Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results





This quarterly report on Form 10-Q contains forward-looking statements regarding
our business, financial condition, results of operations and prospects. The
Securities and Exchange Commission (the "SEC") encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This quarterly report
on Form 10-Q and other written and oral statements that we make from time to
time contain such forward-looking statements that set out anticipated results
based on management's plans and assumptions regarding future events or
performance. We have tried, wherever possible, to identify such statements by
using words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe," "will" and similar expressions in connection with any
discussion of future operating or financial performance. In particular, these
include statements relating to future actions, future performance or results of
current and anticipated sales efforts, expenses, the outcome of contingencies,
such as legal proceedings, and financial results. Factors that could cause our
actual results of operations and financial condition to differ materially are
set forth in the "Risk Factors" section of our annual report on Form 10-K for
the fiscal year ended September 30, 2022 as filed with the SEC on January 12,
2023.




We caution that these factors could cause our actual results of operations and
financial condition to differ materially from those expressed in any
forward-looking statements we make and that investors should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of anticipated or unanticipated events or circumstances.
New factors emerge from time to time, and it is not possible for us to predict
all of such factors. Further, we cannot assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q.





Overview



Bantec, Inc. is a 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.



The Impact of COVID-19




The Company is a wholesale vendor to the Department of Defense through its
wholly owned subsidiary Howco whose business has been affected due to the
COVID-19 social distancing requirements mandated by the federal, state and local
governments where the Company's operations occur. For some businesses, like the
Company's, core business cannot always be done through "virtual" means, and even
when this is possible, it requires significant capital and time to achieve.
During the three months ended December 31, 2022 sales and shipments at Howco
have increased modestly from the three months ended December 31, 2021. It is
anticipated that COVID-19 restrictions had an impact on the Company's operations
during the year ended September 30, 2022, however the Company cannot assess the
financial impact of the related COVID-19 restrictions as compared to other
economic and business factors.

Liquidity and Capital Resources





As of December 31, 2022 we had $308,515 in current assets, including $94,938 in
cash, compared to $703,917 in current assets, including $186,386 in cash, at
September 30, 2022. Current liabilities at December 31, 2022, totaled
$16,676,618 compared to $16,504,500, at September 30, 2022. The decrease in
current assets from September 30, 2022 to December 31, 2022 is primarily due to
decreases in: cash of $91,448, and accounts receivable of $303,409. The increase
in current liabilities from September 30, 2022 to December 31, 2022, of
approximately $172,000, is primarily due to the increases in: accrued expenses
of approximately $261,000, with slight offsets in accounts payable, settlements
payable and lease liability. While we have revenues from UAV sales as of this
date, no significant UAV revenues are anticipated until we have implemented our
full plan of operations, specifically, initiating sales campaigns for our UAV
internet and social media platforms. We must raise cash to implement our
strategy to grow and expand per our business plan. We anticipate over the next
12 months the cost of being a reporting public company will be approximately
$250,000.




We are currently issuing shares under the S-1 offering but expect to raise
additional proceeds with debt securities, and/or more loans, however if
sufficient funding is not available, we would be required to cease business
operations. As a result, investors would lose all of their investment. Under the
terms of our credit agreement with TCA, all potential new investments must first
be reviewed and approved by TCA, which may constrain our options for new
fundraising. However, we have been in contact with the receiver for the TCA
management companies and funds and do not expect any such objections over
investment opportunities. We are currently in discussion to undertake a second
S1 offering.



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We anticipate our short-term liquidity needs to be approximately $5,000,000
which will be used to satisfy certain of our existing current liabilities and we
expect gross profits of approximately $1,000,000. 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:





                                                               Three Months Ended      Three Months Ended
                                                                  December 31,            December 31,
                                                                      2022                    2021
Net Cash (Used) Provided in Operating Activities               $          (133,503 )   $          (349,571 )
Net Cash (Used) Provided by Financing Activities               $            42,055     $           145,359
Net (Decrease) Increase in Cash                                $          

(91,448 )   $          (204,212 )




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, debt discount amortization, non-cash charges for services
and increases to accrued expenses.



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.





Results of Operations

Three months Ended December 31, 2022 and 2021





We generated sales of $606,166 and $402,117 for the three months ended December
31, 2022 and 2021, respectively, an increase of $204,049, or 51%. For the three
months ended December 31, 2022 and 2021, we reported cost of goods sold of
$511,216 and $307,300, respectively, an increase of $203,916, or 66%. The
increase in sales and increase in cost of goods sold for the 2022 period as
compared to the 2021 period is due to capture of a greater amount of government
sales. Revenue in 2021 also included revenue from packaging services which

have
lower cost of goods sold.



For the three months ended December 31, 2022 and 2021, we reported selling,
general, and administrative expenses of $514,290 as compared to $654,296, a
decrease of $140,006, or 21%. For the three months ended December 31, 2022 and
2021, selling, general, and administrative expenses consisted of the following:



                                                                For the Three        For the Three
                                                                 Months ended         Months ended
                                                                 December 31,         December 31,
                                                                     2022                 2021
Compensation and related benefits                              $        259,982     $        319,046
Professional fees                                                       207,925              272,540
Other selling, general and administrative expenses                       46,383               62,710
Total selling, general and administrative expenses             $        514,290     $        654,296




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The decrease in selling, general, and administrative costs for the 2022 period
as compared to the 2021 period was due to the decrease in: compensation costs of
approximately $59,000, professional costs of approximately $65,000 and other SGA
of approximately $17,000.



For the three months ended December 31, 2022 and 2021, other income (expense)
amounted to ($362,335), and ($293,493), respectively, an increase of $68,842.
The increase was attributable to increases in debt financing and default
interest on recent debt financing.



As a result, we reported a net losses of $781,675, or $0.00 per common share,
and $852,972, or $0.00 per common share, for the three months ended December 31,
2022 and 2021, respectively.



Including the deemed dividend of $36,960 related to the temporary equity, the
net loss attributed to common shareholders was $818,635. There was no temporary
equity with a related dividend in 2021 comparative period.



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, 2022, the Company
has incurred a net loss of $781,675 and used cash in operations of $133,503. The
working capital deficit, stockholders' deficit and accumulated deficit was
$16,368,103, $17,195,238 and $36,411,861, respectively, at December 31, 2022. On
September 6, 2019 the Company received a default notice on its payment
obligations under the senior secured credit facility agreement (see Note 9),
defaulted on its Note Payable - Seller in September 2017 and has since defaulted
on other promissory notes. As of December 31, 2022 the Company has received
demands for payment of past due amounts from several consultants and service
providers. It is management's opinion that these matters raise substantial doubt
about the Company's ability to continue as a going concern for a period of
twelve months from the issuance date of this report. The ability of the Company
to continue as a going concern is dependent upon management's ability to further
implement its business plan and raise additional capital as needed from the
sales of stock or debt. The Company has continued to implement cost-cutting
measures and restructuring or setting up payment plans with vendors and service
providers and plans to raise equity through a private placement, and restructure
or repay its secured obligations. The accompanying consolidated financial
statements do not include any adjustments that might be required should the
Company be unable to continue as a going concern.

Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Significant Accounting Estimates





Our consolidated financial statements and accompanying notes have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.



We regularly evaluate the accounting policies and estimates that we use to
prepare our consolidated financial statements. In general, management's
estimates are based on historical experience, and on various other assumptions
that are believed to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.



The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include the allowance for bad debt
on accounts receivable, reserves on inventory, valuation of intangible assets
for impairment analysis, valuation of the lease liability and related
right-of-use asset, valuation of stock-based compensation, the valuation of
derivative liabilities, 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.



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Long-Lived Assets




Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Impairment is determined by comparing the carrying value of the long-lived
assets to the estimated undiscounted future cash flows expected to result from
use of the assets and their ultimate disposition. In instances where impairment
is determined to exist, the Company writes down the asset to its fair value
based on the present value of estimated future cash flows.



Revenue Recognition




The Company follows Accounting Standards Codification ("ASC") 606, Revenue From
Contracts With Customers, which has a five-step process: a) Determine whether a
contract exists; b) Identify the performance obligations; c) Determine the
transaction price; d) Allocate the transaction price; and e) Recognize revenue
when (or as) performance obligations are satisfied.



The Company sells a variety of products to government entities. The purchase
order received specifies each item and its manufacturer; the Company only needs
to fulfill the performance obligation by shipping the specified items. No other
performance obligations exist under the terms of the contracts. The Company
recognizes revenue for the agreed upon sales price when the product is shipped
to the customer, which satisfies the performance obligation.



The Company through its subsidiary Howco may enter into contracts to package
products for a third-party company servicing the same government customer base.
The contracts are based on the job lot as shipped to Howco for packaging. The
customer is billed upon completion each job lot at which time revenue is
recognized.



The Company sells drones and related products manufactured by third parties to
various parties, primarily local government entities. The Company also offers
technical services related to drone utilization and performs other services.
Contracts for drone related products and services sales will be evaluated using
the five-step process outline above. There have been no material sales for drone
products or other services for which full compliance with performance
obligations has not been met. Upon significant sales for drone products and
services and insulation jackets, the Company will disaggregate sales by these
lines of business and within the lines of business to the extent that the
product or service has different revenue recognition characteristics.

The Company began sales of sanitizing products and services during the year ended September 30, 2022. Revenue for this line of business is recognized upon shipment and delivery of training services (as applicable).





Stock-Based Compensation




Stock-based compensation is accounted for based on the requirements of ASC 718 -
"Compensation -Stock Compensation", which requires recognition in the financial
statements of the cost of employee and director services received in exchange
for an award of equity instruments over the period the employee or director is
required to perform the services in exchange for the award (presumptively, the
vesting period). The ASC also requires measurement of the cost of employee and
director services received in exchange for an award based on the grant-date fair
value of the award. The Company utilizes the Black-Sholes option pricing model
and uses the simplified method to determine expected term because of lack of
sufficient exercise history. Additionally, effective October 1, 2016, the
Company adopted the Accounting Standards Update No. 2016-09 ("ASU 2016-09"),
Improvements to Employee Share-Based Payment Accounting. Among other changes,
ASU 2016-09 permits the election of an accounting policy for forfeitures of
share-based payment awards, either to recognize forfeitures as they occur or
estimate forfeitures over the vesting period of the award. The Company has
elected to recognize forfeitures as they occur and the cumulative impact of this
change did not have any effect on the Company's consolidated financial
statements and related disclosures.



As of October 1, 2018, the Company has 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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