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 distributor, construction, environmental and drone company.
Through Howco Distributing Co, Bantec provides product procurement,
distribution, and logistics services, to the United States Department of Defense
and Defense Logistics Agency. The Company has operations based in Little Falls,
New Jersey and Vancouver, Washington. The Company continues to seek strategic
acquisitions and partnerships with distributor, construction, environmental and
drone firms that offer growth opportunities in well established markets, as well
as acquisitions and partnerships with firms that have complementary
technologies, services, products and infrastructure.
Liquidity and Capital Resources
As of September 30, 2020, we had $593,405 in current assets, including $164,014
in cash, compared to $1,064,665 in current assets, including $149,832 in cash,
at September 30, 2019. Current liabilities at September 30, 2020 totaled
$16,807,686 compared to $14,697,003 at September 30, 2019. The decrease in
current assets from September 30, 2019 to September 30, 2020 is primarily due to
the decreases in accounts receivable of $442,339, inventory $73,959, partially
offset by increases in prepaid expenses of $30,856 and cash of $14,182. The
increase in current liabilities from September 30, 2019 to September 30, 2020 is
primarily due to the increase in: accrued expenses and interest of $1,688,950
and convertible notes payable of approximately $483,000 primarily due to
increased funding net of debt retirements, third party and government sponsored
financing totaling $505,182, partially offset by decreases to accounts payable
of approximately $331,000. 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.
We anticipate our short-term liquidity needs to be approximately $7,500,000
which will be used to satisfy certain of our existing current liabilities and we
expect gross profits of approximately $1,500,000. 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.
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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,
2020 2019Net Cash Used in Operating Activities $ (491,000 ) $ (1,105,330 )
Net Cash Used in Investing Activities $
- $ (15,606 )Net Cash Provided by Financing Activities $ 505,182 $ 1,162,322
Net (Decrease) Increase in Cash
$ 14,182 $ 41,386
Results of Operations
Year Ended September 30, 2020 and 2019
We generated sales of $4,455,186 and $10,287,214 for the years ended September
30, 2020 and 2019, respectively. For the years ended September 30, 2020 and
2019, we reported cost of goods sold of $3,351,438 and $9,191,809, respectively.
The decrease in sales and cost of goods sold for the 2020 period is primarily
due to liquidity shortfalls impacting inventory availability and management's
focus on higher margin sales at Howco. This effort has increased gross margin by
approximately 14%.
For the years ended September 30, 2020 and 2019, we reported selling, general,
and administrative expenses of $2,830,140 as compared to $3,019,292, a decrease
of $189,152 or 6%. . For the year ended September 30, 2020, selling, general,
and administrative expenses consist primarily of professional and consulting
fees of approximately $756,900, payroll costs of approximately $1,793,000, other
expenses of approximately $179,000, rent of approximately $68,000, and travel
related costs of approximately $33,000. For the year ended September 30, 2019,
selling, general, and administrative expenses consist primarily of professional
and consulting fees of approximately $1,123,150, payroll costs of approximately
$1,465,000, and other including rent of approximately $60,000, and travel
related costs of approximately $36,000. For the years ended September 30, 2020
and 2019, payroll costs and professional and consulting fees included
stock-based compensation and consulting fees of $149,499 and $481,583,
respectively. The decrease in selling, general, and administrative costs for the
2019 periods is primarily due to the decrease in stock-based compensation and
consulting fees.
For the years ended September 30, 2020 and 2019, depreciation and amortization
expense amounted to approximately $11,000 and $276,000, respectively, and
related to the amortization of intangible assets and depreciation expense for
demonstration drones.
For the years ended September 30, 2020 and 2019, interest and financing costs
amounted to of $1,598,246 and $1,527,262, respectively. The increase in interest
and financing costs is due primarily to put premiums for stock settled debt.
During the year ended September 30, 2020 the Company incurred $992,592 net
losses on debt extinguishment. During the year ended September 30, 2019 the
Company incurred $57,623 net gains on debt extinguishment and derivative
expenses of $24,733.
As a result, we reported a net loss of $4,328,318, or $0.05 per common share,
and $7,115,159, or $2.72 per common share, for the years ended September 30,
2020 and 2019, respectively.
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 year ended September 30, 2020, the Company has incurred a net loss of
$4,328,318 and used cash in operations of $491,000. The working capital deficit,
stockholders' deficit and accumulated deficit was $16,214,281, $17,944,973 and
$31,074,769, respectively, at September 30, 2020. 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 notes. As of September 30,
2020, the Company has received demands for payment of past due amounts from
several consultants and service providers. The Company is in negotiation with
the receiver appointed by the court related to the senior secured creditor's
claim and has proposed a preliminary settlement. 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
continues to implement cost-cutting measures and restructuring or setting up
payment plans with vendors and service providers and is raising equity financing
through a private placement, and is working to restructure and 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.
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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
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.
Accounts Receivable
Trade receivables are recorded at net realizable value consisting of the
carrying amount less the allowance for doubtful accounts, as needed. Factors
used to establish an allowance include the credit quality of the customer and
whether the balance is significant. The Company may also use the direct
write-off method to account for uncollectible accounts that are not received.
Using the direct write-off method, trade receivable balances are written off to
bad debt expense when an account balance is deemed to be uncollectible.
Inventory
Inventory consists of finished goods, which are purchased directly from
manufacturers. The Company utilizes a just in time type of inventory system
where products are ordered from the vendor only when the Company has received
sales order from its customers. Inventory is stated at the lower of cost and net
realizable value on a first-in, first-out basis.
Goodwill and Intangible Assets
The Company's goodwill and tradename assets are deemed to have indefinite lives
and, accordingly, are not amortized, but are evaluated for impairment at least
annually, but more often whenever changes in facts and circumstances occur which
may indicate that the carrying value may not be recoverable. The Company
conducted its goodwill and its intangible assets impairment test as of September
30, 2019 and determined that an impairment existed as certain asset values are
unsupported by the current and projected net income and cash flows of the
component holding the goodwill and intangible assets, the Company's subsidiary,
Howco. Accordingly, an impairment charge of $3,420,624 was charged against the
Goodwill, Tradename and Customer List assets and has been recognized as of
September 30, 2019.
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 measured 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 sells a variety of products to government entities. The purchase
orders received specifies each item and its manufacturer; the Company only needs
to fulfill the performance obligation by shipping the specified items. No other
performance obligations exist under the terms of the contracts. The Company
recognizes revenue for the agreed upon sales price when the product is shipped
to the customer, which satisfies the performance obligation.
The Company sells drones and related products manufactured by third parties to
various parties. The Company also offers technical services related to drone
utilization. The Company began offering insulation jackets for commercial and
government facilities to insulate and monitor heating and cooling equipment.
Contracts for drone related products and services and insulating jacket related
sales will be evaluated using the process proscribed by the Financial Accounting
Standards Board. There has been no material sales for drone products and
services for which full compliance with performance obligations has not been
met. Sales of insulation jackets have not yet commenced. 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.
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
We 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. We
record the convertible note liability at its fixed monetary amount by measuring
and recording a premium, as applicable, on the Note date with a charge to
interest expense in accordance with ASC 480 - "Distinguishing Liabilities from
Equity".
Net Loss Per Share
Basic loss per share is calculated by dividing the loss attributable to
stockholders by the weighted-average number of shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
shared in the earnings (loss) of the Company. Diluted loss per share is computed
by dividing the loss available to stockholders by the weighted average number of
shares outstanding for the period and dilutive potential shares outstanding
unless such dilutive potential shares would result in anti-dilution.
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BANTEC, INC. 
