WOLF ENERGY SERVICES INC. - Annual Report: 2023 (Form 10-K)

PART I

Throughout this Annual Report on Form 10-K (this “Report”), the terms “Wolf Energy,” the “Company,” “we,” “us,” “our,” “registrant,” and “Company” refer to Wolf Energy Services Inc., a Florida corporation. On January 17, 2023, we effected a forward split of our outstanding and authorized shares of common stock pursuant to which each one share of common stock was divided into and became four shares of common stock. All share numbers set forth in this Report give effect to the forward split.

Cautionary Note Regarding Forward Looking Statements

This Report contains, in addition to historical information, certain forward-looking statements, that includes information relating to future events, future financial performance, strategies, business opportunities, expectations including our goals and projections, the expected results from and trends and developments in our transportation and logistics activities, future plans for and anticipated transactions and relationships with respect to transportation and logistics operations, our working capital needs, potential financings through the sale of our common stock or other securities, the subsequent use and sufficiency of the proceeds from any capital raising methods we may undertake to fund our operations, our further development and implementation of our business plan and our ability to locate sources of capital necessary to meet our business needs and objectives. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “would,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Report or incorporated herein by reference.

You should read this Report and the documents we have filed as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this Report or in any document incorporated herein by reference is accurate as of any date other than the date on the front cover of those documents.

Risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this Report under “Item 1A. - Risk Factors.”

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Report particularly our forward-looking statements, by these cautionary statements.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. Set forth below is a summary of the principal risks we face:

Overview

Wolf Energy is a holding company which operates primarily in the transportation and logistics services business serving hydraulic fracking companies and assisting in their operations through Banner. On February 1, 2023, we amended our articles of incorporation to change our corporate name from “Enviro Technologies U.S., Inc.” to “Wolf Energy Services Inc.” to better reflect our business and operations.

Reverse Merger Transaction

Effective September 7, 2022, the Company completed a Share Exchange Agreement with Banner Midstream Corp., a Delaware corporation (“Banner Midstream”) and Ecoark Holdings, Inc., a Nevada corporation now known as BitNile Metaverse, Inc. (“BitNile”) and the sole shareholder of Banner Midstream, pursuant to which we acquired 100% of the issued and outstanding shares of Banner Midstream in exchange for 51,987,832 shares of the Company’s common stock (the “Exchange”). As a result of the Exchange, Banner Midstream became a wholly-owned subsidiary of the Company. Immediately following the Exchange, BitNile owned approximately 70% of the issued and outstanding shares of Wolf Energy common stock. At the closing of the Exchange 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. As a result, the historical financial information of the Company is that of Banner Midstream. The transaction was accounted for as a reverse merger whereby Banner Midstream is considered the accounting acquirer. We plan to distribute (the “Spin-Off”) 51,987,832 shares of our common stock held by BitNile (the “Spin-Off Shares”) to the record shareholders of BitNile as of September 30, 2022.

In connection with the Exchange, 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 of the Exchange, management of the Company determined to reclassify to discontinued operations the activity related to Florida Precision Aerospace, Inc. (FPA). FPA 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.

Principal Operations

The Company operates through Banner Midstream which 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. Historically BitNile provided us with various corporate services. Following the Exchange, BitNile had no obligation to provide us with assistance. Accordingly, we need to provide internally or obtain from unaffiliated third parties the services we historically receive from BitNile. We may be unable to replace these services on terms and conditions as favorable as those we receive from BitNile. We may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently or may incur additional costs.

Through Pinnacle Frac, the Company provides transportation of frac sand and logistics services to major hydraulic fracturing and drilling operations. Our 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 we dispatch 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. Our transportation and logistics services operations are primarily centered in the Southern United States, although we also occasionally service fracking operations in the Northeastern United States.

Pinnacle Frac uses a third party’s licensed software known as “propX” and "LoHi" to monitor and execute its transportation and logistics operations. This software is provided at no cost to the Company. Use of this service offers the following benefits for customers, which we provide at no charge, and other industry participants:

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.

With time, Pinnacle Frac has developed and plans to continue to develop the following business characteristics that we believe enable us to operate effectively and efficiently:

Business Strategy

Our principal business objective is to deliver high-quality services that help enable our customers to unlock valuable sources of energy for the American people and economy. By contributing to our customers’ success, as well as those of the oil and gas drilling activities assisted thereby, we in turn position our Company to generate revenue and create opportunity for growth. We believe that by successfully deploying this strategy, we can establish a sustainable business model and enhance stockholder value. We maintain a focus on developing, managing, and growing mutually rewarding relationships with our current and prospective customers in the oil and gas space as well as our contractors and other personnel, and maintaining and improving upon cost-effective and efficient systems and customer-centric solutions. We plan to achieve these objectives through:

As described above, we believe our focused business model, concentrating efforts on a single step in the oil and gas exploration and drilling process, limiting our scope to a small number of connected states, and nurturing existing operational relationships, positions us well for organic growth within an industry characterized with consistent demand, we also face challenges for some of the same reasons, as described in more detail elsewhere in this Report, particularly under “Risk Factors.” Navigating and overcoming these challenges will be critical to our ability to maintain and grow our operations, increase our revenue streams and establish new sources of income, and cultivate and build on value for our shareholders.

Our principal operations involve the provision of transportation services wherein we deploy truck drivers and trucks to transport materials, mainly frac sand, to productive drilling locations to enable customers to conduct their drilling activities there. We maintain an organized network of Company personnel and contractors to ensure we meet customer needs in a timely manner. Set forth below is a summary of the hydraulic fracturing process, which our customers conduct, and on which our services and the revenue we generate therefrom primarily depend.

Hydraulic Fracturing

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. Our customers consist of oil and gas drilling to which we may be the prime contractor, and third-party contractors assisting with another party’s drilling operation for which we serve 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, we have 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:

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 the Company 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 our Pinnacle Frac employees and contractors are put through our safety program to meet the needs of our 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.

We monitor performance under our HSE program throughout the year to evaluate our goals are being met and to address any concerns in this regard should they arise.

Key Contracts

We enter into certain key contracts in our operations, which can generally be divided into two board categories: (i) contracts with independent contractor owner-operator truck drivers, and (ii) contracts with customers. Each of these categories of contracts and counter parties are summarized as follows:

Truck Driver Agreements

We enter into standard independent contractor agreements with owner-operate truck drivers, which are for-hire interstate motor carrier individuals or entities that employ such individuals. Under these agreements, we procure the driving services from the contractor while simultaneously leasing their vehicles for transporting frac materials in bulk to a specified destination. Under these agreements, we are given inspection rights with respect to the vehicles prior to commencement of the service, as well as the ability to determine whether a particular driver is qualified to perform the service. Thereafter the contractor/driver is responsible for determining the route, stops and other details of delivering the materials in transit at the agreed upon time. We compensate the contractors a percentage of the fees we receive for completion of the delivery. We also provide for the applicable insurance coverage in accordance with applicable law. These agreements generally have a one-year term and are subject to earlier termination and automatic renewal.

Customer Agreements

We enter into master services agreements with our customers which provide the general terms of our provision of transportation and logistics services to them. These agreements generally provide that we will provide transportation services with respect to moving frac materials (most commonly sand) from one location to another in the furtherance of oil and gas drilling activities. Our customers, the counter parties to these agreements, are either oil and gas drilling companies which we perform the work for directly, or other transportation and logistics services companies who serve the oil and gas industry through which we provide trucking assistance in the provision of services to a third-party oil and gas drill operator by our customer (in essence making us the subcontractor in such project). These agreements provide for us to transport frac materials from one specified location to another under work orders. We perform our obligations under these agreements using the independent contractor agreements with owner-operator truck drivers described above. We typically submit invoices for customers under these agreements either on a periodic or on a per-project basis. We are generally required to maintain insurance under these agreements and assume liability for the loss of all cargo lost, damaged, delayed or lost. Furthermore, these contracts may be terminated without cause on 30 day notice or less. Our contracts with our major customers currently contain terms consistent with our agreements with our other customers.

Competition

With respect to our frac sand transportation and logistics business, which constitutes substantially all of our revenue, we compete against other third-party services company as well as owners major global, national and regional oil and gas companies with vertically integrated operations which also provided similar services to other oil and gas companies. These competitors offer the transportation services we do, but also offer additional services we do not, including the equipment and labor needed to complete other steps in the hydraulic fracturing process. Similarly, as oil and gas companies which comprise our prospective market base grow, the often attempt to develop and deploy more of their activities using in-house personnel and assets, which diminishes our prospective market and could result in new sources of competition to us. Many of these competitors possess greater financial, technical, human and other resources than we do, and our financial resources are relatively limited when contrasted with those of many of these competitors.

Sales and Marketing

Through Banner Midstream and its subsidiaries, the Company sells and provides services to its customers via blanket master services agreements.

Government Regulation

Set forth below is an overview of the government regulations we presently face or could face as a result of our current and planned operations. As the regulatory and legal environment evolves, we may become subject to new laws, such as further regulation by the SEC and other agencies, which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see “Risk Factors.”

Transportation Regulation

In connection with our operations, particularly the transportation and relocation of hydraulic fracking equipment and shipment of frac sand, the Company and its independent contractors operates trucks and other heavy equipment. As such, we operate as a motor carrier in providing our services and therefore are subject to regulation by the United States Department of Transportation (“DOT”) and by state agencies in the states in which we provide our services. These regulatory authorities exercise broad powers, governing activities such as the authorization to engage in motor carrier operations, driver licensing, insurance requirements, financial reporting and review of certain mergers, consolidations and acquisitions, and transportation of hazardous materials. Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. To a large degree, intrastate motor carrier operations are subject to state safety regulations that mirror or supplement federal regulations. Matters such as the weight and dimensions of equipment are also subject to federal and state regulations. Certain motor vehicle operators require registration with the DOT. This registration requires an acceptable operating record. The DOT periodically conducts compliance reviews and may revoke registration privileges based on certain safety performance criteria that could result in a suspension of operations.

Commonly, our contracts with customers require that we be registered with DOT and/or the Federal Carrier Safety Administration. We in turn impose similar requirements on the owner-operator truck drivers we utilize to provide services pursuant to our contractual arrangements with them.

Occupational Health and Safety; Independent Contractors

We are subject to the requirements of the federal Occupational Safety and Health Act, which is administered and enforced by the Occupational Safety and Health Administration, commonly referred to as OSHA, and of comparable state laws that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and the public. By deploying truck drivers who transport materials used in hydraulic fracturing and related oil and gas exploratory and drilling activities over long distances, we and our personnel (including independent contractors we hire to perform services) are subject to health and safety risks that subject us to relatively high compliance requirements and costs. We believe that our operations are in compliance with the OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to regulated substances. OSHA continues to evaluate worker safety and to propose new regulations, such as but not limited to, the new rule regarding respirable silica sand, which required the oil and gas industry to implement engineering controls and work practices to limit exposures below the new limits by June 23, 2021. As of the date of this Report, the applicability of proposed additions to the current regulatory framework to our operations and those of our current and prospective customers remains uncertain.

We continue to monitor the regulatory landscape with respect to our personnel and operations to maintain compliance with applicable requirements. An additional factor as we continue and attempt to grow our operations will be ensuring we are appropriately categorizing and corresponding with our contractors and government entities in the jurisdictions in which we operate. For example, the tax treatment of independent contractors is unique to that of employees, such that if we fail to successfully react and adapt to regulatory developments and applicable requirements, it will expose us to potential non-compliance and liability. Some states are considering legislation and regulations to expand the scope of the definition of “employee” for these and other purposes. If this trend continues and/or we seek to expand into affected markets or jurisdictions in the future, the resulting laws and regulations could apply in a manner that raises our compliance costs or otherwise adversely impacts us. See the risk factor titled “If owner-operators and drivers that we rely upon in our transportation business were to be classified as employees instead of independent contractors, our business would be materially and adversely affected” for more information regarding the risks and uncertainties surrounding our use and characterization of independent contractors given these past and potential developments.

Oil and Gas Industry

Federal regulation of oil and gas is extensive. The recent increases in gasoline and other fuel costs is at least in part been driven by the Biden Administration’s efforts to reduce oil drilling and transition away from fossil fuels. These efforts, including the regulatory developments described below, impact our operations either directly or by affecting our customers in the oil and gas industry.

Since he took office in January 2021, President Biden has signed a series of executive orders seeking to adopt new regulations to address climate change and to suspend, revise, or rescind certain prior agency actions which were part of the Trump Administration’s de-regulatory push, including oil drilling. The Biden Administration is expected to continue to aggressively seek to regulate the energy industry and has stated its goal to eliminate fossil fuels. The new executive orders include, among other things, orders requiring a review of current federal lands leasing and permitting practices, as well as a temporary halt of new leasing of federal lands and offshore waters available for oil and gas exploration, directing federal agencies to eliminate subsidies for fossil fuels, and to develop a plan to improve climate-related disclosures. Federal agencies including the Environmental Protection Agency (“EPA”) and the SEC have followed suit in pushing ahead with new regulations which will adversely affect our future business, as more particularly described below.

In January 2021, President Biden also issued an executive order calling for methane emissions regulations to be reviewed and for the EPA to establish new standards by September 2021. This resulted in the EPA finalizing what it refers to as “the most ambitious federal greenhouse gas emissions standards for passenger cars and light trucks ever” in December 2021. The EPA has also adopted regulations under existing provisions of the Clean Air Act that, among other things, establish Prevention of Significant Deterioration (the “PSD”), construction and Title V operating permit reviews for certain large stationary sources. Facilities required to obtain PSD permits for their greenhouse gas emissions also will be required to meet “best available control technology” standards that will be established on a case-by-case basis. The EPA also has adopted rules requiring the monitoring and reporting of greenhouse gas emissions from specified onshore and offshore natural gas and oil production sources in the United States on an annual basis, which include certain of our operations.

In November 2021, the EPA released new proposed methane rules which would impose regulations on methane release at existing wells nationwide, although methane primarily affects gas production rather than oil which is our focus. These new rules, among other things, would implement a comprehensive monitoring program to require companies to find and fix leaks. Additionally, the new rules would require well operators to place gas that is produced in a pipeline to be sold, when possible, to prevent wasting the gas, which could force us or well operators on which we rely to sell the gas at lower prices and thereby reduce our revenues. As with most regulations, smaller participants like us will face more burdens due to the compliance and other costs and the limited revenue to absorb such costs. In November 2022, the EPA announced it intends to strengthen its proposed methane standards and cut methane and other harmful air pollution.

While a recent U.S. Supreme Court case imposed limitations on the EPA’s authority under the Clean Air Act, including by holding that the EPA’s attempted energy generation shifting entailed an overly broad interpretation of the statute’s delegation of authority, if the EPA adopts the above or other regulations and such regulations are held to be valid, the resulting new regulatory framework could impose additional restrictions and costs on our operations which could materially adversely affect our business. The regulations at issue in the recent case pertained to an attempt to shift a portion of U.S. energy production from coal to natural gas by an enumerated percentage by 2030. In February 2022, a federal judge blocked a Biden Administration executive order which used the “social cost of carbon.” The Interior Department responded by suspending permits for oil and gas drilling.

Although Congress from time-to-time has considered legislation to reduce emissions of greenhouse gases, there has not been significant activity in the form of adopted legislation to reduce greenhouse gas emissions at the federal level in recent years. In the absence of such federal climate legislation, a number of states, including states in which we operate, have enacted or passed measures to track and reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and regional greenhouse gas cap-and-trade programs. Most of these cap-and-trade programs require major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall greenhouse gas emission reduction goal is achieved. These reductions may cause the cost of allowances to escalate significantly over time.

Additionally, the United States re-joined, effective February 19, 2021, the non-binding international treaty to reduce global greenhouse gas emissions (the “Paris Agreement”), adopted by over 190 countries in December 2015. The Paris Agreement entered into force in November 2016 after more than 70 nations, including the United States, ratified or otherwise indicated their intent to be bound by the agreement. The United States had previously withdrawn from the Paris Agreement effective November 4, 2020. Following the United States re-joining the Paris Agreement, President Biden announced in April 2021 the United States’ pledge to achieve an approximately 50% reduction from 2005 levels in “economy-wide” net greenhouse gas emissions by 2030. To the extent that the United States implements this agreement or imposes other climate change regulations on the oil and natural gas industry, or that investors insist on compliance regardless of legal requirements, it could have an adverse effect on our business, operating results and future growth.

Independent Contractors

Because we deploy independent contractor owner-operate truck drivers for our transportation operations, we depend on the classification of those individuals as independent contractors under applicable federal and state laws and regulations to conduct our business. While we strive to operate in a manner consistent with these requirements, these laws or regulations may be altered, supplemented or interpreted in a manner that is inconsistent with our present understanding of their applicability or scope. For more information about the regulations impacting our truck drivers and transportation operations, see “Risk Factors” and specifically the risk factor titled “If owner-operators and drivers that we rely upon in our transportation business were to be classified as employees instead of independent contractors, our business would be materially and adversely affected.”

Environmental Compliance

Our operations are or may become subject to numerous laws and regulations relating to environmental protection and climate change. These laws and regulations change frequently, and the effect of these changes is often to impose additional costs or other restrictions on our operations. We cannot predict the occurrence, timing, nature or effect of these changes. We also operate under a number of environmental permits and authorizations. The issuing agencies may take the position that some or all of these permits and authorizations are subject to modification, suspension, or revocation under certain circumstances, but any such action would have to comply with applicable procedures and requirements.

While we are currently not experiencing any material expenses related to the environmental compliance, we may become subject to requirements of environmental or other related laws and regulations in the future, which may result from a number of causes, including potentially new regulations being considered. Please review the Risk Factors in this Report and the paragraph that follows with regard to potential environmental and other compliance expenses.

On March 21, 2022, the SEC released proposed rule changes on climate-related disclosure. The proposed rule changes would require registrants including the Company to include certain climate-related disclosures in registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on the registrant’s business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, information about climate-related targets and goals, and transition plan, if any, and requires extensive attestation requirements. The proposed new rules would also require companies to disclose multiple levels of climate impact, including primary direct impacts from the registrant’s own operations, as well as secondary and tertiary effects of the operations and uses by contractors that the registrant utilizes and end-users of the registrant’s products and/or services. If adopted as proposed, the rule changes will result in material additional compliance and reporting costs, including monitoring, collecting, analyzing and reporting the new metrics and implementing systems and procuring additional internal and external personnel with the requisite skills and expertise to serve those functions. We expect that the rules will be adopted in large part at least, and our compliance costs will be material. However, following a June 2022 U.S. Supreme Court administrative decision, we expect a court challenge to any SEC Rule. We cannot predict the outcome of any challenge.

Seasonality

Our business experiences a certain level of seasonality due to our transportation and logistics business which is dependent upon the oil and gas drilling operations of our customers. Demand for oil, on which our operations largely depend through our services to oil and gas company customers, is typically higher in the third and fourth quarters resulting in higher prices. But higher fuel costs may adversely affect our transportations business.

Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of the results that may be realized on an annual basis. Seasonal weather conditions, including the annual flooding of coastal properties, and lease stipulations can limit our trucking business. These seasonal anomalies can pose challenges for our customers and drivers and can increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay operations, thus, lowering the demand for trucking services. Also, the volatility of commodities prices and supply chain issues can potentially delay customers’ drilling projects and in turn our provision of services to and receipt of revenue from those customers.

Dependence on Major Customers

From time-to-time we have had and may continue to have customers generating 10 percent or more of the Company’s consolidated revenues, and loss of such customers could have a material adverse effect on the Company.

In the fiscal year ended March 31, 2022, in our continuing operations, two of our customers accounted for a total of 88% of our accounts receivable, and two customers accounted for 96% of our total revenues. In the fiscal year ended March 31, 2023, in our continuing operations, one customer accounted for a total of 85%of our accounts receivable, and two customers accounted for 82% of our total revenues.  The two customers accounting for the majority of our revenue are Halliburton Energy Services, Inc. and Bulk Logic, LLC.  As discussed above, our agreements with these customers are generally consistent with the terms and conditions of our other customer agreements.

Human Capital Resources

As of the date of the filing of this Report, we have 12 full-time employees, no part-time employees and 31owner-operator independent contractor truck drivers.

Our ability to successfully execute our strategic initiatives is highly dependent on recruiting and retaining skilled personnel and qualified drivers. Our compensation philosophy is based on incentivizing and rewarding performance, with alignment of individual, corporate, and stockholder interests. Compensation includes salaries, benefits, and equity participation. Our owner operator drivers are not salaried employees.

We believe our relations with our employees and drivers are satisfactory.

The following important business risks and factors, and those business risks and factors described elsewhere in this Report or our other Securities and Exchange Commission filings, could cause our actual results to differ materially from those stated in our forward-looking statements, and which could affect the value of an investment in the Company.

Risks Relating to Our Financial Condition

We had incurred net losses from operations for our fiscal year ended March 31, 2023 may continue to experience losses and negative cash flow in the future.

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. As of March 31, 2023, we had cash (not including restricted cash) of $574,233. We have not been profitable on an annual cash basis since inception and had previously incurred significant operating losses and negative cash flow from operations. We recorded net losses from continuing operations (not including provisions of income taxes) of  ($13,029,424) for the fiscal year ended March 31, 2023. Although we expect our revenues to increase, we will likely continue to incur losses and experience negative cash flows from operations for the foreseeable future. If we cannot achieve positive cash flow from operations or net income, it may make it more difficult to raise capital based on our common stock on acceptable terms.

Because we may require additional capital and may need or desire to engage in strategic transactions in the future to fund our business objectives and support our growth, our inability to generate and obtain such capital or to enter into strategic transactions, could harm our business, operating results, financial condition and prospects.

We intend to continue to make substantial investments to fund our business and support our growth. Because or for other reasons, we may not be able to obtain any additional financing or engage in strategic transactions to the extent needed or desired in the future on the terms favorable to us, or at all. If we are unable to obtain adequate financing or enter into strategic transactions on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely impacted. In addition, our inability to generate or obtain the financial resources needed may require us to delay, scale back, or eliminate some or all of our operations and business objectives and sell some of our assets.

Further, if we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity or debt securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

We cannot predict our future results because we have a limited operating history.

Given our limited operating history, it may be difficult to evaluate our future performance or prospects. You should consider the uncertainties that we may encounter as a company that should still be considered an early-stage company. These uncertainties include:

If we are not able to successfully address some or all of these uncertainties, we may not be able to expand our business, compete effectively or achieve profitability.

We derive a significant portion of our revenue from a small number of customers, under contracts that may be terminated on short notices without cause, and the loss of one of these customers, or a reduction in their demand for our services, could adversely affect our business, financial condition, results of operations and prospects.

Our customer base is highly concentrated, with 85% of our accounts receivable derived from one customer and 82% of our revenue derived from two customers in the fiscal year ended March 31, 2023. A limited number of customers are expected to continue to comprise a substantial portion of our revenue for the foreseeable future. Because of the concentration of our revenue and accounts receivable among a small number of customers, the loss of one or more of our major customers could have a material adverse effect on our results of operations. Furthermore, contracts with our major customers may be terminated on short notice without cause. The revenue derived from our transportation business is factored non-recourse, so the Company has less exposure to payment defaults and more exposure to a future loss of revenue in the event a significant customer is lost. Since many of our customer contracts allow our customers to terminate the contract without cause and on relatively short notice, any such termination could impair our business, financial condition, results of operations and prospects.

Risks Relating to Our Transportation and Logistics Services Operations

We have significant ongoing capital requirements that could affect our operations if we are unable to generate sufficient cash from operations or obtain financing on favorable terms.

If we were unable to generate sufficient cash from operations, we would need to seek alternative sources of capital, including the incurrence of indebtedness or the issuance of equity securities in a financing transaction, to meet our capital requirements. To the extent that our working capital is insufficient, we may have to scale back operations, or in more extreme cases suspend or cease operations to the extent we are unable to generate sufficient cash flow to support our operations. Further, an inability to access capital necessary to execute our business plan will hinder our growth or limit us from executing on growth initiatives within timeframes desired which may be tied to market conditions that are fleeting, such as oil and gas prices and demand which often determined customer spending patterns.

Legislation, regulations, or government actions related to climate change, greenhouse gas emissions and sustainability initiatives and other ESG laws, regulations and government action, could result in increased compliance and operating costs and reduced demand for fossil fuels.

As described under “Business-Government Regulations”, our operations and those of the oil and gas drilling customers on which our operations depend are regulated extensively at the federal, state and local levels, and lawmakers and government agencies continue to consider potential new laws and regulations that would regulate or otherwise affect our industry. Environmental and other governmental laws and regulations have increased the costs to plan, design, drill, install, operate and abandon oil and natural gas wells. The trend in recent years has been increased scrutiny and regulatory oversight of the oil and gas industry, including among other things increasingly the proposal of new laws and regulations aimed at reducing or restricting oil and gas production and use. For example, in a rulemaking notice in mid-November 2022, the EPA announced a new calculation that would raise the damage estimate referred to as the “Social Cost of Carbon” of from $51 per metric ton, which had been the rate for the last several years, to $190 per metric ton by 2022 and as much as $410 by the year 2080. This amount is expected to guide or influence numerous laws and regulations in the future that are designed to reduce carbon emissions and the harm they cause to the environment. Under these laws and regulations, we could also be liable for personal injuries, property damage and other damages. In addition, failure to comply with these laws and regulations may result in the suspension or termination of our operations or those of our customers and subject us to administrative, civil and criminal penalties and fines.

The adoption and implementation of these and other similar regulations could require our customers to incur material costs to monitor and report on greenhouse gas emissions or install new equipment to reduce emissions of greenhouse gases. .  In addition, these regulatory initiatives could drive down demand for our products and services in the oil and gas industry by stimulating demand for alternative forms of energy that do not rely on combustion of fossil fuels that serve as a major source of greenhouse gas emissions, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Because we expect the SEC will adopt most, if not all of its proposed climate rules, as a small transporter, the compliance costs may adversely affect our future results of operating and financial condition.

On March 21, 2022, the SEC released proposed rule changes that would require new climate-related disclosure in SEC filings, including certain climate-related metrics and greenhouse gas emissions, information about climate-related targets and goals, transition plans, if any, and extensive attestation requirements. In addition to requiring filers to quantify and disclose direct emissions data, the new rules would also require disclosure of climate impact arising from the operations and uses by the filer’s business partners and contractors and end-users of the filer’s products and/or services. If adopted as proposed, the rule changes could result in the Company incurring material additional compliance and reporting costs, including monitoring, collecting, analyzing and reporting the new metrics and implementing systems and procuring additional internal and external personnel with the requisite skills and expertise to serve those functions. Such costs are likely to materially and adversely affect our future results of operations and financial condition. We expect the rule will be adopted during 2023 and effective beginning at some point after its adoption. We cannot predict the outcome of litigation which we expect will challenge any new climate change rules.

If Congress enacts the proposed price gouging bill, it could have a material adverse effect on the Company.

Senator Elizabeth Warren and others have introduced legislation aimed at rising gasoline and other prices and would empower the Federal Trade Commission (“FTC”) to investigate and penalize companies with “unconscionably excessive price increases.” The proposed legislation does not define what this phrase means so it will permit the FTC to define it. While we cannot predict whether the legislation will pass, there is a likelihood that it will pass. If it does, the FTC will enact Rules although it is possible it may enact an emergency Rule like other regulatory agencies have recently done. Any such legislation will likely affect gasoline prices especially in an election year. We believe price controls will have a material adverse effect on the Company.

A negative shift in investor and public sentiment of the oil and gas industry could have adverse effects on us and our customers’ operations, including our ability to raise debt and equity capital.

Certain segments of the investor community and the public in general have developed negative sentiment towards investing in the oil and gas and related industries. This could result in discounted equity valuations for our securities regardless of perceived or estimated intrinsic value of such securities based on traditional methods of evaluating a business such as financial information and operational results. Some investors, including investment advisors and funds, have stated or informally follow policies to avoid or limit investments in the oil and gas sector based on their social and environmental considerations. The number and extent of these policies has increased as adverse public and investor sentiment towards out industry has intensified due to climate change, nature preservation and other concerns. Such developments, including environmental activism and initiatives aimed at limiting climate change and reducing air pollution, could result in downward pressure on the stock prices of oil and gas companies and those who rely upon such companies, including us. This may also potentially result in a reduction of available capital funding for potential transactions and strategic business initiatives, impacting our future financial results.

Negative public perception could restrict or limit customers’ ability to profitably conduct their businesses, which would also reduce demand for our services. Ultimately, this could make it more difficult for us to continue to generate our grow revenue or secure funding for our current and planned operations.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on the price of our common stock and our or our customers’ access to and cost of capital. Also, institutional lenders may decide not to provide funding for fossil fuel energy companies based on climate change-related concerns, which could affect us or our customers’ access to capital for potential growth projects.

As the price of oil increases, it may indirectly adversely affect the costs of our transportation business if the owner-operators of trucks we utilize pass on some or all of the higher costs incurred by them to us.

The high price of oil has the potential to have an adverse effect on our transportation business, to the extent the owner-operators of trucks we hire to transport fracking materials pass on the higher costs they incur based on the increased price of oil including diesel fuel to us via higher prices for their services. Such a development, in isolation or in combination with other price-driving factors such as the recent truck-driving shortages, could materially increase our operational expenses and increase net losses or reduce our ability to become profitable.

Federal, state, and local legislative and regulatory initiatives in the United States relating to hydraulic fracturing or fracking could result in decreased demand for our transportation services, which would have a material adverse effect on our results of operations, cash flows and financial condition.

In the United States, hydraulic fracturing is currently generally exempt from regulation under the Underground Injection Control program established under the federal Safe Drinking Water Act and is typically regulated by state oil and gas commissions or similar agencies. From time to time, the U.S. Congress has considered adopting legislation intended to provide for federal regulation of hydraulic fracturing and to require disclosure of the additives used in the hydraulic-fracturing process. In addition, certain states have adopted, and other states are considering adopting, regulations that could impose new or more stringent permitting, disclosure, disposal and well-construction requirements on hydraulic-fracturing operations. The adoption of any federal, state or local laws or the implementation of regulations regarding hydraulic fracturing could cause a decrease in the completion of new oil and gas wells and an associated decrease in demand for our transportation services, which would have a material adverse effect on our results of operations, financial condition and cash flows.

Our transportation operations are subject to stringent environmental, oil and gas-related and occupational safety and health laws and regulations, and noncompliance with such laws and regulations could expose us to material costs and liabilities.

Our operations are subject to a number of federal and state laws and regulations, including the federal occupational safety and health and comparable state statutes, aimed at protecting the health and safety of employees. We are also subject to various environmental laws and regulations dealing with the hauling and handling of hazardous materials, air emissions from our vehicles and facilities, and engine idling and discharge. Our transportation operations often involve traveling on unpaved roads located in rural areas, increasing the risk of accidents, and our staging pads often are located in areas where groundwater or other forms of environmental contamination could occur. Our operations involve the risks of environmental damage and hazardous waste disposal, among others. If we are involved in an accident involving hazardous substances, if there are releases of hazardous substances we transport, if soil or groundwater contamination is found at our facilities or results from our operations, or if we are found to be in violation of applicable environmental laws or regulations, we could owe cleanup costs and incur related liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.

Failure to comply with these laws and regulations may subject the Company to sanctions, including administrative, civil or criminal penalties, remedial cleanups or corrective actions, delays in permitting or performance of projects, natural resource damages and other liabilities. In addition, these laws and regulations may be amended, and additional laws and regulations may be adopted in the future with more stringent legal requirements.

Conservation measures and technological advances could reduce demand for oil and natural gas.

Fuel conservation measures, future legislation and regulation increasing consumer demand for alternatives to oil, and natural gas, technological advances in fuel economy and energy generation devices could reduce demand for oil. For example, the Biden Administration issued an executive order banning the federal government’s purchase of new gas vehicles by 2035, although executive orders are subject to change. Additionally, private companies have increasingly pledged to reduce carbon emissions caused by the use of gas vehicles, such as General Motors which in January 2021 announced its plan to sell only zero-emission vehicles by 2035. The impact of the changing demand for oil may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our operating results fluctuate due to the effect of seasonality in the oil and gas industry.

We derive our revenue from customers which are participants in the oil and gas industry. The oil and gas industry is a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices as well as external forces such as weather and major events impacting productivity and supply and demand levels. For example, operating levels of the oil industry have historically been lower in the winter months because of adverse weather conditions. Accordingly, our revenue generally follows a seasonal pattern. Revenue can also be affected by other adverse weather conditions, holidays and the number of business days during a given period because revenue is directly related to the available working days. From time-to-time, we may also suffer short-term impacts from severe weather and similar events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions that could harm our results of operations or make our results of operations more volatile.

Similarly, if the currently high oil prices decline, work orders under which we derive our revenue may decline as well. As a result of these factors, we have in the past experienced, and may in the future experience, fluctuations in operating results as a result of the reactions of our customers to changes in oil and natural gas prices. Even if order levels are sustained, we may be forced to accept lower prices for our services based on the lower commodities prices, lack or decline of customer profitability or inability to make payments, or other reasons tied to external forces and beyond our control.

In addition, a majority of the service revenue we earn is based upon a charge for a relatively short period of time (for example, a day, a week or a month) for the actual period of time the service is provided to our customers. By contracting services on a short-term basis, we are exposed to the risks of a rapid reduction in market prices and utilization and resulting volatility in our revenues.

Our operations and those of the customers and oil and gas drilling entities on which our operations directly or indirectly depend are subject to unforeseen interruptions and hazards inherent in the oil and natural gas industry, for which these other stakeholders may not be adequately insured and which could cause us to lose customers and substantial revenue or otherwise be subject to substantial losses or liability.

Our operations and those of our customers and/or the oil and gas drilling operators we serve indirectly through our customers are exposed to the risks inherent in the oil and gas industry, such as equipment defects, vehicle accidents, fires, explosions, blowouts, surface cratering, uncontrollable flows of gas or well fluids, pipe or pipeline failures, abnormally pressured formations and various environmental hazards, such as oil spills and releases of, and exposure to, hazardous substances. For example, the operations and activities on which we depend to generate revenue are subject to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives. In addition, these operations and activities are exposed to potential natural disasters, including blizzards, tornadoes, storms, floods, other adverse weather conditions and earthquakes. The occurrence of any of these events could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties or other damage resulting in curtailment or suspension of our operations. Similarly, to the extent our customers or the oil and gas drilling entities on which we depend to provide services experience these foregoing adverse consequences, such a result could also lead to losses or harm to us. The cost of managing such risks may be significant and may be experienced directly by us or passed down through our contractual arrangements with third parties. The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, contractors, regulators, and other stakeholders. In particular, our current or prospective customers may elect not to use our services in the future if they view the environmental or safety record that we or our customers or other strategic partners hold as unacceptable, which could cause us to lose customers and substantial revenues. Further our insurance may not be adequate to cover all losses or liabilities we may suffer, and we may be unable to maintain or obtain insurance of the type and amount we desires or need at reasonable rates or with sufficient coverage to protect us from these adverse contingencies. A loss not fully covered by insurance could have a material adverse effect on our financial position, results of operations and cash flows.

If any of the above developments occur with respect to our operations or those of others on which we rely, it could materially adversely impact our financial condition and results of operations.

We may be subject to various claims and lawsuits in the ordinary course of business and increases in the amount or severity of these claims and lawsuits could adversely affect us.

We are exposed to various claims and litigation related to commercial disputes, personal injury, property damage, environmental liability, and other matters. Proceedings include claims by third parties, and certain proceedings have been certified or purport to be class actions. Developments in regulatory, legislative, or judicial standards, material changes to litigation trends, or a catastrophic accident or series of accidents, involving any or all of property damage, personal injury, and environmental liability could have a material adverse effect on our operating results, financial condition and liquidity.

We operate with most of our customers under master service agreements, or “MSAs”. Generally, under these MSAs, we assume responsibility for potential adverse events which may occur during operations, including that which may result from automotive collisions or personal injury that may arise in the transportation process. Our MSAs generally require us to carry insurance coverage for these and other events, but such insurance may not adequately cover losses that occur, and insurance premiums would rise based on such events, potentially to the point where it is no longer economically feasible to continue to continue to carry the insurance. For example, we may have liability in such cases if we or in some circumstances our contractors are negligent or commit willful acts. Even in situations where we believe the risks are allocated to another party, be contractually or otherwise, we might not succeed in enforcing such allocation, might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into an MSA with terms that vary from the allocations of risk to which we generally agree. Litigation arising from occurrences at a location or in transit where our services are involved may result in us being named as a defendant in lawsuits. As a result, we may incur substantial losses which could materially and adversely affect our financial condition and results of operation.

Our future revenue will depend upon the size of the markets which we target and our ability to achieve continuous and sufficient market acceptance.

Even if we procure enough drivers to satisfy the demand for transportation services in the market, our future revenue will depend upon the size of the markets which we target and our ability to achieve continuous and sufficient market acceptance, and such factors as pricing, reimbursement from third-party payors and adequate market share for our services at the target markets. We anticipate that our expenses will increase substantially if and as we:

Our transportation business is affected by industry-wide economic factors that are largely outside our control.

The majority of our revenue is from providing services to customers engaged in operations in the oil and exploration industry. As such, our volumes are largely dependent on the economy and our results may be more susceptible to trends in unemployment and how it affects oil prices than carriers that do not have this focus. We believe that some of the most significant factors beyond our control that may negatively impact our operating results are economic changes that affect supply and demand in transportation markets. In recent months, the economy has been bombarded with unique challenges, including supply chain shortages, inflation and Federal Reserve interest rate increases in response, stock market volatility and recession fears.

The risks associated with these factors are heightened when the United States economy is weakened. Recently, many executive officers of large companies believe our economy is entering a recessionary period. If the U.S. economy enters a recession, among other potential adverse consequences, demand for our products and services and customer and consumer spending patterns will diminish in a manner and possibly to an extent that is materially adverse to our business. Some of the other principal risks during such times are as follows:

Economic conditions that decrease shipping demand or increase the supply of capacity in the trucking transportation industry can exert downward pressure on rates and equipment utilization, thereby decreasing asset productivity. Declining freight levels and rates, a prolonged recession or general economic instability could result in declines in our results of operations, which declines may be material.

We also are subject to cost increases outside our control that could materially reduce our profitability if we are unable to increase our rates sufficiently. Such cost increases include, but are not limited to, fuel and energy prices, driver wages, taxes and interest rates, tolls, license and registration fees, insurance premiums, regulations, revenue equipment and related maintenance costs and healthcare and other benefits for our associates. We cannot predict whether, or in what form, any such cost increase or event could occur. Any such cost increase or event could materially and adversely affect our results of operations.

In addition, events outside our control, such as strikes or other work stoppages at our facilities or at customers, shipping locations, ports, distribution facilities, weather, or terrorist attacks, could lead to reduced economic demand, reduced availability of credit or temporary closing of shipping locations. Such events or enhanced security measures in connection with such events could impair our operations and result in higher operating costs.

Fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase commitments and surcharge collection may increase our costs related to our transportation operations, which could materially and adversely affect our profits.

Fuel represents a significant expense for our transportation business while the sale of oil provides revenues for our business. Diesel fuel prices fluctuate greatly due to factors beyond our control, such as political events, terrorist activities, armed conflicts, inflation, and the depreciation of the dollar against other currencies and weather, such as hurricanes, tornadoes and other natural or man-made disasters, each of which may lead to an increase in the cost of fuel. Fuel prices also are affected by the rising demand in developing countries and could be adversely impacted by diminished drilling activity and by the use of crude oil and oil reserves for other purposes. Such events may lead not only to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because Banner Midstream’s transportation operations are dependent upon diesel fuel, significant diesel fuel cost increases, shortages or supply disruptions could materially and adversely affect our operating results and financial condition.

Increases in fuel costs, to the extent not offset by rate per mile increases or fuel surcharges, have an adverse effect on our operations and profitability. Recently, fuel prices have soared to the highest levels in history, increasing our operating costs. While the majority of our fuel costs are covered by pass-through provisions in customer contracts and compensatory fuel surcharge programs, we also incur fuel costs that cannot be recovered even with respect to customers with which we maintain fuel surcharge programs, such as those associated with unbilled miles, or the time when our engines are idling. Because our fuel surcharge recovery lags changes in fuel prices, our fuel surcharge recovery may not capture the increased costs we pay for fuel, especially when prices are rising, leading to fluctuations in our levels of reimbursement. Further, during periods of low freight volumes, shippers can use their negotiating leverage to impose less compensatory fuel surcharge policies. In addition, the terms of each customer’s fuel surcharge agreement vary, and customers may seek to modify the terms of their fuel surcharge agreements to minimize recoverability for fuel price increases. Such fuel surcharges may not be maintained indefinitely or may not be sufficiently effective to cover increased fuel prices.

If we fail to retain owner-operators, it could materially adversely affect our results of operations and financial condition.

In our transportation operations, we rely on the fleet of vehicles owned and operated by independent contractors. These independent contractors are responsible for maintaining and operating their own equipment and paying their own fuel, insurance, licenses, and other operating costs. Due to high turnover rates, the pool of qualified independent contractor drivers is often limited, which increases competition for their services, especially during times of increased economic activity. We currently face and may in the future continue to face from time-to-time, difficulty in attracting and retaining sufficient number of qualified independent contractor drivers. Additionally, our agreements with independent contractor drivers are terminable by either party without penalty and upon short notice. Our specialty equipment services targeting servicing oil exploration and oil development industries require special training to handle unique operating requirements. We may be legally obligated or otherwise subjected by the industry standards to use physical function tests and hair follicle and urine testing to screen and test all driver applicants, which we believe is a rigorous standard and could decrease the pool of qualified applicants available to us. If we are unable to retain our existing independent contractor drivers or recruit new qualified independent contractor drivers, our business and results of operations could be materially and adversely affected.

The rates we offer our independent contractor drivers are subject to market conditions. Accordingly, we may be required to increase owner-operator compensation or take other measures to retain existing and attract new qualified independent contractor drivers. If we are unable to continue to attract and retain a sufficient number of independent contractor drivers, we could be in a position where we would have to turn down customer requests to deliver loads of freight or frac sand which would in turn have a material adverse effect on our operating results and financial condition.

If owner-operators and drivers that we rely upon in our transportation business were to be classified as employees instead of independent contractors, our business would be materially and adversely affected.

A number of companies in the logistics industry have been faced with legislation or regulation that requires that many independent contractors be treated as employees and receive benefits only available to employees which increases costs. Moreover, states have also adopted provisions for severe fines and stop-work orders for employers that misclassify employees as independent contractor. To date, this legislation and regulation has been limited to, or considered in, states where we do not operate, such as California, New Jersey, and Virginia.

Some companies recently involved in lawsuits, including class actions, and state tax and other administrative proceedings that claim that owner-operators or their drivers should be treated as employees, rather than independent contractors. These lawsuits and proceedings involve substantial monetary damages (including claims for unpaid wages, overtime, and failure to provide meal and rest periods, unreimbursed business expenses and other items), injunctive relief, or both. While we believe that owner-operators and their drivers are properly classified as independent contractors rather than as employees, if their independent contractor status is challenged, we may not be successful in defending against such challenges in some or all jurisdictions in which we offer transportation services.

We also may encounter risk if the Department of Labor (“DOL”) or the National Labor Relations Board (“NLRB”) were to pass rules expanding the definition of an employee, this could occur under the Biden administration.

The U.S. Department of Labor published a Notice of Proposed Rulemaking in October 2022 to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. The proposed rule would provide guidance on classifying employees and independent contractors. Publication of the Notice of Proposed Rulemaking in the Federal Register started a 45-day comment period, which closed on November 28, 2022. If the proposed rule is adopted, it will be more difficult to classify workers as independent contractors for Fair Labor Standards Act purposes.

On December 27, 2021, the NLRB invited parties to submit briefs addressing whether NLRB should reconsider its standard for determining the independent contractor status of workers under the National Labor Relations Act (“NLRA”). If the NLRB adopts a more expansive standard for determining who qualifies as an employee, the number of individuals who may unionize or bring unfair labor practices charges under the NLRA would likely increase.

Because of the Biden administration’s regulatory push, we expect DOL will enact a rule narrowly defining independent contractors which will adversely affect Banner’s transportation business and increase its costs. If NLRB passes a rule expanding the definition of an employee, or a court or an administrative agency determines that owner-operators and their drivers must be classified as employees rather than independent contractors, we could become subject to additional regulatory requirements, including but not limited to tax, wages, and wage and hour laws and requirements (such as those pertaining to minimum wage and overtime); employee benefits, social security, workers’ compensation and unemployment; discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; and other laws and regulations applicable to employers and employees. Compliance with such laws and regulations would require us to incur significant additional expenses, potentially including without limitation, expenses associated with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits, social security contributions, taxes, and penalties. Additionally, any such reclassification would require us to change our business model, and consequently have an adverse effect on our business and financial condition. Expansion of state legislation that broadly defines an employee into states where we operate could also have a material adverse effect on Banner.

Increasing trucking regulations may increase our costs and negatively impact our results of operations.

Is described more fully under “Business-Government Regulation,” in connection with our transportation business, which involves the transportation of frac sand, through our contractors we operate trucks and other heavy equipment. As such, we and our contractors are subject to regulation by the United States Department of Transportation, or “DOT” and by applicable state agencies. These regulatory authorities exercise broad powers with regulations impacting various aspects of our operations and those of third parties with which we are involved. Our trucking operations are also subject to possible regulatory and legislative changes that may increase our costs, be it directly or through third parties with which we contract. Some of these possible changes might include increasingly stringent environmental regulations, changes in the hours of service regulations which govern the amount of time a driver may drive or work in any specific period, onboard black box recorder device requirements or limits on vehicle weight and size. To ensure compliance with regulatory requirements, our customers require us to meet certain standards and we may provide further rights and obligations to address these issues and assume a portion of the risks of regulatory problems arise during the transportation process, which may be due to our contractors over whom we only exercise limited or no control. If we or the third parties on whom we rely are unable to continue to monitor and comply with current transportation-based regulations or requirements as well as any new regulations or requirements to which our operations may become subject, it could materially adversely harm our business.

We face significant competition that may cause a loss of market share or hinder our growth.

The provision of transportation services for the oil and gas industry is highly competitive and has relatively few barriers to entry. Among the principal competitive factors impacting our sales are price, reputation, equipment and service quality and health and safety standards. The market is also fragmented and includes numerous small companies capable of competing effectively in our markets on a local or regional basis, as well as several large companies that possess substantially greater financial and other resources than we do. Our larger competitors’ greater resources could allow those competitors to compete more effectively than we can. For instance, our larger competitors may offer services at below-market prices or bundle ancillary services at no additional cost to customers, making those competitors a more attractive choice to prospective customers. We compete with large national and multi-national companies that have longer operating histories, greater financial, technical and other resources and greater name recognition than we do. Some of our main customers are also competitors within the industry we serve.

The competitive environment may be further intensified by mergers and acquisitions among oil and natural gas companies or other events that have the effect of reducing the number of available customers. As a result of a combination of continued pressure from increased competition and/or other adverse events, we may be forced to lower the prices for our services, which would adversely affect our results of operations. If competition remains the same or increases as a result of industry downturn or other factors, we may be required to lower prices, which would adversely affect its results of operations. In the future, we may lose market share or be unable to maintain or increase prices for our services or to expand our geographic reach or acquire additional business opportunities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Because of their greater resources or other advantages, our competitors may be able to respond more quickly or effectively to new or emerging technologies and services and changes in customer requirements. The amount of labor and equipment available may exceed demand, which could result in active price competition. In addition, depressed commodity prices lower demand for hydraulic fracturing related services and equipment, which results in lower utilization rates and declines in demand for and at times the rates at which we can market our services. In addition, some oil and gas drilling companies have undertaken efforts to become more vertically integrated by eliminating the need for third party service providers such as us. Any increase in the development and utilization of in-house transportation and logistics capabilities by our customers and/or their customers (typically oil and gas drilling operators) could decrease the demand for our services and have a material adverse impact on our business.

We currently rely on a limited number of suppliers for trucks and equipment to provide our transportation services, which exposes us to risks including price and timing of delivery.

We currently rely on a limited number of suppliers for trucks and related equipment to we deploy in our transportation services business. During periods in which our services are in high demand, we may experience delays in providing those services or be unable to meet the demand within the timeframes desired or at all, in which case our results of operations and ability to capitalize on those opportunities will be diminished. If this were to occur, we could be required to seek other suppliers for such vehicles and equipment, which we may be unable to obtain at reasonable price points, in the volumes or within the timelines necessary to complete a project, or at all. Further the owner-operator truck drivers and the customers with which we do business may face similar challenges that delay or prevent us from completing our services.

Similar to many companies, we have experienced a spike in our insurance costs, which could have a material adverse effect on our operating results.

Insurance premiums have recently escalated, and we are facing a similar increase in our insurance costs. Our future insurance and claims expense might exceed historical levels, which could reduce our earnings. We self-insure or maintain a high deductible for a portion of our claims exposure resulting from workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as associated health insurance. Estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult. This, along with legal expenses, incurred but not reported claims and other uncertainties can cause unfavorable differences between actual claim costs and our reserve estimates. We plan to reserve for anticipated losses and expenses and periodically evaluate and adjust our claims reserves to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.

We maintain insurance with licensed insurance carriers above the amounts which we retain. Although we believe our general liability and related insurance limits should be sufficient to cover reasonably expected claims, the amount of one or more claims could exceed our coverage limits. If any claim were to exceed our coverage, we would be required to bear the excess, in addition to our other self-insured/retained amounts. As a result, our insurance and claims expense could increase, or we could raise our self-insured retention or deductible when our policies are renewed or replaced. Our operating results and financial condition could be materially and adversely affected if (i) cost per claim, premiums, or the number of claims significantly exceed our estimates, (ii) there is one or more claims in excess of our coverage limits, (iii) our insurance carriers refuse to pay our insurance claims or (iv) we experience a claim for which coverage is not provided.

Oil and natural gas companies’ operations using hydraulic fracturing are substantially dependent on the availability of water, and restrictions on the use and disposal of water and other products used and byproducts produced in the fracking process may impact customers’ operations and have a corresponding adverse effect on our business, results of operations and financial condition.

Water is an essential component of shale oil and natural gas production during both the drilling and hydraulic fracturing processes. The access by oil and natural gas producing entities’ on which our operations depend to water to be used in these processes may be adversely affected due to reasons such as periods of extended drought, privatization, third party competition for water in localized areas or the implementation of local or state governmental programs to monitor or restrict the beneficial use of water subject to their jurisdiction for hydraulic fracturing to assure adequate local water supplies. The occurrence of these or similar developments may result in limitations being placed on allocations of water due to needs by third party businesses with more senior contractual or permitting rights to the water. Our customers’ and end users’ inability to locate or contractually acquire and sustain the receipt of sufficient amounts of water could adversely impact their oil and gas drilling operations and have a corresponding adverse effect on our business, results of operations and financial condition.

Moreover, the imposition of new environmental regulations and other regulatory initiatives could include increased restrictions on oil and gas producing entities’ ability to dispose of flow back and produced water generated by hydraulic fracturing or other fluids resulting from their exploration and drilling activities. Applicable laws impose restrictions and strict controls regarding the discharge of pollutants into waters of the United States and require that permits or other approvals be obtained to discharge pollutants to such waters. Additionally, regulations implemented under both federal and state laws prohibit the discharge of produced water and sand, drilling fluids, drill cuttings and certain other substances related to the natural gas and oil industry into coastal waters. These laws provide for civil, criminal and administrative penalties for any unauthorized discharges of pollutants and unauthorized discharges of reportable quantities of oil and hazardous substances. Compliance with current and future environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing of wells and any inability to secure transportation and access to disposal wells with sufficient capacity may increase customers’ and end users’ operating costs and could result in restrictions, delays, or cancellations of our customers’ operations, the extent of which cannot be predicted.

General Risks

Because of the Russian invasion of Ukraine, as well as high inflation and increase Federal Reserve interest rates in response, the effect on the capital markets and the economy is uncertain, and we may have to deal with a recessionary economy and economic uncertainty including possible adverse effects upon the oil and gas industry.

As a result of the Russian invasion of Ukraine, certain events have affected the global and United States economy including increased inflation, Federal Reserve interest rate increases in response, substantial increases in the prices of oil and gas, dramatic declines in the capital markets, and large Western companies ceasing to do business in Russia. The duration of this war and its impact are at best uncertain, and continuation may result in Internet access issues if Russia, for example, began illicit cyber activities. Ultimately the economy may turn into a recession with uncertain and potentially severe impacts upon public companies and us. We cannot predict how this will affect the market for oil and gas and related services, but the impact may be adverse.

Our future success depends on our ability to retain and attract high-quality personnel, and the efforts, abilities and continued service of our senior management.

Our future success depends on our ability to attract, hire, train and retain a number of highly skilled employees and on the service and performance of our senior management team and other key personnel for each of our subsidiaries. The loss of the services of our executive officers or other key employees and inadequate succession planning could cause substantial disruption to our business operations, deplete our institutional knowledge base and erode our competitive advantage, which would adversely affect our business. Competition for qualified personnel possessing the skills necessary to implement our strategy is intense, and we may fail to attract or retain the employees necessary to execute our business model successfully. We do not have “key person” life insurance policies covering any of our executive officers.

Our success will depend to a significant degree upon the continued efforts of our key management, engineering and other personnel, many of whom would be difficult to replace. In particular, we believe that our future success is highly dependent on Jimmy R. Galla, our Chief Executive Officer and Chief Financial Officer and JD Reedy, our Chief Operating Officer. If any members of our management team leave our employment, our business could suffer, and the share price of our common stock could decline.

Mr. Galla may not devote his full time and attention to our company.

Mr. Galla, our Chief Executive Officer and Chief Financial Officer, has business interests outside our company, including serving as principal accounting officer of BitNile. Accordingly, from time to time he may not devote his full time and attention to our affairs. There are no assurances that our business and operations may not be adversely impacted in future periods as a result of the time he may devote to his other business interests instead of a sole focus by him on the affairs of our company.

If we cannot manage our growth effectively, our results of operations would be materially and adversely affected.

Our business model relies on rapidly growing the transportation businesses. Businesses that grow rapidly often have difficulty managing their growth while maintaining their compliance and quality standards. If we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting and employing additional executive and key personnel capable of providing the necessary support. There can be no assurance that our management, along with our staff, will be able to effectively manage our growth. Our failure to meet the challenges associated with rapid growth could materially and adversely affect our business and operating results.

Our failure to maintain an effective system of disclosure controls and internal control over financial reporting, may affect our ability to produce timely and accurate financial statements or our ability to comply with applicable regulations could be impaired. 

We are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act which requires, among other things, that public companies maintain effective disclosure controls and procedures and internal control over financial reporting. Our management concluded that our disclosure controls and procedures were not effective as of March 31, 2023, and any failure to maintain effective controls or any difficulties encountered in their implementation or improvement in the future could cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which could result in loss of investor confidence and could have an adverse effect on our stock price.

Failure of information technology systems or data security breaches, including as the result of cyber security attacks, affecting us, our business associates, or our industry, may adversely affect our financial condition and operating results.

We depend on information technology systems and services in conducting our business. We and others in the industries in which we operate use these technologies for internal purposes, including data storage and processing, transmissions, as well as in our interactions with our business associates. Examples of these digital technologies include analytics, automation, and cloud services. If any of our financial, operational, or other data processing systems are compromised, fail, or have other significant shortcomings, it could disrupt our business, require us to incur substantial additional expenses, result in potential liability or reputational damage or otherwise have a material adverse effect on our financial condition and operating results.

For example, the operator of the Colonial Pipeline was forced to pay $4.4 million in ransom to hackers as the result of a cyber attack disabling the pipeline for several days in May 2021. The attack also resulted in gasoline price increases and shortages across the East Coast of the United States. As we depend on the availability and price of gasoline in our transportation business, any significant increase in the price and/or shortage of gasoline such as that experienced from the May 2021 cyber attack would have a material adverse effect on our business and operating results.

The price of our common stock is subject to volatility, including for reasons unrelated to our operating performance, which could lead to losses by investors and costly securities litigation.

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to several factors, some of which may be outside our control, including but not limited to, the following factors:

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and Company resources, which could harm our business and financial condition.

Risks related to our Common Stock

The issuance of shares of our common stock upon exercise of our outstanding convertible debt may cause immediate and substantial dilution to our existing shareholders.

We presently have outstanding 6% convertible notes held by our former officers and directors in the principal amount of $845,565 that if converted would result in the issuance of approximately an additional 56,371,000 shares of our common stock. Furthermore, effective March 29, 2023, we issued a promissory note in the principal amount of $165,000, net of discount, with a maturity date of March 27, 2024. The investor may in its option, at any time following an Event of Default, as defined in the note, convert all or any part of the outstanding and unpaid amount of the note into fully paid and non-assessable shares of common stock at a conversion price per share equal to 75% of the average closing bid price of our common stock during the 5 trading days prior to the date of conversion. The issuance of shares upon conversion of any of the notes will result in dilution to the interests of other shareholders.

Our common stock may be affected by limited trading volume and may fluctuate significantly.

Our common stock is quoted on the OTCQB tier of the OTC Markets. There is a limited public market for our common stock and there can be no assurance that an active trading market for our common stock will develop. As a result, this could adversely affect our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Thinly traded common stock can be more volatile than common stock traded in an active public market. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially.

Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.

Our common stock is deemed to be “penny stock” as that term is defined under the Exchange Act. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges. Our common stock is covered by an SEC rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors, which are generally institutions with assets in excess of $5,000,000, or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

Because we can issue “blank check” preferred stock without stockholder approval, it could adversely impact the rights of holders of our common stock.

Under our Articles of Incorporation our Board of Directors may approve an issuance of up to 5,000,000 shares of “blank check” preferred stock without seeking stockholder approval. Any additional shares of preferred stock that we issue in the future may rank ahead of our common stock in terms of dividend or liquidation rights and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our Company. Although we have no present intention to issue any shares of authorized preferred stock, there can be no assurance that we will not do so in the future.

If we are not successful, you may lose your entire investment.

Prospective investors should be aware that if we are not successful in our business, their entire investment in the Company could become worthless. Even if the Company is successful, we can provide no assurances that investors will derive a profit from their investment. We need additional capital to meet our obligations and achieve our business objectives, and we cannot guarantee we will be successful in locating additional required capital as and when needed or that any such amounts will be sufficient for us to establish material revenue growth. If we are not successful, you may lose your entire investment.

The price of our common stock is subject to volatility, including for reasons unrelated to our operating performance, which could lead to losses by investors and costly securities litigation.

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to a number of factors, some of which may be outside our control, including but not limited to, the following factors:

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and Company resources, which could harm our business and financial condition.

There is currently a limited trading market for the Company’s common stock.

Our common stock is quoted on the OTCQB under the symbol “WOEN.” There is currently a limited trading market in our common stock, and we cannot give an assurance that a consistent, active trading market will develop. Trading on the OTCQB is less liquid than the leading national securities exchanges. If an active market for our common stock develops, there is no assurance that such market will be maintained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable.

Furthermore, there is a significant risk that our stock price may fluctuate in the future in response to any of the following factors, some of which are beyond our control:

Future sales of our common stock in the public market could lower the price of our common stock and impair our ability to raise funds in future securities offerings.

Of 78,268,332 shares of common stock outstanding as of June 15, 2023, approximately 15,774,652 shares (or approximately 20%) are held by investors who are not our affiliates. The Spin-Off Shares, which currently account for 66% of our issued and outstanding common stock, will become unrestricted and freely tradeable stock following the effectiveness of a registration statement (provided we continue to comply with the period reporting obligations under the Exchange Act). Future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds in the future through an offering of our securities. Future sales of substantial amounts of our common stock in the public market, or the anticipation of these sales, could materially and adversely affect market prices prevailing from time-to-time, and could impair our ability to raise capital through sales of equity or equity-related securities. In addition, the market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that these sales may occur.

Our common stock is a “penny stock” and thereby be subject to additional sale and trading regulations that may depress the price of our common stock.

Our common stock is a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Exchange Act. Our common stock may be a “penny stock” if it meets one or more of the following conditions: (i) it trades at a price less than $5 per share; (ii) it is not traded on a “recognized” national securities exchange which excludes the OTC Pink Market or the OTCQB and OTCQX; or (iii) is issued by a company that has been in business less than three years with net tangible assets less than $5 million. Thus, our common stock is a penny stock.

The principal result or effect of being designated a penny stock is that securities broker-dealers participating in sales of our common stock are discouraged from soliciting purchases of our common stock by the SEC’s rules which generally results in low prices and limited trading volume. For example, SEC Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise. In addition, clearing firms, which hold retail accounts dislike penny stocks and through extra compliance efforts and costs they impose, make it hard to sell penny stocks.

We have no transition or services agreements with BitNile and may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent publicly-traded company, and we may experience increased costs after the Exchange and/or Spin-Off. 

Historically BitNile provided us with various corporate services. Following the Exchange, BitNile had no obligation to provide us with assistance. Accordingly, we need to provide internally or obtain from unaffiliated third parties the services we historically receive from BitNile. We may be unable to replace these services on terms and conditions as favorable as those we receive from BitNile. We may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently or may incur additional costs. If we fail to obtain the services necessary to operate effectively or if we incur greater costs in obtaining these services, our business, financial condition and results of operations may be adversely affected. 

We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.

We believe that, as an independent publicly-traded company, we will be able to, among other things, better focus our financial and operational resources on our specific business, implement and maintain a capital structure designed to meet our specific needs, design and implement corporate strategies and policies that are targeted to our business, more effectively respond to industry dynamics and create effective incentives for our management and employees that are more closely tied to our business performance. Further, we expect that the Spin-Off will assist us in complying with certain requirements to have our securities listed on a national securities exchange operated by The Nasdaq Stock Market LLC (“Nasdaq”) or the New York Stock Exchange (“NYSE”). However, we may fail to achieve these goals or realize these benefits, and could also face adverse consequences, such as being more susceptible to market fluctuations and have less support from BitNile who will no longer be a principal stockholder following the Spin-Off. We have been advised that unless we complete a $40 million public offering, we cannot seek to be listed on Nasdaq or the NYSE until following our fiscal year ended March 31, 2024. In addition, we may be unable to uplist our securities in the time we intend, if at all. The completion of the Spin-Off will also require significant amounts of our management’s and other personnel’s time and effort, which may divert their attention away from operating and growing our business.

Until the Spin-Off occurs, the BitNile Board of Directors has sole discretion to change the terms of the Spin-Off in ways that may be unfavorable to us.

Until the Spin-Off occurs, BitNile will remain a principal stockholder. Completion of the Spin-Off remains subject to the discretion of BitNile, including approval by the BitNile board of directors. Additionally, BitNile has the discretion to change the terms of the Spin-Off, including the ratio, which changes could be unfavorable to us or our stockholders, or the security holders of BitNile. In addition, BitNile may decide at any time prior to the completion of the Spin-Off not to proceed with the Spin-Off. 

The future issuance of equity or of debt securities that are convertible into, or exercisable for common stock could have negative pressure on the market price of our common stock and could have a material adverse effect on our ability to raise additional equity capital.

We presently have outstanding 6% convertible notes held by our former officers and directors in the principal amount of  $845,565 that if converted would result in the issuance of approximately an additional 56,371,000 shares of our common stock. Furthermore, on March 29, 2023, we issued a promissory note in the principal amount of $165,000, net of discount, with a maturity date of March 27, 2024. The investor may in its option, at any time following an Event of Default, as defined in the Note, convert all or any part of the outstanding and unpaid amount of the note into fully paid and non-assessable shares of common stock at a conversion price per share equal to 75% of the average closing bid price of our common stock during the 5 trading days prior to the date of conversion. To meet our continuing working capital needs, we may choose to raise additional capital in the future, depending on market conditions, strategic considerations and operational requirements. To the extent that additional capital is raised through the issuance of shares or other securities convertible into, or exercisable for, shares of common stock, our stockholders will be diluted. Future issuances of our common stock or other equity securities, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock and impair our ability to raise capital through future offerings of equity or equity-linked securities. Accordingly, the adverse market and price pressures resulting from an offering pursuant to a registration statement may continue for an extended period of time and continued negative pressure on the market price of our common stock and could have a material adverse effect on our ability to raise additional equity capital.

We have not paid cash dividends in the past and do not expect to pay dividends in the future, so any return on investment may be limited to the value of our common stock.

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

Not applicable.

The Company’s leases approximately 14,300 square feet of office and shop space in Kilgore, Texas commencing August 1, 2022, for a term of 5 years. This space is sufficient to maintain our current and planned operations.

From time-to-time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this Report, we are not aware of any pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

Not applicable.

PART II

Market Information

Our common stock issued is quoted on the OTCQB under the symbol “WOEN.” On June 20, 2023, the last reported sale price of our common stock on the OTCQB was $0.03.

Stockholders

As of June 20, 2023, there were an estimated 790 holders of record of our common stock. A total of 9,915,648 shares of common stock are held in street name and are held by additional beneficial owners.

Dividends

We have never paid a cash dividend on our common stock since inception. The payment of dividends may be made at the discretion of our Board, and will depend upon, but not limited to, our operations, capital requirements, and overall financial condition.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board may consider relevant. We intend to follow a policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.

Recent Sales of Unregistered Securities

None.

Issuer Purchase of Equity Securities

None.

The following discussion of our financial condition and results of operations for the fiscal year ended March 31, 2023 ("FY 2023") and fiscal year ended March 31, 2022 ("FY 2022") and should be read in conjunction with the 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, Item 1A. Business and Item 1A. Risk Factors 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

Wolf Energy is a holding company which operates primarily in the transportation and logistics services business serving hydraulic fracking companies and assisting in their operations through Banner Midstream, which has two operating subsidiaries: Pinnacle Frac and 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. 

The Company has included in its historical consolidated financial statements certain operating expenses and other income (expense) from BitNile that have been allocated to them in FY 2023 (prior to the sale to the Company on September 7, 2022) and FY 2022, which are part of the Consolidated Statements of Operations for each of these periods. The allocations represented charges incurred by BitNile for certain corporate, infrastructure and shared services expenses, including legal, human resources, payroll, finance and accounting, employee benefits, insurance, information technology, telecommunications, treasury, and other expenses. 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.

Results of Operations for the Year ended March 31, 2023 and 2022

Revenue

The following table shows the Company’s revenues for the year ended March 31:

Revenues for the year ended March 31, 2023 (FY 2023) were $20,110,796 as compared to $18,750,053 for the year ended March 31, 2022 (FY 2022).  The increase of 7% was due to a higher mix of loads of concrete (average of approximately 760 loads per month at an average of $2,800 per load in FY 2023) compared to no concreate loads in FY 2022 offset by decreased loads of frac sand (average of approximately 1,700 loads per month in FY 2023 compared to approximately 2,800 loads per month in prior year) as well as lower rates per frac sand load (average of approximately $400 per load compared in FY 2023 compared to approximately $486 in FY 2022).   Equipment Rental and Other decreased in FY 2023 due to completion of an outstanding Capstone financing agreement in June 2022.

Costs and Expenses

The following table shows operating expenses for the year ended March 31:

There was an increase in total costs and expenses of approximately 30% for the year ended March 31, 2023 compared to prior year. The increase was driven by $9,614,576 higher depreciation, amortization and impairment expenses due to the impairment of goodwill of $8,514,017 and impairment of intangible assets of $1,459,358, increased costs of revenues (exclusive of other items shown) of $2,145,075 due to costs related to independent third-party owner-operator trucks and insurance costs, offset by  $3,142,680 lower selling, general and administrative expenses (“SG&A”), $1,356,536 lower salary and salary related costs.     

Selling, General and Administrative

The following table shows SG&A expenses for the year ended March 31:

Total SG&A costs decreased $3,142,680 from the year ended March 31, 2022 primarily due to lower capital raising expense related to a registered direct offering in August 2021, decreased repairs and maintenance costs as we utilized more owner operators than company owned trucks, and lower legal and professional costs due to lower stock-based compensation for consultant incurred in prior year. 

Depreciation and Amortization

The following table shows depreciation and amortization expenses for the year ended March 31:

Total depreciation and amortization expense was $10,397,900 for the year ended March 31, 2023, compared to $783,324 last year.

The Company recorded a total of $4,900,873 of goodwill in connection with the acquisition of Banner Midstream by BitNile.  At March 31, 2023, as required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) section 350-20-35 "Subsequent Measurement", goodwill was tested for impairment.   Based on qualitative testing, it was determined that there was evidence of impairment and the goodwill was fully impaired at March 31, 2023.

As the reverse merger transaction resulted in the owner of Banner gaining control over the combined entity after the transaction, and the shareholders of Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) 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 Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) accompanied by a recapitalization, except for the purchase of the 22,280,500 shares of issued and outstanding common shares of Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) which were considered as purchase consideration resulting in $3,613,144 of goodwill that was impaired immediately. 

In the acquisition of Banner Midstream by BitNile, 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. At March 31, 2023, as required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) section 360 "Property, Plant and Equipment", the customer relationship and non-compete agreements were tested for impairment.   Based on qualitative testing, it was determined that there was evidence of impairment and the agreements were fully impaired at March 31, 2023.

The presentation of depreciation has been included in our operating expenses based on SAB topic 11:B.  Depreciation is not considered a key performance indicator by management and is immaterial as a percentage of revenues.

Other Income (Expense)

The following table shows other income (expense) for the year ended March 31:

Total other (expense) was ($1,372,966) for the year ended March 31, 2023, compared to total other income of $10,647,808 in prior year. Change in fair value of derivative liabilities for the year ended March 31, 2022 was a non-cash income of $10,975,737 as compared to zero in current year. As noted, the changes in the derivative liability in FY 2022 were for a derivative liability recognized on BitNile’s books as it was indexed to their common stock. The Company recorded the advances received from its former parent, BitNile as additional paid in capital in the Exchange.   

For the year ended March 31, 2023 there was a (loss) on disposal of fixed assets of ($1,326,450), compared to a loss of ($6,770) in prior year.  The current year loss was a result of a disposal and impairment of assets worth $2,953,687 that had a net value of $1,039,737 for cash proceeds of $587,500.

Interest expense, net of interest income, for the year ended March 31, 2023 was ($46,516) as compared to ($321,159) for the prior year. The decrease in interest expense was the result of the expense incurred on the debt assumed in the Banner Midstream acquisition as well as the value related to the granting of warrants for interest in FY 2022.

Summary of cash flows

The following table summarizes our cash flows:

Net cash provided of $753,862 from operating activities in the year ended March 31, 2023 was primarily attributable to our ($13,274,207) net loss for the period consisting of $10,397,900 depreciation, amortization and impairment expense and $1,326,450 loss on disposal of fixed assets.

Net cash provided of $1,589,387 from operating activities in the year ended March 31, 2022 was primarily attributable to net income of $4,806,042 offset by an increase in home office allocations of ($2,954,442)

Net cash provided in investing activities during the year ended March 31, 2022 was attributable to proceeds from sale of fixed assets of $587,500 , offset by purchase of fixed assets of ($261,089)  Net cash provided in investing activities during the year ended March 31, 2022 was zero.

Net cash used in financing activities during the year ended March 31, 2023 was primarily due to repayments of long-term debt on equipment and notes payable offset by proceeds from short term debt. Net cash used in financing activities during the year ended March 31, 2022 was primarily due to repayments of long-term debt on equipment and payments made to reduce lease liabilities.

Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on several factors, many of which are beyond our control. Our independent auditors have included in their audit report an explanatory paragraph that states that our working capital deficits and accumulated deficit raises substantial doubt about our ability to continue as a going concern. If the Company fails to achieve profitability on a quarterly or annual basis, or to raise additional funds when needed, or does not have sufficient cash flows from sales, we may be required to scale back operations. As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Liquidity and Capital Resources:

Going Concern 

For the year ended March 31, 2023 and 2022, the Company had a net (loss) income from operations (not including the provision for income taxes) of ($13,029,424) and $4,891,042, respectively, has a working capital deficit of $1,654,456 and $1,607,004, respectively, and has an accumulated deficit as of March 31, 2023 of ($16,032,980). The report of our independent registered public accounting firm on our consolidated financial statements for the year ended March 31, 2023, filed as an exhibit to this report, 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 the Company 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.

Cash at March 31, 2023 was $574,233 as compared to $99,452 at March 31, 2022. Our working capital deficit at March 31, 2023 was $1,654,456 as compared to a working capital deficit at March 31, 2022 of $1,607,004. At March 31, 2023, the Company had an accumulated deficit of $16,032,980. Our current assets increased by 101% at March 31, 2023 as compared to March 31, 2022, which reflects increases in prepaid expenses and cash. Our current liabilities increased by -31% at March 31, 2023 as compared to March 31, 2022, primarily due to Notes Payable to prior owners of $845,565.

On April 5, 2021, FPA received a loan (the “2021 PPP Loan”) from Cross River Bank in the amount of $75,085, pursuant to the Payroll Protection Plan (PPP) under Division A, Title I of the CARES Act. FPA used the entire 2021 PPP Loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the 2021 PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Notification was received that the 2021 PPP Loan has been forgiven.

The Company does not have any external sources of liquidity and does not have any capital commitments.

Our ability to generate future revenues, generate sufficient cash flow to pay our operating expenses and report profitable operations in future periods will depend on a number of factors, many of which are beyond our control. Our independent auditors have included in their audit report an explanatory paragraph that states that our working capital deficits and accumulated deficit raises substantial doubt about our ability to continue as a going concern. If the Company fails to achieve profitability on a quarterly or annual basis, or to raise additional funds when needed, or does not have sufficient cash flows from sales, we may be required to scale back operations. As a result of the above, there is substantial doubt about the ability of the Company to continue as a going concern and the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. Absent an increase in revenues, we estimate we require approximately $1,000,000 of additional capital to maintain our operations for the next 12 months from the date of filing this Report.  If we fail to raise additional funds when needed, or if we do not have sufficient cash flows from operations, we may be required to scale back or cease certain of our operations.

Effective March 29, 2023, the Company entered into a Securities Purchase Agreement dated March 27, 2023 (the “Purchase Agreement”) with an accredited investor (the “Investor”), pursuant to which the Company sold the Investor a promissory note in the principal amount of $165,000, net of discount (the “Note”). The Note carries a one-time interest charge of twelve percent (12%) which was applied on the issuance date to the principal (22% upon the occurrence of an event of default) and has a maturity date of March 27, 2024. The Note included an original issue discount of $19,800 and transaction expenses of $4,250. The Company received gross proceeds of $165,000 in consideration of issuance of the Note.

The Note requires that the Company make monthly payments for accrued interest and outstanding principal, which shall be paid in ten (10) payments each in the amount of $20,697.60 for total repayment to the Holder of $206,976.00. The first payment was due May 15, 2023, with nine (9) subsequent payments each month thereafter. The Company has the right to accelerate payments or prepay in full at any time with no prepayment penalty.

Effective March 29 2023, Pinnacle Frac entered into separate agreements with institutional financing parties (each, a “Purchaser”) to provide an aggregate net financing amount of approximately $350,000 prior to expenses and fees of approximately $12,500.

Pinnacle Frac entered into a Purchase and Sale of Future Receipts dated as of March 28, 2023 (the “PSFR”); and Pinnacle Frac entered into a Standard Merchant Cash Advance Agreement dated as of March 28, 2023 (the “MCA”). Under each agreement, Pinnacle Frac sold to a Purchaser a specified percentage of its future sales and receipts (as defined by the applicable agreement). An aggregate purchased amount of such future receipts and sales of $480,000 was sold for an aggregate amount of $350,000, less origination and other fees, which resulted in a net aggregate amount of $337,500. Each agreement provides the Purchaser specified customary collection procedures for the collection and remittance of the weekly payable amount including direct payments from a specified authorized bank account of $10,625 under the PSFR and approximately $6,363 under the MCA. Each agreement expressly provides that the sale of the future receipts shall be construed and treated for all purposes as a true and complete sale of receivables at a discount, and not a loan. Each agreement provides that the title to the sold future receivables is transferred to the Purchaser under such agreement free and clear of all liens and includes customary remedies that may be exercised by such Purchaser upon a breach or default, including payment of attorney fees and costs of collection and, under the MCA, an amount equal to 25% of the then outstanding purchased amount of future receipts. Each agreement also provides customary provisions regarding, among other matters, representations, warranties and covenants, indemnification, arbitration, governing law and venue. Each agreement also provides for the grant by Pinnacle Frac of a security interest in the future receivables and other related collateral under the Uniform Commercial Code in accounts and proceeds.

Critical Accounting Policies, Estimates and Assumptions

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, including goodwill, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes, cost allocations from BitNile Metaverse, Inc. 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 of 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 fulfillment 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 sale of a load of crude oil to a buyer; (ii) the buyer will provide a price based on the average monthly price of crude oil in the most recent month; and (iii) cash is received the following month from the crude oil buyer.

Cost of sales for Pinnacle Frac 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 Pinnacle Frac, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent for both with and without recourse. Pinnacle Frac 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 years ended March 31, 2023 and 2022 had no common stock equivalents.

Cost Allocations

The accompanying consolidated financial statements and footnotes of the Company have been prepared in connection with the expected separation and have been derived from the consolidated financial statements and accounting records of BitNile Metaverse, Inc. 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 BitNile Metaverse 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 BitNile Metaverse for warrants granted in offerings of which proceeds went towards the operations of Banner Midstream, and conversions of debt. As noted, the derivative liabilities are included in BitNile Metaverse's books however, the advances made by BitNile Metaverse related to the proceeds received that were recognized as a derivative liability are included in the March 31, 2022 balance sheet as “Due to BitNile Metaverse, Inc.” which was reclassified to additional paid in capital. 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 our Parent are reasonable. Nevertheless, our financial statements may not include all of the 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.

We also may incur additional costs associated with being a standalone, publicly listed company that were not included in the expense allocations and, therefore, would result in additional costs that are not included in our historical results of operations, financial position and cash flows.

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.

Not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Wolf Energy Services Inc. (formerly known as Enviro Technologies U.S., Inc.)

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Wolf Energy Services Inc. (formerly known as Enviro Technologies U.S., Inc.) (the “Company”) as of March 31, 2023 and 2022, and the related consolidated statements of operations, stockholders deficit and cash flows for each of the two years in the period ended March 31, 2023, and the related notes and schedule (collectively referred to as “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023, and the results of its operations and its cash flows for each of the two years ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Substantial doubt about the Company's Ability to Continue as a Going Concern

The accompanying combined consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and had an accumulated deficit that raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 1. The combined consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 

Our audits included performing procedures to assess the risks of material misstatement of the combined consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures including examining, on a test basis, evidence regarding the amounts and disclosures in the combined consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there were no critical audit matters.

/s/ RBSM LLP

We have served as the Company’s auditor since 2020.

New York, NY

June 26, 2023

(*) On September 7, 2022, Banner Midstream Corp merged with Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) in a reverse merger.  Banner Midstream's parent, BitNile Metaverse, Inc., was issued 51,987,832 shares of Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) common stock in exchange for all the capital stock of Banner owned by BitNile Metaverse, which represents 100% of the issued and outstanding shares of Banner that were outstanding at the time of the reverse merger.  The Company has reflected this transaction retroactively in these interim financial statements.

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

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

(*) On September 7, 2022, Banner Midstream Corp merged with Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) in a reverse merger. Banner Midstream's parent, BitNile Metaverse, Inc., was issued 51,987,832 shares of Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc.) common stock in exchange for all the capital stock of Banner owned by BitNile Metaverse, which represents 100% of the issued and outstanding shares of Banner that were outstanding at the time of the reverse merger.  The Company has reflected this transaction retroactively in these interim financial statements along with amounts due to BitNile Metaverse that were exchanged for the capital stock

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

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

WOLF ENERGY SERVICES INC.

(FORMERLY ENVIRO TECHNOLOGIES U.S. INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2023 AND 2022

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Wolf Energy Services Inc., formerly known as 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 Agreement (defined below).

Effective September 7, 2002, BitNile Metaverse, Inc. (formerly Ecoark Holdings, Inc.), a Nevada corporation (“BitNile” or “Ecoark”) and Banner Midstream Corp. (“Banner” or “Banner Midstream”) completed a Share Exchange Agreement (the “Exchange Agreement”) with Wolf Energy Services Inc. Under the Agreement, BitNile acquired 51,987,832 shares of Wolf Energy Services Inc., common stock in exchange for all the capital stock of Banner owned by BitNile, which represents 100% of the issued and outstanding shares of Banner (the “Merger”). Upon closing of the Exchange Agreement, Banner became a wholly-owned subsidiary of Wolf Energy Services Inc. via a reverse merger. As a result, the historical financial information of the company is that of Banner. The transaction was accounted for as a reverse merger whereby Banner Midstream is considered the accounting acquirer. Since the reverse merger occurred with a non-shell public company, the transaction included the purchase of the non-controlling interest of Wolf Energy Services Inc.

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.

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 Merger to conform to Banner's year end.

Forward Split and Corporate Name Change

On January 13, 2023, the Company completed a 4-for-1 forward stock split of its issued and outstanding shares of its common stock to shareholders of record as of the close of business on December 30, 2022. The Company filed articles of amendment to its articles of incorporation with the Secretary of State of the State of Florida effective January 17, 2023. Pursuant to a unanimous written consent of the Company’s board of directors, the only change reflected in the articles of amendment is an increase in the authorized number of shares of common stock of the Company from 250,00,000 shares to 1,000,000,000 shares in connection with the Company’s 4-for-1 forward stock split. Throughout these financial statements, common stock share and per share information, including stock award units, options and the Company's convertible note conversion ratio in common stock shares have been revised for all periods presented to give effect to the forward stock split.

On December 30, 2022 the Company’s board of directors and majority shareholder approved a name change of the Company to “Wolf Energy Services Inc.”, as the new name will better reflect the Company’s business and operations. On January 30, 2023, the Company filed articles of amendment to its articles of incorporation with the Secretary of State of Florida and after processing by FINRA, the Company formally changed its name to Wolf Energy Services Inc. effective February 1, 2023. Additionally, effective February 1, 2023, Wolf Energy Services Inc. began begin trading under its new ticker symbol, WOEN.

Basis of Presentation

The Company’s 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).

As the reverse merger transaction resulted in the owner of Banner gaining control over the combined entity after the transaction, and the shareholders of Wolf Energy Services Inc. 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 Wolf Energy Services Inc. accompanied by a recapitalization, except for the purchase of the 22,280,500 shares of issued and outstanding common shares of Wolf Energy Services Inc. which were considered as purchase consideration resulting in $3,613,144 of goodwill that was impaired immediately. As a result, the historical balances represent Banner. See Note 2, “Reverse Merger” for full details on the accounting for the reverse merger.

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 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 the Company 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 the Company, accounts receivable is comprised of unsecured amounts due from customers that have been conveyed to a factoring agent for both with and without recourse. The Company 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. The Company as of and for the years ended March 31, 2023 and 2022 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 years ended March 31, 2023 and 2022, the Company had a net (loss) income from continuing operations (not including the provisions for income taxes) of ($13,029,424) and $4,891,042, respectively, has a working capital deficit of  $1,654,456 and $1,607,004 as of March 31, 2023 and 2022, and has an accumulated deficit as of March 31, 2023 of ($16,032,980). As of March 31, 2023, the Company has $574,233 in cash and cash equivalents.

Banner has historically relied on BitNile 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 private placement of its securities, although there are no assurances the Company will be successful at raising any capital.

Impact of COVID-19

COVID-19 did not have a material effect on the Statements of Operations or the Balance Sheets for the years ended March 31, 2023 and 2022. While COVID-19 has contributed to global supply chain disruptions, such disruptions have not had a material effect for the Company. The Company will continue to monitor the supply chain shortages affecting the world.

NOTE 2: 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 (Wolf Energy Services 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:

Wolf Energy Services Inc., issued BitNile Metaverse, Inc. 51,987,832 shares of common stock valued at $5,328,753 in the reverse merger transaction.

On September 7, 2022, the Company completed the reverse merger transaction of Banner Midstream. As a result of this transaction, which is accounted for as a reverse merger, Banner is a wholly owned subsidiary of Wolf Energy Services Inc. In accordance with the terms of the Merger, at the effective time of the Merger, each outstanding share of the common stock of Banner was acquired by the Company in consideration of 51,987,832 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 Wolf Energy Services Inc. under ASC 805 due to Banner being the accounting acquirer and Wolf Energy Services, Inc. being deemed an acquired business as they were not a shell corporation. This requires financial reporting from the Merger close date forward to reflect only the historic consolidated results of Banner and to include the consolidated results for Wolf Energy Services from September 7, 2022, forward. There has been no change in basis from the standpoint of Banner.

The primary reason Banner consummated the Merger with Wolf Energy Services Inc. was the opportunity for the Banner subsidiary previously wholly owned by BitNile to immediately become a standalone public company without the process of doing its own initial public offering, affording it the opportunity to raise capital more quickly. Following the closing of the Merger, management of the Company determined to discontinue the historical and existing business of Wolf Energy Services.  

The estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by Banner of Wolf Energy Services Inc. via the reverse acquisition are set forth below in accordance with the guidance under ASC 805:

Purchase Price Allocation of Wolf Energy Services, Inc.

This allocation is based on management’s estimated fair value of the Wolf Energy Services assets and liabilities as of September 7, 2022, utilizing the guidance in ASC 820-10-35 which included the measurement based on a known level one input regarding the applicable share price as well as the level of activity in the Company. Wolf Energy Services Inc.’s net liabilities were derived from a total value of $2,283,751, based on 22,280,500 shares of common stock on September 7, 2022, and the price of $0.10 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 table shows the unaudited pro-forma results for the years ended March 31, 2023 and 2022, as if the acquisition had occurred on April 1, 2022 and 2021 respectively. 

The consolidated statements of operations and cash flows represent the operations of Banner for the years ended March 31, 2023 and 2022 and include cost allocations from Banner’s former parent BitNile as discussed below.

Cost Allocations

The accompanying consolidated financial statements and footnotes of Banner have been prepared in connection with the closing of the Exchange and have been derived from the consolidated financial statements and accounting records of BitNile 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 BitNile 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 BitNile for warrants granted in offerings of which proceeds went towards the operations of Banner Midstream, and conversions of debt. As noted, the derivative liabilities are included in BitNile's financial statements however, the advances made by BitNile related to the proceeds received that were recognized as a derivative liability are included in the March 31, 2022 balance sheet as "Due to BitNile". 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 BitNile are reasonable. Nevertheless, our financial statements may not include all actual expenses and income that would have been incurred had the Company 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 the Company 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 years ended March 31:

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 March 31, 2023 and 2022:

As of March 31, 2023, 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, a historical subsidiary of Banner Midstream. 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.

In October 2022, the Company sold equipment and incurred a loss of $21,227.

In January 2023, the Company sold equipment and incurred a loss of $333,976.

In February 2023, the Company sold $28,723 of fixed assets for $7,500 and incurred a loss of $21,223

Depreciation expense for the years ended March 31, 2023 and 2022:

NOTE 5: INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following as of March 31, 2023 and 2022:

In the acquisition of Banner Midstream by BitNile, 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. At March 31, 2023, as required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) section 360 "Property, Plant and Equipment", the customer relationship and non-compete agreements were tested for impairment.   Based on qualitative testing, it was determined that there was evidence of impairment and the agreements were fully impaired at March 31, 2023.

In addition to the statutory based intangible assets noted above, the Company recorded a total of $4,900,873 of goodwill in connection with the acquisition of Banner Midstream by BitNile. At March 31, 2023, as required by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) section 350-20-35 "Subsequent Measurement", goodwill was tested for impairment.   Based on qualitative testing, it was determined that there was evidence of impairment and the goodwill was fully impaired at March 31, 2023.

Amortization expense for the years ended March 31, 2023 and 2022:

NOTE 6: ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of March 31, 2023 and 2022:

NOTE 7: LONG-TERM DEBT

Long-term debt consisted of the following as of March 31, 2023 and 2022. All of the long-term debt (a – e) in the chart below was repaid prior to the Merger on September 7, 2022.

Interest expense on long-term debt during the years ended March 31, 2023 and 2022 are $8,685 and $65,248, 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.  In the year ended March 31, 2023, $73,994 of the PPP loan was forgiven.  $37,977 balance remains.  These loans are reflected in current and long-term liabilities held for sale as of March 31, 2023.

NOTE 8: NOTES PAYABLE

During the year ended March 31, 2023, Wolf Energy Services Inc. had been advanced certain amounts by the former directors/officers and the former directors/officers had converted accrued compensation to both convertible and non-convertible promissory notes as reflected below.

Interest expense on the notes payable during the years ended March 31, 2023 and 2022 are $37,103 and $0, respectively.

NOTE 9: STOCKHOLDERS’ EQUITY (DEFICIT)

The Company has 5,000,000 shares of preferred stock and 1,000,000,000 shares of common stock authorized at $0.001 par value per share, and there were 78,268,332 and 51,987,832 common shares issued and outstanding at March 31, 2023 and 2022, respectively, and no shares of preferred stock issued and outstanding, respectively.  

In September 2022, the Company issued 51,987,832 shares of common stock in a Share Exchange Agreement with BitNile and Banner Midstream Corp. The shares were valued at $0.10 per share ($5,328,753) as that was the value per share of the common stock at closing.

On December 19, 2022, the Company's Board of Directors approved a four-for-one forward stock split for shareholders of record as of December 30, 2022.

On December 29, 2022, the Company issued 4,000,000 shares of common stock in conversion of convertible promissory notes in the amount of $60,000.

There were no equity transactions for the year ended March 31, 2022.

Stock Options

As of March 31, 2023 and 2022, there remains 40,000 fully vested stock options that expire November 2023 at a $0.025 strike price. There is no stock-based compensation for the years ended March 31, 2023 and 2022. The intrinsic value of these options at March 31, 2023 is $2,300.

Restricted Stock Units

Pursuant to the Employment Agreement with the Company's CEO, Jimmy Galla dated November 15, 2022, the Company granted 10,000,000 restricted stock units that vest quarterly for 20 consecutive quarters (500,000 per quarter). The Company has expensed $56,250 in these restricted stock units for the year ended March 31, 2023. There was no expense for the year ended March 31, 2022.

NOTE 10: CONCENTRATIONS

Customer Concentration. One and two customers accounted for more than 10% of the accounts receivable balance at each of March 31, 2023 and 2022, respectively for a total of 85% and 88% of accounts receivable, respectively. In addition, two and two customers represent approximately 82%  and 96% of total revenues for the Company for the years ended March 31, 2023 and 2022, 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) and accounts 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 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 March 31, 2023, the value of the unamortized lease right of use asset for the operating leases is $297,744 (through maturity in September 2027). As of March 31, 2023, the Company’s lease liability was $299,544 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 Share Exchange Agreement, 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 March 31, 2023 and 2022 – Discontinued Operations:

Current liabilities as of March 31, 2023 and 2022 –Discontinued Operations:

Non-current liabilities as of March 31, 2023 and 2022 –Discontinued Operations:

The Company reclassified the following operations to discontinued operations for the years ended March 31, 2023 and 2022, respectively.

NOTE 13: COMMITMENT

On November 15, 2022, the Company entered into a five-year Employment Agreement with its CEO, Jimmy Galla. Under the terms of the Employment Agreement, the Company agreed to compensate its CEO at a rate of $250,000 annually (“Base Pay”). In addition to the Base Pay, Mr. Galla shall be eligible to earn an annual bonus of up to 100% of the Base Pay based on terms and conditions, including the financial performance of the Company, as well as individual performance goals, as set forth in a bonus plan that is to be determined by the Company’s Board of Directors. The Company also granted Mr. Galla 10,000,000 restricted stock units that vest quarterly for 20 consecutive quarters (500,000 per quarter). Through March 31, 2023, Mr. Galla has vested 1,000,000 restricted stock units.  Those shares have not been issued to Mr. Galla.

NOTE 14: INCOME TAXES

The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended March 31, 2023 and 2022: