WOLF ENERGY SERVICES INC. - Quarter Report: 2022 September (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

or

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

For the transition period from _____________ to ______________

Commission File Number: 0-30454

Enviro Technologies U.S., Inc.
(Exact name of registrant as specified in its charter)

408 State Hwy 135N, Kilgore, Texas 75662
(Address of principal executive offices) (Zip Code)

903-392-0948
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 ☐

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 such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards 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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: November 14, 2022, we had 18,567,083 shares of our Common Stock outstanding.

INDEX

STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the “Risk Factors” contained herein. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “EVTN,” the “Company,” “we,” “our,” “us,” and similar terms refers to Enviro Technologies U.S., Inc., a Florida corporation, and our subsidiaries. In addition, “second quarter of 2022” refers to the three months ended September 30, 2022 and “second quarter of 2021” refers to the three months ended September 30, 2021. We maintain a corporate website at www.evtn.com and www.wolf-energy.com. Unless specifically set forth to the contrary, the information which appears on our website at www.evtn.com and www.wolf-energy.com is not part of this report.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ENVIRO TECHNOLOGIES U.S., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2022 (UNAUDITED) AND MARCH 31, 2022

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

ENVIRO TECHNOLOGIES U.S., INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE SIX AND THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

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

ENVIRO TECHNOLOGIES U.S., INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

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

ENVIRO TECHNOLOGIES U.S., INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

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

ENVIRO TECHNOLOGIES U.S., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2022 AND 2021

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Enviro Technologies U.S., Inc., a Florida corporation (the “Company”), prior to September 7, 2022 was a manufacturer and provider of environmental and industrial operation technology. The Company had developed, manufactured, and sold the V-Inline Separator, a technology that efficiently separates liquid/liquid, liquid/solid or liquid/liquid/solid fluid streams with distinct specific gravities. Current and potential commercial applications and markets included mining, utilities, manufacturing, waste-to-energy among other industries.

The Company had one subsidiary, Florida Precision Aerospace, Inc., a Florida corporation (“FPA”) prior to the closing of the Exchange (defined below).

On August 23, 2022 Ecoark Holdings, Inc., a Nevada corporation (“Ecoark” or “Ecoark Holdings”) and Banner Midstream Corp. (“Banner” or “Banner Midstream”) entered into a Share Exchange Agreement (the “Agreement”) with the Company. The Agreement provided that, upon the terms and subject to the conditions set forth therein, Ecoark shall acquire 12,996,958 shares of the Company’s common stock in exchange for all the capital stock of Banner owned by Ecoark, which represents 100% of the issued and outstanding shares of the Company (the “Exchange”). Upon closing of the Agreement, Banner will continue as a wholly-owned subsidiary of the Company. On September 7, 2022, the Exchange was completed, and Banner became a wholly owned subsidiary of the Company via a reverse merger. As a result, the historical financial information of the company is that of Banner.

Banner was organized under the name Pinnacle Frac Holdings Corp, under the laws of the State of Delaware on April 2, 2018. Pinnacle Frac Holdings Corp was renamed Banner Midstream Corp on December 6, 2018.

Banner Midstream established Pinnacle Frac Sales & Service LLC dba Capstone Equipment Leasing (“Capstone”) as a limited liability company pursuant to the laws of the State of Texas on May 23, 2018, with the Company having ownership of one hundred percent of the issued and outstanding membership interests of Capstone. Capstone is currently structured as a wholly owned subsidiary of the Company. Pinnacle Frac Sales & Service LLC was renamed Capstone Equipment Leasing, LLC by the Office of the Secretary of State of Texas on October 4, 2018. Capstone commenced operations in October 2018 and is engaged in the business of procuring and financing equipment to various oilfield transportation services contractors (“owner-operators”).

Banner Midstream has two active operating subsidiaries: Pinnacle Frac Transport LLC (“Pinnacle Frac”), and Capstone Equipment Leasing LLC (“Capstone”).

Pinnacle Frac provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Capstone procures and finances equipment to oilfield transportation service contractors. These two operating subsidiaries of Banner Midstream are revenue producing entities.

In September 2022, the Company’s Board of Directors and management determined that the FPA business will be sold. As this determination represents a strategic shift that will have a major effect on the Company’s operations and financial results, in accordance with ASC 205-20-45-1E, the Company has reclassified FPA’s assets and liabilities as held for sale and presented the results of operations of FPA as discontinued operations, and when FPA is sold, will recognize a gain or loss on disposal.

On September 22, 2022, the Board of Directors approved a change to the Company’s fiscal year from December 31 to March 31, as a result of the Exchange to conform the Company’s year end to Banner’s year end.

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.

As the acquisition of Banner resulted in the owner of Banner gaining control over the combined entity after the transaction, and the shareholders of the Company continuing only as passive investors, the transaction was not considered a business combination under the ASC. Instead, this transaction was considered to be a capital transaction of the legal acquiree (Banner) and was equivalent to the issuance of shares by Banner for the net monetary assets of the Company accompanied by a recapitalization. As a result, the historical balances represent Banner. See Note 2, “Reverse Merger”.

The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as well as the Banner audited financial statements that are reflected in Form 8-K/A filed by the Company on October 31, 2022. Therefore, the interim condensed consolidated financial statements should be read in conjunction with those reports. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year due to various factors.

Principles of Consolidation

The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, all of which have a year end of March 31. All intercompany accounts, balances and transactions have been eliminated in the consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates include, but are not limited to, management’s estimate of provisions required for uncollectible accounts receivable, impaired value of equipment and intangible assets, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes, to present these consolidated financial statements on a standalone basis and determination of the fair value of stock awards.

Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all the following:

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The standalone selling price is the price at which the Company would sell a promised service separately to a customer. The relative selling price for each performance obligation is estimated using observable objective evidence if it is available. If observable objective evidence is not available, the Company uses its best estimate of the selling price for the promised service. In instances where the Company does not sell a service separately, establishing standalone selling price requires significant judgment. The Company estimates the standalone selling price by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time.

The Company recognizes revenue upon satisfaction of its performance obligation at either a point in time or over time in accordance with ASC 606-10-25.

The Company accounts for incremental costs of obtaining a contract with a customer and contract fulfilment costs in accordance with ASC 340-40, Other Assets and Deferred Costs. These costs should be capitalized and amortized as the performance obligation is satisfied if certain criteria are met. The Company elected the practical expedient, to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less, and expenses certain costs to obtain contracts when applicable. The Company recognizes an asset from the costs to fulfill a contract only if the costs relate directly to a contract, the costs generate or enhance resources that will be used in satisfying a performance obligation in the future and the costs are expected to be recovered. The Company recognizes the cost of sales of a contract as expense when incurred or when a performance obligation is satisfied. The incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained, are not considered recoverable, or the practical expedient applies.

The Company recognizes revenue for their proportionate share of revenue when: (i) the Company receives notification of the successful delivery of a load of frac sand or other material to a buyer; (ii) the buyer will provide a fixed price based on distance between origination and destination point; and (iii) cash is received within one business day from the factoring agent.

Cost of sales for Banner includes all direct expenses incurred to produce the revenue for the period. This includes, but is not limited to, direct employee labor, direct contract labor and fuel.

Revenue under master service agreements is recorded upon the performance obligation being satisfied. Typically, the satisfaction of the performance obligation occurs upon the frac sand load being delivered to the customer site and this load being successfully invoiced and accepted by the Company’s factoring agent. 

Accounts Receivable and Concentration of Credit Risk

The Company considers accounts receivable, net of allowance for doubtful accounts, to be fully collectible. The allowance is based on management’s estimate of the overall collectability of accounts receivable, considering historical losses, credit insurance and economic conditions. Based on these same factors, individual accounts are charged off against the allowance when management determines those individual accounts are uncollectible. Credit extended to customers is generally uncollateralized, however credit insurance is obtained for some customers. Past-due status is based on contractual terms.

For Banner, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent for both with and without recourse. Banner receives an advance from the factoring agent of 98% of the amount invoiced to the customer within one business day. The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 2% finance charge by the factoring agent, and realizes cash for the 98% net proceeds received.

Fair Value Measurements

ASC 820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs: Instruments with primarily unobservable value drivers.

The carrying values of the Company’s financial instruments such as cash, accounts payable, and accrued expenses approximate their respective fair values because of the short-term nature of those financial instruments.

Impairment of Long-lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Earnings (Loss) Per Share of Common Stock

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings (loss) per share (“EPS”) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. The Company as of and for the six months ended September 30, 2022 and 2021 had no common stock equivalents. 

Recently Issued Accounting Standards

The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

Liquidity

For the six months ended September 30, 2022 and 2021, the Company had a net loss from continuing operations of ($5,823,454) and ($285,427), respectively, has a working capital deficit of $1,240,136 and $10,384,549 as of September 30, 2022 and March 31, 2022, and has an accumulated deficit as of September 30, 2022 of $(8,582,227). As of September 30, 2022, the Company has $430,664 in cash and cash equivalents.

Banner has historically relied on Ecoark to provide the necessary capital to sustain its operations. The Company has included cost allocations as noted herein to reflect the operations as if they were a standalone entity.

The financial statements of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. The financial statements of the Company do not include any adjustments that may result from the outcome of the uncertainties.

The Company plans include the raising of capital through a potential offering.

Impact of COVID-19

COVID-19 may continue to affect the economy and the industries in which we operate, depending on the vaccine and booster rollouts and the emergence of virus mutations.

COVID-19 did not have a material effect on the Statements of Operations or the Balance Sheets for the six months ended September 30, 2022 and 2021.  

COVID-19 has contributed to the supply chain disruptions, which have not yet had a material effect for the Company. The Company will continue to monitor the supply chain shortages affecting the world.

Because the federal government and some state and local authorities are reacting to the variants of COVID-19, it is creating uncertainty on whether these actions could disrupt the operation of the Company’s business and have an adverse effect on the Company. The extent to which the COVID-19 outbreak may impact the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

NOTE 2: REVERSE MERGER

The acquisition of Banner was considered a reverse merger. In accordance with ASC 805-40-45-1, the consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (Enviro Technologies U.S., Inc.) but described in the notes to the financial statements as a continuation of the financial statements of the legal subsidiary (Banner), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent. Comparative information presented in the consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent.

Under ASC 805-40-45-2, the consolidated financial statements represent the continuation of the legal subsidiary except for the capital structure, as follows:

The Company acquired Banner for 12,996,958 shares of common stock valued at $5,328,753.

On September 7, 2022, the Company completed its acquisition of Banner. As a result of the Exchange, 100% of the outstanding shares of common stock of Banner were acquired by the Company and Banner is now a wholly owned subsidiary of the Company. In accordance with the terms of the Exchange, at the effective time of the Exchange, each outstanding share of the common stock of Banner was acquired by the Company in consideration of 12,996,958 shares of Common Stock of the Company. This exchange of shares and the resulting controlling ownership of Banner constitutes a reverse acquisition resulting in a recapitalization of Banner and purchase accounting being applied to Enviro Technologies U.S., Inc. under ASC 805 due to Banner being the accounting acquirer and Enviro Technologies U.S., Inc. being deemed an acquired business. This requires financial reporting from the Exchange close date forward to reflect only the historic consolidated results of Banner and to include the consolidated results for Enviro Technologies U.S., Inc. from September 7, 2022 forward.

The primary reason Banner consummated the Exchange with Enviro Technologies U.S., Inc. was the opportunity for the Banner subsidiary previously wholly owned by Ecoark to immediately become a standalone public company without the process of doing its own initial public offering, affording it the opportunity to more quickly raise capital. Following the closing of the Exchange and during the quarterly period ended September 30, 2022, management of the Company determined to discontinue the historical and existing business of Enviro Technologies U.S., Inc.

The estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by Banner of Enviro Technologies U.S., Inc. via the reverse acquisition:

Purchase Price Allocation of Enviro Technologies U.S., Inc.

This allocation is based on management’s estimated fair value of the Enviro Technologies U.S., Inc. assets and liabilities at September 7, 2022. Enviro Technologies U.S., Inc.’s net liabilities were derived from a total value of $2,283,751, based on 5,570,125 shares of common stock on September 7, 2022 and the price of $0.41 per share which was a price on September 6, 2022. The Company impaired the goodwill effective with the Exchange on September 7, 2022, as they had decided at that time to sell the FPA business.

The following pro forma balance sheet reflects the details of the March 31, 2022 consolidated balance sheet as presented in the Company’s financial statements as a result of the reverse merger.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2022

The consolidated statements of operations and cash flows represent the operations of Banner for the six months ended September 30, 2022 and 2021 and include cost allocations from Banner’s former parent Ecoark as discussed below.

Cost Allocations

The accompanying consolidated financial statements and footnotes of Banner Midstream Corp. have been prepared in connection with the closing of the Exchange and have been derived from the consolidated financial statements and accounting records of Ecoark operated on a standalone basis during the periods presented and were prepared in accordance with accounting principles generally accepted in the United States of America.

The consolidated financial statements reflect allocations of certain Ecoark corporate, infrastructure and shared services expenses, including centralized research, legal, human resources, payroll, finance and accounting, employee benefits, real estate, insurance, information technology, telecommunications, treasury, and other income and expenses for interest expense on debt that portions were used for Banner Midstream, changes in derivative liabilities on the books of Ecoark for warrants granted in offerings of which proceeds went towards the operations of Banner Midstream, and conversions of debt. Where possible, these charges were allocated based on direct usage, with the remainder allocated on a pro rata basis of headcount, asset, or other allocation methodologies that are considered to be a reasonable reflection of the utilization of services provided or the benefit received by the Company during the periods presented pursuant to SAB Topic 1.B.1. The allocations may not, however, reflect the expense the Company would have incurred as a standalone company for the periods presented. These costs also may not be indicative of the expenses that the Company will incur in the future or would have incurred if the Company had obtained these services from a third party.

Management believes the assumptions underlying our financial statements, including the assumptions regarding the allocation of general corporate expenses from Ecoark are reasonable. Nevertheless, our financial statements may not include all actual expenses and income that would have been incurred had we operated as a standalone company during the periods presented and may not reflect our results of operations, financial position and cash flows had we operated as a standalone company during the periods presented.

Actual costs that would have been incurred if we had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

NOTE 3: REVENUE

The Company recognizes revenue when it transfers promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.

The following table disaggregates the Company’s revenue by major source for the six months ended September 30:

There were no significant contract asset or contract liability balances for all periods presented. The Company elected the practical expedients in paragraphs 606-10-50-14 and 50-14A and does not disclose the amount of transaction price allocated to remaining performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed, or variable consideration related to future service periods.

Collections of the amounts billed are typically paid by the customers within 30 to 60 days.

NOTE 4: PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of September 30, 2022 and March 31, 2022, all of which was acquired from Banner in the Agreement on September 7, 2022. All property and equipment held prior to the Agreement has been reclassified to held for sale.

As of September 30, 2022, the Company performed an evaluation of the recoverability of these long-lived assets. The analysis resulted in no impairment as of related to these assets.

On April 1, 2021, the Company placed back in service equipment of $201,388 with accumulated depreciation of $7,484, which were part of discontinued operations related to Pinnacle Vac. These assets are equipment related to Capstone who is servicing the debt related to the assets.

In February 2022, the Company traded in a vehicle valued at $51,806 for a new vehicle valued at $91,132.

In May 2022, the Company sold $1,530,024 of fixed assets for $580,000.

Depreciation expense for the six and three months ended September 30, 2022 and 2021:

NOTE 5: INTANGIBLE ASSETS

Intangible assets consisted of the following as of September 30, 2022 and March 31, 2022, all of which was acquired from Banner in the Agreement on September 7, 2022:

In the acquisition of Banner Midstream, by Ecoark Holdings, the intangible assets acquired consisted of customer relationships and non-compete agreements valued at $2,350,000. The estimated useful lives of the customer relationships are ten years based on the estimated cash flows from those customer contracts, and the estimated useful lives of the non-compete agreement is five years amortized over a straight-line method. As of September 7, 2022, $1,604,262 in total was acquired from Banner Midstream.

Management determined that upon the acquisition by the Company, these assets would continue to be amortized as there have been no changes or evidence of impairment.

Amortization expense for the six and three months ended September 30, 2022 and 2021:

The following is the future amortization of the intangibles as of September 30:

NOTE 6: ACCRUED LIABILITIES

Accrued liabilities consisted of the following: 

NOTE 7: LONG-TERM DEBT

Long-term debt consisted of the following as of September 30, 2022 and March 31, 2022. All of the long-term debt (a – e) in the chart below was repaid by Banner prior to the acquisition by the Company on September 7, 2022. For a full description of the debt, see the Ecoark Holdings SEC Form 10-K filed on July 7, 2022.

Interest expense on long-term debt during the six months ended September 30, 2022 and 2021 are $15,424 and $38,562, respectively.

FPA entered into a Payroll Protection Plan (PPP) loan with Bank of America and an EIDL loan with the Small Business Administration dated May 4, 2020 and June 23, 2020, respectively in the amounts of $111,971 and $150,000, respectively.

These loans are reflected in current and long-term liabilities held for sale as of September 30, 2022.

NOTE 8: NOTES PAYABLE

On August 23, 2022, prior to the closing of the Exchange, the Company had been advanced certain amounts by the former directors/management and the former directors/management had converted accrued compensation to both convertible and non-convertible promissory notes as reflected below.

Interest expense on the notes payable during the six months ended September 30, 2022 and 2021 are $6,525 and $0, respectively, and $6,525 and $0 for the three months ended September 30, 2022 and 2021, respectively.

NOTE 9: STOCKHOLDERS’ EQUITY (DEFICIT)

The Company has 7,250,000 shares of preferred stock and 250,000,000 shares of common stock authorized at $0.001 par value per share, and there were 18,567,083 and 12,996,958 common shares issued and outstanding at September 30, 2022 and March 31, 2022, respectively, and no shares of preferred stock issued and outstanding, respectively.

In September 2022, the Company issued 12,996,958 shares of common stock to acquire Banner per the Agreement. The shares were valued at $0.41 per share ($5,328,753) as that was the value per share of the common stock at closing.

There were no equity transactions for the six months ended September 30, 2021.

Stock Options

As of September 30, 2022, there remains 10,000 fully vested stock options that expire November 2023 at a $0.10 strike price. There is no stock-based compensation for the six-month and three-month periods ended September 30, 2022 and 2021. The intrinsic value of these options at September 30, 2022 is $2,300.

NOTE 10: CONCENTRATIONS

Customer Concentration. One customer, accounted for more than 10% of the accounts receivable balance at each of September 30, 2022 and March 31, 2022 for a total of 93% and 98% of accounts receivable, respectively. In addition, three and two customers represent approximately 81% and 98% of total revenues for the Company for the six months ended September 30, 2022 and 2021, respectively.

The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.

NOTE 11: LEASES

The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of April 1, 2019 and will account for their leases in terms of the right of use assets and offsetting lease liability obligations under this pronouncement. The Company recorded these leases at present value, in accordance with the standard, using a discount rate between 2.5% and 11.36%. The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company used the initial terms ranging between 42 and 60 months.

Upon the election by the Company to extend the lease for additional years, that election will be treated as a lease modification and the lease will be reviewed for re-measurement. The current right of use assets and lease liabilities were acquired by the Company on September 7, 2022 per the Agreement. All prior right of use assets and lease liabilities prior to this date are now reflected in assets and liabilities held for sale.

The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard did not result in an adjustment to retained earnings for the Company.

As of September 30, 2022, the value of the unamortized lease right of use asset for the operating leases is $27,959 (through maturity in February 2024). As of September 30, 2022, the Company’s lease liability was $27,959 from operating leases.

Total Lease Cost

Individual components of the total lease cost incurred by the Company is as follows:

NOTE 12: DISCONTINUED OPERATIONS

In September, 2022, the Company’s Board of Directors and management after the acquisition of Banner, determined that the FPA business will be sold. As this determination represents a strategic shift that will have a major effect on the Company’s operations and financial results, in accordance with ASC 205-20-45-1E, the Company has reclassified FPA’s assets and liabilities as held for sale and presented the results of operations of FPA as discontinued operations, and when FPA is sold, will recognize a gain or loss on disposal.

Current assets as of September 30, 2022 and March 31, 2022 – Discontinued Operations:

Non-current assets as of September 30, 2022 and March 31, 2022 Discontinued Operations: 

Current liabilities as of September 30, 2022 and March 31, 2022 –Discontinued Operations:

Non-current liabilities as of September 30, 2022 and March 31, 2022 –Discontinued Operations:

The Company reclassified the following operations to discontinued operations for the six and three months ended September 30, 2022 and 2021, respectively.

NOTE 13: SUBSEQUENT EVENTS 

There have been no subsequent events to September 30, 2022.

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

The following discussion of our financial condition and results of operations for the three and six months ending September 30, 2022 and 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Statement Regarding Forward Looking Information in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

Effective September 7, 2022 (the “Closing Date”) the Company completed a Share Exchange Agreement (the “Closing”) with Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and Ecoark Holdings, Inc., a Nevada corporation (“Ecoark”) and the sole shareholder of Banner Midstream (the “Agreement”). On the Closing Date Enviro acquired 100% of the issued and outstanding shares of Banner Midstream in exchange for 12,996,958 shares of the Company’s common stock (the “Exchange”). Effective on the Closing Date, Banner Midstream is a wholly-owned subsidiary of the Company. Immediately following the Closing, Ecoark owns approximately 70% of the issued and outstanding shares of Enviro common stock. Ecoark is quoted on the Nasdaq Capital Market under the symbol “ZEST”. At the Closing Jimmy R. Galla was appointed Chief Executive Officer and Chief Financial Officer of the Company. Following the Closing, Raynard Veldman and John A. DiBella resigned as directors of the Company and John A. DiBella resigned as Chief Executive Officer and Chief Financial Officer of the Company. Mr. DiBella continues to serve as the sole officer of Florida Precision Aerospace, Inc., a wholly owned subsidiary of the Company (“FPA”).

The Exchange was accounted for as a reverse acquisition. No cash was paid relating to the acquisition. As the acquisition of Banner Midstream resulted in the owners of Banner Midstream gaining control over the combined entity after the transaction, and the shareholders of the Company continuing only as passive investors, the transaction was not considered a business combination under ASC 805. Instead, this transaction was considered to be a capital transaction of the legal acquiree (Banner Midstream) and was equivalent to the issuance of shares by Banner Midstream for the net monetary assets of the Company accompanied by a recapitalization. As a result, the financial information in this report is that of Banner Midstream.

Pursuant to the Closing, the Company changed its fiscal year to March 31 from December 31 as March 31 was the year end for Banner Midstream. In September 2022, following the Closing, management of the Company determined to reclassify to discontinued operations the activity related to FPA.

Banner Midstream has two operating subsidiaries: Pinnacle Frac Transport LLC (“Pinnacle Frac”) and Capstone Equipment Leasing LLC (“Capstone”). Pinnacle Frac provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Capstone procures and finances equipment to oilfield transportation service contractors.

Pinnacle Frac provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Its transportation services entail using third party drivers who assist in transporting sand and related materials to customers’ locations for the customers’ hydraulic fracturing, or fracking. The logistics services Pinnacle Frac provides for its customers’ fracking and drilling enterprises, include the operation of a 24/7 dispatch service center based in Texas through which Banner Midstream dispatches the trucks for hauling frac sand and related equipment. Pinnacle Frac uses independent third-party owner-operators of trucks to service its customers in their fracking operations by transporting materials, mainly frac sand. Its transportation and logistics services operations are primarily centered in the Southern United States, although Banner Midstream also occasionally services fracking operations in the Northeastern United States.

Pinnacle Frac uses a third party’s licensed software known as “Sandbox” to monitor and execute its transportation and logistics operations. Use of this service offers the following benefits for customers and other industry participants: reduced road traffic; reduced personnel on frac site; and eliminate silica dust particles.

By operating a call center and using specialized licensed software to meet customers’ demand for timely delivery and movement of fracking materials, Pinnacle Frac facilitates customers’ fracking operations through the life cycle of the drilling process.

Hydraulic fracturing, or fracking, is a process that creates fractures extending from the well bore into the rock formation to enable natural gas or oil contained in the rock to move more easily from the rock pores to a production conduit, or an opening at the surface designed to allow for extraction of the energy resource. The hydraulic fracturing technique is used to enable the extraction of natural gas or oil from shale and other forms of “tight” rock, or in other words, impermeable rock formations that lock in oil and gas and make fossil fuel production difficult. The process entails blasting water, chemicals, and sand into these formations at pressures high enough to crack the rock in which the targeted resources is embedded, allowing the once-trapped gas and oil to flow to the surface.

Because the process is highly reliant on an ample supply of sand and other materials, Pinnacle Frac capitalizes on this demand by helping its customers timely supply the materials to the drilling site in sufficient quantities to complete the process. Banner Midstream’s customers consist of oil and gas drilling to which Banner Midstream may be the prime contractor, and third party contractors assisting with another party’s drilling operation for which Banner Midstream serves as the subcontractor.

Due to concerns surrounding health, safety and environmental, or HSE, impacts of hydraulic fracturing, Pinnacle Frac takes an active role in assessing occupational risk and finding methods to better manage these issues. To further these efforts, Banner Midstream has implemented an HSE program which consists of the following key features aimed at avoiding, preventing, detecting and mitigating certain hazards that are inherent in operating as a participant in the hydraulic fracturing field: Jobs Safety Analysis (JSA) Program; Near-Miss Reporting System; and Accident Reporting System.

All programs are designed with the purpose of mitigating the risk of future safety incidents, while also ensuring that when rare instances occur when a safety incident does occur, that Banner Midstream has a plan to address in a consistent, formal manner to ensure the utmost safety for its employees and contractors. To enhance safety, each of Pinnacle Frac employee and contractor are put through a safety program to meet the needs of its customers while maintaining adequate safety protocols. Through this system, workers gain knowledge of how to maintain optimum work conditions and be prepared for the variety of potential challenges that may arise. Pinnacle Frac monitors performance under its HSE program throughout the year to evaluate its goals are being met or address any concerns in this regard should they arise.

Going Concern 

For the six months ended September 30, 2022 and 2021, the Company had a net loss from continuing operations of ($5,823,454) and ($285,427), respectively, has a working capital deficit of $1,240,136 and $10,384,549 as of September 30, 2022 and March 31, 2022, and has an accumulated deficit as of September 30, 2022 of $(8,582,227). The report of our independent registered public accounting firm on our consolidated financial statements for the year ended March 31, 2022 filed as an exhibit to the Company’s Amendment No. 1 to Form 8-K filed on October 31, 2022 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our working capital deficit, accumulated deficit and negative cash flows from operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.

RESULTS OF OPERATIONS FOR CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Revenue

The following table shows revenues for the six months ended September 30, 2022 and 2021:

Revenues for the six months ended September 30, 2022 were $10,271,113 as compared to $9,798,044 for the six months ended September 30, 2021. Increase of 4.8% due to an increase in load counts and higher fuel surcharges.

Cost of Revenues and Gross Profit

The following table shows the costs of revenues for the six months ended September 30, 2022 and 2021:

Cost of revenues for six months ended September 30, 2022 were $8,287,616 as compared to $6,699,325 for same period in prior year. Costs were higher primarily due to costs related to independent third-party owner-operator trucks, insurance, and higher fuel costs. These increased costs drove a decrease in gross profit margins to 19% in six months ended September 30, 2022 compared to 32% in six months ended September 30, 2021.

Operating Expenses

The following table shows operating expenses for the six months ended September 30, 2022 and 2021:

Total operating costs increased by approximately 31% for the six months ended September 30, 2022 compared to same period of prior year. The increase was primarily due to $3,613,144 impairment costs of goodwill on the effective date of the Exchange on September 7, 2022, offset by $872,354 lower SG&A costs primarily related to the home office allocations in prior year and none in current year and an $819,741 lower salary and salary related costs.