue was recognized from contracts with oilfield operators, and we did not recognize impairment losses on any receivables or contract assets.

 

Because our contracts have an expected duration of one year or less, we have 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 us 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, we record 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. We suffered no bad debt losses in the 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, three and2022, three customers comprised 50%86% and 65%78% of our 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 our 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 our total revenue, respectively.

Notes Receivable

We have elected the fair value option for recognition of our 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. We perform a review of our 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, we recorded no change in fair value for credit losses. To date, we have recorded no actual credit losses on notes receivable. We follow an income recognition policy on all interest earned on notes receivable. Under such policy we account for all notes receivable on a non-accrual basis and defer 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 statement of operations.

 

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

  

Asset category Useful Life
Welding equipment, Trucks, Machinery and equipment 5 years
Office equipment 5 - 7 years
Computer hardware and software 7 years

 

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. We review our 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 perform 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 have determined that the Company iswe are comprised of one reporting unit at September 30, 20222023 and December 31, 2021,2022, and the goodwill balances of $145,149 at the end of each period are included in the single reporting unit. To date, an impairment of goodwill has not been recorded. For the year ended December 31, 2021,2022, we bypassed the qualitative assessment, and proceeded directly to the quantitative test for goodwill impairment.

 

Our Goodwill balance consists of the amount recognized in connection with the acquisition of Pro-Tech. Our 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.

 

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 our 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

 

From time to time, we 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, we calculate 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, Stockholder’s Equity,,to the consolidated financial statements, for further information.

 

Income Taxes

 

We account 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 per share are computed using the weighted average number of shares of common sharesstock outstanding at September 30, 20222023 and 2021,2022, respectively. The weighted average number of shares of common sharesstock outstanding was 28,037,71328,591,593 and 28,037,713, respectively, at September 30, 20222023 and September 30, 2021.2022. Diluted earnings per share reflect the potential dilutive effects of common stock equivalents such as options, warrants and convertible securities. Given theour historical and projected future losses, all potentially dilutive common stock equivalents are considered anti-dilutive.

 

Recently Adopted Accounting Standards

 

Effective January 1, 2021, we adoptedIn June 2016, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” which simplifiesNo. 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 income taxes by removing certain exceptionscredit 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 general principleslifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in Topic 740.a net presentation of the amount expected to be collected on the financial asset. We adopted ASU-2016-13 effective January 1, 2023. The adoption of ASU 2019-12 did not have a2016-13 had no material impact on our consolidated financial statements.

 

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. We adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on our consolidated financial statement presentation or disclosures.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) (ASU 2020-04), in response to the risk of cessation of the London Interbank Offered Rate (LIBOR). This amendment provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging arrangements, and other transactions that reference LIBOR. We are currently evaluating ASU 2020-04 and the impact it may have on our operating results, financial position and disclosures.


 

Item 3. Qualitative and Quantitative Discussions about Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, we have evaluated, with the participation of our chief executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022.2023. Based on this evaluation, our chief executive officer and principal financial officer determined that, because of the material weakness described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, which we are still in the process of remediating as of September 30, 2022,2023, our disclosure controls and procedures were not effective.

 

Changes in Internal Controls 

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

During the evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2022,2023, our management identified the following material weaknesses:

 

We lack sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency represents a material weakness.

 

We did not retain adequate records to support a small number of expense transactions in 2021. These were typically purchases occurring within the normal course of business, each in amounts less than $2,000 from vendors that offered substantial discounts in exchange for cash payments. In some cases, for the sake of expediency, invoices were not provided by the vendor. This resulted in a risk that could have materially impacted cost of sales and operating expenses. These deficiencies, while not necessarily material on an individual basis, aggregate to a material weakness.

We believe we lack sufficient training and oversight with respect to potential cyber security risks. We are not aware of any breaches of our information systems, nor any theft, loss, or unwanted exposure of data contained within our information systems; however, due to the risk that a material misstatement of our annual or interim financial statements may not be prevented or detected on a timely basis as a result of this control deficiency, our management has concluded that the control deficiency represents a material weakness.

 


 

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, our management has identified the steps necessary to address the material weaknesses, and through the date of this report, we continued to assess and implement remedial procedures. In order to cure the foregoing material weaknesses, the initiation of transactions, the custody of assets and the recording of transactions are performed by separate individuals to the extent possible. In addition, we will look to hire additional personnel with technical accounting expertise to further support our current accounting personnel. As necessary, we will continue to engage consultants or outside accounting firms in order to ensure proper accounting for our consolidated financial statements. We intend to implement additional preventive and detective controls, including establishment of new procedures for oversight over cyber security by our Board of Directors, employee cyber security training, and implementation of new risk assessment and incident response protocols. We also intend to provide training to our operations staff, aimed at preventing transactions for which the prospective vendor fails to provide sufficient documentation relating to such transaction.

 

We intend to complete the remediation of the material weaknesses discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

 

The lack of full-time accounting personnel and financial constraints resulting in delayed payments to our external professional services providers restricted our ability to gather, analyze and properly review information related to financial reporting in a timely manner during 2019, 2020, and the first six months of 2021. For these reasons, we were unable to timely file our quarterly reports and annual report during 2019 and 2020, and the first and second quarters of 2021.

Due to resource constraints, over a period of approximately thirty months we did not have the resources to fund sufficient staff and pay professional fees to ensure that all our reports were filed timely. However, our management has recently obtained, and continues to actively seek, additional sources of capital which allowed us to bring current our obligations to our external professional services providers. We resumed timely public reporting practices as of the third quarter of 2021.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Except for the matters described above, there have been no changes in our internal control over financial reporting during the ninethree months ended September 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 


 

Part IIOther Information

 

Item 1. Legal Proceedings

 

There were no material developments during the first nine months of fiscal year 20222023 to the legal proceedings previously disclosed in Item 3 “Legal Proceedings” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

We have not sold any equity securities during the first nine months of fiscal year 20222023 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.  

 

During the nine months ended September 30, 2022,2023, we did not repurchase any shares of our common stock. 

 

Item 3. Default Upon Senior Securities

 

None. 

 

Item 4. Mine Safety Disclosures

 

Not Applicable. 

 

Item 5. Other Information

 

We have no information to disclose that was required to be in a report on Form 8-K during the first nine months of fiscal year 20222023 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors. 

 


Item 6. Exhibits

 

Exhibit No. Description
   
3.1 Amended and Restated Articles of Incorporation of Victory Energy Corporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on November 22, 2017)
   
3.2 Certificate of Amendment to Articles of Incorporation (Name Change) (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on June 4, 2018)
   
3.3 Certificate of Designation of Series D Preferred Stock of Victory Energy Corporation (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed on August 24, 2017)
   
3.4 Amended and Restated Bylaws of Victory Energy Corporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on September 20, 2017)
   
4.1 Form of Common Stock Certificate of Victory Energy Corporation (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed on April 8, 2016)
   
4.2 Common Stock Warrant issued by Victory Energy Corporation to Visionary Private Equity Group I, LP on February 3, 2017 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on February 7, 2017)
   
4.3 Common Stock Warrant issued by Victory Oilfield Tech, Inc. to Visionary Private Equity Group I, LP on April 13, 2018 (incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q filed on November 14, 2018)
   
4.4 Common Stock Purchase Warrant issued by Victory Oilfield Tech, Inc. to Kodak Brothers All America Fund, LP on July 31, 2018 (incorporated by reference to Exhibit 4,1 to the Current Report on Form 8-K filed on August 2, 2018)
   
4.5 Common Stock Purchase Warrant issued by Victory Oilfield Tech, Inc. to Kevin DeLeon on October 25, 2019 (incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K filed on February 9, 2021).
   
10.1*4.6 Form of Convertible Promissory Note issued by Victory Oilfield Tech, Inc. to various holders during August 2023 and SecuritySeptember 2023*


10.1Merger Agreement, dated July 11, 2022 by and between Pro-Tech Hardbanding Services,25, 2023, among Victory Oilfield Tech, Inc., Victory H2EG Merger Sub Inc. and Arvest Bank.H2 Energy Group Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 26, 2023).
   
31.1* Certifications of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1* Certification of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS++ Inline XBRL Instance Document.Document
   
101.SCH++ Inline XBRL Taxonomy Extension Schema Document.Document
   
101.CAL++ Inline XBRL Taxonomy Extension Calculation Linkbase Document.Document
   
101.DEF101.DEF++++ Inline XBRL Taxonomy Extension Definition Linkbase Document.Document
   
101.LAB101.LAB++++ Inline XBRL Taxonomy Extension Label Linkbase Document.Document
   
101.PRE101.PRE++++ Inline XBRL Taxonomy Extension Presentation Linkbase Document.Document
   
104 Cover Page Interactive Data File (formatted as Inline XBRLXBLR and contained in Exhibit 101).

 

*Filed herewith.

 

Executive Compensation Plan or Agreement.

 

++XBRL (ExtensibleXBLR (Extensible Business Reporting Language) information is furnished and not filed or a part of a report for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

  


 

Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

 VICTORY OILFIELD TECH, INC.
   
Date: November 14, 20222023By:/s/ Kevin DeLeon
  Kevin DeLeon
  Chief Executive Officer, Principal Financial and Accounting Officer, and Director

 

 

36

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