WOLF ENERGY SERVICES INC. - Quarter Report: 2023 June (Form 10-Q)

INDEX

STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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:

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

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “WOEN,” the “Company,” “we,” “our,” “us,” and similar terms refers to Wolf Energy Services Inc., formerly known as Enviro Technologies U.S., Inc., a Florida corporation, and our subsidiaries. In addition, “first quarter of fiscal year 2024” refers to the three months ended June 30, 2023 and “first quarter of fiscal year 2023” refers to the three months ended June 30, 2022. We maintain a corporate website at www.wolf-energy.com. Unless specifically set forth to the contrary, the information which appears on our website at www.wolf-energy.com is not part of this report.

Throughout this quarterly report 10-Q (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.

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.

Table of Contents

PART 1.  FINANCIAL INFORMATION

Item 1. 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.

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

The accompanying notes are an integral part of these unaudited condensed 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, Inc., 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 Ecoark Holdings that were exchanged for the capital stock.

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

Table of Contents

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

WOLF ENERGY SERVICES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 

JUNE 30, 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”) 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 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. Prior to June 2023, 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.   During June 2023, The Company entered into an agreement whereby the company does not factor or receive an advance on amounts invoiced to customers.   The Company now receives 92.5% of the amount invoiced within one business day.   The Company recognizes revenue for 100% of the gross amount invoiced, records an expense for the 7.5% fee charged by the agent, and realizes cash for the 92.5% net proceeds received.

Reclassifications

The Company has reclassified certain amounts in the June 30, 2022 condensed consolidated financial statements to be consistent with the June 30, 2023 presentation. These changes had no impact on the Company’s financial position or result of operations for the periods presented.

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.

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 three months ended June 30, 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 three months ended June 30, 2023 and 2022, the Company had a net loss from continuing operations (not including the provisions for income taxes) of ($1,111,779) and ($1,636,771) respectively, has a working capital deficit of $2,207,135 and $1,654,456 as of June 30, 2023 and  March 31, 2023 respectively, and has an accumulated deficit as of  June 30, 2023  of ($17,176,283). As of  June 30, 2023, the Company has $166,644 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 three months ended June 30, 2023 and 2022 or as of  June 30, 2023 and March 31, 2023, respectively. 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.

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 three months ended June 30, 2023  and 2022:

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  June 30, 2023 and March 31, 2023:

As of   June 30, 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

In May 2023, the Company sold $118,266 of fixed assets for $75,000 and incurred a loss of $43,266

In June 2023, the Company sold $400,688 of fixed assets for $145,000 and incurred a loss of $255,688

Depreciation expense for the three months ended June 30, 2023 and 2022:

NOTE 5: ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of June 30, 2023 and March 31, 2023:

NOTE 6: NOTES PAYABLE

The following is a summary of our notes payable as of June 30, 2023 and March 31, 2023, respectively.

Interest expense on the notes payable during the three months ended June 30, 2023 and 2022 are $104,172 and $0, respectively.

NOTE 7: 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 78,268,332 common shares issued and outstanding at  June 30, 2023 and March 31, 2023, 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 three months ended June 30, 2022.

Stock Options

As of  June 30, 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 three months ended June 30, 2023 and 2022. The intrinsic value of these options at June 30, 2023 is $2,300.

Restricted Stock Units

Pursuant to the Employment Agreement with the Company's Former 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 $37,500 in these restricted stock units for the three months ended June 30, 2023. There was no expense for the three months ended June 30, 2022

NOTE 8: CONCENTRATIONS

Customer Concentration. Three and one customers accounted for more than 10% of the accounts receivable balance at each of  June 30, 2023 and March 31, 2023, respectively for a total of 86%  and 85% of accounts receivable, respectively. In addition, two and three customers represent approximately 94%  and 72%  of total revenues for the Company for the three months ended June 30, 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 9: 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  June 30, 2023, the value of the unamortized lease right of use asset for the operating leases is $278,919  (through maturity in September 2027). As of  June 30, 2023, the Company’s lease liability was $281,619  from operating leases.

Total Lease Cost

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

NOTE 10: 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  June 30, 2023 and March 31, 2023 – Discontinued Operations:

Current liabilities as of  June 30, 2023 and March 31, 2023 – Discontinued Operations:

Non-current liabilities as of  June 30, 2023 and March 31, 2023 –Discontinued Operations:

The Company reclassified the following operations to discontinued operations for the three months ended June 30, 2023 and 2022, respectively.

NOTE 11: COMMITMENT

On November 15, 2022, the Company entered into a five-year Employment Agreement with its former 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 June 30, 2023, Mr. Galla has vested 1,500,000 restricted stock units.  Those shares have not been issued to Mr. Galla.

NOTE 12: SUBSEQUENT EVENTS

On July 31, 2023, Jimmy Galla, Chief Executive Officer, Chief Financial Officer, and a director of Wolf Energy Services Inc. (the “Company”), resigned from his positions as an officer and director of the Company to pursue other interests. Mr. Galla's departure from the Company was amicable and he was in good standing at the time of his resignation. As a result of his resignation from his positions with the Company, Mr. Galla is no longer an employee or director of the Company or any subsidiary. Following Mr. Galla’s resignation the board of directors appointed Jimmy “JD” Reedy to serve as interim Chief Executive Officer of the Company. Mr. Reedy has served on the board of directors of the Company since September 2022 and as the chief operating officer of Banner Midstream Corp., a wholly owned subsidiary of the Company, since April 2019. Description of the five-year business experience, compensatory arrangements and related party transactions of Mr. Reedy has previously been disclosed by the Company in its filings with the Securities and Exchange Commission, most recently in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 filed on June 26, 2023.

On August 8, 2023, Robert Carr (“Carr”), a former employee of Pinnacle Frac Transport LLC, filed a complaint in the United States District Court for the Eastern Division of Texas Sherman Division alleging violations of the Fair Labor Standards Act (FLSA) and seeks to recover overtime pay, liquidated damages, post judgement interest and attorneys’ fees and cost. Specifically, Carr alleges that he and other similarly situated employees were not paid time and one-half their respective regular rates of pay for all hours worked over 40 in each seven day work week. The complaint seeks to certify a collective action under the FLSA comprised of employees employed by Pinnacle Frac during a period of three years prior to the filing of the complaint. At this time the Company cannot estimate either the size of any potential class or the value or validity of the claims asserted if this action were to proceed. For these reasons, the Company is unable to estimate any potential loss or range of loss in such a scenario; however, if the Company is not successful in its defense efforts, the resolution of Carr could have a material adverse effect on the Company’s financial statements as a whole.

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

The following discussion of our financial condition and results of operations for the three months ended June 30, 2023 and 2022 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. The discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as the Company's plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Statement Regarding Forward Looking Information in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

Effective September 7, 2002, BitNile Metaverse, Inc., a Nevada corporation (“BitNile”) and Banner Midstream Corp. (“Banner” or “Banner Midstream”) completed a Share Exchange Agreement (the “Agreement”) with Wolf Energy Services Inc. (formerly Enviro Technologies U.S., Inc). Under the Agreement, BitNile acquired 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, which represents 100% of the issued and outstanding shares of Banner (the “Merger”). Upon closing of the Agreement, Banner became a wholly owned subsidiary of Wolf Energy Services Inc. (formerly Enviro Technologies U.S., 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. (formerly Enviro Technologies US, Inc).

Immediately following the Closing, BitNile owned approximately 70% of the issued and outstanding shares of Wolf Energy Services Inc. (formerly Enviro Technologies U.S. Inc.) common stock. BitNile is quoted on the Nasdaq Capital Market under the symbol “BNMV”. At the Closing Jimmy R. Galla was appointed Chief Executive Officer and Chief Financial Officer of the Company. Following the Closing, Raynard Veldman and John A. DiBella resigned as directors of the Company and John A. DiBella resigned as Chief Executive Officer and Chief Financial Officer of the Company. Mr. DiBella continues to serve as the sole officer of Florida Precision Aerospace, Inc., a wholly owned subsidiary of the Company (“FPA”).

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

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

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

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

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

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

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

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

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

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

Going Concern 

For the three months ended June 30, 2023 and 2022, the Company had a net (loss) income from continuing operations (not including the provision for income taxes) of ($1,111,779) and ($1,636,771), respectively, has a working capital deficit of  $2,207,135  and $1,654,456 as of June 30, 2023 and March 31, 2023, and has an accumulated deficit as of June 30, 2023 of ($17,176,283). 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 the Company’s Form 10-K filed on June 26, 2023 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.

Results of Operations for the three months ended June 30, 2023 and 2022

Revenue

The following table shows the Company’s revenues for the three months ended June 30, 2023 and 2022:

Revenues for the three months ended June 30, 2023  (Q1 FY 2024) were $2,343,558  as compared to $5,418,655 for the three months ended June 30, 2022 (Q1 FY 2023).  The decrease of 57%  was due to a significant decrease in loads of frac sand (average of approximately 1,200 loads per month in Q1 FY 2024 compared to approximately 2,200 loads per month in prior year) as well as lower rates per frac sand load (average of approximately $700 per load compared in Q1 FY 2024 compared to approximately $800 in Q1 FY 2023).  Fuel rebate saw a similar decrease due to lower frac sand loads in Q1 FY 2024 compared to prior year.

Costs and Expenses

The following table shows operating expenses for the three months ended June 30, 2023 and 2022:

There was a decrease in total costs and expenses of approximately 50% for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease was driven by lower costs of revenues (exclusive of other items shown) of  ($3,048,768) due to costs related to independent third-party owner-operator trucks as frac sand load counts decreased.

Selling, General and Administrative

The following table shows SG&A expenses for the three months ended June 30, 2023 and 2022:

Total SG&A costs for the three months ended June 30, 2023 decreased  $43,585 as compared to the three months ended June 30, 2022 primarily due to lower repairs and maintenance costs as we utilized more owner operators than company owned trucks offset by higher insurance costs of $621,313 in Q1 FY 2024 compared to $447,729 in Q1 FY 2023.

Depreciation and Amortization

The following table shows depreciation and amortization expenses for the three months ended June 30, 2023 and 2022:

Total depreciation and amortization expense for the three months ended June 30, 2023 was $29,056 compared to $112,829 for the same period last year.

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 Expense

The following table shows other income (expense) for the three months ended June 30, 2023 and 2022

:

Total other expense was ($405,981)  for the three months ended June 30, 2023, compared to ($957,302) in the three months ended June 30, 2022. 

For the three months ended June 30, 2023 there was a (loss) on disposal of fixed assets of  ($298,953)  compared to a loss of  ($950,024)  in the three months ended June 30, 2022.  The loss in Q1 FY 2024 was a result of a disposal of assets worth $599,411 that had a net value of $518,954 for cash proceeds of $220,000.  The loss in Q1 FY 2023 was a result of a disposal of assets worth $2,557,172 that had a net value of $1,530,024 for cash proceeds of $580,000.

Interest expense, net of interest income, for the three months ended June 30, 2023 was ($107,028) as compared to ($7,278)  for the three months ended June 30, 2022. The increase  in interest expense was primarily the result of the expense incurred on the short term debt that was acquired in March 2023 with none in the three months ended June 30, 2022.

Summary of cash flows

The following table summarizes our cash flows:

Net cash used in operating activities of ($461,747)  in the three months ended June 30, 2023  was primarily attributable to our ($1,143,303)  net loss for the period, an increase in prepaid expenses of ($554,743) offset by higher accrued payables and accrued liabilities of $820,601 and a loss on disposal of fixed assets of $298,953.

Net cash used in  operating activities of ($181,935)  in the three months ended June 30, 2022  was primarily attributable to net loss of ($1,636,771) for the period, an increase in prepaid expense and other current assets of ($1,491,522), offset by an increase in accrued payable and accrued liabilities of $1,403,852 and loss on disposal of fixed assets of $950,024

Net cash provided by investing activities during the three months ended June 30, 2023 was attributable to proceeds from sale of fixed assets of $220,000  Net cash provided by investing activities during the three months ended June 30, 2022 was $580,000

Net cash used in financing activities during the three months ended June 30, 2023 was due to repayments of short--term debt, net of discount. Net cash used in financing activities during the three months ended June 30, 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 three months ended June 30, 2023 and 2022, the Company had a net loss from operations (not including the provision for income taxes) of ($1,111,779) and ($1,636,771), respectively, has a working capital deficit of $2,207,135  and $1,654,456, respectively, and has an accumulated deficit as of June 30, 2023 of ($17,176,283). 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 June 30, 2023 was $166,644 as compared to $574,233  at March 31, 2023. Our working capital deficit at June 30, 2023 was $2,207,135 as compared to a working capital deficit at March 31, 2023 of $1,654,456. At June 30, 2023, the Company had an accumulated deficit of $17,176,283. Our current assets increased  by 7%  at June 30, 2023 as compared to March 31, 2023, which reflects increases in prepaid expenses offset by a decrease in cash. Our current liabilities increased by -22% at June 30, 2023 as compared to March 31, 2023, primarily due to higher accounts payable and accrued liabilities offset by lower balances on short-term debt, net of discount.

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

At the present time, we do not have arrangements to raise additional capital, and we may need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations, covenants and financial ratios that may restrict our ability to operate and grow our business.

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.

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 period ended June 30, 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.

Off Balance Sheet Arrangements

As of the date of this report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guaranteed contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Key Trends

Impact of Inflation

In 2022 and continuing into 2023, data indicates a sharp rise in inflation in the U.S. and globally. In the U.S., inflation has been triggered by the war in the Ukraine, constrained supplies and increasing demand of certain goods and services as recovery from the COVID-19 pandemic continues. The Company’s revenues, capital and operating costs are influenced to a larger extent by specific price changes in the oil and natural gas industry and allied industries rather than by changes in general inflation. Crude oil prices generally reflect the balance between supply and demand, with crude oil prices being particularly sensitive to OPEC production levels, the Biden Administration’s efforts to reduce drilling and transition away from fossil fuels and/or attitudes of traders concerning supply and demand in the future. Prices for oil and gas related services such as those we supply though Pinnacle Frac and truck drivers we procure to assist in those efforts are also affected by the worldwide prices for crude oil. As a result of increasing prices for oil and natural gas, in 2021 and 2022, higher costs for goods and services in the oil and gas industry are being observed.

In response to recent inflationary pressures in the U.S., the Federal Reserve commenced interest rate hikes in calendar year 2022 that continue into 2023 in an effort to combat inflation. Because of these and other developments, a recession is expected in the coming months by many economic analysts, which may, among other things, reduce demand for our products and services as well as increase operating costs to the extent the Company is unable to procure required resources to continue our operations. As a result of the overall volatility of oil prices, it is not possible to predict the Company’s future cost of services it uses or provides.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting company.

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer who also serves as our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2023. On June 30, 2023, our management concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

Except for the internal controls adopted by the Company pursuant to the Merger, there were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 8, 2023, Robert Carr (“Carr”), a former employee of Pinnacle Frac Transport LLC, filed a complaint in the United States District Court for the Eastern Division of Texas Sherman Division alleging violations of the Fair Labor Standards Act (FLSA) and seeks to recover overtime pay, liquidated damages, post judgement interest and attorneys’ fees and cost. Specifically, Carr alleges that he and other similarly situated employees were not paid time and one-half their respective regular rates of pay for all hours worked over 40 in each seven day work week. The complaint seeks to certify a collective action under the FLSA comprised of employees employed by Pinnacle Frac during a period of three years prior to the filing of the complaint. At this time the Company cannot estimate either the size of any potential class or the value or validity of the claims asserted if this action were to proceed. For these reasons, the Company is unable to estimate any potential loss or range of loss in such a scenario; however, if the Company is not successful in its defense efforts, the resolution of Carr could have a material adverse effect on the Company’s financial statements as a whole.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. In addition to the other information set forth in this report you should carefully consider the risk factors in our previously filed reports and our subsequent filings with the SEC, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC.

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

All recent sales of  unregistered securities have been previously reported.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable to our company.

Item 5. Other Information

None.

Item 6. Exhibits

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at Wolf Energy Services Inc., 408 State Highway 135 N, Kilgore, Texas, 75662.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 18, 2023.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated.