Form 10-Q Banner Energy Services For: Sep 30

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2020

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

Commission file number 333-192060

 

Banner Energy Services Corp.

(Exact name of registrant as specified in its charter)

 

Nevada		45-3797537
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

609 West Dickson St., Suite 102 G, Fayetteville, AR		72701
(Address of principal executive offices)		(Zip Code)

 

Issuer’s telephone number: (800) 203-5610

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the proceeding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer	[  ]	Accelerated filer	[  ]
	Non-accelerated filer	[X]	Smaller reporting company	[X]
	Emerging growth company	[  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

As of December 4, 2020, the issuer had 7,000,000 shares of its common stock, $0.0001 par value per share, outstanding.

 

Securities registered pursuant to Section 12(b) of the Act: None

 

 

 

TABLE OF CONTENTS

 

		Page
	PART I - Financial Information
Item 1	Condensed Consolidated Financial Statements (Unaudited)	F-1
	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019.	F-1
	Condensed Consolidated Statements of Operations (unaudited) for the nine and three months ended September 30, 2020 and 2019.	F-2
	Consolidated Statement of Stockholders’ Equity (Deficit) (unaudited) for the nine and three months ended September 30, 2020 and 2019	F-4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2020 and 2019.	F-5
	Notes to Condensed Consolidated Financial Statements (unaudited)	F-6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4	Controls and Procedures	7
	Part II - Other Information
Item 1	Legal Proceedings	8
Item 5	Other Information	9
Item 6	Exhibits	10
	Signatures	11

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Banner Energy Services Corp.

Condensed Consolidated Balance Sheets

September 30, 2020 (Unaudited) and December 31, 2019

 

		September 30, 2020				December 31, 2019
Assets
Current assets:
Cash		$	4,936			$	-
Investment			2,100,000				-
Current assets of discontinued operations			-				793,712
Total current assets			2,104,936				793,712
Noncurrent assets:
Assets of discontinued operations			-				4,517,209
Total noncurrent assets			-				4,517,209
Total assets		$	2,104,936			$	5,310,921
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable and other current liabilities		$	23,435			$	-
Current liabilities of discontinued operations			-				10,089,955
Note payable – related parties			55,638				-
Total current liabilities			79,073				10,089,955
Liabilities of discontinued operations			-				1,029,414
Total liabilities			79,073				11,119,369
Commitments and contingencies
Stockholders’ Equity (Deficit):
Common stock, $0.0001 par value; 200,000,000 shares authorized, 7,000,000 and 6,865,853 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively			700				686
Additional paid in capital			3,397,148				3,192,162
Retained earnings (deficit)			(1,371,985	)			(9,001,296	)
Total stockholder’ equity (deficit)			2,025,863				(5,808,448	)
Total liabilities and stockholders’ equity (deficit)		$	2,104,936			$	5,310,921

 

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

 

 

Banner Energy Services Corp.

Condensed Consolidated Statements of Operations (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019

 

		2020				2019
Revenue		$	-			$	-
Cost of Sales			-				-
Gross Profit			-				-
Operating expenses:
Salaries and wages, including stock-based compensation			225,000				-
Selling, general and administrative expenses			53,424				-
Total operating expenses			278,424				-
Operating loss			(278,424	)			-
Other income (expense):
Interest expense			(638	)			-
Unrealized gain on investment			1,556,000				-
Total other income (expense)			1,555,362				-
Income from continuing operations before provision for income taxes			1,276,938				-
Provision for income taxes			-				-
Income from continuing operations			1,276,938				-
Gain (loss) from discontinued operations			6,352,373				(2,641,232	)
Net income (loss)		$	7,629,311			$	(2,641,232	)
Net income (loss) per share - basic:
Basic and diluted – continuing operations		$	0.18			$	(0.00	)
Basic and diluted – discontinued operations			0.92				(0.45	)
Net income (loss) per share		$	1.10			$	(0.45	)
Net income (loss) per share - diluted:
Basic and diluted – continuing operations		$	0.18			$	(0.00	)
Basic and diluted – discontinued operations			0.91				(0.45	)
Net income (loss) per share		$	1.09			$	(0.45	)
Weighted average shares outstanding - basic			6,925,073				5,839,583
Weighted average shares outstanding - diluted			6,996,122				5,839,583

 

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

 

 

Banner Energy Services Corp.

Condensed Consolidated Statements of Operations (Unaudited)

For the Three Months Ended September 30, 2020 and 2019

 

		2020				2019
Revenue		$	-			$	-
Cost of Sales			-				-
Gross Profit			-				-
Operating expenses:
Salaries and wages, including stock-based compensation			170,000				-
Selling, general and administrative expenses			46,715				-
Total operating expenses			216,715				-
Operating loss			(216,715	)			-
Other income (expense):
Interest expense			(638	)
Unrealized loss on investment			(1,000,000	)			-
Total other income (expense)			(1,000,638	)			-
Income from continuing operations before provision for income taxes			(1,217,353	)			-
Provision for income taxes			-				-
Income from continuing operations			(1,217,353	)			-
Gain (loss) from discontinued operations			-				(1,204,852	)
Net income (loss)		$	(1,217,353	)		$	(1,204,852	)
Net income (loss) per share - basic:
Basic and diluted – continuing operations		$	(0.17	)		$	(0.00	)
Basic and diluted – discontinued operations			0.00				(0.20	)
Net income (loss) per share		$	(0.17	)		$	(0.20	)
Net income (loss) per share - diluted:
Basic and diluted – continuing operations		$	(0.17	)		$	(0.00	)
Basic and diluted – discontinued operations			0.00				(0.20	)
Net income (loss) per share		$	(0.17	)		$	(0.20	)
Weighted average shares outstanding - basic			6,974,494				5,930,304
Weighted average shares outstanding - diluted			6,974,494				5,930,304

 

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

 

 

Banner Energy Services Corp.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited)

For the Nine and Three Months ended September 30, 2020 and 2019

 

		Common Shares				Amount				Additional Paid-In Capital				Accumulated Deficit				Total
Balances at December 31, 2018			5,668,246			$	567			$	2,003,740			$	(3,708,360	)		$	(1,704,053	)
Shares issued for services			31,952				3				89,997				-				90,000
Shares issued for cash in private placement			19,797				2				55,504				-				55,506
Net loss for the period			-				-				-				(1,043,315	)			(1,043,315	)
Balances at March 31, 2019			5,719,995				572				2,149,241				(4,751,675	)			(2,601,862	)
Shares issued for services			31,966				3				89,997				-				90,000
Shares issued for cash in private placement			177,463				18				300,017				-				300,035
Net loss for the period			-				-				-				(393,065	)			(393,065	)
Balances at June 30, 2019			5,929,424				593				2,539,255				(5,144,740	)			(2,604,892	)
Shares issued for cash in private placement			1,052				-				30,000				-				30,000
Net loss for the period			-				-				-				(1,204,852	)			(1,204,852	)
Balances at September 30, 2019			5,930,476			$	593			$	2,569,255			$	(6,349,592	)		$	(3,779,744	)
Balances at December 31, 2019			6,865,853			$	686			$	3,192,162			$	(9,001,296	)		$	(5,808,448	)
Shares issued for services			50,000				5				54,995				-				55,000
Fractional shares issued for Banner Midstream acquisition			340				1				(1	)			-				-
Net income for the period			-				-				-				6,338,375				6,338,375
Balances at March 31, 2020			6,916,193				692				3,247,156				(2,662,921	)			584,927
Net income for the period			-				-				-				2,508,289				2,508,289
Balances at June 30, 2020			6,916,193				692				3,247,156				(154,632	)			3,093,216
Shares issued for services			83,807				8				125,702				-				125,710
Contributed capital for services rendered			-				-				24,290				-				24,290
Net loss for the period			-				-				-				(1,217,353	)			(1,217,353	)
Balances at September 30, 2020			7,000,000			$	700			$	3,397,148			$	(1,371,985	)		$	2,025,863

 

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

 

 

Banner Energy Services Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019

 

		2020				2019
Cash flows from operating activities
Net income (loss)		$	1,276,938				$  (-)
Adjustments to reconcile net loss to net cash used in operating activities:
Share based compensation including contributed capital for services rendered			205,000				-
Unrealized gain on investment			(1,556,000	)			-
Changes in operating assets and liabilities:
Accrued interest – related parties			638				-
Accounts payable and other current liabilities			23,360				-
Net cash used in operating activities			(50,064	)			-
Cash flows from investing activities
Net cash provided by (used in) investing activities			-				-
Cash flows from financing activities
Proceeds from note payable – related parties			55,000				-
Net cash provided by financing activities			55,000				-
Net cash used in discontinued operations – operating activities			(1,312,231	)			(559,775	)
Net cash provided by (used in) discontinued operations – investing activities			226,968				(519,996	)
Net cash provided by discontinued operations – financing activities			1,085,263				1,079,771
Net cash (used in) discontinued operations			-				-
Net (decrease) in cash and cash equivalents			4,936				-
Cash and restricted cash – beginning of period			-				-
Cash and restricted cash – end of period		$	4,936			$	-
Supplemental schedule of cash flow information
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	–
Supplemental schedule of non-cash investing and financing information
Net assets acquired from White River/Shamrock and then sold to Ecoark		$	8,000,000			$	-

 

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

 

 

Banner Energy Services Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2020

 

NOTE 1:

DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

The terms “we,” “us,” “our,” “registrant,” “Banner Energy”, and the “Company” refer to Banner Energy Services, Corp., a Nevada corporation. On November 18, 2019, the Company merged with Banner Midstream Corp., a Delaware corporation (“Banner Midstream”). Banner Midstream had two operating subsidiaries: Pinnacle Frac Transport LLC, a Texas limited liability company (“Pinnacle Frac”) and Capstone Equipment Leasing LLC, a Texas limited liability company (“Capstone”) as of November 18, 2019.

 

Entry into Merger Agreement; Creation of Merger Subsidiary; Closing Conditions for Merger

 

On September 26, 2019, the Company entered into an Agreement and Plan of Merger (the “Agreement”) by and among the Company, Banner Midstream and MTB Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), relating to a merger (the “Merger”) between Banner Midstream and Merger Sub. The closing of the Merger was conditioned on the satisfaction of certain conditions by the various parties, as discussed in more detail below.

 

In anticipation of the Agreement, on September 23, 2019, the Company formed Merger Sub.

 

Pursuant to the Agreement, the Merger Sub was merged with and into Banner Midstream, with Banner Midstream being the surviving entity (the “Surviving Entity”). The outstanding shares of Banner Midstream prior to the Merger were converted into the right to receive shares of the Company, on a one-share-for-one-share basis. The shares of Merger Sub owned by the Company were converted into shares of the Surviving Entity, pursuant to which the Surviving Entity will be a wholly owned subsidiary of the Company. The directors and officers of Banner Midstream prior to the closing of the Merger remained the directors and officers of the Surviving Entity following the closing of the Merger. The Merger with Banner Midstream represents a reverse merger, and in accordance with the reverse merger, Banner Midstream is the accounting acquirer and the historical amounts presented prior to the Merger are those of Banner Midstream. The shareholders of Banner Midstream received shares equal to 90% of the outstanding stock of Banner Energy following the Merger.

 

The Company amended its Articles of Incorporation (the “Amendment”) to effectuate a 1-for-95 reverse stock split of its outstanding shares of common stock (the “Reverse Split”). The Reverse Split became effective November 14, 2019. As a result of the Reverse Split, all share and per share figures contained in the financial statements have been amended to reflect the Reverse Split for the periods presented.

 

Additionally, immediately following the closing of the Merger, the Company and its secured debt holders finalized an agreement whereby the debt holders took possession of the Company’s biotechnology assets and assumed certain other Company obligations in lieu of payment by the Company of the amounts due in the secured debt instruments.

 

On March 27, 2020, Banner Midstream was acquired by Ecoark Holdings, Inc., (“Ecoark”) pursuant a Stock Purchase Agreement, dated March 27, 2020 (the “Banner Purchase Agreement”), between Ecoark and Banner Energy. Pursuant to the Banner Purchase Agreement, Ecoark acquired 100% of the outstanding capital stock of Banner Midstream in consideration for 8,945,205 shares of common stock of Ecoark valued at $0.544 per share and assumed approximately $11,774,000 in short-term and long-term debt of Banner Midstream and its subsidiaries.

 

As of March 27, 2020, Banner Midstream had four operating subsidiaries: Pinnacle Frac, Capstone, White River Holdings Corp., a Delaware corporation (“White River”); and Shamrock Upstream Energy LLC, a Texas limited liability company (“Shamrock”). White River and Shamrock were both acquired on March 27, 2020 by Banner Midstream for a total of $8,000,000, and were then acquired by Ecoark in this transaction, and are engaged in oil and gas exploration, production, and drilling operations on over 10,000 cumulative acres of active mineral leases in Texas, Louisiana, and Mississippi.

 

 

Banner Midstream entered into an agreement with Ozark Empire Capital Management (“Ozark”) on June 20, 2018 for 2,130,596 shares for Ozark to manage the executive function of Banner Midstream, raise capital for Banner Midstream, identify and complete acquisitions for Banner Midstream. Banner Midstream is operating as a holding company and acquisition vehicle for an ongoing roll-up of oilfield services companies focused on drilling rig, fracking, and oil and natural gas production services.

 

Banner Midstream acquired one hundred percent of the issued and outstanding membership interests of Pinnacle Frac for 3,195,894 shares on May 24, 2018. Pinnacle Frac was an Arkansas limited liability company established on January 15, 2018. Pinnacle Frac has three wholly owned subsidiaries, LAH Lease Service LLC (“LAH”), LSQL Truck & Trailer Sales LLC (“LSQL”), and Triumph Energy Services, LLC (“Triumph”) which are Texas limited liability companies. Pinnacle Frac acquired one hundred percent of the issued and outstanding membership interests of LAH and LSQL on April 30, 2018, and subsequently transferred selected operations, employees, equipment, and contracts into Pinnacle Frac. Neither LAH nor LSQL currently have active operations or any assets. Pinnacle Frac acquired one hundred percent of the issued and outstanding membership interests of Triumph on November 6, 2018, and subsequently transferred selected contracts into Pinnacle Frac. Pinnacle Frac commenced operations in May 2018 and is engaged in the business of providing transportation of frac sand and logistics services to major hydraulic fracturing and drilling operators in the domestic United States.

 

Banner Midstream established Pinnacle Vac Service LLC (“Pinnacle Vac”) a Texas limited liability company on May 8, 2018, with the Company having ownership of one hundred percent of the issued and outstanding membership interests of Pinnacle Vac. Pinnacle Vac is currently structured as a wholly owned subsidiary of the Company. Pinnacle Vac commenced operations in July 2018 and engaged in the business of providing water transportation (“vacuum services”) and roustabout work to major drilling operators and production wells in the United States. As of November 15, 2018, Pinnacle Vac no longer has any active operations or employees. See NOTE 8 – DISCONTINUED OPERATIONS.

 

Banner Midstream established Capstone as a Texas limited liability company 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. 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”).

 

History

 

Prior to the Merger with Banner Midstream, the Company was an early-stage life sciences and technology company pursuing the development of bio-pharmaceuticals to treat autoimmune diseases, which was known as Mount Tam Biotechnologies, Inc.

 

The following reflected the Company’s post-merger corporate structure (State of Incorporation):

 

Mount Tam Biotechnologies, Inc., formerly TabacaleraYsidron, Inc. (Nevada)

 

Mount Tam Biotechnologies, Inc. (Delaware) - Sold October 2018.

 

Mount Tam Therapeutics, Inc. (Delaware) – Formed October 2018.

 

The Company is subject to a number of risks, including the need to acquire and successfully operate a new business, the risk of selling its Ecoark common stock and raising capital through equity and/or debt financings. See Item 1A “Risk Factors” included in its Annual Report on Form 10-K for the year ended December 31, 2019.

 

 

The Company was established in November 2011 under the name TabacaleraYsidron.

 

On October 18, 2018, the “Company” and Mount Tam Biotechnologies, Inc. (“Mount Tam”), its wholly-owned subsidiary, entered into a stock purchase agreement (the “SPA”) with ARJ Consulting, LLC, a New York limited liability company (the “Buyer”), pursuant to which the Company sold 100% of the capital stock of Mount Tam to the Buyer (the “Sale Transaction”). Prior to the Sale Transaction, the Company caused Mount Tam to transfer certain assets, including the Buck Institute License Agreement, that Mount Tam was holding to another wholly-owned subsidiary of the Company, Mount Tam Therapeutics, Inc., a newly formed Delaware corporation. At the time of the Sale Transaction Mount Tam possessed certain net operating losses and tax credits. Pursuant to the terms of the SPA, the Buyer purchased Mount Tam for a purchase price of $410,000.

 

On July 31, 2020, Mr. Jay Puchir notified our Board of Directors (the “Board”) that he was resigning as the Chairman of the Board and Chief Executive Officer of the Company. On July 31, 2020, the Board appointed Mr. Richard Horgan, 36, as the Chief Executive Officer, and as our sole director and Chairman of the Board, effective August 1, 2020. Mr. Puchir was appointed Chief Accounting Officer of Ecoark as of March 27, 2020.

 

Basis of Presentation

 

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges. The condensed consolidated financial statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Therefore, the interim condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year due to various factors.

 

Principles of Consolidation

 

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

 

Use of Estimates

 

The preparation of 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 condensed 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, fair value of assets held for sale and assets and liabilities acquired, impaired value of equipment and intangible assets, including goodwill, estimates of discount rates in lease, liabilities to accrue, cost incurred in the satisfaction of performance obligations, permanent and temporary differences related to income taxes and determination of the fair value of stock awards. Actual results could differ from those estimates.

 

 

Acquisition Accounting

 

The Company’s acquisitions are accounted for under the acquisition method of accounting whereby purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill. The excess of the fair value of the net assets acquired over the fair value of the consideration conveyed is recorded as a nonoperating gain on acquisition. The statements of operations for the periods presented include the results of operations for each of the acquisitions from the date of acquisition. See NOTE 7 –ACQUISITION.

 

Property and Equipment and Long-Lived Assets

 

Property and equipment is stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the assets, of ten years for all property and equipment, except leasehold improvements which are depreciated over the term of the lease, which is shorter than the estimated useful life of the improvements.

 

ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company reviews recoverability of long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.

 

ASC 360-10 addresses criteria to be considered for long-lived assets expected to be disposed of by sale. Six criteria are listed in ASC 360-10-45-9 that must be met in order for assets to be classified as held for sale. Once the criteria are met, long-lived assets classified as held for sale are to be measured at the lower of carrying amount or fair value less costs to sell.

 

The Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:

 

1. Significant underperformance relative to expected historical or projected future operating results;

 

2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

 

3. Significant negative industry or economic trends.

 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company tested the carrying value of its long-lived assets for recoverability during the year ended December 31, 2019 and period April 2, 2018 (Inception) through December 31, 2018, and there was impairment recorded in the amount of $525,693 for the year ended December 31, 2019.

 

Accrued Expenses

 

To prepare its financial statements, the Company estimates accrued expenses. The accrual process involves reviewing open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company makes estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time. Although the Company does not expect the estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period. Historically, the estimated accrued liabilities have approximated actual expenses incurred. Subsequent changes in estimates may result in a material change in the accruals.

 

 

Fair Value Measurements

 

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

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

 

Investments

 

The Company measures their investments at fair value with changes in fair value recognized in net income (loss) pursuant to ASU 2016-01, “Financial Instruments-Overall”.

 

Revenue Recognition

 

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

 

The Company accounts for a contract when it has been approved and committed to, each party’s rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.

 

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.

 

The Company accounts for contract costs in accordance with ASC Topic 340-40, Contracts with Customers. The Company recognizes the cost of sales of a contract as expense when incurred or at the time a performance obligation is satisfied. The Company recognizes an asset from the costs to fulfil 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 incremental costs of obtaining a contract are capitalized unless the costs would have been incurred regardless of whether the contract was obtained.

 

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.

 

 

Share-Based Payment Arrangements

 

The Company has accounted for stock-based compensation arrangements in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.

 

Leases

 

The Company followed ASC 840 Leases in accounting for leased properties until 2019 when it adopted ASC 842 for its accounting for finance and operating leases in 2019. The Company leases office and production facilities for terms typically ranging from three to five years. Rent escalations over the term of a lease are considered at the inception of the lease such that the monthly average for all payments is recorded as straight-line rent expense with any differences recorded in accrued liabilities.

 

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 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. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented, so only basic weighted average number of common shares are used in the computations.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

 

Going Concern

 

The Company concluded that its negative cash flows from operations raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the unaudited condensed consolidated financial statements are issued.

 

Management intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our Chief Executive Officer has experience in consulting both private and public companies in operational processes, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. Even though management believes this plan will allow the Company to continue as a going concern, there are no guarantees to the successful execution of this plan.

 

These unaudited condensed consolidated 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 of time.

 

On March 27, 2020, Banner Midstream was acquired by Ecoark for 8,945,205 shares of common stock, and Ecoark assumed all of the debt of the Company. As of November 30, 2020, of the 1,000,000 shares of Ecoark common stock the Company retained from the March 2020 acquisition, after distributing the other 7,945,205 shares to the former owners of Banner Midstream, the Company has sold 90,400 shares.

 

 

Impact of COVID-19

 

Since the sale of Banner Midstream, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our current lack of operations. The pandemic may, however, have an impact on our ability to evaluate and acquire an operating entity through a reverse merger or otherwise. See “Risk Factors” contained in our annual report on Form10-K for the fiscal year ended December 31, 2019 for more information.

 

NOTE 2: REVENUE

 

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2019. No cumulative adjustment to members equity was required, and the adoption did not have a material impact on our financial statements, as no material arrangements prior to the adoption were impacted by the new pronouncement.

 

All of the Company’s revenue for the period January 1, 2020 through March 27, 2020 and nine months ended September 30, 2019 are included in discontinued operations:

 

		2020				2019
Revenue:
Transportation and logistics		$	3,686,120			$	11,683,077
Equipment rental revenue			74,448				808,952
Other revenue			100,107				99,376
		$	3,860,675			$	12,591,405

 

There were no significant contract asset or contract liability balances for all periods presented. The Company does not disclose the value of unsatisfied 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.

 

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

 

NOTE 3: PROPERTY AND EQUIPMENT

 

All of the property and equipment of the Company was related to Banner Midstream Corp. and was sold to Ecoark on March 27, 2020.

 

Depreciation expense of $103,451 and $467,975 is included in discontinued operations for the period January 1, 2020 through March 27, 2020 and nine and three months ended September 30, 2019.

 

NOTE 4: LONG-TERM DEBT

 

All of the long-term debt of the Company was related to Banner Midstream Corp. and was assumed by Ecoark on March 27, 2020 as part of the merger with Ecoark. As of March 27, 2020, there is no long-term debt recorded.

 

NOTE 5: NOTES PAYABLE - RELATED PARTIES

 

All of the notes payable – related parties of the Company was related to Banner Midstream Corp. and was assumed by Ecoark on March 27, 2020 as part of the merger with Ecoark. As of March 27, 2020, there were no notes payable – related parties recorded until August 1, 2020.

 

During the period ended June 30, 2020, the Company borrowed from Atikin Investments LLC (“Atikin”), an entity managed by an officer of the Company, to pay for operating expenses. The Company formalized the arrangement on August 1, 2020 when it issued to Atikin a Junior Secured Revolving Promissory Note for a principal amount up to $200,000. Through September 30, 2020, the Company has borrowed $55,000. This note bears interest at 10% interest per annum and matures December 15, 2020. Interest expense for the period August 1, 2020 through September 30, 2020 and accrued at September 30, 2020 is $638.

 

 

NOTE 6: STOCKHOLDERS’ EQUITY (DEFICIT)

 

Common Stock

 

The Company has authority to issue up to 200,000,000 shares, par value $0.0001 per share. Our shareholders approved an increase in the authorized number of shares from 100,000,000 to 200,000,000 in May 2018. As of September 30, 2020 and December 31, 2019, there were 7,000,000 and 6,865,853 shares of the Company’s common stock issued and outstanding, respectively. On November 14, 2019, the Company completed a 1 for 95 reverse stock split. All shares and per share figures have been retroactively adjusted to account for this reverse split and reverse acquisition.

 

The Company issued an additional 197,260 shares of common stock in January through April 2019 for proceeds totaling $355,541 to various high net worth accredited investors as a part of an equity financing round.

 

On February 1, 2019 and on April 1, 2019, the Company issued 63,918 total to an advisor representing the Company for business development valued at $180,000.

 

During the year ended December 31, 2019, the Company issued 586,429 shares for the acquisition of Banner Midstream; 300,000 shares for the entering into a secured note payable valued at $588,000 and 50,000 shares issued for services rendered valued at $65,000.

 

On February 27, 2020, the Company issued 50,000 shares of common stock for services rendered valued at $55,000. On July 28, 2020, the Company issued 83,807 shares of common stock for services rendered valued at $125,710, and $24,290 of contributed capital for services rendered.

 

Stock Options

 

The Company’s Board of Directors approved the adoption of the Mount Tam 2016 Stock-Based Compensation Plan (the “2016 Plan”) on May 12, 2016. Stockholders holding a majority of the Company’s voting power approved the 2016 Plan by written consent on June 27, 2016. A copy of the 2016 Plan is included as Exhibit A to the Company’s Information Statement filed with the SEC on July 11, 2016.

 

On May 2, 2016, the Company granted options to purchase up to 2,737 shares of Common Stock under the Plan in the aggregate, with an exercise price of $56.05 per share. On December 28, 2018, the Company granted options to purchase up to 51,683 shares of Common Stock under the Plan in the aggregate, with an exercise price of $1.90 per share. Options will vest as per below tables:

 

Name		Number of Stock Options				Vesting Schedule
Brian Kennedy (Chairman) – 5/2/2016			2,632			Options vesting over 4 years, 25% (658) per year
Juniper Pennypacker – 5/2/2016			105			Options vesting over 4 years, 25% (26 options) per year

 

Name		Number of Stock Options				Vesting Schedule
Richard Marshak (CEO) – 12/28/2018			37,105			50% vested. Balance vesting over 2 years, 25% (9,276 options) per year
Jim Stapleton (CFO) – 12/28/2018			10,789			50% vested. Balance vesting over 2 years, 25% (2,697 options) per year
Brian Kennedy (Chairman) – 12/28/2018			3,684			50% vested. Balance vesting over 2 years, 25% (921) per year
Juniper Pennypacker – 12/28/2018			105			50% vested. Balance vesting over 2 years, 25% (25 options) per year

 

 

On October 2, 2016, the Company granted options to purchase up to 1,421 shares of Common Stock under the Plan in the aggregate, with an exercise price of $38.00 per share. On December 28, 2018, the Company granted options to purchase up to 4,579 shares of Common Stock under the Plan in the aggregate, an exercise price of $1.90 per share. Options will vest as per below tables:

 

Name		Number of Stock Options				Vesting Schedule
Bryan Cox (consultant) – 10/7/2016			1,053			Options Vesting over 4 years, 25% (263 options) per year
Jim Stolzenbach (consultant) – 10/7/2016			368			Options vesting over 4 years, 25% (92) per year

 

Name		Number of Stock Options				Vesting Schedule
Bryan Cox (consultant) – 12/28/2018			3,158			50% vested. Balance vesting over 2 years, 25% (789 options) per year
Jim Stolzenbach (consultant) – 12/28/2018			1,421			50% vested. Balance vesting over 2 years, 25% (355) per year

 

The Company determined the value of share-based compensation using the Black-Scholes fair value option-pricing model using the following weighted average assumptions for options granted during the year ended December 31, 2018. All options stand completely vested on the date of the reverse merger November 18, 2019.

 

		Date of Grant
Expected term (years)			10
Expected volatility			283	%
Risk-free interest rate			2.55	%
Dividend yield			0	%

 

As summary of option activity under the 2016 Plan as of September 30, 2020 and changes during the period then ended is presented below:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term
Balance outstanding at December 31, 2019			60,421			$	5.20				8.02
Granted			-				-				-
Exercised			-				-				-
Forfeited			-				-				-
Expired			-				-				-
Canceled			-				-				-
Balance outstanding at September 30, 2020			60,421			$	5.20				7.28
Exercisable at September 30, 2020			60,421			$	5.20				7.28

 

 

Warrants

 

On August 10, 2017, the Company entered into a Securities Purchase Agreement with two investors to purchase from the Company 42,510 shares of the Company’s common stock for an aggregate purchase price of $525,000. The investors received a warrant to purchase an additional 5,314 shares at an exercise price of $14.25 per share, and a warrant to purchase an additional 5,314 shares at an exercise price of $19.00 per share. Both warrants have a call provision when the Company’s common stock trades for five consecutive days at a price equal or greater than 500% of the exercise price of each warrant agreement. Both warrant agreements expire August 10, 2022.

 

Warrants		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
Outstanding at December 31, 2019			10,628			$	16.625				2.7			$	-
Granted			-				-				-				-
Exercised			-				-				-				-
Forfeited or expired			-				-				-				-
Outstanding at September 30, 2020			10,628			$	16.625				1.9			$	-
Exercisable at September 30, 2020			10,628			$	16.625				1.9			$	-

 

NOTE 7: ACQUISITIONS – BANNER MIDSTREAM

 

Reverse Merger with Banner Midstream

 

On September 26, 2019, the Company executed a reverse merger agreement with Banner Midstream. The merger closed on November 18, 2019, with Banner Midstream becoming a wholly owned subsidiary of the Company. Under terms of the agreement, Banner Midstream as the surviving entity and became a subsidiary of the Company. Upon closure of the transaction, the Company executed a successful reverse split of its common stock at a ratio of one new share for each 95 existing shares. The reverse split and name change to MTB Corp. then Banner Energy took effect November 14, 2019. At the time of closing, shareholders of the Company had a combined ownership position of approximately 10%, and the former Banner Midstream shareholders collectively owned approximately 90% of the outstanding stock. The Company’s shares traded under the temporary ticker symbol “MNTMD” and following a 20-day trading period, the Company’s symbol transitioned to the permanent ticker symbol “BANM.” On February 12, 2020, the name from MTB Corp. was changed to Banner Energy Services Corp.

 

 

NOTE 8: DISCONTINUED OPERATIONS

 

The Company entered into an agreement with Ecoark and sold Banner Midstream on March 27, 2020. All of the operations for the respective periods for Banner Midstream, who was acquired as of November 18, 2019 in a reverse merger are reflected as discontinued operations.

 

September 30, 2020 and December 31, 2019		2020				2019
Current Assets		$	-			$	793,712
Non-current Assets			-				4,517,209
		$	-			$	5,310,921
Current Liabilities			-				10,089,955
Non-current Liabilities			-				1,029,414
		$	-			$	11,119,369

 

Period Ended January 1, 2020 through March 27, 2020 and Nine Months Ended September 30, 2019
Revenue		$	3,860,675			$	12,591,405
Cost of Sales			2,604,288				8,463,488
Gross Profit			1,256,387				4,127,917
Operating and Non-operating Expenses			3,243,052				6,769,149
Loss from discontinued operations		$	(1,986,665	)		$	(2,641,232	)
Gain on discontinued operations			8,339,038				-
Net gain (loss) in discontinued operations		$	6,352,373			$	(2,641,232	)

 

NOTE 9: LEASES

 

The Company has adopted ASU No. 2016-02, Leases (Topic 842), as of January 2019 when they entered into their first operating lease and will account for their leases in terms of the right of use assets and offsetting lease liability obligations under this pronouncement and the first finance lease was created when the equipment was financed. The Company records their leases at present value, in accordance with the standard, using discount rates ranging between 2.5% and 6.8%. 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 remeasurement. This lease will be treated as an operating lease under the new standard.

 

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.

 

 

The leased property at the Preston Rd Office was assigned by Razor to Capstone for and in consideration of $10.00 on January 1, 2019. The Company’s co-tenancy agreement with Razor was subsequently terminated on January 1, 2019.

 

All of the right of use assets and lease liabilities related to Banner Midstream and were sold/assumed by Ecoark in the merger with Ecoark on March 27, 2020. No right of use assets or lease liabilities exist as of September 30, 2020.

 

NOTE 10: RELATED PARTY TRANSACTIONS

 

Until the Banner Midstream sale, the Company and its subsidiaries Pinnacle Frac Transport, Pinnacle Vac Service, and Capstone were tenants at 5899 Preston Road #505, Frisco, TX 75034 (“Preston Rd Office”) since inception. In addition, the principal operations of the Company and Capstone were managed out of the aforementioned Preston Road location. The Company previously had entered into a co-tenancy agreement with Razor Medical Science LLC (“Razor”) where the Company would pay $1,600 per month which is equal to one half of the total lease payment owed by Razor to the lessor; the agreement was for 36 months beginning in April 2018, the original usage date by the Company. Razor discontinued operations on January 1, 2019 and an assignment was executed to transfer the lease into the name of Capstone for full-time usage by the Company at a rental rate of $3,300 per month.

 

During the period ended June 30, 2020, the Company borrowed from Atikin Investments LLC (“Atikin”), an entity managed by an officer of the Company, to pay for operating expenses. The Company formalized the arrangement on August 1, 2020 when it issued to Atikin a Junior Secured Revolving Promissory Note for a principal amount up to $200,000. Through September 30, 2020, the Company has borrowed $55,000.This note bears interest at 10% interest per annum and matures December 15, 2020. Interest expense for the period August 1, 2020 through September 30, 2020 and accrued at September 30, 2020 is $638.

 

There was $24,290 in contributed capital from a former employee in their separation agreement recorded on July 28, 2020.

 

NOTE 11: FAIR VALUE MEASUREMENTS

 

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

 

Level 1 – quoted prices for identical instruments in active markets;

 

Level 2 – 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 in which significant inputs and significant value drivers are observable in active markets; and

 

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Financial instruments consist principally of cash, investments, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the nine months ended September 30, 2020 and 2019. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

The following table presents assets and liabilities that are measured and recognized at fair value on a recurring basis as of:

 

September 30, 2020		Level 1				Level 2				Level 3				Total Gains and (Losses)
Investment		$	2,100,000			$	-			$	-			$	1,556,000
December 31, 2019
None		$	-			$	-			$	-			$	-

 

NOTE 12: SUBSEQUENT EVENTS

 

Commencing in October 2020, the Company has begun selling shares of its investment in Ecoark. The Company has sold 90,400 shares of Ecoark through November 30, 2020.

 

In October and November 2020, the Company was advanced another $2,500 and repaid a total of $15,000 under the Junior Secured Revolving Promissory Note. 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Cautionary Note Regarding Forward Looking Statements

 

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our ability to sell the shares of Ecoark Holdings, Inc. (“Ecoark”) common stock held by us, any subsequent distribution of a portion of the proceeds of such sale to our shareholders and the sufficiency and use of any remaining amounts thereafter, our ability to locate and acquire an operating business and the resources and efforts we intend to dedicate to such an endeavor, our development of a viable business plan and commencement of operations, our ability to terminate our status as an “investment company” within a reasonable timeframe or at all, and our ability to locate sources of capital necessary to commence operations or otherwise meet our business needs and objectives. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

 

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the ongoing impact of the coronavirus pandemic and its negative effect on the U.S. and global economies and our lack of an operating history and revenue. Further information on the risk factors affecting our business is contained in our annual report on Form 10-K for the fiscal year ended December 31, 2019. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

 

Company Overview

 

As of about March 31, 2020, we began seeking new business opportunities in the United States after the March 27, 2020 merger with Ecoark. Among other things, we recently commenced selling our shares of common stock in Ecoark, distributing all or a portion of the proceeds to our shareholders or using the proceeds to attract an acquisition target.

 

 

We have no revenue, have incurred losses since inception and our only asset is shares of common stock of Ecoark which we acquired in March 27, 2020 in exchange for the sale of our operating subsidiaries. Prior to that transaction, we were engaged in providing equipment and services to businesses in the oil and gas industry, but in connection with the transaction, the Company has terminated its operations.

 

Our principal business objective for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business, rather than immediate, short-term earnings. Our search for a business opportunity is not currently limited to any particular geographical area or industry, except that we are focusing our search to businesses located within the United States.

 

Plan of Operation

 

The Company has no operations or revenue from continuing operations as of the date of this Report with the exception of some corporate expenses incurred to run the Company. All results related to Banner Midstream are reflected in discontinued operations. We have terminated our operations in the oil and gas industry, and are currently in the process of developing a business plan, including with respect to the disposition of our remaining asset, and the use of the proceeds therefrom to distribute to shareholders and locate a business opportunity in the U.S.

 

Management intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our Chief Executive Officer has experience in consulting both private and public companies in operational processes, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies. For more information about the risk of coronavirus on our business, see “Risk Factors” contained in our annual report on Form 10-K for the fiscal year ended December 31, 2019.

 

We do not currently engage in any business activities that provide revenue or cash flow. During the next 12 month period we anticipate incurring costs in investigating, evaluating and negotiating potential business combinations, filing SEC reports, and consummating an acquisition of an operating business. We anticipate using a portion of the proceeds from the sale of Ecoark common stock to fund these costs and compensate our Chief Executive Officer.

 

Given our limited capital resources, we may consider a business combination with an entity which has recently commenced operations, is a developing company or is otherwise in need of additional funds for the development of new products or services or expansion into new markets, or is an established business experiencing financial or operating difficulties and is in need of additional capital. Alternatively, a business combination may involve the acquisition of, or merger with, an entity which desires access to the U.S. capital markets.

 

 

As of the date of this Report, our management has not had any discussions with any representative of any other entity regarding a potential business combination. Any target business that is selected may be financially unstable or in the early stages of development. In such event, we expect to be subject to numerous risks inherent in the business and operations of a financially unstable or early stage entity. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk or in which our management has limited experience, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.

 

Our management anticipates that we will likely only be able to effect one business combination due to our limited capital. This lack of diversification will likely pose a substantial risk in investing in the Company for the indefinite future, because it will not permit us to offset potential losses from one venture or operating territory against gains from another. The risks we face will likely be heightened to the extent we acquire a business operating in a single industry or geographical region.

 

We anticipate that the selection of a business combination will be a complex and risk-prone process. Because of general economic conditions, including unfavorable conditions caused by the coronavirus pandemic, rapid technological advances being made in some industries and shortages of available capital, management believes that there are a number of firms seeking business opportunities at this time at discounted rates with which we will compete. We expect that any potentially available business combinations may appear in a variety of different industries or regions and at various stages of development, all of which will likely render the task of comparative investigation and analysis of such business opportunities extremely difficult and complicated. There can be no assurance that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.

 

Liquidity and Capital Resources

 

Historically, our principal sources of cash have been proceeds from private placements of common stock and incurrence of debt. As of September 30, 2020, the Company had an accumulated deficit of $1,371,985. We expect our cash balance to temporarily increase as we continue to sell our shares of Ecoark common stock. As of November 30, 2020, the Company has sold 90,400 shares of Ecoark and received $169,758 in gross proceeds therefrom.

 

Cash Flows from Operating Activities:

 

We reported $50,064 and $0 in net cash used in operating activities for the nine months ended September 30, 2020 and 2019, respectively. The net cash used in operating activities was the result of the net income from continuing operations in 2020 offset by the unrealized gain in the investment held in shares of Ecoark common stock, and we anticipate that this will subside after the remainder of the Ecoark shares are sold. It is anticipated that we will report negative operating cash flow in future periods, as we have ceased operations and are considering the Company’s next steps. However, given that there are and will continue to be lower expenses until we determine and commence our future operations, the significance of negative cash flows will likely be diminished during that time.

 

 

Cash Flows from Financing Activities:

 

For the nine months ended September 30, 2020 and 2019, we reported $55,000 and $0 in net cash provided by financing activities, respectively. The increase was due to funds borrowed by the Company pursuant to a Junior Secured Revolving Promissory Note issued on August 1, 2020. We expect to see a decline in fiscal year 2021 until we commence operations, however we may require additional capital to consummate a business combination.

 

Once we have developed and begun to implement our business plan, management intends to fund our working capital requirements through a combination of proceeds from the sale of Ecoark common stock, if not distributed as a dividend, and future issuances of debt or equity securities as needed. Our working capital requirements are expected to be stable in the short-term and increase in line with completion of an acquisition.

 

Based upon our current operations, if we are successful in selling the shares of Ecoark common stock, we believe we will have sufficient working capital to fund our operations over more than the next nine months. If we are able to close a reverse merger, asset purchase or similar transaction to acquire an operating business, it is likely we will need additional capital, including potentially as a condition of closing the acquisition. Because of the inherent uncertainties of the Company at this stage, we cannot be certain as to how much capital we need, if and how such capital will be raised or the type or quantity of securities we will be required to issue to do so. In connection with a business combination, we may issue a significant number of shares of our common stock or securities convertible or exercisable into our common stock to the target’s shareholders which will be dilutive to our shareholders.

 

We anticipate that we will incur operating losses during the next 12 months. Our ability to develop and implement our business plan will be subject to a number of risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model; recognition of revenue sources; and the management of growth.

 

COVID-19 Update

 

Since the sale of Banner Midstream, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our current lack of operations. The pandemic may, however, have an impact on our ability to evaluate and acquire an operating entity through a reverse merger or otherwise. See “Risk Factors” contained in our annual report on Form10-K for the fiscal year ended December 31, 2019 for more information.

 

Off Balance Sheet Arrangements

 

As of the date of this Report, we do 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.

 

 

Going Concern

 

The independent registered public accounting firm auditors’ report accompanying our December 31, 2019 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, Mr. Richard Horgan, who is presently serving as our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.

 

Management’s Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

	●	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
	●	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
	●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting based on the parameters set forth above and has concluded that as of September 30, 2020, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of the following material weaknesses:

 

	●	The Company does not have sufficient segregation of duties within accounting functions due to only having one employee and its limited nature and resources.
	●	The Company does not have an independent board of directors or audit committee.
	●	The Company does not have written documentation of our internal control policies and procedures.
	●	All of the Company’s financial reporting is carried out by a financial consultant.

 

We plan to rectify these weaknesses by implementing an independent board of directors, establishing written policies and procedures for our internal control of financial reporting, and hiring additional accounting personnel at such time as we complete a reverse merger.

 

Changes in Internal Control over Financial Reporting.

 

There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

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 other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

 

ITEM 1A – RISK FACTORS

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On July 28, 2020, the Company issued 83,807 shares of common stock to a consultant for services rendered valued at $125,710. The securities were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 - OTHER INFORMATION

 

None.

 

 

ITEM 6 – EXHIBITS

 

				Incorporated by Reference						Filed or Furnished
Exhibit #		Exhibit Description		Form		Date		Number		Herewith
3.1		Articles of Incorporation		S-1		11/1/2013		3.1
3.1(a)		Certificate of Amendment to Articles of Incorporation		8-K		6/1/2018		3.1
3.1(b)		Certificate of Amendment to Articles of Incorporation – name change		8-K		2/18/2020		3.1
3.2		Bylaws		S-1		11/1/2013		3.2
10.1		Employment Agreement between the Company and Richard Horgan dated August 1, 2020*		8-K		8/6/2020		10.1
10.2		Revolving Promissory Note dated August 1, 2020+								Filed
31.1		Certification of Principal Executive Officer and Principal Financial Officer (302)								Filed
32.1		Certification of Principal Executive and Principal Financial Officer (906)								Furnished**
101.INS		XBRL Instance Document								Filed
101.SCH		XBRL Taxonomy Extension Schema Document								Filed
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document								Filed
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document								Filed
101.LAB		XBRL Taxonomy Extension Label Linkbase Document								Filed
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document								Filed

 

* Management contract or compensatory plan or arrangement.

 

**This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

 

+ Certain schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	BANNER ENERGY SERVICES CORP.
Dated: December 4, 2020	By:	/s/ Richard Horgan
		Richard Horgan
		Chief Executive Officer (Principal Executive Officer), Principal Financial Officer and Principal Accounting Officer

 

 

Exhibit 10.2

 

BANNER ENERGY SERVICES CORP

JUNIOR SECURED REVOLVING PROMISSORY NOTE

 

Principal Amount: Up to US $200,000

Frisco, Texas August 1, 2020

 

For value received, pursuant to this Revolving Promissory Note (the “Note”), the undersigned, Banner Energy Services Corp (“Borrower”), promises to pay to Atikin Investments LLC (“Holder”), or to its order, the aggregate unpaid Principal Amount of all outstanding advances hereunder, including those made prior to the date of this Note, plus accrued and unpaid interest thereon; provided, that the aggregate unpaid Principal Amount of all outstanding advances shall not exceed $200,000 at any one time outstanding (the “Maximum Credit Amount”). The Principal Amount, along with any accrued but unpaid interest shall be due and payable on December 15, 2020 or immediately upon the occurrence of an Event of Default, as defined herein (the “Maturity Date”).

 

Section 1. Interest. This Note shall bear interest on the outstanding Principal Amount, including accrued interest, from the date of each amount is due until such amounts are repaid to Holder in full, at the rate of 10% per annum. In the event any payment due hereunder shall not be paid on the Maturity Date, then the outstanding Principal Amount and accrued interest shall bear interest at the lesser of 15% per annum or the highest lawful rate permitted under applicable law, from the date when such payment was due until paid. If an Event of Default shall occur due to the Borrower’s failure to make a payment on the required date, Holder shall have no obligation to serve a notice of default. In the event the Borrower fails to remedy the default within five (5) business days after the Event of Default (the “Default Date”), then all outstanding Principal Amount and accrued interest shall automatically accelerate and become immediately due and owing (the “Accelerated Debt”). The Accelerated Debt shall accrue interest at the rate of 15% per annum from the Default Date until the Accelerated Debt is paid in full. Holder shall have no obligation to provide notice to Borrower concerning the Default Date, the acceleration of the debt or the interest rate on the Accelerated Debt.

 

Section 2. Borrowings. Subject to the terms and conditions of this Note, Borrower may borrow, and Holder agrees to fund advances hereunder. The Holder, however, has no obligation to fund any advances. The aggregate Principal Amount outstanding at any one time hereunder shall not exceed the Maximum Credit Amount. The obligations of the Borrower to make payments provided for in this Note are absolute and unconditional and not subject to any defense, set-off, counterclaim, rescission, recoupment or adjustment whatsoever. Upon payment in full of all Principal Amount and interest payable hereunder, this Note shall be surrendered to the Borrower for cancellation.

 

The Holder is hereby authorized by Borrower to enter and record on the schedule attached hereto (i) the date of each advance and repayment made under this Note, (ii) the dollar amount of the advance or repayment of any advance thereon, and (iii) the amount of accrued interest. The Holder’s failure to make an entry, however, shall not limit or otherwise affect the obligations of the Borrower. The Holder’s calculation, absent manifest error, shall be binding on the Borrower.

 

Borrower shall make all payments hereunder to Holder in lawful money of the United States and in immediately available funds. Borrower may make prepayments in whole or in part hereunder at any time. This Note shall bear no prepayment penalty.

 

Section 3. Events of Default. The Principal Amount and all accrued interest on this Note is due and payable upon the Maturity Date, as defined above. Additionally, the Principal Amount and all accrued interest on this Note shall automatically become immediately due and payable upon the occurrence of any of the following events, each of which shall be deemed an “Event of Default”:

 

 

(a) Borrower’s failure to tender a payment, or any part thereof, when due in accordance with this Note.

 

(b) The institution by Borrower of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or the consent by it to the filing of any such proceeding; or

 

(c) If, within sixty (60) days after the commencement of an action against Borrower (and service of process in connection therewith on Borrower) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of Borrower or all orders or proceedings thereunder affecting the operations or the business of Borrower stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of Borrower of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower, such appointment shall not have been vacated.

 

Section 4. Security Interest. The Holder shall be granted a junior security interest in all of the assets of the Borrower and any subsidiaries, including ownership of the subsidiaries, including but not limited to the Borrower’s cash and cash equivalents and any unsold short-term security holdings of Ecoark Holdings, Inc. common stock. The security interest shall be subordinate to only a senior secured interest, if any, of another note issued or to be issued by the Borrower. The Borrower shall execute such other agreements, documents and financing statements reasonably requested by the Holder. The Borrower shall also execute all such documents reasonably necessary in the opinion of the Holder to memorialize and further protect the security interest described herein.

 

Section 4. Miscellaneous.

 

(a) The Borrower hereby waives presentment, demand for performance, notice of non-performance, protest, notice of protest and notice of dishonor.

 

(b) Failure at any time to exercise any of the rights of Holder hereunder shall not constitute a waiver of such rights and shall not be a bar to exercise of any of such rights at a later date.

 

(c) Any notice, other communication or payment required or permitted hereunder shall be in writing and shall be delivered personally or sent by Federal Express or similar overnight delivery,

 

(d) Borrower agrees to pay all reasonable costs of collection and enforcement of this Note, including but not limited to reasonable attorney’s fees and disbursements, whether or not any lawsuit or other legal action is instituted to enforce this Note, including without limitation if Holder seeks the advice or assistance of an attorney as a result of or in connection with any default, or if Borrower becomes the debtor or otherwise becomes the subject of any bankruptcy, insolvency or other proceeding for the readjustment of indebtedness.

 

(e) No addition to or amendment of this Note, other than to record the amounts due to the Borrower pursuant to Section 2, shall be admissible, enforceable or effective unless it is set forth in a writing duly executed by the party against whom the addition or amendment is sought to be enforced.

 

(f) Nothing contained in this Note shall be deemed to require the payment of interest or other charges by Borrower or any other person in excess of the amount which the Holder may lawfully charge under the applicable usury laws. In the event that Holder shall collect moneys which are deemed to constitute interest which would increase the effective interest rate to a rate in excess of that permitted to be charged by applicable law, all such sums deemed to constitute interest in excess of the legal rate shall be credited against the Principal Amount of this Note then outstanding, and any excess shall be returned to Borrower.

 

(g) This Note will be governed by and construed under the laws of the State of Texas. In any action brought under or arising out of this Note, the Borrower hereto hereby consents to the jurisdiction of any competent court within the State of Texas and consents to service of process by any means authorized by the laws of the State of Texas.

 

[Reminder of Page Intentionally Left Blank; Signature Page to Follow]

 

 

IN WITNESS WHEREOF, each of the Borrower and the Holder have caused this Note to be duly executed as of the date first written above.

 

	BORROWER:
	BANNER ENERGY SERVICES CORP
	By:	/s/ Richard Horgan
	Name:	Richard Horgan
	Title:	Chief Executive Officer

 

	LENDER:
	ATIKIN INVESTMENTS LLC
	By:	/s/ Jay Puchir
	Name:	Jay Puchir
	Title:	Manager

 

 

Schedule to Revolving Promissory Note

 

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Richard Horgan, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Banner Energy Services Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 4, 2020

 

/s/ Richard Horgan
Richard Horgan Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of Banner Energy Services Corp. (the “Company”) on Form 10-Q for the quarter ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof, I, Richard Horgan, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

	1.	The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
	2.	The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Richard Horgan
Richard Horgan Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)

Dated: December 4, 2020

 

 

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