10-K: Victory Clean Energy Completes Merger, Shifts Focus to Green Hydrogen

Victory Clean Energy, formerly Victory Oilfield Tech, has completed a merger with H2 Energy Group and divested its oilfield services business, pivoting to focus on green hydrogen production.

Summary

• Victory Clean Energy, previously Victory Oilfield Tech, has transitioned into a green hydrogen company following a merger with H2 Energy Group on January 1, 2024.
• The company divested its oilfield services subsidiary, Pro-Tech Hardbanding Services, on the same date.
• Victory Clean Energy aims to develop and implement low-cost, sustainable energy solutions, particularly in the transportation, power generation, and industrial sectors.
• The company believes its TrueGreen Hydrogen production solutions will provide clean, reliable, and cost-effective energy.
• The global hydrogen generation market is projected to reach $219.8 billion by 2030, with the U.S. market estimated at $17.5 billion in 2022.
• The company's technology is based on biomass pyrolysis, which it claims is more cost-effective than electrolysis.
• The company is initially targeting the heavy transport market in California, which is mandated to eliminate diesel-powered vehicles by 2035.
• The company's business model focuses on partnerships where the partner provides funding and local relationships, while H2EG provides technology and operational expertise.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is pivoting to a promising sector with a potentially disruptive technology, it also faces significant financial challenges, internal control weaknesses, and a competitive landscape. The company's history of losses and going concern issues temper the positive outlook.

Positives

• The company is focusing on the rapidly growing green hydrogen market.
• The company's technology is claimed to be more cost-effective than traditional electrolysis.
• The company is targeting a market with strong regulatory tailwinds in California.
• The company's modular and scalable facilities allow for flexible deployment.
• The company's technology is not dependent on the variability of sun or wind, providing a baseload solution.
• The company's technology has a negative carbon index when using energy crops.

Negatives

• The company has a history of net losses and negative cash flow.
• The company has a working capital deficit.
• The company's disclosure controls and procedures were not effective as of December 31, 2023.
• The company lacks sufficient segregation of duties within accounting functions.
• The company lacks sufficient training and oversight with respect to potential cyber security risks.
• The company's management has identified material weaknesses in internal control over financial reporting.

Risks

• The company has a history of operating losses and may continue to experience losses.
• The company's ability to continue as a going concern is uncertain.
• The company may not be able to successfully execute its growth strategy.
• The company faces competition from other energy sources and technologies.
• The company's business is subject to various federal, state, and local regulations.
• The company's ability to obtain additional capital on commercially reasonable terms may be limited.
• The company has identified material weaknesses in its internal controls.

Future Outlook

The company anticipates operating losses in the near term as it integrates the operations of H2EG. The company intends to meet near-term obligations with private placement offerings and is developing additional capital sources to execute its growth plan involving the use of proprietary technology to produce low-cost Green Hydrogen from a wide variety of biomass sources.

Management Comments

• The newly combined company is expected to benefit from the synergies of both businesses, leveraging Victory's extensive experience in energy technology markets to commercially deploy H2EGs competitive Green Hydrogen solutions.
• Management expects that Green Hydrogen will have a growth rate an order of magnitude versus Blue while Grey Hydrogen will decline in use as Blue and Grey reach price parity with Grey.
• H2 Energy Group mission is to provide the lowest cost Green Hydrogen in the marketplace.
• Management believes our plans, upon the closing of the Proposed Merger, help mitigate the substantial doubt that we are a going concern.

Industry Context

The company's shift to green hydrogen aligns with the global trend towards decarbonization and renewable energy. The hydrogen market is expected to grow significantly, driven by increasing interest in fuel cell vehicles, power generation, and government support for clean energy. The company's focus on biomass pyrolysis positions it as a potential competitor in the low-cost green hydrogen production space.

Comparison to Industry Standards

• The document mentions that the U.S. Department of Energy estimates that solar photovoltaic-based electrolysis hydrogen production costs approximately $6.09/kg, while wind-to-hydrogen costs $3.74 to $5.86 per kilogram unsubsidized.
• The company claims that its biomass-based pyrolysis process produces green hydrogen at a significantly lower cost than electrolysis, but does not provide specific cost figures for comparison.
• The document notes that the global hydrogen generation market size was valued at USD 141.3 billion in 2022 and is expected to reach USD 219.8 billion by 2030, indicating a significant growth opportunity.
• The company identifies several competitors in the electrolysis and pyrolysis space, including Plug Power, ITM Power, NEL Hydrogen, Raven, and Mote, suggesting a competitive landscape.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in a lawsuit filed in 2010 related to an investment in oil wells, with a final judgment entered in 2021. There was no further activity related to this case during the year ended December 31, 2023.

Related Party Transactions

• The company received a short-term non-interest bearing advance from Inspire Diagnostics, an affiliated entity, in the amount of $33,500, which was repaid in full on December 5, 2023.
• The company has a loan agreement with Visionary Private Equity Group I, LP (VPEG), which has been amended multiple times, with an outstanding balance of $3,868,726 as of December 31, 2023.

Stakeholder Impact

• Shareholders: The merger and shift to green hydrogen may impact shareholder value, with potential for growth but also significant risks.
• Employees: The company has six full-time employees as of May 15, 2024, and the merger may lead to changes in roles and responsibilities.
• Customers: The company is targeting new customers in the green hydrogen market, particularly in the heavy transport sector.
• Creditors: The company has significant debt obligations, including convertible notes and related party loans.

Next Steps

• The company will focus on developing and implementing its green hydrogen technology.
• The company will seek to raise additional capital through private placements and preferred equity financing.
• The company will work to remediate the identified material weaknesses in its internal controls.
• The company will target the heavy transport market in California as its initial focus.

Key Dates

Keywords

Green Hydrogen, Pyrolysis, Biomass, Renewable Energy, Heavy Transport, Decarbonization, Electrolysis, Fuel Cells, Energy Storage, Clean Energy