Item
1A. Risk Factors
Investing in our common
stock involves a high degree of risk. You should carefully consider the following risk factors, together with the other information appearing
elsewhere in this Quarterly Report on Form 10-Q before deciding to invest in our common stock. The occurrence of any of the following
risks could have a material adverse effect on our business, reputation, financial condition, results of operations and future growth prospects,
as well as our ability to accomplish our strategic objectives. As a result, the trading price of our common stock could decline and you
could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial
may also impair our business operations and stock price.
Summary Risk Factors
Set forth below is a summary of some of the
principal risks we face with respect to our business:
| ● | We have incurred significant losses since inception, we may
continue to incur losses and negative cash flows in the future; |
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We derive a significant portion of our revenue from a small number of customers, and the loss of one of these customers, or a reduction in their demand for our services, could adversely affect our business, financial condition, results of operations and prospects; |
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Our future cash flows and results of operations, are highly dependent on our ability to efficiently develop our current customers as well as find or acquire additional customers; |
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Our future operating results are dependent on oil and gas prices that are highly volatile, and even if the current high oil prices continue, other aspects of our business such as transportation may be adversely affected, reducing or eliminating the potential benefits; |
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Future approval by the Securities and Exchange Commission (the “SEC”) of its climate change rules and continued focus on environmental, social and governance (“ESG”) regulation and sustainability initiatives, which would have the effect of reducing demand for fossil fuels and negatively impact our operating results, stock price and ability to access capital markets; |
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Potential future changes in the regulation of hydraulic fracturing could materially adversely affect our transportation business; |
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A potential inability to retain and attract qualified drivers, including owner-operators, subjects us to risks; |
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We are subject to the potential risk that the drivers who we rely upon in our transportation business will be classified as employees rather than independent contractors; and |
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The majority of our accounts receivable and revenues are derived from a very limited number of customers, and any loss of these customers or reduction in work orders from them would materially adversely affect us. |
Risks Relating
to Our Financial Condition
We had incurred net
losses for our most recent fiscal year end and for the six months ended September 30, 2022 and may continue to experience losses and negative
cash flow in the future.
The financial statements
of the Company have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things,
the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period. As of September
30, 2022, we had cash (not including restricted cash) of approximately $430,664. Banner has not been profitable on an annual basis since
inception and had previously incurred significant operating losses and negative cash flow from operations. We recorded a net loss of approximately
$4,806,042 and $5,823,454 for the fiscal year ended March 31, 2022 and six months ended September 30, 2022, respectively. Although we
expect our revenues to increase, we will likely continue to incur losses and experience negative cash flows from operations for the foreseeable
future. If we cannot achieve positive cash flow from operations or net income, it may make it more difficult to raise capital based on
our common stock on acceptable terms.
Because we may require
additional capital and may need or desire to engage in strategic transactions in the future to fund our business objectives and support
our growth, our inability to generate and obtain such capital or to enter into strategic transactions, could harm our business, operating
results, financial condition and prospects.
We intend to continue
to make substantial investments to fund our business and support our growth. Because or for other reasons, we may not be able to obtain
any additional financing or engage in strategic transactions to the extent needed or desired in the future on the terms favorable to us,
or at all. If we are unable to obtain adequate financing or enter into strategic transactions on terms satisfactory to us, our ability
to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may
be adversely impacted. In addition, our inability to generate or obtain the financial resources needed may require us to delay, scale
back, or eliminate some or all of our operations and business objectives and sell some of our assets.
Further, if we raise
additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant
dilution, and any new equity or debt securities we issue could have rights, preferences and privileges superior to those of holders of
our common stock.
We cannot predict
our future results because we have a limited operating history.
Given our limited operating
history, it may be difficult to evaluate our future performance or prospects. You should consider the uncertainties that we may encounter
as a company that should still be considered an early-stage company. These uncertainties include:
| ● | the effect of the Biden Administrations’ attempts to
eliminate fossil fuels; |
| ● | the impact from the SEC’s climate change rules; |
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our ability to repay our debt; |
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our ability to market our services and products for a profit; |
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our ability to secure and retain key customers; and |
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our ability to adapt to changing market conditions |
If we are not able to
successfully address some or all of these uncertainties, we may not be able to expand our business, compete effectively or achieve profitability.
We derive a significant
portion of our revenue from a small number of customers, and the loss of one of these customers, or a reduction in their demand for our
services, could adversely affect our business, financial condition, results of operations and prospects.
Our customer base is
highly concentrated, with 75% of our accounts receivable derived from five customers and 61% of our revenue derived from a single customer
in the fiscal year ended March 31, 2022. A limited number of customers are expected to continue to comprise a substantial portion of our
revenue for the foreseeable future. Because of the concentration of our revenue and accounts receivable among a small number of customers,
the loss of one or more of our major customers could have a material adverse effect on our results of operations. The revenue derived
from our transportation business is factored non-recourse, so the Company has less exposure to payment defaults and more exposure to a
future loss of revenue in the event a significant customer is lost. We could lose business from a significant customer for a variety of
reasons, including:
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the consolidation, merger, or acquisition of an existing customer, resulting in a change in procurement strategies employed by the surviving entity that could reduce the amount of work we receive; |
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our performance on individual contracts or relationships with one or more significant customers could become impaired due to another reason, including the actions of employees and independent contractors, which may cause us to lose future business with such customers and, as a result, our ability to generate income would be adversely impacted; |
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key customers could slow or stop spending on initiatives related to projects we are performing for them due to increased difficulty in the markets as a result of economic downturns or other reasons; and |
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technological changes or other unanticipated developments in the oil and gas and transportation and logistics industries or other markets could adversely affect our customers and thereby harm our ability to generate revenue. |
Since many of our customer
contracts allow our customers to terminate the contract without cause and on relatively short notice, any such termination could impair
our business, financial condition, results of operations and prospects.
Risks Relating
to Our Transportation and Logistics Services Operations
We have significant
ongoing capital requirements that could affect our operations if we are unable to generate sufficient cash from operations or obtain financing
on favorable terms.
If we were unable to
generate sufficient cash from operations, we would need to seek alternative sources of capital, including financing, to meet our capital
requirements. To the extent that our working capital is insufficient, we may have to scale back operations.
Legislation, regulations,
or government actions related to climate change, greenhouse gas emissions and sustainability initiatives and other ESG laws, regulations
and government action, could result in increased compliance and operating costs and reduced demand for fossil fuels, and concern in financial
and investment markets over greenhouse gasses and fossil fuel production could adversely affect demand for our products, limit our access
to capital and depress the price of our common stock.
Since he took office
in January 2021, President Biden has signed a series of executive orders seeking to adopt new regulations to address climate change and
to suspend, revise, or rescind certain prior agency actions which were part of the Trump Administration’s de-regulatory push, including
oil drilling. The Biden Administration is expected to continue to aggressively seek to regulate the energy industry and has stated its
goal to eliminate fossil fuels. The new executive orders include, among other things, orders requiring a review of current federal lands
leasing and permitting practices, as well as a temporary halt of new leasing of federal lands and offshore waters available for oil and
gas exploration, directing federal agencies to eliminate subsidies for fossil fuels, and to develop a plan to improve climate-related
disclosures.
In January 2021, President
Biden also issued an executive order calling for methane emissions regulations to be reviewed and for the United States Environmental
Protection Agency (the “EPA”) to establish new standards by September 2021. This resulted in the EPA finalizing what it refers
to as “the most ambitious federal greenhouse gas emissions standards for passenger cars and light trucks ever” in December
2021. The EPA has also adopted regulations under existing provisions of the Clean Air Act that, among other things, establish Prevention
of Significant Deterioration (the “PSD”), construction and Title V operating permit reviews for certain large stationary sources. Facilities
required to obtain PSD permits for their greenhouse gas emissions also will be required to meet “best available control technology”
standards that will be established on a case-by-case basis. The EPA also has adopted rules requiring the monitoring and reporting
of greenhouse gas emissions from specified onshore and offshore natural gas and oil production sources in the United States on an annual
basis, which include certain of our operations.
In November 2021
the EPA released new proposed methane rules which would impose regulations on methane release at existing wells nationwide. These new
rules, among other things, would implement a comprehensive monitoring program to require companies to find and fix leaks. Additionally,
the new rules would require well operators to place gas that is produced in a pipeline to be sold when possible to prevent wasting the
gas, which could force well operators on which we rely to sell the gas at lower prices or reduce production and thereby reduce our revenues.
As with most regulations, smaller participants like us will face more burdens due to the compliance and other costs and the limited revenue
to absorb such costs. The EPA is expected to issue a supplemental proposal in 2022 in the hopes of identifying additional regulatory means
of reducing methane and other emissions and has indicated an intention to adopt final rules before the end of calendar year 2022.
While a recent U.S. Supreme
Court case imposed limitations on the EPA’s authority under the Clean Air Act, including by holding that the EPA’s attempted
energy generation shifting entailed an overly broad interpretation of the statute’s delegation of authority, if the EPA adopts the
above or other regulations and such regulations are held to be valid, the resulting new regulatory framework could impose additional restrictions
and costs on our operations which could materially adversely affect our business. The regulations at issue in the recent case pertained
to an attempt to shift a portion of U.S. energy production from coal to natural gas by an enumerated percentage by 2030.
Although Congress from
time to time has considered legislation to reduce emissions of greenhouse gases, there has not been significant activity in the form of
adopted legislation to reduce greenhouse gas emissions at the federal level in recent years. In the absence of such federal climate
legislation, a number of states, including states in which we operate, have enacted or passed measures to track and reduce emissions of
greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and regional greenhouse gas cap-and-trade
programs. Most of these cap-and-trade programs require major sources of emissions or major producers of fuels to acquire and
surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall greenhouse gas
emission reduction goal is achieved. These reductions may cause the cost of allowances to escalate significantly over time. We will
be further subject to other regulatory efforts such as California’s announced goal of eliminating the sale of vehicles which use
gas by 2035. Automobile manufacturers are beginning to announce that they will only manufacture electric vehicles in the future. President
Biden has also stated that the recent retail price rise in the price of gasoline was part of a plan to transition to electric vehicles.
Additionally, the United
States rejoined, effective February 19, 2021, the non-binding international treaty to reduce global greenhouse gas emissions (the “Paris
Agreement”), adopted by over 190 countries in December 2015. The Paris Agreement entered into force in November 2016
after more than 70 nations, including the United States, ratified or otherwise indicated their intent to be bound by the agreement. The
United States had previously withdrawn from the Paris Agreement effective November 4, 2020. Following the United States rejoining the
Paris Agreement, President Biden announced in April 2021 the United States’ pledge to achieve an approximately 50% reduction from
2005 levels in “economy-wide” net greenhouse gas emissions by 2030. To the extent that the United States implements this agreement
or imposes other climate change regulations on the oil and natural gas industry, or that investors insist on compliance regardless of
legal requirements, it could have an adverse effect on our business, operating results and future growth.
The adoption and implementation
of these and other similar regulations could require our customers to incur material costs to monitor and report on greenhouse gas emissions
or install new equipment to reduce emissions of greenhouse gases. . In addition, these regulatory initiatives could drive down
demand for our products and services in the oil and gas industry by stimulating demand for alternative forms of energy that do not rely
on combustion of fossil fuels that serve as a major source of greenhouse gas emissions, which could have a material adverse effect on
our business, financial condition, results of operations and cash flows. This could have a material adverse effect on our business,
consolidated results of operations, and consolidated financial condition.
Because we expect
the SEC will adopt most, if not all of its proposed climate rules, as a small transporter, the compliance costs may adversely affect our
future results of operating and financial condition.
On March 21, 2022, the
SEC released proposed rule changes that would require new climate-related disclosure in SEC filings, including certain climate-related
metrics and greenhouse gas emissions, information about climate-related targets and goals, transition plans, if any, and extensive attestation
requirements. In addition to requiring filers to quantify and disclose direct emissions data, the new rules would also require disclosure
of climate impact arising from the operations and uses by the filer’s business partners and contractors and end-users of the filer’s
products and/or services. If adopted as proposed, the rule changes could result in the Company incurring material additional compliance
and reporting costs, including monitoring, collecting, analyzing and reporting the new metrics and implementing systems and procuring
additional internal and external personnel with the requisite skills and expertise to serve those functions. Such costs are likely to
materially and adversely affect our future results of operations and financial condition. We expect the rule will be adopted by January
2023 and effective beginning at some point after that date. We cannot predict the outcome of litigation which we expect will challenge
any new climate change rules.
If Congress enacts
the proposed price gouging bill, it could have a material adverse effect on the Company.
Senator Elizabeth Warren
and others have introduced legislation aimed at rising gasoline and other prices and would empower the Federal Trade Commission (“FTC”)
to investigate and penalize companies with “unconscionably excessive price increases.” The proposed legislation does not define
what this phrase means so it will permit the FTC to define it. While we cannot predict whether the legislation will pass, there is a likelihood
that it will pass. If it does, the FTC will enact Rules although it is possible it may enact an emergency Rule like other regulatory agencies
have recently done. Any such legislation will likely affect gasoline prices especially in an election year. We believe price controls
will have a material adverse effect on the Company.
As the price of oil
increases, it may indirectly adversely affect the costs of our transportation business if the owner-operators of trucks we utilize pass
on some or all of the higher costs incurred by them to us.
The high price of oil
has the potential to have an adverse effect on our transportation business, to the extent the owner-operators of trucks we hire to transport
fracking materials pass on the higher costs they incur based on the increased price of oil including diesel fuel to us via higher prices
for their services. Such a development, in isolation or in combination with other price-driving factors such as the recent truck-driving
shortages, could materially increase our operational expenses and increase net losses or reduce our ability to become profitable.
Federal, state, and
local legislative and regulatory initiatives in the United States relating to hydraulic fracturing or fracking could result in decreased
demand for our transportation services, which would have a material adverse effect on our results of operations, cash flows and financial
condition.
In the United States,
hydraulic fracturing is currently generally exempt from regulation under the Underground Injection Control program established under the
federal Safe Drinking Water Act, and is typically regulated by state oil and gas commissions or similar agencies. From time to time,
the U.S. Congress has considered adopting legislation intended to provide for federal regulation of hydraulic fracturing and to require
disclosure of the additives used in the hydraulic-fracturing process. In addition, certain states have adopted, and other states are considering
adopting, regulations that could impose new or more stringent permitting, disclosure, disposal and well-construction requirements on hydraulic-fracturing
operations. The adoption of any federal, state or local laws or the implementation of regulations regarding hydraulic fracturing could
cause a decrease in the completion of new oil and gas wells and an associated decrease in demand for our transportation services, which
would have a material adverse effect on our results of operations, financial condition and cash flows.
Our transportation
operations are subject to stringent environmental, oil and gas-related and occupational safety and health laws and regulations, and noncompliance
with such laws and regulations could expose us to material costs and liabilities.
Our operations are subject
to a number of federal and state laws and regulations, including the federal occupational safety and health and comparable state statutes,
aimed at protecting the health and safety of employees.
We are also subject to
various environmental laws and regulations dealing with the hauling and handling of hazardous materials, air emissions from our vehicles
and facilities, and engine idling and discharge. Our transportation operations often involve traveling on unpaved roads located in rural
areas, increasing the risk of accidents, and our staging pads often are located in areas where groundwater or other forms of environmental
contamination could occur. Our operations involve the risks of environmental damage and hazardous waste disposal, among others. If we
are involved in an accident involving hazardous substances, if there are releases of hazardous substances we transport, if soil or groundwater
contamination is found at our facilities or results from our operations, or if we are found to be in violation of applicable environmental
laws or regulations, we could owe cleanup costs and incur related liabilities, including substantial fines or penalties or civil and criminal
liability, any of which could have a materially adverse effect on our business and operating results.
Failure to comply with
these laws and regulations may subject the Company to sanctions, including administrative, civil or criminal penalties, remedial cleanups
or corrective actions, delays in permitting or performance of projects, natural resource damages and other liabilities. In addition, these
laws and regulations may be amended and additional laws and regulations may be adopted in the future with more stringent legal requirements.
Our operating results
fluctuate due to the effect of seasonality in the oil and gas industry.
Operating levels of the
oil industry have historically been lower in the winter months because of adverse weather conditions. Accordingly, our revenue generally
follows a seasonal pattern. Revenue can also be affected by other adverse weather conditions, holidays and the number of business days
during a given period because revenue is directly related to the available working days. From time-to-time, we may also suffer short-term
impacts from severe weather and similar events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and
explosions that could harm our results of operations or make our results of operations more volatile.
We may be subject
to various claims and lawsuits in the ordinary course of business, and increases in the amount or severity of these claims and lawsuits
could adversely affect us.
We are exposed to various
claims and litigation related to commercial disputes, personal injury, property damage, environmental liability and other matters. Proceedings
include claims by third parties, and certain proceedings have been certified or purport to be class actions. Developments in regulatory,
legislative or judicial standards, material changes to litigation trends, or a catastrophic accident or series of accidents, involving
any or all of property damage, personal injury, and environmental liability could have a material adverse effect on our operating results,
financial condition and liquidity.
Conservation measures
and technological advances could reduce demand for oil and natural gas.
Fuel conservation measures,
future legislation and regulation increasing consumer demand for alternatives to oil, and natural gas, technological advances in fuel
economy and energy generation devices could reduce demand for oil. For example, the Biden Administration issued an executive order banning
the federal government’s purchase of new gas vehicles by 2035, although executive orders are subject to change. Additionally, private
companies have increasingly pledged to reduce carbon emissions caused by the use of gas vehicles, such as General Motors which in January
2021 announced its plan to sell only zero-emission vehicles by 2035. The impact of the changing demand for oil may have a material adverse
effect on our business, financial condition, results of operations and cash flows.
Our future revenue
will depend upon the size of the markets which we target and our ability to achieve continuous and sufficient market acceptance.
Even if we procure enough
drivers to satisfy the demand for transportation services in the market, our future revenue will depend upon the size of the markets which
we target and our ability to achieve continuous and sufficient market acceptance, and such factors as pricing, reimbursement from third-party
payors and adequate market share for our services at the target markets.
We anticipate that the
Banner expenses will increase substantially if and as they:
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expand the scope of our operations in the Territory; |
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establish a supply-demand chain and a respective trucking infrastructure to commercialize our market opportunities; |
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acquire existing businesses and revitalize their operations with the Company’s framework; |
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seek to attract and retain skilled personnel; and |
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create additional infrastructure to support our operations as a public company and plan future commercialization efforts. |
Our transportation
business is affected by industry-wide economic factors that are largely outside our control.
The majority of our revenue
is from providing services to customers engaged in operations in the oil and exploration industry. As such, our volumes are largely dependent
on the economy and our results may be more susceptible to trends in unemployment and how it affects oil prices than carriers that do not
have this focus. We believe that some of the most significant factors beyond our control that may negatively impact our operating results
are economic changes that affect supply and demand in transportation markets. In recent months, the economy has been bombarded with unique
challenges, including supply chain shortages, inflation and Federal Reserve interest rate increases in response, stock market volatility
and recession fears.
The risks associated
with these factors are heightened when the United States economy is weakened. Recently, many Chief Executive Officers of large companies
believe our economy is entering a recessionary period. If the U.S. economy enters a recession, among other potential adverse consequences,
demand for our products and services and customer and consumer spending patterns will diminish in a manner and possibly to an extent that
is materially adverse to our business. Some of the other principal risks during such times are as follows:
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low overall demand levels, which may impair our asset utilization; |
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customers with credit issues and cash flow problems we are not currently aware of; |
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customers bidding out our services or selecting competitors that offer lower rates, in an attempt to lower their costs, forcing us to lower our rates or lose revenue; and |
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more unbilled miles incurred to obtain loads. |
Economic conditions that
decrease shipping demand or increase the supply of capacity in the trucking transportation industry can exert downward pressure on rates
and equipment utilization, thereby decreasing asset productivity. Declining freight levels and rates, a prolonged recession or general
economic instability could result in declines in our results of operations, which declines may be material.
We also are subject to
cost increases outside our control that could materially reduce our profitability if we are unable to increase our rates sufficiently.
Such cost increases include, but are not limited to, fuel and energy prices, driver wages, taxes and interest rates, tolls, license and
registration fees, insurance premiums, regulations, revenue equipment and related maintenance costs and healthcare and other benefits
for our associates. We cannot predict whether, or in what form, any such cost increase or event could occur. Any such cost increase or
event could materially and adversely affect our results of operations.
In addition, events outside
our control, such as strikes or other work stoppages at our facilities or at customers, shipping locations, ports, distribution facilities,
weather, or terrorist attacks, could lead to reduced economic demand, reduced availability of credit or temporary closing of shipping
locations. Such events or enhanced security measures in connection with such events could impair our operations and result in higher operating
costs.
Fluctuations in the
price or availability of fuel, the volume and terms of diesel fuel purchase commitments and surcharge collection may increase our costs
related to our transportation operations, which could materially and adversely affect our margins.
Fuel represents a significant
expense for our transportation business while the sale of oil provides revenues for our business. Diesel fuel prices fluctuate greatly
due to factors beyond our control, such as political events, terrorist activities, armed conflicts, inflation, and the depreciation of
the dollar against other currencies and weather, such as hurricanes, tornadoes and other natural or man-made disasters, each of which
may lead to an increase in the cost of fuel. Fuel prices also are affected by the rising demand in developing countries and could be adversely
impacted by diminished drilling activity and by the use of crude oil and oil reserves for other purposes. Such events may lead not only
to increases in fuel prices, but also to fuel shortages and disruptions in the fuel supply chain. Because Banner’s transportation
operations are dependent upon diesel fuel, significant diesel fuel cost increases, shortages or supply disruptions could materially and
adversely affect our operating results and financial condition.
Increases in fuel costs,
to the extent not offset by rate per mile increases or fuel surcharges, have an adverse effect on our operations and profitability. In
recent months, fuel prices have soared to the highest levels in history, increasing our operating costs. While the majority of our fuel
costs are covered by pass-through provisions in customer contracts and compensatory fuel surcharge programs, we also incur fuel costs
that cannot be recovered even with respect to customers with which we maintain fuel surcharge programs, such as those associated with
unbilled miles, or the time when our engines are idling. Because our fuel surcharge recovery lags changes in fuel prices, our fuel surcharge
recovery may not capture the increased costs we pay for fuel, especially when prices are rising, leading to fluctuations in our levels
of reimbursement. Further, during periods of low freight volumes, shippers can use their negotiating leverage to impose less compensatory
fuel surcharge policies. In addition, the terms of each customer’s fuel surcharge agreement vary, and customers may seek to modify
the terms of their fuel surcharge agreements to minimize recoverability for fuel price increases. Such fuel surcharges may not be maintained
indefinitely or may not be sufficiently effective to cover increased fuel prices.
If we fail to retain
owner-operators, it could materially adversely affect our results of operations and financial condition.
In our transportation
operations, we rely on the fleet of vehicles owned and operated by independent contractors. These independent contractors are responsible
for maintaining and operating their own equipment and paying their own fuel, insurance, licenses, and other operating costs. Due to high
turnover rates, the pool of qualified independent contractor drivers is often limited, which increases competition for their services,
especially during times of increased economic activity. We currently face and may in the future continue to face from time-to-time, difficulty
in attracting and retaining sufficient number of qualified independent contractor drivers. Additionally, our agreements with independent
contractor drivers are terminable by either party without penalty and upon short notice. Our specialty equipment services targeting servicing
oil exploration and oil development industries require special training to handle unique operating requirements. We may be legally obligated
or otherwise subjected by the industry standards to use physical function tests and hair follicle and urine testing to screen and test
all driver applicants, which we believe is a rigorous standard and could decrease the pool of qualified applicants available to us. If
we are unable to retain our existing independent contractor drivers or recruit new qualified independent contractor drivers, our business
and results of operations could be materially and adversely affected.
The rates we offer our
independent contractor drivers are subject to market conditions. Accordingly, we may be required to increase owner-operator compensation
or take other measures to retain existing and attract new qualified independent contractor drivers. If we are unable to continue to attract
and retain a sufficient number of independent contractor drivers, we could be in a position where we would have to turn down customer
requests to deliver loads of freight or frac sand which would in turn have a material adverse effect on our operating results and financial
condition.
If owner-operators
and drivers that we rely upon in our transportation business were to be classified as employees instead of independent contractors, our
business would be materially and adversely affected.
State Regulation
A number of companies
in the logistics industry have been faced with legislation or regulation that requires that many independent contractors be treated as
employees and receive benefits only available to employees which increases costs. Moreover, states have also adopted provisions for severe
fines and stop-work orders for employers that misclassify employees as independent contractor. To date, this legislation and regulation
has been limited to, or considered in, states where we do not operate, such as California, New Jersey, and Virginia.
Some companies recently
involved in lawsuits, including class actions, and state tax and other administrative proceedings that claim that owner-operators or their
drivers should be treated as employees, rather than independent contractors. These lawsuits and proceedings involve substantial monetary
damages (including claims for unpaid wages, overtime, and failure to provide meal and rest periods, unreimbursed business expenses and
other items), injunctive relief, or both. While we believe that owner-operators and their drivers are properly classified as independent
contractors rather than as employees, if their independent contractor status is challenged, we may not be successful in defending against
such challenges in some or all jurisdictions in which we offer transportation services.
Federal Regulation
We also may encounter
risk if the Department of Labor (“DOL”) or the National Labor Relations Board (“NLRB”) were to pass rules expanding
the definition of an employee, this could occur under the Biden administration.
The U.S. Department of
Labor published a Notice of Proposed Rulemaking in October 2022 to help employers and workers determine whether a worker is an employee
or an independent contractor under the Fair Labor Standards Act. The proposed rule would provide guidance on classifying employees
and independent contractors. Publication of the Notice of Proposed Rulemaking in the Federal Register
started a 45-day comment period, which will close on November 28, 2022. If the proposed rule is adopted, it will be more difficult to
classify workers as independent contractors for Fair Labor Standards Act purposes.
On December 27, 2021,
the NLRB invited parties to submit briefs addressing whether NLRB should reconsider its standard for determining the independent contractor
status of workers under the National Labor Relations Act (“NLRA”). If the NLRB adopts a more expansive standard for determining
who qualifies as an employee, the number of individuals who may unionize or bring unfair labor practices charges under the NLRA would
likely increase.
Conclusion
Because of the Biden
administration’s regulatory push, we expect DOL will enact a rule narrowly defining independent contractors which will adversely
affect Banner’s transportation business and increase its costs. If NLRB passes a rule expanding the definition of an employee, or
a court or an administrative agency determines that owner-operators and their drivers must be classified as employees rather than independent
contractors, we could become subject to additional regulatory requirements, including but not limited to tax, wages, and wage and hour
laws and requirements (such as those pertaining to minimum wage and overtime); employee benefits, social security, workers’ compensation
and unemployment; discrimination, harassment, and retaliation under civil rights laws; claims under laws pertaining to unionizing, collective
bargaining, and other concerted activity; and other laws and regulations applicable to employers and employees. Compliance with such laws
and regulations would require us to incur significant additional expenses, potentially including without limitation, expenses associated
with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits,
social security contributions, taxes, and penalties. Additionally, any such reclassification would require us to change our business model,
and consequently have an adverse effect on our business and financial condition. Expansion of state legislation that broadly defines an
employee into states where we operate could also have a material adverse effect on Banner.
Similar to many companies,
we have experienced a spike in our insurance costs, which could have a material adverse effect on our operating results.
Insurance premiums have
recently escalated, and we are facing a similar increase in our insurance costs. Our future insurance and claims expense might exceed
historical levels, which could reduce our earnings. We self-insure or maintain a high deductible for a portion of our claims exposure
resulting from workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as associated
health insurance. Estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult.
This, along with legal expenses, incurred but not reported claims and other uncertainties can cause unfavorable differences between actual
claim costs and our reserve estimates. We plan to reserve for anticipated losses and expenses and periodically evaluate and adjust our
claims reserves to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses over
our reserved amounts.
We maintain insurance
with licensed insurance carriers above the amounts which we retain. Although we believe our general liability and related insurance limits
should be sufficient to cover reasonably expected claims, the amount of one or more claims could exceed our coverage limits. If any claim
were to exceed our coverage, we would be required to bear the excess, in addition to our other self-insured/retained amounts. As a result,
our insurance and claims expense could increase, or we could raise our self-insured retention or deductible when our policies are renewed
or replaced. Our operating results and financial condition could be materially and adversely affected if (i) cost per claim, premiums,
or the number of claims significantly exceed our estimates, (ii) there is one or more claims in excess of our coverage limits, (iii) our
insurance carriers refuse to pay our insurance claims or (iv) we experience a claim for which coverage is not provided.
General Risks
Because of the Russian
invasion of Ukraine, as well as high inflation and increase Federal Reserve interest rates in response, the effect on the capital markets
and the economy is uncertain, and we may have to deal with a recessionary economy and economic uncertainty including possible adverse
effects upon the oil and gas industry.
As a result of the Russian
invasion of Ukraine, certain events are beginning to affect the global and United States economy including increased inflation, Federal
Reserve interest rate increases in response, substantial increases in the prices of oil and gas, dramatic declines in the capital markets,
and large Western companies ceasing to do business in Russia. The duration of this war and its impact are at best uncertain, and continuation
may result in Internet access issues if Russia, for example, began illicit cyber activities. Ultimately the economy may turn into a recession
with uncertain and potentially severe impacts upon public companies and us. We cannot predict how this will affect the market for oil
and gas and related services, but the impact may be adverse.
Our future success
depends on our ability to retain and attract high-quality personnel, and the efforts, abilities and continued service of our senior management.
Our future success depends
on our ability to attract, hire, train and retain a number of highly skilled employees and on the service and performance of our senior
management team and other key personnel for each of our subsidiaries . The loss of the services of our executive officers or other key
employees and inadequate succession planning could cause substantial disruption to our business operations, deplete our institutional
knowledge base and erode our competitive advantage, which would adversely affect our business. Competition for qualified personnel possessing
the skills necessary to implement our strategy is intense, and we may fail to attract or retain the employees necessary to execute our
business model successfully. We do not have “key person” life insurance policies covering any of our executive officers.
Our success will depend
to a significant degree upon the continued efforts of our key management, engineering and other personnel, many of whom would be difficult
to replace. In particular, we believe that our future success is highly dependent on Jimmy R. Galla, our Chief Executive Officer and Chief
Financial Officer and JD Reedy, our Chief Operating Officer. If any members of our management team leave our employment, our business
could suffer, and the share price of our common stock could decline.
If we cannot manage
our growth effectively, our results of operations would be materially and adversely affected.
Our business model relies
on rapidly growing the transportation businesses. Businesses that grow rapidly often have difficulty managing their growth while maintaining
their compliance and quality standards. If we continue to grow as rapidly as we anticipate, we will need to expand our management by recruiting
and employing additional executive and key personnel capable of providing the necessary support. There can be no assurance that our management,
along with our staff, will be able to effectively manage our growth. Our failure to meet the challenges associated with rapid growth could
materially and adversely affect our business and operating results.
If we fail to maintain
an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial
statements or comply with applicable regulations could be impaired.
We are subject to the
reporting requirements of the Exchange Act and the Sarbanes-Oxley Act which requires, among other things, that public companies maintain
effective disclosure controls and procedures and internal control over financial reporting.
Although our management
concluded that our disclosure controls and procedures were effective as of September 30, 2022, any failure to maintain effective controls
or any difficulties encountered in their implementation or improvement in the future could cause us to fail to meet our reporting obligations
and may result in a restatement of our financial statements for prior periods. If we fail to maintain an effective system of disclosure
controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with
applicable regulations could be impaired, which could result in loss of investor confidence and could have an adverse effect on our stock
price.
Failure of information
technology systems or data security breaches, including as the result of cyber security attacks, affecting us, our business associates,
or our industry, may adversely affect our financial condition and operating results.
We depend on information
technology systems and services in conducting our business. We and others in the industries in which we operate use these technologies
for internal purposes, including data storage and processing, transmissions, as well as in our interactions with our business associates.
Examples of these digital technologies include analytics, automation, and cloud services. If any of our financial, operational, or other
data processing systems are compromised, fail or have other significant shortcomings, it could disrupt our business, require us to incur
substantial additional expenses, result in potential liability or reputational damage or otherwise have a material adverse effect on our
financial condition and operating results.
For example, the operator
of the Colonial Pipeline was forced to pay $4.4 million in ransom to hackers as the result of a cyberattack disabling the pipeline for
several days in May 2021. The attack also resulted in gasoline price increases and shortages across the East Coast of the United States.
As we depend on the availability and price of gasoline in our transportation business, any significant increase in the price and/or shortage
of gasoline such as that experienced from the May 2021 cyberattack would have a material adverse effect on our business and operating
results.
The price of our common
stock is subject to volatility, including for reasons unrelated to our operating performance, which could lead to losses by investors
and costly securities litigation.
The trading price of
our common stock is likely to be highly volatile and could fluctuate in response to a number of factors, some of which may be outside
our control, including but not limited to, the following factors:
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changes in market valuations of companies in the oil and gas industry; |
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regulatory initiatives from the Biden Administration; |
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announcements of developments by us or our competitors; |
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the continuation of the stock market slump and any related adverse events affecting the economy; |
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, significant contracts, or other material developments that may affect our prospects; |
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actual or anticipated variations in our operating results; |
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adoption of new accounting standards affecting our industry; |
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additions or departures of key personnel; and |
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other events or factors, many of which are beyond our control. |
The stock market is subject
to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities,
securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful,
could result in substantial costs and diversion of our management’s attention and Company resources, which could harm our business
and financial condition.
Risks related
to our Common Stock
The issuance of shares
of our common stock upon exercise of our outstanding convertible debt may cause immediate and substantial dilution to our existing shareholders.
We presently have outstanding
6% convertible notes held by our former officers and directors in the principal amount of $905,565 that if converted would result in the
issuance of approximately an additional 15,092,750 shares of our common stock. The issuance of shares upon conversion of the debt will
result in dilution to the interests of other shareholders.
Our common stock
may be affected by limited trading volume and may fluctuate significantly.
Our common stock is quoted
on the OTC Pink tier of the OTC Markets. There is a limited public market for our common stock and there can be no assurance that an active
trading market for our common stock will develop. As a result, this could adversely affect our shareholders’ ability to sell our
common stock in short time periods, or possibly at all. Thinly traded common stock can be more volatile than common stock traded in an
active public market. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations,
which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe
that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial
markets could cause the price of our common stock to fluctuate substantially.
Our common stock
is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.
Our common stock is deemed
to be “penny stock” as that term is defined under the Exchange Act. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national securities exchanges. Our common stock is covered by an SEC rule
that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers
and accredited investors, which are generally institutions with assets in excess of $5,000,000, or individuals with net worth in excess
of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.
Broker/dealers dealing
in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers
are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements
may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for
investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.
Because we can issue
“blank check” preferred stock without stockholder approval, it could adversely impact the rights of holders of our common
stock.
Under our Articles of
Incorporation our Board of Directors, may approve an issuance of up to 5,000,000 shares of “blank check” preferred stock without
seeking stockholder approval. Any additional shares of preferred stock that we issue in the future may rank ahead of our common stock
in terms of dividend or liquidation rights and may have greater voting rights than our common stock. In addition, such preferred stock
may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock
to current stockholders and could adversely affect the market price of our common stock. In addition, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our Company. Although we have
no present intention to issue any shares of authorized preferred stock, there can be no assurance that we will not do so in the future.