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.) |
| 37 Main Street, Sparta NJ 07871 | 07424 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s
Telephone Number, Including Area Code:
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name
of each exchange on which registered | ||
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. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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.
| 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
As of August 30, 2023, there were
BANTEC, INC.
Form 10-Q
June 30, 2023
TABLE OF CONTENTS
| i |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2023 | September 30, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and interest | ||||||||
| Convertible notes, net of debt discount and premiums | ||||||||
| Line of credit | ||||||||
| Note payable – seller | ||||||||
| Current portion notes and loans payable – net of discounts | ||||||||
| Notes payable – related party | ||||||||
| Mandatorily redeemable Preferred Stock Series C - $ | ||||||||
| Settlement payable | ||||||||
| Lease liability - current portion | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Lease liability - long-term portion | - | |||||||
| Notes and loans payable – net of current portion | ||||||||
| TOTAL LONG-TERM LIABILITIES | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Temporary Equity – Convertible Preferred Stock Series B - $ | $ | $ | ||||||
| Commitments and Contingencies (See Note 15) | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock $ | $ | $ | ||||||
| Common stock - $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying unaudited condensed consolidated notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling, general, and administrative expenses | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest and financing costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on change in fair market value of derivative | ( | ) | ( | ) | ||||||||||||
| Gains on debt extinguishment, net of prepayment penalty | ||||||||||||||||
| TOTAL OTHER EXPENSE, NET | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income tax | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividends Attributable to Series B Preferred Stock | ( | ) | ( | ) | ||||||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying unaudited condensed consolidated notes are an integral part of these 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, 2023 AND 2022
(Unaudited)
| Series A Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| No. of Shares | Value | No. of Shares | Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes and reclassification of debt premiums | ||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes and reclassification of debt premiums | ||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at 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 at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 3 |
| Series A | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| No. of Shares | Value | No. of Shares | Value | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes and reclassification of debt premiums | ||||||||||||||||||||||||||||
| Preferred Stock Series B dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss for the three months ended December 31, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued for conversion of notes and reclassification of debt premiums | ||||||||||||||||||||||||||||
| Preferred Stock Series B dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Preferred Stock Series B dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Fractional shares issued from reverse split | ||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2023 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying unaudited condensed consolidated notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the nine months ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Amortization of debt discounts | ||||||||
| Accretion of premium on convertible notes | ||||||||
| Depreciation and intangibles amortization | ||||||||
| Share-based compensation expense | ||||||||
| Share issued for conversion fees | ||||||||
| Fee notes issued | ||||||||
| (Gain) on debt extinguishment | ( | ) | ||||||
| (Gain) Loss on derivative, change in fair market value | ||||||||
| Non-cash rent expense | ||||||||
| Changes in Assets and Liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Right of use lease asset | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Settlement payable | ( | ) | - | |||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of shares | ||||||||
| Proceeds from line of credit | ||||||||
| Net proceeds from notes payable | ||||||||
| Repayments of notes payable | ( | ) | ||||||
| Net proceeds from convertible notes payable | ||||||||
| Repayments of convertible notes | ( | ) | ||||||
| Repayments of promissory notes, MFA | ( | ) | ||||||
| Net proceeds from notes payable, related party | ||||||||
| Repayments on notes payable, related party | ( | ) | ( | ) | ||||
| Repayments on note payable - seller | ( | ) | ( | ) | ||||
| Repayments of line of credit | ( | ) | ||||||
| Repayments of factoring notes | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during the period: | ||||||||
| Interest | $ | $ | ||||||
| Income Tax | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Issuance of common stock for conversion of convertible notes and accrued interest | $ | $ | ||||||
| Reclassification of debt premium upon conversion of convertible debt | $ | $ | ||||||
| Debt discount | $ | $ | ||||||
| Right-of-use asset and lease liability pursuant to ASC 842 | $ | $ | ||||||
| Value of Series C preferred stock in connection with an Exchange Agreement | $ | $ | ||||||
| Purchase of convertible note by related party | $ | $ | ||||||
| Transfer of debt premium upon purchase by related party | $ | $ | ||||||
The accompanying unaudited condensed consolidated notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
Bantec, Inc. is a company providing products and services (“Bantec” or the “Company”), targeting the U.S. Government, state governments, municipalities, hospitals, universities, manufacturers and other building owners. Bantec provides product procurement, distribution, and logistics services through its wholly-owned subsidiary, Howco Distributing Co. (“Howco”) to the U.S. Department of Defense and Defense Logistics Agency. The Company established Bantec Sanitizing, LLC in fiscal 2021, which offers sanitizing products and equipment through its online store - bantec.store. The Company has operations based in Sparta, New Jersey and Vancouver, Washington. Howco operates in Vancouver, Washington and all other operations are in Sparta, New Jersey. The Company continues to seek strategic acquisitions and partnerships that would offer it 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 Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). The accompanying 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 LLC 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.
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 (“SEC”) 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, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023. 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, 2022 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on January 12, 2023. The consolidated balance sheet as of September 30, 2022 contained herein has been derived from the audited consolidated financial statements as of September 30, 2022 but does not include all disclosures required by GAAP.
Going Concern
| 6 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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, valuation of redeemable preferred stock, 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 it applies 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.
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 estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
The Company’s non-financial assets, such as ROU assets, and property and equipment, are adjusted to fair value only when an impairment is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
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.
| 7 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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 $
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 order 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.
The Company through its subsidiary Howco enters into contracts to package products for a third-party company servicing the same government customer base. The contracts are based on the job lot as shipped to Howco for packaging. The customer is billed upon completion each job lot at which time revenue is recognized.
The Company sells drones and related products manufactured by third parties to various parties, primarily local government entities. 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, 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.
| 8 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
The Company began sales of sanitizing products and services during the year ended September 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.
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.
| 9 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance (ASC Topic 840). Under the new guidance, codified as ASC Topic 842, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense generally is flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As permitted, the Company adopted ASC Topic 842 effective June 1, 2020. The adoption of ASC Topic 842 did not have a material impact on the Company’s consolidated financial statements.
In 2020, the Company’s subsidiary renewed
the lease for the warehouse and office facility in Vancouver, Washington through May 30, 2023, and accounted for it under ASC 842. The
Company signed the seventh amendment to the lease on May 2, 2023 extending the lease end date to May 31, 2026 with two additional option
years. 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. 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.
The Company currently has no federal or state tax examinations in progress. As of June 30, 2023, the Company’s tax returns for the tax years 2022, 2021 and 2020 remain subject to audit, primarily by the Internal Revenue Service.
The Company did not have material unrecognized tax benefits as of June 30, 2023 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.
| 10 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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. It should be noted that contractually the limitations
on the third-party notes (and the related warrants) limit the number of shares converted to either
| June 30, 2023 | June 30, 2022 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Series B Preferred Stock | ||||||||
| Third party convertible 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. For the nine months ended June 30, 2023, the Company had
Management decisions about allocation of working capital and other assets are based on sales, inventory and operating costs, with no formal processes in place.
Recent Accounting Pronouncements
The Company has reviewed the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 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), which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments, amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions, and modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS calculation. The standard is effective for annual periods beginning after December 15, 2023 for smaller reporting companies, and interim periods within those reporting periods. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those reporting periods. The Company is currently assessing the impact the new guidance will have on its condensed consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)”, which is intended to address issues identified during the post-implementation review of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendment, among other things, eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, “Receivables - Troubled Debt Restructurings by Creditors”, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The new guidance is effective for interim and annual periods beginning after December 15, 2022. This adoption did not have a material effect to the Company.
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.
| 11 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 3 - ACCOUNTS RECEIVABLE
| June 30, 2023 | September 30, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Reserve for doubtful accounts | ||||||||
| $ | $ | |||||||
Bad debt expense was $
NOTE 4 - INVENTORY
At June 30, 2023 and September 30, 2022, inventory
consisted of finished goods and was valued at $
NOTE 5 - 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 6 - SETTLEMENTS
On July 20, 2018, the Company entered into a settlement
agreement with a collection agent for American Express relating to $
During the year ended September 30, 2022, $
The total amounts due at June 30, 2023 and September
30, 2022, was $
| 12 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 7 - NOTE PAYABLE – SELLER
In connection with the acquisition of Howco in
September 2016, the Company issued a note payable in the amount of $
NOTE 8 - PROMISSORY NOTES PAYABLE – RELATED PARTY OFFICER AND HIS AFFILIATES
| June 30, 2023 | September 30, 2022 | |||||||
| Principal | $ | $ | ||||||
| Premiums | ||||||||
| Short term | $ | $ | ||||||
Promissory Notes Payable
On January 1, 2023, Bantec, Inc., Bantec Sanitizing
LLC and Howco each executed line of credit agreements with an entity controlled by the Company’s CEO. Each agreement has the same
terms: advances up to $
As of June 30, 2023:
| (i) | Bantec, Inc. borrowed $ |
| (ii) | Bantec Sanitizing LLC borrowed $ |
| (iii) | Howco borrowed $ |
On April 25, 2022, a promissory note was issued
to the CEO by Howco for $
On April 12, 2023, Ekimnel Strategies LLC,
NOTE 9 - CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Principal | $ | $ | ||||||
| Premiums | ||||||||
| $ | $ | |||||||
For the nine months ended June 30, 2023 and 2022,
amortization of debt discount on the above convertible notes amounted to $
| 13 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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 $
As of June 30, 2023, and September 30, 2022, the
Company issued 1 share of common stock in satisfaction of the $
Once a default occurs, the Note and the $
| 14 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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 $
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 (see below).
| 15 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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, 2023, there
were no 3(a)(10) issuances. As of June 30, 2023, there have been seventeen issuances under Section 3(a) (10) of the Securities Act totaling
At June 30, 2023 and September 30, 2022, the principal
of the Note B portion was $
On April 12, 2023, Ekimnel Strategies LLC,
Other Convertible Notes
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.
On December 1, 2021, the Company terminated its
agreement with Livingston Asset Management and 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 is obligated to issue to Frondeur Partners LLC convertible notes having principal
of $
| 16 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Between March 1, 2022 and August 1, 2022,
the Company issued convertible promissory notes to Frondeur Partners LLC for an aggregate principal amount of $
Between September 1, 2022 to May 1, 2023, the
Company issued convertible promissory notes to Frondeur Partners LLC for an aggregate amount of $
The principal balance for the Frondeur notes was
$
From May 1, 2022 until June 1, 2023, the Company
issued a $
The principal balances owed to the law firm
under the agreement as of June 30, 2023 and September 30, 2022 were $
On November 13, 2018, the Company issued a convertible
promissory note for $
| 17 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 10 – NOTES AND LOANS PAYABLE
| June 30, 2023 | September 30, 2022 | |||||||
| Principal loans and notes | $ | $ | ||||||
| Discounts | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less Current portion | ( | ) | ( | ) | ||||
| Non-current | $ | $ | ||||||
For the nine months ended June 30, 2023 and 2022,
amortization of debt discount on the above notes amounted to $
On June 17, 2020, the Company through Howco, entered
into a loan directly with the Small Business Administration for $
During the year ended September 30, 2021, the
Company issued seven notes payable totaling $
On July 1, 2022, the Company entered into a Securities Purchase Agreement with Trillium Partners, LP (“Trillium”). Under the terms of the SPA, Trillium agreed to advance funds under a merchant financing arrangement, treated as a loan. The loan principal is $224,000, including legal fees of $5,000 and OID of $24,000, the Company received cash of $195,000. Loan bears interest of 12% per annum and matures on June 30, 2023. The Company agreed to issue 224,000 shares of the Company’s Series B Preferred Stock, and a Warrant to purchase 1,120,000 shares of common stock as consideration for the advance agreement. The Series B Preferred Stock met the criteria for treatment as temporary equity and debt discount of $50,684 was recognized. The Warrant caused a recognition of $100,194 in debt discount. Total debt discount recognized was $179,878, to be amortized over the term of the loan, $44,846 was recognized as interest expense as of September 30, 2022 from amortization of discounts. The Company defaulted on the weekly payment terms of the note; however, the note holder granted a limited waiver of the default. Under the waiver amendment (see Note 11), the default interest rate still applies and now the note accrues interest of 22% and the payments are due upon the notes maturity. Total accrued interest at June 30, 2023 and September 30, 2022 was $33,832 and $10,923, respectively. On October 25, 2022, the Company repaid $50,000 of the July merchant financing arrangement. The payment was applied to the Trillium LP notes’ accrued interest and principal bringing its principal balance to $183,259, at June 30, 2023.
| 18 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
On April 28, 2023, Howco executed a sale of receivables
agreement with Itria Ventures LLC (“Itria Ventures”), Itria funded $
NOTE 11 - SERIES B AND SERIES C PREFERRED STOCK
Temporary Equity – Convertible Series B Preferred Stock
On July 1, 2022, the Company’s Board of
Directors designated as Series B Preferred Stock and authorized
Series B Preferred Stock shall have no right to vote on any matters requiring shareholder approval or any matters on which the shareholders are permitted to vote, with the exception to matters that would change the number or features of the Series B Preferred Stock.
Each share of Series B Preferred Stock will carry
an annual dividend in the amount of twelve percent (
Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or upon any Deemed Liquidation Event, after payment or provision for payment of debts and other liabilities of the Company, and after payment or provision for any liquidation preference payable to the holders of any Preferred Stock ranking senior upon liquidation to the Series B Preferred Stock, if any, but prior to any distribution or payment made to the holders of Common Stock or the holders of any Preferred Stock ranking junior upon liquidation to the Series B Preferred Stock by reason of their ownership thereof, the Holders will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series B Preferred Stock equal to (i) the Stated Value plus (ii) any accrued but unpaid dividends, the Default Adjustment, if applicable, Failure to Deliver Fees, if any, (the amounts in this clause (ii) collectively, the “Adjustment Amount”).
Conversion Right. At any time following the date
which is one hundred eighty (180) days after the Issuance Date, the Holder shall have the right at any time, to convert all or any part
of the outstanding Series B Preferred Stock into fully paid and non-assessable shares of Common Stock. The Holders of the Series B Preferred
Stock are limited to holding no more than
Conversion Price. The conversion price (the “Conversion
Price”) shall equal the Fixed Conversion Price (subject to equitable adjustments by the Company relating to the Company’s
securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions
and similar events). The “Fixed Conversion Price” shall mean $
| 19 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Company will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Series B Preferred Stock issued. The Company is required at all times to have authorized and reserved four times the number of shares that would be issuable upon full conversion of the Series B Preferred, at any time the Company does not maintain the required Reserved Amount, the Company shall be put on notice by the Holder, and shall have five (5) days to cure its deficiency, after which time, such failure will be deemed an Event of Default hereunder.
During July 2022, the Company issued
The Company breached its covenants in the Convertible
Series B Preferred Stock in July 2022. The breached covenant defines as an event of default as any breach of a material covenant or material
terms or conditions contained in the Certificate of Designations or in any purchase agreement, subscription agreement or other agreement
with any Holder (of the Convertible Series B Preferred Stock). As a result of this event of default, the Stated Value of the preferred
stock increased to $
On April 18, 2023,
At June 30, 2023, there remains
Mandatory Redeemable Series C Preferred Stock
Certificate of Designation of Series C 3% Preferred Stock
On April 25, 2023, the Company filed a Certificate
of Designation for Series C Preferred Stock with the Delaware Secretary of State, designating
Each share of Series C Preferred Stock is entitled
to an annual dividend equal to
| 20 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary or upon any deemed liquidation event, after payment or provision for payment of debts and other liabilities of the Company and after payment or provision for ay liquidation preference payable to the holders of any preferred stock ranking senior upon liquidation to the Series C Preferred Stock, if any, but prior to any distribution or payment made to the holders of common stock or the holders of the preferred stock ranking junior upon liquidation to the Series C Preferred Stock, the holders will be entitled to be paid out of the assets of the Company available for distribution an amount equal to the stated value plus any accrued but unpaid dividends, default adjustment, if applicable, and any other fees (collectively the “Adjustment Amount”).
The Holder shall have no right at any time to convert all or any part of the outstanding Series C Preferred Stock into shares of common stock.
Mandatory Redemption by the Company. On the date which is the earlier of: (i) December 31, 2023; and (ii) upon the occurrence of an Event of Default (i) or (ii), the Mandatory Redemption Date the Company shall redeem all of the shares of Series C Preferred Stock of the Holders. Within five (5) days of the Mandatory Redemption Date, the Company shall make payment to each Holder of an amount in cash, or kind, equal to (i) the total number of Series C Preferred Stock held by the applicable Holder, multiplied by (ii) the then current Stated Value (including but not limited to the addition of any accrued, unpaid dividends and the Default Adjustment, if applicable) (the “Mandatory Redemption Amount”). The value of any payment in kind shall be as agreed between the Company and respective the Holder.
Upon the occurrence and during the continuation
of any Event of Default (other than as set forth in Section 8ai of the amendment which is the failure to redeem), the Stated Value shall
immediately be increased to $
ASC 480, Distinguishing Liabilities from Equity, defines mandatorily redeemable financial instruments as any financial instruments issued in the form of shares that have an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur. A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. Under ASC 480, mandatorily redeemable financial instruments shall be measured initially at fair value. Due to the mandatory redemption feature, ASC 480 requires that these Series C Preferred Stock be classified as a liability rather than as a component of equity, with preferred annual returns being accrued and recorded as interest expense.
As a result of the Exchange of
| 21 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred Stock
As of June 30, 2023, the Company is authorized
to issue
As of June 30, 2023 and September 30, 2022, the
Company has designated
See Note 11, regarding the issuance of Series B and Series C Preferred Stock and the related designations.
Common Stock
As of June 30, 2023 and September 30, 2022, there
were
Reverse Stock Split
On July 11, 2023, the Company filed a certificate of amendment to its certificate of incorporation, as amended, to effect a one-for-one thousand (1:1,000) Reverse Stock Split, effective as of July 17, 2023. Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split.
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.
S-1 Offerings
On September 16, 2022, the Company filed a
registration statement on Form S-1. The registration statement became effective on
September 29, 2022.
During the nine months ending June 30, 2023,
the Company issued
Shares Issued for Conversion of Convertible Notes
In total
On October 3, 2022, the Company issued
| 22 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
On November 17, 2022, the Company issued
On December 1, 2022, the Company issued
On January 11, 2023, the Company issued
On February 1, 2023, the Company issued
On March 1, 2023, the Company issued
$
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, 2023 and 2022.
For the nine months ended June 30, 2023 and 2022,
the Company recorded $
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Weighted- Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding at September 30, 2022 | $ | $ | $ | |||||||||||||||||
| Outstanding and Exercisable at June 30, 2023 | $ | $ | $ | |||||||||||||||||
All options were issued at an options price equal to the market price of the shares on the date of the grant.
| 23 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Warrants
| Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Weighted- Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding and exercisable at September 30, 2022 | $ | $ | $ | |||||||||||||||||
| Outstanding and exercisable at June 30, 2023 | $ | $ | $ | |||||||||||||||||
There were no new warrants issued during the nine months ended June 30, 2023.
NOTE 13 - DEFINED CONTRIBUTION PLANS
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
NOTE 14 - RELATED PARTY TRANSACTIONS
On October 1, 2016, the Company entered into employment
agreements with the Company’s President and CEO which provides for annual base compensation of $
The Company had certain promissory notes payable to related parties (see Note 8).
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. A company representative and the previous owners have been in contact. An informal oral agreement with the Seller was
made whereby the Company had been paying the previous owners
| 24 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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 or CFO, currently pending in New York State court, the plaintiffs sought
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 $
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 $
Settlements
On January 29, 2018,
On November 13, 2018, the Company and a vendor
agreed to settle $
| 25 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
On June 23, 2023, Howco entered into a settlement
agreement with Crane Machinery Inc. (CMI). Howco agreed to pay $
As of June 30, 2023, 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.
On April 16, 2023, Howco renewed its office and
warehouse lease for an additional three years. The initial year (commencing on June 1, 2023) monthly lease payment is $
The Company recognized a right-of-use asset of
and a lease liability of $
| June 30, 2023 | September 30, 2022 | |||||||
| Operating lease at inception | $ | $ | ||||||
| Less accumulated reduction | ) | ( | ) | |||||
| Balance ROU asset | $ | $ | ||||||
Operating lease liability related to the ROU asset is summarized below:
| Operating lease liabilities at inception | $ | $ | ||||||
| Reduction of lease liabilities | ) | ( | ) | |||||
| Total lease liabilities | $ | $ | ||||||
| Less: current portion | ( | ) | ||||||
| Lease liabilities, non-current | $ | $ |
| 26 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Non-cancellable operating lease total future payments are summarized below:
| Total minimum operating lease payments | $ | $ | ||||||
| Less discount to fair value | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ |
| Years ending September 30, | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total minimum non-cancelable operating lease payments | $ | |||
The weighted average remaining lease term for
the operating lease is
For the nine months ended June 30, 2023 and 2022,
rent expense for all leases amounted to $
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 (see Note 9).
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.
| 27 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
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,
With respect to accounts receivable concentration,
With respect to supplier concentrations,
With respect to Howco accounts payable concentration,
Foreign sales were $
NOTE 17 - SUBSEQUENT EVENTS
Convertible Notes – Frondeur Partners, LLC
On July 10, 2023, the Company and Frondeur Partners LLC., signed an Omnibus Amendment to Promissory Notes dated between October 2022 and May 2023 eliminating conversion rights in each note. All other terms remain the same.
Senior Debt – TCA Global Credit Master Fund, LP
The Company previously reported that, on April 12, 2023, the receiver for TCA Global Credit Master Fund, LP (“TCA”) sold and assigned to Ekimnel Strategies, LLC, a Delaware limited liability company (“Ekimnel”), and Ekimnel purchased and assumed, all of TCA’s rights and obligations as a lender under that certain Senior Secured Credit Facility Agreement (the “Agreement”). Ekimnel is a company controlled by Michael Bannon, the Company’s Chief Executive Officer.
On August 12, 2023, the
Company, as the Borrower, and the Company’s subsidiaries: Drone USA, LLC and Howco Distributing Co., as Corporate Guarantors, and
Michael Bannon, as a Validity Guarantor (collectively, “Credit Parties”), entered into an Amendment (the “Amendment”)
to the Agreement with Ekimnel, as the Lender, pursuant to which the Company issued the Second Replacement Promissory Note (the “Note”)
to Ekimnel in the principal amount of $
| 28 |
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(Unaudited)
Pursuant to the Amendment, the Lender and the Credit Parties:
| (i) | combined and consolidated both the Replacement Notes into the Note; |
| (ii) | extended the Maturity Date of the Note to August 12, 2047; |
| (iii) | lowered the interest rate on the Note to |
| (iv) |
removed the Lender’s right to convert the Company’s obligations under the Note into shares of common stock of the Company; and |
| (v) | made certain conforming changes to the terms of the Agreement. |
Convertible Notes Issued
On July 17, 2023, the
Company entered into the Securities Purchase Agreement (the “Agreement”) with 1800 Diagonal Lending LLC (“Lender”),
pursuant to which the Company issued a promissory note (the “Note”) to the Lender in the principal amount of $
Under the Note, the Company
is required to make ten payments of $
Bantec Environmental Corp.
On August 26, 2023, the Company filed incorporation documents to set up a subsidiary called Bantec Environmental Corp.
Demand and Default Letter
On July 26, 2023, the Company received a
demand and default letter from Trillium Partners L.P. The letter references a document titled “Securities Purchase
Agreement” dated July 2022. In the demand letter, Trillium is looking for immediate payment of $
| 29 |
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 that set out anticipated results based on management’s plans, estimates 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, 2022, as filed with the SEC on January 12, 2023.
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 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 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. The Company has operations based in Sparta, New Jersey and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships that offer us an opportunity to grow sales and profit.
Going Concern
The accompanying 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, 2023, the Company has incurred a net loss of $2,255,726 and used cash in operations of $479,809. The working capital deficit, stockholders’ deficit and accumulated deficit was $18,073,165, $18,642,457 and $37,885,912, respectively, at June 30, 2023. The Company defaulted on its Note Payable – Seller in September 2017 and has since defaulted on other promissory notes. As of June 30, 2023, the Company has received demands for payment of past due amounts from several consultants and service providers. It is the 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 the 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 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. However, additional funding may not be available to the Company on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on the Company’s ability to pursue its business plans and strategies, and the Company would likely be forced to delay, reduce, or terminate some or all of its activities, all of which could have a material adverse effect on the Company’s business, results of operations and financial condition.
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Liquidity and Capital Resources
As of June 30, 2023 we had $401,602 in current assets, including $43,772 in cash, compared to $703,917 in current assets, including $186,386 in cash, at September 30, 2022. Current liabilities at June 30, 2023, totaled $18,474,767 compared to $16,504,500, at September 30, 2022. The decrease in current assets from September 30, 2022 to June 30, 2023 is primarily due to decreases in: cash of $142,614, and accounts receivable of $151,771. The increase in current liabilities from September 30, 2022 to June 30, 2023, of approximately $1,970,267, is primarily due to the increases in: convertible notes of approximately $132,000, notes and loans payable of $306,000, accrued expenses and interest of approximately $1,164,000, and related party notes of approximately $169,000. 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.
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, 2023 | Nine Months Ended June 30, 2022 | |||||||
| Net Cash Provided by (Used in) Operating Activities | $ | (479,809 | ) | $ | (1,240,506 | ) | ||
| Net Cash Provided by (Used in) Financing Activities | $ | 337,195 | $ | 497,679 | ||||
| Net Increase (Decrease) in Cash | $ | (142,614 | ) | $ | (742,827 | ) | ||
For the nine months ended June 30, 2023, Net cash used in operating activities of $479,809, is largely the result of net losses of $2,255,726, partially offset by non-cash charges for premiums on stock settled debt of approximately $156,000, debt discount amortization of $277,000, fees notes issued of $156,000 and increase from changes in assets and liabilities of $1,168,000 primarily due to increase in accounts payable and accrued expenses of $1,107,000.
For the nine months ended June 30, 2023, Cash provided by financing activities of $337,195 is largely the result of common stock sales for cash of approximately $99,000, loan advances from related parties of $245,000, net proceeds from notes payable of $118,000 partially offset by repayments of various debts including loans and other financing arrangements at Howco for a total of approximately $145,000.
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Refer also to the Consolidated Statements of Changes in Cash Flows included in the financial statement section of this report.
Results of Operations
Three months Ended June 30, 2023 and 2022
We generated sales of $590,333 and $750,756 for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately $160,000, or 21%. For the three months ended June 30, 2023 and 2022, we reported cost of goods sold of $489,822 and $629,023, respectively, a decrease of approximately $139,000, or 22%. The decrease in sales and cost of goods sold for the 2023 period as compared to the 2022 period is due to cost cutting measures we implemented during that period. Gross margins were 17% and 16% for the three months ended June 30, 2023 and 2022, respectively.
For the three months ended June 30, 2023 and 2022, we reported selling, general, and administrative expenses of $397,360 as compared to $477,310, a decrease of approximately $80,000, or 17%. For the three months ended June 30, 2023, and 2022, selling, general, and administrative expenses consisted of the following:
| For the Three Months ended | For the Three Months ended | |||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Compensation and related benefits | $ | 133,959 | $ | 259,605 | ||||
| Professional fees | 177,283 | 159,336 | ||||||
| Other selling, general and administrative expenses | 86,118 | 58,369 | ||||||
| Total selling, general and administrative expenses | $ | 397,360 | $ | 477,310 | ||||
The decrease in selling, general, and administrative costs for the 2023 period as compared to the 2022 period was primarily attributable to the decrease in compensation and professional fees due to cost cutting measures we implemented during that period, slightly offset by an increase in other selling, general and administrative costs stemming from lower levels of management and staff at Howco and general decreased operations (also at Howco).
For the three months ended June 30, 2023, and 2022, other expense amounted to $346,534 and $101,680, respectively, an increase of approximately $245,000. The increase was attributable to increased interest expense of approximately $106,000 during the 2023 quarter. Additionally during the 2022 period gains on debt extinguishment and fair market value changes of derivative offset other expenses by a total of approximately $139,000.
As a result, we reported net loss of $643,383 and $457,257 for the three months ended June 30, 2023 and 2022, respectively.
The Company has incurred dividend charges from Series B preferred stock of $34,931, for the three months ended June 30, 2023. The dividends to be paid are included in temporary equity as presented on the balance sheet. There was no temporary equity with a related dividend in the 2022 comparative period.
As a result, we reported net loss available to common stockholders of $678,314, or $0.10 per common share, and $457,257, or $0.12 per common share, for the three months ended June 30, 2023 and 2022, respectively.
Nine months Ended June 30, 2023 and 2022
We generated sales of $1,819,622 and $1,522,781 for the nine months ended June 30, 2023 and 2022, respectively, an increase of approximately $297,000, or 16%. For the nine months ended June 30, 2023 and 2022, we reported cost of goods sold of $1,515,984 and $1,258,376, respectively, an increase of approximately $258,000, or 17%. The increase in sales is primarily attributable to the increase in sales to one of our major customers, Defense Logistics Agency. The cost of goods sold increased for the 2023 period as compared to the 2022 period is due to higher sales over the last nine months. Gross margins were 17% and 17% for the nine months ended June 30, 2023 and 2022, respectively.
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For the nine months ended June 30, 2023, and 2022, we reported selling, general, and administrative expenses of $1,393,133 as compared to $1,679,135, a decrease of approximately $286,000, or 21%. For the nine months ended June 30, 2023 and 2022, selling, general, and administrative expenses consisted of the following:
| For the Nine Months ended | For the Nine Months ended | |||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Compensation and related benefits | $ | 655,910 | $ | 900,026 | ||||
| Professional fees | 552,571 | 618,879 | ||||||
| Other selling, general and administrative expenses | 184,652 | 160,230 | ||||||
| Total selling, general and administrative expenses | $ | 1,393,133 | $ | 1,679,135 | ||||
The decrease in selling, general, and administrative costs for the 2023 period as compared to the 2022 period was primarily attributable to decreases: in compensation of approximately $244,000 or 27% and professional services expenses of approximately $66,000 or 11% due to cost cutting measures we implemented during that period.
For the nine months ended June 30, 2023 and 2022, other expense amounted to $1,166,231 and $618,203, respectively, an increase of approximately $548,000. The increase was attributable to higher interest costs of approximately $322,000. Additionally during the 2022 period gains on debt extinguishment and fair market value changes of derivative offset other expenses by a total of approximately $226,000.
As a result, we reported net loss of $2,255,726 and $2,032,933 for the nine months ended June 30, 2023 and 2022, respectively.
The Company has incurred dividend charges from Series B preferred stock of $111,623, for the nine months ended June 30, 2023. The dividends to be paid are included in temporary equity as presented on the balance sheet. There was no temporary equity with a related dividend in the 2022 comparative period.
As a result, we reported a net loss available to common stockholders of $2,367,349 or $0.38 per common share, and $2,032,933 or $0.68 per common share, for the nine months ended June 30, 2023 and 2022, respectively.
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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, valuation of redeemable preferred stock, 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.
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 order 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.
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The Company through its subsidiary Howco enters into contracts to package products for a third-party company servicing the same government customer base. The contracts are based on the job lot as shipped to Howco for packaging. The customer is billed upon completion each job lot at which time revenue is 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 year ended September 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 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.
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.
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Lease Accounting
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance (ASC Topic 840). Under the new guidance, codified as ASC Topic 842, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense generally is flat (straight-line) throughout the life of the lease. For finance leases, periodic expense declines over the life of the lease. The new standard, as amended, provides an option for entities to use the cumulative-effect transition method. As permitted, the Company adopted ASC Topic 842 effective June 1, 2020. The adoption of ASC Topic 842 did not have a material impact on the Company’s consolidated financial statements.
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, 2023, 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 and segregation of duties is lacking. To remediate, 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with the 2016 fiscal year 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 had previously made $3,000 monthly payments to the former owner, however for the time being, we have decided to suspend those payments until we feel Bantec is in a better position to resume. A company representative has been in contact with previous owners.
In the suit Drone USA, Inc and Michael Bannon (plaintiffs) vs the 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 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. During the year ended September 30, 2022 the Company began the process to cancel the shares issued which were reclassified to equity. The former CFO filed a motion for summary judgement which was denied, then filed an appeal to that order. The appellate court reversed the lower court’s decision. On February 14, 2023, the former CFO received a judgement of $130,400 relating to compensation. On May 2, 2023, the Company and the former CFO executed an agreement to settle the judgement amount plus potential obligations for legal fees incurred by the former CFO for a total amount of $90,000 to be paid in three equal installments beginning May 4, 2023, June 3, 2023 and July 3, 2023. Bantec made all three payments, and the matter is now closed.
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. On May 2, 2023, the Company reached a settlement agreement and agreed to pay a total of $110,000 in total, consisting of a cash payment of $25,000 and a note payable of $85,000 (having a 3% annual interest). The Company will pay $2,472 for 36 months. The Company is one payment behind and intends to catch up with the payment schedule.
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. The Company has not been in contact with these entities.
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. Management at Howco as well as an intermediary consultant structured a repayment plan with this vender and other venders as well.
On June 23, 2023, Howco entered into a settlement agreement with Crane Machinery Inc. (CMI). Howco agrees to pay $16,500 with an initial settlement of $2,000, to be followed by monthly installments of $2,900, until paid in full.
On July 26, 2023, Bantec received a demand and default letter from Trillium Partners L.P. The letter references a document titled “Securities Purchase Agreement” dated July 2022. In the demand letter Trillium is looking for immediate payment of $275,710.25. On August 4, 2023, we received a demand letter revising the demand amount to $214,563.33 with $183,259 in principal and $31,304.33 in interest. A company representative is in talks with Trillium and we are looking to resolve the matter amicably. In addition, the demand letter included outstanding fee notes for Frondeur Partners LLC., a total of $135,000 in principal and $7,903 of accrued interest. According to the demand letter, as of this day, only one note, dated October 1st, 2022, matured.
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ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuance of Unregistered Securities
Since April 1, 2023, the Company issued the following unregistered securities:
On April 18, 2023, we entered into an exchange agreement with Trillium, pursuant to which Trillium exchanged 224,000 shares of our Series B Preferred Stock for 224,000 shares of our Series C Preferred Stock. The Series Preferred C does not have voting or conversion rights. Section 6 outlines the mandatory redemption by the Company on a date which is earlier of: (i) December 31, 2023; and (ii) upon the occurrence of an Event of Default (i) or (ii), the Mandatory Redemption Date”).
On June 1, 2023, we issued 224,000 shares of Series C Preferred Stock to Trillium.
On June 6, 2023, we received a notice of conversion from Frondeur Partners LLC. Frondeur was looking to convert $19,017.47 into 380,349 shares of our common stock. To date the stock has not been electronically sent to Frondeur’s bank. Our transfer agent is still waiting on DWAC instructions.
Convertible Notes Issued
Between April 1, 2023 and May 1, 2023, the Company issued convertible promissory notes to Frondeur Partners LLC for a total of $30,000 in principal for services (service agreement replacing agreement with Livingston Asset Management LLC). The convertible note bears interest of 12% 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 total debt premium of $30,000 is recognized as interest expense on note issuance date.
Between April 1, 2023 and June 1, 2023, the Company issued convertible notes to a law firm, having a total principal of $12,000, six-month term to maturity and 10% annual interest and conversion terms with a fixed discount of 50% of the lowest bid price in the 30 trading days immediately preceding the notice of conversion. The notes have cross default provisions. The Company has accounts for the convertible promissory notes as stock settled debt under ASC 480 and will record debt premiums equal to the face value of the notes with a charge to interest expense. The note principal amount was charged to professional fees during the month the note was issued.
The securities were issued by the Company in reliance on the exemption from the registration requirements under section 4(a)(2) of the Securities Act of 1933 as amended, and the provisions of Regulation D thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Notes 9 and 19 to the Condensed Consolidated Financial Statements included in Part 1 of this Form 10-Q.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
(d) Exhibits.
The following exhibits are filed with this Current Report on Form 10-Q
| * | Filed herewith. |
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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: September 1, 2023 | By: | /s/ Michael Bannon |
| Michael Bannon | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| /s/ Michael Bannon | ||
| Michael Bannon | ||
| Chief Financial Officer (Principal Financial Officer) | ||
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