Forward Looking Statement Notice
Certain statements made in this Annual Report on Form 10-K are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of Bantec, Inc. and
Subsidiaries ("we", "us", "our" or the "Company") to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. The forward-looking statements included herein
are based on current expectations that involve numerous risks and uncertainties.
The Company's plans and objectives are based, in part, on assumptions involving
the continued expansion of business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes its assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance the
forward-looking statements included in this Annual Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
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 Little Falls, New Jersey
and Vancouver, Washington. The Company continues to seek strategic acquisitions
and partnerships that offer us an opportunity to grow sales and profit.
Liquidity and Capital Resources
As of September 30, 2022 we had $703,917 in current assets, including $186,386
in cash, compared to $1,205,058 in current assets, including $985,953 in cash,
at September 30, 2021. Current liabilities at September 30, 2022 totaled
$16,504,500 compared to $15,914,650 at September 30, 2021. The decrease in
current assets from September 30, 2021 to September 30, 2022 is primarily due
decreased cash of approximately $800,000, partially offset by an increase in
accounts receivable of approximately $292,000. Cash was lower due to the higher
sales of common stock for cash in 2021. The increase in current liabilities from
September 30, 2021 to September 30, 2022 is primarily due to the increases in:
increase in accounts payable of approximately $63,000, accrued expenses of
$778,000, partially offset by decreases in convertible notes payable and related
premiums of approximately $240,000. While we have revenues as of this date, no
significant construction, environmental or drone revenues are anticipated until
we are implementing our full strategic plan of acquisitions and organic growth.
We must raise cash to implement our strategy to grow and expand per our business
plan. We anticipate over the next 12 months the cost of being a reporting public
company will be approximately $250,000.
We are currently issuing shares under the S-1 offering but expect to raise
additional proceeds with debt securities, and/or more loans, however if
sufficient funding is not available, we would be required to cease business
operations. As a result, investors would lose all of their investment. Under the
terms of our credit agreement with TCA, all potential new investments must first
be reviewed and approved by TCA, which may constrain our options for new
fundraising. However, we have been in contact with the receiver for the TCA
management companies and funds and do not expect any such objections over
investment opportunities.
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We anticipate our short-term liquidity needs to be approximately $8,200,000
which will be used to satisfy certain of our existing current liabilities and we
expect gross profits of approximately $500,000. To meet these needs, we intend
to complete our equity financing and refinance or restructure certain existing
liabilities. Once this is completed, and we implement our sales and marketing
plan to sell UAV products, we anticipate minimal long-term liquidity needs which
we expect to meet through equity financing or short-term borrowings.
Additionally, we will have to meet all the financial disclosure and reporting
requirements associated with being a publicly reporting company. Our management
will have to spend additional time on policies and procedures to make sure it is
compliant with various regulatory requirements, especially that of Section 404
of the Sarbanes-Oxley Act of 2002. This additional corporate governance time
required of management could limit the amount of time management has to
implement the business plan and may impede the speed of its operations.
The following is a summary of the Company's cash flows provided by (used in)
operating, investing and financing activities:
Year Ended Year Ended
September 30, September 30,
2022 2021
Net Cash Used in Operating Activities $ (1,644,132 ) $ (1,576,648 )
Net Cash Used in Investing Activities $
- $ (44,650 )
Net Cash Provided by Financing Activities $ 844,565 $ 2,443,237
Net (Decrease) Increase in Cash
$ (799,567 ) $ 821,939
2022, Net cash used in operating activities of $1,644,132, is largely the result
of net losses of $2,673,346, partially offset by net gain on debt extinguishment
of $370,075 and increases in current liabilities $590,000.
2022, Cash provided by financing activities is largely the result of stock sales
for cash of approximately $700,000 and cash received from issuance of
convertible notes totaling $101,000, and other financing of $390,000 somewhat
offset by repayments of various debts including fee notes and other financing
arrangements at Howco having a net repayment of approximately $346,000.
Results of Operations
Year Ended September 30, 2022 and 2021
We generated sales of $2,466,198 and $2,422,996 for the years ended September
30, 2022 and 2021, respectively. For the years ended September 30, 2022 and
2021, we reported cost of goods sold of $2,048,173 and $1,553,516, respectively.
The increase in sales is related to increased sales of drones. Cost of goods
sold for the 2022 period is higher primarily due to decreased packaging services
and greater sales of products at Howco.
For the years ended September 30, 2022 and 2021, we reported selling, general,
and administrative expenses of $2,180,288 as compared to $2,834,856, an decrease
of approximately $655,000 or 23%. For the year ended September 30, 2022,
selling, general, and administrative expenses consist primarily of professional
and consulting fees of approximately $822,000, payroll costs of approximately
$1,082,000, and other expenses of approximately $276,000, including rent of
approximately $73,000. For the year ended September 30, 2021, selling, general,
and administrative expenses consist primarily of professional and consulting
fees of approximately $905,000, payroll costs of approximately $1,549,000, other
expenses of approximately $380,000, rent of approximately $67,000, and travel
related costs of approximately $33,000. For the years ended September 30, 2022
and 2021, payroll costs and professional consulting fees included stock-based
compensation of approximately $69,000 and $251,000, respectively. The decrease
in selling, general, and administrative costs for the 2022 periods is primarily
due to the decreases in professional fees of approximately $83,000 and
compensation costs of approximately $468,000.
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For the years ended September 30, 2022 and 2021, depreciation expense amounted
to approximately $0 and $7,000, respectively, amortization of intangibles
amounted to $8,931, and $0, respectively. The related intangible asset was
determined to be impaired and was written off. Depreciation, amortization and
the impairment write-off are included in Operating Expenses in the consolidated
statement of operations.
For the years ended September 30, 2022 and 2021, interest and financing costs
amounted to approximately $1,221,000 and $1,440,000, respectively. The decrease
in interest and financing costs is due primarily to the settlement of debt for
cash and through conversions.
Fair market value loss of $8,710 during the year ended September 30, 2022,
compares to the loss of $5,916 during the 2021 fiscal year.
During the years ended September 30, 2022 and 2021 the Company incurred net
gains on debt extinguishment of approximately $370,000 and approximately
$1,537,000, respectively.
The above items resulted in total Other (Income) and Expenses of $866,433 for
fiscal year 2022 compared to ($90,679) for fiscal 2021.
As a result, we reported a net loss of $2,673,346 and $1,882,071, for the years
ended September 30, 2022 and 2021, respectively.
Including the dividend of $584,072 related to the temporary equity, the net loss
attributed to common shareholders was $3,257,418. There was no temporary equity
with a related dividend in fiscal 2021.
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.
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 year ended September 30, 2022, the Company has
incurred a net loss of $2,673,346 and used cash in operations of $1,644,132. The
working capital deficit, stockholders' deficit and accumulated deficit was
$15,800,583, $16,578,533 and $35,630,186, respectively, at September 30, 2022.
On September 6, 2019 the Company received a default notice on its payment
obligations under the senior secured credit facility agreement, defaulted on its
Note Payable - Seller in September 2017 and has since defaulted on other
promissory notes. As of September 30, 2022 the Company has received demands for
payment of past due amounts from several consultants and service providers. It
is management's opinion that these matters raise substantial doubt about the
Company's ability to continue as a going concern for a period of twelve months
from the issuance date of this report. The ability of the Company to continue as
a going concern is dependent upon management's ability to further implement its
business plan and raise additional capital as needed from the sales of stock or
debt. The Company has continued to implement cost-cutting measures and
restructuring or setting up payment plans with vendors and service providers and
plans to raise equity through a private placement, and restructure or repay its
secured obligations. The accompanying consolidated financial statements do not
include any adjustments that might be required should the Company be unable to
continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
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Critical Accounting Policies and Significant Accounting Estimates
Our consolidated financial statements and accompanying notes have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to
prepare our consolidated financial statements. In general, management's
estimates are based on historical experience, and on various other assumptions
that are believed to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include the allowance for bad debt
on accounts receivable, reserves on inventory, valuation of intangible assets
for impairment analysis, valuation of the lease liability and related
right-of-use asset, valuation of stock-based compensation, the valuation of
derivative liabilities, valuation of redeemable preferred stock and the
valuation allowance on deferred tax assets.
We have identified the accounting policies below as critical to our business
operations.
Accounts Receivable
Trade receivables are recorded at net realizable value consisting of the
carrying amount less the allowance for doubtful accounts, as needed. Factors
used to establish an allowance include the credit quality of the customer and
whether the balance is significant. The Company may also use the direct
write-off method to account for uncollectible accounts that are not received.
Using the direct write-off method, trade receivable balances are written off to
bad debt expense when an account balance is deemed to be uncollectible.
Goodwill and Intangible Assets
The Company acquired a patent for a new product during the year ended September
30, 2021. The Company capitalized acquisition and related legal fees related to
the patent totaling $44,650. The capitalized amount will be amortized over the
next five years. Impairment will be tested annually or as indicators of
impairment are available.
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.
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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.
During the years ended September 30, 2022 and 2021, the Company through its
subsidiary Howco entered into contracts to package products for a third-party
company servicing the same government customer base. The contracts were on job
lot basis as shipped to Howco for packaging. The customer was billed upon
completion each job lot at which time revenue was recognized.
The Company sells drones and related products manufactured by third parties to
various parties, primarily local government entities. The Company also offers
technical services related to drone utilization and performs other services.
Contracts for drone related products and services sales will be evaluated using
the five-step process outline above. There have been no material sales for drone
products or other services for which full compliance with performance
obligations has not been met. Upon significant sales for drone products and
services and insulation jackets, the Company will disaggregate sales by these
lines of business and within the lines of business to the extent that the
product or service has different revenue recognition characteristics.
The Company began sales of sanitizing products and services during the 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.
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.
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Convertible Notes with Fixed Rate Conversion Options
The Company may enter into convertible notes, some of which contain,
predominantly, fixed rate conversion features, whereby the outstanding principal
and accrued interest may be converted by the holder, into common shares at a
fixed discount to the market price of the common stock at the time of
conversion. This results in a fair value of the convertible note being equal to
a fixed monetary amount. The Company records the convertible note liability at
its fixed monetary amount by measuring and recording a premium, as applicable,
on the Note date with a charge to interest expense in accordance with ASC 480 -
"Distinguishing Liabilities from Equity".
Net Loss Per Share
Basic loss per share is calculated by dividing the loss attributable to
stockholders by the weighted-average number of shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
shared in the earnings (loss) of the Company. Diluted loss per share is computed
by dividing the loss available to stockholders by the weighted average number of
shares outstanding for the period and dilutive potential shares outstanding
unless such dilutive potential shares would result in anti-dilution.
Lease Accounting
In February 2016, the FASB issued 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.
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