| Organization and Summary of Significant Accounting Policies: | Note 1 – Organization and Summary of
Significant Accounting Policies: 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. Basis of Presentation and Principles of
Consolidation The accompanying 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 results reported in these consolidated financial
statements should not be regarded as necessarily indicative of results that may be expected for 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 $(98,916,098) through December 31, 2021, and has a working capital deficit of $(3,644,301)
at December 31, 2021. 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 our management continues efforts to leverage the Company’s intellectual property through the
platform provided by the acquisition of Pro-Tech and, potentially, other acquisitions. The Company intends to meet near-term obligations
through funding under the New VPEG Note (see Note 11, Related Party Transactions 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
the expansion of Pro-Tech’s core hardbanding business through additional drilling services and the development of
additional products and services including wholesale materials, RFID enclosures and mid-pipe coating solutions. 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, and 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 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 2021 the Company received loan proceeds
of $468,600 from VPEG. As of the date of this report and for the foreseeable future, we expect to cover operating shortfalls with funding
through the New VPEG Note while we enact our strategy to become a technology-focused oilfield services company and seek additional sources
of capital. As of the date of this report the remaining amount available to the Company for additional borrowings on the New VPEG Note
was approximately $372,000. The Company is actively seeking additional capital from VPEG and potential sources of equity and/or debt financing. Use of Estimates The preparation of our consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used primarily
when accounting for depreciation and amortization expense, various common stock, warrants and option transactions, evaluation of intangible
assets, and loss contingencies. Summary of Significant Accounting Policies Cash and Cash Equivalents The Company considers all liquid investments
with original maturities of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
The Company had no cash equivalents at December 31, 2021 and December 31, 2020. Fair Value Financial Accounting Standard Board, or FASB,
Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures 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). Receivables are carried at amounts that approximate
fair value. Receivables 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. Inventories are valued at the lower of cost or net realizable value
with cost being determined on the weighted average cost method. Elements of cost in inventories include raw materials and direct labor. Supplies are valued at the lower of cost or net
realizable value; cost is generally determined by the first-in, first-out cost method. Inventories deemed to have costs greater than their
respective market values are reduced to net realizable value with a loss recorded in income in the period recognized. At December 31, 2021 and 2020, the carrying value
of the Company’s financial instruments such as accounts receivable and payables 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 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 twelve months ended December 31, 2021
and 2020, the Company recognized revenue of $815,267 and $851,393, respectively from contracts with oilfield operators. See Note 12 “ Segment
and Geographic Information and Revenue Disaggregation 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 $5,002 and $13,056
has been recorded at December 31, 2021 and 2020, respectively. The Company suffered no bad debt losses in 2021 and bad debt losses of
$26,545 in 2020. 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 December 31, 2021 and 2020, three
and four customers comprised 64.9% and 73% of the Company’s gross accounts receivables, respectively. For the years ended December
31, 2021 and 2020, four and two customers comprised 60.1% and 64%, respectively, of the Company’s total revenues. Inventory The Company’s inventory balances are stated
at the lower of cost or net realizable value on a first-in, first-out basis. Inventory consists of products purchased by Pro-Tech
for use in the process of providing hardbanding services. No impairment losses on inventory were recorded for the twelve months ended
December 31, 2021 and 2020. 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 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 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 is comprised of one reporting unit at
December 31, 2021 and 2020, and the goodwill balances of $145,149 at December of each year are included in the single reporting unit.
To date, an impairment of goodwill has not been recorded. For the year ended December 31, 2021, we 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. See Note 4, Goodwill and Other Intangible
Assets PPP Loans The Company accounts for loans issued pursuant
to the Paycheck Protection Program of the U.S. Small Business Administration as debt. The Company will continue 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. See Note 6, Notes Payable 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, which in
the case of third party suppliers is the shorter of the period over which services are to be received or the vesting period, and for
employees, directors, officers and affiliates is typically the vesting period. Share-based compensation is included in general and administrative
expenses in the consolidated statements of operations. See Note 9, Stock Options Income Taxes The Company accounts for income taxes in accordance
with ASC 740, Income Taxes, Earnings per Share Basic earnings per share are computed using the
weighted average number of common shares outstanding at December 31, 2021 and 2020, respectively. The weighted average number of common
shares outstanding was 28,037,713 at each of December 31, 2021 and 2020. Diluted earnings per share reflect the potential dilutive effects
of common stock equivalents such as options, warrants and convertible securities. Given the exercise prices of these instruments outstanding,
all potentially dilutive common stock equivalents are considered anti-dilutive. The following table outlines outstanding common
stock shares and common stock equivalents:
Years Ended
2021 2020
Common Stock Shares Outstanding 28,037,713 28,037,713
Common Stock Equivalents Outstanding
Warrants 2,648,621 2,706,847
Stock Options 211,186 211,186
Total Common Stock Equivalents Outstanding 2,859,807 2,918,033 |
