UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________________ to __________________
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| | ||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including
Area Code:
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant:
(1) has 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.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
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
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date:
BANTEC, INC.
Form 10-Q
June 30, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Patents and other intangibles, net | ||||||||
| Right of use lease asset | ||||||||
| Other assets | ||||||||
| Total non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and interest | ||||||||
| Convertible notes payable - net of discounts and premiums | ||||||||
| Note payable - seller | ||||||||
| Line of credit - bank | ||||||||
| Current portion notes and loans payable – net of discounts | ||||||||
| Loan payable, related party | ||||||||
| Settlement payable | ||||||||
| Lease liability – current portion | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Notes and loans payable – net of current portion | ||||||||
| Lease liability, less current portion | - | |||||||
| Total Long-term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 15) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock - $ | ||||||||
| Common stock - $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
1
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses): | ||||||||||||||||
| Gain (loss) on change in fair market value of derivative | ( | ) | ( | ) | ( | ) | ||||||||||
| Gains on debt extinguishment, net of prepayment penalty | ) | |||||||||||||||
| Interest and financing costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss before Provision for Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Tax | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted Average Number of Common Shares Outstanding: | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
2
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
For the nine months ended June 30, 2022
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes and reclassification of debt premiums | ||||||||||||||||||||||||||||
| Net loss for the nine months ended June 30, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Three Months Ended June 30, 2022
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes and reclassification of debt premiums | ||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
3
For the Nine Months Ended June 30, 2021
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, September 30, 2020 | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||
| Shares issued to employees | ||||||||||||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued to non-employees for services | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes, fees and including premiums reclassified | ||||||||||||||||||||||||||||
| Net loss for the nine months ended June 30, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2021 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Three Months Ended June 30, 2021
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||
| Shares issued to employees | ||||||||||||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued to non-employees for services | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes, fees and including premiums reclassified | ||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2021 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to these condensed consolidated unaudited financial statements.
4
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and intangibles amortization | ||||||||
| Amortization of debt discounts | ||||||||
| Accretion of premium on convertible note | ||||||||
| Stock based fee, conversion of loans | ||||||||
| Share-based compensation and other expense | ||||||||
| Non-cash rent expense | ||||||||
| Fee notes issued | ||||||||
| Loss on change in fair market value of derivative | ||||||||
| Loss on settlement of accrued expenses | ( | ) | ||||||
| (Gain) Loss on debt extinguishment | ( | ) | ( | ) | ||||
| Loan fee expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds stock sales | ||||||||
| Proceeds from factoring loans and notes | ||||||||
| Repayments of factoring loans and notes | ( | ) | ( | ) | ||||
| Net proceeds from convertible notes payable | ||||||||
| Repayments of convertible notes payable | ( | ) | ( | ) | ||||
| Net proceeds from promissory notes | ||||||||
| Repayments of promissory notes | ( | ) | ||||||
| Net proceeds from PPP loan payable | ||||||||
| Repayment of line of credit | ( | ) | ( | ) | ||||
| Proceeds promissory notes – related parties | ||||||||
| Repayment of promissory notes – related parties | ( | ) | ( | ) | ||||
| Repayment various convertible notes – related parties | ( | ) | ||||||
| Repayment seller note | ( | ) | ( | ) | ||||
| Cash Provided by Financing Activities | ||||||||
| Net Increase (Decrease) in Cash | ( | ) | ( | ) | ||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash financing and investing activities: | ||||||||
| Debt discounts | $ | $ | ||||||
| Issuance of common stock for note conversions and accrued interest | $ | $ | ||||||
| Reclassification of debt premium upon conversion | $ | $ | ||||||
| Issuance of common stock for accrued salary | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
5
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
Bantec, Inc. is a product and service company targeting the U.S. Government, state governments, municipalities, hospitals, universities, manufacturers and other building owners. Bantec also provides product procurement, distribution, and logistics services through its wholly-owned subsidiary, Howco Distributing Co., (“Howco”) (collectively, the “Company”) to the United States Department of Defense and Defense Logistics Agency. The Company established Bantec Sanitizing in fiscal 2021, which offers sanitizing products and equipment through its new store bantec.store. Bantec Sanitizing is currently offering Bantec Sanitizing franchises for sale. Bantec Construction, LLC was established to perform general contracting, currently the plan for the company is to provide general contracting for projects emanating from Bantec Sanitizing for floor, wall and ceiling installation of materials that are easily sanitized. The Company has operations based in Little Falls, New Jersey and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships that offer us an opportunity to grow sales and profit.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Bantec, Inc. and its wholly-owned subsidiaries, Drone USA, LLC, Bantec Construction, LLC, Bantec Sanitizing, LLC, Bantec Logistics LLC and Howco. Bantec Construction, LLC, Bantec Logistics and Bantec Sanitizing, LLC are in start-up stages with minor revenues and cash expenditures. All significant intercompany accounts and transactions have been eliminated in consolidation. On October 28, 2021, the Wyoming Secretary of State approved the application to create Bantec Logistics, LLC which will include a new line of business focused on drone package delivery logistics and other delivery methods.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2022. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended September 30, 2021 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on January 7, 2022. The consolidated balance sheet as of September 30, 2021 contained herein has been derived from the audited consolidated financial statements as of September 30, 2021 but does not include all disclosures required by GAAP.
Going Concern
The accompanying unaudited consolidated financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and
the satisfaction of liabilities in the normal course of business. For the nine months ended June 30, 2022, the Company has incurred a
net loss of $
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt on accounts receivable, reserves on inventory, valuation of intangible assets for impairment analysis, valuation of the lease liability and related right-of-use asset, valuation of stock-based compensation, the valuation of derivative liabilities and the valuation allowance on deferred tax assets.
Fair Value Measurements
The Company follows the FASB Fair Value Measurements standard, as they apply to its financial instruments. This standard defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements.
6
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Level 1 inputs include quoted market prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. The standard requires the utilization of the lowest possible level of input to determine fair value and carrying amounts of current liabilities approximate fair value due to their short-term nature. The Company accounts for certain instruments at fair value using level 3 valuation.
| At June 30, 2022 | At September 30, 2021 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Derivative Liability | $ | $ | ||||||||||||||||||||||
A roll-forward of the level 3 valuation financial instruments is as follows:
| Derivative Liabilities | ||||
| Balance at September 30, 2021 | $ | |||
| Change in fair market value of warrant | ||||
| Balance at June 30, 2022 | $ | |||
The warrants were issued to a convertible note
holder in November and December 2017 and initially determined to be equity instruments and recorded as note discount and as additional
paid in capital. On June 4, 2018 the anti-dilutive provision of the warrants took effect and based on the new conversion formula management
determined the warrant became a derivative liability and reclassified the Fair Value on June 4, 2018 from additional paid-in capital to
derivative liability with fair market value changes recognized in operations for each reporting date. The derivative liability associated
with the warrants is $
Cash and Cash Equivalents
Cash equivalents consist of liquid investments with maturities of three months or less at the time of purchase. There are no cash equivalents at the balance sheet dates.
Accounts Receivable
Trade receivables are recorded at net realizable value consisting of the carrying amount less the allowance for doubtful accounts, as needed. Factors used to establish an allowance include the credit quality of the customer and whether the balance is significant. The Company may also use the direct write-off method to account for uncollectible accounts that are not received. Using the direct write-off method, trade receivable balances are written off to bad debt expense when an account balance is deemed to be uncollectible.
Inventory
Inventory consists of finished goods, which are purchased directly from manufacturers. The Company utilizes a just in time type of inventory system where products are ordered from the vendor only when the Company has received sales order from its customers. Inventory is stated at the lower of cost and net realizable value on a first-in, first-out basis.
Property & Equipment
Property and equipment are stated at cost and
depreciated over their estimated useful lives. Maintenance and repairs are charged to expense as incurred. When assets are retired or
disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income
in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances
reflect the fact that their recorded value may not be recoverable. The assets are fully operational drones used as demonstration units
and each unit exceeds management’s threshold for capitalization of $
7
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Goodwill and Intangible Assets
The Company acquired a patent for a new product
during the year ended September 30, 2021. The Company capitalized acquisition and related legal fees related to the patent totaling $
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is determined by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets and their ultimate disposition. In instances where impairment is determined to exist, the Company writes down the asset to its fair value based on the present value of estimated future cash flows.
Deferred Financing Costs
All unamortized deferred financing costs related to the Company’s borrowings are presented in the consolidated balance sheets as a direct deduction from the related debt. Amortization of these costs is reported as interest and financing costs included in the consolidated statement of operations.
Revenue Recognition
The Company follows Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, which has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied.
The Company sells a variety of products to government entities. The purchase orders received specifies each item and its manufacturer; the Company only needs to fulfill the performance obligation by shipping the specified items. No other performance obligations exist under the terms of the contracts. The Company recognizes revenue for the agreed upon sales price when the product is shipped to the customer, which satisfies the performance obligation.
During the year ended September 30, 2021 and the nine months ended June 30, 2022, the Company through its subsidiary Howco entered into contracts to package products for a third-party company servicing the same government customer base. The contracts were on job lot basis as shipped to Howco for packaging. The customer was billed upon completion each job lot at which time revenue was recognized.
The Company sells drones and related products manufactured by third parties to various parties, primarily local government entities. The Company also offers technical services related to drone utilization and performs other services. Contracts for drone related products and services sales will be evaluated using the five-step process outline above. There have been no material sales for drone products or other services for which full compliance with performance obligations has not been met. Upon significant sales for drone products and services and insulation jackets, the Company will disaggregate sales by these lines of business and within the lines of business to the extent that the product or service has different revenue recognition characteristics.
The Company began sales of sanitizing products and services during the nine months ended June 30, 2022. Revenue for this line of business is recognized upon shipment and delivery of training services (as applicable).
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. Additionally, effective October 1, 2016, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. Among other changes, ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.
8
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
As of October 1, 2018, the Company has early adopted ASU 2018-7 Compensation-Stock Compensation which conforms the accounting for non-employees to the accounting treatment for employees. The new standard replaces using a fair value as of each reporting date with use of the calculated fair value as of the grant date. The implementation of the standard provides for the use of the fair market value as of the adoption date, rather than using the value as of the original grant date. Therefore, the values calculated and reported at September 30, 2018 become a proxy for the grant date value. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. There was no cumulative effect on the adoption date.
Shipping and Handling Costs
The Company has included freight-out as a component
of cost of sales, which amounted to $
Convertible Notes with Fixed Rate Conversion Options
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Derivative Liabilities
The Company has certain financial instruments that are derivatives or contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Lease Accounting
In February 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented.
The Company’s subsidiary has renewed the
lease for the warehouse and office facility in Vancouver, Washington in May 2020 effective June 1, 2020, which extends through May 30,
2023, and is accounted for under ASC 842. The corporate office is an annual arrangement which provides for a single office in a shared
office environment and is exempt from ASC 842 treatment. During the year ended September 30, 2020 the Company recognized a lease liability
of $
Income Taxes
The Company’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made. The Company follows the accounting for uncertainty in income taxes guidance, which clarifies the accounting and disclosures for uncertainty in income taxes recognized in the Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition and measurement of a tax position taken or expected to be taken in a tax return.
9
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Company currently has no federal or state tax examinations in progress. As of June 30, 2022, the Company’s tax returns for the tax years 2020, 2019 and 2018 remain subject to audit, primarily by the Internal Revenue Service. The income tax returns for the tax year 2021 are on extension and have not yet been filed.
The Company did not have material unrecognized tax benefits as of June 30, 2022 and 2021 and does not expect this to change significantly over the next 12 months. The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of the provision for income taxes.
Net Loss Per Share
Basic loss per share is calculated by dividing
the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed
by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential
shares outstanding unless such dilutive potential shares would result in anti-dilution as is the situation for the nine months ending
June 30, 2022. As of June 30, 2022,
| June 30, 2022 | June 30, 2021 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Related party convertible debt and accrued interest | ||||||||
| Third party convertible debt (including senior debt) | ||||||||
| Total | ||||||||
Segment Reporting
The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. As of June 30, 2022, the Company did not report any segment information since the Company primarily generates sales from its subsidiary, Howco. Additionally, there are no formal cost allocations to Howco or the other subsidiaries. Furthermore no material sales have been recorded other than sales at Howco.
Recent Accounting Pronouncements
On August 5, 2020, the Financial Accounting Standards Board (FASB) issued accounting standards update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).
The amendments in the ASU remove certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. The ASU also amends the derivative scope exception guidance for contracts in an entity’s own equity. The amendments remove three settlement conditions that are required for equity contracts to qualify for the derivative scope exception.
In addition to the above, the ASU expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments.
10
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The ASU is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. Early adoption is permitted. The FASB noted that an entity should adopt the guidance as of the beginning of its annual fiscal year. The standard is effective for the Company begining in fiscal year September 30, 2024.
Entities may elect to adopt the amendments through either a modified retrospective method of transition or a fully retrospective method of transition. If an entity has convertible instruments that include a down round feature, early adoption of the ASU is permitted for fiscal years beginning after December 15, 2020.
ASU 2016-13 Measurement of Credit Losses on Financial Instrument is effective for fiscal years beginning after December 15, 2022. This is not expected to apply to the Company.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements
The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 3 - ACCOUNTS RECEIVABLE
The Company’s accounts receivable at June 30, 2022 and September 30, 2021 is as follow:
| June 30, 2022 | September 30, 2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Reserve for doubtful accounts | ||||||||
| $ | $ | |||||||
Bad debt expense was $
NOTE 4 - INVENTORY
At June 30, 2022 and September 30, 2021, inventory
consists of finished goods and was valued at $
NOTE 5 - INTANGIBLE ASSETS
The Company acquired a patent for a new product
during the year ended September 30, 2021. The Company capitalized acquisition and related legal fees related to the patent totaling $
NOTE 6 - LINE OF CREDIT - BANK
The Company has a revolving line of credit with
a financial institution, which balance is due on demand and principal payments are due monthly at 1/60 th of the outstanding
principal balance. This revolving line of credit is in the amount of $
NOTE 7 - SETTLEMENTS PAYABLE
On July 20, 2018, the Company entered into a settlement
agreement with a collection agent for American Express relating to $
11
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 8 - NOTE PAYABLE – SELLER
In connection with the acquisition of Howco in
September 2016, the Company issued a note payable in the amount of $
NOTE 9 - PROMISSORY NOTES PAYABLE – RELATED PARTY OFFICER AND HIS AFFILIATES
The related party officer and his affiliates convertible notes balance consisted of the following at June 30, 2022 and September 30, 2021:
| June 30, 2022 | September 30, 2021 | |||||||
| Principal | $ | $ | ||||||
| Premiums | ||||||||
| Total | ||||||||
| Current portion, including premiums | ( | ) | ||||||
| Long term | $ | $ | ||||||
Notes Payable
NOTE 10 - CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES
The senior secured credit facility note balance and convertible debt balances consisted of the following at June 30, 2022 and September 30, 2021:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Principal | $ | $ | ||||||
| Premiums | ||||||||
| Unamortized discounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For the nine months ended June 30, 2022 and 2021,
amortization of debt discount on the above convertible notes amounted to $
Senior Secured Credit Facility Note - Default
On September 13, 2016, the Company entered into
a senior secured credit facility note with an investment fund for the acquisition of Howco. The Company can borrow up to $
12
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
As of June 30, 2022, and September 30, 2021, the
Company had issued
Once a default occurs, the Note and the $
On March 28, 2017, the Company entered into an
additional agreement with the above senior secured credit facility lender to receive a range of advisory services for a total of $
On January 3, 2018, the Company entered into a
settlement agreement (the “Settlement Agreement”) and replacement note agreements with the investment fund related to a senior
secured credit facility note dated September 13, 2016. On the effective date of the Settlement Agreement, all amounts owed to the investment
fund aggregated $
The Credit Agreement was amended such that the maturity date was extended to January 13, 2019 (the “Extended Maturity Date”) for replacement Note B, while the Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the principal and interest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary, all obligations owing by the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents shall be paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and the remaining principal and accrued interest on January 13, 2019. Interest payments made since the amendment have totaled $323,440 and are therefore not in accord with that amendment. However, TCA has received payments under the 3(a) (10) settlement (below) totaling $308,100 during the year ended September 30, 2018, and another $270,320, during the year ended September 30, 2019. The principal balance was $4,788,642 at September 30, 2018.
13
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On October 30, 2018, TCA the Company’s senior
lender amended its credit facility which had been restructured in January 2018 when fees for advisory and other matters along with accrued
but unpaid interest were capitalized and separated into two notes, Note A having $
On September 6, 2019, the Company received a default notice on its payment obligations under the senior secured credit facility agreement from TCA. The Company has proposed a number of solutions including refinancing the debt with other parties. The default was declared due to non-payment of monthly scheduled amortization (principal and interest). TCA holds security interests in all assets of the Company including its subsidiary Howco. The Company is in negotiation with the receiver appointed by the court related to the senior secured creditor’s claim and has proposed a preliminary settlement.
At June 30, 2022 and September 30, 2021, the principal
of the Note B portion was $
On January 30, 2018 pursuant to the Liability
Purchase Term Sheet, the TCA Replacement Note A in the principal amount of $
In the nine months ended June 30, 2022, there
were no 3(a) (10) issuances. As of June 30, 2022, there have been seventeen issuances under section 3(a) (10) of the Securities Act totaling
On March 7, 2018 the Company entered into a placement
agent and advisory agreement with Scottsdale Capital Advisors in connection with the Livingston liability purchase term sheet executed
on November 15, 2017.
Other Convertible Debt
On June 1, 2018, the Company entered into a consulting
and services arrangement with Livingston Asset Management which has no stipulated term. The arrangement provides for financial management
services including accounting and related periodic reporting among other advisory services. Under the agreement the Company will issue
to Livingston Asset Management Convertible Fee Notes having principal of $
14
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Under the terms of the July 1, 2021 amendment
to the consulting and services agreement with Livingston Asset Management, LLC, Livingston is to receive $
August 1, 2021, the Company issued a $
September 1, 2021, the Company issued a $
On October 1, 2021, the Company issued a convertible
promissory note to Livingston Asset Management LLC for $
On November 1, 2021, the Company issued a convertible
promissory note to Livingston Asset Management LLC for $
On March 7, 2022, the Company redeemed five fee
notes issued to Livingston Asset Management LLC (July 1, through November 1, 2021 notes above) for $
On December 1, 2021, the Company terminated its
agreement with Livingston Asset Management entered into a consulting and services arrangement with Frondeur Partners LLC which has no
stipulated term. The arrangement provides for financial management services including accounting and related periodic reporting among
other advisory services. Under the agreement the Company will issue to Frondeur Partners LLC convertible fee notes having principal of
$
On December 1, 2021, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On January 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On February 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
15
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On March 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On April 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On May 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On June 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On November 13, 2018, the Company issued a convertible
promissory note for $
On November 9, 2017, the Company received a first
tranche payment of $
16
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On March 1, 2019,
On May 3, 2021,
On June 14, 2021,
On July 19, 2021,
On August 17, 2021,
On September 17, 2021,
17
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On November 12, 2021,
NOTE 11 - NOTES AND LOANS PAYABLE
The notes balance consisted of the following at June 30, 2022 and September 30, 2021:
| June 30, 2022 | September 30, 2021 | |||||||
| Principal loans and notes | $ | $ | ||||||
| Discounts | ( | ) | ||||||
| Total | ||||||||
| Less Current portion | ( | ) | ( | ) | ||||
| Non-current | $ | $ | ||||||
On June 17, 2020, the Company through Howco, entered into a loan directly
with the Small Business Administration for $
On January 26, 2021, the Company entered into
a financing arrangement through its subsidiary Howco with IOU Central Inc. Howco received $
On March 30, 2021, the Company entered into a
financing arrangement through its subsidiary Howco with ODK Capital, LLC. Howco received $
In March 2021, the Company through Howco, entered
into a bank loan which is guaranteed by the Small Business Administration under the Paycheck Protection Plan for $
During the year ended September 30, 2021, the
Company issued seven notes payable totaling $
18
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred Stock
As of June 30, 2022, the Company is authorized
to issue
As of June 30, 2022 and September 30, 2021, the
Company has designated
Common Stock
On February 14, 2022 the Company’s shareholders
approved an increase in authorized common stock to
Stock Incentive Plan
The Company established its 2016 Stock Incentive Plan (the “Plan”) that permits the granting of incentive stock options and other common stock awards. The maximum number of shares available under the Plan is 100,000 shares. The Plan is open to all employees, officers, directors, and non-employees of the Company. Options granted under the Plan will terminate and may no longer be exercised (i) immediately upon termination of an employee or consultant for cause or (ii) one year after termination of employment, but not later than the remaining term of the option. As of June 30, 2022, 83,577 awards remain available for grant under the Plan.
Offering Under S 1
On June 9, 2021,
Shares Issued for Subscription
Since September 30, 2021, the Company issued
Offering Under S-1
On January 20, 2022, the Company filed a Post-Effective Amendment to its Form S-1 filed on June 9, 2021, deregistering all unissued shares of common stock from that offering.
On January 21, 2022, the Company submitted a final
registration statement filed on Form S-1. The Company requested accelerated status and the registration statement became effective on
January 24, 2022.
Since February 2, 2022, Trillium Partners LP subscribed
to
19
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Shares Issued for Conversions of Convertible Notes
On November 4, 2021, Geneva Roth Remark Holdings
Inc. converted principal of $
On December 17, 2021, Geneva Roth Remark Holdings
Inc. converted principal of $
On January 21, 2022, Geneva Roth Remark Holdings
Inc. converted principal of $
On March 22 and 25, 2022, Geneva Roth Remark Holdings Inc. converted principal of $50,000 and accrued interest of $2,500 from its convertible note dated September 17, 2021 into 159,090,909 shares of common stock at contracted prices. Following the conversions, the balance of principal and accrued interest was $0.
On May 18, and 25, 2022 1800 Diagonal Lending LLC (f/k/a Sixth Street Lending LLC, fully converted principal and accrued interest of $55,000 and $2,750 from the convertible note dated November 12, 2021 into 197,639,860 shares of common stock. Premium of $29,615 was reclassified to additional paid in capital.
On June 6, 2022, Frondeur Partners LLC fully
converted principal and accrued interest of $
Stock Options
The Company recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period.
There were no options granted under the 2016 Stock Incentive Plan for the nine months ended June 30, 2022.
For the nine months ended June 30, 2022 and 2021,
the Company recorded $
For the nine months ended June 30, 2022 and the year ended September 30, 2021, a summary of the Company’s stock options activity is as follows:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at September 30, 2021 | $ | |||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Outstanding at June 30, 2022 | $ | |||||||||||||||
| Exercisable at June 30, 2022 | $ | $ | ||||||||||||||
All options were issued at an options price equal to the market price of the shares on the date of the grant.
20
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Warrants
For the nine months ended June 30, 2022 and year ended 2021, a summary of the Company’s warrant activity is as follows:
| Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding and exercisable at September 30, 2021 | $ | $ | ||||||||||||||
| Anti-dilution adjustment | ||||||||||||||||
| Outstanding and exercisable at June 30, 2022 | $ | . | $ | |||||||||||||
NOTE 13 - DEFINED CONTRIBUTION PLANS
In August 2016, Bantec established a qualified
401(k) plan with a discretionary employer matching provision. All employees who are at least
The Company’s subsidiary, Howco, is the
sponsor of a qualified 401(k) plan with a safe harbor provision. All employees are eligible to enter the plan within one year of the commencement
of employment. Employer contributions charged to expense for the nine months ended June 30, 2022 and 2021, was $
21
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 14 - RELATED PARTY TRANSACTIONS
On October 1, 2016, the Company entered into employment
agreements with two of its officers. The employment agreement with the Company’s President and CEO provides for annual base compensation
of $
On January 25, 2022 a promissory note was issued
to the CEO by Howco for $
On April 25, 2022 a promissory note was issued
to the CEO by Howco for $
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Contingencies
Legal Matters
On February 6, 2018 the Company sent a letter
to the previous owners of Howco Distributing Co. (“Howco”) alleging that they made certain financial misrepresentations under
the terms of the Stock Purchase Agreement by which the Company acquired control of Howco during 2016. The Company claimed that the previous
owners took excessive amounts of cash from the business prior to the close of the merger. On March 13, 2018 the Company filed a lawsuit
against the previous owners by issuing a summons. On April 12, 2018, the Company received the Defendants’ answer. On July 22, 2019,
the Company sought and was granted a dismissal without prejudice of the lawsuit filed against the previous owners of Howco. The Company
and the previous owners are in discussion to settle the matter as of June 30, 2022. An informal oral agreement with the Seller has been
made whereby the Company has been paying the previous owners $
In connection with the merger in fiscal 2016,
with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $
In the suit Drone USA, Inc and Michael Bannon
(plaintiffs) vs the former Chief Financial Officer (CFO), currently pending in New York State court, the plaintiffs seek to compel the
former CFO to meet his obligations under an agreement guaranteeing payments to another former executive. The former CFO filed a cross-claim
against the plaintiffs for past due salary. The employment agreement with the former CFO allowed salary payments to be paid in cash or
stock. During the year ended September 30, 2021, the Company issued
On April 10, 2019, a former service provider filed
a complaint with three charges with the Superior Court Judicial District of New Haven, CT seeking payment for professional services. The
Company has previously recognized expenses of $
22
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
During the year ended September 30, 2019, two
vendors (The Equity Group and Toppan Vintage) have asserted claims for past due amounts of approximately $
On December 30, 2020, a Howco vendor filed a lawsuit
seeking payment of past due invoices totaling $
The Impact of COVID-19
The Company is a wholesale vendor to the Department of Defense through its wholly owned subsidiary Howco’s business has been affected due to the COVID-19 social distancing requirements mandated by the federal, state and local governments where the Company’s operations occur. For some businesses, like the Company’s, core business cannot always be done through “virtual” means, and even when this is possible, it requires significant capital and time to achieve. During the nine months ended June 30, 2022 sales and shipments at Howco have continued at a lower rate than during the nine months ended June 30, 2021. It is expected that COVID-19 restrictions had an impact on the Company’s operations during the nine months ended June 30, 2022, however the Company cannot assess the financial impact of the related COVID-19 restrictions as compared to other economic and business factors.
Settlements
On January 29, 2018,
On November 13, 2018 the Company and a vendor
agreed to settle $
As of June 30, 2022, the Company has received demand for payment of past due amounts for services by several consultants and service providers.
Commitments
Lease Obligations
The Company entered into an agreement with a manufacturer
in Pismo Beach, California. The agreement provides for certain services to be provided by the manufacturer as needed by the Company.
23
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Company recognized a right-of-use asset of
and a lease liability of $
Right of use asset (ROU) is summarized below:
| June 30, 2022 | September 30, 2021 | |||||||
| Operating lease at inception - June 2, 2020 | $ | $ | ||||||
| Less accumulated reduction | ( | ) | ( | ) | ||||
| Balance ROU asset | $ | $ | ||||||
Operating lease liability related to the ROU asset is summarized below:
| Operating lease liabilities at inception - June 2, 2020 | $ | $ | ||||||
| Reduction of lease liabilities | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Lease liabilities, non-current | $ | - | $ |
Non-cancellable operating lease total future payments are summarized below:
| Total minimum operating lease payments | $ | $ | ||||||
| Less discount to fair value | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ |
Future minimum lease payments under non-cancellable operating leases at June 30, 2022 are as follows:
| Years ending September 30, | Amount | |||
| 2022 | $ | |||
| 2023 | ||||
| Total minimum non-cancelable operating lease payments | $ | |||
For the nine months ended June 30, 2022 and 2021,
rent expense for all leases amounted to $
In December 2019, the Company relocated its primary office to 195 Paterson Avenue, Little Falls, New Jersey, under a one-year lease with a renewal option. Following the renew the monthly payments is $600. The Company added an office for Bantec Logistics, LLC on January 11, 2022, which has a monthly payment of $100.
Profit Sharing Plan (for Howco)
On April 13, 2018, Howco announced to its employees
a Company-wide profit sharing program. The employee profit share is equal to their annual salary divided by the Company’s total
annual payroll and multiplied by
24
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Notice of Default
On September 6, 2019, the Company received a notice of default under its senior secured credit facility with TCA, for non-payment of amounts due among other matters. Left uncured the default remedies include seizure of operating assets such as the Company’s subsidiary. Additionally, the default may trigger cross default provisions under other agreements with other creditors.
Directors’ & Officers’ Insurance Policy Expiration
On October 11, 2019, the Company’s insurance policy covering directors and officers expired and the carrier declined to renew the policy. The Company is working with its broker and other carriers to obtain coverage. This lapse of insurance coverage exposes the Company to the risk associated with its indemnification of its officers against legal actions by third parties as outlined in the officers’ employment agreements as amended on September 16, 2019.
NOTE 16 - CONCENTRATIONS
Concentration of Credit Risk
The Company maintains its cash in bank and financial
institution deposits that at times may exceed federally insured limits of $
Economic Concentrations
With respect to customer concentration, one customer
accounted for approximately
With respect to accounts receivable concentration,
one customer accounted for
With respect to supplier concentration, three
suppliers accounted for approximately
With respect to accounts payable concentration,
three suppliers accounted for approximately
Foreign sales were $
NOTE 17 - SUBSEQUENT EVENTS
Preferred Stock Authorized and Designated
On July 1, 2022, the Company authorized
The Certificate of Designation for the Series
B Preferred Stock authorizes a total of
Preferred Stock and Common Stock Warrants Sold
On July 1, 2022, the
“Company entered into separate Securities Purchase Agreements with Trillium Partners, LP (“Trillium”) and with JP Carey
Limited Partners, LP (“JPC”). Under the terms of each SPA, Trillium and JPC each agreed to purchase of
25
BANTEC, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Warrants are exercisable
at $
Convertible Notes Issued
On July 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
On August 1, 2022, the Company issued a convertible
promissory note to Frondeur Partners LLC for $
Other Notes Issued
Since June 30, 2022, the Company entered into
two convertible notes for a total principal of $
Stock Issued for Convertible Notes
On July 14 and 18, 2022 1800 Diagonal Lending LLC (f/k/a Sixth Street Lending LLC, fully converted principal and accrued interest of $53,750 and $2,688 from the convertible note dated January 12, 2021 into 217,067,308 shares of common stock. Premium of $28,940 was reclassified to additional paid in capital.
On July 12, 2022, Frondeur Partners LLC fully converted principal and accrued interest of $15,000 and $744 from the convertible note dated December 1, 2021 into 126,925,600 shares of common stock. Premium of $15,000 was reclassified to additional paid in capital.
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This quarterly report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended September 30, 2021 as filed with the SEC on January 7, 2022.
We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q.
Overview
Bantec, Inc. is a distributor, construction, environmental and drone company. Through Howco Distributing Co, Bantec provides product procurement, distribution, and logistics services, to the United States Department of Defense and Defense Logistics Agency. The Company established Bantec Sanitizing in fiscal 2021, which offers sanitizing products and equipment through its new store bantec.store. Bantec Sanitizing is currently offering Bantec Sanitizing franchises for sale. The Company has operations based in Little Falls, New Jersey and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships with distributor, construction, environmental and drone firms that offer growth opportunities in well established markets, as well as acquisitions and partnerships with firms that have complementary technologies, services, products and infrastructure.
Liquidity and Capital Resources
As of June 30, 2022 we had $632,608 in current assets, including $243,126 in cash, compared to $1,205,058 in current assets, including $985,953 in cash, at September 30, 2021. Current liabilities at June 30, 2022, totaled $16,296,493 compared to $15,914,650, at September 30, 2021. The decrease in current assets from September 30, 2021 to June 30, 2022 is primarily due to decreases in: cash of $742,827, and prepaid expenses $24,219, partially offset by increases of approximately $153,000 and $41,000 in accounts receivable and inventory, respectively. The increase in current liabilities from September 30, 2021 to June 30, 2022, of approximately $382,000, is primarily due to the increases in accrued expenses of approximately $740,000. While we have revenues from UAV sales as of this date, no significant UAV revenues are anticipated until we have implemented our full plan of operations, specifically, initiating sales campaigns for our UAV internet and social media platforms. We must raise cash to implement our strategy to grow and expand per our business plan. We anticipate over the next 12 months the cost of being a reporting public company will be approximately $250,000.
We are currently issuing shares under the S-1 offering but expect to raise additional proceeds with debt securities, and/or more loans, however if sufficient funding is not available, we would be required to cease business operations. As a result, investors would lose all of their investment. Under the terms of our credit agreement with TCA, all potential new investments must first be reviewed and approved by TCA, which may constrain our options for new fundraising. However, we have been in contact with the receiver for the TCA management companies and funds and do not expect any such objections over investment opportunities. We are currently in discussion to undertake a second S1 offering.
We anticipate our short-term liquidity needs to be approximately $5,000,000 which will be used to satisfy certain of our existing current liabilities and we expect gross profits of approximately $500,000. To meet these needs, we intend to complete our equity financing and refinance or restructure certain existing liabilities. Once this is completed, and we implement our sales and marketing plan to sell UAV products, we anticipate minimal long-term liquidity needs which we expect to meet through equity financing or short-term borrowings.
Additionally, we will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act of 2002. This additional corporate governance time required of management could limit the amount of time management has to implement the business plan and may impede the speed of its operations.
27
The Impact of COVID-19
The Company is a wholesale vendor to the Department of Defense through its wholly owned subsidiary Howco’s business has been affected due to the COVID-19 social distancing requirements mandated by the federal, state and local governments where the Company’s operations occur. For some businesses, like the Company’s, core business cannot always be done through “virtual” means, and even when this is possible, it requires significant capital and time to achieve. During the nine months ended June 30, 2022 sales and shipments at Howco have continued at a lower rate than during the nine months ended June 30, 2021. It is expected that COVID-19 restrictions had an impact on the Company’s operations during the nine months ended June 30, 2022, however the Company cannot assess the financial impact of the related COVID-19 restrictions as compared to other economic and business factors.
The following is a summary of the Company’s cash flows provided by (used in) operating, investing and financing activities:
| Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | |||||||
| Net Cash Provided by (Used in) Operating Activities | $ | (1,240,506 | ) | $ | (911,075 | ) | ||
| Net Cash Used in Investing | - | - | ||||||
| Net Cash Provided by (Used in) Financing Activities | $ | 497,679 | $ | 871,956 | ||||
| Net Increase (Decrease) in Cash | $ | (742,827 | ) | $ | (39,119 | ) | ||
2022, Net cash used in operating activities of $1,240,506, is largely the result of net losses of $2,032,933, partially offset by non-cash charges for premiums on stock settled debt, debt discount amortization, non-cash charges for services and increases to accrued expenses (interest).
2022, Cash provided by financing activities of $497,679 is largely the result of stock sales for cash of $699,589 and cash received from issuance of convertible notes totaling $101,250, somewhat offset by repayments of various debts including bank loan and other financing arrangements at Howco.
Refer also to the Consolidated Statements of Cash Flows included in the financial statement section of this report.
Results of Operations
Three months Ended June 30, 2022 and 2021
We generated sales of $750,756 and $622,423 for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately $128,000, or 21%. For the three months ended June 30, 2022 and 2021, we reported cost of goods sold of $629,023 and $494,107, respectively, an increase of approximately $135,000, or 27%. The increase in sales and cost of goods sold for the 2022 period as compared to the 2021 period is due to higher sales in current period due to increased Department of Defense spending and lessening COVID 19 restrictions. While management’s focus on increasing gross margins has impacted sales levels, we believe that the Company is situated to capture greater sales without incurring significant fixed costs through three initiatives. Gross margins were 16% and 21% for the three months ended June 30, 2022 and 2021, respectively. Gross margin contractions were due to increased direct sales as packaging services have decreased. Efforts are underway to market an expanded suite of Howco product lines on the east coast. We are expanding product offerings with high tech tactical gear to regular federal government entities (Howco lines of business), adding the high-tech tactical gear to our traditional drone assemblies along with newer more rapidly deployed drones focused on municipalities and lastly, we are adding construction contracting and sanitizing services.
For the three months ended June 30, 2022 and 2021, we reported selling, general, and administrative expenses of $470,612 as compared to $790,539, a decrease of approximately $320,000, or 40%. For the three months ended June 30, 2022 and 2021, selling, general, and administrative expenses consisted of the following:
| For the Three Months ended | For the Three Months ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Compensation and related benefits | $ | 259,605 | $ | 384,580 | ||||
| Professional fees | 159,336 | 291,081 | ||||||
| Other selling, general and administrative expenses | 51,671 | 114,878 | ||||||
| Total selling, general and administrative expenses | $ | 470,612 | $ | 790,539 | ||||
The decrease in selling, general, and administrative costs for the 2022 period as compared to the 2021 period was due to the decrease in compensation, professional fees and in other selling, general and administrative costs stemming from lower levels of management and staff at Howco and general decreased operations (also at Howco).
28
For the three months ended June 30, 2022 and 2021, depreciation expense amounted to $0 and $2,458, respectively, and related to the depreciation of demonstration drones in the 2021 period. The demonstration drones were fully depreciated as of September 30, 2021.
Amortization expense for intangibles was $6,698 for the three months ended June 30, 2022, as the Company began amortization during the current quarter.
For the three months ended June 30, 2022 and 2021, other income (expense) amounted to ($101,680) and ($299,001), respectively, a decrease of approximately $197,000. The decrease was attributable gains on debt extinguishment of $159,846 and decrease in interest expense of approximately $78,000 during the current period compared to three months ended June 30, 2021. This was offset by and increase in fair market value of derivatives charge of approximately $40,000.
As a result, we reported net losses of $457,257, or $0.00 per common share, and $963,682, or $0.00 per common share, for the three months ended June 30, 2022 and 2021, respectively.
Nine months Ended June 30, 2022 and 2021
We generated sales of $1,522,781 and $2,034,327 for the nine months ended June 30, 2022 and 2021, respectively, a decrease of approximately $512,000, or 25%. For the nine months ended June 30, 2022 and 2021, we reported cost of goods sold of $1,258,376 and $1,229,348, respectively, an increase of approximately $29,000, or 2%. The increase in sales is largely due to increased Department of Defense spending and lessening of the COVID 19 restrictions. The increase in cost of goods sold for the 2022 period as compared to the 2021 period is due to higher direct sales, and lower sales of packaging services. While management’s focus on increasing gross margins has impacted sales levels, we believe that the Company is situated to recapture sales without incurring significant fixed costs through three initiatives. Gross margins were 17% and 40% for the nine months ended June 30, 2022 and 2021, respectively. Efforts are underway to market an expanded suite of Howco product lines on the east coast. We are expanding product offerings with high tech tactical gear to regular federal government entities (Howco lines of business), adding the high tech tactical gear to our traditional drone assemblies along with newer more rapidly deployed drones focused on municipalities and lastly we are adding construction contracting.
For the nine months ended June 30, 2022 and 2021, we reported selling, general, and administrative expenses of $1,672,437 as compared to $2,277,418, a decrease of approximately $605,000, or 27%. For the nine months ended June 30, 2022 and 2021, selling, general, and administrative expenses consisted of the following:
| For the Nine Months ended | For the Nine Months ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Compensation and related benefits | $ | 900,026 | $ | 1,301,925 | ||||
| Professional fees | 618,879 | 726,986 | ||||||
| Other selling, general and administrative expenses | 153,532 | 248,507 | ||||||
| Total selling, general and administrative expenses | $ | 1,672,437 | $ | 2,277,418 | ||||
The decrease in selling, general, and administrative costs for the 2022 period as compared to the 2021 period was due to decreases: in compensation of approximately 31% professional fees of 15% and other selling, general and administrative expenses of approximately 38%.
For the nine months ended June 30, 2022 and 2021, depreciation expense amounted to $0 and $7,374, respectively, and related to the depreciation of demonstration drones in the 2021 period. The demonstration drones were fully depreciated as of September 30, 2021.
Amortization expense for intangibles was $6,698 for the nine months ended June 30, 2022, as the Company began amortization during the current period.
For the nine months ended June 30 2022 and 2021, other income (expense) amounted to ($618,203), and $326,691, respectively, a change of approximately $945,000. The increase to other loss was attributable to gains recognized on debt and other liability extinguishment of approximately $1,366,000 in the prior period, compared to approximately $235,000 in the current period.
As a result, we reported a net loss of $2,032,933 or $0.00 per common share, and $1,153,122 or $0.00 per common share, for the nine months ended June 30, 2022 and 2021, respectively.
29
Going Concern
The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the nine months ended June 30, 2022, the Company has incurred a net loss of $2,032,933 and used cash in operations of $1,240,506. The working capital deficit, stockholders’ deficit and accumulated deficit was $15,663,885, $15,588,253 and $34,989,773, respectively, at June 30, 2022. Furthermore, on September 6, 2019 the Company received a default notice on its payment obligations under the senior secured credit facility agreement (see Note 10), defaulted on its Note Payable – Seller in September 2017 and has since defaulted on other promissory notes. As of June 30, 2022 the Company has received demands for payment of past due amounts from several consultants and service providers. It is management’s opinion that these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The ability of the Company to continue as a going concern is dependent upon management’s ability to further implement its business plan and raise additional capital as needed from the sales of stock or debt. The Company has continued to implement cost-cutting measures and restructuring or setting up payment plans with vendors and service providers and plans to raise equity through a private placement, and restructure or repay its secured obligations. The accompanying consolidated financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
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.
Critical Accounting Policies and Significant Accounting Estimates
Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general, management’s estimates are based on historical experience, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt on accounts receivable, reserves on inventory, valuation of intangible assets for impairment analysis, valuation of the lease liability and related right-of-use asset, valuation of stock-based compensation, the valuation of derivative liabilities and the valuation allowance on deferred tax assets.
We have identified the accounting policies below as critical to our business operations.
Accounts Receivable
Trade receivables are recorded at net realizable value consisting of the carrying amount less the allowance for doubtful accounts, as needed. Factors used to establish an allowance include the credit quality of the customer and whether the balance is significant. The Company may also use the direct write-off method to account for uncollectible accounts that are not received. Using the direct write-off method, trade receivable balances are written off to bad debt expense when an account balance is deemed to be uncollectible.
Goodwill and Intangible Assets
The Company acquired a patent for a new product during the year ended September 30, 2021. The Company capitalized acquisition and related legal fees related to the patent totaling $44,650. The capitalized amount will be amortized over the five years, following the commencement of related sales. Impairment will be tested annually or as indicators of impairment are available.
30
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is determined by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets and their ultimate disposition. In instances where impairment is determined to exist, the Company writes down the asset to its fair value based on the present value of estimated future cash flows.
Revenue Recognition
The Company follows Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, which has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied.
The Company sells a variety of products to government entities. The purchase orders received specifies each item and its manufacturer; the Company only needs to fulfill the performance obligation by shipping the specified items. No other performance obligations exist under the terms of the contracts. The Company recognizes revenue for the agreed upon sales price when the product is shipped to the customer, which satisfies the performance obligation.
During the year ended September 30, 2021 and the nine months ended June 30, 2022, the Company through its subsidiary Howco entered into contracts to package products for a third-party company servicing the same government customer base. The contracts were on job lot basis as shipped to Howco for packaging. The customer was billed upon completion each job lot at which time revenue was recognized.
The Company sells drones and related products manufactured by third parties to various parties, primarily local government entities. The Company also offers technical services related to drone utilization and performs other services. Contracts for drone related products and services sales will be evaluated using the five-step process outline above. There have been no material sales for drone products or other services for which full compliance with performance obligations has not been met. Upon significant sales for drone products and services and insulation jackets, the Company will disaggregate sales by these lines of business and within the lines of business to the extent that the product or service has different revenue recognition characteristics.
The Company began sales of sanitizing products and services during the nine months ended June 30, 2022. Revenue for this line of business is recognized upon shipment and delivery of training services (as applicable).
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. Additionally, effective October 1, 2016, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. Among other changes, ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.
As of October 1, 2018, the Company has early adopted ASU 2018-7 Compensation-Stock Compensation which conforms the accounting for non-employees to the accounting treatment for employees. The new standard replaces using a fair value as of each reporting date with use of the calculated fair value as of the grant date. The implementation of the standard provides for the use of the fair market value as of the adoption date, rather than using the value as of the original grant date. Therefore, the values calculated and reported at September 30, 2018 become a proxy for the grant date value. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. There was no cumulative effect on the adoption date.
31
Derivative Liabilities
The Company has certain financial instruments that are derivatives or contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Convertible Notes with Fixed Rate Conversion Options
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Net Loss Per Share
Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution.
Lease Accounting
In February 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, required lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented.
The Company’s subsidiary has renewed the lease for the warehouse and office facility in Vancouver, Washington in May 2020 effective June 1, 2020, which extends through May 30, 2023, and is accounted for under ASC 842. The corporate office is an annual arrangement which provides for a single office in a shared office environment and is exempt from ASC 842 treatment.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2022, our disclosure controls and procedures were not effective.
The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financial reporting. Currently there is no staff with knowledge of Generally Accepted Accounting Procedures on site at Howco. Since the resignation of our former CFO in July 2017, we have not had a qualified in-house financial accounting expert to maintain our parent company and consolidation level books and records. To remediate this situation, we have engaged outsourced accountants.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with the merger with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $75,000 against the Company. The Company and its legal counsel believe the Company is not liable for the claim pursuant to its indemnification clause in the merger agreement.
On February 6, 2018 the Company sent a letter to the previous owners of Howco Distributing Co. (“Howco”) alleging that they made certain financial misrepresentations under the terms of the Stock Purchase Agreement by which the Company acquired control of Howco during 2016. The Company claimed that the previous owners took excessive amounts of cash from the business prior to the close of the merger. On March 13, 2018 the Company filed a lawsuit against the previous owners by issuing a summons. On April 12, 2018, the Company received the Defendants’ answer. On July 22, 2019, the Company sought and was granted a dismissal without prejudice of the lawsuit filed against the previous owners of Howco. The Company and the previous owners are in discussion to settle the matter as of June 30, 2022. An informal oral agreement with the Seller has been made whereby the Company has been paying the previous owners $3,000 per month since January 2021 in satisfaction of Sellers note payable.
In the suit Drone USA, Inc and Michael Bannon (plaintiffs) vs former Chief Financial Officer or CFO, currently pending in New York State court, the plaintiffs seek to compel the former CFO to meet his obligations under an agreement guaranteeing payments to another former executive. The former CFO filed a cross-claim against the plaintiffs for past due salary. The employment agreement with the former CFO allowed salary payments to be paid in cash or stock. During the year ended September 30, 2021, the Company issued 36,821,330 shares of its common stock for the past due salary and claims that this payment moots the former CFO’s claim for past due salary. The former CFO filed a motion for summary judgement which was denied, then filed an appeal to that order which is now pending..
On April 10, 2019, a former service provider filed a complaint with three charges with the Superior Court Judicial District of New Haven, CT seeking payment for professional services. The Company has previously recognized expenses of $218,637, which remain unpaid in accounts payable. The Company has retained an attorney who is currently working to address the complaint. On August 9, 2019 the Company filed a motion to dismiss the charge of unjust enrichment. The judge granted the Company’s motion to dismiss.. Pre-trial meeting is scheduled for November 30, 2022. Trial is scheduled for December 14, 2022. The Company, through its attorney, is working to negotiate a settlement
During the year ended September 30, 2019, two vendors (The Equity Group and Toppan Vintage) have asserted claims for past due amounts of approximately $59,000, arising from services provided. The Company has fully recognized, in accounts payable, the amounts associated with these claims and expects to resolve the matters to satisfaction of all parties.
On December 30, 2020, a Howco vendor filed a lawsuit seeking payment of past due invoices totaling $276,430 and finance charges of $40,212. The Company has recorded the liability for the invoices in the normal course of business.. With this vendor and other vendors the company has entered into monthly payment arrangements.
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
34
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuance of Unregistered Securities
Since March 31, 2022, the Company issued the following unregistered securities:
Shares Issued for Conversions of Convertible Notes
On May 18, and 25, 2022 1800 Diagonal Lending LLC (f/k/a Sixth Street Lending LLC, fully converted principal and accrued interest of $55,000 and $3,295 from the convertible note dated November 12, 2021 into 197,639,860 shares of common stock. Premium of $29,615 was reclassified to additional paid in capital.
On June 6, 2022, Frondeur Partners LLC fully converted principal and accrued interest of $15,000 and $747 from the convertible note dated December 1, 2021 into 95,214,750 shares of common stock. Premium of $15,000 was reclassified to additional paid in capital.
On July 12, 2022, Frondeur Partners LLC fully converted principal and accrued interest of $15,000 and $744 from the convertible note dated December 1, 2021 into 126,925,600 shares of common stock. Premium of $15,000 was reclassified to additional paid in capital.
On July 14 and 18, 2022 1800 Diagonal Lending LLC (f/k/a Sixth Street Lending LLC, fully converted principal and accrued interest of $53,750 and $2,688 from the convertible note dated January 12, 2021 into 217,067,308 shares of common stock. Premium of $28,940 was reclassified to additional paid in capital.
Preferred Stock and Common Stock Warrants Sold
On July 1, 2022, the “Company entered into separate Securities Purchase Agreements with Trillium Partners, LP (“Trillium”) and with JP Carey Limited Partners, LP (“JPC”). Under the terms of each SPA, Trillium and JPC each agreed to purchase of 224,000 shares of the Company’s Series B Preferred Stock, and a Warrant for the purchase of 1,120,000,000 shares of Common Stock, for which Trillium and JPC each agreed to pay the Company $200,000. The Company received funding under the July 1, 2022 SPAs on July 19, 2022.
35
Convertible Notes Issued
On April 1, 2022, the Company issued a convertible promissory note to Frondeur Partners LLC for $15,000 in principal for services (service agreement replacing agreement with Livingston Asset Management LLC). The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date.
On May 1, 2022, the Company issued a convertible promissory note to Frondeur Partners LLC for $15,000 in principal for services (service agreement replacing agreement with Livingston Asset Management LLC). The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date.
On June 1, 2022, the Company issued a convertible promissory note to Frondeur Partners LLC for $15,000 in principal for services (service agreement replacing agreement with Livingston Asset Management LLC). The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date.
36
On July 1, 2022, the Company issued a convertible promissory note to Frondeur Partners LLC for $15,000 in principal for services. The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date.
On August 1, 2022, the Company issued a convertible promissory note to Frondeur Partners LLC for $15,000 in principal for services. The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date.
Other Notes Issued
Since June 30, 2022, the Company entered into two convertible notes for a total principal of $448,000, for which $400,000 was received in cash. The notes mature June 23, 2023, bear interest at 12%, and may be converted into common stock at $.0002. The notes include a default interest rate of 16%, prepayment penalties and pledges to redeem the notes upon an eligible public offering. Warrants to purchase 2,240,000,000 shares of the Company’s common stock were issued in conjunction with the note issuance. The warrants include anti-dilution provisions which may alter the exercise price or the number of common shares to be issued.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On September 6, 2019, the Company received a default notice on its payment obligations under the senior secured credit facility agreement from TCA.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
37
ITEM 6. EXHIBITS
| Exhibit No. | Description of Exhibit | |
| 31.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
38
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.
| BANTEC, INC. | ||
| Dated: August 15, 2022 | By: | /s/ Michael Bannon |
| Michael Bannon | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| /s/ Michael Bannon | ||
| Michael Bannon | ||
|
Chief Financial Officer (Principal Financial Officer) | ||
39