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:
| 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 March 12, 2024, there were
BANTEC, INC.
Form 10-Q
December 31, 2023
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2023 | September 30, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| 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 and other advances – net of discounts | ||||||||
| Notes payable – related party | ||||||||
| Mandatorily redeemable Preferred Stock Series C - $ | ||||||||
| Lease liability - current portion | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Lease liability - long-term portion | ||||||||
| Note payable including accrued interest – related party - 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 13) | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Preferred stock - $ | $ | $ | ||||||
| Common stock - $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying condensed consolidated notes are an integral part of these condensed consolidated financial statements.
1
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| For the Three Months Ended December 31, | ||||||||
| 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 | ( | ) | ( | ) | ||||
| TOTAL OTHER EXPENSE, NET | ( | ) | ( | ) | ||||
| LOSS BEFORE TAXES | ( | ) | ( | ) | ||||
| Provision for Income tax | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Dividends Attributable to Series B and C Preferred Stock | ( | ) | ( | ) | ||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The accompanying condensed consolidated notes are an integral part of these condensed consolidated financial statements.
2
BANTEC, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 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, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued for cash | ||||||||||||||||||||||||||||
| Shares issued for conversion of notes and accrued interest 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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 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, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Preferred Stock Series B and C dividend | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Shares issued for conversion of Series B preferred shares and dividends | ||||||||||||||||||||||||||||
| Net loss for the three months ended December 31, 2023 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying condensed consolidated notes are an integral part of these condensed consolidated financial statements.
3
BANTEC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended December 31, | ||||||||
| 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 | ||||||||
| Bad debt recovery | ( | ) | ||||||
| Depreciation expense | ||||||||
| Share issued for conversion fees | ||||||||
| Fee notes issued to service providers | ||||||||
| Non-cash rent expense | ( | ) | ||||||
| Changes in Assets and Liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Settlement payable | ( | ) | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of shares | ||||||||
| Proceeds from line of credit | ||||||||
| Net proceeds from loans and notes payable and other advances | ||||||||
| Repayments of loans and notes payable | ( | ) | ( | ) | ||||
| Net proceeds from convertible notes payable | ||||||||
| Net proceeds from notes payable, related party | ||||||||
| Repayments on notes payable, related party | ( | ) | ( | ) | ||||
| Repayments on note payable - seller | - | ( | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income Tax | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Issuance of common stock for conversion of convertible notes and accrued interest | $ | $ | ||||||
| Issuance of common stock for conversion of Series B preferred stock and dividends | $ | $ | ||||||
| Reclassification of debt premium upon conversion of convertible debt | $ | $ | ||||||
| Debt discount | $ | $ | ||||||
| Dividends on convertible preferred stock | $ | $ | ||||||
The accompanying condensed consolidated notes are an integral part of these condensed consolidated financial statements.
4
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024. 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, 2023 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on February 5, 2024. The consolidated balance sheet as of September 30, 2023 contained herein has been derived from the audited consolidated financial statements as of September 30, 2023 but does not include all disclosures required by GAAP.
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 three months ended December
31, 2023, the Company has incurred a net loss of $
5
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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.
6
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
Accounts Receivable
Trade
receivables are recorded at net realizable value consisting of the carrying amount less the allowance for credit losses, 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. The Company maintains
an allowance for credit losses primarily for estimated losses resulting from the inability or failure of individual customers to make
required payments. The Company maintains an allowance under Accounting Standards Codification (“ASC”) 326 based on historical
losses, changes in payment history, customer-specific information, current economic conditions, and reasonable and supportable forecasts
of future economic conditions. The allowance under ASC 326 is updated as additional losses are incurred or information becomes available
related to the customer or economic conditions. As of December 31, 2023 and September 30, 2023, the allowance for credit losses was $
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 Company depreciates
these demonstration units over a period 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.
7
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
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.
The Company began sales of sanitizing products and services during the fiscal year 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 along with non-employee 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.
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”.
8
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
Derivative Liabilities
The Company has certain financial instruments that are derivatives or contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Lease Accounting
In
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.
9
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
The Company currently has no federal or state tax examinations in progress. As of December 31, 2023, the Company’s tax returns for the tax years 2023, 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 December 31, 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.
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
| December 31, 2023 | December 31, 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 three months ended December 31, 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.
10
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
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. This adoption did not have a material effect to the Company.
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.
NOTE 3 - ACCOUNTS RECEIVABLE, NET
| December 31, 2023 | September 30, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Reserve for doubtful accounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Bad
debt expense (recovery) was $(
NOTE 4 - INVENTORY
At
December 31, 2023 and September 30, 2023, 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 $
11
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
NOTE 6 - NOTE PAYABLE – SELLER
In
connection with the acquisition of Howco in September 2016, the Company issued a note payable in the amount of $
NOTE 7 - PROMISSORY NOTES PAYABLE – RELATED PARTY OFFICER AND HIS AFFILIATES
| December 31, 2023 | September 30, 2023 | |||||||
| Principal | $ | $ | ||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long term portion (including accrued interest – long term) | $ | $ | ||||||
Promissory Notes Payable – Current portion
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 $
For the three months ended December 31, 2023:
| (i) | Bantec,
Inc. borrowed $ |
| (ii) | Howco
has an outstanding balance of $ |
Promissory Notes Payable – Long term
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”) (see Note 8). 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 $
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; |
12
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
| (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. |
Due to the related party nature of the transaction,
the Company recorded a total of $
NOTE 8 - CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES
| December 31, | September 30, | |||||||
| 2023 | 2023 | |||||||
| Principal | $ | $ | ||||||
| Premiums | ||||||||
| Less: debt discount | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For
the three months ended December 31, 2023 and 2022, amortization of debt discount on the above convertible notes amounted to $
Senior Secured Credit Facility Note - Default
On
September 13, 2016, the Company entered into a senior secured credit facility note with an investment fund for the acquisition of Howco.
The Company can borrow up to $
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 had 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.
On
April 12, 2023, Ekimnel Strategies LLC,
13
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
Other Convertible Notes
Scottsdale Capital Advisors
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.
Convertible notes for legal services
From
May 1, 2022 until June 1, 2023, the Company issued a $
On
December 1, 2023, the Company issued a $
On
October 14, 2023, the Company entered into an Assignment Agreement with the law firm (the “Assignor”) and JP Carey Limited
Partners, LP (the “Assignee”) whereby the Assignor desires to assign all of its rights and interest under certain convertible
notes dated from May 1, 2022 to March 1, 2023 with a total principal amount of $
The principal balances owed to the law firm and Assignee under the
agreement as of December 31, 2023 and September 30, 2023 were $
Convertible note issued to a vendor
On
November 13, 2018, the Company issued a convertible promissory note for $
14
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
1800 Diagonal Lending LLC
On
September 6, 2023, the Company entered into the Securities Purchase Agreement with 1800 Diagonal Lending LLC (the “Lender”),
pursuant to which the Company issued a promissory note to the Lender in the principal amount of $
On
December 11, 2023, the Company entered into the Securities Purchase Agreement with 1800 Diagonal Lending LLC, pursuant to which the Company
issued a promissory note to the Lender in the principal amount of $
NOTE 9 – NOTES AND LOANS PAYABLE AND OTHER ADVANCES
| December 31, 2023 | September 30, 2023 | |||||||
| Principal loans and notes | $ | $ | ||||||
| Discounts | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less Current portion | ( | ) | ( | ) | ||||
| Non-current | $ | $ | ||||||
For
the three months ended December 31, 2023 and 2022, amortization of debt discount on the above notes amounted to $
Small Business Administration
On
June 17, 2020, the Company through Howco, entered into a loan directly with the Small Business Administration for $
15
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
Notes payable to service vendor
During
fiscal year 2021, the Company issued seven notes payable totaling $
Trillium Partners, LP
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 $
JP Carey Limited Partners, LP
On
July 1, 2022, the Company entered into a Securities Purchase Agreement with JP Carey Limited Partners, LP (“JPC”). Under
the terms of the SPA, JPC agreed to advance funds under a merchant financing arrangement, treated as a loan. The loan principal is $
Itria Ventures LLC
On
April 28, 2023, Howco executed a sale of receivables agreement with Itria Ventures LLC (“Itria”), Itria funded $
16
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
On
September 14, 2023, Howco executed a sale of receivables agreement with Itria Ventures LLC, Itria funded $
During
the year ended September 30, 2023, the Company repaid $
Samson MCA LLC
On
October 24, 2023, the Company’s subsidiary, Howco, executed a sale of future receipt agreement with Samson MCA LLC (“Samson”).
Under the agreement, the Company sold $
During
the three months ended December 31, 2023, the Company repaid $
1800 Diagonal Lending LLC
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 $
On
October 26, 2023, the Company entered into the Securities Purchase Agreement with 1800 Diagonal Lending LLC, pursuant to which the Company
issued a promissory note to the Lender in the principal amount of $
Upon
the occurrence and during the continuation of any such event of default, the notes above will become immediately due and payable, and
the Company is obligated to pay to the Lender an amount equal to
17
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
During
the year ended September 30, 2023, the Company repaid $
During
the three months ended December 31, 2023, the Company repaid $
Promissory note for legal services
On
September 14, 2023, the Company issued a $
Default on Notes and Loans
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 $
NOTE 10 - 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 (
18
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 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 $
The 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 $
19
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
On
April 18, 2023, the Company and the Holder of
Between
August 2023 to September 2023, the Company issued
In
December 2023, the Company issued
At
September 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
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 (December 31, 2023), 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.
20
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
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
At December 31, 2023 and September 30, 2023, the Series C Preferred
Stock redemption value amounted to $
NOTE 11 - STOCKHOLDERS’ DEFICIT
Preferred Stock
As of December 31, 2023, the Company is authorized
to issue
As of December 31, 2023 and September 30, 2023,
the Company has designated
See Note 10, regarding the issuance of Series B and Series C Preferred Stock and the related designations.
Common Stock
As of December 31, 2023 and September 30, 2023,
there were
Reverse Stock Split
21
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
Stock Incentive Plan
The Company established its 2016 Stock Incentive
Plan (the “Plan”) that permits the granting of incentive stock options and other common stock awards. The maximum number of
shares available under the Plan is
Equity Financing Agreement with GHS Investments, LLC
On October
5, 2023, the Company entered into an Equity Financing Agreement (the “Equity Financing Agreement”) with GHS Investments,
LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS will purchase,
at the Company’s election, up to $
During the
term of the Equity Financing Agreement, the Company may at any time deliver a “put notice” to GHS thereby requiring GHS to
purchase a certain dollar amount of the Shares. Simultaneous with the delivery of such Shares, GHS shall deliver payment for the Shares.
Subject to certain restrictions, the purchase price for the Shares shall be equal to
The number
of Shares sold to GHS shall not exceed the number of such shares that, when aggregated with all other shares of common stock of the Company
then beneficially owned by GHS, would result in GHS owning more than
The Equity
Financing Agreement shall terminate (i) on the date on which GHS shall have purchased Shares pursuant to the Equity Financing Agreement
for an aggregate Purchase Price of $
As a condition
for the execution of the Equity Financing Agreement by GHS, the Company is obligated to issue $
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 three months ended December 31, 2023 and 2022.
| 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, 2023 | $ | $ | $ | |||||||||||||||||
| Outstanding and Exercisable at December 31, 2023 | $ | $ | $ | |||||||||||||||||
All options were issued at an options price equal to the market price of the shares on the date of the grant.
22
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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, 2023 | $ | $ | $ | |||||||||||||||||
| Outstanding and exercisable at December 31, 2023 | $ | $ | $ | |||||||||||||||||
There were no new warrants issued during the three months ended December 31, 2023.
NOTE 12 - 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 7).
NOTE 13 - 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
In connection with the merger in fiscal 2016,
with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $
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 $
23
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
On December 30, 2020, a Howco vendor filed a lawsuit
seeking payment of past due invoices totaling $
Settlements
On November 13, 2018, the Company and a vendor agreed to settle $
On June 23, 2023, Howco entered into a settlement
agreement with Crane Machinery Inc. (CMI). Howco agreed to pay $
As of December 31, 2023, the Company has received demand for payment of past due amounts for services by several consultants and service providers.
Commitments
Lease Obligations
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 $
| December 31, 2023 | September 30, 2023 | |||||||
| 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 | $ | $ |
24
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 (remainder) | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total minimum non-cancelable operating lease payments | $ | |||
The weighted average remaining lease term for
the operating lease is
In December 2019, the Company relocated its primary office to 195 Paterson
Avenue, Little Falls, New Jersey, under a one-year lease with a renewal option having monthly payments of $
For the three months ended December 31, 2023 and 2022, rent expense
for all leases amounted to $
NOTE 14 - 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, two customers
accounted for approximately
With respect to accounts receivable concentration,
three customers accounted for
With respect to supplier concentrations, three
suppliers accounted for approximately
With respect to Howco accounts payable concentration,
three suppliers accounted for approximately
Foreign sales were $
25
BANTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(Unaudited)
NOTE 15 - SUBSEQUENT EVENTS
Convertible Notes for Legal Services
From January 1, 2024 until March 1, 2024, the Company issued $
Sale of Future Receipts Agreements
On January 10, 2024,
the Company’s subsidiary, Howco, executed a sale of future receipt agreement with Samson MCA LLC. Under the agreement, the Company
sold $
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects 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, 2023, as filed with the SEC on February 5, 2024.
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 three months ended December 31, 2023, the Company has incurred a net loss of $476,380 and used cash in operations of $28,135. The working capital deficit, stockholders’ deficit and accumulated deficit was $8,422,778, $17,752,958 and $38,331,900, respectively, at December 31, 2023. The Company defaulted on its Note Payable – Seller in September 2017 and has since defaulted on other promissory notes. As of December 31, 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.
27
Liquidity and Capital Resources
As of December 31, 2023 we had $525,402 in current assets, including $101,232 in cash, compared to $367,108 in current assets, including $35,443 in cash, at September 30, 2023. Current liabilities at December 31, 2023, totaled $8,948,180 compared to $8,352,264, at September 30, 2023. The increase in current assets from September 30, 2023 to December 31, 2023 is primarily due to increases in: cash of $65,789, and accounts receivable of $152,799. The increase in current liabilities from September 30, 2023 to December 31, 2023, of approximately $595,916, is primarily due to the increases in: convertible notes of approximately $67,000, notes and loans payable of $60,000, accrued expenses and interest of approximately $303,000, and related party notes of approximately $27,000. While we had generated revenues from UAV sales from the prior year, 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:
| For the Three Months December 31, 2023 | For the Three Months December 31, 2022 | |||||||
| Net Cash Used in Operating Activities | $ | (28,135 | ) | $ | (133,503 | ) | ||
| Net Cash Used in Investing Activities | $ | (1,558 | ) | $ | - | |||
| Net Cash Provided by Financing Activities | $ | 95,482 | $ | 42,055 | ||||
| Net Increase (Decrease) in Cash | $ | 65,789 | $ | (91,488 | ) | |||
For the three months ended December 31, 2023, net cash used in operating activities of $28,135, is largely the result of net losses of $476,380, partially offset by non-cash charges for premiums on stock settled debt of approximately $24,000, debt discount amortization of $34,000, fees notes issued of $6,000 and increase from changes in assets and liabilities of approximately $385,000 primarily due to increase in accounts payable and accrued expenses of $476,000.
For the three months ended December 31, 2022, net cash used in operating activities of $133,503, is largely the result of net losses of $781,675, partially offset by non-cash charges for premiums on stock settled debt of approximately $57,000, debt discount amortization of $91,000, non-cash charges for services of $57,000 and increases to accrued expenses of approximately $145,000.
During the three months ended December 31, 2023, net cash used in investing activities of $1,558 which relates to purchase of equipment as compared to $0 during the three months ended December 31, 2022.
During the three months ended December 31, 2023, cash provided by financing activities of $95,482 is largely the result of loan advances from related parties of approximately $35,000, net proceeds from loans and notes payable of $172,000, net proceeds from convertible notes of $35,000, and proceeds from line of credit of $12,500 partially offset by repayments of various debts including loans and other financing arrangements at Howco for a total of approximately $151,000, and repayments on notes payable- related party of approximately $8,000.
For the three months ended December 31, 2022 cash provided by financing activities is largely the result of stock sales for cash of $99,333, somewhat offset by repayments of various debts including loans and other financing arrangements at Howco.
Refer also to the Consolidated Statements of Changes in Cash Flows included in the financial statement section of this report.
28
Results of Operations
Three months Ended December 31, 2023 and 2022
We generated sales of $955,734 and $606,166 for the three months ended December 31, 2023 and 2022, respectively, an increase of approximately $350,000, or 58%. For the three months ended December 31, 2023 and 2022, we reported cost of goods sold of $808,187 and $511,216, respectively, an increase of approximately $297,000, or 58%. The increase in sales is primarily attributable to the increase in sales to one of our major customers. The cost of goods sold increased for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 is due to higher sales over the last three months. Gross margins were 15% and 16% for the three months ended December 31, 2023 and 2022, respectively.
For the three months ended December 31, 2023 and 2022, we reported selling, general, and administrative expenses of $454,785 as compared to $514,290, a decrease of approximately $60,000, or 12%. For the three months ended December 31, 2023, and 2022, selling, general, and administrative expenses consisted of the following:
| For the Three Months ended | For the Three Months ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Compensation and related benefits | $ | 268,508 | $ | 259,982 | ||||
| Professional fees | 116,504 | 207,925 | ||||||
| Other selling, general and administrative expenses | 69,773 | 46,383 | ||||||
| Total selling, general and administrative expenses | $ | 454,785 | $ | 514,290 | ||||
The decrease in selling, general, and administrative costs for three months ended December 31, 2023 as compared to the three months ended December 31, 2022 was primarily attributable to the decrease in professional fees of approximately $91,000 due to cost cutting measures we implemented offset by increases in compensation of approximately $9,000 and increase in other selling, general and administrative costs of approximately $24,000 due to increased sales.
For the three months ended December 31, 2023, and 2022, other expense amounted to $169,142 and $362,335 respectively, a decrease of approximately $193,000. The decrease was attributable to decreased interest expense of approximately $193,000 primarily due to decreases in amortization of debt discount and premiums on stock settled debt and decreased interest expense on the TCA loan which was assigned to Ekimnel in August 2023.
As a result, we reported net loss of $476,380 and $781,675 for the three months ended December 31, 2023 and 2022, respectively.
The Company has incurred dividend charges from Series B and C preferred stock of $25,274 and $36,960, for the three months ended December 31, 2023 and 2022, respectively. The dividends to be paid are included in temporary equity and mandatorily redeemable preferred stock presented as liability as reflected on the condensed consolidated balance sheet.
As a result, we reported net loss available to common stockholders of $501,654, or $0.05 per common share, and $818,635, or $0.15 per common share, for the three months ended December 31, 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. The Company maintains an allowance for credit losses primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company maintains an allowance under Accounting Standards Codification (“ASC”) 326 based on historical losses, changes in payment history, customer-specific information, current economic conditions, and reasonable and supportable forecasts of future economic conditions. The allowance under ASC 326 is updated as additional losses are incurred or information becomes available related to the customer or economic conditions.
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.
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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. 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 along with non-employee 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.
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”.
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Net Loss Per Share
Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution.
Lease Accounting
The Company follows 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 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. ASC 842 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.
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 December 31, 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 December 31, 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
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than described herein, neither the Company, nor its officers or directors are involved in, or the subject of, any pending legal proceedings or governmental actions the outcome of which, in management’s opinion, would be material to our financial condition or results of operations.
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 $3,000 per month. The Company is no longer paying the previous owner $3,000 a month. A company representative informed the previous owner that the Company will resume the $3,000 payment as soon as it is able to do so.
In connection with the merger in fiscal 2016, 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 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. On May 2, 2023, the Company reached a settlement agreement with a former vendor which had a pending legal action against the Company concerning services rendered having outstanding amounts owed of $219,613. The Company 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.
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 vendor and other vendors as well.
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Settlements
On November 13, 2018, the Company and a vendor agreed to settle $161,700 in past due professional fees for a convertible note in the amount of $90,000. The note bears interest at 5% and matures in July 2019, and has a fixed discount conversion feature. The note is past due and remains unconverted at September 30, 2023 and 2022; however there is no default interest or penalty associated with the default.
On June 23, 2023, Howco entered into a settlement agreement with Crane Machinery Inc. (CMI). Howco agreed to pay $16,500 with an initial settlement of $2,000, to be followed by five monthly installments of $2,900, until paid in full. As of December 31, 2023, the settlement amount has been fully paid.
As of December 31, 2023, the Company has received demand for payment of past due amounts for services by several consultants and service providers.
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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 8 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
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ITEM 6. EXHIBITS
(d) Exhibits.
The following exhibits are filed with this Current Report on Form 10-Q
| Exhibit No. | Description of Exhibit | |
| 31.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
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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: March 13, 2024 | 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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