BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS
Bantec,
Inc. is an Unmanned Aerial Vehicles (“UAV”) and related services and technology company that intends to engage in
the distribution and integration of advanced low altitude UAV systems, services and products. 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 has operations
based in Little Falls, New Jersey and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships
with UAV firms that offer superior technologies in high-growth markets, as well as acquisitions and partnerships with firms that
have complementary technologies and infrastructure.
On
April 24, 2018 the Company amended its articles of incorporation, filed with the Delaware Secretary of State, changing the
Company name from Drone USA, Inc. to Bantek, Inc., which was accepted by FINRA on February 19, 2019. Bantek, Inc. filed a
change of name to Bantec, Inc. and to effect a reverse stock split (of the common stock) of 1 for 1,000 on August 6, 2019,
which became effective on February 10, 2020. All common share and per share related amounts have been retroactively adjusted
to recognize the reverse split.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Bantec, Inc. and its wholly-owned subsidiaries, Drone USA,
LLC (inactive), and Howco. All significant intercompany accounts and transactions have been eliminated in consolidation.
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, 2019, the Company
has incurred a net loss of $666,843 and provided cash from operations of $138,856. The working capital deficit, stockholders’
deficit and accumulated deficit was $14,197,042, $15,438,077 and $27,413,294, respectively, at December 31, 2019. 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 as of December 31, 2019 has received demands for payment
of past due amounts from several consultants and service providers. On December 30, 2019, Redstart Holdings Corp, notified the
Company of its default on Redstart’s February 27, 2019 convertible note payable and charged a default penalty of 50% of the
then outstanding balance. 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 been implementing 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.
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 goodwill and intangible assets for impairment analysis, valuation of stock based
compensation, the valuation of derivative liabilities and the valuation allowance on deferred tax assets.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Fair
Value Measurements
The
Company follows the FASB Fair Value Measurements standard, as they apply 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 Company accounts for certain instruments
at fair value using level 3 valuation.
|
|
At December 31, 2019
|
|
|
At September 30, 2019
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability
|
|
|
—
|
|
|
|
—
|
|
|
$
|
128,628
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
128,628
|
|
A
rollforward of the level 3 valuation financial instruments is as follows:
|
|
Derivative
Liabilities
|
|
Balance at September 30, 2019
|
|
$
|
128,628
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
128,628
|
|
The
warrants were issued to a convertible note holder in November and December 2017 and initially determined to be equity instruments
and recorded as note discount and as additional paid in capital. On June 4, 2018 the anti-dilutive provision of the warrants took
effect and based on the new conversion formula management determined the warrant became a derivative liability and reclassified
the fair value on June 4, 2018 from additional paid-in capital to derivative liability with fair market value changes recognized
in operations for each reporting date. At December 31, 2019, the fair market value of derivatives changed by an immaterial
amount and therefore no adjustment was made to the derivative liability.
Cash
and Cash Equivalents
Cash
equivalents consist of liquid investments with maturities of three months or less at the time of purchase. There are no cash equivalents
at the balance sheet dates.
Accounts
Receivable
Trade
receivables are recorded at net realizable value consisting of the carrying amount less the allowance for doubtful accounts, as
needed. Factors used to establish an allowance include the credit quality of the customer and whether the balance is significant.
The Company may also use the direct write-off method to account for uncollectible accounts that are not received. Using the direct
write-off method, trade receivable balances are written off to bad debt expense when an account balance is deemed to be uncollectible.
Inventory
Inventory
consists of finished goods, most of 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.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
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.
Certain items classified as inventory during the second fiscal quarter of 2018 have been reclassified to Property and Equipment.
These assets are fully operational drones used as demonstration units and were put into such use since acquisition. The units
were all acquired during the year ended September 30, 2018 and each unit exceeds management’s threshold for capitalization
of $2,000 for a single unit. The Company depreciates these demonstration units over a period of 3 years using an accelerated method.
Depreciation expense was $2,772 and $2,065, for the three months ended December31, 2019 and 2018, respectively.
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 customer list was initially deemed to have a life of 4 years and is being
amortized through September 2020. Goodwill and intangible assets were determined to be fully impaired and were charged to operations
at 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 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.
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
Effective
October 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers,
which is effective for public business entities with annual reporting periods beginning after December 15, 2017. This new revenue
recognition standard (new guidance) 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’s initial application of ASC 606 did not have a material impact on its financial
statements and disclosures and there was no cumulative effect of the adoption of ASC 606.
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 five step process outline above. 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.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”,
which requires recognition in the financial statements of the cost of employee and director services received in exchange for
an award of equity instruments over the period the employee or director is required to perform the services in exchange for the
award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received
in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing
model and uses the simplified method to determine expected term because of lack of sufficient exercise history. Additionally,
effective October 1, 2016, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”),
Improvements to Employee Share-Based Payment Accounting. Among other changes, ASU 2016-09 permits the election of an accounting
policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over
the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this
change did not have any effect on the Company’s consolidated financial statements and related disclosures.
As
of October 1, 2018 the Company has early adopted ASU 2018-7 Compensation-Stock Compensation which conforms the accounting for
non-employees to the accounting treatment for employees. The new standard replaces using a fair value as of each reporting date
with use of the calculated fair value as of the grant date. The implementation of the standard provides for the use of the fair
market value as of the adoption date, rather than using the value as of the original grant date. Therefore the values calculated
and reported at September 30, 2018 become a proxy for the grant date value. The Company utilizes the Black-Sholes option pricing
model and uses the simplified method to determine expected term because of lack of sufficient exercise history. There was no cumulative
effect on the adoption date.
Shipping
and Handling Costs
The
Company has included freight-out as a component of cost of sales, which amounted to $14,726 and $31,527, net of customer freight
receipts for the three months ended December 31, 2019, and 2018, respectively.
Convertible
Notes with Fixed Rate Conversion Options
The
Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding
principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the
common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount.
The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable,
on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Derivative
Liabilities
The
Company has certain financial instruments that are derivatives or contain embedded derivatives. The Company evaluates all its
financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives
to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that
the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In
the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during
the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability
is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to
other income or expense as part of gain or loss on extinguishment.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Net
Loss Per Share
Basic loss per share is calculated by dividing
the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share
reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per
share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period
and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of December 31,
2019, 17,755 options were outstanding of which 12,917 were exercisable, 1,198,271 warrants were outstanding of which 1,198,271
were exercisable, and related party convertible debt and accrued interest totaling $1,097,232 was convertible into 11,303,579 shares
of common stock. Additionally, as of December 31, 2019, the outstanding principal balance, including accrued interest of the third
party convertible debt, totaled $6,738,748 and was convertible into 83,770,974 shares of common stock As of December 31, and September
30, 2019, potentially dilutive securities consisted of the following:
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Stock options
|
|
|
17,755
|
|
|
|
17,775
|
|
Warrants
|
|
|
1,198,271
|
|
|
|
1,198,271,
|
|
Related party convertible debt and accrued interest
|
|
|
11,303,579
|
|
|
|
11,162,896
|
|
Third party convertible debt (including senior debt)
|
|
|
83,770,974
|
|
|
|
83,780,049
|
|
Total
|
|
|
96,290,579
|
|
|
|
96,158,991
|
|
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. As of December 31, 2019, the Company did not report any segment information
since the Company only generated significant sales from its subsidiary, Howco.
Recent
Accounting Pronouncements
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
The
Company’s accounts receivable at December 31 and September 30, 2019 is as follows:
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Accounts receivable
|
|
$
|
589,682
|
|
|
$
|
791,728
|
|
Reserve for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
589,682
|
|
|
$
|
791,728
|
|
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
4 - INVENTORY
At
December 31 and September 30, 2019, inventory consists of finished goods and was valued at $239,172 and $118,558, respectively.
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 1/60th of the outstanding principal balance. This revolving line of credit is in the amount of $50,000,
and is personally guaranteed by the Company’s Chief Executive Officer (“CEO”). The line bears interest at a
fluctuating rate equal to the prime rate plus 4.25%, which at December 31, 2019 and September 30, 2019 was 9% and 9.25%, respectively.
As of December 31, and September 30, 2019, the balance of the line of credit was $44,349 and $44,556, with $5,651, available at
December 31, 2019.
NOTE
6 - SETTLEMENTS PAYABLE
On
July 20, 2018, the Company entered into a settlement agreement with a collection agent for American Express relating to $127,056
of past due charges. The agreement provides for an initial payment of $12,706, then monthly payments of $6,500 and a final payment
on January 27, 2020 of $3,850. The amount due at December 31, and September 30, 2019, was $42,850, and $42,850, respectively.
On November 27 2018 the Company reached
an agreement and executed a related stipulation and payment terms agreement stemming from a legal action by the former Chief Strategy
Officer for improper termination. The plaintiff agreed to accept $600,000 in payments. The first scheduled payment of $200,000
was made on December 20, 2018 in accordance with the settlement terms. Twelve monthly payments of approximately $33,333 are due
starting on January 15, 2019 through December 15, 2019. The Company recorded $600,000 as accrued expense of which $500,000
was expensed during fiscal year 2018. The balance at December 31, 2019, and September 30, 2019, is $54,000, and $131,724, respectively.
The balance of $54,000 represents the liability for employer withholding and payroll taxes due as all net payments to the plaintiff
and legal counsel have been made.
The
total settlement payable balance of $42,850, reported on the balance sheet represents only the amount owed to American Express.
The balance of the payroll tax and withholdings due of $54,000, was reclassified and is included as accrued expenses at December
31, 2019.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
7 - NOTE PAYABLE – SELLER
In
connection with the acquisition of Howco in September 2016, the Company issued a note payable in the amount of $900,000 to the
sellers of Howco. The note matured on September 9, 2017 and bears interest at 5.50% per annum. The note requires payment of unpaid
principal and interest upon maturity. The note is secured by all assets of Howco Distribution Co. and subordinated to the Senior
Secured Credit Facility discussed below. The note is currently in default and the default interest rate is 8% per annum. At December
31, 2019 and September 30, 2019, accrued interest on this note amounted to $215,633 and $197,485, respectively.
NOTE
8 - NOTES PAYABLE – RELATED PARTIES
Convertible
Notes
The
Company has an $840,000 convertible note payable (“Note 1”) to a related party entity controlled by the Company’s
CEO. Note 1 bears interest at an annual rate of 7% with an original maturity date of June 11, 2017, which has been extended to
June 11, 2022, at which time all unpaid principal and interest is due. The holder of Note 1 has the option to convert the outstanding
principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted
average price per share of common stock for the 30-day period prior to conversion. As of December 31, and September 30, 2019,
Note 1 has not been converted and the balance of $688,444 and $688,444, and accrued interest was $186,379, and $174,232, respectively.
This note is considered a stock settled debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal
amount based on the conversion formula.
The Company has a convertible note payable
(for an unspecified amount) with the Company’s CEO. This line of credit (“LoC”) bears interest at an annual
rate of 7% with a maturity date of December 31, 2017, at which time all unpaid principal and interest was due. On December 15,
2017 the due date was extended to July 2, 2018 and then in July, 2018, the due date was extended to June 30, 2019, on December
23, 2018 the maturity date of the LoC was extended to September 23, 2024. The holder of the LoC has the option to convert the
outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the
volume weighted average price per share of common stock for the 30-day period prior to conversion. During the three months ended
December 31, 2018, the Company borrowed $19,000. During the three months ended December 31, 2019 the Company was advanced $26,800
and repaid $29,053, on this LoC. As of December 31, 2019, and September 30, 2019, the LoC has not been converted, the balance
was $164,742 and $166,995, and accrued interest was $26,808 and $21,838, respectively. This LoC is considered a stock settled
debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula.
On
July 2, 2019, the Company issued a convertible note payable (“Note 2”) to the Company’s CEO for a $15,000, cash
loan. The funds were paid directly to a vendor to the Company. The note matures on June 9, 2020, bears interest at 10% and may
be converted to the Company’s common stock at 50% of the lowest closing bid in the 20 trading days prior to notification
of conversion. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded
debt premium $15,000 with a charge to interest expense for the note. The note principal and put premium were $15,000, and $15,000,
at December 31, and September 30, 2019. Accrued interest was $702, at December 31, 2019.
On
September 13, 2019, the Company issued a convertible note payable to an entity controlled by the Company’s CEO for a $17,000,
cash loan. The note matures on June 9, 2020, bears interest at 10% and may be converted to the Company’s common stock at
50% of the lowest closing bid in the 20 trading days prior to notification of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded debt premium of $17,000 with a charge to interest expense for
the notes. The note principal and put premium were $17,000, and $17,000, at December 31, and September 30, 2019. Accrued interest
was $505, at December 31, 2019.
Notes
and Other Loans
On
December 20, 2018 the Company issued a promissory note to the CEO for a $400,000, cash loan. The note bears interest at 12% per
annum, matures on January 7, 2024 and requires monthly payment of principal of $5,000 with a balloon payment at maturity. The
principal and accrued interest balances were $367,500 (of which $105,000 is classified as a current liability, due within the
next 12 months) and $45,994, as of December 31, 2019.
On
January 19, 2019 the Company issued a, promissory note to the CEO for a $200,000, cash loan. The note bears interest at 12% per
annum, matures on September 23, 2021 and requires monthly payments of $2,500 principal. The outstanding principal and accrued
interest are $195,000 (of which $52,500 is classified as a current liability, due within the next 12 months) and $15,489 at December
31, 2019.
On
July 1, 2019, the Company entered into a purchase order financing agreements with an entity controlled by the Company’s
CEO (“Pike Falls”) for a cash advances to Howco. The advances are to be for 100% of the face value of the purchase
orders to be repaid with accounts receivable related to the sales of the products underlying the purchase orders. Pike Falls receives
4% of the purchase price for the first 45 days and .00086% per day thereafter on the unpaid balance. The principal balance was
$69,391, at December 31, 2019 and is included in notes payable – related parties on the balance sheet. Interest charges
for the three months ended December 31, 2019, amounted to $5,431, of which a payment was made for $1,746, leaving an unpaid balance
of $3,685.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
9 - CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES
Senior
Secured Credit Facility Note
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 $6,500,000, subject to lender approval, with an initial convertible promissory note at
closing of $3,500,000 (the “Note”). The Note bears interest at a rate of 18% per annum, required monthly payments
of $52,500, which is interest only, starting on October 13, 2016 through February 13, 2017, and monthly payments, including interest
and principal, of $298,341 starting on March 13, 2017 through maturity on March 13, 2018. In the event of default the Note balance
will bear interest at 25% per annum. In connection with this Agreement, the Company was obligated to pay additional advisory fees
of $850,000 payable in the form of cash or common stock in accordance with the terms of the Agreement. The Company was also required
to reserve 7,000 shares of common stock related to this transaction. The reserved shares will be released upon the satisfaction
of the loan.
As of December 31, and September 30, 2019,
the Company had issued 539, shares of common stock in satisfaction of the $850,000 advisory fee in accordance with the terms of
the agreement, such shares being issued in September 2016. The proceeds from the sale of the 539, shares were to be applied to
the $850,000 advisory fee due. Based upon the value of the shares, at the time the lender sells the shares, the Company may be
required to redeem unsold shares for the difference between the $850,000 and the lender’s sales proceeds. Accordingly, the
$850,000 was reflected as a current liability through December 31, 2017. In January 2018, in connection with a settlement agreement
(see below), the accrued advisory fee was reclassified to the principal balance of the replacement Convertible Note. Through the
date of the settlement agreement and through September 30, and December 31, 2019, the lender had not reported any proceeds from
the sale of these shares (see below). Prior to the settlement agreement in January 2018, notwithstanding anything contained in
the Agreement to the contrary, in the event the Lender has not realized net proceeds from the sale of Advisory Fee Shares equal
to at least the Advisory Fee by the earlier to occur of: (A) September 13, 2017; (B) the occurrence of an Event of Default; or
(C) the Maturity Date, then at any time thereafter, the Lender shall have the right, upon written notice to the Borrower, to require
that the Borrower redeem all Advisory Fee Shares then in Lender’s possession for cash equal to the Advisory Fee, less any
cash proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any within five (5) Business Days from
the date the Lender delivers such redemption notice to the Borrower.
The
Note is only convertible upon default or mutual agreement by both parties at a conversion rate of 85% of the lowest of the daily
volume weighted average price of the Company’s common stock during the 5 business days immediately prior to the conversion
date. At any time and from time to time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default
under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, this Note may be, at the sole option
of the Holder, convertible into shares of the Company’s common stock, in accordance with the terms and conditions of the
Note Upon liquidation by the Holder of Conversion Shares issued pursuant to a conversion notice, provided that the Holder realizes
a net amount from such liquidation equal to less than the conversion amount specified in the relevant conversion notice , the
Company shall issue to the Holder additional shares of the Company’s common stock equal to: (i) the Conversion Amount specified
in the relevant conversion notice; minus (ii) the realized amount, as evidenced by a reconciliation statement from the
Holder (a “Sale Reconciliation”) showing the realized amount from the sale of the Conversion Shares; divided by
(iii) the average volume weighted average price of the Company’s common stock during the five business days immediately
prior to the date upon which the Holder delivers notice (the “Make-Whole Notice”) to the Company that such additional
shares are requested by the Holder.
Once
a default occurs, the Note and the $850,000 advisory fee payable will be accounted for as stock settled debt at its fixed monetary
value. On March 13, 2017 the Company defaulted on the monthly principal and interest payment of $298,341. Due to this default,
as of June 30, 2017, the Company has accounted for the embedded conversion option as stock settled debt and recorded a debt premium
of $617,647 with a charge to interest expense, and the interest rate increased to 25% (default rate).
On
March 28, 2017, the Company entered into an additional agreement with the above senior secured credit facility lender to receive
a range of advisory services for a total of $1,200,000 with no definitive terms or length of service which was expensed in fiscal
2017 and had been recorded as an accrued liability – advisory fees through December 31, 2017. In connection with the settlement
agreement discussed below, in January 2018, the advisory services fees payable were reclassified to the principal balance of the
replacement Convertible Note.
On
January 3, 2018, the Company entered into a settlement agreement (the “Settlement Agreement”) and replacement note
agreements with the investment fund related to a senior secured credit facility note dated September 13, 2016. On the effective
date of the Settlement Agreement, all amounts owed to the investment fund aggregated $5,788,642 and consisted of a convertible
promissory note of $3,500,000, accrued interest payable of $238,642, and accrued advisory fees payable of $2,050,000. On the effective
date of the Settlement Agreement, the amount due of $5,788,642 was split and apportioned into two separate replacement notes (“Replacement
Note A” and Note B”). Replacement Note A had a principal amount of $1,000,000 and Replacement Note B had a principal
balance of $4,788,642, both of which remained secured by the original security , pledge and guarantee agreements; and other applicable
loan documents, and bear interest at 18% per annum. The default was not waived by this settlement agreement. The Company originally
recorded a premium on stock settled debt of $617,647 on the $3,500,000, and subsequent to the settlement agreement recorded an
additional premium on stock settled debt of $403,878 on the additional $2,288,642 for accrued interest and advisory fees payable
that were capitalized as note principal. The interest rate was amended to 12% effective June 12, 2018.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
The
Credit Agreement was amended such that the maturity date was extended to January 13, 2019 (the “Extended Maturity Date”)
for replacement Note B, while the Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the principal
and interest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary, all obligations
owing by the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents
shall be paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and
the remaining principal and accrued interest on January 13, 2019. Interest payments made since the amendment have totaled $323,440
and are therefore not in accord with that amendment. However, TCA has received payments under the 3(a)(10) settlement (below)
totaling $308,100 during the year ended September 30, 2018, and another $270,320, during the year ended September 30, 2019. The
principal balance was $4,788,642 at September 30, 2018.
On
October 30, 2018, TCA the Company’s senior lender amended its credit facility which had been restructured in January 2018
when fees for advisory and other matters along with accrued but unpaid interest were capitalized and separated into two notes,
Note A having $1,000,000 principal and Note B having $4,788,642 both having the same maturity terms, interest rates and conversion
rights. Under the current amendment total amounts outstanding under the notes along with accrued interest of $537,643 has been
capitalized with the principal amount due of $6,018,192, $5,326,285 for Note B and $691,907 for Note A. The restated note has
the same conversion price discount and therefore continues to be stock settled debt under ASC 480, an additional $94,878 was charged
to interest with a credit to debt premium. The restated note accrues interest on the principal balance at 12% per annum, includes
amortization to the new maturity date of December 15, 2020. The amortization payments credited toward the principal amount and
accrued interest vary and include payments made under the 3(a)(10) settlement agreement with a third party related to Note A.
Economically the total principal and accrued interest outstanding remain unchanged as reported in the consolidated balance sheet.
All other terms including conversion rights and a make-whole provision in the case of a conversion shortfall remain the same as
stated in the footnotes above. At December 31, 2019 the principal of the Note B portion was $5,326,285, accrued interest was $619,883
and the Note A principal subject to the 3(a)(10) court order was $421,587. During the three months ended December 31, 2019, the
Company has not paid interest or principal and Livingston Asset Management (under the 3(a)(10) settlement) has not made any payments
to TCA.
On
September 6, 2019, the Company received a default notice on its payment obligations under the senior secured credit facility agreement
from TCA. The Company has proposed a number of solutions including refinancing the debt with other parties. The default was declared
due to non-payment of monthly scheduled amortization (principal and interest). TCA holds security interests in all assets of the
Company including its subsidiary Howco.
On November 15, 2017, the Company executed
a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”) under which Livingston agreed to purchase
up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company’s creditors
in return for a convertible note issued by the Company in the principal amount of $50,000 bearing interest of 10% per year to cover
certain legal fees and other expenses of Livingston. The note matures in six months and is convertible into shares of our common
stock at a 30% reduction off the lowest closing bid price for 20 trading days prior to the date of conversion. Livingston has the
right to retain 30% of any negotiated reduction off the face amount of the liability the Company owes to such creditors. The Company
has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $21,428 with
a charge to interest expense. The note and accrued interest were fully converted as of September 30, 2018 for 18,163, common shares.
Debt premium of $21,428 was charged to additional paid in capital.
On
January 30, 2018 pursuant to the Liability Purchase Term Sheet, the TCA Replacement Note A in the principal amount of $1,000,000
was purchased by Livingston Asset Management LLC (“Livingston”) from the original lender. Principal of Replacement
Note A is due to Livingston with all then accrued but unpaid interest due to the original lender. In accordance with the terms
of the Settlement Agreement, the Court was advised of Company’s intention to rely upon the exception to registration set
forth in Section 3(a)(l0) of the Securities Act to support the issuance of its common shares and the Court held a fairness hearing
regarding the issuance on March 12, 2018. Following entry of an Order by the Court which occurred on March 12, 2018, in settlement
of the claims, the Company shall issue and deliver to Livingston shares of its common stock (the “Settlement Shares”)
in one or more tranches as necessary, and subject to adjustment and ownership limitations as set forth in the Settlement Agreement,
sufficient to generate proceeds such that the aggregate Remittance Amount equals the Claim Amount. The Company will issue free
trading shares of its common stock under section 3(a)(10) of the Securities Act to Livingston in the amount of such judgment in
a series of tranches so that Livingston will not own more than 9.99% of our outstanding shares per tranche. The parties reasonably
estimate that the fair market value of the Settlement Shares to be received by Livingston is equal to approximately $1,666,667
which is based on a discount of 40%.
In the three months ended December 31,
2019, there were no 3(a)(10) issuances. As of December 31, 2019, there have been seventeen issuances under section 3(a)(10) of
the Securities Act totaling 1,374,885 shares; 1,273,261, in 2019, and 101,624, in 2018, which have been recorded at par value with
an equal charge to additional paid-in capital. On November 17, 2019, 194,520 of the shares issued under the 3(a)(10) were cancelled
at the request of Livingston. The value originally recorded as a liability remains in the convertible note balance, until these
shares have been sold and reported to the Company by the lender as part of the Make-Whole provision at which time the proceeds
value of such shares are reclassified to additional paid-in capital. During the year ended September 30, 2019, proceeds of $270,320
were remitted to TCA by Livingston and applied to reduce the liability with corresponding credits to additional paid in capital.
$180,618 of debt premium was credited to additional paid in capital in conjunction with the payments to TCA. At December 31, 2019
the balance of $421,587 along with related debt premium of $281,054 are included in convertible notes payable on the balance sheet.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
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. The placement agent services fee amounted to $15,000 payable to Scottsdale Capital Advisors
in the form of a convertible note. The note matures six months from the date of issuance and shall accrue interest at the rate
of 10% per annum. The $15,000 note is convertible into shares of the Company’s common stock at a discount of 30% of the
low closing bid price for the twenty trading days prior to the conversion and is not subject to any registration rights. The Company
has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $6,429 with
a charge to interest expense. The note has not been converted and the principal balance is $15,000, at both December 31, and September
30, 2019, with $3,167, and $2,789, of accrued interest, respectively.
Other
Convertible Debt
On November 9, 2017, the Company received
a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge
Partners, LLC (“Crown Bridge”) under which the Company issued to Crown Bridge a convertible note in the principal
amount of $105,000 and a five-year warrant to purchase 100, shares of the Company’s common stock at an exercise price of
$350, as a commitment fee which is equal to the product of one-third of the face value of each tranche divided by $350. Under
the terms of the note Crown Bridge was to receive “right of first refusal” for any subsequent loans or notes to fund
the Company. The Company violated this covenant when funding was received from other sources without offering Crown Bridge the
opportunity to participate. On December 20, 2017 the Company cured this covenant violation by issuing 200, additional warrants
have the same exercise price and terms of the original warrants. The warrants have full ratchet price protection and cashless
exercise rights.
The convertible note (the “Note”)
issued to Crown Bridge in the principal amount of $105,000, has an original issue discount of $10,500 and issue costs of $19,000
both of which are recorded as debt discount along with the warrant relative fair value of $12,507 for the original 100, warrants
and $31,529 for the penalty warrants to be amortized over the twelve month term of this tranche, bears interest of 10% (12% default
rate) per annum, and has a maturity date of 12 months from the date of each tranche of payments under the Note with future tranches
being at the discretion of Crown Bridge. The conversion rate for any conversion of unpaid principal and interest under the Notes
is at a 35% discount to the lowest market price of the shares of the Company’s common stock within a 20 day trading period
prior to the date of conversion to which an additional 10% discount will be added if the conversion price of the Company’s
common stock is less than $50, per share and no shares of the Company’s common stock can be issued to the extent Crown Bridge
would own more than 4.99% of the outstanding shares of the Company’s common stock and the conversion shares contain piggy-back
registration rights. The Note is subject to customary default provisions including an event of default if the bid price of the
Company’s common stock is less than its par value of $.0001 per share. The Company is entitled to prepay the Note between
30 days after its issuance until 180 days from its issuance at amounts that increase from 112% of the prepayment amount to 137%
of the prepayment amount depending on the length of time when prepayments are made. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense. As
of September 30, 2018 the note holder fully converted principal and accrued interest into common shares. The debt premium on stock
settled debt was fully recognized as additional paid in capital.
On
March 1, 2019, the Company received a second tranche advance under the Crown Bridge Partners, LLC, master note dated October 25,
2017, for principal amount of $35,000, including covered fees and original issue discount totaling $5,000. Under the conversion
terms of the above note, the holder is entitled to a 35% discount plus an additional 10% discount based on the conversion rights
of certain other note holders. Therefore a discount of 45% is assumed for any conversions of this note tranche. The Company has
accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,636 with
a charge to interest expense. The original issue discount and fees charged were treated as debt discount and will be amortized
to financing expenses over the term of the note. Following a conversion on October 29, 2019, for 155,000, shares of common stock
the principal balance and debt premium balances were reduced by $5,700, and $6,840, respectively and the unamortized debt discount
was $805, at December 31, 2019, principal was $29,300, and accrued interest was $3,501.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
On
August 29, 2018 the Company entered into an agreement with a legal firm to provide securities related and other legal services.
Under the agreement the Company will issue convertible notes with varying principal amounts for services. The first note was issued
on August 29, 2018, for $6,000, interest of 12%, and a maturity date of February 28, 2018. The conversion feature allows for conversion
into common shares at the lesser of: a) 70% of the share price on the date of the note; or b) 50% of the lowest bid price during
the 30 trading days preceding the date of the notice of conversion. In connection with the issuance of this Note, the Company
determined that the terms of the Note contain a conversion formula that caused variations in the conversion price resulting in
the treatment of the conversion option as a bifurcated derivative to be accounted for at fair value. Accordingly, under the provisions
of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded
conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance
and shall be adjusted to fair value through earnings at each reporting date. The fair values of the embedded conversion option
derivatives were determined using the Binomial valuation model. $10,435 was recognized as derivative liability with $6,000 charged
to debt discount and $4,035 charged to derivative expense on issuance. The debt discount of $6,000 will be amortized to interest
expense to the maturity date of the note. At March 31, 2019 the derivative fair value was determined to have decreased to $8,881.
As the note reached its maturity date no further fair value adjustments will be recorded. For the nine months ended June 30, 2019,
the $5,000, balance of the debt discount was charged to interest expense and debt discount balances was $0. The following notes
have been issued to the law firm, each having six month term to maturity and 12% annual interest but a change in the conversion
terms such that a fixed discount of 50% of the lowest bid price in the 30 trading days immediately preceding the notice of conversion.
The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premiums equal
to the face value of the notes with a charge to interest expense. The note principal amount was charged to professional fees during
the month the note was issued.
September
4, 2018, $10,000;
September
18, 2018, $6000;
October
18, 2018, $6,000;
November
18, 2018, $6,000;
December
18, 2018, $6,000;
January
18, 2019, $6,000;
February
18, 2019, $6,000;
March
18, 2019, $6,000;
April
18, 2019, $6,000;
May
18, 2019, $6,000;
June
18, 2019, $6,000;
July
18, 2019, $6,000;
August
18, 2019, $6,000;
September
18, 2019, $6,000;
October
18, 2019, $6,000;
November
18, 2019, $6,000; and
December
18, 2019, $6,000.
None
of the notes issued for legal services have been converted and the total accrued interest due is $10,170 at December 31, 2019.
On
November 13, 2018, the Company issued a convertible promissory note for $90,000 to a vendor in settlement of approximately $161,700
of past due amounts due for services. The note bears interest at 5%, matures on June 30, 2019 and is convertible into the Company’s
common stock at 50% of the lowest closing bid price during the 20 trading days immediately preceding the notice of conversion.
The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $90,000
with a charge to interest expense for the notes The unconverted principal, premium and accrued interest were $90,000, $90,000,
and $6,773 as of December 31, 2019.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
On
March 4, 2019, the Company issued a convertible promissory note to Redstart Holdings Corporation in the amount of $78,000. The
note bears interest at 10%, matures on December 31, 2019, includes legal fees of $3,000 and is convertible at 35% discount to
the average of the lowest two prices observed in the 15 days prior to the issuance of a conversion notice. The Company has accounted
for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $42,000 with a charge to interest
expense for the notes. The fees charged were treated as debt discount and will be amortized to financing expenses over the term
of the note. During the three months ended December 31, 2019, Redstart converted principal totaling $15,000, into 214,286, shares
of common stock. On December 31, 2019, the Company received a default notice and demand for payment of the amounts due under this
convertible note. The Company recognized the default penalty of $31,500, as additional principal along with the calculated put
premium of $22,810, with charges to interest expense. The principal, premium and accrued interest balances were $94,500, $56,733,
and $6,678, and debt discount was fully amortized, at December 31, 2019.
On
July 12, 2019, the Company issued a convertible promissory note to Trillium Partners LP for cash in the amount of $10,000. The
note bears interest at 10%, matures on January 11, 2020, and is convertible into the Company’s common stock at 50% of the
lowest closing bid price on the 20 trading days immediately preceding the notice of conversion. The Company has accounted for
the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $10,000 with a charge to interest
expense for the notes. The note balance and premium were $10,000 and accrued interest was $213, at September 30, 2019. (see Note
Amendments below)
Note
Amendments, Assignments and Restatements
Livingston
Asset Management LLC – Fee Notes
On
June 1, 2018 the Company entered into a consulting and services arrangement with Livingston Asset Management. The arrangement
provided for financial management services including accounting and related periodic reporting among other advisory services.
Under the agreement the Company issued to Livingston Asset Management convertible fee notes having principal of $12,500, interest
of 10% per annum, maturity of six or seven months. The notes were convertible into common shares at a discount of 50% to the lowest
bid price in the 30 trading days immediately preceding the notice of conversion. The Company accounted for the convertible promissory
note as stock settled debt under ASC 480 and recorded a debt premium of $12,500 with a charge to interest expense for each note.
The note principal was charged to professional fees for each corresponding service month. The consulting and services arrangement
with Livingston Asset Management was amended on July 1, 2019. The amendment increased the monthly fee to be $20,000, with $17,000,
as monthly convertible note and $3,000, of cash due on the first of each month.
On
November 1, 2019, Livingston Asset Management LLC, amended the terms of the monthly fee notes issued between December 1, 2018
through September 30, 2019, totaling $136,375, in principal such that the notes are no longer convertible into common stock.
The principal balance of $136,375, was reclassified to notes and loans payable and the related put premiums totaling
$136,375, were recognized as gains on debt extinguishment on the date of the amendment.
Trillium
Partners LP – Convertible Note
On
July 12, 2019, the Company issued a convertible promissory note to Trillium Partners LP for cash in the amount of $10,000. The
note bears interest at 10%, matures on January 11, 2020, and was convertible into the Company’s common stock at 50% of the
lowest closing bid price on the 20 trading days immediately preceding the notice of conversion. The Company accounted for the
convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $10,000 with a charge to interest expense
for the notes.
On
November 1, 2019, Trillium Partners LP, amended the terms of the notes issued July 12, 2019, such that the note is no longer convertible
into common stock. The principal balance of $10,000, was reclassified to notes and loans payable and the related put premium totaling $10,000,
was recognized as gains on debt extinguishment on the date of the amendment.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
The
senior secured credit facility note balance and convertible debt balances consisted of the following at December 31, 2019 and
September 30, 2019:
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Principal
|
|
$
|
6,089,691
|
|
|
$
|
6,207,266
|
|
Premiums
|
|
|
1,502,963
|
|
|
|
1,623,445
|
|
Unamortized discounts
|
|
|
(805
|
)
|
|
|
(2,981
|
)
|
|
|
$
|
7,591,849
|
|
|
$
|
7,827,730
|
|
For
the three months ended December 31, 2019 and 2018, amortization of debt discount on the above convertible notes amounted to $2,176
and $3,000, respectively.
NOTE 10 - NOTES AND LOANS PAYABLE
On
July 12, 2019, the Company issued a convertible promissory note to Trillium Partners LP for cash in the amount of $10,000. The
note bears interest at 10%, matures on January 11, 2020, and was convertible into the Company’s common stock. On November
1, 2019, Trillium Partners LP, amended the terms of the notes, such that the note is no longer convertible into common stock.
The principal balance of $10,000, was reclassified to notes and loans payable. The note balance was $10,000 and accrued interest was
$468, at December 31, 2019. (See Note 9)
On August 15, 2019, the Company entered
into a lending arrangement with Fora Business Loans, LLC for financing at Howco with Bantec as co-borrower, with a principal amount
of $210,000. Howco received $146,250, in cash, $3,750 was charged to expenses and $60,000 was charged to original issue discount
to be amortized over the life of the arrangement. Under the terms of the agreement Fora receives 245 payments of $854, for each
business day followed by a final payment of $853. The lending agreement includes security interests in Howco assets and a personal
guarantee from the CEO of the Company. The principal balance is $131,463, at December 31, 2019.
On September 18, 2019, the Company entered
into a sale of future revenues arrangement with PIRS Capital, LLC for Howco with a purchase amount of $195,840. Howco received
$149,541, as the purchase price in cash, $3,459 was charged to expenses and $42,840 was recorded as original issue discount to
be amortized over the life of the arrangement. Under the terms of the agreement PIRS receives 172 payments of $1,139, for each
business day to be repaid from the accounts receivable related to the future revenues: The lending agreement includes security
interests in Howco assets and a personal guarantee from the CEO of the Company. This sale of future revenues is treated as debt
and the principal balance is $117,877, at December 31, 2019.
On
June 1, 2018 the Company entered into a consulting and services arrangement with Livingston Asset Management. The arrangement
provides for financial management services including accounting and related periodic reporting among other advisory services.
Under the agreement the Company will issue to Livingston Asset Management Convertible Fee Notes having principal of $12,500, interest
of 10% per annum, maturity of six or seven months. The notes are convertible into common shares at a discount of 50% to the lowest
bid price in the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded a debt premium of $12,500 with a charge to interest expense for
each note. The consulting and services arrangement with Livingston Asset Management was amended on July 1, 2019. The amendment
increased the monthly fee to be $20,000, with $17,000, as monthly convertible note and $3,000, of cash due on the first of each
month. On November 1, 2019, Livingston Asset Management LLC, amended the terms of the monthly fee notes issued between December
1, 2018 through September 30, 2019, totaling $136,375, in principal such that the notes are no longer convertible into common
stock. The principal balance remained $136,375, with $7,608, in accrued interest.
On
October 1, 2019, the Company issued a promissory note to Livingson Asset Management LLC, for $17,000, under the terms of the agreement
above. The principal amount was charged to professional fees on the issuance date. The note bears interest at 10% and matures
in six months. At December 31, 2019, accrued interest was $356.
On
November 1, 2019, the Company issued a promissory note to Livingson Asset Management LLC, for $17,000, under the terms of the
agreement above. The principal amount was charged to professional fees on the issuance date. The note bears interest at 10% and
matures in six months. At December 31, 2019, accrued interest was $214.
On
December 1, 2019, the Company issued a promissory note to Livingson Asset Management LLC, for $17,000, under the terms of the
agreement above. The principal amount was charged to professional fees on the issuance date. The note bears interest at 10% and
matures in six months. At December 31, 2019, accrued interest was $72.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
11 - STOCKHOLDERS’ DEFICIT
Preferred
Stock
As
of December 31, 2019, the Company is authorized to issue 5,000,000 shares of $0.0001 par value preferred stock, with designations,
voting, and other rights and preferences to be determined by the Board of Directors of which 4,999,750 remain available for designation
and issuance.
As
of December 31, 2019 and September 30, 2019, the Company has designated 250 shares of $0.0001 par value Series A preferred stock,
of which 250 shares are issued and outstanding. These preferred shares have voting rights per shareholder equal to the total number
of issued and outstanding shares of common stock divided by 0.99.
Common
Stock
On January 30, 2019 the Company’s
shareholders approved an increase in authorized common stock to 6,000,000,000 from 1,500,000,000, which became effective February
24, 2019. On August 6, 2019, the Company filed amendments with the Secretary of the State of Delaware, amending its articles of
incorporation to execute a reverse stock split of 1 share for every 1,000 shares outstanding, and changing its name to Bantec,
Inc. The name change and the stock split became effective in February 2020, and the transfer agent adjusted the outstanding shares
for the reverse split on February 10, 2020. All share and per share related amounts have been retroactively adjusted to recognize
the reverse split. As of December 31, and September 30, 2019 there were 3,670,112, and 3,255,346, shares outstanding, respectively.
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 100,000, shares. The Plan is open to all employees, officers, directors, and
non-employees of the Company. Options granted under the Plan will terminate and may no longer be exercised (i) immediately upon
termination of an employee or consultant for cause or (ii) one year after termination of employment, but not later than the remaining
term of the option. As of December 31, 2019, 99,982, awards remain available for grant under the Plan.
Shares
Issued for non-employee Services
On December 31, 2019, the Company approved
the issuance of 120,000, restricted common shares to Tysadco Partners for the prior three months investor relation services. The
shares were valued at $0.10 and $12,000, was charged to professional fees.
On December 31, 2019, the Company approved the issuance of
45,000 restricted common shares to an individual for the prior four months of technology support services. The shares were valued
at $0.10 and $4,500, was charged to professional fees.
On October 7, 2019, the Company entered
into a one year agreement for professional services for a one-time fee to be paid with 50,000 common shares of restricted stock.
The services relate mostly to technology and related internet media and website improvement. The shares were valued at $.05 per
share based on the value of the services to be received for total expense of $2,500, charged to professional fees.
On October 7, 2019, the Company entered
into a one year agreement for professional services for a one-time fee to be paid with 25,000 common shares of restricted stock
the services relate mostly to investor relations through internet media. The shares were valued at $.10 per share based on the
value of the services to be received for total expense of $2,500, charged to professional fees.
All
shares issued to employees and non-employees are valued at the greater of the value of the services (as evidenced by invoices
or contractual obligations) or the quoted trading prices on the respective grant dates.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Shares
of Common Stock Issued for Conversion of Convertible Notes Payable
On
October 22, 2019, the Company issued 142,857, shares of common stock to Redstart Holding Corporation, as it converted principal
of $10,000, on its convertible note dated March 4, 2019, at the contractual rate of $.00007 per share. The balance of principal
following the conversion was $68,000.
On October 29, 2019, the Company issued
155,000, shares of common stock to Crown Bridge Partners, as it converted principal of $5,700, and $500, in fees on its convertible
note dated March 1, 2019, at the contractual rate of $.00004 per share. The balance of principal following the conversion was
$29,300.
On
November 19, 2019, the Company issued 71,429, shares of common stock to Redstart Holding Corporation, as it converted principal
of $5,000, on its convertible note dated March 4, 2019, at the contractual rate of $.00007 per share. The balance of principal
following the conversion was $63,000.
Debt premiums of $14,918, were reclassified to additional paid
in capital in conjunction with the conversions above.
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, 2019.
For the three months ended December 31,
2019 and 2018, the Company recorded $66,502, and $66,823, of compensation and consulting expense related to stock options, respectively.
Total unrecognized compensation and consulting expense related to unvested stock options at December 31, 2019 amounted to $286,442.
The weighted average period over which share-based compensation expense related to these options will be recognized is approximately
2 years.
For
the three months ended December 31, 2019 year ended September, 2019, a summary of the Company’s stock options activity is
as follows:
|
|
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, 2018
|
|
|
18,505
|
|
|
|
220.00
|
|
|
|
8.46
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2019
|
|
|
17,755
|
|
|
|
220.00
|
|
|
|
7.18
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
17,755
|
|
|
|
-
|
|
|
|
6.54
|
|
|
|
-
|
|
|
|
-
|
|
Exercisable at December 31, 2019
|
|
|
12,917
|
|
|
$
|
220.00
|
|
|
|
3.11
|
|
|
$
|
-
|
|
|
$
|
-
|
|
All
options were issued at an options price equal to the market price of the shares on the date of the grant.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Warrants
On September 9, 2016, 500 5-year warrants exercisable at $10,
per share were issued as part of the consideration for the Howco acquisition. These warrants were valued at aggregate of $180,000.
On November 9, 2017, the Company received
a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge
under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant
to purchase 100 shares of the Company’s common stock at an exercise price of $350, as a commitment fee which is equal to
the product of one-third of the face value of each tranche divided by $350. On December 20, 2017 an additional 200 warrants were
issued as a penalty and in order to entice Crown Bridge to waive its right of first refusal to provide additional financing under
the terms of their convertible note. A debt discount of $44,036 was recorded for the relative fair market value of the total 300,
warrants and amortized to interest expense as of September 30, 2018. The warrants have full ratchet price protection and cashless
exercise rights (See Note9). The warrant includes an anti-dilution clause that was triggered on June 4, 2018. On June 4, 2018
an unrelated convertible note holder became entitled to convert their note into common shares at a 60% discount to the stock’s
market price. The anti-dilution provision trigger in the warrant agreement entitled Crown Bridge to exercise its warrants under
a formula that increased the number of common shares to 31,250 at a price of $3.60 per share. Due to the fact that the number
of shares and exercise price can change due to market changes in the price of the common stock the Company has concluded to treat
the warrants as derivatives and to revalue that derivative at each reporting date. Therefore a derivative liability of $261,484
with a charge to additional paid in capital was recorded on June 4, 2018. As of December 31, 2019, the warrant was revalued and
the warrant holder is entitled to exercise its warrants for 1,197,771 common shares and the related derivative liability is $119,747.
For
the three months ended December 31, 2019, a summary of the Company’s warrant activity
is as follows:
|
|
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, 2019
|
|
|
1,198,271
|
|
|
$
|
.40
|
|
|
|
4.1
|
|
|
$
|
-
|
|
|
$
|
71,867
|
|
Outstanding and exercisable at December 31, 2019
|
|
|
1,198,271
|
|
|
$
|
.40
|
|
|
|
3.85
|
|
|
|
-
|
|
|
|
-
|
|
NOTE
12 - DEFINED CONTRIBUTION PLAN
In
August 2016, Drone established a qualified 401(k) plan with a discretionary employer matching provision. All employees who are
at least twenty-one years of age and no minimum service requirement are eligible to participate in the plan. The plan allows participants
to defer up to 90% of their annual compensation, up to statutory limits. Employer contributions charged to operations for the
quarters ended December 31, 2019 and 2018, was $0 and $0, respectively.
The
Company’s subsidiary, Howco, is the sponsor of a qualified 401(k) plan with a safe harbor provision. All employees are eligible
to enter the plan within one year of the commencement of employment. Employer contributions charged to expense for the three months
ended December 31, 2019 and 2018 was $2,326 and $3,519, respectively.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
14 - RELATED PARTY TRANSACTIONS
On
October 1, 2016, the Company entered into employment agreements with two of its officers. The employment agreement with the company’s
President and CEO provides for annual base compensation of $370,000 for a period of three years, which can, at the Company’s
election, be paid in cash or Common Stock or deferred if insufficient cash is available, and provides for other benefits, including
a discretionary bonus and equity provision for the equivalent of 12 months’ base salary, and an additional one-time severance
payment of $2,500,000 upon termination under certain circumstances, as defined in the agreement. The employment agreement with
the Company’s Treasurer and CFO provides for annual base compensation of $250,000 for a period of three years, which can,
at the Company’s election, be paid in cash or Company Common Stock or deferred if insufficient cash is available, and provides
for other benefits, including a discretionary bonus and equity grants, provision for the equivalent of 12 months’ base salary
and an additional one-time severance payment of $1,500,000 upon termination under certain circumstances, as defined in the agreement.
On July 10, 2017, the CFO of the Company who was also a member of the Board resigned. Pursuant to the employment agreement, this
employee is not eligible for the one-time severance payment of $1,500,000 and accordingly, the final balance of accrued wages
due to this former CFO as of September 30, 2017 of approximately $93,000 is included in accrued expenses on the accompanying consolidated
balance sheet at December 31, and September 30, 2019.
During
2016, Company entered into an employment agreement with the Company’s former Chief Strategy Officer which provided for annual
base compensation of $400,000 for a period of three years and provided for other additional benefits as defined in the agreement
including a signing bonus of $100,000 payable during the first year of employment. As of December 31, 2019 and September 30, 2019
the bonus has not been paid and is included in accrued expenses. On July 7, 2017, the former Chief Strategy Officer and member
of the Board was terminated. His 7,500, options were subsequently forfeited.
On
March 28, 2017, the Company entered into an at-will employment agreement with Matthew Wiles as General Manager of Howco. Under
the terms of the employment agreement, Mr. Wiles’ compensation is $140,000 per annum and he also will be eligible for a
bonus of 10% of Howco’s gross profits over $1.25 million to be paid in cash after the annual financial statements have been
completed and, if applicable, audited for filing with the SEC. Mr. Wiles will also receive options to acquire 250,000 shares of
the Company’s common stock, vesting over five years in equal amounts on the anniversary date of his Employment Agreement.
On September 16, 2019, Mr. Wiles’ employment agreement was modified to provide salary of $275,000, and an annual bonus of
2% of net income. At the Company’s discretion, salary and bonus may be paid in cash or stock and payment may be deferred.
On
September 16, 2019, the employment agreement with the President/CEO and discussed above was modified to provide salary of $624,000,
and an annual bonus of 3% of net income. At the Company’s discretion, salary and bonus may be paid in cash or stock and
payment may be deferred.
The
Company has certain convertible notes payable to related parties (see Note 8).
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
15 - COMMITMENTS AND CONTINGENCIES
Contingencies
Legal
Matters
On
February 6, 2018 the Company sent a letter to the previous owners of Howco Distributing Co. (“Howco”) alleging that
they made certain financial misrepresentations under the terms of the Stock Purchase Agreement by which the Company acquired control
of Howco during 2016. The Company claimed that the previous owners took excessive amounts of cash from the business prior to the
close of the merger. On March 13, 2018 the Company filed a lawsuit against the previous owners by issuing a summons. On April
12, 2018, the Company received the Defendants’ answer. On July 22, 2019, the Company was granted a dismissal without prejudice
of the lawsuit filed against the previous owners of Howco. The Company and the previous owners are in discussion to settle the
matter as of December 31, 2019.
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
February 11, 2019, the Supreme Court of the State of New York issued a summons to the former CFO of the Company, to appear before
the court to answer the Company’s complaint seeking payment under a personal guarantee of the defendant to provide half
of any compensation paid to the former Chief Strategy Officer. The Company is seeking $300,000 from the defendant relating to
the November 27, 2018 settlement agreement with the former Chief Strategy Office for $600,000. The former CFO has responded to
the suit and has filed a motion to dismiss the Company’s suit during August of 2019.
On
April 10, 2019, a former service provider filed a complaint consisting of three charges with the Superior Court Judicial District
of New Haven, CT seeking payment for professional services. The Company has previously recognized expenses of $218,367, which
remain unpaid in accounts payable. The Company has retained an attorney who is currently working to address the complaint. On
August 9, 2019 the Company filed a motion to dismiss the charge of unjust enrichment, which is pending adjudication.
During
the year ended September 30, 2019, two vendors (The Equity Group and Toppan Vintage) have asserted claims for past due amounts
of approximately $59,000, arising from services provided. The Company has fully recognized in accounts payable the amounts associated
with these claims and expects to resolve the matters to satisfaction of all parties.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Settlements
On
January 29, 2018, the Company entered into a settlement agreement and mutual release with a vendor who had provided public relations
and other consulting services whereby the Company shall pay to this vendor an aggregate amount of $60,000 of which $30,000 was
paid on February 2, 2018. The Company was to have paid ten monthly payments of $3,000 per month beginning on February 29, 2018.
The vendor is to return 400,000 common shares of the Company’s common stock which will be cancelled upon satisfaction of
the liability. The liability is recorded at $21,000 as of December 31 and September 30, 2019. The Company is in discussion with
the vendor to address the past due amounts.
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 now past due and remains unconverted at December 31, 2019. The accrued balance as accounts payable of $71,700, was recognized
a gain on debt extinguishment upon receipt of the waiver and release from the vendor.
During
2016, Company entered into an employment agreement with the Company’s former Chief Strategy Officer which provided for annual
base compensation of $400,000 for a period of three years and provided for other additional benefits as defined in the agreement
including a signing bonus of $100,000 payable during the first year of employment. During November 2018 the Company reached an
agreement and executed a related stipulation and payment terms agreement stemming from the legal action by the former Chief Strategy
Officer for improper termination. The plaintiff agreed to accept $600,000 in payments. The first scheduled payment of $200,000
was made on December 20, 2018 in accordance with the settlement terms. Twelve monthly payments of approximately $33,333 are due
starting on January 15, through December 15, 2019. As of December 31, and September 30, 2019, unpaid balance related to the settlement
was $54,000 and $131,724, respectively. It should be noted that the $54,000 balance is due to the US Treasury for unpaid withholdings
and payroll taxes for the payments made under the settlement.
As
of December 31, 2019, the Company has received demand for payment of past due amounts for services by several consultants and
service providers.
Commitments
Lease
Obligations
The
Company entered into an agreement with a manufacturer in Pismo Beach, California. The agreement provides for certain services
to be provided by the manufacturer as needed by the Company. The agreement has an initial term of three years with one year renewals.
In connection with this agreement, the Company has agreed to sublease space based in San Luis Obispo, California from the manufacturer
for the purposes of the development and manufacturing of unmanned aerial vehicles. The lease provides for base monthly rent of
approximately $15,000 for the initial term to be increased to $16,500 per month upon extension. The lease term begins February
1, 2017 and expires January 31, 2019 with the option to extend the term an additional 24 months. However, the Company never took
possession of the premises and in July 2017, the Company made a decision to not take possession of the premises. The Company is
in default of the rent payments and had received oral demand for payments. As of September 30, 2019, and 2018, the Company has
not made any of the required monthly rent payments in connection with this agreement. During fiscal 2017, the Company had expensed
and accrued into accounts payable the remaining amounts due under the term of the lease for a total accrual of $360,000 pursuant
to ASC 420-10-30. This balance remains accrued as of December 31, and September 30, 2019.
In
May 2017, the Company extended Howco’s office lease through May 30, 2020. The lease requires monthly payments including
base rent plus CAM with annual increases. Future minimum lease payments under non-cancelable operating leases at December 31,
2019 are as follows:
Years ending September 30,
|
|
Amount
|
|
2020
|
|
|
25,461
|
|
Total minimum non-cancelable operating lease payments
|
|
$
|
25,461
|
|
For
the three months ended December 31, 2019 and 2018, rent expense amounted to $15,276 and $14,513, respectively.
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 $500.
Profit
Sharing Plan (for Howco)
On
April 13, 2018, Howco announced to its employees a Company-wide profit sharing program. The employee profit share is equal to
their annual salary divided by the Company’s total annual payroll and multiplied by 10% of net income for the fiscal year.
During the three months ended December 31, 2019 and 2018 the employees earned approximately $0 and $0 under this plan.
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
Notice
of Default
On
September 6, 2019, the Company received a notice of default under its senior secured credit facility with TCA, for non-payment
of amounts due among other matters. Left uncured the default remedies include seizure of operating assets such as the Company’s
subsidiary. Additionally, the default may trigger cross default provisions under other agreements with other creditors.
On
December 30, 2019, the Company failed to pay the principal and accrued interest on its February 27, 2019, convertible note payable
to Redstart Holdings Corp upon its maturity. Legal counsel for the note holder submitted a demand notice for payment for 150%
of the remaining principal balance of $63,000, amounting to $94,500, plus accrued interest. The Company recorded the default penalty
with a charge to interest expense and increases the principal of the note as of December 30, 2019. The Company also recognized
the additional put premium of $22,810, related to the increased principal as interest expense for stock settled debt.
Directors’
& Officers’ Insurance Policy Expiration
On
October 11, 2019, the Company’s insurance policy covering directors and officers expired and the carrier declined to renew
the policy. The Company is working with its broker and other carriers to obtain coverage. This lapse of insurance coverage exposes
the Company to the risk associated with its indemnification of its officers against legal actions by third parties as outlined
in the officers’ employment agreements as amended on September 16, 2019.
NOTE
16 - CONCENTRATIONS
Concentration
of Credit Risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At December 31,
and September 30, 2018, cash in bank did not exceeded the federally insured limits of $250,000. The Company has not experienced
any losses in such accounts through December 31, 2019.
Economic
Concentrations
With
respect to customer concentration, one customer accounted for approximately 87% of sales for the three months ended December 31,
2019, (it should be noted this customer represents multiple locations formerly invoiced separately). Two customers accounted for
approximately 55% and 13%, of total sales for the three months ended December 31, 2018.
With
respect to accounts receivable concentration, one customer accounted for 83% of accounts receivable at December 31, 2019. Five
customers accounted for 29%, 26%, 15%, 13% and 11% of total accounts receivable at December 31, 2018.
With
respect to supplier concentration, one vendor accounted for 49% of total purchases, for the three months ended December 31, 2019.
Three suppliers accounted for approximately 25.3%, 21.1% and 15.9% of total purchases for the three months ended December 31,
2018.
With respect to accounts payable concentration,
two suppliers accounted for, 14%, and 12% of total accounts payable at December 31, 2019. Two suppliers accounted for approximately
21% and 16% of total accounts payable at December 31, 2018.
With
respect to foreign sales, it totaled approximately $1,632 for the three months ended December 31, 2019. Foreign sales totaled
approximately $4,863 for the three months ended December 31, 2018
BANTEC, INC. (F/K/A BANTEK, INC. AND DRONE USA, INC.) AND SUBSIDIARIES
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019
(Unaudited)
NOTE
17 - SUBSEQUENT EVENTS
Shares
of Common Stock Issued
Shares
Issued for Conversion of Convertible Notes Payable
On
February 14, 2020, Redstart Holdings, converted $1,600, of principal from their note issued on March 2, 2019, for 158,416, shares
of common stock, at the contracted price of $.0101.
On February 25, 2020, Trillium Partners
LP, holder through assignment of the September 8, 2018, fee note issued to an attorney for services was issued 322,875, shares
of common stock at the contracted price of $.008 per share. Principal of $247, accrued interest of $1,331, and conversion fees
of $1,005, were converted.
Shares
of Common Stock Issued for Non-Employee Services
On
February 21, 2020, 23,948, restricted shares were issued to an attorney for services rendered and invoiced for $2,916. The invoiced
amount was included in accrued expenses at December 31, 2019. The shares were valued at $.12, based on the value of the invoiced
services.
Convertible
and Non-Convertible Notes Issued
On
January 1, 2020, the Company issued a promissory note for $17,000 to Livingston Asset Management under the services agreement
mentioned above. The note bears interest at 10% and matures in six months.
On
January 18, 2020, the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12% and is convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30
trading days immediately preceding the notice of conversion.
On
January 28, 2020, the Company’s subsidiary Howco entered into a Payment Rights Purchase and Sale Agreement financing with
EBF Partners, LLC, (merchant cash advance or “MCA”) with a principal amount of $208,500. Howco received $147,355,
in cash, net of original issue discount of $58,500, and legal and other fees totaling $2,645, which will be amortized to interest
expense over the term of the financing. The CEO is a personal guarantor for the MCA. Howco will make payments each business day
by way of an ACH withdrawal of $1,489, for 140 payments. The loan is secured by receipts from future revenue transactions.
On
February 1, 2020, the Company issued a promissory note for $17,000 to Livingston Asset Management under the services agreement
mentioned above. The note bears interest at 10% and matures in six months.
On
February 15, 2020, the Company executed a convertible promissory note to be issued to Geneva Roth Remark Holdings for $53,000,
having a 10% annual interest rate, maturity of December 15, 2020, and conversion right to a 42% discount to the lowest traded
price in the 20 days prior to delivery of a conversion notice. The note will not become effective until funded following the issuance
of this form 10Q.
On
February18, 2020, the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12% and is convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30
trading days immediately preceding the notice of conversion.
On
March 1, 2020, the Company issued a promissory note for $17,000 to Livingston Asset Management under the services agreement mentioned
above. The note bears interest at 10% and matures in six months.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
of:
Bantek, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Bantek, Inc. and subsidiaries (the “Company”) as of September 30, 2019 and 2018, the related consolidated
statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended September
30, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company
as of September 30, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the two years
in the period ended September 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has a net loss and cash used in operations of $7,115,159 and $1,105,330, respectively, for the
year ended September 30, 2019 and has a working capital deficit, stockholders’ deficit and accumulated deficit of $13,632,338,
$14,895,354 and $26,746,451 respectively, at September 30, 2019. The Company is also in default on certain promissory notes. These
matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regards
to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As
part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Salberg & Company, P.A.
|
|
SALBERG & COMPANY, P.A.
|
We have served as the Company’s auditor since 2017.
|
Boca Raton, Florida
|
February 6, 2020 (Except for the last paragraph of Note 18, relating to the effectiveness of the reverse stock split as
to which the date is May 17, 2020.)
|
2295 NW Corporate Blvd., Suite 240 •
Boca Raton, FL 33431-7328
Phone: (561) 995-8270 • Toll Free:
(866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com • info@salbergco.com
Member National Association of Certified
Valuation Analysts • Registered with the PCAOB
Member CPAConnect with Affiliated Offices
Worldwide • Member AICPA Center for Audit Quality
BANTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
149,832
|
|
|
$
|
108,446
|
|
Accounts receivable
|
|
|
791,728
|
|
|
|
1,615,582
|
|
Inventory
|
|
|
118,558
|
|
|
|
533,106
|
|
Prepaid expenses and other current assets
|
|
|
4,547
|
|
|
|
194,587
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,064,665
|
|
|
|
2,451,721
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
19,923
|
|
|
|
15,597
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
2,410,335
|
|
Tradename
|
|
|
-
|
|
|
|
760,000
|
|
Customer list, net
|
|
|
-
|
|
|
|
515,285
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
-
|
|
|
|
3,685,620
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,084,588
|
|
|
$
|
6,152,938
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,163,443
|
|
|
$
|
4,113,812
|
|
Accrued expenses and interest
|
|
|
1,906,478
|
|
|
|
2,046,149
|
|
Convertible notes payable - net of discounts and premiums
|
|
|
7,827,730
|
|
|
|
6,943,741
|
|
Note payable - seller
|
|
|
900,000
|
|
|
|
900,000
|
|
Convertible note payable - related party affiliate
|
|
|
34,000
|
|
|
|
-
|
|
Convertible note payable - related party officer
|
|
|
30,000
|
|
|
|
27,670
|
|
Notes payable related parties, including current portion of long-term notes
|
|
|
202,645
|
|
|
|
|
|
Line of credit - bank
|
|
|
44,556
|
|
|
|
45,915
|
|
Note and Loans Payable
|
|
|
284,949
|
|
|
|
125,000
|
|
Settlements payable
|
|
|
174,574
|
|
|
|
161,255
|
|
Derivative Liabilities
|
|
|
128,628
|
|
|
|
258,296
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
14,697,003
|
|
|
|
14,621,838
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities:
|
|
|
|
|
|
|
|
|
Convertible note payable - related party affiliate
|
|
|
688,444
|
|
|
|
688,444
|
|
Convertible note payable - related party officer
|
|
|
166,995
|
|
|
|
|
|
Notes payable – related party officer, net of current portion
|
|
|
427,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Liabilities
|
|
|
1,282,939
|
|
|
|
688,444
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
15,979,942
|
|
|
|
15,310,282
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
Preferred stock - $0.0001 par value, 5,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
Series A preferred stock - no par value, 250 shares designated, issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.0001 par value, 6,000,000,000 shares authorized, 3,255,346 and 767,160 shares issued and outstanding at September 30, 2019 and 2018, respectively
|
|
|
326
|
|
|
|
77
|
|
Additional paid-in capital
|
|
|
11,850,771
|
|
|
|
10,473,871
|
|
Accumulated deficit
|
|
|
(26,746,451
|
)
|
|
|
(19,631,292
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficit
|
|
|
(14,895,354
|
)
|
|
|
(9,157,344
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
1,084,588
|
|
|
$
|
6,152,938
|
|
See accompanying notes to consolidated financial
statements
BANTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
10,287,214
|
|
|
$
|
18,389,568
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
9,191,809
|
|
|
|
16,772,661
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,095,405
|
|
|
|
1,616,907
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Selling, General, and Administrative Expenses
|
|
|
3,019,292
|
|
|
|
3,403,674
|
|
Intangibles impairment
|
|
|
3,420,624
|
|
|
|
-
|
|
Amortization and depreciation
|
|
|
276,276
|
|
|
|
274,655
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
6,716,192
|
|
|
|
3,678,329
|
|
|
|
|
|
|
|
|
|
|
Loss Before Other Expense
|
|
|
(5,620,787
|
)
|
|
|
(2,061,422
|
)
|
|
|
|
|
|
|
|
|
|
Other Expense:
|
|
|
|
|
|
|
|
|
Interest and financing costs
|
|
|
1,527,262
|
|
|
|
3,534,083
|
|
(Gain)/Loss on debt extinguishment and settlements, net
|
|
|
(57,623
|
)
|
|
|
151,978
|
|
Derivative expenses
|
|
|
24,733
|
|
|
|
23,630
|
|
Other losses
|
|
|
-
|
|
|
|
3,754
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense
|
|
|
1,494,372
|
|
|
|
3,713,445
|
|
|
|
|
|
|
|
|
|
|
Net Loss before Provision for Income Tax
|
|
|
(7,115,159
|
)
|
|
|
(5,774,867
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Income Tax
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(7,115,159
|
)
|
|
$
|
(5,774,867
|
)
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share
|
|
$
|
(2.72
|
)
|
|
$
|
(35.53
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
2,615,437
|
|
|
|
172,211
|
|
See accompanying notes to consolidated financial
statements
BANTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIT
For the Years Ended September 30, 2019
and 2018
|
|
Series A
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2017
|
|
|
250
|
|
|
|
-
|
|
|
|
43,105
|
|
|
$
|
4
|
|
|
$
|
7,446,335
|
|
|
$
|
(13,856,425
|
)
|
|
$
|
(6,410,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137,969
|
|
|
|
-
|
|
|
|
137,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and penalty warrants issued with debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,036
|
|
|
|
-
|
|
|
|
44,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of Warrants to derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(261,484
|
)
|
|
|
-
|
|
|
|
(261,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for Conversion of notes including premiums reclassified
|
|
|
-
|
|
|
|
-
|
|
|
|
605,809
|
|
|
|
61
|
|
|
|
2,135,754
|
|
|
|
-
|
|
|
|
2,135,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for 3(a)(10) debt settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
101,624
|
|
|
|
11
|
|
|
|
513,077
|
|
|
|
-
|
|
|
|
513,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for employee compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
14,940
|
|
|
|
-
|
|
|
|
14,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as debt issuance costs
|
|
|
-
|
|
|
|
-
|
|
|
|
757
|
|
|
|
-
|
|
|
|
68,145
|
|
|
|
-
|
|
|
|
68,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to non- employees for services
|
|
|
-
|
|
|
|
-
|
|
|
|
11,173
|
|
|
|
1
|
|
|
|
357,868
|
|
|
|
-
|
|
|
|
357,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to be issued to non-employees for services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,692
|
|
|
|
-
|
|
|
|
17,231
|
|
|
|
-
|
|
|
|
17,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,774,867
|
)
|
|
|
(5,774,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2018
|
|
|
250
|
|
|
$
|
-
|
|
|
|
767,160
|
|
|
|
77
|
|
|
|
10,473,871
|
|
|
|
(19,631,292
|
)
|
|
|
(9,157,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
265,113
|
|
|
|
-
|
|
|
|
265,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,700
|
|
|
|
-
|
|
|
|
650
|
|
|
|
-
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
36,146
|
|
|
|
4
|
|
|
|
21,537
|
|
|
|
-
|
|
|
|
21,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cashless warrant exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
148,132
|
|
|
|
15
|
|
|
|
138,415
|
|
|
|
-
|
|
|
|
138,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of notes and reclassification of debt premiums
|
|
|
-
|
|
|
|
-
|
|
|
|
756,447
|
|
|
|
76
|
|
|
|
470,400
|
|
|
|
-
|
|
|
|
470,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for 3(a)(10) debt settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
1,273,261
|
|
|
|
127
|
|
|
|
(127
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of debt and premium to APIC for 3(a)(10) debt settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
450,939
|
|
|
|
-
|
|
|
|
450,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to be issued to non-employees for services
|
|
|
-
|
|
|
|
-
|
|
|
|
272,500
|
|
|
|
27
|
|
|
|
29,973
|
|
|
|
-
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(7,115,159
|
)
|
|
|
(7,115,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2019
|
|
|
250
|
|
|
$
|
-
|
|
|
|
3,255,346
|
|
|
$
|
326
|
|
|
$
|
11,850,771
|
|
|
$
|
(26,746,451
|
)
|
|
$
|
(14,895,354
|
)
|
See accompanying notes to consolidated financial
statements.
BANTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,115,159
|
)
|
|
|
(5,774,867
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock based expenses
|
|
|
481,583
|
|
|
|
413,321
|
|
Amortization and depreciation
|
|
|
276,276
|
|
|
|
274,655
|
|
Amortization of debt discounts
|
|
|
95,257
|
|
|
|
773,741
|
|
Accretion of premium on convertible note
|
|
|
595,513
|
|
|
|
1,588,175
|
|
Net gain on settlement of accounts payable and accrued expenses
|
|
|
(71,681
|
)
|
|
|
(87,466
|
)
|
Net debt extinguishment loss on conversion of notes
|
|
|
14,057
|
|
|
|
239,444
|
|
Fee notes issued
|
|
|
235,500
|
|
|
|
72,000
|
|
Note issued for expenses
|
|
|
15,000
|
|
|
|
-
|
|
Derivative expense
|
|
|
24,733
|
|
|
|
23,630
|
|
Intangible impairment
|
|
|
3,420,624
|
|
|
|
-
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
823,854
|
|
|
|
(446,491
|
)
|
Inventory
|
|
|
414,548
|
|
|
|
147,951
|
|
Prepaid expenses and other current assets
|
|
|
42,240
|
|
|
|
87,358
|
|
Accounts payable and accrued expenses and interest
|
|
|
129,006
|
|
|
|
2,413,381
|
|
Settlements payable
|
|
|
(486,681
|
)
|
|
|
(519,201
|
)
|
|
|
|
|
|
|
|
|
|
Cash Used in Operating Activities
|
|
|
(1,105,330
|
)
|
|
|
(794,369
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of Demonstration drones (PPE)
|
|
|
(15,606
|
)
|
|
|
(25,256
|
)
|
|
|
|
|
|
|
|
|
|
Cash Used in Investing Activities
|
|
|
(15,606
|
)
|
|
|
(25,256
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
115,000
|
|
|
|
640,000
|
|
Proceeds from note payable
|
|
|
-
|
|
|
|
232,500
|
|
Proceeds from accounts receivable financing
|
|
|
295,791
|
|
|
|
-
|
|
Repayments on accounts receivable financing
|
|
|
(33,580
|
)
|
|
|
-
|
|
Repayment of line of credit
|
|
|
(1,359
|
)
|
|
|
(2,591
|
)
|
Proceeds convertible note payable – related party
|
|
|
17,000
|
|
|
|
-
|
|
Proceeds from lines of credit - related parties
|
|
|
889,595
|
|
|
|
670
|
|
Repayment of loans and line of credit - related parties
|
|
|
(120,125
|
)
|
|
|
(95,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Provided by Financing Activities
|
|
|
1,162,322
|
|
|
|
775,579
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
41,386
|
|
|
|
(44,046
|
)
|
|
|
|
|
|
|
|
|
|
Cash - beginning of year
|
|
|
108,446
|
|
|
|
152,492
|
|
|
|
|
|
|
|
|
|
|
Cash - end of year
|
|
$
|
149,832
|
|
|
$
|
108,446
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
186,729
|
|
|
$
|
345,152
|
|
Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Noncash financing and investing activities:
|
|
|
|
|
|
|
|
|
Issuance of note payable for debt issuance costs
|
|
$
|
-
|
|
|
$
|
65,000
|
|
Issuance of convertible debt for settlement of accounts payable
|
|
|
90,000
|
|
|
|
-
|
|
Issuance of settlement payable to satisfy accounts payable and accrued expenses
|
|
$
|
500,000
|
|
|
$
|
680,456
|
|
Third Party insurance funding
|
|
$
|
-
|
|
|
$
|
70,000
|
|
Conversion of fees and accrued interest to convertible note payable
|
|
$
|
537,643
|
|
|
$
|
2,288,642
|
|
Default penalties recorded as debt discount
|
|
$
|
-
|
|
|
$
|
54,275
|
|
Original issue discounts notes
|
|
$
|
110,840
|
|
|
$
|
196,004
|
|
Issuance of warrants for financing fees
|
|
$
|
-
|
|
|
$
|
12,508
|
|
Issuance of warrants for default penalties
|
|
$
|
-
|
|
|
$
|
31,529
|
|
Reclassification of warrants to derivative liabilities
|
|
$
|
-
|
|
|
$
|
261,484
|
|
Initial derivative liabilities recorded as debt discount for notes issued
|
|
$
|
62,500
|
|
|
$
|
85,000
|
|
Reclassification of derivative liabilities to equity upon conversion
|
|
$
|
78,471
|
|
|
$
|
-
|
|
3(a)(10) debt settlements including related costs
|
|
$
|
450,939
|
|
|
$
|
513,089
|
|
Issuance of common stock for convertible notes, accrued interest
|
|
$
|
470,476
|
|
|
$
|
1,787,479
|
|
Issuance of common stock upon cashless exercise of warrants
|
|
$
|
138,430
|
|
|
$
|
-
|
|
Issuance of common stock for past due vendor fees
|
|
$
|
-
|
|
|
$
|
15,000
|
|
Issuance of common stock for future services
|
|
$
|
-
|
|
|
$
|
307,400
|
|
See accompanying notes to consolidated financial
statements
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
NOTE 1 - NATURE
OF OPERATIONS
Bantek, Inc. is an Unmanned Aerial Vehicles
(“UAV”) and related services and technology company that intends to engage in the distribution and integration of advanced
low altitude UAV systems, services and products. Bantek 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 has operations based in Little Falls, New Jersey
and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships with UAV firms that offer
superior technologies in high-growth markets, as well as acquisitions and partnerships with firms that have complementary technologies
and infrastructure.
On April 24, 2018 the Company amended its
articles of incorporation, filed with the Delaware Secretary of State, changing the Company name from Drone USA, Inc. to Bantek,
Inc., which was accepted by FINRA on February 19, 2019. Bantek, Inc. filed a change of name to Bantec, Inc. and to effect a reverse
stock split (of the common stock) of 1 for 1,000 on August 6, 2019.
The reverse stock split and name change
to Bantec, Inc. became effective on February 10, 2020 All common share and per share amounts in the accompanying consolidated
financial statements and footnotes have been retroactively adjusted for all periods presented for the effects of the reverse split.
NOTE 2 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of Bantek, Inc. and its wholly-owned subsidiaries, Drone USA, LLC (inactive), and Howco. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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, 2019, the Company has incurred
a net loss of $7,115,159 and used cash in operations of $1,105,330. The working capital deficit, stockholders’ deficit and
accumulated deficit was $13,632,338, $14,895,354 and $26,746,451, respectively, at September 30, 2019. Furthermore, on September
6, 2019 the Company received a default notice on its payment obligations under the senior secured credit facility agreement (see
Note 10), defaulted on its Note Payable – Seller in September 2017, and as of September 30, 2019 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
been implementing 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. (See
Notes 10 and 18).
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 goodwill and intangible assets for
impairment analysis, valuation of the earn-out liability, valuation of stock based compensation, the valuation of derivative liabilities
and the valuation allowance on deferred tax assets.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Fair Value Measurements
The Company follows the FASB Fair Value
Measurements standard, as they apply 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 Company accounts for certain instruments at fair value using level 3 valuation.
|
|
At September 30, 2019
|
|
|
At September 30, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability
|
|
|
-
|
|
|
|
-
|
|
|
$
|
128,628
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
258,296
|
|
A roll-forward of the level 3 valuation financial instruments
is as follows:
|
|
Derivative
Liabilities
|
|
Balance at September 30, 2017
|
|
$
|
-
|
|
Initial Fair Value of derivative recorded as discount
|
|
|
85,000
|
|
Initial Fair Value of derivative recorded as expense
|
|
|
74,463
|
|
Reduction of derivative recorded as gain on extinguishment upon conversion
|
|
|
(111,818
|
)
|
Reclassifications of Fair Value of Warrant from equity
|
|
|
261,484
|
|
Fair Value adjustments for the year
|
|
|
(50,833
|
)
|
Balance at September 30, 2018
|
|
|
258,296
|
|
Charged to derivative expense on assignment and restatement of note
|
|
|
15,971
|
|
Classified as initial debt discount on assignment and restatement of note
|
|
|
62,500
|
|
Reduction of derivative recorded as gain on extinguishment upon conversions
|
|
|
(78,471
|
)
|
Warrant exercises (partial)
|
|
|
(138,430
|
)
|
Fair Value adjustment - warrants
|
|
|
9,355
|
|
Fair Value adjustments - convertible note
|
|
|
(593
|
)
|
Balance at September 30, 2019
|
|
$
|
128,628
|
|
The warrants were issued to a convertible
note holder in November and December 2017 and initially determined to be equity instruments and recorded as note discount and as
additional paid in capital. On June 4, 2018 the anti-dilutive provision of the warrants took effect and based on the new conversion
formula management determined the warrant became a derivative liability and reclassified the Fair Value on June 4, 2018 from additional
paid-in capital to derivative liability with fair market value changes recognized in operations for each reporting date. The derivative
liability associated with the warrants is $119,747 at September 30, 2019. (See Note 12).
Cash and Cash Equivalents
Cash equivalents consist of liquid investments
with maturities of three months or less at the time of purchase. There are no cash equivalents at the balance sheet dates.
Accounts Receivable
Trade receivables are recorded at net realizable
value consisting of the carrying amount less the allowance for doubtful accounts, as needed. Factors used to establish an allowance
include the credit quality of the customer and whether the balance is significant. The Company may also use the direct write-off
method to account for uncollectible accounts that are not received. Using the direct write-off method, trade receivable balances
are written off to bad debt expense when an account balance is deemed to be uncollectible.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
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. Certain items classified
as inventory during the second fiscal quarter of 2018 have been reclassified to Property and Equipment. These assets are fully
operational drones used as demonstration units and were put into such use since acquisition. The units were all acquired during
the year ended September 30, 2018 and each unit exceeds management’s threshold for capitalization of $2,000 for a single
unit. The Company depreciates these demonstration units over a period of 3 years using an accelerated method. Depreciation expense
was $11,280 and $9,659 in 2019 and 2018, respectively.
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 customer list was initially deemed to have a life of 4 years and is being amortized through September 2020. Goodwill and intangible
assets were determined to be impaired at September 30, 2019. (See Note 5.)
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.
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
Effective October 1, 2018, the Company
adopted Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, which is effective for
public business entities with annual reporting periods beginning after December 15, 2017. This new revenue recognition standard
(new guidance) 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’s initial application of ASC 606 did not have a material impact on its financial statements and disclosures and
there was no cumulative effect of the adoption of ASC 606.
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 five
step process outline above. 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.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Stock-based compensation
Stock-based compensation is accounted for
based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified method
to determine expected term because of lack of sufficient exercise history. Additionally, effective October 1, 2016, the Company
adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment
Accounting. Among other changes, ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment
awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company
has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s
consolidated financial statements and related disclosures.
As of October 1, 2018 the Company has early
adopted ASU 2018-7 Compensation-Stock Compensation which conforms the accounting for non-employees to the accounting treatment
for employees. The new standard replaces using a fair value as of each reporting date with use of the calculated fair value as
of the grant date. The implementation of the standard provides for the use of the fair market value as of the adoption date, rather
than using the value as of the original grant date. Therefore the values calculated and reported at September 30, 2018 become a
proxy for the grant date value. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine
expected term because of lack of sufficient exercise history. There was no cumulative effect on the adoption date.
Shipping and Handling Costs
The Company has included freight-out as
a component of cost of sales, which amounted to $72,665 and $90,869, net of customer freight receipts for the years ended September
30, 2019 and 2018, respectively.
Convertible Notes with Fixed Rate Conversion
Options
The Company may enter into convertible
notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest
may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion.
This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible
note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge
to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Derivative Liabilities
The Company has certain financial instruments
that are derivatives or contain embedded derivatives. The Company evaluates all its financial instruments to determine if those
contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance
with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded
at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded
as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income
or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion,
repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or
loss on extinguishment.
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.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
The Company currently has no federal or
state tax examinations in progress. As of September 30, 2019, the Company’s tax returns for the tax years 2019, 2018 and
2017 remain subject to audit, primarily by the Internal Revenue Service.
The Company did not have material unrecognized
tax benefits as of September 30, 2019 and 2018 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 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. As of September
30, 2019, 17,755 options were outstanding of which 12,838 were exercisable, 1,198,270 warrants were outstanding and exercisable,
and related party convertible debt and accrued interest totaling $1,083,900 was convertible into 11,162,896 shares of common stock.
Additionally, as of September 30, 2019, the outstanding principal balance, including accrued interest of the third party convertible
debt, totaled $6,693,064 and was convertible into 83,780,049 shares of common stock. It should be noted that contractually the
limitations on the third party notes (and the related warrant) limit the number of shares converted to 12,756,564. As of September
30, 2019 and 2018, potentially dilutive securities consisted of the following:
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
Stock options
|
|
|
17,755
|
|
|
|
7,544
|
|
Warrants
|
|
|
1,198,270
|
|
|
|
69,579
|
|
Related party convertible debt and accrued interest
|
|
|
11,162,896
|
|
|
|
159,496
|
|
Third party convertible debt (including senior debt)
|
|
|
83,780,049
|
|
|
|
1,661,403
|
|
Total
|
|
|
96,158,971
|
|
|
|
1,898,021
|
|
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. As of September 30, 2019, the Company did not report any segment information since the Company only generates
sales from its subsidiary, Howco.
Lease Accounting
In February 2016, the FASB issued a new
accounting standard on leases. The new standard, among other changes, will require lessees to recognize a right-of-use asset and
a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments
over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease
incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting
periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption
will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period
presented.
The Company has not entered into a lease
covered by the new standard during the periods covered by this report. The warehouse and office facility in Vancouver, Washington
lease was entered into in May 2017, and extends through May 30, 2020. The corporate office is an annual arrangement which provides
for a single office in a shared office environment. The annual lease payments are not material for application of the new standard.
The Company will evaluate any future leases or lease renewals for the impact of this new accounting standard on its consolidated
financial position and results of operations.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Recent Accounting Pronouncements
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
The Company’s accounts receivable
at September 30, 2019 and 2018 is as follow:
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
Accounts receivable
|
|
$
|
791,728
|
|
|
$
|
1,615,582
|
|
Reserve for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
791,728
|
|
|
$
|
1,615,582
|
|
NOTE 4 - INVENTORY
At September 30, 2019 and 2018, inventory
consists of finished goods and was valued at $118,558 and $533,106, respectively.
NOTE 5 - GOODWILL
AND INTANGIBLE ASSETS
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, Trademark
and Customer List assets and has been recognized as of September 30, 2019.
At September 30, 2019 and 2018, the carrying
amount of goodwill amounted to $0 and $2,410,335, respectively.
At September 30, 2019 and 2018, the carrying
amount of tradename amounted to $0 and $760,000, respectively.
At September 30, 2019 and 2018, the carrying
amount of intangible asset - customer list, net of amortization amounted to $0 and $515,285, respectively.
NOTE 6 - 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 $50,000, and is personally guaranteed by the
Company’s Chief Executive Officer (“CEO”). The line bears interest at a fluctuating rate equal to the prime
rate plus 4.25%, which at September 30, 2019 and September 30, 2018 was 9.25% and 9.25%, respectively. As of September 30, 2019
and 2018, respectively, the balance of the line of credit was $44,556 and $45,915, with $5,444, available at September 30, 2019.
NOTE 7 - SETTLEMENTS
PAYABLE
On July 20, 2018, the Company entered into
a settlement agreement with a collection agent for American Express relating to $127,056 of past due charges. The agreement provides
for initial payment of $12,706, the monthly payments of $6,500 and final payment on January 27, 2020 of $3,850. The amount due
at September 30, 2019, and 2018, was $42,850, and $101,350, respectively.
Howco entered into an agreement with a
vendor in February 2018 to make monthly payments of $70,000 including interest charges to liquidate $620,803 of past due invoices.
The amount outstanding at September 30, 2018 was $59,905, and was fully paid during the year ended September 30, 2019.
On November 27 2018 the Company reached
an agreement and executed a related stipulation and payment terms agreement stemming from a legal action by the former Chief Strategy
Officer for improper termination. The plaintiff agreed to accept $600,000 in payments. The first scheduled payment of $200,000
was made on December 20, 2018 in accordance with the settlement terms. Twelve monthly payments of approximately $33,333 are due
starting on January 15, 2019 through December 15, 2019. The Company recorded $600,000 as accrued expense of which $500,000
was expensed during the fiscal year 2018. The balance at September 30, 2019 is $131,724, which includes expected employer payroll
taxes due as payments are made.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
The total settlement payable balance of
$174,574, reported on the balance sheet includes the American Express settlement of $42,850, and the balance due to the former
Chief Strategy Officer and related expected payroll taxes of $131,724. At September 30, 2018, the balance was $161,255.
NOTE 8 -
NOTE PAYABLE – SELLER
In connection with the acquisition of Howco
in September 2016, the Company issued a note payable in the amount of $900,000 to the sellers of Howco. The note matured on September
9, 2017 and bears interest at 5.50% per annum. The note requires payment of unpaid principal and interest upon maturity. The note
is secured by all assets of Howco Distribution Co. and subordinated to the Senior Secured Credit Facility discussed below. The
note is currently in default and the default interest rate is 8% per annum. At September 30, 2019 and September 30, 2018, accrued
interest on this note amounted to $197,485 and $125,682, respectively.
NOTE 9 - NOTES PAYABLE – RELATED PARTIES
Convertible Notes
The Company has an $840,000 convertible
note payable (“Note 1”) to a related party entity controlled by the Company’s CEO. Note 1 bears interest at an
annual rate of 7% with an original maturity date of June 11, 2017 which has been extended to June 11, 2022, at which time all unpaid
principal and interest is due. The holder of Note 1 has the option to convert the outstanding principal and accrued interest, in
whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price per share of common
stock for the 30-day period prior to conversion. As of September 30, 2019 and 2018, Note 1 has not been converted and the balance
of the note was $688,444 and $688,444, and accrued interest was $174,232 and $125,968, respectively. This note is considered a
stock settled debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion
formula.
The Company has a convertible note payable
(for an unspecified amount) with the Company’s CEO. This line of credit (“LoC”) bears interest at an annual rate
of 7% with a maturity date of December 31, 2017, at which time all unpaid principal and interest was due. On December 15, 2017
the due date was extended to July 2, 2018 and then in July, 2018, the due date was extended to June 30, 2019, on December 23, 2018
the maturity date of the LoC was extended to September 23, 2024. The holder of the LoC has the option to convert the outstanding
principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted
average price per share of common stock for the 30-day period prior to conversion. During the year ended September 30, 2018, the
Company borrowed $670 and repaid $95,000. During the year ended September 30, 2019 the Company was advanced $221,950 and repaid
$82,025, on this LoC. As of September 30, 2019 and 2018, the LoC has not been converted, the balance was $166,995 and $27,670,
and accrued interest was $21,838 and $11,350, respectively. This LoC is considered a stock settled debt in accordance with ASC
480 and the fixed monetary amount is equal to the principal amount based on the conversion formula.
On July 2, 2019, the Company issued a convertible
note payable (“Note 2”) to the Company’s CEO for a $15,000, cash loan. The funds were paid directly to a vendor
to the Company. The note matures on June 9, 2020, bears interest at 10% and may be converted to the Company’s common stock
at 50% of the lowest closing bid in the 20 trading days prior to notification of conversion. The Company has accounted for the
convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $15,000 with a charge to interest expense
for the note. The note principal, put premium and interest balances are $15,000, $15,000 and $319 at September 30, 2019.
On September 13, 2019, the Company issued
a convertible note payable to an entity controlled by the Company’s CEO for a $17,000, cash loan. The note matures on June
9, 2020, bears interest at 10% and may be converted to the Company’s common stock at 50% of the lowest closing bid in the
20 trading days prior to notification of conversion. The Company has accounted for the convertible promissory note as stock settled
debt under ASC 480 and recorded debt premium $17,000 with a charge to interest expense for the notes. The note principal, put premium
and interest balances are $17,000, $17,000 and $71 at September 30, 2019.
Notes and Other Loans
On December 20, 2018 the Company issued
a promissory note to the CEO for a $400,000, cash loan. The note bears interest at 12% per annum, matures on January 7, 2024 and
requires monthly payment of principal of $5,000 with a balloon payment at maturity. The principal and accrued interest balances
were $367,500 (of which $90,000 is classified as a current liability, due with the next 12 months) and $34,969 as of September
30, 2019.
On January 19, 2019 the Company issued
a, promissory note to the CEO for a $200,000, cash loan. The note bears interest at 12% per annum, matures on September 23, 2021
and requires monthly payments of $2,500 principal. The outstanding principal and accrued interest are $195,000 (of which $45,000
is classified as a current liability, due with the next 12 months) and $13,032 at September 30, 2019.
On July 1, 2019, the Company entered into
a purchase order financing agreements with an entity controlled by the Company’s CEO (“Pike Falls”) for cash
advances to Howco. The advances are to be for 100% of the face value of the purchase orders to be repaid with accounts receivable
related to the sales of the products underlying the purchase orders. Pike Falls receives 4% of the purchase price for the first
45 days and .00086% per day thereafter on the unpaid balance. The principal balance was $69,391, at September 30, 2019 and is included
in notes payable – related parties on the balance sheet.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
NOTE 10 - CONVERTIBLE NOTES PAYABLE
AND ADVISORY FEE LIABILITIES
Senior Secured Credit Facility Note
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 $6,500,000,
subject to lender approval, with an initial convertible promissory note at closing of $3,500,000 (the “Note”). The
Note bears interest at a rate of 18% per annum, required monthly payments of $52,500, which is interest only, starting on October
13, 2016 through February 13, 2017, and monthly payments, including interest and principal, of $298,341 starting on March 13, 2017
through maturity on March 13, 2018. In the event of default the Note balance will bear interest at 25% per annum. In connection
with this Agreement, the Company was obligated to pay additional advisory fees of $850,000 payable in the form of cash or common
stock in accordance with the terms of the Agreement. The Company was also required to reserve 7,000 shares of common stock related
to this transaction. The reserved shares will be released upon the satisfaction of the loan.
As of September 30, 2019, and 2018, the
Company had issued 539 shares of common stock in satisfaction of the $850,000 advisory fee in accordance with the terms of the
agreement, such shares being issued in September 2016. The proceeds from the sale of the 539 shares were to be applied to the $850,000
advisory fee due. Based upon the value of the shares, at the time the lender sells the shares, the Company may be required to redeem
unsold shares for the difference between the $850,000 and the lender’s sales proceeds. Accordingly, the $850,000 was reflected
as a current liability through December 31, 2017. In January 2018, in connection with a settlement agreement (see below), the accrued
advisory fee was reclassified to the principal balance of the replacement Convertible Note. Through the date of the settlement
agreement and through September 30, 2018 and 2019, the lender had not reported any proceeds from the sale of these shares (see
below). Prior to the settlement agreement in January 2018, notwithstanding anything contained in the Agreement to the contrary,
in the event the Lender has not realized net proceeds from the sale of Advisory Fee Shares equal to at least the Advisory Fee by
the earlier to occur of: (A) September 13, 2017; (B) the occurrence of an Event of Default; or (C) the Maturity Date, then at any
time thereafter, the Lender shall have the right, upon written notice to the Borrower, to require that the Borrower redeem all
Advisory Fee Shares then in Lender’s possession for cash equal to the Advisory Fee, less any cash proceeds received by the
Lender from any previous sales of Advisory Fee Shares, if any within five (5) Business Days from the date the Lender delivers such
redemption notice to the Borrower.
The Note is only convertible upon default
or mutual agreement by both parties at a conversion rate of 85% of the lowest of the daily volume weighted average price of the
Company’s common stock during the 5 business days immediately prior to the conversion date. At any time and from time to
time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents;
or (ii) mutual agreement between the Company and the Holder, this Note may be, at the sole option of the Holder, convertible into
shares of the Company’s common stock, in accordance with the terms and conditions of the Note Upon liquidation by the Holder
of Conversion Shares issued pursuant to a conversion notice, provided that the Holder realizes a net amount from such liquidation
equal to less than the conversion amount specified in the relevant conversion notice , the Company shall issue to the Holder additional
shares of the Company’s common stock equal to: (i) the Conversion Amount specified in the relevant conversion notice; minus
(ii) the realized amount, as evidenced by a reconciliation statement from the Holder (a “Sale Reconciliation”) showing
the realized amount from the sale of the Conversion Shares; divided by (iii) the average volume weighted average price of
the Company’s common stock during the five business days immediately prior to the date upon which the Holder delivers notice
(the “Make-Whole Notice”) to the Company that such additional shares are requested by the Holder.
Once a default occurs, the Note and the
$850,000 advisory fee payable will be accounted for as stock settled debt at its fixed monetary value. On March 13, 2017 the Company
defaulted on the monthly principal and interest payment of $298,341. Due to this default, as of June 30, 2017, the Company has
accounted for the embedded conversion option as stock settled debt and recorded a debt premium of $617,647 with a charge to interest
expense, and the interest rate increased to 25% (default rate).
On March 28, 2017, the Company entered
into an additional agreement with the above senior secured credit facility lender to receive a range of advisory services for a
total of $1,200,000 with no definitive terms or length of service which was expensed in fiscal 2017 and had been recorded as an
accrued liability – advisory fees through December 31, 2017. In connection with the settlement agreement discussed below,
in January 2018, the advisory services fees payable were reclassified to the principal balance of the replacement Convertible Note.
On January 3, 2018, the Company entered
into a settlement agreement (the “Settlement Agreement”) and replacement note agreements with the investment fund related
to a senior secured credit facility note dated September 13, 2016. On the effective date of the Settlement Agreement, all amounts
owed to the investment fund aggregated $5,788,642 and consisted of a convertible promissory note of $3,500,000, accrued interest
payable of $238,642, and accrued advisory fees payable of $2,050,000. On the effective date of the Settlement Agreement, the amount
due of $5,788,642 was split and apportioned into two separate replacement notes (“Replacement Note A” and Note B”).
Replacement Note A had a principal amount of $1,000,000 and Replacement Note B had a principal balance of $4,788,642, both of which
remained secured by the original security , pledge and guarantee agreements; and other applicable loan documents, and bear interest
at 18% per annum. The default was not waived by this settlement agreement. The Company originally recorded a premium on stock settled
debt of $617,647 on the $3,500,000, and subsequent to the settlement agreement recorded an additional premium on stock settled
debt of $403,878 on the additional $2,288,642 for accrued interest and advisory fees payable that were capitalized as note principal.
The interest rate was amended to 12% effective June 12, 2018.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
The Credit Agreement was amended such that
the maturity date was extended to January 13, 2019 (the “Extended Maturity Date”) for replacement Note B, while the
Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the principal and interest payment default
discussed above. Notwithstanding anything contained in this Agreement to the contrary, all obligations owing by the Company and
all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents shall be paid in full
by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and the remaining principal
and accrued interest on January 13, 2019. Interest payments made since the amendment have totaled $323,440 and are therefore not
in accord with that amendment. However, TCA has received payments under the 3(a)(10) settlement (below) totaling $308,100 during
the year ended September 30, 2018, and another $270,320, during the year ended September 30, 2019. The principal balance was $4,788,642
at September 30, 2018.
On October 30, 2018, TCA the Company’s
senior lender amended its credit facility which had been restructured in January 2018 when fees for advisory and other matters
along with accrued but unpaid interest were capitalized and separated into two notes, Note A having $1,000,000 principal and Note
B having $4,788,642 both having the same maturity terms, interest rates and conversion rights. Under the current amendment total
amounts outstanding under the notes along with accrued interest of $537,643 has been capitalized with the principal amount due
of $6,018,192, $5,326,285 for Note B and $691,907 for Note A. The restated note has the same conversion price discount and therefore
continues to be stock settled debt under ASC 480, an additional $94,878 was charged to interest with a credit to debt premium.
The restated note accrues interest on the principal balance at 12% per annum, includes amortization to the new maturity of December
15, 2020. The amortization payments credited toward the principal amount and accrued interest vary and include payments made under
the 3(a)(10) settlement agreement with a third party related to Note A. Economically the total principal and accrued interest outstanding
remain unchanged as reported in the consolidated balance sheet. All other terms including conversion rights and a make-whole provision
in the case of a conversion shortfall remain the same as stated in the footnotes above. At September 30, 2019 the principal of
the Note B portion was $5,326,285, accrued interest was $460,095 and the Note A principal subject to the 3(a)(10) court order was
$421,587. During the year ended September 30, 2019, the Company paid $155,000, in interest and Livingston Asset Management (under
the 3(a)(10) settlement) paid $270,320 to TCA.
On September 6, 2019, the Company received
a default notice on its payment obligations under the senior secured credit facility agreement from TCA. The Company has proposed
a number of solutions including refinancing the debt with other parties. The default was declared due to non-payment of monthly
scheduled amortization (principal and interest). TCA holds security interests in all assets of the Company including its subsidiary
Howco.
On November 15, 2017, the Company executed
a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”) under which Livingston agreed to purchase
up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company’s creditors
in return for a convertible note issued by the Company in the principal amount of $50,000 bearing interest of 10% per year to cover
certain legal fees and other expenses of Livingston. The note matures in six months and is convertible into shares of our common
stock at a 30% reduction off the lowest closing bid price for 20 trading days prior to the date of conversion. Livingston has the
right to retain 30% of any negotiated reduction off the face amount of the liability the Company owes to such creditors. The Company
has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $21,428 with
a charge to interest expense. The note and accrued interest were fully converted as of September 30, 2018 for 18,163 common shares.
Debt premium of $21,428 was charged to additional paid in capital.
On January 30, 2018 pursuant to the Liability
Purchase Term Sheet, the TCA Replacement Note A in the principal amount of $1,000,000 was purchased by Livingston Asset Management
LLC (“Livingston”) from the original lender. Principal of Replacement Note A is due to Livingston with all then accrued
but unpaid interest due to the original lender. In accordance with the terms of the Settlement Agreement, the Court was advised
of Company’s intention to rely upon the exception to registration set forth in Section 3(a)(l0) of the Securities Act to
support the issuance of its common shares and the Court held a fairness hearing regarding the issuance on March 12, 2018. Following
entry of an Order by the Court which occurred on March 12, 2018, in settlement of the claims, the Company shall issue and deliver
to Livingston shares of its common stock (the “Settlement Shares”) in one or more tranches as necessary, and subject
to adjustment and ownership limitations as set forth in the Settlement Agreement, sufficient to generate proceeds such that the
aggregate Remittance Amount equals the Claim Amount. The Company will issue free trading shares of its common stock under section
3(a)(10) of the Securities Act to Livingston in the amount of such judgment in a series of tranches so that Livingston will not
own more than 9.99% of our outstanding shares per tranche. The parties reasonably estimate that the fair market value of the Settlement
Shares to be received by Livingston is equal to approximately $1,666,667 which is based on a discount of 40%.
As of September 30, 2019, there have been
seventeen issuances under section 3(a)(10) of the Securities Act totaling 1,374,885 shares; 1,273,261 in 2019, and 101,624 in 2018,
which have been recorded at par value with an equal charge to additional paid-in capital. The value originally recorded as a liability
remains in the convertible note balance, until these shares have been sold and reported to the Company by the lender as part of
the Make-Whole provision at which time the proceeds value of such shares are reclassified to additional paid-in capital. During
the year ended September 30, 2019, proceeds of $270,320 were remitted to TCA by Livingston and applied to reduce the liability
with corresponding credits to additional paid in capital. $180,618 of debt premium was credited to additional paid in capital in
conjunction with the payments to TCA. At September 30, 2019 the balance of $421,587 along with related debt premium of $281,054
are included in convertible notes payable on the balance sheet.
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. The placement agent services fee amounted to $15,000 payable to Scottsdale Capital Advisors
in the form of a convertible note. The note matures six months from the date of issuance and shall accrue interest at the rate
of 10% per annum. The $15,000 note is convertible into shares of the Company’s common stock at a discount of 30% of the low
closing bid price for the twenty trading days prior to the conversion and is not subject to any registration rights. The Company
has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $6,429 with
a charge to interest expense. The note has not been converted and the principal balance is $15,000, at both September 30, 2018
and 2019, with $2,789, and $1,281, of accrued interest at September 30, 2019 and 2018, respectively.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Other Convertible Debt
In July 2017, the FASB issued Accounting
Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and
Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis of certain equity-linked financial instruments
(or embedded features) with down round features. When determining whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, ASU 2017-11 requires entities that present earnings per share (EPS) in accordance with ASC Topic 260 to
recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of
income available to common shareholders in basic EPS. For the Company, ASU 2017-11 is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period.
The Company adopted this standard on October 1, 2017.
On October 5, 2017, the Company entered
into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) under which the Company received
$78,500, net of $21,500 in fees and expenses to be recorded as a debt discount and amortized to interest expense over the Note
term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $100,000. Power Up
received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less
than $150,000. The Note bears interest at 10% per annum and has a maturity date of July 15, 2018. The Note may be prepaid at a
premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after
180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices
of Drone USA’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may
not exceed 4.99% of the issued and outstanding shares of the Company’s common stock. The Note is subject to customary default
provisions, including a cross default provision. The Company’s CEO entered into a confession of judgment in the principal
amount of the Note. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded
a debt premium of $53,846 with a charge to interest expense. The note and all accrued interest were fully converted into common
shares as of June 19, 2018. The note holder’s legal counsel has returned the note marked as paid. The debt premium was recognized
as $53,846 as additional paid in capital.
On November 9, 2017, the Company
received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with
Crown Bridge Partners, LLC (“Crown Bridge”) under which the Company issued to Crown Bridge a convertible note in
the principal amount of $105,000 and a five-year warrant to purchase 100 shares of the Company’s common stock at an
exercise price of $350 as a commitment fee which is equal to the product of one-third of the face value of each tranche
divided by $350. Under the terms of the note Crown Bridge was to receive “right of first refusal” for any
subsequent loans or notes to fund the Company. The Company violated this covenant when funding was received from other
sources without offering Crown Bridge the opportunity to participate. On December 20, 2017 the Company cured this covenant
violation by issuing 200 additional warrants have the same exercise price and terms of the original warrants. The warrants
have full ratchet price protection and cashless exercise rights.
The convertible note (the
“Note”) issued to Crown Bridge in the principal amount of $105,000, has an original issue discount of $10,500 and
issue costs of $19,000 both of which are recorded as debt discount along with the warrant relative fair value of $12,507 for
the original 100 warrants and $31,529 for the penalty warrants to be amortized over the twelve month term of this tranche,
bears interest of 10% (12% default rate) per annum, and has a maturity date of 12 months from the date of each tranche of
payments under the Note with future tranches being at the discretion of Crown Bridge. The conversion rate for any conversion
of unpaid principal and interest under the Notes is at a 35% discount to the lowest market price of the shares of the
Company’s common stock within a 20 day trading period prior to the date of conversion to which an additional 10%
discount will be added if the conversion price of the Company’s common stock is less than $50 per share and no shares
of the Company’s common stock can be issued to the extent Crown Bridge would own more than 4.99% of the outstanding
shares of the Company’s common stock and the conversion shares contain piggy-back registration rights. The Note is
subject to customary default provisions including an event of default if the bid price of the Company’s common stock is
less than its par value of $.0001 per share. The Company is entitled to prepay the Note between 30 days after its issuance
until 180 days from its issuance at amounts that increase from 112% of the prepayment amount to 137% of the prepayment amount
depending on the length of time when prepayments are made. The Company has accounted for the convertible promissory note as
stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense. As of September
30, 2018 the note holder fully converted principal and accrued interest into common shares. The debt premium on stock settled
debt was fully recognized as additional paid in capital.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On November 28, 2017, the Company received
a payment of $84,000, net of issue costs of $23,500 which was recorded as a debt discount and is being amortized to interest expense
over the Note term, under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys Fund, LP (“Labrys”)
under which Drone USA issued to Labrys (i) a convertible note (the “Note”) in the principal amount of $107,500 that
bears interest of 10% (24% default rate) per annum and (ii) 336 shares of the Company’s common stock as a commitment fee
which were to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180
days of November 20, 2017. Pursuant to ASC 260, as of December 31, 2017, the 336 contingent shares issued under the Financial Consulting
Agreement are not considered outstanding and are not included in basic net loss per share or as potentially dilutive shares in
calculating the diluted EPS. The Note has a maturity date of August 28, 2018 and a conversion rate for any unpaid principal and
interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the
lower of the trading price or closing bid price) for the Company’s common stock during the fifteen (15) trading day period
ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company
enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions
offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain
other enumerated events, including if the conversion price is less than $10.00 per share or if the Company loses the “bid”
price for its common stock ($0.10 on the “ask” with zero market makers on the “bid” per Level 2 and/or
a market such as OTC Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price
Labrys is entitled to full ratchet anti-dilution in such event. No shares of the Company’s common stock can be issued to
the extent Labrys would own more than 4.99% of the outstanding shares of the Company’s common stock unless Labrys agrees
to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved six times the number of
shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time
to time). Initially, the Company must instruct its transfer agent to reserve 6,198 shares of its common stock. The Note is subject
to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses
the “bid” price for its common stock ($0.10 on the “ask” with zero market makers on the “bid”
per Level 2 and/or a market such as OTC Pink) and a $15,000 penalty if not paid by the maturity date. The Company is entitled to
prepay the Note between the issue date until 180 days from its issuance but not thereafter. In November 2017, the Company
accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $57,885 with a
charge to interest expense. On February 7, 2018 the Company amended the terms to the Note whereby Labrys waiving certain existing
events of default on the Note and in return will no longer be required, under any circumstances, to return the commitment shares
back to the Company’s treasury. The Company was under default for failing to maintain a market capitalization of at least
$5,000,000 on any trading day. The 336 commitment shares were considered issued in February 2018 which was recorded as interest
and financing costs at the then market close price of $89.98 per share for a value of $30,234.
The note holder (Labrys) converted principal
of $73,233 and accrued interest of $7,841 during the year ended September 30, 2018. The Company recognized $15,000 of default charges
(technical defaults under note terms) as an addition to the principal amount with a corresponding charge to debt discount. Additionally,
the Company increased debt premium by $8,077 with a charge to interest expense in conjunction with the principal increase. The
principal and accrued interest balance of $49,267 was assigned (under the original terms and conditions) to GHS Investments LLC
(“GHS”) on July 13, 2018 and all principal and interest was converted into common stock by GHS during the year ended
September 30, 2018.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On December 7, 2017, the Company received
a payment of $79,000, net of an original issue discount of $5,800 and issue costs of $20,200 fees which was recorded as a debt
discount which is being amortized into interest expense over the Note term, under the terms of a Securities Purchase Agreement
dated November 21, 2017, with EMA Financial, LLC (“EMA Financial”) under which the Company issued to EMA Financial
a convertible note (the “Note”) in the principal amount of $105,000 that bears interest of 10% (24% default rate) per
annum. The Note has a maturity date of December 7, 2018 and has a conversion rate for any unpaid principal and interest at a conversion
price which is the lower of (i) the closing sales price of the Company’s common stock on the trading day immediately preceding
the date of funding and (ii) a 35% discount to (a) the lowest sales price of the shares of the Company’s common stock within
a 20 day trading period including and immediately preceding the conversion date or (b) the lowest bid price on the conversion date,
whichever is lower, and the conversion shares contain piggy-back registration rights. The conversion rate is further reduced under
certain events, including if the closing sales price is less than $95.00 in which case the conversion rate is a 50% discount under
the terms set forth above. No shares of the Company’s common stock can be issued to the extent EMA Financial would own more
than 4.99% of the outstanding shares of the Company’s common stock. The Company also is required at all times to have authorized
and reserved eight times the number of shares that is actually issuable upon full conversion or adjustment of the Note (based on
the conversion price of the Note in effect from time to time) and initially must instruct its transfer agent to reserve 6,802,
shares of common stock in the name of EMA Financial for issuance upon conversion. The Note is subject to customary default provisions
and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price
for its common stock ($0.10 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market
such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium
of 135% of the unpaid principal and interest if paid within 90 days after the issue date and 150% thereafter. In connection with
the issuance of this Note, the Company determined that the terms of the Note contain a conversion formula that caused variations
in the conversion price resulting in the treatment of the conversion option as a bifurcated derivative to be accounted for at fair
value. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s
Own Stock”, the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities
at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded
conversion option derivatives was determined using the Binomial valuation model. At the end of each period, the Company revalued
the embedded conversion option and warrants derivative liabilities. In connection with this Note, on the initial measurement date
of December 7, 2017, the fair values of the embedded conversion option derivative of $149,028 was recorded as derivative liabilities,
$70,028 was charged to current period operations as initial derivative expense, and $79,000 was recorded as a debt discount and
is being amortized into interest expense over the term of this Note. At each reporting date during the year ended September 30,
2018, the Company revalued the embedded conversion option derivative liability. During the year ended September 30, 2018 the Company
had fully relieved the derivative liability as part of the gain (loss) in debt extinguishment in conjunction with the full conversion
of the note into common stock.
A number of terms included in the Securities
Purchase Agreement and Note issued subsequently (see paragraph below) were more favorable than the terms granted to EMA Financial
under its Securities Purchase Agreement and the EMA Note. Accordingly, on December 31, 2017, EMA Financial notified the Company
that pursuant to the EMA Securities Purchase Agreement that the EMA Note was automatically amended by increasing (i) the annual
interest rate to 12% percent and (ii) the Original Issue Discount by $3,650.
EMA fully converted all principal, default
charges ($3,650) and accrued interest into common shares during 2018 and surrendered the note. The Company recognized $239,444
of losses on debt extinguishment during July 2018 as a result of the fair market value of the shares issued exceeding the recorded
amount of the derivative liability discussed above.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On December 13, 2017, the Company received
a payment of $60,000, net of original issue discount fees of $7,500 and $15,000 of issue costs recorded as debt discounts and amortized
to interest expense over the Note term under the terms of a Securities Purchase Agreement dated December 8, 2017, with Morningview
Financial, LLC (“Morningview Financial”) under which the Company issued to Morningview Financial a convertible note
(the “Note”) in the principal amount of $82,500 that bears interest of 12% (18% default rate) per annum. The Note has
a maturity date of 12 months and a conversion rate for any unpaid principal and interest and a conversion price which is a 35%
discount to the lowest sales price of the shares of the Company’s common stock within a 20-day trading period including and
immediately preceding the conversion date. The conversion rate is further reduced under certain events, including if the closing
sales price is less than $50.00 in which case the conversion rate is a 45% discount under the terms set forth above. No shares
of the Company’s common stock can be issued to the extent Morningview Financial would own more than 4.99% of the outstanding
shares of the Company’s common stock. The Company also is required at all times to have authorized and reserved eight times
the number of shares that is actually issuable upon full conversion or adjustment of the Note (based on the conversion price of
the Note in effect from time to time). The Note is subject to customary default provisions and also includes a cross-default provision
as well as default being triggered if the Company’s Trading Price as that term is defined in the Note is less than $0.10
or if a money judgment, writ or similar process shall be entered or filed against the Company or any of its subsidiaries for more
than $50,000, and shall remain unvacated, unbonded or unstayed for a period of 20 days unless otherwise consented to by the holder
of the Note. Additionally, upon default and default notice by the lender, the amount immediately due shall be increased to 150%
or 200% of the outstanding principal and interest due depending upon the default provisions, plus default interest. The Company
is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal
and interest. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a
debt premium of $44,423 with a charge to interest expense. Mornningview Financial assessed charges of $20,625 under technical default
terms of the note during the month of June 2018. The Company increased principal and debt discount by $20,625 and recorded additional
premium of $11,106 in connection with the stock settled debt feature discussed above. As of September 30, 2018 Morningview had
converted all principal and accrued interest into common shares. Debt premium $55,529 was recorded as additional paid in capital
on a pro-rata basis at each conversion date.
On January 3, 2018, the Company entered
into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and expenses
which were recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible
promissory note (the “Note”) in the principal amount of $53,000. Power Up received a right of first refusal for the
first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest
at 10% per annum and has a maturity date of October 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending
on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s
common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company’s common stock 15 days
prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding
shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The
Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion
of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect
from time to time, initially to be 3,462, shares of common stock. The Company has accounted for the convertible promissory note
as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense. The principal balance
and accrued interest were fully converted during the year ended September 30, 2018. Debt premium $28,538 was recorded as additional
paid in capital on a pro-rata basis at each conversion date.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On January 9, 2018, the Company received
a payment of $84,000, net of $23,500 in fees and expenses which was recorded as a debt discount and amortized to interest expense
over the Note term under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys under which the Company
issued to Labrys (i) a convertible note (the “Note”) in the principal amount of $107,500 that bears interest of 10%
per annum and (ii) 421 shares of the Company’s common stock as a commitment fee which was to be returned to the Company in
the event that it pays all unpaid principal and interest under the Note within 180 days of December 26, 2017. Pursuant to ASC 260,
as of January 9, 2018, the 421 contingent shares issued under the Financial Consulting Agreement are not considered outstanding
and are not included in basic net loss per share or as potentially dilutive shares in calculating the diluted EPS. The Note has
a maturity date of nine months or September 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount
to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price
or closing bid price) for the Company’s common stock during the fifteen trading day period ending on the latest complete
trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9)
or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts
on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events,
including if the conversion price is less than $10.00 per share or if the Company loses the “bid” price for its common
stock ($0.10 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC
Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price, Labrys is entitled
to full ratchet anti-dilution in such event. No shares of Drone USA common stock can be issued to the extent Labrys would own more
than 4.99% of the outstanding shares of the Company’s common stock unless Labrys agrees to increase the ownership to 9.99%.
The Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon
full conversion of the Note (based on the conversion price of the Note in effect from time to time). Initially, the Company must
instruct its transfer agent to reserve 8,536 shares of its common stock. The Note is subject to customary default provisions and
also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for
its common stock ($0.10 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such
as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter.
The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of
$57,885 with a charge to interest expense. On February 7, 2018 the Company amended the terms to the Note whereby Labrys waives
specified existing events of default on the Note and in return will no longer be required, under any circumstances, to return the
commitment shares back to the Company’s treasury. The Company was under default for failing to maintain a market capitalization
of at least $5,000,000 on any trading day. The 421 commitment shares were considered issued in February 2018 at a price of $90.04
per share based on the then market close price for a total value of $37,911 which was recorded as interest and financing costs.
During the three months ended June 30,
2018, Labrys assessed charges of $15,000 to be added to principal (and also charged to debt discount) under technical default terms
of the note. The Company increased note principal to $122,500 and added $8,077 to debt premium related to the stock settled debt
feature discussed above.
Labrys charged additional default penalties
of $15,000 on July 25, 2018 and $50,000 on July 26, 2018. The Company recognized the additional principal and charged interest
expense. Put premiums for stock settled debt were also recognized for $22,500 ($15,000 default penalty) and $26,293 ($50,000 default
penalty) with charges to interest expense based on the common stock price discounts associated with the respective conversions
of the default amounts. All principal, default amounts and interest due were fully converted into common stock at September 30,
2018. The put premiums for all principal (including default penalties) were credited to additional paid in capital on a pro-rata
basis on the dates of conversions.
On January 31, 2018 the Company received
a payment of $95,000, net of $2,750 for legal fees and $7,250 for due diligence to be recorded as a debt discount and amortized
to interest expense over the Note term under the terms of a Securities Purchase Agreement dated January 31, 2018, with Auctus Fund,
LLC (“Auctus”) under which the Company issued to Auctus a convertible note (the “Note”) in the principal
amount of $105,000 that bears interest of 10% per annum. The Note has a maturity date of nine months or October 26, 2018, and a
conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of
the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock
during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion. The conversion
rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933,
as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining
the conversion rate and under certain other enumerated events, including if the conversion shares cannot be delivered by DWAC.
In addition, if the Company issues any shares of its common stock at less than the conversion price, Auctus is entitled to full
ratchet anti-dilution in such event. No shares of the Company’s common stock can be issued to the extent Auctus would own
more than 4.99% of the outstanding shares of the Company’s common stock unless Auctus agrees to increase the ownership to
9.99%. The Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable
upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). The Note is subject to
customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses
the “bid” price for its common stock ($0.10 on the “ask” with zero market makers on the “bid”
per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days
from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under
ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense. Auctus assessed a default penalty of $15,000
which along with $15,000 of additional debt premium was recorded on August 20, 2018. The principal (including the default assessment)
and accrued interest were fully converted during the year ended September 30, 2018. Total debt premium of $71,538 was recorded
as additional paid in capital on a pro-rata basis at each conversion date.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On March 5, 2018, the Company entered
into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and
expenses to be recorded as debt discount and amortized to interest expense over the Note term, in return for issuing a
convertible promissory note (the “Note”) in the principal amount of $53,000. Power Up received a right of first
refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The
Note bears interest at 10% per annum and has a maturity date of December 15, 2018. The Note may be prepaid at a premium
ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180
days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices
of the Company’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power
Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary
default provisions, including a cross default provision. The Company is required to have authorized for issuance six times
the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in
effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 13,046 shares
of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and
recorded a debt premium of $28,538 with a charge to interest expense. The principal balance and accrued interest were fully
converted during the year ended September 30, 2018. Debt premium $28,538 was recorded as additional paid in capital on a
pro-rata basis at each conversion date.
On June 1, 2018 the Company entered into
a consulting and services arrangement with Livingston Asset Management. The arrangement provides for financial management services
including accounting and related periodic reporting among other advisory services. Under the agreement the Company will issue to
Livingston Asset Management Convertible Fee Notes having principal of $12,500, interest of 10% per annum, maturity of six or seven
months. The notes are convertible into common shares at a discount of 50% to the lowest bid price in the 30 trading days immediately
preceding the notice of conversion. The Company has accounted for the convertible promissory note as stock settled debt under ASC
480 and recorded a debt premium of $12,500 with a charge to interest expense for each note. As of September 30, 2019 the following
notes had been issued and converted as indicated:
June 1, 2018, $12,500 principal, maturing
December 31, 2018 – fully converted;
July 1, 2018, $12,500 principal, maturing
January 31, 2019 – fully converted;
August 1, 2018, $12,500 principal maturing
January 31, 2019 – fully converted;
September 1, 2018, $12,500 principal, maturing
February 28, 2019 – fully converted;
October 1, 2018, $12,500 principal, maturing
March 31, 2019 – fully converted;
November 1, 2018, $12,500 principal, maturing
April 30, 2019 – fully converted;
December 1, 2018, $12,500 principal, maturing
May 31, 2019 – partially converted, principal balance $10,375 at September, 30, 2019;
January 1, 2019, $12,500 principal, maturing
June 30, 2019;
February 1, 2019, $12,500 principal, maturing
July 31, 2019;
March 1, 2019, $12,500 principal, maturing
August 31, 2019;
April 1, 2019, $12,500 principal, maturing
September 30, 2019;
May 1, 2019, $12,500 principal, maturing
October 31, 2019;
June 1, 2019, $12,500 principal, maturing
November 30, 2019.
The total accrued unpaid (also not converted)
is $2,152 at September 30, 2019.
The notes were charged to professional
fees for each corresponding service month. The Company has accounted for each of the Convertible Fee Notes as stock settled debt
under ASC 480 and recorded a debt premium of $12,500 each with a charge to interest expense. (See Note 18).
The consulting and services arrangement
with Livingston Asset Management was amended on July 1, 2019. The amendment increased the monthly fee to be $20,000, with $17,000,
as monthly convertible note and $3,000, of cash due on the first of each month. (See Note 18.)
On September 30, 2019, the Company issued
a convertible note to Livingston Asset Management for $51,000 ($17,000, for each of the months from July to September, 2019), under
the same interest rate and conversion discount terms. The note matures on March 31, 2020. (See Note 18).
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On August 29, 2018 the Company entered
into an agreement with a legal firm to provide securities related and other legal services. Under the agreement the Company will
issue convertible notes with varying principal amounts for services. The first note was issued on August 29, 2018 for $6,000, interest
of 12%, and maturity date of February 28, 2018. The conversion feature allows for conversion into common shares at the lesser of:
a) 70% of the share price on the date of the note; or b) 50% of the lowest bid price during the 30 trading days preceding the date
of the notice of conversion. In connection with the issuance of this Note, the Company determined that the terms of the Note contain
a conversion formula that caused variations in the conversion price resulting in the treatment of the conversion option as a bifurcated
derivative to be accounted for at fair value. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives
and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible
instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings
at each reporting date. The fair values of the embedded conversion option derivatives were determined using the Binomial valuation
model. $10,435 was recognized as derivative liability with $6,000 charged to debt discount and $4,035 charged to derivative expense
on issuance. The debt discount of $6,000 will be amortized to interest expense to the maturity date of the note. At March 31, 2019
the derivative fair value was determined to have decreased to $8,881. As the note reached its maturity date no further fair value
adjustments will be recorded. For the nine months ended June 30, 2019, the $5,000, balance of the debt discount was charged to
interest expense and debt discount balances was $0. The following notes have been issued to the law firm, each having six month
term to maturity and 12% annual interest but a change in the conversion terms such that a fixed discount of 50% of the lowest bid
price in the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible promissory
note as stock settled debt under ASC 480 and recorded debt premiums equal to the face value of the notes with a charge to interest
expense. The note principal amount was charged to professional fees during the month the note was issued.
September 4, 2018, $10,000;
September 18, 2018, $6000;
October 18, 2018, $6,000;
November 18, 2018, $6,000;
December 18, 2018, $6,000;
January 18, 2019, $6,000;
February 18, 2019, $6,000;
March 18, 2019, $6,000;
April 18, 2019, $6,000;
May 18, 2019, $6,000;
June 18, 2019, $6,000;
July 18, 2019, $6,000;
August 18, 2019, $6,000; and
September 18, 2019, $6,000.
None of the notes issued for legal services
have been converted and the total accrued interest due is $7,055 at September 30, 2019.
On November 13, 2018, the Company issued
a convertible promissory note for $90,000 to a vendor in settlement of approximately $161,700 of past due amounts due for services.
The note bears interest at 5%, matures on June 30, 2019 and is convertible into the Company’s common stock at 50% of the
lowest closing bid price during the 20 trading days immediately preceding the notice of conversion. The Company has accounted for
the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $90,000 with a charge to interest
expense for the notes. The original amount payable was reduced by $90,000 on the date the note was issued. The remaining balance
in accounts payable of approximately, $71,700, was recognized as a gain on debt extinguishment during the year ended September
30, 2019.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On March 1, 2019, the Company received
a second tranche advance under the Crown Bridge Partners, LLC, master note dated October 25, 2017, for principal amount of $35,000,
including covered fees and original issue discount totaling $5,000. Under the conversion terms of the above note, the holder is
entitled to a 35% discount plus an additional 10% discount based on the conversion rights of certain other note holders. Therefore
a discount of 45% is assumed for any conversions of this note tranche. The Company has accounted for the convertible promissory
note as stock settled debt under ASC 480 and recorded a debt premium of $28,636 with a charge to interest expense. The original
issue discount and fees charged were treated as debt discount and will be amortized to financing expenses over the term of the
note. Unamortized debt discount was $2,069, at September 30, 2019, principal was $35,000, and accrued interest was $2,402.
On March 4, 2019, the Company issued a
convertible promissory note to Redstart Holdings Corporation in the amount of $78,000. The note bears interest at 10%, matures
on December 31, 2019, includes legal fees of $3,000 and is convertible at 35% discount to the average of the lowest two prices
observed in the 15 days prior to the issuance of a conversion notice. The Company has accounted for the convertible promissory
note as stock settled debt under ASC 480 and recorded debt premium $42,000 with a charge to interest expense for the notes. The
fees charged were treated as debt discount and will be amortized to financing expenses over the term of the note. Accrued interest
was $4,851, and unamortized debt discount was $912, at September 30, 2019.
On July 12, 2019, the Company issued a
convertible promissory note to Trillium Partners LP for cash in the amount of $10,000. The note bears interest at 10%, matures
on January 11, 2020, and is convertible into the Company’s common stock at 50% of the lowest closing bid price on the 20
trading days immediately preceding the notice of conversion. The Company has accounted for the convertible promissory note as stock
settled debt under ASC 480 and recorded debt premium $10,000 with a charge to interest expense for the notes. The note balance
and premium were $10,000 and accrued interest was $213, at September 30, 2019.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
The senior secured credit facility note
balance and convertible debt balances consisted of the following at September 30, 2019 and September 30, 2018:
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
Principal
|
|
$
|
6,207,266
|
|
|
$
|
5,568,566
|
|
Premiums
|
|
|
1,623,445
|
|
|
|
1,380,175
|
|
Unamortized discounts
|
|
|
(2,981
|
)
|
|
|
(5,000
|
)
|
|
|
|
7,827,730
|
|
|
|
6,943,741
|
|
Non-current
|
|
|
-
|
|
|
|
-
|
|
Current
|
|
$
|
7,827,730
|
|
|
$
|
6,943,741
|
|
For the year ended September 30, 2019 and
2018, amortization of debt discount on the above convertible notes amounted to $72,519 and $756,291, respectively.
NOTE 11 - LOANS AND NOTES PAYABLE
On October 19, 2017, the Company entered
into a loan agreement with a third party entity under which the Company received approximately $232,500, net of fees and expenses
of $17,500 recorded as debt discounts and amortized to interest expense over the Note term, in return for issuing a promissory
note (the “Note”) in the principal amount of $250,000. The Note bears interest at 12% (18% default rate) per annum
and has a maturity date of April 20, 2018. The Note may be prepaid in full or in part with additional premium or penalty. The Note
is secured by certain assets of the Company’s CEO, certain assets of Howco and all of the assets of Drone USA as a junior
security interest to the first secured interest of the senior lender. Additionally, the loan is guaranteed by the Company’s
CEO. For the year ended September 30, 2018, amortization of debt discount amounted to $17,500. On April 20, 2018, the note matured
and all principal and unpaid interest was due immediately. The Company has obtained an amendment from the lender changing the maturity
to October 20, 2018. This loan went into default after October 20, 2018. The Company paid a fee of $10,000 related to the amendment
which has been recorded as financing expense.
On September 4, 2018 Porta Pellex, the
holder of the note above, sold and assigned 50% of the face amount to Trillium Partners LP and World Market Ventures LLC. Following
the assignment, Port Pellex held $125,000, which is the balance at September 30, 2018, and Trillium Partners LP and World Market
Ventures each held $62,500 in principal. The assigned notes were restated with a 50% conversion discount from the lowest bid price
of the common stock in the 20 days immediately preceding the conversion notice date. The modification was treated as debt extinguishment,
for which no gain or loss was incurred. The modified note was treated as stock settled debt in accordance with ASC 480 and $62,500
was recorded as put premium with a charge to interest expense for each ($125,000 total put premium) of the assigned and restated
notes.
Trillium Partners LP converted $1,095 in
fees, all, of $62,500, and $6,781 of interest into 35,188 common shares on September 19, 2018 at the conversion price of $2.00.
The $62,500 of put premium was credited to additional paid in capital in conjunction with the conversion.
World Market Ventures LLC converted principal
of $61,481 and $6,657 of interest into 34,500 common shares on September 19, 2018 at the conversion price of $19.75. The $61,481
of put premium was credited to additional paid in capital in conjunction with the conversion. The remaining $1,020 of principal
and $1,020 of put premium are included in the convertible notes at September 30, 2019.
On October 17, 2018 Porta Pellex assigned
$62,500 of the principal balance of its note to Trillium Partners LP along with $7,500 of accrued interest, leaving an unpaid balance
of $62,500 plus accrued interest on Porta Pellex’s original note. The assigned portion of the note was restated to provide
for conversion of interest and principal into common shares at 50% discount to the lowest bid price over the 20 trading days prior
to conversion notification. This modification was treated as a debt extinguishment. The modified note was treated as stock settled
debt in accordance with ASC 480 and $62,500 was recorded as put premium with a charge to interest expense for the assigned and
restated note. The Trillium Partners LP note principal and accrued interest was fully converted into 115,669 shares of common stock
by November 27, 2018.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On October 23, 2018 Porta Pellex assigned
$62,500 of the remaining principal balance of its note to Jefferson Street Capital LLC along with $7,500 of accrued interest. The
assigned portion of the note was restated to provide for conversion of interest and principal into common shares at the lower of:
50% discount to the lowest bid price over the 20 trading days prior to conversion notification; or 50% of the lowest bid price
during the 20 trading days prior to the closing date of the related assignment. This modification was treated as a debt extinguishment.
In connection with the issuance of this Note, the Company determined that the terms of the modified Note contain a conversion formula
that caused variations in the conversion price resulting in the treatment of the conversion option as a bifurcated derivative to
be accounted for at fair value. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging
– Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instruments
were accounted for as derivative liabilities at the date of assignment and shall be adjusted to fair value through earnings at
each reporting date. The fair value of the embedded conversion option derivatives was determined using the Binomial valuation model.
In connection with this Note, on the initial measurement date of October 23, 2018, the fair values of the embedded conversion option
derivative of $78,471 was recorded as derivative liabilities, $15,971 was charged to operations on the modification date as initial
derivative expense, and $62,500 was recorded as a debt discount and is being amortized into interest expense over the expected
holding period of the restated note. The Jefferson Street Capital LLLC note principal and accrued interest was fully converted
into 128,620 shares of common stock by December 5, 2018. A net loss on debt extinguishment of $14,057 was recorded during the year
ended September 30, 2019.
On August 15, 2019, the Company entered
into a lending arrangement with Fora Business Loans, LLC for financing at Howco with Bantek as co-borrower, with a principal amount
of $210,000. Howco received $146,250, in cash, $3,750 was charged to expenses and $60,000 was charged to original issue discount
to be amortized over the life of the arrangement. Under the terms of the agreement Fora receives 245 payments of $854, for each
business day followed by a final payment of $853. The lending agreement includes security interests in Howco assets and a personal
guarantee from the CEO of the Company. The principal balance is $184,390 at September 30, 2019.
On September 18, 2019, the Company entered
into a sale of future revenues arrangement with PIRS Capital, LLC for Howco with a purchase amount of $195,840. Howco received
$149,541, as the purchase price in cash, $3,459 was charged to expenses and $42,840 was recorded as original issue discount to
be amortized over the life of the arrangement. Under the terms of the agreement PIRS receives 172 payments of $1,139, for each
business day to be repaid from the accounts receivable related to the future revenues: The lending agreement includes security
interests in Howco assets and a personal guarantee from the CEO of the Company. This sale of future revenues is treated as debt
and the principal balance is $187,870 at September 30, 2019.
NOTE 12 - STOCKHOLDERS’ DEFICIT
Preferred Stock
As of September 30, 2019, the Company is
authorized to issue 5,000,000 shares of $0.0001 par value preferred stock, with designations, voting, and other rights and preferences
to be determined by the Board of Directors of which 4,999,750 remain available for designation and issuance.
As of September 30, 2019 and September
30, 2018, the Company has designated 250 shares of $0.0001 par value Series A preferred stock, of which 250 shares are issued and
outstanding. These preferred shares have voting rights per shareholder equal to the total number of issued and outstanding shares
of common stock divided by 0.99.
Common Stock
On April 17, 2018 the Company’s shareholders
approved an increase in authorized common stock to 1,500,000,000 from 200,000,000, which became effective upon the filing of an
amendment to the articles of incorporation with the State of Delaware on April 24, 2018. On January 30, 2019 the Company’s
shareholders approved an increase in authorized common stock to 6,000,000,000 from 1,500,000,000, which became effective February
24, 2019. As of September 30, 2019 and September 30, 2018 there were 3,255,346 and 767,160 shares outstanding, respectively.
On August 6, 2019, the Company filed amendments with the Secretary of the State of Delaware, amending its articles of incorporation
to execute a reverse stock split of 1 share for every 1,000 common shares outstanding, and changing its name to Bantec, Inc. The
name change and the stock split were effective on February 10, 2020, and all common share and per share amounts in the accompanying
consolidated financial statements and footnotes have been retroactively adjusted for all periods presented for the effects of the
reverse stock split.
Stock Incentive Plan
The Company established its 2016 Stock
Incentive Plan (the “Plan”) that permits the granting of incentive stock options and other common stock awards. The
maximum number of shares available under the Plan is 100,000, shares. The Plan is open to all employees, officers, directors, and
non-employees of the Company. Options granted under the Plan will terminate and may no longer be exercised (i) immediately upon
termination of an employee or consultant for cause or (ii) one year after termination of employment, but not later than the remaining
term of the option. As of September 30, 2019, 99,982, awards remain available for grant under the Plan.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Common Stock Issued for Employee Compensation
On July 15, 2018 the Company issued 2,000
common shares to Matthew Wiles, Vice President of Business Operations at Howco. The shares were valued based on the market price
of $7.47 per share on the date of the grant at $14,940, and the shares vest on August 6, 2018. The shares were issued as compensation
for his pending Board of Directors membership. The value of the shares was expensed as director fees on August 6, 2018, since they
vested.
Under the terms of the January 4, 2019
compensation agreement with the CFO, the Company was to issue 100 shares each month to the CFO. On March 13, 2019, the Company
was obligated to, and issued 200 shares valued at the grant date quoted stock price of $1.00, for total of $200, charged to compensation
expenses.
On June 10, 2019, 1,500 common shares were
issued to the CFO. The shares were valued at the issue date quoted stock price of $0.30. The shares issued covered shares owed
in conjunction with the compensation agreement (300 shares) and 1,200 shares issued as severance compensation. $450 was charged
to compensation expenses.
Shares Issued for non-employee Services
On April 1, 2018, the Company entered into
a one year oral management consulting agreement with an individual. In connection with this agreement, the Company issued 4,000,
common shares to the consultant. Such shares were valued on the vesting dates of April 1, 2018, at $296,000, or $74.00 per share
based on the quoted trading price. In connection with these shares, the Company has recorded prepaid professional fees of $295,600
to be recognized monthly as expense over the one-year term. The prepaid expense of $147,800 at September 30, 2018 was fully amortized
at September 30, 2019.
On June 19, 2018, Tysadco Partners was
issued 533, shares of restricted common stock for services under a one-year agreement. 400 shares were issued as the “retainer”,
to be vested in four equal installments beginning on the effective date of the agreement and 60, 120 and 180 days following the
effective date. The remaining 133, shares were issued for the monthly compensation arrangement. The related charges will be measured
on the vesting dates at fair value and recognized in Professional Fees (expense) pro rata over the service term. Unamortized prepaid
expenses amounted to $0, and $7,539, at September 30, 2019 and 2018, respectively.
On July 12, 2018, 150, vested common shares
were issued to a consultant. The shares were valued at the market price of $8.30 per share on the day of the grant. The value of
$1,245, was charged to professional fees on issuance.
On July 12, 2018, 1,500, vested common
shares were issued to a financial advisory consultant. The shares were valued at the market price of $8.30 per share on the day
of the grant. The value of $12,450, was charged to professional fees on issuance.
On July 12, 2018, 150, vested common shares
were issued to a consultant. The shares were valued at the market price of $8.30 per share on the day of the grant. The value of
$1,245, was charged to professional fees on the date on issuance.
On August 6, 2018, 125, vested common shares
were issued to a consultant. The shares were valued at the market price of $9.60 per share on the day of the grant. The value of
$1,318, was charged to professional fees on issuance.
On September 24, 2018, 2,387, common shares
were issued to Tysadco Partners for the Company’s investor relations firm as per the agreement for monthly payments in shares
of $4,000, per month totaling $16,000, which was fully recognized as expense as of September 30, 2018.
On March 1, 2019, under the Company’s
March 1, 2019, agreement with its technology support provider the Company is to issue common shares equal to $1,500 every month.
The Company recognized the expense of $1,500, and authorized the issuance of 1,667, shares to the vendor as of March 31, 2019.
On March 31, 2019, 10,000, common shares
were issued to Tysadco Partners for the Company’s investor relations firm as per the agreement for monthly payments in common
shares of $4,000 per month totaling $16,000, which was fully recognized as expense as of March 31, 2019. The issuance settled the
amounts due for October 20, 2018 through February 20, 2019.
On May 3, 2019, the Company issued 8,000,
common shares to its technology support provider, for services for April and May 2019. The shares were valued at $0.375, and $3,000,
was charged to expense.
On June 10, 2019, the Company issued 1,192,
common shares to a consultant. The shares were valued at $0.30 per share, and $358, was charged to expense.
On August 28, 2019, the Company issued
15,288, common shares to an attorney for services. The shares were valued at the stock price on the date the shares were issued
at $0.0447, and $684, was charged to professional fees.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On September 30, 2019, the Company approved
the issuance of 240,000, restricted common shares to Tysadco Partners for the prior six months investor relation services. The
shares were valued at $0.10 and $24,000, was charged to professional fees.
On September 30, 2019, the Company approved
the issuance of 32,500, restricted common shares to an individual for the prior four months of technology support services. The
shares were valued at $0.1846 and $6,000, was charged to professional fees.
All shares issued to employees and non-employees are valued
at the quoted trading prices on the respective grant dates.
Shares Issued for Settlement
On August 27, 2018, the Company
settled outstanding accounts payable with a vendor by issuing 2,308, common shares. On September 27, 2018, the Company agreed
to issue 2,692 shares for a total of 5,000 shares to settle the payable balance of $15,000. These shares were valued at the
market price of $5.80 and $4.00 on the grant date and settlement date respectively, resulting in a loss on settlement of
$9,154.
Shares Issued for debt issuance costs
On November 28, 2017, pursuant to a
Securities Purchase Agreement and Convertible Note Agreement with Labrys (see Note 10), the Company considered issued to
Labrys 336, shares of the Company’s common stock, as a commitment fee which was to be returned to the Company in the
event that it pays all unpaid principal and interest under the Note within 180 days of November 20, 2017. Prior to the
February 7, 2018 amendment discussed below, pursuant to ASC 260 the 336, shares were considered contingent shares and not
considered outstanding and not accounted for due to the contingency. On February 7, 2018, the Company amended the terms of
the convertible note dated November 28, 2017 whereby the holder waives all existing events of default to date and in return
shall no longer be required to return, under any circumstances, the commitment shares back to the Company’s treasury.
On February 16, 2018, the Company issued the 336, shares at the then market close price of $89.98 per share for a value of
$30,234, which was expensed.
On February 16, 2018, pursuant to
a Securities Purchase Agreement and Convertible Note Agreement with Labrys (see Note 10), the Company issued to Labrys 421, shares
of the Company’s common stock, as a commitment fee which was to be returned to the Company in the event that it pays all
unpaid principal and interest under the Note within 180 days of December 26, 2017. Prior to the February 7, 2018, amendment discussed
below, pursuant to ASC 260 the 421 shares were considered contingent shares and not considered outstanding and not accounted for
due to the contingency. On February 7, 2018, the Company amended the terms to the convertible note dated December 26, 2017 whereby
the holder waives all existing events of default to date and in return shall no longer be required to return, under any circumstances,
the commitment shares back to the Company’s treasury. On February 16, 2018, the Company issued the 421, shares at the then
market close price of $90.04 per share for a value of $37,911, which was expensed.
Shares Issued Under 3(a)(10)
The Company issued common shares to Livingston
Asset Management, pursuant to its senior secured creditor’s (TCA) Replacement Note A and the related 3(a)(10) settlement
(see Note 10).
Between March 14, 2018 and October 29,
2018, 101,624 common shares were issued by the Company and sold by Livingston, with 71,624 shares issued and sold through September
30, 2018, and the remaining 30,000 issued as of September 30, 2018 and sold as of November 22, 2018.
The shares of the Company’s common
stock issued under section 3(a)(10) of the Securities Act, have been initially recorded at par value with an equal charge to additional
paid-in capital and proceeds of $308,100 and pro rata note premium of $204,989 totaling $513,089 have been recorded as equity relating
to these issued shares as of September 30, 2018.
Between February 4, 2019 and September
30, 2019, 1,273,261 common shares were issued to Livingston of which 220,239 shares remained under Livingston’s control as
of September 30, 2019. The issuances totaling $127,328 were credited to common stock with the same amount charged to additional
paid in capital until remitted to TCA (see below). Refer to note 18.
Common Stock Sold for Settlement Payment
of 3(a)(10)
On November 22, 2018 Livingston Asset Management
finalized sale of 30,000 shares of common stock and remitted a payment to TCA for $45,320 in partial settlement of TCA Note A under
the terms of the 3(a)(10) agreement. The liability was reduced by $45,320. The principal reduction of $45,320 and related debt
premium of $30,618 were recorded as additional paid in capital.
Between February 4, 2019 and March 27,
2019, 645,728 shares were sold and settled. Livingston remitted payments of $225,000, in partial settlement of the TCA Note A,
under the 3(a)(10) arrangement. The liability was reduced by $225,000; the principal reduction of $225,000 and the related debt
premium of $150,000 were recorded as additional paid in capital.
In total $270,320, was remitted to TCA
reducing the related note from $691,907 to $421,587 during the year ended September 30, 2019 and $180,618 was charged to debt premium
reducing the balance to $281,054 at September 30, 2019.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Shares Issued for Warrant Exercise
On October 17, 2018, Crown Bridge Partners
was issued 35,420, common shares at $7.20, in a cashless exchange for 39,991, warrants surrendered. $68,232, was recorded as equity
and derivative liabilities were reduced by the same amount.
On January 4, 2019, Crown Bridge Partners
was issued 52,101, common shares at $0.2235, in a cashless exchange for 58,230, warrants surrendered. $28,892, was recorded as
equity and derivative liabilities were reduced by the same amount.
On February 6, 2019, Crown Bridge Partners
was issued 60,612 common shares at $0.6815, in a cashless exchange for 69,375, warrants surrendered. $41,307, was recorded as equity
and derivative liabilities were reduced by the same amount.
In total $138,430, was reclassified from
derivative liability to additional paid in capital.
Shares Issued for Conversion of Convertible
Notes
During the year ended September 30, 2018
the Company issued 605,809, common shares to convertible note holders upon contractual conversion of principal, default charges
and accrued interest totaling $1,537,184. The credit to equity of $2,135,815, includes the fair value of shares issued upon conversion
of convertible notes with embedded conversion option derivatives and the reclassification of debt premiums on convertible notes
treated as stock settled debt.
Between November 1, 2018, and December
5, 2018 Jefferson Street Capital was issued 128,620, common shares for conversion of principal related to the Porta Pellex note
assignment and restatement (See Note 11). The note was converted at contractual rates and the shares issued had aggregate fair
values on the conversion dates of $166,929. The note principal of $62,500, interest due of $7,500, and fees of $4,400, were fully
liquidated as a result of the conversions. Derivative liabilities of $78,471 were reclassified to additional paid in capital, debt
discount of $62,500 was amortized to interest expense and loss on debt extinguishment of $14,057 was recorded.
Between November 6, 2018, and November
27, 2018 Trillium Partners LP was issued 115,669, common shares for conversion of $62,500, principal related to the Porta Pellex
note assignment and restatement (See Note 11). The note principal of $62,500, accrued interest or $7,500, and fees of $2,290 were
fully liquidated as a result of the conversions. The note was converted at contractual rates. Debt premiums of $62,500 were recorded
as additional paid in capital.
On January 8, 2019, Livingston Asset Management,
LLC converted $9,500, of principal, $682, of accrued interest and $1,145, in fees for the fee note issued June 1, 2018, for 45,306,
common shares at the contractual price of $0.25. $9,500, was reclassified from debt premium to additional paid in capital at conversion.
The unliquidated balance of the fee note was $3,000, following the conversion.
On January 18, 2019, Livingston Asset Management
converted $3,000, of the remaining principal balance, $24, of accrued interest and $1,145, in fees for the fee note issued June
1, 2018, and $12,500, of principal, $678, of accrued interest and $1,145, in fees from the fee note issued July 1, 2018, for total
of 73,968, shares of common stock at the contracted price of $0.25. $15,500, was reclassified from debt premium to additional paid
in capital at conversion. The notes were fully liquidated following the conversions.
On February 11, 2019, Livingston Asset
Management converted $12,500, of principal, $654, of accrued interest and $1,145, in fees from the fee note issued August 1, 2018,
for 47,664, common shares at the contracted price of $0.30. $12,500, was reclassified from debt premium to additional paid in capital
at conversion.
On March 18, 2019, Livingston Asset Management
converted $12,500, of principal, $640, of accrued interest and $1,145, in fees from the fee note issued September 1, 2018, for
47,618, common shares at the contracted price of $0.30. $12,500, was reclassified from debt premium to additional paid in capital
at conversion.
For the Livingston Asset Management LLC
conversions noted above from January 8, 2019 to March 18, 2019, total debt, interest and fees were $58,403, and related debt premium
of $50,000, resulted in credits to equity of $108,403.
On April 3, 2019, Livingston Asset Management
converted $12,500, of principal, $627, of accrued interest and $1,250, in fees from the fee note issued October 1, 2018, for 71,884,
common shares at the contracted price of $0.20. $12,500, was reclassified from debt premium to additional paid in capital at conversion.
On June 19, 2019, Livingston Asset Management
converted $12,500, of principal, $757, of accrued interest and $1,250, in fees from the fee note issued November 1, 2018, for 145,069,
common shares at the contracted price of $0.10. $12,500, was reclassified from debt premium to additional paid in capital at conversion.
On June 25, 2019, Livingston Asset Management
converted $2,125, of principal, $658, of accrued interest and $1,250, in fees from the fee note issued November 1, 2018, for 80,651,
common shares at the contracted price of $0.10. The remaining principal balance was $10,375, as of September 30, 2019. $2,125,
was reclassified from debt premium to additional paid in capital at conversion.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
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 years ended September 30, 2019 and 2018.
For the year ended September 30, 2019 and
2018, the Company recorded $265,113 and $137,969 of compensation and consulting expense related to stock options, respectively.
Total unrecognized compensation and consulting expense related to unvested stock options at September 30, 2019 amounted to $353,265.
The weighted average period over which share-based compensation expense related to these options will be recognized is approximately
2 years.
For the years ended September, 2019 and
2018, a summary of the Company’s stock options activity is as follows:
|
|
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, 2017
|
|
|
44,351
|
|
|
$
|
210.00
|
|
|
|
9.27
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(25,846
|
)
|
|
|
200.00
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Outstanding at September 30, 2018
|
|
|
18,505
|
|
|
|
220.00
|
|
|
|
8.46
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(750
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
|
17,755
|
|
|
|
220.00
|
|
|
|
7.18
|
|
|
|
-
|
|
|
|
-
|
|
Exercisable at September 30, 2019
|
|
|
12,838
|
|
|
$
|
210.00
|
|
|
|
6.84
|
|
|
$
|
-
|
|
|
$
|
-
|
|
All options were issued at an options price equal to the market
price of the shares on the date of the grant.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Warrants
On September 9, 2016, 500 5-year warrants
exercisable at $0.01 per share were issued as part of the consideration for the Howco acquisition. These warrants were valued at
aggregate of $180,000.
On November 9, 2017, the Company received
a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge
under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant to
purchase 100 shares of the Company’s common stock at an exercise price of $350 as a commitment fee which is equal to the
product of one-third of the face value of each tranche divided by $350. On December 20, 2017 an additional 200 warrants were issued
as a penalty and in order to entice Crown Bridge to waive its right of first refusal to provide additional financing under the
terms of their convertible note. A debt discount of $44,036 was recorded for the relative fair market value of the total 300 warrants
and amortized to interest expense as of September 30, 2018. The warrants have full ratchet price protection and cashless exercise
rights (See Note10). The warrant includes an anti-dilution clause that was triggered on June 4, 2018. On June 4, 2018 an unrelated
convertible note holder became entitled to convert their note into common shares at a 60% discount to the stock’s market
price. The anti-dilution provision trigger in the warrant agreement entitled Crown Bridge to exercise its warrants under a formula
that increased the number of common shares to 31,250 at a price of $3.60 per share. Due to the fact that the number of shares and
exercise price can change due to market changes in the price of the common stock the Company has concluded to treat the warrants
as derivatives and to revalue that derivative at each reporting date. Therefore a derivative liability of $261,484 with a charge
to additional paid in capital was recorded on June 4, 2018. As of September 30, 2019, the warrant was revalued and the warrant
holder is entitled to exercise its warrants for 1,197,770 common shares and the related derivative liability is $119,747.
For the years ended September 30, 2019
and 2018, a summary of the Company’s warrant activity is as follows:
|
|
Number of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at September 30, 2017
|
|
|
500
|
|
|
$
|
10.00
|
|
|
|
2.94
|
|
|
$
|
360.00
|
|
|
$
|
-
|
|
Granted
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-Dilution
|
|
|
68,779
|
|
|
$
|
1.51
|
|
|
|
4.08
|
|
|
|
3.60
|
|
|
$
|
185,822
|
|
Outstanding and exercisable at September 30, 2018
|
|
|
69,579
|
|
|
$
|
1.58
|
|
|
|
4.1
|
|
|
$
|
-
|
|
|
$
|
185,822
|
|
Exercised
|
|
|
(167,596
|
)
|
|
$
|
0.158
|
|
|
|
4.1
|
|
|
$
|
-
|
|
|
|
|
|
Anti-Dilution adjustments during 2019
|
|
|
1,296,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at September 30, 2019
|
|
|
1,198,270
|
|
|
$
|
.04
|
|
|
|
|
|
|
|
|
|
|
|
71,867
|
|
NOTE 13 - DEFINED
CONTRIBUTION PLAN
In August 2016, Drone established a qualified
401(k) plan with a discretionary employer matching provision. All employees who are at least twenty-one years of age and no minimum
service requirement are eligible to participate in the plan. The plan allows participants to defer up to 90% of their annual compensation,
up to statutory limits. Employer contributions charged to operations for the years ended September 30, 2019 and 2018, was $0 and
$0, respectively.
The Company’s subsidiary, Howco,
is the sponsor of a qualified 401(k) plan with a safe harbor provision. All employees are eligible to enter the plan within one
year of the commencement of employment. Employer contributions charged to expense for the years ended September 30, 2019 and 2018,
was $30,683 and $2,080, respectively.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
NOTE 14 - RELATED
PARTY TRANSACTIONS
On October 1, 2016, the Company entered
into employment agreements with two of its officers. The employment agreement with the company’s President and CEO provides
for annual base compensation of $370,000 for a period of three years, which can, at the Company’s election, be paid in cash
or Common Stock or deferred if insufficient cash is available, and provides for other benefits, including a discretionary bonus
and equity provision for the equivalent of 12 months’ base salary, and an additional one-time severance payment of $2,500,000
upon termination under certain circumstances, as defined in the agreement. The employment agreement with the Company’s Treasurer
and CFO provides for annual base compensation of $250,000 for a period of three years, which can, at the Company’s election,
be paid in cash or Company Common Stock or deferred if insufficient cash is available, and provides for other benefits, including
a discretionary bonus and equity grants, provision for the equivalent of 12 months’ base salary and an additional one-time
severance payment of $1,500,000 upon termination under certain circumstances, as defined in the agreement. On July 10, 2017, the
CFO of the Company who was also a member of the Board resigned. Pursuant to the employment agreement, this employee is not eligible
for the one-time severance payment of $1,500,000 and accordingly, the final balance of accrued wages due to this former CFO as
of September 30, 2017 of approximately $93,000 is included in accrued expenses on the accompanying consolidated balance sheet at
September 30, 2019 and 2018.
During 2016, Company entered into an employment
agreement with the Company’s former Chief Strategy Officer which provided for annual base compensation of $400,000 for a
period of three years and provided for other additional benefits as defined in the agreement including a signing bonus of $100,000
payable during the first year of employment. As of September 30, 2019 and 2018, the bonus has not been paid and is included in
accrued expenses. On July 7, 2017, the former Chief Strategy Officer and member of the Board was terminated. His 7,500 options
were subsequently forfeited (See Note 16).
On March 28, 2017, Bantek entered into
an at-will employment agreement with Matthew Wiles as General Manager of Howco. Under the terms of the employment agreement, Mr.
Wiles’ compensation is $140,000 per annum and he also will be eligible for a bonus of 10% of Howco’s gross profits
over $1.25 million to be paid in cash after the annual financial statements have been completed and, if applicable, audited for
filing with the SEC. Mr. Wiles will also receive options to acquire 250 shares of Bantek’s common stock, vesting over five
years in equal amounts on the anniversary date of his Employment Agreement. On September 16, 2019, Mr. Wiles’ employment
agreement was modified to provide salary of $275,000, and an annual bonus of 2% of net income. At the Company’s discretion,
salary and bonus may be paid in cash or stock and payment may be deferred.
On January 30, 2019, the Company filed
Form 8K announcing the Board of Directors appointment on January 5, 2019 of Jeffery L. Garon as member of the board and as the
Company’s chief financial officer. Under the terms of the January 4, 2019 compensation agreement with the CFO, the Company
issues 100 shares each month to the CFO. The monthly stock awards are charged to compensation expense using the grant date quoted
prices. During the year ended September 30, 2019, the Company was obligated to and issued 1,700 common restricted shares to the
former CFO charging payroll expenses $600. The CFO resigned effective June 20, 2019.
On September 16, 2019, the employment agreement
with the President/CEO and discussed above was modified to provide salary of $624,000, and an annual bonus of 3% of net income.
At the Company’s discretion, salary and bonus may be paid in cash or stock and payment may be deferred.
From July 2017 to August 2018, the Company
utilized as its corporate headquarters the office space and equipment of an entity in West Haven, Connecticut related to the Company’s
CEO at no cost. Since September 30, 2018 the Company leases space in New Jersey as its corporate headquarters.
The Company has certain convertible notes
and other promissory notes payable to related parties (see Note 9).
NOTE 15 - INCOME
TAXES
The Company recognizes deferred tax assets
and liabilities for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation
allowance is established to reduce the deferred tax assets if it is more likely than not that a deferred tax asset will not be
realized.
On December 22, 2017, the United States
signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduces the current
federal income tax rate to 21% from 34%. The rate reduction is effective for the Company on October 1, 2018, and is permanent.
The Act has caused the Company’s
deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of
September 30, 2018, the Company recognized the provisional effects of the enactment of the Act for which measurement could be reasonably
estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation of the deferred
tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from these estimates
due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of the Act.
As of September 30, 2019, the Company has net operating loss carryforwards
of approximately $18,664,091 to reduce future taxable income. Of the $18,664,091, $15,789,653, can be used through 2038, and $2,874,438
may be carried forward indefinitely. A valuation allowance for the entire amount of deferred tax assets has been established as
of September 30, 2019 and 2018.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
The provision for (benefit from) income
taxes consists of the following:
|
|
Year
Ended
September 30,
2019
|
|
|
Year
Ended
September 30,
2018
|
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
50
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of the provision for
income taxes at the federal statutory rates of 21% to the Company’s provision for income tax is as follows:
|
|
Year Ended
September 30,
2019
|
|
|
Year Ended
September 30,
2018
|
|
U.S. Federal (tax benefit) provision at statutory rate
|
|
$
|
(1,494,183
|
)
|
|
$
|
(2,021,203
|
)
|
State (tax benefit) income taxes, net of federal benefit
|
|
|
(601,231
|
)
|
|
|
(473,129
|
)
|
Permanent differences
|
|
|
1,017,899
|
|
|
|
61,491
|
|
True up
|
|
|
(575,537
|
)
|
|
|
|
|
Change in Federal tax rate
|
|
|
-
|
|
|
|
2,499,867
|
|
Changes in valuation allowance
|
|
|
1,653,052
|
|
|
|
(67,026
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax
assets and liabilities for the periods presented:
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
1,415,118
|
|
|
$
|
760,339
|
|
Net operating losses
|
|
|
5,496,575
|
|
|
|
4,650,053
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
6,911,693
|
|
|
|
5,410,392
|
|
Valuation allowance
|
|
|
(6,911,693
|
)
|
|
|
(5,258,641
|
)
|
Net deferred tax assets
|
|
|
-
|
|
|
|
151,751
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Identifiable intangibles - Howco Purchase
|
|
|
-
|
|
|
|
(151,751
|
)
|
Total deferred tax liabilities
|
|
|
-
|
|
|
|
(151,751
|
)
|
Net deferred tax
|
|
$
|
-
|
|
|
$
|
-
|
|
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
The Company determines its valuation allowance
on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than
not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable
income, if any, the timing and amount of which are uncertain. Due to the history of losses the Company has generated in the past,
the Company believes that it is not more likely than not that all of the deferred tax assets in the U.S. can be realized as of
September 30, 2019 and 2018, accordingly, the Company has recorded a full valuation allowance on its U.S. deferred tax assets.
The Company files income tax returns in
the United States on federal basis and various states. The Company is not currently under any international or any United States
federal, state and local income tax examinations for any taxable years. All of the Company’s net operating losses are subject
to tax authority adjustment upon examination.
NOTE 16 - 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 was granted a dismissal without prejudice of the lawsuit filed against the previous owners
of Howco. The Company and the previous owners are in discussion to settle the matter as of September 30, 2019.
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 February 11, 2019, the Supreme Court
of the State of New York issued a summons to the former CFO of the Company, to appear before the court to answer the Company’s
complaint seeking payment under a personal guarantee of the defendant to provide half of any compensation paid to the former Chief
Strategy Officer. The Company is seeking $300,000 from the defendant relating to the November 27, 2018 settlement agreement with
the former Chief Strategy Office for $600,000. The former CFO has responded to the suit and has filed a motion to dismiss the Company’s
suit during August of 2019.
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 $156,431, which remain unpaid in accounts payable. The Company has
retained an attorney who is currently working to address the complaint. On August 9, 2019 the Company filed a motion to dismiss
the charge of unjust enrichment, which is pending adjudication.
During the year ended September 30, 2019,
two vendors (The Equity Group and Toppan Vintage) have asserted claims for past due amounts of approximately $59,000, arising from
services provided. The Company has fully recognized in accounts payable the amounts associated with these claims and expects to
resolve the matters to satisfaction of all parties.
Settlements
During the quarter ended June 30, 2017,
the Company received demands for non-payment of five months of rent for its New York location. In July 2017, the Company vacated
the New York premises. Subsequent to June 30, 2017, a lawsuit was filed in the Supreme Court of the State of New York for an alleged
breach of a Service Agreement for approximately $63,000 in connection with the lease the Company entered into for its former office
space in New York. As of September 30, 2017, the Company accrued into accounts payable approximately $63,000 pursuant to ASC 420-10-30
“Cost to Terminate an Operating Lease”. In October 2017, the Company entered into a settlement agreement with the New
York lease landlord and paid $30,000 in full settlement and recorded a settlement gain of $33,361.
On August 9, 2017, a lawsuit was filed
by an investor relations firm against the Company in the Supreme Court, Westchester County (Index No. 61772/2017). The complaint
alleged two causes of action, one for goods and services furnished and one for an account stated, in the amount of $74,325. The
plaintiff obtained a default judgment. The Company has filed an Order to Show Cause to vacate the default judgment on the grounds
that the service of the complaint was invalid. The court granted the Company’s Order to Show Cause on December 19, 2017 and
set the hearing on the Order to Show Cause for January 12, 2018. At December 31, 2017, $68,544 was accrued in accounts payable.
On February 14, 2018 the Company entered into a stipulation agreement with the investor relations firm which settled the amount
due at $20,000 if payment was made by February 21, 2018. The lump sum payment was made on February 16, 2018 and a gain on extinguishment
of debt of $48,544 was recorded.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
On January 29, 2018, the Company entered
into a settlement agreement and mutual release with a vendor who had provided public relations and other consulting services whereby
the Company shall pay to this vendor an aggregate amount of $60,000 of which $30,000 was paid on February 2, 2018. Additionally,
the Company shall pay ten monthly payments of $3,000 per month beginning on February 29, 2018. Additionally, the vendor returned
400, common shares of the Company’s common stock which will be cancelled upon satisfaction of the liability. The liability
is recorded at $21,000 as of September 30, 2019, and 2018. The Company is in discussion with the vendor to address the past due
amounts.
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 now past due and remains unconverted
at September 30, 2019. The accrued balance as accounts payable of $71,700, was recognized a gain on debt extinguishment following
receipt of the waiver and release from the vendor.
During 2016, Company entered into an employment
agreement with the Company’s former Chief Strategy Officer which provided for annual base compensation of $400,000 for a
period of three years and provided for other additional benefits as defined in the agreement including a signing bonus of $100,000
payable during the first year of employment. During November 2018 the Company reached an agreement and executed a related stipulation
and payment terms agreement stemming from the legal action by the former Chief Strategy Officer for improper termination. The plaintiff
agreed to accept $600,000 in payments. The first scheduled payment of $200,000 was made on December 20, 2018 in accordance with
the settlement terms. Twelve monthly payments of approximately $33,333 are due starting on January 15, through December 15, 2019.
As of September 30, 2019, a balance of $131,724 remained as settlement payable which includes related employer payroll taxes expected
to be incurred for future payments.
As of September 30, 2019, the Company has
received demand for payment of past due amounts for services by several consultants and service providers.
Commitments
Lease Obligations
The Company entered into an agreement with
a manufacturer in Pismo Beach, California. The agreement provides for certain services to be provided by the manufacturer as needed
by the Company. The agreement has an initial term of three years with one year renewals. In connection with this agreement, the
Company has agreed to sublease space based in San Luis Obispo, California from the manufacturer for the purposes of the development
and manufacturing of unmanned aerial vehicles. The lease provides for base monthly rent of approximately $15,000 for the initial
term to be increased to $16,500 per month upon extension. The lease term begins February 1, 2017 and expires January 31, 2019 with
the option to extend the term an additional 24 months. However, the Company never took possession of the premises and in July 2017,
the Company made a decision to not take possession of the premises. The Company is in default of the rent payments and had received
oral demand for payments. As of September 30, 2019, and 2018, the Company has not made any of the required monthly rent payments
in connection with this agreement. During fiscal 2017, the Company had expensed and accrued into accounts payable the remaining
amounts due under the term of the lease for a total accrual of $360,000 pursuant to ASC 420-10-30. This balance remains accrued
as of September 30, 2019 and 2018.
In May 2017, the Company extended Howco’s
office lease through May 30, 2020. The lease requires monthly payments including base rent plus CAM with annual increases. Future
minimum lease payments under non-cancelable operating leases at September 30, 2019 are as follows:
Years ending September 30,
|
|
Amount
|
|
2020
|
|
|
40,737
|
|
Total minimum non-cancelable operating lease payments
|
|
$
|
40,737
|
|
For the years ended September 30, 2019
and 2018, rent expense amounted to $59,737 and $55,225, respectively.
Profit Sharing Plan (for Howco)
On April 13, 2018, Howco announced to its
employees a Company-wide profit sharing program. The employee profit share is equal to their annual salary divided by the Company’s
total annual payroll and multiplied by 10% of net income for the fiscal year. During 2019 and 2018 the employees earned approximately
$0 and $21,000 under this plan.
Notice of Default
On September 6, 2019, the Company received
a notice of default under its senior secured credit facility with TCA, for non-payment of amounts due among other matters. Left
uncured the default remedies include seizure of operating assets such as the Company’s subsidiary. Additionally, the default
may trigger cross default provisions under other agreements with other creditors.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
NOTE 17 - CONCENTRATIONS
Concentration of Credit Risk
The Company maintains its cash in bank
and financial institution deposits that at times may exceed federally insured limits. At September 30, 2019, cash in bank did not
exceed the federally insured limits of $250,000. The Company has not experienced any losses in such accounts through September
30, 2019.
Economic Concentrations
With respect to customer concentration,
two customers accounted for approximately 52%, and 14%, of total sales for the year ended September 30, 2019. Three customers accounted
for approximately 52%, 17%, and 10%, of total sales for the period ended September 30, 2018.
With respect to accounts receivable concentration,
two customers accounted for approximately 57%, and 20%, of total accounts receivable at September 30, 2019. Three customers accounted
for approximately 50%, 20% and 20% of total accounts receivable at September 30, 2018.
With respect to supplier concentration,
two suppliers accounted for approximately 18% each of total purchases for the year ended September 30, 2019. Two suppliers accounted
for approximately 34% and 10% of total purchases for the year ended September 30, 2018.
With respect to accounts payable concentration,
three suppliers accounted for approximately 14%, 12%, and 12% of total accounts payable at September 30, 2019. Three suppliers
accounted for approximately 18%, 13%, and 11% of total accounts payable at September 30, 2018.
With respect to foreign sales, it totaled
approximately $57,483 for the year ended September 30, 2019.
NOTE 18 - SUBSEQUENT
EVENTS
Directors’ & Officers’
Insurance Policy Expiration
On October 11, 2019, the Company’s
insurance policy covering directors and officers expired and the carrier declined to renew the policy. The Company is working with
its broker and other carriers to obtain coverage. This lapse of insurance coverage exposes the Company to the risk associated with
its indemnification of its officers against legal actions by third parties as outlined in the officers’ employment agreements
as amended on September 16, 2019.
Default on Convertible Note
On December 30, 2019, the Company failed
to pay the principal and accrued interest on its February 27, 2019, convertible note payable to Redstart Holdings Corp upon its
maturity. Legal counsel for the note holder submitted a demand notice for payment for 150% of the original principal of $78,000
amounting to $117,000 plus accrued interest. The Company will record the default penalty with a charge to interest expense and
increase the principal of the note as of December 30, 2019. The Company will recognize the additional put premium related to the
increased principal as interest expense for stock settled debt.
On October 7, 2019, the Company entered
into a one year agreement for professional services for a one-time fee to be paid with 25,000 common shares of restricted stock.
The services relate mostly to technology and related internet media and website improvement. The shares will be valued at $0.10
per share based on the quoted trading price for total expense of $2,500 to be charged to professional fees.
On October 7, 2019, the Company entered
into a one year agreement for professional services for a one-time fee to be paid with 25,000 common shares of restricted stock
the services relate mostly to investor relations through internet media. The shares will be valued at $0.10 per share for total
expense of $2,500 to be charged to professional fees.
In December 2019, the Company relocated
its primary office to 195 Paterson Avenue, Little Falls, New Jersey, under a one-year lease with an renewal option having monthly
payments of $500.
BANTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND 2018
Convertible and Non-Convertible Notes
Issued
On October 1, 2019 the Company issued a
promissory note for $17,000 to Livingston Asset Management under the services agreement mentioned above. The note bears interest
at 10% and matures in six months.
On October 18, 2019 the Company issued
a convertible promissory note to an attorney for services in the amount of $6,000. The note bears interest at 12%, matures in six
months and is convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30 trading days immediately
preceding the notice of conversion.
On November 1, 2019 the Company issued
a promissory note for $17,000 to Livingston Asset Management under the services agreement mentioned above. The note bears interest
at 10% and matures in six months.
On November 18, 2019 the Company issued
a convertible promissory note to an attorney for services in the amount of $6,000. The note bears interest at 12% and is convertible
into the Company’s common stock at 50% of the lowest closing bid price on the 30 trading days immediately preceding the notice
of conversion.
On December 1, 2019 the Company issued
a promissory note for $17,000 to Livingston Asset Management under the services agreement mentioned above. The note bears interest
at 10% and matures in six months.
On December 18, 2019 the Company
issued a convertible promissory note to an attorney for services in the amount of $6,000. The note bears interest at 12% and is
convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30 trading days immediately preceding
the notice of conversion.
On January 1, 2020, the Company issued
a promissory note for $17,000 to Livingston Asset Management under the services agreement mentioned above. The note bears interest
at 10% and matures in six months.
On January 18, 2020, the Company
issued a convertible promissory note to an attorney for services in the amount of $6,000. The note bears interest at 12% and is
convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30 trading days immediately preceding
the notice of conversion.
On January 28, 2020, the Company’s subsidiary Howco entered
into a Payment Rights Purchase and Sale Agreement financing with EBF Partners, LLC, (merchant cash advance or “MCA”)
with a principal amount of $208,500. Howco received $147,355, in cash, net of original issue discount of $58,500, and legal and
other fees totaling $2,645, which will be amortized to interest expense over the term of the financing. The CEO is a personal guarantor
for the MCA. Howco will make payments each business day by way of an ACH withdrawal of $1,489, for 140 payments. The loan is secured
by receipts from future revenue transactions.
On February 1, 2020, the Company issued a promissory
note for $17,000 to Livingston Asset Management under the services agreement mentioned above. The note bears interest at 10% and
matures in six months.
Note Amendments, Assignments and Restatements
On November 1, 2019, Livingston Asset Management
amended the convertible notes payable received under the Company’s advisory agreement with Livingston to relinquish the conversion
of feature of the notes held by Livingston with immediate effect. The Company will recognize $136,375 from a gain on debt
extinguishment as premiums recorded for stock settled debt (charged as interest expense at the date of note origination) are reclassified.
On November 1, 2019, Trillium Partners
LP, amended the convertible notes payable issued by the Company for cash loan on July 12, 2019, to relinquish the conversion of
feature of the note held by Trillium. The Company will recognize $10,000 from a gain on debt extinguishment as premiums recorded
for stock settled debt (charged as interest expense at the date of note origination) are reclassified.
Common Stock Cancelled for 3(a)(10)
Issuance
On November 7, 2019 Livingston Asset Management
surrendered 194,520 common shares of the Company under the 3(a)(10) settlement to the Company’s transfer agent. The Company
will cancel these shares and reverse the accounting recognition recorded upon issuance. In addition, Livingston transferred ownership
of 25,719 common shares to an unrelated third party.
On April 24, 2018 the Company amended its
articles of incorporation, filed with the Delaware Secretary of State, changing the Company name from Drone USA, Inc. to Bantek,
Inc., which was accepted by FINRA on February 19, 2019. Bantek, Inc. filed a change of name to Bantec, Inc. and to effect a reverse
stock split (of the common stock) of 1 for 1,000 on August 6, 2019.
Reverse Stock Split and Name Change
The 1 share for 1,000 shares reverse stock
split and name change to Bantec, Inc. became effective on February 10, 2020 All common share and per share amounts in the accompanying
consolidated financial statements and footnotes have been retroactively adjusted for all periods presented for the effects of
the reverse split .
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS