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BANTEC, INC.

Date Filed : Jan 21, 2022

S-11ea154291-s1_bantec.htmREGISTRATION STATEMENT

Asfiled with the Securities and Exchange Commission on January 21, 2022

FileNo. 333-        

 

 

UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORMS-1

 

REGISTRATIONSTATEMENT UNDER THE SECURITIES ACT OF 1933

 

BANTEC,INC.

 

Delaware   3721   30-0967943

(State or jurisdiction of

Incorporation or organization)

  (Primary Standard Industrial
Classification Code)
 

(I.R.S. Employer

Identification No.)

 

195Paterson Avenue, Little Falls, NJ 07424

(203)220-2296

(Address,including zip code, and telephone number, including area code,
of registrant’s principle executive offices)

 

VCorpServices, LLC

1013Centre Road, Suite 403-B

Wilmington,DE 19805

(888)528-2677

(Name,address, including zip code, and telephone number, including area code,
of agent for service)

 

Approximatedate of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

Ifany of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities Act of 1933 check the following box: ☐

 

Ifthis Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the sameoffering. ☐

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicateby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingcompany or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

Ifan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complyingwith any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

 

 

 

Calculationof Registration Fee

 

Title of each Class of Securities To be Registered  Amount to be
registered
(1)
   Proposed
maximum
Offering price
per share
(2)(3)
   Proposed
maximum
aggregate
Offering price
   Amount of
registration
fee
 
Common Stock, $0.0001 par value per share, to be offered by the issuer   3,000,000,000   $0.0006   $1,800,000   $166.86 
                     
Total   3,000,000,000   $0.0006   $1,800,000   $166.86 

 

 

(1)In the event of a stock split, stock dividend or similar transaction involving our common stock, the number of shares registered shall automatically be increased to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act of 1933, as amended.

(2)Estimated solely for the purpose of computing the registration fee pursuant to Rule 457 of the Securities Act.

(3)Offering price has been arbitrarily determined by the Board of Directors.

 

TheRegistrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until theRegistrant shall file a further amendment which specifically states that this registration statement shall thereafter become effectivein accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such dateas the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

PRELIMINARYPROSPECTUS

 

BANTEC,INC.

3,000,000,000Shares of Common Stock Offered by the Company

$0.0006per share

 

Thisis a public offering of our common stock, par value $0.0001 per share. We are selling 3,000,000,000 shares of our common stock.

 

Thisoffering will terminate on the date which is 270 days from the effective date of this prospectus, although we may close the offeringon any date prior if the offering is fully subscribed or upon the vote of our board of directors.

 

Wecurrently expect the public offering price of the shares we are offering to be $0.0006 per share of our common stock.

 

TheCompany is quoted on the OTC Pink market and there is a limited established market for our stock. The offering price of the shares hasbeen determined arbitrarily by us. The price does not bear any relationship to our assets, book value, earnings, or other establishedcriteria for valuing a company. In determining the number of shares to be offered and the offering price, we took into considerationour capital structure and the amount of money we would need to implement our business plans. Accordingly, the offering price should notbe considered an indication of the actual value of our securities.

 

Investingin our common stock involves a high degree of risk. See “Risk Factors” for certain risks you should consider before purchasingany shares in this offering. This prospectus is not an offer to sell these securities and it is not the solicitation of an offerto buy these securities in any state where the offeror sale is not permitted.

 

Theoffering is being conducted on a self-underwritten, best efforts basis, which means our management will attempt to sell the shares beingoffered hereby on behalf of the Company. There is no underwriter for this offering.

 

Completionof this offering is not subject to us raising a minimum offering amount. We do not have an arrangement to place the proceeds from thisoffering in an escrow, trust or similar account. Any funds raised from the offering will be immediately available to us for our immediateuse.

 

Anypurchaser of common stock in the offering may be the only purchaser, given the lack of a minimum offering amount.

 

Weare an “emerging growth company” as defined in the Jumpstart Our Business Startups Act.

 

Neitherthe Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determinedif this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

TheCompany does not plan to use this offering prospectus before the effective date.

 

Proceedsto Company in Offering

 

   Number of Shares   Offering Price (1)   Underwriting Discounts & Commissions   Gross Proceeds 
Per Share                    
25% of Offering Sold   750,000,000   $0.0006   $                  0   $450,000 
50% of Offering sold   1,500,000,000   $0.0006   $0   $900,000 
75% of Offering Sold   2,250,000,000   $0.0006   $0   $1,350,000 
Maximum Offering sold   3,000,000,000   $0.0006   $0   $1,800,000 

 

 

(1)Assuming a public offering price of $0.0006 per share, as set forth on the cover page of this prospectus.

 

 

 

 

TABLEOF CONTENTS

 

    Page
SUMMARY   1
THE OFFERING   7
RISK FACTORS   9
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS   34
USE OF PROCEEDS   36
DETERMINATION OF THE OFFERING PRICE   37
DILUTION   38
MARKET FOR REGISTRANT’S COMMON STOCK, DIVIDEND POLICY AND RELATED STOCKHOLDER MATTERS   39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   40
MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   55
PLAN OF DISTRIBUTION   58
DESCRIPTION OF CAPITAL STOCK   59
EXPERTS   60
LEGAL MATTERS   60
WHERE YOU CAN FIND MORE INFORMATION   60
INDEX TO FINANCIAL STATEMENTS   F-1

 

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ABOUTTHIS PROSPECTUS

 

Inmaking your investment decision, you should only rely on the information contained in this prospectus. We have not authorized anyoneto provide you with any other or different information. If anyone provides you with information that is different from, or inconsistentwith, the information in this prospectus, you should not rely on it. We believe the information in this prospectus is materially completeand correct as of the date on the front cover. We cannot, however, guarantee that the information will remain correct after that date.For that reason, you should assume that the information in this prospectus is accurate only as of the date on the front cover and thatit may not still be accurate on a later date. This document may only be used where it is legal to sell these securities. The informationcontained in this prospectus is current only as of its date, regardless of the time of delivery of this prospectus or of any sales ofour shares of common stock.

 

Youshould not interpret the contents of this prospectus to be legal, business, investment or tax advice. You should consult with your ownadvisors for that type of advice and consult with them about the legal, tax, business, financial and other issues that you should considerbefore investing in our common stock.

 

Thisprospectus does not offer to sell, or ask for offers to buy, any shares of our common stock in any state or other jurisdiction in whichsuch offer or solicitation would be unlawful or where the person making the offer is not qualified to do so.

 

Noaction is being taken in any jurisdictions outside the United States to permit a public offering of our common stock or possession ordistribution of this prospectus in those jurisdictions. Persons who come into possession of this prospectus in jurisdictions outsidethe United States are required to inform themselves about, and to observe, any restrictions that apply in those jurisdictions to thisoffering or the distribution of this prospectus. In this prospectus, unless the context otherwise denotes, references to “we,”“us,” “our,” “BANT” and the “Company” refer to Bantec, Inc. (f/k/a Bantek, Inc. and DroneUSA, Inc.)

 

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SUMMARY

 

Thefollowing summary highlights material information in this prospectus. It may not contain all the information that is important to you.For additional information, you should read this entire prospectus carefully, including “Risk Factors” the consolidated financialstatements and the notes to the consolidated financial statements.

 

OrganizationalHistory

 

Wewere formed in Delaware on June 26, 1972 as OCR Corporation, underwent a series of name changes and businesses and on April 25, 2008changed our name to Texas Wyoming Drilling, Inc. On January 26, 2016, we entered into an Equity Exchange Agreement (the “EEA”)whereby we acquired all of the issued and outstanding membership interests in Drone USA, LLC in exchange for 440,425 shares of our commonstock and 250 shares of Series A preferred stock, subsequent and pursuant to our completing a 1-for-150 share reverse stock split onall issued and outstanding common stock which resulted in total issued and outstanding shares of common stock of 6,368 immediately priorto this issuance. In connection with the EEA, 1,253 shares of common stock were relinquished and an additional 44,043 shares of commonstock were issued pursuant to a previous settlement agreement. In connection with the EEA, effective January 26, 2016, we accepted theresignation of Margaret Cadena, the former Chief Executive Officer and Board member, and Richard Kugelman, Dr. Robert Michet, and Dr.David Durkin, the remaining former officers and Board members, and appointed Michael Bannon as Chief Executive Officer, President, Chairmanand Board member and the former Chief Financial Officer of Drone USA, LLC, as Secretary, Treasurer, and Board member. Our former CFOresigned as our CFO and as a member of our Board on July 10, 2017 and Michael Bannon was appointed as CFO. On May 19, 2016, we changedour name to Drone USA, Inc., we changed our ticker symbol to DRUS, and we completed a 1-for-12 share reverse stock split on all issuedand outstanding common stock, with a record date of May 24, 2016, which resulted in total issued and outstanding shares of common stockof 40,842 on June 17, 2016 when all round lot issuances were completed. The company notified shareholders May 30, 2018 that it intendedto increase the authorized shares from 200,000 to 1,500,000 and change the name to Bantek Inc. On February 24, 2019, thecompany notified the shareholders that intended to increase the authorized shares from 1,500,000,000 to 6,000,000,000 shares. 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 September 16,2019, which became effective on February 10, 2020. All share and per share data have been retrospectively adjusted for the effects ofall reverse splits.

 

Weare currently traded on the OTC Pink market under the symbol BANT.

 

OnJune 1, 2016, we entered into an agreement with BRVANT Technologic Solutions (“BRVANT”), a company in Brazil that developsand manufactures UAV systems, embedded systems and simulators for commercial and military customers. We acquired exclusive rights toBRVANT’s UAV technology and intellectual property relating to its UAV technology. As consideration for the agreement, Dr. RodrigoKuntz Rangel, BRVANT’s CEO, was appointed to the position of Chief Technology Officer (CTO) and issued a stock option grant for2,000 shares of common stock in Drone USA. We have the option to acquire ownership of all outstanding capital stock of BRVANT for additionalconsideration of $1 million, but we have not made a decision to make that purchase at this time.

 

OnSeptember 9, 2016, Howco Distributing Co., (“Howco”) became a wholly owned subsidiary of Bantec, Inc. We acquired all ofits issued and outstanding shares held by Paul Charles (“Chuck”) Joy and Kathryn B. Joy, the founders and officers of Howco,for $3,500,000, a warrant for 500 shares of Bantec, Inc. common stock with an exercise price of $10.00 per share, and earnout consideration,the funds for which were received from the TCA loan discussed below. We paid $2,600,000 in cash and issued a note to the sellers for$900,000. Howco is a supplier of spare and replacement parts to the United States Federal Government and commercial customers worldwidewith expertise in Defense Logistics Agency, TACOM, NECO and other Department of Defense acquisition groups. Howco understands the entirecontract and administration management process for Federal Government contracts and supply chain logistics for its Federal Governmentcustomers as well as prime contractors with Federal Government contracts. Prior to the acquisition, Howco reported revenues of approximately$18.78 million and $24.86 million, and net income of approximately $903,000 and $1,013,000, for the period from October 1, 2015 throughSeptember 9, 2016 and the year ended September 30, 2015, respectively. For the year ended September 30, 2021, two customers accountedfor approximately 57%, and 23% of Howco’s total sales. Howco’s dependence on two significant customers, is a risk for itsability to maintain or increase its future revenues since the loss of one or both could have significant adverse financial consequencesfor Howco and Bantec, Inc.

 

 

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TheImpact of COVID-19

 

TheCompany is a wholesale vendor to the Department of Defense through its wholly owned subsidiary, Howco and is directly involved in distributionof advanced low altitude UAV systems, services and products. Both the wholesale vendor and the distribution aspects of the Company’sbusiness have been affected due to the COVID-19 social distancing requirements mandated by the federal, state and local governments wherethe Company’s operations occur. For some businesses, like the Company’s, much of the distribution of its core products anddelivery of its core services cannot always be done through “virtual” means, and even when this is possible, it requiressignificant capital and time to achieve. During the year ended September 30, 2021 sales and shipments at Howco have continued at a lowerrate than during the year ended September 30, 2020. It is anticipated that there may be a higher impact of the COVID-19 being realizedduring the year ended September 30, 2022, however the Company cannot assess the financial impact of the related COVID-19 restrictionsas compared to other economic and business factors.

 

GrowthStrategy

 

Ourparent company intends to focus on raising capital to fund our expansion into the distribution, manufacturing, sanitizing and constructionindustries. Although, we will continually look to grow organically, through franchise creation and through acquisitions. We are lookingfor companies that will ultimately complement each other where we can cross sell our customers a wide variety of goods and services.For example, we are looking to purchase a distributor or manufacturer that will enable us to sell new products to the US government throughour subsidiary Howco.

 

DroneSales

 

Throughour Drone USA website (droneusainc.com) and through limited direct selling efforts we offer police, fire, the US government drone programs.Our drone programs constitute selling our customers drones, drone accessories, accident reconstruction software, drone training, droneservices, counter-drone technology, certificates of authorization (COAs) and Waivers.

 

Acquisitions

 

Weare looking to acquire companies in industries where we possess experience. For example, we would like to acquire companies in the armament,environmental, solar, manufacturing, robotic and logistics industries. When acquired, we will initially run the companies as independententities keeping their identities temporarily intact. When we are confident that we fully know the business and their customers, we willbegin to bring them into the Bantec family changing their names to a Bantec division such as Bantec Robotics, Bantec Arms or Bantec Solar.In the future, we may to look to franchise some of our divisions. This will make up our primary growth path. These are our potentialand intended divisions:

 

  1. Bantec Arms

 

  2. Bantec Robitics

 

  3. Bantec Environmental

 

  4. Bantec Logistics

 

  5. Bantec Solar

 

BantecSanitizing

 

ThroughBantec Sanitizing (a division of Bantec), through our franchising efforts, we sell disinfecting products and equipment to facility ownersin hospitals, universities, manufacturers and building owners. We sell sanitizing products through our website at Bantec.store.

 

 

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Howco’sBusiness

 

Howcois a premier supplier of spare and replacement parts to a wide variety of Federal Government agencies, U.S. military prime contractorsand commercial customers worldwide. Founded in 1990 and located in Vancouver, Washington, Howco’s services encompass bid solicitation,contract management, packaging and logistics for construction, transportation, mining and heavy equipment spare and replacement partsto customers worldwide utilizing a wide variety of supply chain solutions. Howco was the winner of the 2012 United States’ Departmentof Defense Logistics Agency’s Bronze Supplier Award. Howco reported revenues of approximately $2.4 million and $4.5 million, andnet (loss) of approximately ($163,000) and ($166,000), for the year ended September 30, 2021 and 2020.

 

Howco’sGovernment Services Contracts

 

Howcoenters into various types of contracts with our customers, such as Indefinite Delivery, Indefinite Quantity (IDIQ), Cost-Plus-Fixed-Fee(CPFF) Level of Effort (LOE), Cost-Plus-Fixed-Fee (CPFF) Completion, Cost-reimbursement (CR), Firm-Fixed-Price (FFP), Fixed-Price Incentive(FPI) and Time-and-Materials (T&M). The majority of Howco’s revenues are derived from FFP contracts.

 

IDIQcontracts provide for an indefinite quantity of services or stated limits of supplies for a fixed period. They are used when the customercannot determine, above a specified minimum, the precise quantities of supplies or services that the government will require during thecontract period. IDIQs help streamline the contract process and speed service delivery. IDIQ contracts are most often used for servicecontracts and architect-engineering services. Awards are usually for base years and option years. The customer places delivery orders(for supplies) or task orders (for services) against a basic contract for individual requirements. Minimum and maximum quantity limitsare specified in the basic contract as either a number of units (for supplies) or as dollar values (for services).

 

CPFFLOE contracts will be issued when the scope of work is defined in general terms requiring only that the contractor devote a specifiedLOE for a stated time period. A CPFF completion contract will be issued when the scope of work defines a definite goal or target whichleads to an end product deliverable (e.g., a final report of research accomplishing the goal or target).

 

CRcontracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimateof total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk)without the approval of the contracting officer and are suitable for use only when uncertainties involved in contract performance donot permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract.

 

FFPcontract will be issued when acquiring supplies or services on the basis of definite or detailed specifications and fair and reasonableprices can be established at the outset.

 

FPItarget delivery contract will be issued when acquiring supplies or services on the basis of reasonably definite or detailed specificationsand cost can be reasonably predicted at the outset wherein the cost risk will be shared. A firm target cost, target profit, and profitadjustment formula will be negotiated to provide a fair and reasonable incentive and a ceiling that provides for the contractor to assumean appropriate share of the risk.

 

T&Mcontracts provide for acquiring supplies or services on the basis of (i) direct labor hours at specified fixed hourly rates that includewages, overhead, general and administrative expenses, and profit; and (ii) actual cost for materials. A customer may use this contractwhen it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipatecosts with any reasonable degree of confidence.

 

MarketSize

 

Accordingto published reports one-third of the DoD budget request, $247.4 billion, is for procurement and research, development, test, and evaluation(“RDT&E”) in 2020. The U.S. Government spends a portion of this budget on the shipping of replacement parts annually.

 

IntellectualProperty

 

Wereview each of our intellectual properties and make a determination as to the best means to protect such property, by trademark, by copyright,by patent, by trade secret, or otherwise. We believe that we have taken appropriate steps to protect our intellectual properties, basedon our evaluation of the factors unique to each such property, but cannot guarantee that this is the case.

 

 

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RegulatoryMatters

 

Theuse of unmanned aerial vehicles for commercial purposes is governed by the Federal Aviation Administration (“FAA”). On August29, 2016, the new FAA rules took effect for commercial use of small drones. Under the FAA rules commercial drones must be under 55 poundsand be registered with the FAA. The rules require a new “remote pilot certificate”, daylight-only operations 30 minutes beforeofficial sunrise and 30 minutes after official sunset, a requirement that all flights travel at a maximum groundspeed of 100 miles perhour remain, below 400 feet or within 400 feet of a structure and yield the right of way to other aircraft. Under the FAA rules, dronepilots must be at least 16 years old or be supervised by an adult with a remote pilot certificate. The pilot must also maintain “visualline of sight” with the drone at all times, among other requirements. The new rules also require that any drone-related incidentthat results in at least $500 worth of damage or causes serious injury be reported to the FAA within 10 days. The new restrictions canbe waived, but pilots will need to apply directly to the FAA for an exemption and/or a waiver.

 

Competition 

 

DroneUSA LLC

 

Thecompetition for Drone USA consists mainly of resellers of drones who sell to law enforcement, fire departments security companies andthe U.S. government. These competitors primarily are Amazon, Best Buy, Drone Nerds, SYNNEX and other distributors of drones. On the trainingfront our competitors consist of SMG and other training suppliers.

 

Howco

 

Thebusiness of supplying spare and replacement parts to Federal Government agencies, U.S. military prime contractors and commercial customersis very competitive. Among our U.S. based competitors are JGILS that supplies parts manufactured by Fairbanks Morse/Coltec and otherbrands, Ohio Cat that supplies Caterpillar parts, and Kampi Components and Brighton Cromwell, both of which compete with us in severalbrands. 

 

BantecConstruction & Environmental

 

Inthe construction & environmental industries located in the tristate area there is a tremendous amount of competition. In all threestates, we will encounter competition from both small and large contractors, and from union and non-union contractors.

 

Employees

 

Wehave six full-time employees, one with Bantec and five are with Howco, and two part-time employees with Howco. We have no labor unioncontracts and believe relations with our employees are satisfactory.

 

UNRESOLVEDSTAFF COMMENTS

 

None. 

 

PROPERTIES 

 

Bantec,Inc.

 

Ourheadquarters is located at 195 Paterson Ave, Little Falls, New Jersey 07424. 

 

Howco 

 

Howcohas its principal office and warehouse at 6025 East 18th St, Vancouver, WA 98661. Howco entered into a lease on April 28, 2009 that wasextended on April 16, 2020 to May 31, 2023 for approximately 5,624 square feet for its office and warehouse. The lease provides for initialmonthly rent of approximately $5,155 per month with annual rent escalations.

 

 

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SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

 

Thefollowing table sets forth, as of December 29, 2021, certain information concerning the beneficial ownership of our capital stock, includingour common stock, and stock options as converted into common stock basis, by:

 

  each stockholder known by us to own beneficially 5% or more of any class of our outstanding stock;

 

  each director;

 

  each named executive officer;

 

  all of our executive officers and directors as a group; and

 

  each person or group of affiliated persons, who is known by us to beneficially own more than 5% of any class of our outstanding stock.

 

Thecolumn entitled “Percentage of Class” is based on 2,693,360,585 shares of common stock outstanding as of December 20, 2021.Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power withrespect to our common stock. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 daysof December 29, 2021, are considered outstanding and beneficially owned by the person holding the options for the purpose of calculatingthe percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except asotherwise noted, we believe the persons and entities in this table have sole voting and investing power with respect to all of the sharesof our common stock beneficially owned by them, subject to community property laws, where applicable.

 

MichaelBannon has voting control through his ownership of 250 shares of Series A preferred stock. Each share of Series A preferred stock entitlesthe holder to vote on all matters submitted to a vote of our shareholders with each shareholder casting a vote equal to the quotientof the sum of all outstanding shares of common stock divided by 0.99, which based on, 2,693,360,585 shares issued and outstanding equatesto voting rights equal to 2,720,566,247 shares of common stock. 

 

Name and Address 1  Amount and Nature of Beneficial Ownership   Percentage of Class 
Michael Bannon (2)   150,036,703    5.6%
Dr. Rodrigo Kuntz Rangel (3)   3,680    0.000001%
TCA (4)   2,140,016,202    79%
All Officers and Directors as a Group   150,040,383    5.6%

 

 

(1)Unless otherwise indicated, the address of such individual is c/o the Company.

(2)Michael Bannon has voting control through his ownership of 250 shares of Series A preferred stock voting on an as-converted basis. This chart reflects only the issued and outstanding shares of our common stock.

(3)Represents shares issuable upon the exercise of stock options to purchase shares of our common stock that are exercisable within 60 days of December 29, 2021.

(4)Based upon the right of TCA to convert the unpaid principal and interest owed under the convertible note issued by the Company to TCA. TCA is a limited partnership organized under the laws of the Cayman Islands and had its principal office at 19950 West Country Club Drive, 1st Floor, Aventura, Florida 33180. Currently, TCA has ceased operations and its funds and management entities are in receivership.

 

Thenumber of authorized shares is currently 6,000,000,000 and if TCA was to convert its convertible note into common shares, the Companywill not have sufficient shares following a successful offering as contemplated in this Form S1. However, the Company will increase theauthorized shares as needed. Currently, TCA has not indicated that it intends to convert its note, in addition contractually they arenever to hold more than 4.99% of the Company’s outstanding common shares.

 

 

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SecuritiesAuthorized for Issuance under Equity Compensation Plans

 

Thefollowing table sets forth information regarding our equity compensation plans as of September 30, 2021. There are no equity compensationplans that have not been approved by our security holders.

 

Plan Category  Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted average exercise price of outstanding options, warrants and rights ($)   Number of securities remaining available for future issuance under equity compensation plans 
Equity compensation plans approved by security holders   17,223   $230.00    82,777 

 

QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

NotApplicable.

 

 

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THEOFFERING

 

Issuer:   Bantec, Inc.
     
Common stock offered by us:   3,000,000,000 shares at $0.0006 per share
     
Common stock outstanding before the offering:   2,693,360,585 shares
     
Common stock to be outstanding after the offering:   5,693,360,585 shares.
     
Use of proceeds:  

We expect to receive net proceeds from this offering of approximately $1,765,000 assuming all the shares offered hereby are sold and after deducting estimated offering expenses payable by us.

 

We intend to use the net proceeds of the offering for working capital and other general corporate purposes. See “Use of Proceeds.”

     
Dividend policy:   We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in respect of our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors.
     
Risk factors:   Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.
     
Additional Shares to be Authorized  

The Company has plans to increase the authorized shares if needed.

 

EmergingGrowth Company

 

Weare and we will remain an “emerging growth company” as defined under The Jumpstart Our Business Startups Act (the “JOBSAct”), until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenues equal or exceed$1 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our initialpublic offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertibledebt securities, or (iv) the date on which we are deemed a “large accelerated filer” (with at least $700 million in publicfloat) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

 

Asan “emerging growth company”, we may take advantage of specified reduced disclosure and other requirements that are otherwiseapplicable generally to public companies. These provisions include:

 

  only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis” disclosure;

 

  reduced disclosure about our executive compensation arrangements;

 

  no requirement that we hold non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

  exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

 

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Wehave taken advantage of some of these reduced burdens, and thus the information we provide stockholders may be different from what youmight receive from other public companies in which you hold shares.

 

Inaddition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerginggrowth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revisedaccounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accountingstandards is irrevocable.

 

Notwithstandingthe above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backedissuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than$250 million and annual revenues of less than $100 million during the most recently completed fiscal year. In the event that we are stillconsidered a “smaller reporting company”, at such time as we cease being an “emerging growth company”, the disclosurewe will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered eitheran “emerging growth company” or a “smaller reporting company”. Specifically, similar to “emerginggrowth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosuresin their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act (“SOX”) requiring that independentregistered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; andhave certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to providetwo years of audited financial statements in annual reports.

 

 

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RISKFACTORS

 

RISKSRELATING TO OUR DRONE BUSINESS AND OUR INDUSTRY

 

Wehave an extremely limited operating history.

 

Withrespect to the manufacturing and sale of drones, we are currently a start-up company without any current material sales of our droneproducts. There is no historical basis to make judgments on the capabilities associated with our enterprise, management and/or employees’ability to produce a commercial drone product leading to a profitable company beyond what we have acquired through our purchase of Howcowhich is in the business of spare parts and replacement parts.

 

Wewill need to raise additional capital.

 

Giventhe limited revenues from sales of our drone products to date, we expect that Bantec, Inc. will need to obtain additional operating capitaleither through equity offerings, debt offerings or a combination thereof, in the future. In addition, if, in the future, we are not capableof generating sufficient revenues from operations and its capital resources are insufficient to meet future requirements, we may haveto raise funds to allow us to continue to commercialize, market and sell our products. We presently have no committed sources of fundingand we have not entered into any agreements or arrangements with respect to our fundraising efforts. We cannot be certain that fundingwill be available on acceptable terms or at all. To the extent that we raise additional funds by issuing equity securities, our stockholdersmay experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our abilityto conduct business. If we are unable to raise additional capital if required or on acceptable terms, we may have to significantly scaleback, delay or discontinue the development and/or commercialization of our drone products, restrict our operations or obtain funds byentering into agreements on unattractive terms.

 

Ourfinancial status raises doubt about our ability to continue as a going concern.

 

Ourcash and cash equivalents were $985,953 at September 30, 2021. For the year ended September 30, 2021, the Company has incurred a netloss of $1,882,071 and used cash in operations of $1,576,648. The working capital deficit, stockholders’ deficit and accumulateddeficit was $14,709,592, $14,796,078 and $32,956,840, respectively, at September 30, 2021. Furthermore, on September 6, 2019, we receiveda default notice on our payment obligations under the senior secured credit facility agreement with TCA, defaulted on our note payable– Seller in September 2017 and have defaulted on other promissory notes and as of September 30, 2021, we have received severaldemands for payment of past due amounts for services from several consultants and service providers. These matters raise substantialdoubt about our ability to continue as a going concern for a period of twelve months from the issuance date of our consolidated financialstatements included elsewhere in this Form S-1. Our ability to continue as a going concern is dependent upon management’s abilityto further implement its business plan and raise additional capital as needed from the sales of stock or debt. We continue to implementcost-cutting measures, raise equity through our effective S-1 private placement, restructure or repay our secured obligations and structurepayment plans, if necessary, with vendors and service providers who are owed money. The accompanying consolidated financial statementselsewhere in this Form S-1 do not include any adjustments that might be required should we be unable to continue as a going concern.We continue to incur significant operating losses, and management expects that significant on-going operating expenditures will be necessaryto successfully implement our business plan and develop and market our products. Implementation of our plans and our ability to continueas a going concern will depend upon our ability to market our drone technology, continue with sales of equipment spare and replacementparts to the U.S. Government and commercial customers and raise additional capital.

 

Managementbelieves that we have access to capital resources through possible public or private equity offerings, exchange offers, debt financings,corporate collaborations or other means. On June 9, 2021 our current form S-1 became effective and since then we have issued shares forcash. Cash proceeds are been being utilized to reduce debt and fund current and planned operations. In addition, we continue to exploreopportunities to strategically monetize our technology and our services, although there can be no assurance that we will be successfulwith such plans. We have historically been able to raise capital through equity and debt offerings, although no assurance can be providedthat we will continue to be successful in the future. If we are unable to raise sufficient capital through 2022 or otherwise, we maybe required to severely curtail, or even to cease, our operations.

 

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Mostof our management has limited experience in the drone industry

 

Withthe exception of our CTO, our management has limited experience in aerospace, aviation and unmanned aerial systems manufacturing sectors.While our management has considerable general management experience, some have specialized knowledge and abilities in the unmanned aerialindustry, but none of the managers have experience managing a business that manufacturers and markets aircrafts. The management willrely on contracted individuals with the specified skills, qualifications and knowledge related to aircraft manufacturing and marketing,without impacting the overall budget for compensation.

 

Potentialproduct liabilities may harm our operating results.

 

Asa reseller of a UAV products, and with aircrafts and aviation sector companies being scrutinized heavily, we may be subject to FAA mandatesand/or regulations, which could result in potential law suits. Defects in our product may lead to life, health and property risks. Currently,the unmanned aerial systems industry lacks a formative insurance market. It is possible that our operations could be adversely affectedby the costs and disruptions of responding to such liabilities even if insurance against liabilities is available.

 

Ifour proposed marketing efforts are unsuccessful, we may not earn enough revenue to become profitable.

 

Oursuccess will depend on investment in marketing resources and the successful implementation of our marketing plan. Our marketing planmay include attendance at trade shows and making private demonstrations, advertising and promotional materials and advertising campaignsin print and/or broadcast media. We cannot give any assurance that our marketing efforts will be successful. If they are not, revenuemay not be sufficient to cover our fixed costs and we may not become profitable.

 

Wemay be unable to respond to rapid technology changes and innovative products.

 

Ina constantly changing and innovative technology market with frequent new product introductions, enhancement and modifications, we maybe forced to implement and develop new technologies into our products for anticipation of changing customer requirements that may significantlyimpact costs in order to retain or enhance our competitive position in existing and new markets.

 

Thereis intense competition in our market.

 

Theaerospace and aviation markets are very saturated and intensely competitive. By entering this sector, our management is aware that failureto compete with direct market leading companies and new entrants will affect overall business and the product. Therefore, the fasterinnovative applications and technologies are implemented to the developed product; the better the pricing and commercial business strategiesmanagement will be able to offer to businesses purchasing drones. Competitive factors in this market are all related to product performance,price, customer service, training platforms, reputation, sales and marketing effectiveness.

 

Futureacquisitions may be unsuccessful and may negatively affect operations and financial condition.

 

Theintegration of businesses, personnel, product lines and technologies can be difficult, time consuming and subject to significant risks.Any difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and decrease our revenue.

 

Wemay be unable to protect our intellectual property.

 

Ourability to protect proprietary technology and operate without infringing the rights of others will allow our UAV business to competesuccessfully and achieve future revenue growth. If we are unable to protect proprietary technology or infringe upon the rights of others,it could negatively impact our operating results.

 

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Wewill be reliant on information systems, electronic communication systems, and internal and external data and applications.

 

Businessoperations and manufacturing are dependent on computer hardware, software and communication systems. Information systems are vulnerableand are subject to failures that could create internal or external events that will affect our business and operations. Management ismindful of these risks since we have developed a strategy by adopting third party information technology and system practices. Any breachof security could disrupt our overall UAV business and result in various effects in operations and efficiency. UAVs could encounter increasedoverhead costs, loss of important information and data, which may also hinder our reputation.

 

Ifwe lose our key personnel or are unable to hire additional personnel, we will have trouble growing our business.

 

Wedepend to a large extent on the abilities of our key management. The loss of any key employee or our inability to attract or retain otherqualified employees could seriously impair our results of operations and financial condition.

 

Ourfuture success depends on our ability to attract, retain and motivate highly skilled technical, marketing, management, accounting andadministrative personnel. We plan to hire additional personnel in all areas of our business as we grow. Competition for qualified personnelis intense. As a result, we may be unable to attract and retain qualified personnel. We may also be unable to retain the employees thatwe currently employ or to attract additional technical personnel. The failure to retain and attract the necessary personnel could seriouslyharm our business, financial condition and results of operations.

 

Becauseour executive officers collectively own a majority of our outstanding shares, they can elect our directors without regard to other stockholders’votes.

 

OurCEO, Michael Bannon, has majority voting control through his ownership of 250 shares of Series A preferred stock. As a result, he mayelect all of our directors, who in turn elect all executive officers, without regard to the votes of other stockholders. The voting controlof Mr. Bannon gives him the ability to authorize change-in-control transactions, amendments to our certificate of incorporation and othermatters that may not be in the best interests of our minority stockholders. In this regard, Mr. Bannon has absolute control over ourmanagement and affairs.

 

Weface a higher risk of failure because we cannot accurately forecast our future revenues and operating results.

 

Therapidly changing nature of the markets in which we compete makes it difficult to accurately forecast our revenues and operating results.Furthermore, we expect our revenues and operating results to fluctuate in the future due to a number of factors, including the following:

 

the timing of sales of our UAV products;

 

unexpected delays in introducing new UAV products;

 

increased expenses, whether related to sales and marketing, or administration;

 

costs related to anticipated acquisitions of businesses.

 

OurUAV products may suffer defects.

 

Productsmay suffer defects that may lead to substantial product liability, damage or warranty claims. Given our complex platforms and systemswithin our product, errors and defects may be related to flight and/or communications. Such an event could result in significant expensesarising from product liability, warranty claims, and reduce sales, which could have a material adverse effect on business, financialcondition and results of operations.

 

Ourproducts are subject to FAA regulations.

 

Compliancewith the new FAA regulations by businesses interested in using UAVs may negatively affect commercial usage of our UAVs, which will adverselyaffect our operations and overall sales.

 

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Sincewe intend to pursue acquisitions, investments or other strategic relationships or alliances, this will consume significant resources,may be unsuccessful and could dilute holders of our common stock.

 

Acquisitions,investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence,operating losses, and expenses that could have a material adverse effect on our financial condition and operating results. Acquisitionsinvolve numerous other risks, including:

 

Diversion of management time and attention from daily operations;

 

Difficulties integrating acquired businesses, technologies and personnel into our business;

 

Inability to obtain required regulatory approvals and/or required financing on favorable terms;

 

Entry into new markets in which we have little previous experience;

 

Prior approval of any acquisition by TCA (senior lender);

 

Potential loss of our key employees, key contractual relationships or key customers of acquired companies; and

 

Assumption of the liabilities and exposure to unforeseen liabilities of acquired companies.

 

Ifthese types of transactions are pursued, it may be difficult for us to complete these transactions quickly and to integrate these acquiredoperations efficiently into its current business operations. Any acquisitions, investments or other strategic relationships and alliancesby us may ultimately harm our business and financial condition. In addition, future acquisitions may not be as successful as originallyanticipated and may result in impairment charges.

 

Wemay be required to record a significant charge to earnings as we are required to reassess our goodwill or other intangible assets arisingfrom acquisitions.

 

Weare required under U.S. GAAP to review our intangible assets, including goodwill for impairment when events or changes in circumstancesindicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment annually or more frequently if factsand circumstances warrant a review. Factors that may be considered a change in circumstances indicating that the carrying value of ouramortizable intangible assets may not be recoverable include a decline in stock price and market capitalization and slower or declininggrowth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the periodin which any impairment of our goodwill or amortizable intangible assets is determined. During the year ended September 30, 2019, theCompany determined that the carrying value of Goodwill and other intangible assets related to the acquisition Howco were impaired andas a result, charges covering the entire carrying value of those assets was taken into operating results.

 

Ourproducts may be subject to export regulations; government agencies may require terms that are disadvantageous to our business.

 

Ourbusiness model contemplates working with law enforcement and possibly military agencies. Because we may sell our products to these customers,we may need to register with the U.S. Department of State under its International Trafficking in Arms Regulations (ITAR). If we chooseto sell our products overseas, we may be required to obtain a license form the State Department or face substantial fines or, in an extremecase, a shutdown of our business. Additionally, government agencies typically require provisions in their contracts that allow them toterminate agreements or change purchasing terms in their discretion without notice. Such contractual provisions, if exercised by ourcustomers in the future, could have a material adverse effect on our cash flow and business performance.

 

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RisksAssociated with the Construction Industry

 

Estimating:

 

Wemay estimate projects incorrectly and ultimately lose money. Depending on the scope and price of the project, this loss could be extensive(in hundreds of thousands or possibly millions).

 

Regulations:

 

Inthe construction we must comply with federal and state regulations. Federal OSHA/EPA inspectors or state Safety/Environmental inspectorsmight visit our projects and possibly find violations and ultimately levy thousands of dollars in fines on us. Being fined could alsodamage our reputation with our customers.

 

Workman’sCompensation

 

Ouremployees can become injured ultimately driving our workman’s compensation MOD higher forcing us to pay higher premiums. Our injuredcould potentially sue our customers via third party lawsuits. If that occurs, contractually, we may be obligated to pay defend our customersin court.

 

Mismanagement

 

Becausethe construction industry is labor intensive, project mismanagement can cost our company potentially tens of thousands and possibly hundredsof thousands of dollars.

 

Unions

 

Wecould be subject to strikes and work slowdowns. In addition, by hiring more expensive union labor, we will be less competitive on non-unionprojects.

 

Theft

 

Bystoring equipment and supplies on project jobsites for long periods of time, we may become a victim of theft. Our employees or employeesworking for site contractors might steal our equipment and supplies.

 

Collections

 

Wemay encounter customers who refuse to pay us. We will have to hire attorneys and expend a lot of management’s time collecting moneyfrom deadbeat customers.

 

PoorWorkmanship

 

Wemay poorly perform on a project and be forced to correct our work ultimately costing us more money than we initially estimated.

 

Bonding

 

Largerprojects may require bid and performance bonds. Due to our financial situation, we may find it difficult to find a company that willprovide us with the necessary bonding capacity to bid larger projects.

 

EconomicDownturn

 

Ifthe northeast economy begins to go into recession, we may find it difficult to secure enough work to keep our construction businessesgoing. It appears the economy is peaking and will ultimately slide into a recession.

 

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RisksRelated to Consolidated Operations

 

Sincewe have acquired Howco and changed its focus to higher margin business resulting in sales declines, it is difficult for potential investorsto evaluate our future consolidated business.

 

Wecompleted the Howco acquisition on September 9, 2016. Therefore, our limited consistent operating history makes it difficult for potentialinvestors to evaluate our business or prospective operations and your purchase of our securities. Sales declines due to efforts to increasegross margin also impacted cash flow which in turn caused liquidity issues. The result has been that some vendors only accept purchaseorders on cash on deliver basis. Therefore, we are subject to the risks inherent in the financing, expenditures, complications and delaysinherent in a newly combined business. These risks are described below under the risk factor titled “Any future acquisitionsthat we may make could disrupt our business, cause dilution to our stockholders and harm our business, financial condition or operatingresults.”

 

Failureto manage or protect growth may be detrimental to our business because our infrastructure may not be adequate for expansion

 

TheHowco acquisition and any planned acquisition require a substantial expansion of our systems, workforce and facilities. We may fail toadequately manage our anticipated future growth. The substantial growth in our operations as a result of the Howco and planned acquisitionsis expected to place a significant strain on our administrative, financial and operational resources, and increase demands on our managementand on our operational and administrative systems, controls and other resources. Howco’s growth strategy includes broadening itsservice and product offerings, implementing an aggressive marketing plan and employing leading technologies. There can be no assurancethat our systems, procedures and controls will be adequate to support our operations as they expand. We cannot assure you that our existingpersonnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfullyimplement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operationaland financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among ourstaff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate theminto our existing staff and systems.

 

Tothe extent we acquire other businesses, we will also need to integrate and assimilate new operations, technologies and personnel. Theintegration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growthin a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financialand managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force. Therecan be no assurance that we would be able to accomplish such an expansion on a timely basis. If we are unable to affect any requiredexpansion and are unable to perform under contracts on a timely and satisfactory basis, the reputation and eligibility to secure additionalcontracts in the future could be damaged. The failure to perform could also result in a contract terminations and significant liability.Any such result would adversely affect our business and financial condition.

 

Wewill need to increase the size of our organization, and we may experience difficulties in managing growth, which would hurt our financialperformance.

 

Inaddition to employees hired from Howco and any other companies which we may acquire, we will need to expand our employee infrastructurefor managerial, operational, financial and other resources at the parent company level. Future growth will impose significant added responsibilitieson members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financialperformance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability tomanage any future growth effectively.

 

Inorder to manage our future growth, we will need to continue to improve our management, operational and financial controls and our reportingsystems and procedures. All of these measures will require significant expenditures and will demand the attention of management. If wedo not continue to enhance our management personnel and our operational and financial systems and controls in response to growth in ourbusiness, we could experience operating inefficiencies that could impair our competitive position and could increase our costs more thanwe had planned. If we are unable to manage growth effectively, our business, financial condition and operating results could be adverselyaffected.

 

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Ourbusiness depends on experienced and skilled personnel, and if we are unable to attract and integrate skilled personnel, it will be moredifficult for us to manage our business and complete contracts.

 

Thesuccess of our business depends on the skill of our personnel. Accordingly, it is critical that we maintain, and continue to build, ahighly experienced management team and specialized workforce, including sales professionals. Competition for personnel, particularlythose with expertise in government consulting and a security clearance is high, and identifying candidates with the appropriate qualificationscan be costly and difficult. We may not be able to hire the necessary personnel to implement our business strategy given our anticipatedhiring needs, or we may need to provide higher compensation or more training to our personnel than we currently anticipate. In addition,our ability to recruit, hire and indirectly deploy former employees of the U.S. Government is subject to complex laws and regulations,which may serve as an impediment to our ability to attract such former employees.

 

Ourbusiness is labor intensive and our success depends on our ability to attract, retain, train and motivate highly skilled employees, includingemployees who may become part of our organization in connection with future acquisitions. The increase in demand for consulting, technologyintegration and managed services has further increased the need for employees with specialized skills or significant experience in theseareas. Our ability to expand our operations will be highly dependent on our ability to attract a sufficient number of highly skilledemployees and to retain our employees and the employees of companies that we have acquired. We may not be successful in attracting andretaining enough employees to achieve our desired expansion or staffing plans. Furthermore, the industry turnover rates for these typesof employees are high and we may not be successful in retaining, training or motivating our employees. Any inability to attract, retain,train and motivate employees could impair our ability to adequately manage and complete existing projects and to accept new client engagements.Such inability may also force us to increase our hiring of independent contractors, which may increase our costs and reduce our profitabilityon client engagements. We must also devote substantial managerial and financial resources to monitoring and managing our workforce. Ourfuture success will depend on our ability to manage the levels and related costs of our workforce.

 

Inthe event we are unable to attract, hire and retain the requisite personnel and subcontractors, we may experience delays in completingcontracts in accordance with project schedules and budgets, which may have an adverse effect on our financial results, harm our reputationand cause us to curtail our pursuit of new contracts. Further, any increase in demand for personnel may result in higher costs, causingus to exceed the budget on a contract, which in turn may have an adverse effect on our business, financial condition and operating resultsand harm our relationships with our customers.

 

Weexpect to expand our business, in part, through future acquisitions, but we may not be able to identify or complete suitable acquisitions,which could harm our financial performance.

 

Acquisitionsare a significant part of our growth strategy. We continually review, evaluate and consider potential investments and acquisitions. Insuch evaluations, we are required to make difficult judgments regarding the value of business opportunities and the risks and cost ofpotential liabilities. We plan to use acquisitions of companies or technologies to expand our project skill-sets and capabilities, expandour geographic markets, add experienced management and increase our product and service offerings. Although we have identified severalacquisition considerations, we may be unable to implement our growth strategy if we cannot reach agreement with acquisition targets onacceptable terms or arrange required financing for acquisitions on acceptable terms. In addition, the time and effort involved in attemptingto identify acquisition candidates and consummate acquisitions may divert members of our management from the operations of our company.

 

Anyfuture acquisitions that we may make could disrupt our business, cause dilution to our stockholders and harm our business, financialcondition or operating results.

 

Ifwe are successful in consummating acquisitions, those acquisitions could subject us to a number of risks, including, but not limitedto:

 

the purchase price we pay and/or unanticipated costs could significantly deplete our cash reserves or result in dilution to our existing stockholders;

 

we may find that the acquired company or technologies do not improve market position as planned;

 

we may have difficulty integrating the operations and personnel of the acquired company, as the combined operations will place significant demands on the Company’s management, technical, financial and other resources;

 

key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition;

 

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we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;

 

we may assume or be held liable for risks and liabilities (including environmental-related costs) as a result of our acquisitions, some of which we may not be able to discover during our due diligence or adequately adjust for in our acquisition arrangements;

 

our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;

 

we may incur one-time write-offs or restructuring charges in connection with the acquisition;

 

we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings; and

 

we may not be able to realize the cost savings or other financial benefits we anticipated.

 

Wecannot assure you that we will successfully integrate or profitably manage any acquired business. In addition, we cannot assure you that,following any acquisition, our continued business will achieve sales levels, profitability, efficiencies or synergies that justify acquisitionor that the acquisition will result in increased earnings for us in any future period. These factors could have a material adverse effecton our business, financial condition and operating results.

 

Insuranceand contractual protections may not always cover lost revenue, increased expenses or liquidated damages payments, which could adverselyaffect our financial results.

 

Althoughwe maintain insurance and intend to obtain warranties from suppliers, obligate subcontractors to meet certain performance levels andattempt, where feasible, to pass risks we cannot control to our customers, the proceeds of such insurance, warranties, performance guaranteesor risk sharing arrangements may not be adequate to cover lost revenue, increased expenses or liquidated damages payments that may berequired in the future.

 

Ifwe are unable to comply with certain financial and operating restrictions in our credit facilities, we may be limited in our businessactivities and access to credit or may default under our credit facilities

 

Pursuantto our Credit Agreement with TCA, all of our assets, including the assets of Howco, are secured with our senior lender. Provisions inthe Credit Agreement and debt instruments impose restrictions or require prior approval on our and certain of our subsidiaries’ability to, among other things:

 

incur additional debt;

 

pay cash dividends and make distributions;

 

make certain investments and acquisitions;

 

guarantee the indebtedness of others or our subsidiaries;

 

redeem or repurchase capital stock;

 

create liens or encumbrances;

 

enter into transactions with affiliates;

 

engage in new lines of business;

 

sell, lease or transfer certain parts of our business or property;

 

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restrictions on incurring obligations for capital expenditures;

 

issue additional capital stock of the Company or any subsidiary of the Company;

 

acquire new companies and merge or consolidate.

 

Theseagreements also contain other customary covenants, including covenants that require us to meet specified financial ratios and financialtests. We may not be able to comply with these covenants in the future. Our failure to comply with these covenants may result in thedeclaration of an event of default and cause us to be unable to borrow under our credit facilities and debt instruments. In additionto preventing additional borrowings under these agreements, an event of default, if not cured or waived, may result in the accelerationof the maturity of indebtedness outstanding under these agreements, which would require us to pay all amounts outstanding. If the maturityof our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrowor obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all. Our failure to repay our bankindebtedness would result in the bank foreclosing on all or a portion of our assets and force us to curtail our operations.

 

Ourobligations to our senior secured lender, TCA, are secured by a security interest in substantially all of our assets, so if we defaulton those obligations, TCA could foreclose on, liquidate and/or take possession of our assets. If that were to happen, we could be forcedto curtail, or even to cease, our operations.

 

Underthe Credit Facility, effective September 13, 2016, with TCA Global Credit Master Fund, L.P. (“TCA”), we borrowed $3.5 millionto acquire Howco and pay certain creditors. The initial loan was due 18 months from the date of the loan and an interest rate of 18%per annum and a default interest rate of 25% per annum. The note, accrued interest, contingency and advisory fees were restructured andas of September 30, 2021, we had approximately $5,326,285 in outstanding principal and $1,738,403 interest owed to TCA, in addition to$421,587, outstanding under the 3(a)(10) settlement agreement. Under the terms of the Credit Facility, all amounts due under it are securedby our assets, including the assets of Howco. As a result of being in default of our payment obligations under the Credit Facility, TCAcould foreclose on its security interest and liquidate or take possession of some or all of these assets, which would harm our business,financial condition and results of operations and could require us to curtail, or even to cease, operations. It should be noted thatTCA and its asset management company’ and its funds are in receivership. We are in negotiation to settle the obligation in favorablemanner.

 

OnSeptember 6, 2019 the Company received a default notice on its payment obligations under the senior secured credit facility agreementfrom TCA. The Company has proposed a number of solutions including refinancing the debt with other parties. TCA’s funds and managementcompanies are no longer operating and in receivership. The Company expects a favorable settlement following communication with the receiver.

 

TCAhas certain rights upon an event of default under its Credit Facility that could harm our business, financial condition and results ofoperations and could require us to curtail or cease our operations.

 

Inlight of being in default under our payment obligations to TCA, it has certain rights under the Credit Facility to protect its financialposition, including an increase in the interest rate on any amounts in default under the terms of the Credit Facility, the right to acceleratethe payment of any outstanding loans made pursuant to the Credit Facility and the right to foreclose on our assets, among other rights.The Credit Facility includes in its definition of an event of default, among other occurrences, the failure to pay any principal or interestwhen due, our termination, winding up, liquidation or dissolution, a change of control, a material adverse change in our financial conditionand the filing of any lien not bonded, vacated or dismissed within 60 days of its filing. The exercise of any of these rights upon anevent of default could substantially harm our financial condition and force us to curtail, or even to cease, our operations.

 

Wemay be subject to damages resulting from claims that the Company or our employees have wrongfully used or disclosed alleged trade secretsof their former employers.

 

Uponcompletion of any acquisitions by the Company, we may be subject to claims that our acquired companies and their employees may have inadvertentlyor otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors. Litigation may be necessaryto defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costsand be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectualproperty rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercializecertain products, which could severely harm our business.

 

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Theloss of our Chief Executive Officer (CEO) or other key personnel may adversely affect our operations.

 

TheCompany’s success depends to a significant extent upon the operation, experience, and continued services of certain of its officers,including our CEO, as well as other key personnel. While our CEO and the executive officers of Howco are all employed under employmentcontracts, there is no assurance we will be able to retain their services. The loss of our CEO or several of the other key personnelcould have an adverse effect on the Company. If the CEO or other executive officers were to leave, we would face substantial difficultyin hiring a qualified successor and could experience a loss in productivity while any successor obtains the necessary training and experience.In addition, our CEO, CFO and other key personnel do not have prior experience in SEC reporting obligations. Furthermore, we do not maintain“key person” life insurance on the lives of any executive officer and their death or incapacity would have a material adverseeffect on us. The competition for qualified personnel is intense, and the loss of services of certain key personnel could adversely affectour business.

 

Internalsystem or service failures could disrupt our business and impair our ability to effectively provide our services and products to ourcustomers, which could damage our reputation and adversely affect our revenues and profitability.

 

Anysystem or service disruptions, including those caused by ongoing projects to improve our information technology systems and the deliveryof services, if not anticipated and appropriately mitigated, could have a material adverse effect on our business including, among otherthings, an adverse effect on our ability to bill our customers for work performed on our contracts, collect the amounts that have beenbilled and produce accurate financial statements in a timely manner. We are also subject to systems failures, including network, softwareor hardware failures, whether caused by us, third-party service providers, cyber security threats, natural disasters, power shortages,terrorist attacks or other events, which could cause loss of data and interruptions or delays in our business, cause us to incur remediationcosts, subject us to claims and damage our reputation. In addition, the failure or disruption of our communications or utilities couldcause us to interrupt or suspend our operations or otherwise adversely affect our business. Our property and business interruption insurancemay be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and,as a result, our future results could be adversely affected.

 

Ourfinancial performance could be adversely affected by decreases in spending on technology products and services by our public sector customers.

 

Oursales to our public sector customers are impacted by government spending policies, budget priorities and revenue levels. Although oursales to the federal government are diversified across multiple agencies and departments, they collectively accounted for approximately62% of Howco’s net sales. An adverse change in government spending policies (including budget cuts at the federal level resultingfrom sequestration), budget priorities or revenue levels could cause our public sector customers to reduce their purchases or to terminateor not renew their contracts with us, which could adversely affect our business, results of operations or cash flows.

 

Ourbusiness could be adversely affected by the loss of certain vendor partner relationships and the availability of their products.

 

Wepurchase products for resale from vendor partners, which include OEMs and wholesale distributors. We are authorized by vendor partnersto sell all or some of their products via direct marketing activities. Our authorization with each vendor partner is subject to specificterms and conditions regarding such things as sales channel restrictions, product return privileges, price protection policies and purchasediscounts. In the event we were to lose one of our significant vendor partners, our business could be adversely affected. As mentionedabove a few vendors have put the Company on a cash on delivery basis.

 

Weexpect to enter into joint ventures, teaming and other arrangements, and these activities involve risks and uncertainties.

 

Weexpect to enter into joint ventures, teaming and other arrangements. These activities involve risks and uncertainties, including therisk of the joint venture or applicable entity failing to satisfy its obligations, which may result in certain liabilities to us forguarantees and other commitments, the challenges in achieving strategic objectives and expected benefits of the business arrangement,the risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts, and the difficultyof managing or otherwise monitoring such business arrangements.

 

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Ourbusiness and operations expose us to numerous legal and regulatory requirements and any violation of these requirements could harm ourbusiness.

 

Weare subject to numerous federal, state and foreign legal requirements on matters as diverse as data privacy and protection, employmentand labor relations, immigration, taxation, anticorruption, import/export controls, trade restrictions, internal and disclosure controlobligations, securities regulation and anti-competition. Compliance with diverse and changing legal requirements is costly, time-consumingand requires significant resources. We are also focused on expanding our business in certain identified growth areas, such as healthinformation technology, energy and environment, which are highly regulated and may expose us to increased compliance risk. Violationsof one or more of these diverse legal requirements in the conduct of our business could result in significant fines and other damages,criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulationsor contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also resultin liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage,restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.

 

Ifwe do not adequately protect our intellectual property rights, we may experience a loss of revenue and our operations may be materiallyharmed.

 

Weregistered a patent during the year ended September 30, 2021 and have contracted an attorney to search any potential infringements. Inaddition, we rely upon confidentiality agreements signed by our employees, consultants and third parties to protect our intellectualproperty. We cannot assure you that we can adequately protect our intellectual property or successfully prosecute potential infringementof our intellectual property rights. Also, we cannot assure you that others will not assert rights in, or ownership of, trademarks andother proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. Our failureto protect our intellectual property rights may result in a loss of revenue and could materially adversely affect our operations andfinancial condition.

 

RisksRelating to Howco’s Business and Industry

 

Wedepend on the U.S. Government for a substantial portion of our business and changes in government defense spending could have adverseconsequences on our financial position, results of operations and business.

 

Approximately62% of our U.S. revenues from Howco’s operations have been from and will continue to be from sales and services rendered directlyor indirectly to the U.S. Government. Our revenues from the U.S. Government largely result from contracts awarded to us under variousU.S. Government programs, primarily defense-related programs with the Department of Defense (DoD), as well as a broad range of programswith the Department of Homeland Security, the intelligence community and other departments and agencies. Cost cutting including throughconsolidation and elimination of duplicative organizations and insurance has become a major initiative for DoD. The funding of our programsis subject to the overall U.S. Government budget and appropriation decisions and processes which are driven by numerous factors, includinggeo-political events and macroeconomic conditions. The overall level of U.S. defense spending increased in recent years for numerousreasons, including increases in funding of operations in Iraq and Afghanistan. However, with the winding down of both wars, defense spendinglevels are becoming increasingly difficult to predict and are expected to be affected by numerous factors. Such factors include prioritiesof the Administration and the Congress, and the overall health of the U.S. and world economies and the state of governmental finances.

 

TheBudget Control Act of 2011 enacted 10-year discretionary spending caps which are expected to generate over $1 trillion in savings forthe U.S. Government, a substantial portion of which comes from DoD baseline spending reductions. In addition, the Budget Control Actof 2011 provides for additional automatic spending cuts (referred to as “sequestration”) totaling $1.2 trillion over nineyears. These reduction targets will further reduce DoD and other federal agency budgets. Although the Office of Management and Budgethas provided guidance to agencies on implementing sequestration cuts, there remains much uncertainty about how exactly sequestrationcuts will be implemented and the impact those cuts will have on contractors supporting the government. Given the potential impasse overraising the debt ceiling, we are not able to predict them impact of budget cuts, including sequestration, on our company or our financialresults. However, we expect that budgetary constraints and concerns related to the national debt will continue to place downward pressureon DoD spending levels and that implementation of the automatic spending cuts without change will reduce, delay or cancel funding forcertain of our contracts - particularly those with unobligated balances - and programs and could adversely impact our operations, financialresults and growth prospects.

 

Significantreduction in defense spending could have long-term consequences for our size and structure. In addition, reduction in government prioritiesand requirements could impact the funding, or the timing of funding, of our programs, which could negatively impact our results of operationsand financial condition. In addition, we are involved in U.S. Government programs, which are classified by the U.S. Government and ourability to discuss these programs, including any risks and disputes and claims associated with and our performance under such programs,could be limited due to applicable security restrictions.

 

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TheU.S. Government Systems spare parts business is intensely competitive and we may not be able to win government bids when competing againstmuch larger companies, which could reduce our revenues and profitability.

 

Largespare parts contracts awarded by the U.S. Government are few in number and are awarded through a formal competitive bidding process,including indefinite delivery/indefinite quantity (“IDIQ”), GSA Schedule and other multi-award contracts. Bids are awardedon the basis of price, compliance with technical bidding specifications, technical expertise and, in some cases, demonstrated managementability to perform the contract. There can be no assurance that the Company will win and/or fulfill additional contracts. Moreover, theaward of these contracts is subject to protest procedures and there can be no assurance that the Company will prevail in any ensuinglegal protest. Howco’s failure to secure a significant dollar volume of U.S. Government contracts in the future would adverselyaffect us.

 

TheU.S. Government spare parts business is intensely competitive and subject to rapid change. Many of the existing and potential competitorshave greater financial, operating and technological resources than Howco. The competitive environment may require us to make changesin our pricing, services or marketing. The competitive bidding process involves substantial costs and a number of risks, including significantcost and managerial time to prepare bids and proposals for contracts that may not be awarded to us, or that may be awarded, but for whichwe do not receive meaningful revenues. Accordingly, our success depends on our ability to develop services and products that addresschanging needs and to provide people and technology needed to deliver these services and products. To remain competitive, we must consistentlyprovide superior service, technology and performance on a cost-effective basis to our customers. Our response to competition could causeus to expend significant financial and other resources, disrupt our operations, strain relationships with partners, any of which couldharm our business and/or financial condition.

 

Ourfinancial performance is dependent on our ability to perform on our U.S. Government contracts, which are subject to termination for convenience,which could harm our financial performance.

 

Ourfinancial performance is dependent on our performance under our U.S. Government contracts. Government customers have the right to cancelany contract for its convenience. An unanticipated termination of, or reduced purchases under, one of the Company’s major contractswhether due to lack of funding, for convenience or otherwise, or the occurrence of delays, cost overruns and product failures could adverselyimpact our results of operations and financial condition. If one of our contracts were terminated for convenience, we would generallybe entitled to payments for our allowable costs and would receive some allowance for profit on the work performed. If one of our contractswere terminated for default, we would generally be entitled to payments for our work that has been accepted by the government. A terminationarising out of our default could expose us to liability and have a negative impact on our ability to obtain future contracts and orders.Furthermore, on contracts for which we are a subcontractor and not the prime contractor, the U.S. Government could terminate the primecontract for convenience or otherwise, irrespective of our performance as a subcontractor.

 

Ourfailure to comply with a variety of complex procurement rules and regulations could result in our being liable for penalties, includingtermination of our U.S. Government contracts, disqualification from bidding on future U.S. Government contracts and suspension or debarmentfrom U.S. Government contracting that could adversely affect our financial condition.

 

Wemust comply with laws and regulations relating to the formation, administration and performance of U.S. Government contracts, which affecthow we do business with our customers and may impose added costs on our business. U.S. Government contracts generally are subject tothe Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements for the acquisition of goods and servicesby the U.S. Government, department-specific regulations that implement or supplement DFAR, such as the DOD’s Defense Federal AcquisitionRegulation Supplement (DFARS) and other applicable laws and regulations. We are also subject to the Truth in Negotiations Act, whichrequires certification and disclosure of cost and pricing data in connection with certain contract negotiations; the Procurement IntegrityAct, which regulates access to competitor bid and proposal information and government source selection information, and our ability toprovide compensation to certain former government officials; the Civil False Claims Act, which provides for substantial civil penaltiesfor violations, including for submission of a false or fraudulent claim to the U.S. Government for payment or approval; the Civil FalseClaims Act, which provides for substantial civil penalties for violations, including for submission of a false or fraudulent claim tothe U.S. Government for payment or approval; and the U.S. Government Cost Accounting Standards, which impose accounting requirementsthat govern our right to reimbursement under certain cost-based U.S. Government contracts. These regulations impose a broad range ofrequirements, many of which are unique to government contracting, including various procurement, import and export, security, contractpricing and cost, contract termination and adjustment, and audit requirements. A contractor’s failure to comply with these regulationsand requirements could result in reductions to the value of contracts, contract modifications or termination, and the assessment of penaltiesand fines and lead to suspension or debarment, for cause, from government contracting or subcontracting for a period of time. In addition,government contractors are also subject to routine audits and investigations by U.S. Government agencies such as the Defense ContractAudit Agency (DCAA) and Defense Contract Management Agency (DCMA). These agencies review a contractor’s performance under its contracts,cost structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of and a contractor’scompliance with its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensationand management information systems. During the term of any suspension or debarment by any U.S. Government agency, contractors can beprohibited from competing for or being awarded contracts by U.S. Government agencies. The termination of any of the Company’s significantGovernment contracts or the imposition of fines, damages, suspensions or debarment would adversely affect the Company’s businessand financial condition.

 

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TheU.S. Government may adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.

 

Ourindustry has experienced, and we expect it will continue to experience, significant changes to business practices as a result of an increasedfocus on affordability, efficiencies, and recovery of costs, among other items. U.S. Government agencies may face restrictions or pressureregarding the type and amount of services that they may obtain from private contractors. Legislation, regulations and initiatives dealingwith procurement reform, mitigation of potential conflicts of interest and environmental responsibility or sustainability, as well asany resulting shifts in the buying practices of U.S. Government agencies, such as increased usage of fixed price contracts, multipleaward contracts and small business set-aside contracts, could have adverse effects on government contractors, including us. Any of thesechanges could impair our ability to obtain new contracts or renew our existing contracts when those contracts are compared to other contractbids. Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement and couldadversely affect our future revenues, profitability and prospects.

 

Wemay incur cost overruns as a result of fixed priced government contracts which would have a negative impact on our operations.

 

Anumber of Howco’s current U.S. Government contracts are multi-award, multi-year IDIQ task order based contracts, which generallyprovide for fixed price schedules for products and services, have no pre-set delivery schedules, have very low minimum purchase requirements,are typically competed among multiple awardees and force us to carry the burden of any cost overruns. Due to their nature, fixed-pricedcontracts inherently have more risk than cost reimbursable contracts. If we are unable to control costs or if our initials cost estimatesare incorrect, we can lose money on these contracts. In addition, some of our contracts have provisions relating to cost controls andaudit rights, and if we fail to meet the terms specified in those contracts, we may not realize their full benefits. Lower earnings causedby cost overruns and cost controls would have a negative impact on our results of operations. The U.S. Government has the right to enterinto contracts with other suppliers, which may be competitive with the Company’s IDIQ contracts. The Company also performs fixedpriced contracts under which the Company agrees to provide specific quantities of products and services over time for a fixed price.Since the price competition to win both IDIQ and fixed price contracts is intense and the costs of future contract performance cannotbe predicted with certainty, there can be no assurance as to the profits, if any, that the Company will realize over the term of suchcontracts.

 

Misconductof employees, subcontractors, agents and business partners could cause us to lose existing contracts or customers and adversely affectour ability to obtain new contracts and customers and could have a significant adverse impact on our business and reputation.

 

Misconductcould include fraud or other improper activities such as falsifying time or other records and violations of laws, including the Anti-KickbackAct. Other examples could include the failure to comply with our policies and procedures or with federal, state or local government procurementregulations, regulations regarding the use and safeguarding of classified or other protected information, legislation regarding the pricingof labor and other costs in government contracts, laws and regulations relating to environmental, health or safety matters, bribery offoreign government officials, import-export control, lobbying or similar activities, and any other applicable laws or regulations. Anydata loss or information security lapses resulting in the compromise of personal information or the improper use or disclosure of sensitiveor classified information could result in claims, remediation costs, regulatory sanctions against us, loss of current and future contractsand serious harm to our reputation. Although we have implemented policies, procedures and controls to prevent and detect these activities,these precautions may not prevent all misconduct, and as a result, we could face unknown risks or losses. Our failure to comply withapplicable laws or regulations or misconduct by any of our employees, subcontractors, agents or business partners could damage our reputationand subject us to fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customercontracts and suspension or debarment from contracting with federal, state or local government agencies, any of which would adverselyaffect our business, reputation and our future results.

 

Wemay fail to obtain and maintain necessary security clearances, which may adversely affect our ability to perform on certain U.S. governmentcontracts and depress our potential revenues.

 

ManyU.S. government programs require contractors to have security clearances. Depending on the level of required clearance, security clearancescan be difficult and time-consuming to obtain. If we or our employees are unable to obtain or retain necessary security clearances, wemay not be able to win new business, and our existing clients could terminate their contracts with us or decide not to renew them. Tothe extent we are not able to obtain and maintain facility security clearances or engage employees with the required security clearancesfor a particular contract, we may not be able to bid on or win new contracts, or effectively rebid on expiring contracts, as well aslose existing contracts, which may adversely affect our operating results and inhibit the execution of our growth strategy.

 

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Ourfuture revenues and growth prospects could be adversely affected by our dependence on other contractors.

 

Ifother contractors with whom we have contractual relationships either as a prime contractor or subcontractor eliminate or reduce theirwork with us, or if the U.S. Government terminates or reduces these other contractors’ programs, does not award them new contractsor refuses to pay under a contract our financial and business condition may be adversely affected. Companies that do not have accessto U.S. Government contracts may perform services as our subcontractor and that exposure could enhance such companies’ prospectof securing a future position as a prime U.S. Government contractor which could increase competition for future contracts and impairour ability to perform on contracts.

 

Wemay have disputes with our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor,customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract, ourhiring of a subcontractor’s personnel or the subcontractor’s failure to comply with applicable law. Current uncertain economicconditions heighten the risk of financial stress of our subcontractors, which could adversely impact their ability to meet their contractualrequirements to us. If any of our subcontractors fail to timely meet their contractual obligations or have regulatory compliance or otherproblems, our ability to fulfill our obligations as a prime contractor or higher tier subcontractor may be jeopardized. Significant lossescould arise in future periods and subcontractor performance deficiencies could result in our termination for default. A termination fordefault could eliminate a revenue source, expose us to liability and have an adverse effect on our ability to compete for future contractsand task orders, especially if the customer is an agency of the U.S. Government.

 

Ourinternational business exposes us to geo-political and economic factors, regulatory requirements and other risks associated with doingbusiness in foreign countries.

 

Weintend to engage in additional foreign operations which pose complex management, foreign currency, legal, tax and economic risks, whichwe may not adequately address. These risks differ from and potentially may be greater than those associated with our domestic business.

 

Ourinternational business is sensitive to changes in the priorities and budgets of international customers and geo-political uncertainties,which may be driven by changes in threat environments and potentially volatile worldwide economic conditions, various regional and localeconomic and political factors, risks and uncertainties, as well as U.S. foreign policy. Our international sales are subject to U.S.laws, regulations and policies, including the International Traffic in Arms Regulations (ITAR) and the Foreign Corrupt Practices Act(see below) and other export laws and regulations. Due to the nature of our products, we must first obtain licenses and authorizationsfrom various U.S. Government agencies before we are permitted to sell our products outside of the U.S. We can give no assurance thatwe will continue to be successful in obtaining the necessary licenses or authorizations or that certain sales will not be prevented ordelayed. Any significant impairment of our ability to sell products outside of the U.S. could negatively impact our results of operationsand financial condition.

 

Ourinternational sales are also subject to local government laws, regulations and procurement policies and practices which may differ fromU.S. Government regulations, including regulations relating to import-export control, investments, exchange controls and repatriationof earnings, as well as to varying currency, geo-political and economic risks. Our international contracts may include industrial cooperationagreements requiring specific in-country purchases, manufacturing agreements or financial support obligations, known as offset obligations,and provide for penalties if we fail to meet such requirements. Our international contracts may also be subject to termination at thecustomer’s convenience or for default based on performance, and may be subject to funding risks. We also are exposed to risks associatedwith using foreign representatives and consultants for international sales and operations and teaming with international subcontractors,partners and suppliers in connection with international programs. As a result of these factors, we could experience award and fundingdelays on international programs and could incur losses on such programs, which could negatively impact our results of operations andfinancial condition.

 

Weare also subject to a number of other risks including:

 

the absence in some jurisdictions of effective laws to protect our intellectual property rights;

 

multiple and possibly overlapping and conflicting tax laws;

 

restrictions on movement of cash;

 

the burdens of complying with a variety of national and local laws;

 

political instability;

 

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currency fluctuations;

 

longer payment cycles;

 

restrictions on the import and export of certain technologies;

 

price controls or restrictions on exchange of foreign currencies; and

 

trade barriers.

 

Ourinternational operations are subject to special U.S. government laws and regulations, such as the Foreign Corrupt Practices Act, andregulations and procurement policies and practices, including regulations to import-export control, which may expose us to liabilityor impair our ability to compete in international markets.

 

Ourinternational operations are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper paymentsor offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purposeof obtaining or retaining business. We have operations and deal with governmental customers in countries known to experience corruption,including certain countries in the Middle East and in the future, the Far East. Our activities in these countries create the risk ofunauthorized payments or offers of payments by one of our employees, consultants or contractors that could be in violation of variouslaws including the FCPA, even though these parties are not always subject to our control. We are also subject to import-export controlregulations restricting the use and dissemination of information classified for national security purposes and the export of certainproducts, services, and technical data, including requirements regarding any applicable licensing of our employees involved in such work.

 

Asa U.S. defense contractor, we are vulnerable to security threats and other disruptions that could negatively impact our business.

 

Asa U.S. defense contractor, we face certain security threats, including threats to our information technology infrastructure, attemptsto gain access to our proprietary or classified information, and threats to physical security. These types of events could disrupt ouroperations, require significant management attention and resources, and could negatively impact our reputation among our customers andthe public, which could have a negative impact on our financial condition, results of operations and liquidity. We are continuously exposedto cyber-attacks and other security threats, including physical break-ins. Any electronic or physical break-in or other security breachor compromise may jeopardize security of information stored or transmitted through our information technology systems and networks. Thiscould lead to disruptions in mission-critical systems, unauthorized release of confidential or otherwise protected information and corruptionof data. Although we have implemented policies, procedures and controls to protect against, detect and mitigate these threats, we faceadvanced and persistent attacks on our information systems and attempts by others to gain unauthorized access to our information technologysystems are becoming more sophisticated. These attempts include covertly introducing malware to our computers and networks and impersonatingauthorized users, among others, and may be perpetrated by well-funded organized crime or state sponsored efforts. We seek to detect andinvestigate all security incidents and to prevent their occurrence or recurrence. We continue to invest in and improve our threat protection,detection and mitigation policies, procedures and controls. In addition, we work with other companies in the industry and governmentparticipants on increased awareness and enhanced protections against cyber security threats. However, because of the evolving natureand sophistication of these security threats, which can be difficult to detect, there can be no assurance that our policies, proceduresand controls have or will detect or prevent any of these threats and we cannot predict the full impact of any such past or future incident.Although we work cooperatively with our customers and other business partners to seek to minimize the impacts of cyber and other securitythreats, we must rely on the safeguards put in place by those entities. Any remedial costs or other liabilities related to cyber or othersecurity threats may not be fully insured or indemnified by other means. Occurrence of any of these security threats could expose usto claims, contract terminations and damages and could adversely affect our reputation, ability to work on sensitive U.S. Governmentcontracts, business operations and financial results.

 

Difficultconditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations.

 

Ourresults of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S.and elsewhere around the world. Weak economic conditions sustained uncertainty about global economic conditions, concerns about futureU.S. budgetary cuts, or a prolonged or further tightening of credit markets could cause our customers and potential customers to postponeor reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business,results of operations or cash flows. In the event of extreme prolonged adverse market events, such as a global credit crisis, we couldincur significant losses.

 

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RisksRelated to Our Common Stock

 

Weare eligible to be treated as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012,and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock lessattractive to investors.

 

We are an “emerging growthcompany”, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerginggrowth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companiesthat are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section404 of the Sarbanes-Oxley Act of 2002, which we refer to as the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executivecompensation in this Form S-1 and our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbindingadvisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition,as an emerging growth company, we are only required to provide two years of audited financial statements and two years of selected financialdata in this Form S-1. We could be an emerging growth company for up to five years, although circumstances could cause us to lose thatstatus earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 beforethat time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases wewould no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertibledebt during any three-year period before that time, we would cease to be an emerging growth company immediately. Even after we no longerqualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to takeadvantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodicreports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock andour stock price may be more volatile.

 

Ourindependent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control overfinancial reporting until the later of our second annual report or the first annual report required to be filed with the Commission followingthe date we are no longer an “emerging growth company” as defined in the JOBS “Act. We cannot assure you that therewill not be material weaknesses or significant deficiencies in our internal controls in the future.

 

Underthe JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standardsapply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standardsand, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growthcompanies.

 

Ourdirectors and executive officers beneficially own a significant number of shares of our common stock. Their interests may conflict withour outside stockholders, who may be unable to influence management and exercise control over our business.

 

Asof the date of this Form S-1, our executive officers and directors beneficially own approximately 5.6% of our shares of common stockand the CEO owns 250 shares of Series A preferred stock the voting rights for the Series A shares entitles the shareholder to votingrights equal to the number of common shares outstanding divided by .99 which will always grant the holder a majority voting capability.As a result, our executive officers and directors may be able to: elect or defeat the election of our directors, amend or prevent amendmentto our certificates of incorporation or bylaws, effect or prevent a merger, sale of assets or other corporate transaction, and controlthe outcome of any other matter submitted to the shareholders for vote. Accordingly, our outside stockholders may be unable to influencemanagement and exercise control over our business.

 

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Wedo not intend to pay cash dividends to our stockholders, so you will not receive any return on your investment in our Company prior toselling your interest in the Company.

 

Wehave never paid any dividends to our common stockholders as a public company. We currently intend to retain any future earnings for fundinggrowth and, therefore, do not expect to pay any cash dividends in the foreseeable future. If we determine that we will pay cash dividendsto the holders of our common stock, we cannot assure that such cash dividends will be paid on a timely basis. The success of your investmentin the Company will likely depend entirely upon any future appreciation. As a result, you will not receive any return on your investmentprior to selling your shares in our Company and, for the other reasons discussed in this “Risk Factors” section, you maynot receive any return on your investment even when you sell your shares in our Company.

 

Anti-Takeover,Limited Liability and Indemnification Provisions

 

Someprovisions of our certificate of incorporation and by-laws may deter takeover attempts, which may inhibit a takeover that stockholdersconsider favorable and limit the opportunity of our stockholders to sell their shares at a favorable price.

 

Underour certificate of incorporation, our Board of Directors may issue additional shares of common or preferred stock. Our Board of Directorshas the ability to authorize “blank check” preferred stock without future shareholder approval. This makes it possible forour board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attemptto acquire us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders wouldreceive a premium over the market price for their shares and/or any other transaction that might otherwise be deemed to be in their bestinterests, and thereby protects the continuity of our management and limits an investor’s opportunity to profit by their investmentin the Company. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeoverproposal was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactionsthat might prevent or render more difficult or costly the completion of the takeover by:

 

diluting the voting or other rights of the proposed acquirer or insurgent stockholder group,

 

putting a substantial voting block in institutional or other hands that might undertake to support the incumbent Board of Directors, or

 

effecting an acquisition that might complicate or preclude the takeover.

 

Delaware’sAnti-Takeover Law may discourage acquirers and eliminate a potentially beneficial sale for our stockholders.

 

Weare subject to the provisions of the Delaware Shareholder Protection Act concerning corporate takeovers. This section prevents many Delawarecorporations from engaging in a business combination with any interested stockholder, under specified circumstances. For these purposes,a business combination includes a merger or sale of more than 5% of our assets, and an interested stockholder includes a stockholderwho owns 10% or more of our outstanding voting stock, as well as affiliates and associates of these persons. Under these provisions,this type of business combination is prohibited for three years following the date that the stockholder became an interested stockholderunless:

 

the transaction in which the stockholder became an interested stockholder is approved by the Board of directors prior to the date the interested stockholder attained that status;

 

on consummation of the transaction that resulted in the stockholder’s becoming an interested stockholder, the interested stockholder owned at least 90% of the voting stock of the corporation outstanding at the time the transaction was commenced, excluding those shares owned by persons who are directors and also officers; or

 

on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least a majority of the outstanding voting stock that is not owned by the interested stockholder.

 

Thisstatute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts toacquire us.

 

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Ourindemnification of our officers and directors may cause us to use corporate resources to the detriment of our stockholders.

 

Ourcertificate of incorporation eliminates the personal liability of our directors for monetary damages arising from a breach of their fiduciaryduty as directors to the fullest extent permitted by Delaware law. This limitation does not affect the availability of equitable remedies,such as injunctive relief or rescission. Our certificate of incorporation requires us to indemnify our directors and officers to thefullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delawarelaw.

 

UnderDelaware law, we may indemnify our directors or officers or other persons who were, are or are threatened to be made a named defendantor respondent in a proceeding because the person is or was our director, officer, employee or agent, if we determine that the person:

 

conducted himself or herself in good faith, reasonably believed, in the case of conduct in his or her official capacity as our director or officer, that his or her conduct was in our best interests, and, in all other cases, that his or her conduct was at least not opposed to our best interests; and

 

in the case of any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

Thesepersons may be indemnified against expenses, including attorneys’ fees, judgments, fines, including excise taxes, and amounts paidin settlement, actually and reasonably incurred, by the person in connection with the proceeding. If the person is found liable to thecorporation, no indemnification will be made unless the court in which the action was brought determines that the person is fairly andreasonably entitled to indemnity in an amount that the court will establish.

 

Insofaras indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us under theabove provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed inthe Securities Act and is, therefore, unenforceable.

 

Ourbylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated byour stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

 

Underthe provisions of our amended and restated bylaws (“bylaws”), unless we consent in writing to the selection of an alternativeforum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceedingbrought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officersor other employees or agents to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provisionof the Delaware General Corporation Law or our amended certificate of incorporation or bylaws; or (iv) any action asserting a claimagainst us governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice ofand have consented to the provisions of our bylaws related to choice of forum. The choice of forum provision in our bylaws may limitour stockholders’ ability to obtain a favorable judicial forum for disputes with us.

 

Theobligations associated with being a public company require significant resources and management attention, which may divert from ourbusiness operations.

 

Weare subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and TheSarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports withrespect to our business and financial condition, proxy statement, and other information. The Sarbanes-Oxley Act requires, among otherthings, that we establish and maintain effective internal controls and procedures for financial reporting. Our Chief Executive Officerand Chief Financial Officer will need to certify that our disclosure controls and procedures are effective in ensuring that materialinformation we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms. We may need to hire additional financial reporting, internalcontrols and other financial personnel in order to develop and implement appropriate internal controls and reporting procedures. As aresult, we will incur significant legal, accounting and other expenses. Furthermore, the need to establish the corporate infrastructuredemanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us fromimproving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internalcontrols and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However,the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict or estimatethe amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materiallyincrease our selling, general and administrative expenses.

 

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Section404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting.In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting,we may identify deficiencies. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act of 2002, thenwe may not be able to obtain the independent account and certifications required by that act, which may preclude us from keeping ourfilings with the SEC current, and interfere with the ability of investors to trade our securities and our shares to continue to be quotedon the OTCQB or our ability to list our shares on any national securities exchange.

 

Ifwe fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accuratelyor prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adverselyimpact the trading price of our common stock.

 

Effectiveinternal controls are necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financialreports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed,and our business and reputation with investors may be harmed. With each prospective acquisition we may make we will conduct whateverdue diligence is necessary or prudent to assure us that the acquisition target can comply with the internal controls’ requirementsof the Sarbanes-Oxley Act. Notwithstanding our diligence, certain internal controls deficiencies may not be detected. As a result, anyinternal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have notperformed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, and may in the future discoverareas of our internal controls that need improvement.

 

Publiccompany compliance may make it more difficult to attract and retain officers and directors.

 

TheSarbanes-Oxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As apublic company, these rules and regulations increase our compliance costs and make certain activities more time consuming and costly.As a public company, these rules and regulations may make it more difficult and expensive for us to maintain our director and officerliability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtainthe same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our boardof directors or as executive officers, and to maintain insurance at reasonable rates, or at all.

 

Ourstock price may be volatile.

 

Themarket price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors,many of which are beyond our control, including the following:

 

our ability to execute our business plan and complete prospective acquisitions;

 

changes in our industry;

 

competitive pricing pressures;

 

our ability to obtain working capital financing;

 

additions or departures of key personnel;

 

limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;

 

sales of our common stock;

 

operating results that fall below expectations;

 

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regulatory developments;

 

economic and other external factors;

 

period-to-period fluctuations in our financial results;

 

our inability to develop or acquire new or needed technologies;

 

the public’s response to press releases or other public announcements by us or third parties, including filings with the SEC;

 

changes in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;

 

the development and sustainability of an active trading market for our common stock; and

 

any future sales of our common stock by our officers, directors and significant stockholders.

 

Inaddition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to theoperating performance of particular companies. These market fluctuations may also materially and adversely affect the market price ofour common stock.

 

Ourshares of common stock are thinly traded, the price may not reflect our value, and there can be no assurance that there will be an activemarket for our shares of common stock either now or in the future.

 

Ourshares of common stock are thinly traded, our common stock is available to be traded and is held by a small number of holders, and theprice may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares ofcommon stock either now or in the future. The market liquidity will be dependent on the perception of our operating business, among otherthings. We will take certain steps including utilizing investor awareness campaigns and firms, press releases, road shows and conferencesto increase awareness of our business. Any steps that we might take to bring us to the awareness of investors may require that we compensateconsultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any effortswill result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate itat a price that reflects the value of the business, and trading may be at an inflated price relative to the performance of the Companydue to, among other things, the availability of sellers of our shares.

 

Ifan active market should develop, the price may be highly volatile. Because there is currently a low price for our shares of common stock,many brokerage firms or clearing firms are not willing to effect transactions in the securities or accept our shares for deposit in anaccount. Many lending institutions will not permit the use of low-priced shares of common stock as collateral for any loans. Furthermore,our securities are currently traded on the OTCQB where it is more difficult (1) to obtain accurate quotations, (2) to obtain coveragefor significant news events because major wire services generally do not publish press releases about these companies, and (3) to obtainneeded capital.

 

Ourcommon stock may be deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.

 

Ourcommon stock is currently subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stockrules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or another national securities exchangeand trades at less than $4.00 per share, other than companies that have had average revenues of at least $6,000,000 for the last threeyears or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years).These rules require, among other things, that brokers who trade penny stock to persons other than “established customers”complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning tradingin the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided notto trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing toact as market makers in these securities is limited. If we remain subject to the penny stock rules for any significant period, it couldhave an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors willfind it more difficult to dispose of our securities.

 

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Offersor availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

Ifour stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding periodunder Rule 144, or shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referredto as an “overhang” and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang,whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing throughthe sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

OurForm S-1 filings disclose the dilutive effect of the Company’s stock sales under various offerings.

 

Salesof substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affectthe price of our common stock and impair our ability to raise capital through the sale of shares.

 

Becausewe became public by means of a reverse merger, we may not be able to attract the attention of major brokerage firms.

 

Theremay be risks associated with us having become public through a “reverse merger.” Securities analysts of major brokerage firmsmay not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurancecan be given that brokerage firms will, in the future, want to conduct any offerings on our behalf.

 

Anysubstantial sale of stock by existing shareholders could depress the market value of our stock, thereby devaluing the market price andcausing investors to risk losing all or part of their investment.

 

Stockholders,including our directors and officers hold a large number of our outstanding shares. We can make no prediction as to the effect, if any,that sales of shares, or the availability of shares for future sale, will have on the prevailing market price of our shares of commonstock. Sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could depress prevailingmarket prices for the shares. Such sales may also make it more difficult for us to sell equity securities or equity-related securitiesin the future at a time and price which it deems appropriate.

 

Ourissuance of preferred stock in the future may adversely affect the rights of our common stockholders.

 

Ourcertificate of incorporation permits us to issue up to 5,000,000 shares of preferred stock with such rights and preferences as the Boardof Directors may designate. As a result, our Board of Directors may authorize a series of preferred stock that would grant to preferredstockholders’ preferential rights to our assets upon liquidation; the right to receive dividends before dividends become payableto our common stockholders; the right to redemption of the preferred stock prior to the redemption of our common stock; and super-votingrights to our preferred stockholders. To the extent that we designate and issue such a class or series of preferred stock, the rightsof our common stockholders may be impaired.

 

RisksRelated to Our IP

 

OurSuccess May Depend on Our Ability to Obtain and Protect the Proprietary Information on Which We Base Our UAV Products.

 

Aswe acquire companies with intellectual property (“IP”) that is important to the development of our UAV products, we willneed to:

 

obtain valid and enforceable patents;

 

protect trade secrets; and

 

operate without infringing upon the proprietary rights of others.

 

Wewill be able to protect our proprietary technology from unauthorized use by third parties only to the extent that such proprietary rightsare covered by valid and enforceable patents or are effectively maintained as trade secrets. Any non-confidential disclosure to or misappropriationby third parties of our confidential or proprietary information could enable competitors to quickly duplicate or surpass our technologicalachievements, thus eroding our competitive position in our market.

 

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Thepatent application process, also known as patent prosecution, is expensive and time-consuming, and we and our current or future licensorsand licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or ina timely manner. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentableaspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protectionon them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with thebest interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applicationsmay exist, or may arise in the future, for example with respect to proper priority claims or inventorship. If we or our current licensorsor licensees, or any future licensors or licensees, fail to establish, maintain or protect such patents and other intellectual propertyrights, such rights may be reduced or eliminated. If our current licensors or licensees, or any future licensors or licensees, are notfully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights couldbe compromised. If there are material defects in the form or preparation of our patents or patent applications, such patents or applicationsmay be invalid and unenforceable. Any of these outcomes could impair our ability to prevent competition from third parties, which mayharm our business.

 

Thepatent applications that we may own or license may fail to result in issued patents in the United States or in other countries. Evenif patents do issue on such patent applications, third parties may challenge the validity, enforceability or scope thereof, which mayresult in such patents being narrowed, invalidated or held unenforceable. For example, U.S. patents can be challenged by any person beforethe new USPTO Patent Trial and Appeals Board at any time within the one-year period following that person’s receipt of an allegationof infringement of the patents. Patents granted by the European Patent Office may be similarly opposed by any person within nine monthsfrom the publication of the grant. Similar proceedings are available in other jurisdictions, and in the United States, Europe and otherjurisdictions third parties can raise questions of validity with a patent office even before a patent has granted. Furthermore, evenif they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent othersfrom designing around our claims. If the breadth or strength of protection provided by the patents and patent applications we hold orpursue with respect to our product candidates is successfully challenged, then our ability to commercialize such product candidates couldbe negatively affected, and we may face unexpected competition that could harm our business. Further, if we encounter delays in our clinicaltrials, the period of time during which we or our collaborators could market our product candidates under patent protection would bereduced.

 

Thedegree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in somecases and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

we might not have been the first to invent or the first to file the inventions covered by each of our pending patent applications and issued patents;

 

others may be able to make, use, sell, offer to sell or import products that are similar to our products or product candidates but that are not covered by the claims of our patents; others may independently develop similar or alternative technologies or duplicate any of our technologies;

 

the proprietary rights of others may have an adverse effect on our business;

 

any proprietary rights we do obtain may not encompass commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties;

 

any patents we obtain or our in-licensed issued patents may not be valid or enforceable; or

 

we may not develop additional technologies or products that are patentable or suitable to maintain as trade secrets.

 

Ifwe or our current licensors or licensees, or any future licensors or licensees, fail to prosecute, maintain and enforce patent protectionfor our product candidates, our ability to develop and commercialize our product candidates could be harmed and we might not be ableto prevent competitors from making, using and selling competing products. This failure to properly protect the intellectual propertyrights relating to our product candidates could harm our business, financial condition and operating results. Moreover, our competitorsmay independently develop equivalent knowledge, methods and know-how.

 

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Evenwhere laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietaryrights, and the outcome of such litigation would be uncertain. If we or one of our collaborators were to initiate legal proceedings againsta third party to enforce a patent covering the product candidate, the defendant could assert an affirmative defense or counterclaim thatour patent is not infringed, invalid and/or unenforceable. In patent litigation in the United States, defendant defenses and counterclaimsalleging non-infringement, invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failureto meet any of several statutory requirements, including lack of novelty, anticipation or obviousness, and lack of written description,definiteness or enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld material informationfrom the USPTO, or made a misleading statement, during prosecution. The outcomes of proceedings involving assertions of invalidity andunenforceability are unpredictable. It is possible that prior art of which we and the patent examiner were unaware during prosecutionexists, which would render our patents invalid. Moreover, it is also possible that prior art may exist that we are aware of, but thatwe do not believe are relevant to our current or future patents, that could nevertheless be determined to render our patents invalid.If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability of our patents covering one of our productcandidates, we would lose at least part, and perhaps all, of the patent protection on such product candidate. Such a loss of patent protectionwould harm our business. Moreover, our competitors could counterclaim in any suit to enforce our patents that we infringe their intellectualproperty. Furthermore, some of our competitors have substantially greater intellectual property portfolios, and resources, than we do.

 

Ourability to stop third parties from using our technology or making, using, selling, offering to sell or importing our products is dependentupon the extent to which we have rights under valid and enforceable patents that cover these activities. If any patent we currently orin the future may own or license is deemed not infringed, invalid or unenforceable, it could impact our commercial success. We cannotpredict the breadth of claims that may be issued from any patent applications we currently or may in the future own or license from thirdparties.

 

Tothe extent that consultants or key employees apply technological information independently developed by them or by others to our productcandidates, disputes may arise as to who has the proprietary rights to such information and product candidates, and certain of such disputesmay not be resolved in our favor. Consultants and key employees that work with our confidential and proprietary technologies are requiredto assign all intellectual property rights in their inventions and discoveries created during the scope of their work to our company.However, these consultants or key employees may terminate their relationship with us, and we cannot preclude them indefinitely from dealingwith our competitors.

 

Ifwe are unable to prevent disclosure of our trade secrets or other confidential information to third parties, our competitive positionmay be impaired.

 

Wealso may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable.Our ability to stop third parties from obtaining the information or know-how necessary to make, use, sell, offer to sell or import ourproducts or practice our technology is dependent in part upon the extent to which we prevent disclosure of the trade secrets that coverthese activities. Trade secret rights can be lost through disclosure to third parties. Although we use reasonable efforts to protectour trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally orwillfully disclose our trade secrets to third parties, resulting in loss of trade secret protection. Moreover, our competitors may independentlydevelop equivalent knowledge, methods and know-how, which would not constitute a violation of our trade secret rights. Enforcing a claimthat a third party is engaged in the unlawful use of our trade secrets is expensive, difficult and time consuming, and the outcome isunpredictable. In addition, recognition of rights in trade secrets and a willingness to enforce trade secrets differs in certain jurisdictions.

 

Ifwe are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcomein that litigation could harm our business.

 

Ourcommercial success depends significantly on our ability to operate without infringing, violating or misappropriating the patents andother proprietary rights of third parties. Our own technologies we acquire or develop may infringe, violate or misappropriate the patentsor other proprietary rights of third parties, or we may be subject to third-party claims of such infringement. Numerous U.S. and foreignissued patents and pending patent applications owned by third parties, exist in the fields in which we are developing our product candidates.Because some patent applications may be maintained in secrecy until the patents are issued, because publication of patent applicationsis often delayed, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain thatwe were the first to invent the technology or that others have not filed patent applications for technology covered by our pending applications.We may not be aware of patents that have already issued that a third party might assert are infringed by our product candidates. It isalso possible that patents of which we are aware, but which we do not believe are relevant to our product candidates, could neverthelessbe found to be infringed by our product candidates. Moreover, we may face patent infringement claims from non-practicing entities thathave no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. In the future, we may agreeto indemnify our manufacturing partners against certain intellectual property claims brought by third parties.

 

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Intellectualproperty litigation involves many risks and uncertainties, and there is no assurance that we will prevail in any lawsuit brought againstus. Third parties making claims against us for infringement, violation or misappropriation of their intellectual property rights mayseek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercializeour product candidates. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research,development, manufacturing or sales of the product or product candidate that is the subject of the suit. Defense of these claims, regardlessof their merit, would cause us to incur substantial expenses and, would be a substantial diversion of resources from our business. Inthe event of a successful claim of any such infringement, violation or misappropriation, we may need to obtain licenses from such thirdparties and we and our partners may be prevented from pursuing product development or commercialization and/or may be required to paydamages. We cannot be certain that any licenses required under such patents or proprietary rights would be made available to us, or thatany offer to license would be made available to us on commercially reasonable terms. If we cannot obtain such licenses, we and our collaboratorsmay be restricted or prevented from manufacturing and selling products employing our technology. These adverse results, if they occur,could adversely affect our business, results of operations and prospects, and the value of our shares.

 

Wemay become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consumingand unsuccessful.

 

Thedefense and prosecution of contractual or intellectual property lawsuits, USPTO interference or derivation proceedings, European PatentOffice oppositions and related legal and administrative proceedings in the United States, Europe and other countries, involve complexlegal and factual questions. As a result, such proceedings may be costly and time-consuming to pursue and their outcome is uncertain.

 

Litigationmay be necessary to:

 

protect and enforce our patents and any future patents issuing on our patent applications;

 

enforce or clarify the terms of the licenses we have granted or may be granted in the future;

 

protect and enforce trade secrets, know-how and other proprietary rights that we own or have licensed, or may license in the future; or

 

determine the enforceability, scope and validity of the proprietary rights of third parties and defend against alleged patent infringement.

 

Competitorsmay infringe our intellectual property. As a result, we may be required to file infringement claims to stop third-party infringementor unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringementproceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from usingthe technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunctionagainst an infringer are not satisfied. An adverse determination of any litigation or other proceedings could put one or more of ourpatents at risk of being invalidated, interpreted narrowly, or amended such that they do not cover our product candidates. Moreover,such adverse determinations could put our patent applications at risk of not issuing, or issuing with limited and potentially inadequatescope to cover our product candidates or to prevent others from marketing similar products.

 

Interference,derivation or other proceedings brought at the USPTO, may be necessary to determine the priority or patentability of inventions withrespect to our patent applications or those of our licensors or potential collaborators. Litigation or USPTO proceedings brought by usmay fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreignpatent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensorsor potential collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protectsuch rights as fully as in the United States.

 

Furthermore,because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, thereis a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings.In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings,motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to benegative, the market price for our common stock could be significantly harmed.

 

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Someof our competitors may be able to sustain the costs of patent-related disputes, including patent litigation, more effectively than wecan because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuationof any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

 

Wemay not be able to enforce our intellectual property rights throughout the world.

 

Filing,prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. Therequirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protectand enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally,laws of some countries outside of the United States do not afford intellectual property protection to the same extent as the laws ofthe United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certainforeign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patentsand other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriationof our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent ownermust grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in allcountries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protectionto develop their own products and, further, may export otherwise infringing products to territories where we have patent protection,if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our products, andour patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

Proceedingsto enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our effortsand resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in major marketsfor our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we maywish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

 

WhereYou Can Find Us

 

Ourprincipal executive offices are located at:

 

Bantec,Inc.

195Paterson Avenue, Little Falls, NJ 07424

Ourtelephone number at this address is: (203) 220-2296

Ourwebsite address is http://www.droneusainc.com

 

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CAUTIONARYSTATEMENT ON FORWARD-LOOKING STATEMENTS

 

Thisprospectus contains forward-looking statements. These statements relate to future events or our future financial performance. We haveattempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,”“continue,” “could,” “estimates,” “expects,” “intends,” “may,”“plans,” “potential,” “predicts,” “should” or “will” or the negative of theseterms or other comparable terminology.

 

Thesestatements are only predictions and involve known and unknown risks, uncertainties, and other factors, including those discussed under“Risk Factors.” The following factors, among others, could cause our actual results and performance to differ materiallyfrom the results and performance projected in, or implied by, the forward-looking statements:

 

the success of our existing and new technologies;

 

our ability to successfully develop and expand our operations;

 

changes in economic conditions, including continuing effects from the recent recession;

 

damage to our reputation or lack of acceptance of our brands;

 

economic and other trends and developments, including adverse weather conditions, in those local or regional areas in which our operations are concentrated;

 

increases in our labor costs, including as a result of changes in government regulation;

 

labor shortages or increased labor costs;

 

increasing competition in the industry in general;

 

changes in attitudes or negative publicity regarding drug safety and health concerns;

 

the success of our marketing programs;

 

potential fluctuations in our quarterly operating results due to new products and other factors;

 

the effect on existing products of focusing on other products in the same markets;

 

of our management team;

 

strain on our infrastructure and resources caused by our growth;

 

the impact of federal, state or local government regulations relating to the industry;

 

the impact of litigation;

 

statements regarding our goals, intentions, plans and expectations, including the introduction of new products and markets and locations we intend to target in the future;

 

statements regarding the anticipated timing and impact of our pending acquisitions;

 

statement regarding our expectation with respect to the potential issuance of stock or shares in connection with our acquisitions or in connection with providing services to client companies.; and

 

statement with respect to having adequate liquidity.

 

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Thefollowing factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressedin the forward-looking statements:

 

changes in the pace of legislation;

 

other regulatory developments that could limit the market for our products;

 

our ability to successfully integrate acquired entities;

 

competitive developments, including the possibility of new entrants into our primary markets;

 

the loss of key personnel; and

 

other risks discussed in this document.

 

Allforward-looking statements in this document are based on information currently available to us as of the date of this prospectus, andwe assume no obligation to update any forward-looking statements other than as required by law.

 

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USEOF PROCEEDS

 

Becausethe offering is a best-efforts offering, we are presenting this information assuming that we sell 25%, 50% and 100% of the shares offeredhereby. For purposes of this table, we used $0.0006, the per-share offering price.

 

   25%  50%  100%
Gross offering proceeds  $450,000   $900,000   $1,800,000 
Estimated expenses of the offering  $35,000   $35,000   $35,000 
Net proceeds from the offering  $415,000   $865,000   $1,765,000 

 

Weintend to use the net proceeds as follows:

 

Expansionof company’s administrative offices, additional staffing in sales, marketing and support personnel, working capital and generalcorporate purposes.

 

Generaland administrative expenses pertain to operating expenses rather than to expenses that can be directly related to the production of anygoods or services, utilities, insurance and managerial salaries which may come at a later date.

 

Thisexpected use of the net proceeds from this offering and our existing cash, cash equivalents and short-term investments represents ourintentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantlydepending on numerous factors, including the progress of our development and commercialization efforts, the status of and results fromclinical trials, as well as any collaborations that we may enter into with third parties, and any unforeseen cash needs. As a result,our management will retain broad discretion over the allocation of the net proceeds from this offering. We have no current agreements,commitments or understandings for any material acquisitions or licenses of any products, businesses or technologies.

 

Ourmanagement will have broad discretion over the uses of the net proceeds from this offering. Pending these uses, we intend to invest thenet proceeds from this offering in a variety of capital preservation investments, including short-term, interest-bearing investment gradesecurities, money market accounts, certificates of deposit and direct or guaranteed obligations of the U.S. government.

 

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DETERMINATIONOF THE OFFERING PRICE

 

Wecurrently expect the offering price to be $0.0006 per share of our common stock for the shares of stock being offered by us pursuantto this prospectus.

 

Theoffering price of the common stock has been arbitrarily determined by our board of directors and bears no relationship to any objectivecriterion of value. The price does not bear any relationship to the Company’s assets, book value, historical earnings or net worth.In determining the offering price, the board of directors considered such factors as the lack of recent trading prices of the commonstock, the board’s perception of our future prospects, past and anticipated operating results, present financial resources andthe likelihood of selling the shares of common stock offered hereby. Accordingly, the offering price should not be considered an indicationof the actual value of the Company or the common stock.

 

Asnoted above you should not consider the offering price as an indication of value of our common stock. You should not assume or expectthat, after the offering, our shares of common stock will trade at or above the offering price in any given time period. Our stock isnot quoted on any major stock market. The market price of our common stock may decline during or after the offering, and you may notbe able to sell the underlying shares of our common stock purchased during the offering at a price equal to or greater than the offeringprice. You should obtain advice from your financial advisor before purchasing shares and make your own assessment of our business andfinancial condition, our prospects for the future, and the terms of the offering.

 

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DILUTION

 

The offering price of the Shares of Common Stock being offered for salepursuant to this Offering is substantially higher than the book value per share of the Common Stock. Accordingly, investors purchasingthe Shares pursuant to this Offering will experience an immediate and significant dilution in the book value per share of the Shares purchased.We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient fundsfor our current or future operating plans. To the extent additional capital is raised through the sale of equity or convertible debt securities,the issuance of these securities could result in further dilution to our stockholders. See Management’s Discussion and Analysis—Wemay require additional capital to finance our operations in the future, but that capital may not be available when it is needed and couldbe dilutive to existing stockholders and we can sell additional shares of common stock without consulting stockholders and without offeringshares to existing stockholders, which would result in dilution of stockholders’ interests in Bantec, Inc. and could depress ourstock price.

 

DILUTIONTABLE

 

Theprice of the current offering is fixed at $0.0006 per common share. This price is significantly higher than the price paid by our Directorsand Officers for common equity since the Company’s inception.

 

Assumingcompletion of the offering, there will be up to 5,693,360,585 common shares outstanding. The following table illustrates the per commonshare dilution that may be experienced by investors at various funding levels based on the Company’s tangible net worth of $15,046,145as of September 30, 2021.

 

Percentage of funding  100%   75%   50%   25% 
Offering price  $0.0006   $0.0006   $0.0006   $0.0006 
Shares after offering   5,693,360,585    4,943,360,585    4,193,360,585    3,433,360,585 
Amount of net new funding  $1,800,000   $1,350,000   $900,000   $450,000 
Proceeds, net of est. offering costs  $1,765,000   $1,315,000   $865,000   $415,000 
Book value before offering (per share)   (0.0056)   (0.0056)   (0. 0056)    (0. 0056) 
Book value after offering (per share)   (0.0023)   (0.0028)   (0.0034)   (0.0042)
Increase in book value per share   0.0033    0.0028    0.0022    0.0013 
Dilution to investors   0.0029    0.0034    0.004    0.0048 
Dilution as percentage of outstanding shares   52.7%   45.5%   35.8%   21.8%

 

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MARKETFOR REGISTRANT’S COMMON STOCK, DIVIDEND POLICY AND RELATED STOCKHOLDER MATTERS

 

MarketInformation

 

Ourcommon stock is quoted on the OTCPink under the trading symbol “BANT”.

 

Thefollowing table sets forth the quarterly high and low sales price per share of our common stock for the periods indicated. The pricesrepresent inter-dealer quotations, which do not include retail mark-up, mark-down or commission and may not necessarily represent actualtransactions.

 

QUARTER ENDED  HIGH   LOW 
December 31, 2021  $0.0036   $0.001 
           
September 30, 2021  $0.0072   $0.0028 
June 30, 2021  $0.0174   $0.0068 
March 31, 2021  $0.1   $0.003 
December 31, 2020  $0.0051   $0.0021 
           
September 30, 2020  $0.479   $0.00225 
June 30, 2020  $0.045   $0.0023 
March 31, 2020  $0.1799   $0.001 
December 31, 2019  $0.2   $0.1 

 

Holders

 

Asof December 20, 2021, there were 2,693,360,585, shares of common stock outstanding, which were held by approximately 314 recordholders.

 

Asof the date of this Form S-1, we have no present commitments to issue shares of our capital stock to any 5% holder, director or nominee,other than pursuant to the exercise of outstanding options as more fully set forth elsewhere in this Form S-1.

 

Dividends

 

Wehave never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund thedevelopment and growth of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future. 

 

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MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

ThisS-1 contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securitiesand Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can betterunderstand a company’s future prospects and make informed investment decisions. This filing and other written and oral statementsthat we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plansand assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using wordssuch as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”“believe,” “will” and similar expressions in connection with any discussion of future operating or financialperformance. In particular, these include statements relating to future actions, future performance or results of current and anticipatedsales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause ouractual results of operations and financial condition to differ materially are set forth on pages 9 – 33 of this filing and in ourAnnual Report on Form 10-K for the fiscal year ended September 30, 2021, as filed with the SEC on January 7, 2022.

 

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

 

Thefollowing discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewherein this Form S-1.

 

Overview

 

Bantec,Inc. is a product and service company targeting the U.S. Government, state governments, municipalities, hospitals, universities, manufacturersand other building owners. Bantec also provides product procurement, distribution, and logistics services through its wholly-owned subsidiary,Howco Distributing Co., (“Howco”) (collectively, the “Company”) to the United States Department of Defense andDefense Logistics Agency. The Company established Bantec Sanitizing in fiscal 2021, which offers sanitizing products and equipment throughits new store bantec.store. Bantec Construction, LLC was established to perform general contracting, currently the plan for the companyis to provide general contracting for projects emanating from Bantec Sanitizing for floor, wall and ceiling installation of materialsthat are easily sanitized. The Company has operations based in Little Falls, New Jersey and Vancouver, Washington. The Company continuesto seek strategic acquisitions and partnerships that offer us an opportunity to grow sales and profit.

 

Liquidityand Capital Resources

 

Asof September 30, 2021, we had $1,205,058 in current assets, including $985,953 in cash, compared to $593,405 in current assets, including$164,014 in cash, at September 30, 2020. Current liabilities at September 30, 2021 totaled $15,914,650 compared to $16,807,686 at September30, 2020. The increase in current assets from September 30, 2020 to September 30, 2021 is primarily due to the sales of common stockfor cash thereby increasing cash by $821,939, slightly offset by decreases in accounts receivable of $221,003. The decrease in currentliabilities from September 30, 2020 to September 30, 2021 is primarily due to the decrease in: accounts payable of approximately $166,000,convertible notes payable and related premiums of approximately $648,000, slightly offset by increases in accrued expenses of approximately$721,000. While we have revenues as of this date, no significant construction, environmental or drone revenues are anticipated untilwe are implementing our full strategic plan of acquisitions and organic growth. We must raise cash to implement our strategy to growand expand per our business plan. We anticipate over the next 12 months the cost of being a reporting public company will be approximately$250,000.

 

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

 

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Weanticipate our short-term liquidity needs to be approximately $7,500,000 which will be used to satisfy certain of our existing currentliabilities and we expect gross profits of approximately $1,000,000. To meet these needs, we intend to complete our equity financingand refinance or restructure certain existing liabilities. Once this is completed, and we implement our sales and marketing plan to sellUAV products, we anticipate minimal long-term liquidity needs which we expect to meet through equity financing or short-term borrowings.

 

Additionally,we will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Ourmanagement will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements,especially that of Section 404 of the Sarbanes-Oxley Act of 2002. This additional corporate governance time required of management couldlimit the amount of time management has to implement the business plan and may impede the speed of its operations.

 

Thefollowing is a summary of the Company’s cash flows provided by (used in) operating, investing and financing activities:

 

   Year Ended
September 30,
2021
   Year Ended
September 30,
2020
 
Net Cash Used in Operating Activities  $(1,576,648)  $(491,000)
Net Cash Used in Investing Activities  $(44,650)  $- 
Net Cash Provided by Financing Activities  $2,443,237   $505,182 
Net (Decrease) Increase in Cash  $821,939   $14,182 

 

2021,Net cash used in operating activities of $1,576,648, is largely the result of net losses of $1,882,071, net gain on debt extingushment,partially offset by non-cash charges for premiums on stock settled debt of $407,186 and increases in account payable and accrued expensesof $703,927.

 

2021,Cash used in investing of $44,650 is due to purchase of patents and related legal fees to register and protect the patent.

 

2021,Cash provided by financing activities is largely the result of stock sales for cash of $3,083,930 and cash received from issuance ofconvertible notes totaling $487,500, somewhat offset by repayments of various debts including fee notes and other financing arrangementsat Howco having a net repayment of approximately $128,000. Refer also to the Consolidated Statements of Changes in Cash Flows includedin the financial statement section of this report.

 

Resultsof Operations

 

YearEnded September 30, 2021 and 2020

 

Wegenerated sales of $2,422,996 and $4,455,186 for the years ended September 30, 2021 and 2020, respectively. For the years ended September30, 2021 and 2020, we reported cost of goods sold of $1,553,516 and $3,351,438, respectively. The decrease in sales and cost of goodssold for the 2021 period is primarily due to liquidity shortfalls impacting inventory availability.

 

Forthe years ended September 30, 2021 and 2020, we reported selling, general, and administrative expenses of $2,834,856 as compared to $2,830,140,an increase of approximately $4,700 or 0.2%. For the year ended September 30, 2021, selling, general, and administrative expenses consistprimarily of professional and consulting fees of approximately $905,000, payroll costs of approximately $1,549,000, and other expensesof approximately $380,000, including rent of approximately $67,000, and travel related costs of approximately $33,000. For the year endedSeptember 30, 2020, selling, general, and administrative expenses consist primarily of professional and consulting fees of approximately$757,000, payroll costs of approximately $1,793,000, other expenses of approximately $179,000, rent of approximately $68,000, and travelrelated costs of approximately $33,000. For the years ended September 30, 2021 and 2020, payroll costs and professional consulting feesincluded stock-based compensation of approximately $251,000 and $127,000, respectively. The slight increase in selling, general, andadministrative costs for the 2021 periods is primarily due to the increases in professional fees and other SGA, partially offset by compensationcosts.

 

Forthe years ended September 30, 2021 and 2020, depreciation expense amounted to approximately $7,000 and $11,000, respectively, and isrelated to the depreciation for demonstration drones.

 

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Forthe years ended September 30, 2021 and 2020, interest and financing costs amounted to approximately $1,440,000 and $1,598,000, respectively.The decrease in interest and financing costs is due primarily to the settlement of debt.

 

Duringthe years ended September 30, 2021 and 2020 the Company incurred net gains on debt extinguishment of approximately $1,537,000 and netlosses on debt extinguishment of approximately $993,000, respectively.

 

Asa result, we reported a net loss of $1,882,071, or $0.001 per common share, and $4,328,318, or $0.05 per common share, for the yearsended September 30, 2021 and 2020, respectively.

 

Off-BalanceSheet Arrangements

 

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

 

CriticalAccounting Policies and Significant Accounting Estimates

 

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

 

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

 

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

 

Wehave identified the accounting policies below as critical to our business operations.

 

AccountsReceivable

 

Tradereceivables 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 Companymay 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.

 

Goodwilland Intangible Assets

 

TheCompany acquired a patent for a new product during the year ended September 30, 2021. The Company capitalized acquisition and relatedlegal fees related to the patent totaling $44,650. The capitalized amount will be amortized over the next three years. Impairment willbe tested annually or as indicators of impairment are available.

 

Long-LivedAssets

 

Long-livedassets 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 expectedto result from use of the assets and their ultimate disposition. In instances where impairment is determined to exist, the Company writesdown the asset to its fair value based on the present value of estimated future cash flows.

 

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RevenueRecognition

 

EffectiveOctober 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 recognitionstandard (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 aresatisfied. The Company’s initial application of ASC 606 did not have a material impact on its financial statements and disclosuresand there was no cumulative effect of the adoption of ASC 606.

 

TheCompany sells a variety of products to government entities. The purchase orders received specifies each item and its manufacturer; theCompany only needs to fulfill the performance obligation by shipping the specified items. No other performance obligations exist underthe 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.

 

Duringthe year-ended September 30, 2021, the Company through its subsidiary Howco entered into contracts to package products for a third-partycompany servicing the same government customer base. The contracts were on job lot basis as shipped to Howco for packaging. The customerwas billed upon completion each job lot at which time revenue was recognized.

 

TheCompany sells drones and related products manufactured by third parties to various parties. The Company also offers technical servicesrelated to drone utilization and performs other services. The Company began offering insulation jackets for commercial and governmentfacilities to insulate and monitor heating and cooling equipment. Contracts for drone related products and services and insulating jacketrelated sales will be evaluated using the five-step process outline above. There have been no material sales for drone products or otherservices 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 ofbusiness and within the lines of business to the extent that the product or service has different revenue recognition characteristics.

 

Stock-BasedCompensation

 

Stock-basedcompensation 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 awardof 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 awardbased on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified methodto determine expected term because of lack of sufficient exercise history. Additionally, effective October 1, 2016, the Companyadopted 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 torecognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognizeforfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financialstatements and related disclosures.

 

Asof October 1, 2018, the Company has early adopted ASU 2018-7 Compensation-Stock Compensation which conforms the accounting for non-employeesto the accounting treatment for employees. The new standard replaces using a fair value as of each reporting date with use of the calculatedfair value as of the grant date. The implementation of the standard provides for the use of the fair market value as of the adoptiondate, rather than using the value as of the original grant date. Therefore, the values calculated and reported at September 30, 2018become a proxy for the grant date value. The Company utilizes the Black-Sholes option pricing model and uses the simplified method todetermine expected term because of lack of sufficient exercise history. There was no cumulative effect on the adoption date.

 

DerivativeLiabilities

 

TheCompany has certain financial instruments that are derivatives or contain embedded derivatives. The Company evaluates all its financialinstruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separatelyaccounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of anyderivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair valueis recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either otherincome 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 losson extinguishment.

 

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ConvertibleNotes with Fixed Rate Conversion Options

 

TheCompany may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstandingprincipal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the commonstock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Companyrecords the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Notedate with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.

 

NetLoss Per Share

 

Basicloss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding forthe period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue commonstock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) ofthe Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of sharesoutstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution.

 

LeaseAccounting

 

InFebruary 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognizea right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present valueof the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for leaseprepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effectivefor 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 earliestperiod presented.

 

Disclosurecontrols and procedures

 

Underthe supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief FinancialOfficer the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as definedin Rule 13a−15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of theperiod covered by this annual report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officerconcluded as of September 30, 2021 that the Company’s disclosure controls and procedures were not effective such that the informationrequired to be disclosed in the Company’s United States Securities and Exchange Commission (the “SEC”) reports is recorded,processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicatedto the Company’s management, including its Chief Executive Officer and Chief Financial Officer, currently the same person to allowtimely decisions regarding required disclosure.

 

Theineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financialreporting. Currently there is no staff with knowledge of Generally Accepted Accounting Procedures on site at Howco. The current proceduresand controls need to be improved for inventory accounting cut-off, timeliness of period end financial closing and account analysis. Sincethe resignation of our former CFO in July 2017, we have not had a qualified in-house financial accounting expert to maintain our parentcompany and consolidation level books and records. To remediate this situation, we have engaged outsourced accountants.

 

Changesin internal control over financial reporting

 

Therehave been no changes in our internal control over financial reporting during the period covered by this report that have materially affected,or are reasonably likely to materially affect, our internal control over financial reporting.

 

QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Notapplicable.

 

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LEGALPROCEEDINGS

 

Inconnection with the merger with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $75,000 againstthe Company. The Company and its legal counsel believe the Company is not liable for the claim pursuant to its indemnification clausein the merger agreement.

 

OnFebruary 6, 2018 the Company sent a letter to the previous owners of Howco Distributing Co. (“Howco”) alleging that theymade certain financial misrepresentations under the terms of the Stock Purchase Agreement by which the Company acquired control of Howcoduring 2016. The Company claimed that the previous owners took excessive amounts of cash from the business prior to the close of themerger. On March 13, 2018 the Company filed a lawsuit against the previous owners by issuing a summons. On April 12, 2018, the Companyreceived the Defendants’ answer. On July 22, 2019, the Company sought and was granted a dismissal without prejudice of the lawsuitfiled against the previous owners of Howco. The Company and the previous owners are in discussion to settle the matter as of September30, 2021. An informal oral agreement with the Seller has been made whereby the Company has been paying the previous owners $3,000 permonth since January 2021 in satisfaction of Sellers note payable.

 

Inthe suit Drone USA, Inc and Michael Bannon (plaintiffs) vs Dennis Antonelos (former Chief Financial Officer or CFO), currently pendingin New York State court, the plaintiffs seek to compel the former CFO to meet his obligations under an agreement guaranteeing paymentsto another former executive. The former CFO filed a cross-claim against the plaintiffs for past due salary. The employment agreementwith the former CFO allowed salary payments to be paid in cash or stock. During the year ended September 30, 2021, the Company issued36,821,330 shares of its common stock for the past due salary and claims that this payment moots the former CFO’s claim for pastdue salary. The former CFO filed a motion for summary judgement which was denied, then filed an appeal to that order which is now pending.No trial date has been set.

 

OnApril 10, 2019, a former service provider filed a complaint with three charges with the Superior Court Judicial District of New Haven,CT seeking payment for professional services. The Company has previously recognized expenses of $218,637, which remain unpaid in accountspayable. The Company has retained an attorney who is currently working to address the complaint. On August 9, 2019 the Company fileda motion to dismiss the charge of unjust enrichment. The judge granted the Company’s motion to dismiss. The Company, through itsattorney, is working to negotiate a settlement.

 

Duringthe 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 claimsand expects to resolve the matters to satisfaction of all parties.

 

OnDecember 30, 2020, a Howco vendor filed a lawsuit seeking payment of past due invoices totaling $276,430 and finance charges of $40,212.The Company has recorded the liability for the invoices in the normal course of business. A Company representative is in negotiationwith the vendor and their legal counsel and expect to settle the matter.

 

ITEM1A. RISK FACTORS

 

See“Risk Factors” beginning on Page 9.

 

DEFAULTSUPON SENIOR SECURITIES

 

On September 6, 2019, the Companyreceived a default notice on its payment obligations under the senior secured credit facility agreement from TCA. The Company is in negotiationwith TCA’s receiver.

 

MINESAFETY DISCLOSURES

 

Notapplicable.

 

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MANAGEMENTDIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Ournumber of directors is divided into three classes, designated as Class I, Class II and Class III. The terms of the Class I directorswere extended for three years each at the 2021 annual meeting of stockholders, the Class II directors will expire at the 2022 annualmeeting of stockholders, and the term of the Class III directors will expire at the 2023 annual meeting of stockholders. A pluralityof the votes of the shares of the registrant’s common stock present in person or represented by proxy at the annual meeting andentitled to vote on the election of directors are required to elect the directors. The Board members have three-year terms and in theabsence of a vote at an annual meeting of stockholders, they continue for successive three-year terms until they are replaced or resign.

 

Thefollowing table sets forth certain information about our executive officers, key employees and directors as of December 31, 2021.

 

Name  Age  Position  Class
Michael Bannon  56  President, CEO, CFO, Director  I
Rodrigo Kuntz Rangel  44  Chief Technology Officer, Director  I
Matthew Wiles (1)  47  Former COO, Former Director until resignation on June 2, 2021  I

 

 

(1)Mr. Wiles resigned all officer and board of directors’ roles effective June 2, 2021. There were no disagreements regarding any Company, management or board of directors matters related to the resignation.

 

MichaelBannon is President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board of Directors, positions he has heldsince January 26, 2016. Since 1994 he served as President of Abatement Industries Group, Inc., a company involved in addressing asbestos,lead, mold and PCB problems in commercial buildings. Michael is no longer President of Abatement Industries Group, Inc. Michael graduatedfrom the University of Connecticut with a B.A. degree in 1993, received an M.B.A. degree from the University of New Haven in 1998, receivedan M.A. degree in Organizational Psychology in 2003 from the University of New Haven and became a Harvard Business School graduate inMarch 2011 when he completed Harvard Business School’s Owner President Program. Michael Bannon is currently pursuing a Mastersin Juris Prudence from Seton Hall Law School with a concentration in finance law. We believe that Mr. Bannon is qualified to serve onour Board of Directors based upon his having successfully managed prior companies and his educational background in business.

 

RodrigoKuntz Rangel became a member of the Board on April 3, 2017 and has been our CTO since June 2016. Dr. Rangel has served as ScientificDirector of IBRV, the BRVANT Institute of Technology, a non-profit Institute since August 2013. Since February 2009 Dr. Rangel has servedand continues to serve as CEO of BRVANT Technologic Solutions, a Brazilian company that specializes in development of UAV, UGV and USVsystems. From 2002 to 2009 he was Product Development Engineer at Embraer SA, working with the development of avionics, electronic andsoftware systems for military and civil aircraft. Dr. Rangel has specialized in aircraft manufacture engineering through his researchactivities with the Embraer Engineering Specialization Program. Dr. Rangel also studied computer, robotics, lasers and virtual realitysystems applied to flight simulators at the Institute for Advanced Studies (IEAv) as a São Paulo State Foundation for ResearchSupport (FAPESP) scholar. Dr. Rangel received a B.S. degree in Computer Engineering, M.S. and PhD degrees in Computer and ElectronicsEngineering from the Technological Institute of Aeronautics in Sao Jose dos Campos, Brazil.

 

MatthewWiles served as our Chief Operating Officer and a member of the Board from August 6, 2018 until his resignation effective June2, 2021, when he also resigned as General Manager of Howco. From 2013 to 2014, Mr. Wiles was Director of Operations for Aero Kraft Northin Portland, Oregon, a company involved in a specialty segment of aerospace manufacturing, for which he also served as a production managerfrom 2007 to 2010. From 2010 to 2013, Mr. Wiles was Route Operations Manager Sierra Springs Bottled Water (DS Waters), located in Portland,Oregon, that was a distributor of coffee and bottled water throughout the Northwest. From 2001 to 2007 Mr. Wiles was a Department Managerfor Pella Windows, a vinyl window and door manufacturer for the construction industry. Mr. Wiles received his Bachelor of Business Administrationdegree from Warner Pacific College in Portland, Oregon.

 

BoardComposition and Election of Directors

 

Ourboard of directors is currently authorized to have five members, and currently consists of, two members following the resignation ofMatthew Wiles effective June 2, 2021. In accordance with the terms of our current certificate of incorporation and by-laws, the termof office of each director expires at our annual meeting of stockholders or until their successors are duly elected and qualified.

 

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DirectorIndependence

 

Thereare no family relationships among any of our directors or executive officers.

 

BoardCommittees

 

Ourboard of directors does not have a separate, standing audit committee nor a nominating or governance committee. The full board of directorsperforms the function of an audit and other committees.

 

Thereare no family relationships among any of our directors, executive officers, or advisors.

 

NominatingProcedures

 

Duringthe fiscal year ended September 30, 2021, there were not any material changes to the procedures by which security holders may recommendnominees to the Company’s Board of Directors.

 

Directors’Fees

 

Nocompensation has been paid to any individual for services rendered as a director.

 

Compliancewith Section 16(a) of the Securities Exchange Act

 

NotApplicable

 

EXECUTIVECOMPENSATION

 

CompensationDiscussion and Analysis

 

Overview

 

CompensationPhilosophy

 

Thissection discusses the principles underlying our policies and decisions with respect to the compensation of our executive officers andwhat we believe are the most important factors relevant to an analysis of these policies and decisions. This section also describes thematerial elements of compensation awarded to, earned by or paid to each of our named executive officers as of September 30, 2021. Our“named executive officers” for 2021 are Michael Bannon, Matthew Wiles (resigned effective June 2, 2021) and Dr. Rodrigo KuntzRangel. The compensation of each of our other current executive officers is based on individual terms approved by our board of directors.Our board of directors made changes to current executive compensation as outlined below.

 

Wecommenced operations on July 20, 2015. Rodrigo Kuntz Rangel, our Chief Technology Officer appointed in 2016, does not currently receive,and has not historically received, any monetary compensation from us for his service. However, we may in the future determine to compensatehim for his service as chief technology officer.

 

OnOctober 1, 2016, the Company entered into an employment agreement with the company’s President and CEO, Michael Bannon, that providesfor annual base compensation of $370,000 for a period of three years, which can, at the Company’s election, be paid in cash orshares of our common stock or deferred if insufficient cash is available, and provides for other benefits, including a discretionarybonus and equity, a provision for the equivalent of 12 months’ base salary, and an additional one-time severance payment of $2,500,000upon termination under certain circumstances, as defined in his employment agreement. On September 16, 2019, Michael Bannon’s employmentagreement was modified to provide salary of $624,000, and an annual bonus of 3% of net income. At the Company’s discretion, salaryand bonus may be paid in cash or stock and payment may be deferred.

 

 

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OnMarch 28, 2017, we entered into an at-will employment agreement with Matthew Wiles as General Manager of Howco. Under the terms of employmentagreement, Mr. Wiles’ compensation is $140,000 per annum and he also will be eligible for a bonus of 10% of Howco’s grossprofits over $1.25 million to be paid in cash after the annual financial statements have been completed and, if applicable, audited forfiling with the SEC. Mr. Wiles will also receive options to acquire 250 shares of the Company’s common stock vesting over fiveyears in equal amounts on the anniversary date of his Employment Agreement. On September 16, 2019, Mr. Wiles’ employment agreementwas modified to provide salary of $275,000, and an annual bonus of 2% of net income. At the Company’s discretion, salary and bonusmay be paid in cash or stock and payment may be deferred. Mr. Wiles resigned all officer and board member roles effective June 2, 2021.

 

Ourcompensation committee will oversee these compensation policies and, together with our board of directors, will periodically evaluatethe need for revisions to ensure our compensation program is competitive with the companies with which we compete for executive talent.

 

Objectivesand Philosophy of Our Executive Compensation Program

 

Theprimary objectives of the board of directors in designing our executive compensation program are to:

 

  attract, retain and motivate experienced and talented executives;

 

  ensure executive compensation is aligned with our corporate strategies, research and development programs and business goals;

 

  recognize the individual contributions of executives while fostering a shared commitment among executives by aligning their individual goals with our corporate goals;

 

  promote the achievement of key strategic, development and operational performance measures by linking compensation to the achievement of measurable corporate and individual performance goals; and

 

  align the interests of our executives with our stockholders by rewarding performance that leads to the creation of stockholder value.

 

Eachof our named executive officers was hired by us before our board of directors established a formal executive compensation program. Toachieve these objectives in the future, we expect that our board of directors and compensation committee will evaluate our executivecompensation program with the goal of setting and maintaining compensation at levels that are justifiable based on each executive’slevel of experience, performance and responsibility and that the board believes are competitive with those of other companies in ourindustry and our region that compete with us for executive talent. In addition, we expect that our executive compensation program willtie a substantial portion of each executive’s overall compensation to key strategic, financial and operational goals. We have provided,and expect to continue to provide, a portion of our executive compensation in the form of stock options and restricted stock that vestover time, which we believe helps to retain our executives and aligns their interests with those of our stockholders by allowing themto participate in the longer term success of the Company as reflected in stock price appreciation.

 

Useof Compensation Consultants and Market Benchmarking

 

Forpurposes of determining total compensation and the primary components of compensation for our executive officers in 2021 we did not retainthe services of a compensation consultant or use survey information or compensation data to engage in benchmarking. In the future, weexpect that our compensation committee will consider publicly available compensation data for national and regional companies in thedrone industry to help guide its executive compensation decisions at the time of hiring and for subsequent adjustments in compensation.Even if we retain the services of an independent compensation consultant to provide additional comparative data on executive compensationpractices in our industry and to advise on our executive compensation program generally, our board of directors and future compensationcommittee will ultimately make their own decisions about these matters.

 

Beginningwith fiscal year 2021, our annual cash bonus program is based upon net profit. As specified in the executive contracts of Michael Bannon,the CEO, and Matthew Wiles, the former COO, they were to receive three and two percent of the net profit respectively. The board canelect to give discretionary bonuses based on the increase in stock price or the successful acquisition and integration of a company intothe Bantec corporate family.

 

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Stock-BasedAwards

 

Ourequity award program is the primary vehicle for offering long-term incentives to our executives. While we do not have any equity ownershipguidelines for our executives, we believe that equity grants provide our executives with a strong link to our long-term performance createan ownership culture and help to align the interests of our executives and our stockholders. In addition, the vesting feature of ourequity awards contributes to executive retention by providing an incentive for our executives to remain in our employ during the vestingperiod. Currently, our executives are eligible to participate in our 2016 stock incentive plan, which we refer to as the 2016 Plan, andall equity awards granted in 2017 (no awards were granted in fiscal years 2021 and 2020) were pursuant to the 2016 Plan. Under our 2016Plan, executives are eligible to receive grants of stock options, restricted stock awards, restricted stock unit awards, stock appreciationrights and other stock-based equity awards at the discretion of our board of directors.

 

Ouremployee equity awards have typically been in the form of stock options. Because our executives profit from stock options only if ourstock price increases relative to the stock option’s exercise price, we believe stock options provide meaningful incentives forour executives to achieve increases in the value of our stock over time. While we currently expect to continue to use stock options asthe primary form of equity awards that we grant, we may in the future use alternative forms of equity awards, such as restricted stockand restricted stock units. To date, we have generally used equity awards to compensate our executive officers in the form of initialgrants in connection with the commencement of employment. In the future, we also generally plan to grant equity awards on an annual basisto our executive officers. We may also make additional discretionary grants, typically in connection with the promotion of an employee,to reward an employee, for retention purposes or in other circumstances recommended by management.

 

Ingeneral, the equity awards that we have granted to our executives vest in equal annual amounts over a period of two to five years. Vestingceases upon termination of employment and exercise rights ceases immediately upon termination for cause or 12 months if termination isnot for cause. Prior to the exercise of a stock option, the holder has no rights as a stockholder with respect to the shares subjectto such option, including voting rights or the right to receive dividends or dividend equivalents.

 

Wehave granted, and going forward expect to grant, stock options with exercise prices that are set at no less than the fair value of sharesof our common stock on the date of grant as determined by our board of directors.

 

Benefitsand Other Compensation

 

Webelieve that establishing competitive benefit packages for our employees is an important factor in attracting and retaining highly qualifiedpersonnel. We expect to maintain broad-based benefits that are provided to all employees, including health and dental insurance, and401(k) and profit sharing plans for our Howco employees. All of our executives will be eligible to participate in all of our employeebenefit plans, in each case on the same basis as other employees.

 

Incertain circumstances, we may award cash signing bonuses or may reimburse relocation expenses when executives first join us. Whethera signing bonus is paid or relocation expenses are reimbursed, and the amount of either such benefit, is determined by our board of directorson a case-by-case basis based on the specific hiring circumstances and the recommendation of our chief executive officer.

 

Severanceand Change in Control Benefits

 

Pursuantto agreements we have entered into with certain of our executives, these executives are entitled to specified benefits in the event ofthe termination of their employment under specified circumstances, including termination following a change in control of our company.Please refer to “—Employment Agreements” for a more detailed discussion of these benefits.

 

Webelieve providing these benefits helps us compete for executive talent. Based on the substantial business experience of the members ofour board of directors, we believe that our severance and change in control benefits are generally in line with severance packages offeredto executives by companies at comparable stages of development in our industry and related industries.

 

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RiskConsiderations in Our Compensation Program

 

Ourboard of directors is evaluating the philosophy and standards on which our compensation plans will be implemented across our company.It is our belief that our compensation programs do not, and in the future will not, encourage inappropriate actions or risk taking byour executive officers. We do not believe that any risks arising from our employee compensation policies and practices are reasonablylikely to have a material adverse effect on our company. In addition, we do not believe that the mix and design of the components ofour executive compensation program will encourage management to assume excessive risks. We believe that our current business processand planning cycle fosters the behaviors and controls that would mitigate the potential for adverse risk caused by the action of ourexecutives. We believe that the following aspects of our executive compensation program that we plan to implement will mitigate the potentialfor adverse risk caused by the action of our executives:

 

  annual establishment of corporate and individual objectives for our performance-based cash bonus programs for our executive officers, which we expect to be consistent with our annual operating and strategic plans, designed to achieve the proper risk/reward balance and not require excessive risk taking to achieve;

 

  the mix between fixed and variable, annual and long-term and cash and equity compensation, which we expect to be designed to encourage strategies and actions that balance the company’s short-term and long-term best interests; and

 

  equity incentive awards that vest over a period of time, which we believe will encourage executives to take a long-term view of our business.

 

Taxand Accounting Considerations

 

Section 162(m)of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction for compensation in excess of $1,000,000per person paid to a publicly traded company’s chief executive officer and three other most highly paid officers, other than thechief financial officer. Qualifying performance-based compensation is not subject to the deduction limitation if specified requirementsare met. We will periodically review the potential consequences of Section 162(m), however, the board of directors may, in its judgment,authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments areappropriate to attract and retain executive talent and are in the best interests of our stockholders.

 

Weaccount for equity compensation paid to our employees in accordance with Financial Accounting Standards Board, or FASB, Accounting StandardCodification Topic 718, Compensation—Stock Compensation, or ASC 718, which requires us to measure and recognizecompensation expense in our consolidated financial statements for all share-based payments based on an estimate of their fair value overthe service period of the award. We record cash compensation as an expense at the time the obligation is accrued.

 

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SummaryCompensation Table

 

Thefollowing table sets forth the total compensation awarded to, earned by or paid to our named executive officers during the fiscal yearsended September 30, 2021 and 2020.

 

SUMMARYCOMPENSATION TABLE

 

Name and Principal Occupation  Year   Salary
($)
   Bonus
($)
   Stock Awards
($)
   Option Awards
(1)
   Non-Equity Incentive Plan Compensation
($)
   Nonqualified Deferred Compensation Earnings
($)
   All Other Compensation
($)(4)
   Total
($)
 
M. Bannon  2021   $624,000   $0   $0    0   $0   $0   $42,889   $666,889 
M. Bannon  2020   $624,000   $0   $0    0   $0   $0   $42,555   $666,555 
R. Kuntz Rangel (2)  2021   $0   $0   $0    0   $0   $0   $0   $0 
R. Kuntz Rangel (2)  2020   $0   $0   $0    0   $0   $0   $0   $0 
M. Wiles (3)  2021   $111,927   $0   $74,000    0   $0   $0   $1,512   $187,439 
M. Wiles  2020   $275,000   $0   $0    0   $0   $0   $2,293   $277,293 

 

 

(1)The amounts in the “Option Awards” column reflect the aggregate grant date fair value of stock options granted during the year computed in accordance with the provisions of ASC 718, excluding the impact of estimated forfeitures related to service-based vesting conditions (which in our case were none).
(2)Rodrigo Kuntz Rangel did not receive any compensation from us for his service as our Chief Technology Officer in 2021 and 2020. We issued to Rodrigo Kuntz Rangel an option to acquire 2,000 shares of our common stock in July 2016. 1,000 shares vested on July 1, 2017 and 1,000 shares vested on July 1, 2018. An additional grant of 2,100 options were granted on March 30, 2017 and each tranche of 420 options vests beginning April 1, 2018 and each year thereafter.
(3)Matt Wiles resigned all officer and board of directors’ roles effective June 2, 2021. Mr. Wiles received common stock valued at $74,000 in lieu of accrued and unpaid compensation from September 2019 through June 2, 2021.
(4)All other compensation includes payments for Company leased vehicle and medical insurance both for the CEO, and 401(k) matching payments for Mr. Wiles.

 

Grantsof Plan-Based Awards in 2021 and 2020

 

NoOptions were granted in 2021 or 2020.

 

OutstandingEquity Awards at September 30, 2021

 

Thefollowing table sets forth information regarding outstanding equity awards held by our named executive officers as of September 30, 2021.

 

   Option Awards    Stock Awards  
   Number of Securities Underlying Unexercised Options
(#)
  Number of Securities Underlying Unexercised Options
(#)
   Option Exercise Price   Option Expiration   Number of shares that have not vested    Market value of shares that have not vested 
Name  Exercisable  Unexercisable   ($/Sh)   Date   (#)    ($) 
Rodrigo Kuntz Rangel    3,680   420   $ 201(1)  7/1/26(2)          

 

 

(1) Weighted average exercise price
(2) One stock option grant for 2,000 shares expires 7/1/26 and the grants for 2,100 expire March 30, 2027.

 

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EmploymentAgreements

 

OnOctober 1, 2016, we entered into a three-year employment agreement with Michael Bannon as President and CEO of Drone USA. Under the termsof the employment agreement, Mr. Bannon’s compensation is $370,000 per annum which can at the Company’s election be paidin cash or our common stock or deferred if insufficient cash is available. He is entitled to a bonus based on a compensation plan tobe agreed to between him and our Board. If the employment agreement is terminated by Drone USA for Cause (as defined in the employmentagreement), or if Mr. Bannon resigns without Good Reason (as defined therein), Mr. Bannon shall only receive his compensation earnedthrough the termination date. If the employment agreement is terminated by Drone USA without Cause or if Mr. Bannon terminates his employmentfor Good Reason, or upon a Change in Control (as defined), Mr. Bannon shall also be entitled to a one-time severance payment of $2,500,000,the greater of (i) 12 months’ salary or (ii) the remainder of his salary for the term of the employment agreement, accelerationof all non-vested equity in the Company to vest on the date of termination and payment by Drone USA for all healthcare and life insurancecoverage through the end of the term of his Employment Agreement. On September 16, 2019, Michael Bannon’s employment agreementwas modified to extend the term for an additional five years, provide salary of $624,000, and an annual bonus of 3% of net income. Atthe Company’s discretion, salary and bonus may be paid in cash or stock and payment may be deferred.

 

OnMarch 28, 2017, we entered into an at-will employment agreement with Matthew Wiles as General Manager of Howco. Under the terms of employmentagreement, Mr. Wiles’ compensation is $140,000 per annum and he also will be eligible for a bonus of 10% of Howco’s grossprofits over $1.25 million to be paid in cash after the annual financial statements have been completed and, if applicable, audited forfiling with the SEC. Mr. Wiles will also receive options to acquire 250 shares of the Company’s common stock vesting over fiveyears in equal amounts on the anniversary date of his Employment Agreement. On September 16, 2019, Mr. Wiles’ employment agreementwas modified to provide salary of $275,000, and an annual bonus of 2% of net income. At the Company’s discretion, salary and bonusmay be paid in cash or stock and payment may be deferred. Mr. Wiles resigned as General Manager of Howco and COO and Member of the Boardof Directors of the Company effective June 2, 2021.

 

NonqualifiedDeferred Compensation

 

Wedo not maintain any nonqualified deferred compensation plans.

 

DefinedContribution Plan

 

InAugust 2016, Bantec, Inc. established a qualified 401(k) defined contribution plan with a discretionary employer match provision. Allemployees who are at least twenty-one years of age are eligible to participate in the plan. The plan allows participants to defer upto 90% of their annual compensation, up to statutory limits. There were $0 of employer contributions for the years ended September 30,2021, and 2020.

 

Howcois the sponsor of a qualified 401(k) plan with a safe harbor provision. All employees are eligible to enter the plan within one yearof the commencement of employment. Employer contributions charged to expenses for the years ended September 30, 2021 and 2020 were $9,704and $10,258, respectively.

 

OnApril 13, 2018, Howco Distributing announced to its employees a Company-wide profit-sharing program. In fiscal year 2018, Howco Distributing,distributed approximately ten-percent of the Company’s net income. The employee profit is equal to their annual salary dividedby the Company’s total annual payroll and multiplied by 10% of net income for the fiscal year. During the years ended September30, 2021 and 2020 there was no profit and therefore no distribution under the plan.

 

StockOption and Other Employee Benefit Plans

 

Thepurpose of the 2016 Plan is to advance the interests of our stockholders by enhancing our ability to attract, retain and motivate personswho are expected to make important contributions and by providing such persons with equity ownership opportunities and performance-basedincentives that are intended to better align the interests of such persons with those of our stockholders.

 

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2016Stock Incentive Plan

 

History.On June 7, 2016, the Board of Directors approved and on June 8, 2016, the stockholders approved the 2016 Stock Incentive Plan (the “2016Plan”) under which employees, officers, directors and consultants are eligible to receive grants of stock options, stockappreciation rights (“SAR”), restricted or unrestricted stock awards, restricted stock units, performance awards, other stock-basedawards, or any combination of the foregoing. The Plan authorizes up to 100,000 shares of our common stock for stock-based awards.

 

Administration.The 2016 Plan is administered by the Board of Directors or the committee or committees as may be appointed by the Board of Directorsfrom time to time (the “Administrator”). The Administrator determines the persons who are to receive awards,the types of awards to be granted, the number of shares subject to each such award and the terms and conditions of such awards. The Administratoralso has the authority to interpret the provisions of the 2016 Plan and of any awards granted there under and to modify awards grantedunder the 2016 Plan. The Administrator may not, however, reduce the price of options or stock appreciation rights issued under the 2016Plan without prior approval of the Company’s shareholders.

 

Eligibility.The 2016 Plan provides that awards may be granted to employees, officers, directors and consultants of Drone USA or of any parent, subsidiaryor other affiliate of the Company as the Administrator may determine. A person may be granted more than one award under the 2016 Plan.

 

Sharesthat are subject to issuance upon exercise of an option under the 2016 Plan but cease to be subject to such option for any reason (otherthan exercise of such option), and shares that are subject to an award granted under the 2016 Plan but are forfeited or repurchased bythe Company at the original issue price, or that are subject to an award that terminates without shares being issued, will again be availablefor grant and issuance under the 2016 Plan.

 

Termsof Options and Stock Appreciation Rights. The Administrator determines many of the terms and conditions of each option and SAR grantedunder the 2016 Plan, including whether the option is to be an incentive stock option or a non-qualified stock option, whether the SARis a related SAR or a freestanding SAR, the number of shares subject to each option or SAR, and the exercise price of the option andthe periods during which the option or SAR may be exercised. Each option and SAR is evidenced by a grant agreement in such form as theAdministrator approves and is subject to the following conditions (as described in further detail in the 2016 Plan):

 

(a)Vesting and Exercisability: Options, restricted shares and SARs become vested and exercisable, as applicable, within such periods, orupon such events, as determined by the Administrator in its discretion and as set forth in the related grant agreement. The term of eachoption is also set by the Administrator. However, a related SAR will be exercisable at the time or times, and only to the extent, thatthe option is exercisable and will not be transferable except to the extent that the option is transferable. A freestanding SAR willbe exercisable as determined by the Administrator but in no event after 10 years from the date of grant.

 

(b)Exercise Price: Each grant agreement states the related option exercise price, which, in the case of SARs, may not be less than 100%of the fair market value of the Company’s shares of common stock on the date of the grant. The exercise price of an incentive stockoption granted to a 10% stockholder may not be less than 110% of the fair market value of shares of the Company’s common stockon the date of grant.

 

(c)Method of Exercise: The option exercise price is typically payable in cash, common stock or a combination of cash of common stock, asdetermined by the Administrator, but may also be payable, at the discretion of the Administrator, in a number of other forms of consideration.

 

(d)Recapitalization; Change of Control: The number of shares subject to any award, and the number of shares issuable under the 2016 Plan,are subject to proportionate adjustment in the event of a stock dividend, spin-off, split-up, recapitalization, merger, consolidation,business combination or exchange of shares and the like. Except as otherwise provided in any written agreement between the participantand the Company in effect when a change in control occurs, in the event an acquiring company does not assume plan awards (i) all outstandingoptions and SARs shall become fully vested and exercisable; (ii) for performance-based awards, all performance goals or performance criteriashall be deemed achieved at target levels and all other terms and conditions met, with award payout prorated for the portion of the performanceperiod completed as of the change in control and payment to occur within 45 days of the change in control; (iii) all restrictions andconditional applicable to any restricted stock award shall lapse; (iv) all restrictions and conditions applicable to any restricted stockunits shall lapse and payment shall be made within 45 days of the change in control; and (v) all other awards shall be delivered or paidwithin 45 days of the change in control.

 

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(e)Other Provisions: The option grant and exercise agreements authorized under the 2016 Plan, which may be different for each option, maycontain such other provisions as the Administrator deems advisable, including without limitation, (i) restrictions upon the exerciseof the option and (ii) a right of repurchase in favor of the Company to repurchase unvested shares held by an optionee upon terminationof the optionee’s employment at the original purchase price.

 

Amendmentand Termination of the 2016 Plan. The Administrator, to the extent permitted by law, and with respect to any shares at the time notsubject to awards, may suspend or discontinue the 2016 Plan or amend the 2016 Plan in any respect; provided that the Administrator maynot, without approval of the stockholders, amend the 2016 Plan in a manner that requires stockholder approval.

 

2021Director Compensation

 

Wecurrently do not have a formal non-employee director compensation policy. However, we do reimburse our non-employee directors for theirreasonable expenses incurred in connection with attending our board of directors and committee meetings, and we may in the future grantstock options and pay cash compensation to some or all of our non-employee directors. Other than reimbursement of out-of-pocket expensesas described above, we did not provide any cash or equity compensation to our non-employee directors during the year ended September30, 2021.

 

Limitationof Liability and Indemnification

 

Ourcertificate of incorporation provides that we are authorized to provide indemnification and advancement of expenses to our directors,officers and other agents to the fullest extent permitted by Delaware General Corporation Law.

 

Inaddition, our certificate of incorporation limits the personal liability of directors for breach of fiduciary duty to the maximum extentpermitted by the Delaware General Corporation Law and provides that no director will have personal liability to us or to our stockholdersfor monetary damages for breach of fiduciary duty or other duty as a director. However, these provisions do not eliminate or limit theliability of any of our directors for:

 

  any breach of the director’s duty of loyalty to us or our stockholders;

 

  acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

 

  voting or assenting to unlawful payments of dividends, stock repurchases or other distributions; or

 

  any transaction from which the director derived an improper personal benefit.

 

Anyamendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omissionor claim that occurred or arose prior to such amendment or repeal. If the Delaware General Corporation Law is amended to provide forfurther limitations on the personal liability of directors of corporations, then the personal liability of our directors will be furtherlimited to the greatest extent permitted by the Delaware General Corporation Law.

 

Ourcertificate of incorporation also provides that we must indemnify our directors and officers and we must advance expenses, includingattorneys’ fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions.

 

Wemaintain a general liability insurance policy that covers certain liabilities of our directors and officers arising out of claims basedon acts or omissions in their capacities as directors or officers.

 

Certainof our non-employee directors may, through their relationships with their employers, be insured or indemnified against certain liabilitiesincurred in their capacity as members of our board of directors.

 

CompensationCommittee Interlocks and Insider Participation

 

Noneof our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directorsof any other entity that has one or more officers serving as a member of our board of directors.

 

Changeof Control

 

Notapplicable.

 

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CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

RelatedPerson Transactions

 

Sinceentering into the Equity Exchange Agreement in January 2016, we have engaged in the following transactions with our directors, executiveofficers, holders of more than 5% of our voting securities, and affiliates or immediately family members of our directors, executiveofficers and holders of more than 5% of our voting securities, and our co-founders. We believe that all of these transactions were onterms as favorable as could have been obtained from unrelated third parties.

 

TheCompany has a $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 andaccrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price pershare of common stock for the 30-day period prior to conversion.

 

OnApril 15, 2020, the Company amended the above Note 1 first issued to AIG and subsequently assigned to Pike Falls LLC (entities controlledby the Company’s CEO) in amount of $840,000, with a principal and accrued interest balance of $688,444, and $210,409, respectivelyat June 30, 2020. The amendment changes conversion terms, which now state the note principal and interest may be converted to commonstock at 50% of the lowest closing bid price during the thirty days prior to conversion, increases the interest rate to 10%, and hasa maturity date of January 7, 2022. The change in conversion terms has been treated as a debt extinguishment and the modified note istreated stock settled debt under ASC 480, and a put premium of $688,444 was recognized with a charge to loss on debt extinguishment.The principal balance was $377,194 and accrued interest was $221,323 at September 30, 2020. As of September 30, 2021, Note 1 principalhas been fully converted or paid in cash long with accrued interest of $224,370, and the accrued interest balance was $0 as of September30, 2021. $377,194, related to put premiums was recognized as a gain on extinguishment of debt during the year ended September 30, 2021.

 

TheCompany 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 wasdue. 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,and 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 convertthe outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volumeweighted average price per share of common stock for the 30-day period prior to conversion. This LoC is considered a stock settled debtin accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula. During theyear ended September 30, 2020 the Company was advanced $64,940 and repaid $132,803, on this LoC. As of September 30, 2020, the LoC hadnot been converted and the balance was $99,142, and accrued interest was $31,260. During the year ended September 30, 2021 the balanceof the LoC principal was fully paid in cash along with all accrued interest was totaling $32,900.

 

OnJuly 2, 2019, the Company issued a convertible note payable (“Note 2”) to an affiliate of the Company’s CEO for a $15,000,cash loan. The funds were paid directly to a vendor to the Company. The note had an original maturity of June 9, 2020, however the notewas amended effective September 30, 2020 and new maturity is May 31, 2022. The note bears interest at 10% and may be converted to theCompany’s common stock at 50% of the lowest closing bid in the 20 trading days prior to notification of conversion. The Companyaccounted for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $15,000 with a charge tointerest expense for the note. The note principal and accrued interest ($2,155) was fully repaid during the year ended September 30,2021 and put premium of $15,000, was recognized as gain on debt extinguishment. Accrued interest was $0 at September 31, 2021 and $1,843,at September 30, 2020.

 

OnSeptember 13, 2019, the Company issued a convertible note payable to an entity controlled by the Company’s CEO for a $17,000, cashloan. The note had an original maturity of June 9, 2020, however the note was amended effective September 30, 2020 and the new maturityis May 31, 2022. The note bears interest at 10% and may be converted to the Company’s common stock at 50% of the lowest closingbid in the 20 trading days prior to notification of conversion. The Company has accounted for the convertible promissory note as stocksettled debt under ASC 480 and recorded debt premium of $17,000 with a charge to interest expense for the notes. The note principal andaccrued interest of $2,152 was fully repaid and put premium of $17,000, was recognized as gain on debt extinguishment during the yearended September 30, 2021. Accrued interest was $1,799, at September 30, 2020.

 

55

 

 

OnDecember 30, 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 required monthly payment of principal of $5,000 with a balloon payment at maturity. On April 14, 2020,the Company amended the above note first issued to Michael Bannon (the Company’s CEO) on December 30, 2018, in amount of $400,000,with a principal and interest balance of $367,500, and $76,619, respectively at September 30, 2020. The amendment adds conversion terms,which state the note principal and interest may be converted to common stock at 50% of the lowest closing bid price during thirty daysprior to conversion, and reduces the interest rate to 10%, and extends the maturity date to January 7, 2024. The change in conversionterms was treated as a debt extinguishment and the new note is considered a stock settled debt under ASC 480, and put premium of $367,500was recognized with a charge to interest expense. The note principal and accrued interest of $83,133 was fully repaid in cash duringthe year ended September 30, 2021 and a gain on debt extinguishment was recognized for the premium upon receipt of cash repayments. Theaccrued interest balance was $76,619 at September 30, 2020.

 

OnJanuary 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. On April 14, 2020, the Company amended the note firstissued to Michael Bannon (the Company’s CEO) on January 19, 2019, in amount of $200,000, with a principal and interest balanceof $195,000, and $17,947. The amendment adds conversion terms, which state the note principal and interest may be converted to commonstock at 50% of the lowest closing bid price during thirty days prior to conversion, and reduces the note interest rate to 10%, and extendsthe maturity date to April 15, 2026. The change in conversion terms has been treated as a debt extinguishment and the new note is considereda stock settled debt under ASC 480, and put premium of $195,000 has been recognized with a charge to loss on debt extinguishment. During2020, $14,250 was repaid and $180,750 was converted to common stock. Accrued interest of $20,855 was repaid as of September 30, 2021.

 

OnJuly 1, 2019, Howco entered into a purchase order financing agreement with an entity controlled by the Company’s CEO (“PikeFalls”) for cash advances to Howco. The advances are to be for 100% of the face value of the purchase orders to be repaid withaccounts receivable related to the sales of the products underlying the purchase orders. Pike Falls receives 4% of the purchase pricefor the first 45 days and .00086% per day thereafter on the unpaid balance.

 

OnApril 15, 2020, the Company issued a convertible note payable to Michael Bannon (the Company’s CEO) in the principal amount of$69,391, in replacement for the amounts owed to an entity controlled by Mr. Bannon (above) The new note interest rate is 10%, and itmatures on January 31, 2022. The new note principal and interest may be converted into the Company’s common stock at 50% of thelowest closing bid price in the thirty days preceding the conversion notice. This issuance was treated as a debt extinguishment of theold note and the new note conversion terms have been treated as stock settled debt under ASC 480, and put premium of $69,391 was recognizedwith a charge to interest expense. The principal and accrued interest was $69,391 and $5,332 respectively as of September 30, 2020. Duringthe year ended September 30, 2021 the principal and accrued interest of $6,206 was fully paid in cash and $69,391 was recognized as gainon extinguishment of debt.

 

OtherNotes Payable

 

OnDecember 22, 2020 a non-convertible promissory note was issued to the CEO by Howco for $50,000 having weekly payments of $2,580 for twenty-fiveweeks, which include a total of $14,500 of interest. The principal and interest due were fully paid at September 30, 2021.

 

OnMay 21, 2021 a non-convertible promissory note was issued to the CEO by Howco for $40,000 having weekly payments of $2,080 for twenty-fiveweeks, which include a total of $12,000 of interest. During the year ended September 30, 2021, repayments of principal were $40,000 andinterest of $8,308 were changed to Interest Expense and were made reducing the principal balance to $0. Interest charged was reduceddue to early repayment.

 

OnJune 27, 2021 a non-convertible promissory note was issued to the CEO by Howco for $50,000 having weekly payments of $2,580 for twenty-fiveweeks, which include a total of $14,500 of interest. During the year ended September 30, 2021, repayments of principal were $50,000 andinterest of $6,692 were changed to Interest Expense and were made reducing the principal balance to $0. Interest charged was reduceddue to early repayment.

 

56

 

 

OnJuly 12, 2021 a non-convertible promissory note was issued to the CEO by Howco for $50,000 having weekly payments of $2,580 for twenty-fiveweeks, which include a total of $14,500 of interest. During the year ended September 30, 2021, repayments of principal were $50,000 andinterest of $6,135, were changed to interest expense and were made reducing the principal balance to $0.

 

Duringthe year ended September 30, 2021, the CEO extended short-term advances totaling $60,400, which were fully repaid as of September 30,2021.

 

ExecutiveCompensation and Employment Agreements

 

OnOctober 1, 2016, the Company entered into employment agreements with two of its officers. The employment agreement with the company’sPresident 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 discretionarybonus and equity provision for the equivalent of 12 months’ base salary, and an additional one-time severance payment of $2,500,000upon termination under certain circumstances, as defined in the agreement. On September 16, 2019, the employment agreement with the President/CEOwas modified to provide salary of $624,000, and an annual bonus of 3% of net income. At the Company’s discretion, salary and bonusmay be paid in cash or stock and payment may be deferred.

 

OnMarch 28, 2017, Bantec entered into an at-will employment agreement with Matthew Wiles as General Manager of Howco. Under the terms ofthe employment agreement, Mr. Wiles’ compensation is $140,000 per annum and he also will be eligible for a bonus of 10% of Howco’sgross profits over $1.25 million to be paid in cash after the annual financial statements have been completed and, if applicable, auditedfor filing with the SEC. Mr. Wiles will also receive options to acquire 250 shares of Bantec’s common stock, vesting over fiveyears in equal amounts on the anniversary date of his Employment Agreement. On September 16, 2019, Mr. Wiles’ employment agreementwas modified to provide salary of $275,000, and an annual bonus of 2% of net income. At the Company’s discretion, salary and bonusmay be paid in cash or stock and payment may be deferred. Mr. Wiles resigned with effective date of June 2, 2021. Under the terms ofthe employment agreement there is no continuing obligation from either party.

 

Sharesof Common Stock Issued to CEO

 

OnApril 14, 2020, the Company’s CEO was issued 15,000,000 shares of restricted common stock in conversion of $23,250 in principalon the note issued January 19, 2019 as amended on April 14, 2020 at the contractual price of $0.0016.

 

OnJuly 24, 2020, the CEO, was issued 150,000,000, restricted shares of common stock in conversion of $157,500 of principal and $5,460 ofaccrued interest on his January 19, 2019, note having an original principal amount of $200,000. The shares were priced at $.00105, inaccordance with the conversion terms within the amendment on April 14, 2020. Following the conversion, the principal was fully liquidated.

 

DirectorIndependence

 

Weare not subject to any independence standards of a national securities exchange or national securities association dealer quotation system.Our Board of Directors has determined that to be considered independent, an outside director may not have a direct or indirect materialrelationship with the company. A material relationship is one which impairs or inhibits/ or has the potential to impair or inhibit adirector’s exercise of critical and disinterested judgment on behalf of the company and its stockholders. To determine whethera material relationship exists, the Board consults with the company’s counsel. This ensures that the Board’s determinationsare consistent with:

 

  1. All relevant securities and other laws; and

 

  2. Recent relevant cases and regulations regarding the definition of (independent director/business judgment) including those set forth in the listing standards of the New York Stock Exchange as in effect from time to time.

 

Basedon the foregoing criteria, the Board of Directors has determined that there are no current members of the Board of Directors that areindependent.

 

57

 

 

PLANOF DISTRIBUTION

 

Planof Distribution for Bantec, Inc.’s Public Offering of 3,000,000,000 Shares of Common Stock

 

Thisis a self-underwritten (“best-efforts”) offering. This prospectus is part of a registration statement that permits our officersand directors to sell the shares being offered by the Company directly to the public, with no commission or other remuneration payableto them for any shares they may sell. Presently, we expect that our officers and directors will personally contact existing shareholders,friends, family members and business acquaintances and inform them about the offering. In addition, we may market the offering to institutionalinvestors through our officers and directors. We may also offer our shares of common stock through brokers, dealers or agents, althoughwe have no current plans or arrangements to do so. The company has been contacted by multiple financial institutions, as well as fieldedinterest from existing shareholders that give the Company assurance as to the marketability of its shares to these identified parties.This offering will terminate on the date which is 270 days from the effective date of this prospectus, although we may close the offeringon any date prior if the offering is fully subscribed or upon the vote of our board of directors.

 

Inoffering the securities on our behalf, our officers and directors will rely on the safe harbor from broker dealer registration set forthin Rule 3a4-1 under the Exchange Act. The officers and directors will not register as broker-dealers pursuant to Section 15 of the ExchangeAct, in reliance upon Rule 3a4-1, which sets forth those conditions under which a person associated with an issuer may participate inthe offering of the Issuer’s securities and not be deemed to be a broker-dealer. In that regard, we confirm that:

 

  a. None of our officers or directors are subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act;

 

  b. None of our officers or directors will be compensated in connection with their participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in the common stock;

 

  c. None of our officers or directors is or will be, at the time of his participation in the offering, an associated person of a broker-dealer; and

 

  d. Our officers and directors meet the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of the Exchange Act, in that each (A) primarily perform substantial duties for or on our behalf, other than in connection with transactions in securities, and (B) is not a broker or dealer, or has been an associated person of a broker or dealer, within the preceding 12 months, and (C) has not participated in selling and offering securities for any issuer more than once every 12 months other than in reliance on Paragraphs (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1.

 

Noneof our officers or directors, control persons or affiliates intend to purchase any shares in this offering.

 

58

 

 

DESCRIPTIONOF CAPITAL STOCK

 

Thefollowing description of our capital stock is a summary of the material terms of our capital stock. This summary is subject to and qualifiedin its entirety by our Articles of Incorporation and Bylaws, and by the applicable provisions of Delaware law.

 

Ourauthorized capital stock consists of 6,000,000,000 shares of common stock, $0.0001 par value per share, of which 2,693,360,585 sharesare issued and outstanding as of December 20, 2021.

 

CommonStock

 

TheBoard of Directors is authorized to issue, without stockholder approval, any authorized but unissued shares of our common stock. Eachshare of our common stock is entitled to share pro rata in dividends and distributions with respect to our common stock when, as andif declared by the Board of Directors from funds legally available therefore. No holder of any shares of common stock has any preemptiveright to subscribe for any of our securities. Upon our dissolution, liquidation or winding up, the assets will be divided pro rata ona share-for-share basis among holders of the shares of common stock. All shares of common stock outstanding are fully paid and non-assessable.Action Stock Transfer currently serves as transfer agent for the Common Stock.

 

VotingRights

 

Holdersof common stock are entitled to one vote per share on all matters voted on generally by the stockholders, including the election of directors,and, except as otherwise required by law. The holders of shares of our common stock do not have cumulative voting rights in connectionwith the election of the Board of Directors, which means that the holders of more than 50% of such outstanding shares, voting for theelection of directors, can elect all of the directors to be elected, if they so choose, and, in such event, the holders of the remainingshares will not be able to elect any of our directors.

 

LiquidationRights

 

Subjectto any preferential rights of any series of preferred stock, holders of shares of common stock are entitled to share ratably in our assetslegally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up.

 

Absenceof Other Rights

 

Holdersof common stock have no preferential, preemptive, conversion or exchange rights.

 

PreferredStock

 

TheCompany currently has 5,000,000 shares of Preferred Stock authorized, of which 250 shares of Series A Preferred Stock are issued to MichaelBannon, the Company’s CEO.

 

59

 

 

EXPERTS

 

Theaudited consolidated financial statements of, Bantec, Inc. for the years ended September 30, 2021 and 2020 included in this registrationstatement have been so included in reliance upon the report of Salberg & Company, PA, an independent registered publicaccounting firm, appearing elsewhere herein and in the registration statement, given on the authority of said firm as experts in auditingand accounting.

 

LEGALMATTERS

 

StoutLaw Group, P.A., of Baltimore, Maryland, will issue to Bantec, Inc. its opinion regarding the legality of the common stock being offeredhereby. Stout Law Group, P.A. has consented to the references in this prospectus to its opinion.

 

WHEREYOU CAN FIND MORE INFORMATION

 

Wehave filed with the SEC the registration statement filed on January 21, 2022 this Form S-1 under the Securities Act with respect to theshares of our common stock being offered by this prospectus. This prospectus, which constitutes part of that registration statement,does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registrationstatement. Some items included in the registration statement are omitted from the prospectus in accordance with the rules and regulationsof the SEC. For further information with respect to us and the common stock offered in this prospectus, we refer you to the registrationstatement and the accompanying exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contentsof any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and eachsuch statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to theregistration statement.

 

Acopy of the registration statement and the accompanying exhibits and any other document we file may be inspected without charge at thepublic reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549 and copies of all or any part of theregistration statement may be obtained from this office upon the payment of the fees prescribed by the SEC. The public may obtain informationon the operation of the public reference facilities in Washington, D.C. by calling the SEC at 1-800-SEC-0330. Our filings with the SECare available to the public from the SEC’s website at www.sec.gov.

 

Uponeffectiveness of the registration statement of which this prospectus is a part, we will be subject to the information and periodic reportingrequirements of the Exchange Act and, in accordance therewith, we will file periodic information and other information with the SEC.All documents filed with the SEC are available for inspection and copying at the public reference room and website of the SEC referredto above. We maintain a website at www.thedispensingsolution.com. You may access our reports and other information free of charge atthis website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The informationcontained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.

 

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    Page
FINANCIAL STATEMENTS    
     
Report of Independent Registered Public Accounting Firm   F-2
Consolidated Balance Sheets - As of September 30, 2021 and 2020   F-3
Consolidated Statements of Operations for the Years Ended September 30, 2021 and 2020   F-4
Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended September 30, 2021 and 2020   F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 2021 and 2020   F-6
Notes to Consolidated Financial Statements   F-7

 

F-1

 

 

 

Reportof Independent Registered Public Accounting Firm

 

Tothe Stockholders and the Board of Directors of:

Bantec,Inc.

 

Opinionon the Financial Statements

 

Wehave audited the accompanying consolidated balance sheets of Bantec, Inc. and Subsidiaries (the “Company”) as of September30, 2021 and 2020, the related statements of operations, changes in stockholders’ deficit, and cash flows, for each of the twoyears in the period ended September 30, 2021, 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 ofthe Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in theperiod ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

GoingConcern

 

Theaccompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussedin Note 2 to the consolidated financial statements, the Company has a net loss and cash used in operations of $1,882,071 and $1,576,648respectively, in fiscal 2021, and has a working capital deficit, stockholders’ deficit and accumulated deficit of $14,709,592,$14,796,078 and $32,956,840 at September 30, 2021. These matters raise substantial doubt about the Company’s ability to continueas a going concern. Management’s Plan in regard to these matters is also described in Note 2. The consolidated financial statementsdo not include any adjustments that might result from the outcome of this uncertainty.

 

Basisfor Opinion

 

Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PublicCompany Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commissionand the PCAOB.

 

Weconducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable 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 ofour audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressingan opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Ouraudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whetherdue to error or fraud and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidenceregarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principlesused 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.

 

CriticalAudit Matters

 

Thecritical audit matters communicated below are matters arising from the current period audit of the consolidated financial statementsthat were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that arematerial to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determinedthat there are no critical audit matters.

 

/s/Salberg & Company, P.A.

 

SALBERG& COMPANY, P.A.

Wehave served as the Company’s auditor since 2017.

BocaRaton, Florida

January7, 2022

 

2295NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431

Phone:(561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920

www.salbergco.com● info@salbergco.com

MemberNational Association of Certified Valuation Analysts ● Registered with the PCAOB

MemberCPAConnect with Affiliated Offices WorldwideMember Center for Public Company Audit Firms

 

F-2

 

 

BANTEC,INC. AND SUBSIDIARIES

CONSOLIDATEDBALANCE SHEETS

 

   September 30,   September 30, 
   2021   2020 
ASSETS        
Current Assets        
Cash  $985,953   $164,014 
Accounts receivable   128,386    349,389 
Inventory   61,837    44,599 
Prepaid expenses and other current assets   28,882    35,403 
           
Total Current Assets   1,205,058    593,405 
           
Property and equipment, net   1,461    8,835 
Patents and other intangibles   44,650    - 
Right of use lease asset   85,747    138,776 
Other assets   119,670    - 
           
Total non-current assets   251,528    147,611 
           
Total Assets  $1,456,586   $741,016 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities:          
Accounts payable  $2,667,110   $2,832,790 
Accrued expenses and interest   4,316,258    3,595,428 
Convertible notes payable - net of discounts and premiums   7,662,640    8,310,950 
Note payable - seller   873,000    900,000 
Line of credit - bank   4,885    41,609 
Current portion notes and loans payable – net of discounts   170,036    903,251 
Settlement payable   42,850    42,850 
Lease liability – current portion   52,178    52,180 
Derivative liabilities   125,693    128,628 
           
Total Current Liabilities   15,914,650    16,807,686 
           
Long-term Liabilities:          
Convertible note payable, net of premiums - related party   -    1,791,312 
Notes and loans payable – net of current portion   303,202    - 
Lease liability, less current portion   34,812    86,991 
           
Total Long-term Liabilities   338,014    1,878,303 
           
Total Liabilities   16,252,664    18,685,989 
           
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 at September 30, 2021 and September 30, 2020, respectively   -    - 
Common stock - $0.0001 par value, 6,000,000,000 shares authorized, 2,470,510,585 and 491,032,439 shares issued and outstanding at September 30, 2021 and September 30, 2020, respectively   247,052    49,104 
Additional paid-in capital   17,913,710    13,080,692 
Accumulated deficit   (32,956,840)   (31,074,769)
           
Total Stockholders’ Deficit   (14,796,078)   (17,944,973)
           
Total Liabilities and Stockholders’ Deficit  $1,456,586   $741,016 

 

Seeaccompanying notes to consolidated financial statements

 

F-3

 

 

BANTEC,INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

 

   For the Years Ended 
   September 30, 
   2021   2020 
Sales  $2,422,996   $4,455,186 
           
Cost of Goods Sold   1,553,516    3,351,438 
           
Gross Profit   869,480    1,103,748 
           
Operating Expenses:          
Selling, general, and administrative expenses   2,834,856    2,830,140 
Depreciation   7,374    11,088 
           
Total Operating Expenses   2,842,430    2,841,228 
           
Loss Before Other (Income) Expense   (1,972,750)   (1,737,480)
           
Other (Income) Expense:          
Interest and financing costs   1,440,220    1,598,246 
(Gain) loss on debt extinguishment and settlements, net   (1,536,815)   992,592 
Loss on change in fair market value of derivative   5,916    - 
           
Total Other (Income) Expense   (90,679)   2,590,838 
           
Net Loss before Provision for Income Tax   (1,882,071)   (4,328,318)
           
Provision for Income Tax   -    - 
           
Net Loss  $(1,882,071)  $(4,328,318)
           
Basic and Diluted Loss Per Share  $(0.00)  $(0.05)
           
Weighted Average Number of Common Shares Outstanding:          
Basic and diluted   1,425,249,598    93,011,260 

 

Seeaccompanying notes to consolidated financial statements

 

F-4

 

 

BANTEC,INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Forthe Years Ended September 30, 2021 and 2020

 

   Series A
Preferred Stock
   Common Stock   Additional
Paid-in
   Accumulated   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance - September 30, 2019   250   $-    3,255,346   $326   $11,850,771   $(26,746,451)  $(14,895,354)
                                    
Roundup for reverse split of stock   -    -    319    -    -    -    - 
                                    
Stock option expense   -    -    -    -    103,793    -    103,793 
                                    
Shares issued for cash   -    -    151,221,142    15,122    249,515    -    264,637 
                                    
Shares issued for conversion of notes including premiums reclassified   -    -    336,461,204    33,646    853,139    -    886,785 
                                    
Cancellation of shares for 3(a)(10) debt settlement   -    -    (194,520)   (19)   19    -    - 
                                    
Shares issued to non- employees for services   -    -    288,948    29    23,455    -    23,484 
                                    
Net loss   -    -    -    -    -    (4,328,318)   (4,328,318)
                                    
Balance – September 30, 2020   250    -    491,032,439    49,104    13,080,692    (31,074,769)   (17,944,973)
                                    
Share option expense   -    -    -    -    82,308    -    82,308 
                                    
Shares issued to employees   -    -    11,000,000    1,100    76,300    -    77,400 
                                    
Shares issued to non-employees for services   -    -    20,000,000    2,000    146,000    -    148,000 
                                    
Shares issued for legal settlement   -    -    36,821,330    3,682    115,988    -    119,670 
                                    
Shares issued for cash   -    -    1,393,006,910    139,299    2,944,631    -    3,083,930 
                                    
Shares issued for conversions of notes including premiums reclassified   -    -    518,649,906    51,867    1,467,791    -    1,519,658 
                                    
Net loss   -    -    -    -    -    (1,882,071)   (1,882,071)
                                    
Balance September 30, 2021   250   $-    2,470,510,585   $247,052   $17,913,710   $(32,956,840)  $(14,796,078)

 

Seeaccompanying notes to consolidated financial statements.

 

F-5

 

 

BANTEC,INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

   For the Years Ended 
   September 30, 
   2021   2020 
Cash Flows from Operating Activities:        
Net loss  $(1,882,071)   (4,328,318)
Adjustments to reconcile net loss to net cash used in operating activities:          
Share-based compensation and other expenses   250,709    127,277 
Stock based fee, upon conversion of notes   6,830    22,222 
Depreciation   7,374    11,088 
Amortization of debt discounts   183,992    196,961 
Accretion of premium on convertible note   407,186    435,909 
Default penalties charged   -    49,000 
Net gain on settlement of accounts payable and accrued expenses   (31,479)   (11,113)
Net gain (loss) on debt extinguishments   (1,505,336)   1,003,705 
Non-cash rent expense   848    395 
Fee notes issued   62,500    253,000 
Loss on change in fair market value of derivative   5,916    - 
Loan fee expense   2,670    - 
Changes in Operating Assets and Liabilities:          
Accounts receivable   221,003    442,339 
Inventory   (17,238)   73,959 
Prepaid expenses and other current assets   6,521    (30,856)
Accounts payable and accrued expenses and interest   703,927    1,395,156 
Settlements payable   -    (131,724)
           
Cash Used in Operating Activities   (1,576,648)   (491,000)
           
Cash Flows from Investing Activities:          
Purchase of Patent (Intangible)   (44,650)   - 
           
Cash Used in Investing Activities   (44,650)   - 
           
Cash Flows from Financing Activities:          
Proceeds from stock sales   3,083,930    264,637 
Proceeds from convertible notes payable   487,500    292,500 
Repayments of convertible notes payable   (18,000)   - 
Proceeds from loans and notes payable   752,382    1,020,115 
Repayments on loans and notes payable   (880,624)   (675,770)
Repayment of line of credit   (36,724)   (2,947)
Proceeds notes payable – related party   190,000    - 
Repayment of notes payable – related party   (190,000)   - 
Proceeds from short-term advances - related party   60,400    - 
Repayments short-term advances related party   (60,400)   - 
Proceeds from line of credit - related parties   -    64,940 
Repayment of loans and line of credit - related parties   (945,227)   (458,303)
           
Cash Provided by Financing Activities   2,443,237    505,182 
           
Net Increase (Decrease) in Cash   821,939    14,182 
Cash - beginning of year   164,014    149,832 
Cash - end of year  $985,953   $164,014 
           
Supplemental Disclosures of Cash Flow Information:          
Cash paid for:          
Interest  $501,690   $- 
Taxes  $-   $- 
           
Noncash financing and investing activities:          
Right of use asset  $-   $156,554 
Capitalization of convertible note accrued interest to principal  $-   $8,870 
           
Original issue discounts notes  $180,533   $201,201 
Issuance of common stock for note conversions  $822,545   $445,184 
Issuance of common stock for accrued interest of note  $60,298   $16,876 
Reclassification of debt premium upon note conversions  $629,984   $402,503 
Issuance of common stock for accrued salary  $57,000   $- 
Issuance of common stock for potential legal settlement  $119,670   $- 

 

Seeaccompanying notes to consolidated financial statements

 

F-6

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE1 - NATURE OF OPERATIONS

 

Bantec,Inc. is product and service company targeting the U.S. Government, state governments, municipalities, hospitals, universities, manufacturersand other building owners. Bantec also provides product procurement, distribution, and logistics services through its wholly-owned subsidiary,Howco Distributing Co., (“Howco”) (collectively, the “Company”) to the United States Department of Defense andDefense Logistics Agency. The Company established Bantec Sanitizing in fiscal 2021, which offers sanitizing products and equipment throughits new store bantec.store. Bantec Sanitizing is currently offering Bantec Sanitizing franchises for sale. Bantec Construction, LLC wasestablished to perform general contracting, currently the plan for the company is to provide general contracting for projects emanatingfrom Bantec Sanitizing for floor, wall and ceiling installation of materials that are easily sanitized. The Company has operations basedin Little Falls, New Jersey and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships thatoffer us an opportunity to grow sales and profit.

 

OnApril 24, 2018 the Company amended its articles of incorporation, filed with the Delaware Secretary of State, changing the Company namefrom 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 share and per share related amounts in the accompanying consolidated financial statements and footnotes have been retroactivelyadjusted for all periods presented for the effect of the reverse split.

 

NOTE2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

 

Principlesof Consolidation

 

Theaccompanying consolidated financial statements include the accounts of Bantec, Inc. and its wholly-owned subsidiaries, Drone USA, LLC,Bantec Construction, LLC, Bantec Sanitizing, LLC, and Howco. Bantec Construction, LLC and Bantec Sanitizing, LLC are both in start-upstages with minor cash expenditures. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

GoingConcern

 

Theaccompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplatesthe recoverability of assets and the satisfaction of liabilities in the normal course of business. For the year ended September 30, 2021,the Company has incurred a net loss of $1,882,071 and used cash in operations of $1,576,648. The working capital deficit, stockholders’deficit and accumulated deficit was $14,709,592, $14,796,078 and $32,956,840, respectively, at September 30, 2021. Furthermore, on September6, 2019 the Company received a default notice on its payment obligations under the senior secured credit facility agreement (see Note10), defaulted on its Note Payable – Seller in September 2017 and has since defaulted on other promissory notes. As of September30, 2021 the Company has received demands for payment of past due amounts from several consultants and service providers. It is management’sopinion that these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelvemonths from the issuance date of this report. The ability of the Company to continue as a going concern is dependent upon management’sability to further implement its business plan and raise additional capital as needed from the sales of stock or debt. The Company hascontinued to implement cost-cutting measures and restructuring or setting up payment plans with vendors and service providers and plansto raise equity through a private placement, and restructure or repay its secured obligations. The accompanying consolidated financialstatements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

 

Useof Estimates

 

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

 

F-7

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

FairValue Measurements

 

TheCompany follows the FASB Fair Value Measurements standard, as they apply to its financial instruments. This standard defines fairvalue, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements.

 

Fairvalue is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction betweenmarket 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 foridentical assets or liabilities in an active market that the Company has the ability to access at the measurement date. Level 2 inputsare market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices forsimilar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroboratedby market data. Level 3 inputs are unobservable and corroborated by little or no market data. The standard requires the utilization ofthe lowest possible level of input to determine fair value and carrying amounts of current liabilities approximate fair value due totheir short-term nature. The Company accounts for certain instruments at fair value using level 3 valuation.

 

   At September 30, 2021   At September 30, 2020 
Description  Level 1   Level 2   Level 3   Level 1   Level 2   Level 3 
Derivative Liability   -    -   $125,693    -    -   $128,628 

 

Aroll-forward of the level 3 valuation financial instruments is as follows:

 

   Derivative
Liabilities
 
Balance at September 30, 2020  $128,628 
Gain on debt extinguishment upon conversion of related note payable   (8,851)
Derivative expense   5,916 
Balance at September 30, 2021  $125,693 

 

Thewarrants were issued to a convertible note holder in November and December 2017 and initially determined to be equity instruments andrecorded as note discount and as additional paid in capital. On June 4, 2018 the anti-dilutive provision of the warrants took effectand based on the new conversion formula management determined the warrant became a derivative liability and reclassified the Fair Valueon June 4, 2018 from additional paid-in capital to derivative liability with fair market value changes recognized in operations for eachreporting date. The derivative liability associated with the warrants is $125,693 at September 30, 2021. The derivative liability forconvertible notes was $8,851 at September 30, 2020 and was recognized as a gain on debt extinguishment upon note conversion during theyear ended September 30, 2021. (See Notes 10 and 12).

 

Cashand Cash Equivalents

 

Cashequivalents consist of liquid investments with maturities of three months or less at the time of purchase. There are no cash equivalentsat the balance sheet dates.

 

AccountsReceivable

 

Tradereceivables 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 Companymay 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.

 

F-8

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Inventory

 

Inventoryconsists of finished goods, which are purchased directly from manufacturers. The Company utilizes a just in time type of inventory systemwhere products are ordered from the vendor only when the Company has received sales order from its customers. Inventory is stated atthe lower of cost and net realizable value on a first-in, first-out basis.

 

Property& Equipment

 

Propertyand equipment are stated at cost and depreciated over their estimated useful lives. Maintenance and repairs are charged to expense asincurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resultinggains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value ofthese assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The assets arefully operational drones used as demonstration units and each unit exceeds management’s threshold for capitalization of $2,000.The Company depreciates these demonstration units over a period of 3 years. Depreciation expense was $7,374 and $11,088 in 2021 and 2020,respectively.

 

Goodwilland Intangible Assets

 

TheCompany acquired a patent for a new product during the year ended September 30, 2021. The Company capitalized acquisition and relatedlegal fees related to the patent totaling $44,650. The capitalized amount will be amortized over the next three years. Impairment willbe tested annually or as indicators of impairment are available.

 

Long-LivedAssets

 

Long-livedassets 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 expectedto result from use of the assets and their ultimate disposition. In instances where impairment is determined to exist, the Company writesdown the asset to its fair value based on the present value of estimated future cash flows.

 

DeferredFinancing Costs

 

Allunamortized deferred financing costs related to the Company’s borrowings are presented in the consolidated balance sheets as adirect deduction from the related debt. Amortization of these costs is reported as interest and financing costs included in theconsolidated statement of operations.

 

RevenueRecognition

 

EffectiveOctober 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 recognitionstandard (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 aresatisfied. The Company’s initial application of ASC 606 did not have a material impact on its financial statements and disclosuresand there was no cumulative effect of the adoption of ASC 606.

 

TheCompany sells a variety of products to government entities. The purchase orders received specifies each item and its manufacturer; theCompany only needs to fulfill the performance obligation by shipping the specified items. No other performance obligations exist underthe 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.

 

F-9

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Duringthe year-ended September 30, 2021, the Company through its subsidiary Howco entered into contracts to package products for a third-partycompany servicing the same government customer base. The contracts were on job lot basis as shipped to Howco for packaging. The customerwas billed upon completion each job lot at which time revenue was recognized.

 

TheCompany sells drones and related products manufactured by third parties to various parties. The Company also offers technical servicesrelated to drone utilization and performs other services. The Company began offering insulation jackets for commercial and governmentfacilities to insulate and monitor heating and cooling equipment. Contracts for drone related products and services and insulating jacketrelated sales will be evaluated using the five-step process outline above. There have been no material sales for drone products or otherservices 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 ofbusiness and within the lines of business to the extent that the product or service has different revenue recognition characteristics.

 

Stock-basedcompensation

 

Stock-basedcompensation 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 awardof 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 awardbased on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified methodto determine expected term because of lack of sufficient exercise history. Additionally, effective October 1, 2016, the Companyadopted 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 torecognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognizeforfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financialstatements and related disclosures.

 

Asof October 1, 2018, the Company has early adopted ASU 2018-7 Compensation-Stock Compensation which conforms the accounting for non-employeesto the accounting treatment for employees. The new standard replaces using a fair value as of each reporting date with use of the calculatedfair value as of the grant date. The implementation of the standard provides for the use of the fair market value as of the adoptiondate, rather than using the value as of the original grant date. Therefore, the values calculated and reported at September 30, 2018become a proxy for the grant date value. The Company utilizes the Black-Sholes option pricing model and uses the simplified method todetermine expected term because of lack of sufficient exercise history. There was no cumulative effect on the adoption date.

 

Shippingand Handling Costs

 

TheCompany has included freight-out as a component of cost of sales, which amounted to $47,716 and $95,634 for the years ended September30, 2021 and 2020, respectively. 

 

ConvertibleNotes with Fixed Rate Conversion Options

 

TheCompany may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstandingprincipal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the commonstock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Companyrecords the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Notedate with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.

 

F-10

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

DerivativeLiabilities

 

TheCompany has certain financial instruments that are derivatives or contain embedded derivatives. The Company evaluates all its financialinstruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separatelyaccounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of anyderivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair valueis recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either otherincome 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 losson extinguishment.

 

LeaseAccounting

 

InFebruary 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognizea right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present valueof the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for leaseprepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effectivefor 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 earliestperiod presented.

 

TheCompany’s subsidiary has renewed the lease for the warehouse and office facility in Vancouver, Washington in May 2020 effectiveJune 1, 2020, which extends through May 30, 2023, and is accounted for under ASC 842. The corporate office is an annual arrangement whichprovides for a single office in a shared office environment and is exempt from ASC 842 treatment. During the year ended September 30,2020 the Company recognized a lease liability of $156,554 and the related right-of-use asset for the same amount and will amortize bothover the life of the lease.

 

IncomeTaxes

 

TheCompany’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which itoperates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for taxand financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and anyoperating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to applyto taxable income in the year in which those temporary differences are expected to be recovered or settled. The ultimate realizationof deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences becomedeductible. 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 followsthe accounting for uncertainty in income taxes guidance, which clarifies the accounting and disclosures for uncertainty in income taxesrecognized in the Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognitionand measurement of a tax position taken or expected to be taken in a tax return.

 

TheCompany currently has no federal or state tax examinations in progress. As of September 30, 2021, the Company’s tax returns forthe tax years 2020, 2019 and 2018 remain subject to audit, primarily by the Internal Revenue Service.

 

TheCompany did not have material unrecognized tax benefits as of September 30, 2021 and 2020 and does not expect this to change significantlyover the next 12 months. The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component ofprovision for income taxes.

 

F-11

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NetLoss Per Share

 

Basicloss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding forthe period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue commonstock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) ofthe Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of sharesoutstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution.As of September 30, 2021, 17,223 options were outstanding of which 15,854 were exercisable, and 42,777,527 warrants were outstandingand exercisable. Additionally, as of September 30, 2021, the outstanding principal balance, including accrued interest of the third-partyconvertible debt, totaled $7,950,959 and was convertible into 2,549,848,072 shares of common stock. The total potentially dilutive sharescalculated is 2,592,642,822. It should be noted that contractually the limitations on the third-party notes (and the related warrant)limit the number of shares converted to either 4.99% or 9.99% of the then outstanding shares. As of September 30, 2021, and 2020, potentiallydilutive securities consisted of the following:

 

   September 30,
2021
   September 30,
2020
 
Stock options   17,223    17,775 
Warrants   42,777,527    25,484.484 
Related party convertible debt and accrued interest   -    526,400,307 
Third party convertible debt (including senior debt)   2,549,848,072    2,068,874,206 
Total   2,592,642,822    2,620,776,752 

 

SegmentReporting

 

TheCompany uses “the management approach” in determining reportable operating segments. The management approach considers theinternal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessingperformance as the source for determining the Company’s reportable segments. The Company’s chief operating decision makeris the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessingperformance for the entire Company. As of September 30, 2021, the Company did not report any segment information since the Company primarilygenerates sales from its subsidiary, Howco.

 

Reclassifications

 

Certainprior year amounts have been reclassified to conform to the current year presentation. In the consolidated statement of cash flows, thechange in the ROU lease asset and change in the related ROU lease liability was presented on a gross basis in 2020. These amounts havebeen reclassified to conform with the current year presentation on a net basis where $395 is now shown as non-cash rent expense.

 

RecentAccounting Pronouncements

 

OnAugust 5, 2020, the Financial Accounting Standards Board (FASB) issued accounting standards update (ASU) No. 2020-06, Debt—Debtwith Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic815-40).

 

Theamendments in the ASU remove certain separation models for convertible debt instruments and convertible preferred stock that requirethe separation of a convertible debt instrument into a debt component and an equity or derivative component. The ASU also amends thederivative scope exception guidance for contracts in an entity’s own equity. The amendments remove three settlement conditionsthat are required for equity contracts to qualify for the derivative scope exception.

 

F-12

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Inaddition to the above, the ASU expands disclosure requirements for convertible instruments and simplifies areas of the guidance for dilutedearnings-per-share calculations that are impacted by the amendments.

 

TheASU is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excludingsmaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021. Early adoption is permitted. TheFASB noted that an entity should adopt the guidance as of the beginning of its annual fiscal year. The standard is effective for theCompany begining in fiscal year September 30, 2024.

 

Entitiesmay elect to adopt the amendments through either a modified retrospective method of transition or a fully retrospective method of transition.If an entity has convertible instruments that include a down round feature, early adoption of the ASU is permitted for fiscal years beginningafter December 15, 2020.

 

ASU2016-13 Measurement of Credit Losses on Financial Instrument is effective for fiscal years beginning after December 15, 2022. This isnot expected to apply to the Company as financial instruments giving rise to credit risk are not utilized by the Company.

 

InMay 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-StockCompensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addressesissuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendmentis effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements

 

TheCompany does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a materialeffect on the accompanying consolidated financial statements.

 

NOTE3 - ACCOUNTS RECEIVABLE

 

TheCompany’s accounts receivable at September 30, 2021 and 2020 is as follow:

 

   September 30,
2021
   September 30,
2020
 
Accounts receivable  $128,386   $349,389 
Reserve for doubtful accounts   -    - 
   $128,386   $349,389 

 

Baddebt expense was $0 for the years ended September 30, 2021 and 2020.

 

NOTE4 - INVENTORY

 

AtSeptember 30, 2021 and 2020, inventory consists of finished goods and was valued at $61,837 and $44,599, respectively. No inventory reservewas deemed necessary at September 30, 2021 or 2020.

 

NOTE5 - INTANGIBLE ASSETS

 

TheCompany acquired a patent for a new product during the year ended September 30, 2021. The Company capitalized acquisition and relatedlegal fees related to the patent totaling $44,650. The capitalized amount will be amortized over the next three fiscal years.

 

F-13

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE6 - LINE OF CREDIT - BANK

 

TheCompany has a revolving line of credit with a financial institution, which balance is due on demand and principal payments are due monthlyat 1/60th of the outstanding principal balance. This revolving line of credit is in the amount of $50,000, and is personallyguaranteed by the Company’s Chief Executive Officer (“CEO”). The line bears interest at a fluctuating rate equal tothe prime rate plus 4.25%, which at September 30, 2021 and September 30, 2020 was 7.5% and 7.5%, respectively. As of September 30, 2021and 2020, respectively, the balance of the line of credit was $4,885 and $41,609, with $45,115, available at September 30, 2021.

 

NOTE7 - SETTLEMENTS PAYABLE

 

OnJuly 20, 2018, the Company entered into a settlement agreement with a collection agent for American Express relating to $127,056 of pastdue charges. The agreement provides for initial payment of $12,706, monthly payments of $6,500 and final payment on January 27, 2020of $3,850. The amount due at September 30, 2021, and 2020, was $42,850, and $42,850, respectively. Under the terms of the stipulationand settlement agreement, this debt is in default.

 

NOTE8 - NOTE PAYABLE – SELLER

 

Inconnection with the acquisition of Howco in September 2016, the Company issued a note payable in the amount of $900,000 to the sellersof Howco. The note matured on September 9, 2017 and bears interest at 5.50% per annum. The note requires payment of unpaid principaland interest upon maturity. The note is secured by all assets of Howco Distribution Co. and subordinated to the Senior Secured CreditFacility discussed below. The note is currently in default and the default interest rate is 8% per annum. At September 30, 2021 and September30, 2020, the principal and accrued interest on this note amounted to $873,000, $340,663 and $900,000, and $269,682, respectively.

 

NOTE9 - CONVERTIBLE AND PROMISSORY NOTES PAYABLE – RELATED PARTY OFFICER AND HIS AFFILIATES

 

ConvertibleNotes

 

Therelated party officer and his affiliates convertible notes balance consisted of the following at September 30, 2021 and 2020:

 

   2021   2020 
Principal  $-   $945,227 
Premiums   -    846,085 
Total   -    1,791,312 
Current portion, including premiums   -    - 
Long term  $-   $1,791,312 

 

Mostof the related party convertible notes included a cross-default clause which in event of a default on another note holder’s notecauses a default on the related party notes. The Company and the respective note holders have amended those notes effective September30, 2020 to remove the clauses.

 

TheCompany has a $840,000 convertible note payable (“Note 1”) to a related party entity controlled by the Company’s CEO.Note 1 bear 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 andaccrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price pershare of common stock for the 30-day period prior to conversion.

 

F-14

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnApril 15, 2020, the Company amended the above Note 1 first issued to AIG and subsequently assigned to Pike Falls LLC (entities controlledby the Company’s CEO) in amount of $840,000, with a principal and accrued interest balance of $688,444, and $210,409, respectivelyat June 30, 2020. The amendment changes conversion terms, which now state the note principal and interest may be converted to commonstock at 50% of the lowest closing bid price during the thirty days prior to conversion, increases the interest rate to 10%, and hasa maturity date of January 7, 2022. The change in conversion terms has been treated as a debt extinguishment and the modified note istreated as stock settled debt under ASC 480, and a put premium of $688,444 was recognized with a charge to loss on debt extinguishment.The principal balance was $377,194 and accrued interest was $221,323 at September 30, 2020. As of September 30, 2021, Note 1 principalhas been fully converted or paid in cash along with accrued interest of $224,370, and the accrued interest balance was $0 as of September30, 2021. $377,194, related to put premiums was recognized as a gain on extinguishment of debt during the year ended September 30, 2021.

 

TheCompany 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 wasdue. 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,and 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 convertthe outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volumeweighted average price per share of common stock for the 30-day period prior to conversion. This LoC is considered a stock settled debtin accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula. During theyear ended September 30, 2020 the Company was advanced $64,940 and repaid $132,803, on this LoC. As of September 30, 2020, the LoC hadnot been converted and the balance was $99,142, and accrued interest was $31,260. During the year ended September 30, 2021 the balanceof the LoC principal was fully paid in cash along with all accrued interest, totaling $32,900.

 

OnJuly 2, 2019, the Company issued a convertible note payable (“Note 2”) to an affiliate of the Company’s CEO for $15,000cash. The funds were paid directly to a vendor to the Company. The note had an original maturity of June 9, 2020; however, the note wasamended effective September 30, 2020 and the new maturity is May 31, 2022. The note bears interest at 10% and may be converted into theCompany’s common stock at 50% of the lowest closing bid in the 20 trading days prior to notification of conversion. The Companyaccounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $15,000 with a chargeto interest expense for the note. The note principal and accrued interest ($2,155) was fully repaid during the year ended September 30,2021 and put premium of $15,000, was recognized as gain on debt extinguishment. Accrued interest was $0 at September 31, 2021 and $1,843,at September 30, 2020.

 

OnSeptember 13, 2019, the Company issued a convertible note payable to an entity controlled by the Company’s CEO for $17,000 in cash.The note had an original maturity of June 9, 2020., The note was amended, effective September 30, 2020, and the new maturity is May 31,2022. The note bears interest at 10% and may be converted to the Company’s common stock at 50% of the lowest closing bid in the20 trading days prior to notification of conversion. The Company has accounted for the convertible promissory note as stock settled debtunder ASC 480 and recorded a debt premium of $17,000 with a charge to interest expense for the notes. The note principal and accruedinterest of $2,152 was fully repaid and a put premium of $17,000, was recognized as gain on debt extinguishment during the year endedSeptember 30, 2021. Accrued interest was $1,799, at September 30, 2020.

 

OnDecember 30, 2018 the Company issued a promissory note to the CEO for a $400,000 in cash. The note bears interest at 12% per annum, matureson January 7, 2024 and required monthly payment of principal of $5,000 with a balloon payment at maturity. On April 14, 2020, the Companyamended the above note first issued to Michael Bannon (the Company’s CEO) with a principal and interest balance of $367,500, and$76,619, respectively at September 30, 2020. The amendment adds conversion terms, which state the note principal and interest may beconverted to common stock at 50% of the lowest closing bid price during thirty days prior to conversion, and reduces the interest rateto 10%, and extends the maturity date to January 7, 2024. The change in conversion terms was treated as a debt extinguishment and thenew note is considered a stock settled debt under ASC 480, and a put premium of $367,500 was recognized with a charge to interest expense.The note principal and accrued interest of $83,133 was fully repaid in cash during the year ended September 30, 2021 and a gain on debtextinguishment was recognized for the premium upon cash repayment. The accrued interest balance was $76,619 at September 30, 2020.

 

F-15

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnJanuary 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. On April 14, 2020, the Company amended the note witha principal and interest balance of $195,000, and $17,947. The amendment adds conversion terms, which state the note principal and interestmay be converted to common stock at 50% of the lowest closing bid price during thirty days prior to conversion, and reduces the noteinterest rate to 10%, and extends the maturity date to April 15, 2026. The change in conversion terms has been treated as a debt extinguishmentand the new note is considered a stock settled debt under ASC 480, and put premium of $195,000 has been recognized with a charge to losson debt extinguishment. During 2020, $14,250 was repaid and $180,750 was converted to common stock. Accrued interest of $20,855 was repaidas of September 30, 2021.

 

OnJuly 1, 2019, Howco entered into a purchase order financing agreement with an entity controlled by the Company’s CEO (“PikeFalls”) for cash advances to Howco. The advances are to be for 100% of the face value of the purchase orders to be repaid withaccounts receivable related to the sales of the products underlying the purchase orders. Pike Falls receives 4% of the purchase pricefor the first 45 days and .00086% per day thereafter on the unpaid balance.

 

OnApril 15, 2020, the Company issued a convertible note payable to Michael Bannon (the Company’s CEO) in the principal amount of$69,391, in replacement for the amounts owed to an entity controlled by Mr. Bannon (above) The new note interest rate is 10%, and itmatures on January 31, 2022. The new note principal and interest may be converted into the Company’s common stock at 50% of thelowest closing bid price in the thirty days preceding the conversion notice. This issuance was treated as a debt extinguishment of theold note and the new note conversion terms have been treated as stock settled debt under ASC 480, and put premium of $69,391 was recognizedwith a charge to interest expense. The principal and accrued interest was $69,391 and $5,332 respectively as of September 30, 2020. Duringthe year ended September 30, 2021 the principal and accrued interest of $6,206 was fully paid in cash and $69,391 was recognized as gainon extinguishment of debt.

 

OtherNotes Payable

 

OnDecember 22, 2020 a promissory note was issued to the CEO by Howco for $50,000 having weekly payments of $2,580 for twenty-five weeks,which include a total of $14,500 of interest. The principal and interest due were fully paid at September 30, 2021.

 

OnMay 21, 2021 a promissory note was issued to the CEO by Howco for $40,000 having weekly payments of $2,080 for twenty-five weeks, whichinclude a total of $12,000 of interest. During the year ended September 30, 2021, repayments of principal were $40,000 and interest of$8,308 were changed to Interest Expense and were made reducing the principal balance to $0. Interest charged was reduced due to earlyrepayment.

 

OnJune 27, 2021 a promissory note was issued to the CEO by Howco for $50,000 having weekly payments of $2,580 for twenty-five weeks, whichinclude a total of $14,500 of interest. During the year ended September 30, 2021, repayments of principal were $50,000 and interest of$6,692 were changed to Interest Expense and were made reducing the principal balance to $0. Interest charged was reduced due to earlyrepayment.

 

OnJuly 12, 2021 a promissory note was issued to the CEO by Howco for $50,000 having weekly payments of $2,580 for twenty-five weeks, whichinclude a total of $14,500 of interest. During the year ended September 30, 2021, repayments of principal were $50,000 and interest of$6,135, were changed to interest expense and were made reducing the principal balance to $0.

 

Duringthe year ended September 30, 2021, the CEO extended short-term advances totaling $60,400, which were fully repaid as of September 30,2021.

 

F-16

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE10 - CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES

 

Thesenior secured credit facility note balance and convertible debt balances consisted of the following at September 30, 2021 and 2020: 

 

   September 30,   September 30, 
   2021   2020 
Principal  $6,167,407   $6,473,702 
Premiums   1,509,673    1,846,471 
Unamortized discounts   (14,440)   (9,223)
   $7,662,640   $8,310,950 

 

Forthe years ended September 30, 2021 and 2020, amortization of debt discount on the above convertible notes amounted to $30,533 and $6,242,respectively.

 

SeniorSecured Credit Facility Note - Default

 

OnSeptember 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 interestonly, starting on October 13, 2016 through February 13, 2017, and monthly payments, including interest and principal, of $298,341 startingon 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 cashor common stock in accordance with the terms of the Agreement. The Company was also required to reserve 7,000 shares of common stockrelated to this transaction. The reserved shares will be released upon the satisfaction of the loan.

 

Asof September 30, 2021, and September 30, 2020, the Company had issued 539, shares of common stock in satisfaction of the $850,000 advisoryfee 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 dateof the settlement agreement and through September 30, 2021 and September 30, 2020, the lender had not reported any proceeds from thesale of these shares (see below). Prior to the settlement agreement in January 2018, notwithstanding anything contained in the Agreementto the contrary, in the event the Lender has not realized net proceeds from the sale of Advisory Fee Shares equal to at least the AdvisoryFee by the earlier to occur of: (A) September 13, 2017; (B) the occurrence of an Event of Default; or (C) the Maturity Date, then atany time thereafter, the Lender shall have the right, upon written notice to the Borrower, to require that the Borrower redeem all AdvisoryFee Shares then in Lender’s possession for cash equal to the Advisory Fee, less any cash proceeds received by the Lender from anyprevious sales of Advisory Fee Shares, if any within five (5) Business Days from the date the Lender delivers such redemption noticeto the Borrower. 

 

TheNote is only convertible upon default or mutual agreement by both parties at a conversion rate of 85% of the lowest of the daily volumeweighted average price of the Company’s common stock during the 5 business days immediately prior to the conversion date. At anytime and from time to time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of theLoan Documents; or (ii) mutual agreement between the Company and the Holder, this Note may be, at the sole option of the Holder, convertibleinto shares of the Company’s common stock, in accordance with the terms and conditions of the Note. Upon liquidation by the Holderof Conversion Shares issued pursuant to a conversion notice, provided that the Holder realizes a net amount from such liquidation equalto less than the conversion amount specified in the relevant conversion notice, the Company shall issue to the Holder additional sharesof 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 realizedamount from the sale of the Conversion Shares; divided by (iii) the average volume weighted average price of the Company’scommon stock during the five business days immediately prior to the date upon which the Holder delivers notice (the “Make-WholeNotice”) to the Company that such additional shares are requested by the Holder.

 

F-17

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Oncea 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 witha charge to interest expense, and the interest rate increased to 25% (default rate).

 

OnMarch 28, 2017, the Company entered into an additional agreement with the above senior secured credit facility lender to receive a rangeof advisory services for a total of $1,200,000 with no definitive terms or length of service which was expensed in fiscal 2017 and hadbeen recorded as an accrued liability – advisory fees through December 31, 2017. In connection with the settlement agreement discussedbelow, in January 2018, the advisory services fees payable were reclassified to the principal balance of the replacement ConvertibleNote.

 

OnJanuary 3, 2018, the Company entered into a settlement agreement (the “Settlement Agreement”) and replacement note agreementswith the investment fund related to a senior secured credit facility note dated September 13, 2016. On the effective date of the SettlementAgreement, 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 NoteB”). Replacement Note A had a principal amount of $1,000,000 and Replacement Note B had a principal balance of $4,788,642, bothof which remained secured by the original security, pledge and guarantee agreements; and other applicable loan documents, and bear interestat 18% per annum. The default was not waived by this settlement agreement. The Company originally recorded a premium on stock settleddebt 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 interestrate was amended to 12% effective June 12, 2018.

 

TheCredit 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 andinterest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary, all obligations owingby the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents shallbe paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and the remainingprincipal and accrued interest on January 13, 2019. Interest payments made since the amendment have totaled $323,440 and are thereforenot in accord with that amendment. However, TCA has received payments under the 3(a) (10) settlement (below) totaling $308,100 duringthe year ended September 30, 2018, and another $270,320, during the year ended September 30, 2019. The principal balance was $4,788,642at September 30, 2018.

 

OnOctober 30, 2018, TCA the Company’s senior lender amended its credit facility which had been restructured in January 2018 whenfees 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 thecurrent amendment total amounts outstanding under the notes along with accrued interest of $537,643 has been capitalized with the principalamount 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 andtherefore 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 December15, 2020. The amortization payments credited toward the principal amount and accrued interest vary and include payments made under the3(a)(10) settlement agreement with a third party related to Note A. Economically the total principal and accrued interest outstandingremain unchanged as reported in the consolidated balance sheet. All other terms including conversion rights and a make-whole provisionin the case of a conversion shortfall remain the same as stated in the footnotes above.

 

OnSeptember 6, 2019, the Company received a default notice on its payment obligations under the senior secured credit facility agreementfrom TCA. The Company has proposed a number of solutions including refinancing the debt with other parties. The default was declareddue to non-payment of monthly scheduled amortization (principal and interest). TCA holds security interests in all assets of the Companyincluding its subsidiary Howco. The Company is in negotiation with the receiver appointed by the court related to the senior securedcreditor’s claim and has proposed a preliminary settlement.

 

F-18

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

AtSeptember 30, 2021 and September 30, 2020, the principal of the Note B portion was $5,326,285 and accrued interest was $1,738,403 and$1,099,250 respectively and the Note A principal subject to the 3(a) (10) court order was $421,587. During the year ended September 30,2021, the Company has not paid interest or principal and Livingston Asset Management (under the 3(a) (10) settlement) has not made anypayments to TCA.

 

OnJanuary 30, 2018 pursuant to the Liability Purchase Term Sheet, the TCA Replacement Note A in the principal amount of $1,000,000 wasacquired by Livingston Asset Management LLC (“Livingston”) from the original lender. Principal of Replacement Note A is dueto 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 the Company’s intention to rely upon the exception to registration set forth in Section 3(a) (l0) of theSecurities 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 issueand deliver to Livingston shares of its common stock (the “Settlement Shares”) in one or more tranches as necessary, andsubject to adjustment and ownership limitations as set forth in the Settlement Agreement, sufficient to generate proceeds such that theaggregate 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 morethan 9.99% of the Company’s outstanding shares per tranche. The parties reasonably estimate that the fair market value of the SettlementShares to be received by Livingston is equal to approximately $1,666,667 which is based on a discount of 40%.

 

Inthe year ended September 30, 2021, there were no 3(a) (10) issuances. As of September 30, 2021, there have been seventeen issuances undersection 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 recordedat 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, untilthese shares have been sold and reported to the Company by the lender as part of the Make-Whole provision at which time the proceedsvalue of such shares are reclassified to additional paid-in capital. During the years ended September 30, 2018 and September 30, 2019,proceeds of $308,100 and $270,320, respectively were remitted to TCA by Livingston and applied to reduce the liability with correspondingcredits to additional paid in capital. $180,618 of debt premium was credited to additional paid in capital in conjunction with the paymentsto TCA. At September 30, 2020 and September 30, 2021 the balance, of $421,587 along with related debt premium of $281,054 are includedin convertible notes payable on the balance sheet.

 

OnMarch 7, 2018 the Company entered into a placement agent and advisory agreement with Scottsdale Capital Advisors in connection with theLivingston liability purchase term sheet executed on November 15, 2017. The placement agent services fee amounted to $15,000 payableto Scottsdale Capital Advisors in the form of a convertible note. The note matures six months from the date of issuance and shall accrueinterest at the rate of 10% per annum. The $15,000 note is convertible into shares of the Company’s common stock at a discountof 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 $6,429with a charge to interest expense. The note has not been converted and the principal balance is $15,000, at September 30, 2021 and September30, 2020 with $6,273, and $4,293, of accrued interest, respectively. As the note has matured it is technically in default. Under theterms of the note no default interest or penalties accrue.

 

OtherConvertible Debt

 

OnJune 1, 2018, the Company entered into a consulting and services arrangement with Livingston Asset Management which has no stipulatedterm. The arrangement provides for financial management services including accounting and related periodic reporting among other advisoryservices. 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 thelowest bid price in the 30 trading days immediately preceding the notice of conversion. The notes were charged to professional fees foreach corresponding service month. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 andrecorded a debt premium of $12,500 with a charge to interest expense for each note. As of September 30, 2021, the following notes hadbeen issued, assigned and converted as indicated:

 

F-19

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

December1, 2018, $12,500 principal, maturing May 31, 2019 – partially converted, principal balance $10,375 at September, 30, 2019 –assigned to Alpha Capital Anstalt and fully converted;

 

January1, 2019, $12,500 principal, maturing June 30, 2019 – assigned to Alpha Capital Anstalt and fully converted;

 

February1, 2019, $12,500 principal, maturing July 31, 2019 – assigned to Alpha Capital Anstalt and fully converted;

 

March1, 2019, $12,500 principal, maturing August 31, 2019 – assigned to Alpha Capital Anstalt and fully converted;

 

April1, 2019, $12,500 principal, maturing September 30, 2019 – assigned to Alpha Capital Anstalt and fully converted;

 

May1, 2019, $12,500 principal, maturing October 31, 2019 – assigned to Alpha Capital Anstalt and fully converted; and

 

June1, 2019, $12,500 principal, maturing November 30, 2019 – assigned to Alpha Capital Anstalt and fully converted.

 

Thenotes were charged to professional fees for each corresponding service month. The Company has accounted for each of the Convertible FeeNotes as stock settled debt under ASC 480 and recorded a debt premium of $12,500 each with a charge to interest expense.

 

OnSeptember 30, 2019, the Company issued a convertible note to Livingston Asset Management for $51,000 ($17,000, for each of the monthsfrom July to September, 2019), under the same interest rate and conversion discount terms. The note matures on March 31, 2020.

 

OnNovember 1, 2019, Livingston Asset Management LLC amended the terms of the monthly fee notes issued between December 1, 2018 throughSeptember 30, 2019, totaling $136,375, in principal such that the notes are no longer convertible into common stock. The principal balanceof $136,375 was reclassified to notes and loans payable and the related put premiums totaling $136,375 were recognized as gains on debtextinguishment on the date of the amendment.

 

The$85,375 of principal from the Livingston Asset Management LLC notes issued December 1, 2018 through June 1, 2019, along with $8,475 ofaccrued interest were sold and assigned to Alpha Capital Anstalt, on February 20, 2020. The assigned notes became convertible as of thedate of the assignment by virtue of an agreement between the Company and the new note holder. The terms of the notes provide for conversionof principal and accrued interest at a 50% discount to the lowest closing bid price over the 20 days prior to conversion. The notes havebeen accounted for as stock settled debt under ASC 480, and put premium of $93,850 has been recognized with a charge to interest expense.During the year ended September 30, 2020, $2,200 of the principal was converted into common stock. The total accrued unpaid interest(also not converted) is $5,277 at September 30, 2020. The assigned notes are in default and there are cross-default terms in the originalnotes or the assignment documentation. Following conversions during the year ended September 30, 2021 the principal balance was $0 atSeptember 30, 2021 and $91,300 as of September 30, 2020. Accrued interest was $0 and $5,277 at September 30, 2021 and September 30, 2020,respectively. Put premiums of $91,300 were reclassified to additional paid in capital during the year ended September 30, 2021.

 

InApril 2020, Livingston Asset Management LLC, sold and assigned its September 30, 2019, promissory notes to Tri-Bridge Ventures, LLC.The principal balance of $51,000 and accrued interest of $2,571 acquired at the date of the assignment. Tri-Bridge fully converted allprincipal and accrued interest by June 16, 2020.

 

Underthe terms of the June 1, 2018 consulting and services agreement with Livingston Asset Management, LLC, as amended on July 1, 2019, Livingstonis to receive $20,000, per month including $3,000 cash and $17,000 in promissory notes. The notes bear interest of 10% per annum andmature in six month. The promissory notes are convertible into shares of common stock at a discount of 50% of the lowest closing bidprice during the 30 trading days prior to conversion. The notes having a conversion feature are treated as stock settled debt under ASC480 and a debt premium of $17,000 is recognized as interest expense on note issuance date. During the year ended September 30, 2021,the October 1, 2020, November 1, 2020, December 1, 2020 and January 1, 2020 notes were fully converted and Livingston agreed to forgiveseven months (“February 1, 2020 through August 1, 2020”) of service including the cash payments due which were recorded asaccounts payable. A gain on debt extinguishment was recognized of $263,938 related to the principal, premiums and accrued interest duringthe year ended September 30, 2021. The specific notes forgiven are indicated below.

 

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BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Convertiblenotes were issued to Livingston as follows:

 

January1, 2020 - $17,000 non-convertible note amended to original conversion terms, fully converted;

 

February1, 2020 - $17,000 note and accrued interest forgiven;

 

March1, 2020 - $17,000 note and accrued interest forgiven;

 

April1, 2020 - $17,000 note and accrued interest forgiven;

 

May1, 2020, $17,000 note and accrued interest forgiven;

 

June1, 2020 - $17,000 note and accrued interest forgiven;

 

July1, 2020 - $17,000 note and accrued interest forgiven; and

 

August1, 2020 - $17,000, note and accrued interest forgiven.

 

Livingstonhas given the Company forbearance on fees beginning September 1, 2020 through June 1, 2021. Effective July 1, 2021 the agreement wasamended changing the advisory fees to $15,000 due on the first day of each month. Fees are to be paid in the form of a convertible notehaving a nine month maturity and conversion discount of 50% of the lowest closing bid price during the 30 trading days prior to conversion.The principal balance was $45,000 and $193,300 at September 30, 2021 and 2020, respectively. Accrued interest totaled $752 and $10,239at September 30, 2021 and 2020, respectively.

 

OnAugust 29, 2018 the Company entered into an agreement with a legal firm to provide securities related and other legal services whichhas no stipulated term. Under the agreement the Company will issue convertible notes with varying principal amounts for services. Thefirst note was issued on August 29, 2018, for $6,000, interest of 12%, and a maturity date of February 28, 2019. The conversion featureallows 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 lowestbid price during the 30 trading days preceding the date of the notice of conversion. In connection with the issuance of this Note, theCompany determined that the terms of the Note contain a conversion formula that caused variations in the conversion price resulting inthe treatment of the conversion option as a bifurcated derivative to be accounted for at fair value. Accordingly, under the provisionsof FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversionoption contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjustedto fair value through earnings at each reporting date. The fair values of the embedded conversion option derivatives were determinedusing the Binomial valuation model. $10,435 was recognized as derivative liability with $6,000 charged to debt discount and $4,035 chargedto derivative expense on issuance. The debt discount of $6,000 was amortized to interest expense to the maturity date of the note. AtMarch 31, 2019 the derivative fair value was determined to have decreased to $8,881. As the note reached its maturity date no furtherfair value adjustments will be recorded. For the year ended September 30, 2019, the $5,000, balance of the debt discount was chargedto interest expense and debt discount balances was $0. During the year ended September 30, 2021 the note principal was fully repaid incash and the derivative liability was recognized as gain on extinguishment of debt. 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 notes have cross default provisions.The Company has accounted for the convertible promissory notes as stock settled debt under ASC 480 and recorded debt premiums equal tothe face value of the notes with a charge to interest expense. The note principal amount was charged to professional fees during themonth the note was issued.

 

April18, 2019, $6,000 – in default, sold and assigned to Trillium Partners LP on May 28, 2020 and fully converted as of September 30,2021;

 

F-21

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

May18, 2019, $6,000 – in default, sold and assigned to Trillium Partners LP on May 28, 2020 and fully converted as of September 30,2021;

 

June18, 2019, $6,000 – in default, sold and assigned to Trillium Partners LP on May 28, 2020 and fully converted as of September 30,2021;

 

July18, 2019, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

August18, 2019, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

September18, 2019, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

October18, 2019, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

November18, 2019, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

December18, 2019, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

January18, 2020, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

March18, 2020, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

April18, 2020, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

May18, 2020, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

June18, 2020, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

July18, 2020, $6,000 – assigned to Trillium Partners LP on February 12, 2021 and fully converted as of September 30, 2021;

 

August18, 2020, $6,000 – principal fully repaid in cash; and

 

September18, 2020, $6,000 – principal fully repaid in cash.

 

Theprincipal balances owed under the agreement as if September 30, 2021 and 2020 were $0, and $108,000 respectively.

 

Itis the Company’s intention to pay the monthly fee in cash, therefore it expected that no new notes will be issued in conjunctionwith the monthly attorney service fees.

 

OnNovember 13, 2018, the Company issued a convertible promissory note for $90,000 to a vendor in settlement of approximately $161,700 ofpast due amounts due for services. The note bears interest at 5%, matures on June 30, 2019 and is convertible into the Company’scommon stock at 50% of the lowest closing bid price during the 20 trading days immediately preceding the notice of conversion. The notematured on June 30, 2019, there is no default penalty associated with the note, nor are there any cross-default provisions in the note.The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $90,000 witha charge to interest expense for the notes. The unconverted principal, premium and accrued interest were $90,000, $90,000, and $14,993as of September 30, 2020. At September 30, 2021 the principal, premium and accrued interest were $90,000, $90,000, and $25,725.

 

F-22

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnNovember 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October25, 2017, with Crown Bridge Partners, LLC (“Crown Bridge”) under which the Company issued to Crown Bridge a convertible notein the principal amount of $105,000 and a five-year warrant to purchase 100, shares of the Company’s common stock at an exerciseprice 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. Underthe terms of the note Crown Bridge was to receive “right of first refusal” for any subsequent loans or notes to fund theCompany. The Company violated this covenant when funding was received from other sources without offering Crown Bridge the opportunityto participate. On December 20, 2017 the Company cured this covenant violation by issuing 200 additional warrants which have the sameexercise price and terms of the original warrants. The warrants have full ratchet price protection and cashless exercise rights.

 

Theconvertible note (the “Note”) issued to Crown Bridge in the principal amount of $105,000, has an original issue discountof $10,500 and issue costs of $19,000 both of which are recorded as debt discount along with the warrant relative fair value of $12,507for the original 100, warrants and $31,529 for the penalty warrants to be amortized over the twelve month term of this tranche, bearsinterest of 10% (12% default rate) per annum, and has a maturity date of 12 months from the date of each tranche of payments under theNote with future tranches being at the discretion of Crown Bridge. The conversion rate for any conversion of unpaid principal and interestunder 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 tradingperiod prior to the date of conversion to which an additional 10% discount will be added if the conversion price of the Company’scommon stock is less than $50, per share and no shares of the Company’s common stock can be issued to the extent Crown Bridge wouldown more than 4.99% of the outstanding shares of the Company’s common stock and the conversion shares contain piggy-back registrationrights. The Note is subject to customary default provisions including an event of default if the bid price of the Company’s commonstock is less than its par value of $.0001 per share. The Company is entitled to prepay the Note between 30 days after its issuance until180 days from its issuance at amounts that increase from 112% of the prepayment amount to 137% of the prepayment amount depending onthe length of time when prepayments are made. The Company has accounted for the convertible promissory note as stock settled debt underASC 480 and recorded a debt premium of $56,538 with a charge to interest expense. As of September 30, 2018 the note holder fully convertedprincipal and accrued interest into common shares. The debt premium on stock settled debt was fully recognized as additional paid incapital.

 

OnMarch 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 theabove note, the holder is entitled to a 35% discount plus an additional 10% discount based on the conversion rights of certain othernote holders. Therefore, a discount of 45% is assumed for any conversions of this note tranche. The Company has accounted for the convertiblepromissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,636 with a charge to interest expense. The originalissue discount and fees charged were treated as debt discount and will be amortized to financing expenses over the term of the note.Following conversions during the year ended September 30, 2020 the principal balance and debt premium balances were reduced and the unamortizeddebt discount was $0, at September 30, 2020. The principal was increased by charges of $17,500 for technical default effective duringthe year ended September 30, 2020 and an additional put premium was calculated to be $26,250. The cross-default provisions of the noteinclude defaults on any notes issued to third parties including any issued subsequent to the issuance of this note. The default chargeand the put premium were charged to interest expense at June 30, 2020. The conversion discount increased to 60% as a result of the default.The principal and accrued interest were $2,766 and $6,464, respectively at September 30, 2021 and $2,766 and $6,187 at September 30,2020.

 

OnMarch 4, 2019, the Company issued a convertible promissory note to Redstart Holdings Corporation in the amount of $78,000. The note bearsinterest at 10%, matures on December 31, 2019, includes legal fees of $3,000 and is convertible at 35% discount to the average of thelowest two prices observed in the 15 days prior to the issuance of a conversion notice. The Company has accounted for the convertiblepromissory 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 threemonths 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 recognizedthe default penalty of $31,500, as additional principal along with the calculated put premium of $22,810, with charges to interest expense.During the year ended September 30, 2020, Redstart converted all principal and accrued interest into shares of common stock. The principal,premium and accrued interest balances were $0, $0, and $0, and debt discount was fully amortized, at September 30, 2020. Principal was$78,000, accrued interest was $4,851, and unamortized debt discount was $912, at September 30, 2019.

 

F-23

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnJuly 12, 2019, the Company issued a convertible promissory note to Trillium Partners LP for cash in the amount of $10,000. The note bearsinterest at 10%, matures on January 11, 2020, and was convertible into the Company’s common stock at 50% of the lowest closingbid price on the 20 trading days immediately preceding the notice of conversion. The Company accounted for the convertible promissorynote as stock settled debt under ASC 480 and recorded debt premium $10,000 with a charge to interest expense for the notes.

 

OnNovember 1, 2019, Trillium Partners LP amended the terms of the notes issued July 12, 2019, such that the note is no longer convertibleinto 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 a gain on debt extinguishment on the date of the amendment.

 

Thenote issued to Trillium Partners LP, on July 12, 2019 was sold and assigned to Alpha Capital Anstalt on February 20, 2020. The assignednote became convertible as of the date of the assignment by virtue of an agreement between the Company and the new note holder. The termsof the note provide for conversion of principal and accrued interest at a 50% discount to the lowest closing bid price over the 20 daysprior to conversion. The note matured on January 11, 2020 and therefore the default interest rate is 24%. There are no cross-defaultprovisions in the note. The note has been accounted for as stock settled debt under ASC 480, and put premium of $10,395 was recognizedwith a charge to interest expense. The note balance and premium were $10,745 and $10,395, at September 30, 2020. Accrued interest was$1,854 at September 30, 2020. The note and accrued interest were fully converted during the year ended September 30, 2021. The balanceof put premium was reclassified to additional paid in capital upon conversion.

 

OnApril 20, 2020, the Company issued a convertible promissory note to Geneva Roth Remark Holdings for $60,000, for $57,000, cash and feesof $3,000 (treated as OID to be amortized over the life of the note) having a 10% annual interest rate, maturity of April 20, 2021, andconversion right to a 42% discount to the lowest traded price in the 20 days prior to delivery of a conversion notice. The cross-defaultterms in the note only include defaults on notes issued to related parties of the note holder. The Company treated the convertible notein accordance with ASC 480 Stock Settled Debt, and recognized the put premium for the stock price discount as a liability with a chargeto interest expense at the date of the issuance of the convertible promissory note. Principal, put premium and accrued interest were$60,000, $43,448 and $2,630, respectively at September 30, 2020. The note and accrued interest were fully converted during the year endedSeptember 30, 2021. $43,448 of put premium was reclassified to additional paid in capital upon conversion.

 

OnMay 14, 2020, the Company issued a convertible promissory note for $35,000 issued to Tri-Bridge Ventures LLC for a cash loan of $35,000.The note has a one year maturity, 8% annual interest and can be converted to common stock at the contracted price of 60% of the lowestdaily traded price during the 10 days prior to delivery of a conversion notice. There are no cross-default provisions in the note. TheCompany has treated the convertible note in accordance with ASC 480 Stock Settled Debt, and recognized the put premium for the stockprice discount as a liability with a charge to interest expense at the date of the issuance of the convertible promissory note. The principal,put premium and accrued interest were $35,000, $23,333 and $836, respectively at September 30, 2020. The principal and accrued interestwas fully converted and balances were $0, and $0 respectively at September 30, 2021. $23,333 of put premium was reclassified to additionalpaid in capital upon conversion.

 

OnJune 9, 2020, the Company issued a convertible promissory note in the amount of $53,000 to Geneva Roth Remark Holdings Inc. The Companyreceived $50,000, in cash on June 10, 2020 with $3,000, being retained for legal and underwriting fees which will be treated as OID andbe amortized to interest expense over the term of the note. The note matures on June 10, 2021, bears interest at 10%, with a 22% defaultinterest rate and may be converted at 58% of the lowest closing bid price in the 20 days preceding a conversion. The cross-default termsin the note only include defaults on notes issued to related parties of the note holder. The Company treated the convertible note inaccordance with ASC 480 Stock Settled Debt, recognizing $38,379 of put premium for the stock price discount as a liability with a chargeto interest expense at the date of the issuance of the convertible promissory note. The principal and accrued interest balances were,$53,000 and $1,597 at September 30, 2020, respectively. The principal and accrued interest was fully converted and balances were $0,and $0 respectively at September 30, 2021. $38,379 of put premium was reclassified to additional paid in capital upon conversion.

 

F-24

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnJuly 10, 2020, the Company issued a convertible promissory note to Geneva Roth Remark Holdings Inc. in the amount of $53,000. The Companyreceived $50,000, in cash on July 15, 2020 with $3,000, being retained for legal and underwriting fees which will be treated as debtdiscount and be amortized to interest expense over the term of the note. The note matures on July 10, 2021, bears interest at 10%, witha 22% default interest rate and may be converted at 58% of the lowest closing bid price in the 20 days preceding a conversion. The cross-defaultterms in the note only include defaults on notes issued to related parties of the note holder. The Company treated the convertible notein accordance with ASC 480 Stock Settled Debt, recognizing $38,379 as put premium for the stock price discount as a liability with acharge to interest expense at the date of the issuance of the convertible promissory note. The principal and accrued interest balanceswere $53,000 and $1,118 respectively at September 30, 2020. The principal and accrued interest was fully converted and balances were$0, and $0 respectively at September 30, 2021. $38,379 of put premium was reclassified to additional paid in capital upon conversion.

 

OnAugust 28, 2020, the Company issued a convertible promissory note in the amount of $104,000 to Geneva Roth Remark Holdings Inc. The Companyreceived $100,500, in cash on August 28, 2020 with $3,500, being retained for legal and underwriting fees which will be treated as OIDand be amortized to interest expense over the term of the note. The note matures on August 28, 2021, bears interest at 10%, with a 22%default interest rate and may be converted at 58% of the lowest closing bid price in the 20 days preceding a conversion. The cross-defaultterms in the note only include defaults on notes issued to related parties of the note holder. The Company treated the convertible notein accordance with ASC 480 Stock Settled Debt, recognizing $75,310 of put premium for the stock price discount as a liability with acharge to interest expense at the date of the issuance of the convertible promissory note. The principal and accrued interest balanceswere $104,000 and $826 respectively at September 30, 2020.The principal and accrued interest was fully converted and balances were $0,and $0 respectively at September 30, 2021. $75,310 of put premium was reclassified to additional paid in capital upon conversion.

 

OnNovember 2, 2020, the Company executed a convertible promissory note issued to Geneva Roth Remark Holdings for $53,500, having a 10%annual interest rate, with a 22% default interest rate, maturity of November 2, 2021, and conversion right to a 40% discount to the lowesttraded price in the 20 days prior to delivery of a conversion notice. The note was funded for $50,000, with $3,500, disbursed for legaland execution fees. The cross-default terms in the note only include defaults on notes issued to related parties of the note holder.The Company treated the convertible note in accordance with ASC 480 Stock Settled Debt, recognizing $35,666 of put premium for the stockprice discount as a liability with a charge to interest expense at the date of the issuance of the convertible promissory note. The principaland accrued interest was fully converted and balances were $0, and $0 respectively at September 30, 2021. $35,666 of put premium wasreclassified to additional paid in capital upon conversion.

 

OnDecember 15, 2020, the Company executed a convertible promissory note issued to Geneva Roth Remark Holdings for $43,500, having a 10%annual interest rate, with a 22% default interest rate, maturity of December 15, 2021, and conversion right to a 40% discount to thelowest traded price in the 20 days prior to delivery of a conversion notice. The note was funded for $40,000, with $3,500, disbursedfor legal and execution fees. The cross-default terms in the note only include defaults on notes issued to related parties of the noteholder. The Company treated the convertible note in accordance with ASC 480 Stock Settled Debt, recognizing $29,000 of put premium forthe stock price discount as a liability with a charge to interest expense at the date of the issuance of the convertible promissory note.The principal and accrued interest was fully converted and balances were $0, and $0 respectively at September 30, 2021. $29,000 of putpremium was reclassified to additional paid in capital upon conversion.

 

OnJanuary 12, 2021, the Company executed a convertible promissory note issued to Geneva Roth Remark Holdings for $53,500, having a 10%annual interest rate, with a 22% default interest rate, maturity of January 12, 2022, and conversion right to a 35% discount to the lowesttraded price in the 20 days prior to delivery of a conversion notice. The note was funded for $50,000, with $3,500, disbursed for legaland execution fees. The Company will treat the convertible note in accordance with ASC 480 Stock Settled Debt, recognizing $28,807 ofput premium for the stock price discount as a liability with a charge to interest expense at the date of the issuance of the convertiblepromissory note. The principal and accrued interest of $53,500 and $2,675 were fully converted into common stock during the year endedSeptember 30, 2021 and put premium of $28,807 was reclassified to additional paid in capital.

 

F-25

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnFebruary 15, 2021, the Company executed a convertible promissory note issued to Geneva Roth Remark Holdings for $53,500, having a 10%annual interest rate, with a 22% default interest rate, maturity of February 15, 2022, and conversion right to a 35% discount to thelowest traded price in the 20 days prior to delivery of a conversion notice. The note was funded for $50,000, with $3,500, disbursedfor legal and execution fees. The cross-default terms in the note only include defaults on notes issued to related parties of the noteholder. The Company will treat the convertible note in accordance with ASC 480 Stock Settled Debt, recognizing $28,807 of put premiumfor the stock price discount as a liability with a charge to interest expense at the date of the issuance of the convertible promissorynote. The principal and accrued interest of $53,500 and $2,675 were fully converted into common stock during the year ended September30, 2021 and put premium of $28,807 was reclassified to additional paid in capital.

 

OnMarch 15, 2021, the Company executed a convertible promissory note issued to Geneva Roth Remark Holdings for $53,500, having a 10% annualinterest rate, with a 22% default interest rate, maturity of March 15, 2022, and conversion right to a 35% discount to the lowest tradedprice in the 20 days prior to delivery of a conversion notice. The note was funded for $50,000, with $3,500, disbursed for legal andexecution fees. The cross-default terms in the note only include defaults on notes issued to related parties of the note holder. TheCompany will treat the convertible note in accordance with ASC 480 Stock Settled Debt, recognizing $28,807 of put premium for the stockprice discount as a liability with a charge to interest expense at the date of the issuance of the convertible promissory note. The principaland accrued interest of $53,500 and $2,675 were fully converted into common stock during the year ended September 30, 2021 and put premiumof $28,807 was reclassified to additional paid in capital.

 

OnMay 3, 2021, the Company entered into a convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Lender”) inthe principal amount of $58,500, (the “May 3, 2021 Note”). The May 3, 2021 Note carries interest at the rate of 10%, matureson May 3, 2022, and is convertible into shares of the Company’s common stock, par value $0.0001, at the Lender’s election,after 180 days, at a 35% discount, provided that the Lender may not own greater than 4.99% of the Company’s common stock at anytime. The note was funded for $55,000, with $3,500, disbursed for legal and execution fees. The Company will treat the convertible notein accordance with ASC 480 Stock Settled Debt, recognizing $31,500 of put premium for the stock price discount as a liability with acharge to interest expense at the date of the issuance of the convertible promissory note. The principal, premium and accrued interestwere $58,500, $31,500 and $2,204 respectively at September 30, 2021

 

OnJune 14, 2021, the Company entered into a convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Lender”) inthe principal amount of $58,500, (the “June 14, 2021 Note”). The June 14, 2021 Note carries interest at the rate of 10%,matures on June 14, 2022, and is convertible into shares of the Company’s common stock, par value $0.0001, at the Lender’selection, after 180 days, at a 35% discount, provided that the Lender may not own greater than 4.99% of the Company’s common stockat any time. The note was funded for $55,000, with $3,500, disbursed for legal and execution fees. The Company will treat the convertiblenote in accordance with ASC 480 Stock Settled Debt, recognizing $31,500 of put premium for the stock price discount as a liability witha charge to interest expense at the date of the issuance of the convertible promissory note. The principal, premium and accrued interestwere $53,500, $31,500 and $1,715 respectively at September 30, 2021.

 

Underthe terms of the July 1, 2021 amendment to the consulting and services agreement with Livingston Asset Management, LLC, Livingston isto receive $15,000, per month in convertible promissory notes. The Company issued a $15,000 convertible note bearing interest of 10%per annum which matures in nine months. The notes issued are convertible into shares of common stock at a discount of 50% of the lowestclosing bid price during the twenty trading days prior to conversion. The notes having a conversion feature are treated as stock settleddebt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date. At September 30, 2021, theaccrued interest was $378.

 

OnJuly 19, 2021, the Company entered into a convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Lender”) inthe principal amount of $53,750, (the “July 19, 2021 Note”). Note carries interest at the rate of 10%, matures on July 19,2022, and is convertible into shares of the Company’s common stock, par value $0.0001, at the Lender’s election, after 180days, at a 35% discount, provided that the Lender may not own greater than 4.99% of the Company’s common stock at any time. Thenote was funded for $50,000, with $3,750, disbursed for legal and execution fees. The Company treated the convertible note in accordancewith ASC 480 Stock Settled Debt, recognizing $28,942 of put premium for the stock price discount as a liability with a charge to interestexpense at the date of the issuance of the convertible promissory note. At September 30, 2021, the accrued interest was $1,127.

 

F-26

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

August1, 2021, the Company issued a $15,000 convertible promissory note to Livingston. The convertible note bears interest of 10% per annumwhich matures in nine months. The notes issued are convertible into shares of common stock at a discount of 50% of the lowest closingbid price during the twenty trading days prior to conversion. The notes having a conversion feature are treated as stock settled debtunder ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date. At September 30, 2021, the accruedinterest was $251.

 

OnAugust 17, 2021, the Company entered into a convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Lender”)in the principal amount of $45,000, (the “August 17, 2021 Note”). The August 17, 2021 Note carries interest at the rate of10%, matures on August 17, 2022, and is convertible into shares of the Company’s common stock, par value $0.0001, at the Lender’selection, after 180 days, at a 35% discount, provided that the Lender may not own greater than 4.99% of the Company’s common stockat any time. The note was funded for $41,250, with $3,750, disbursed for legal and execution fees. The Company will treat the convertiblenote in accordance with ASC 480 Stock Settled Debt, recognizing $24,231 of put premium for the stock price discount as a liability witha charge to interest expense at the date of the issuance of the convertible promissory note. At September 30, 2021, the accrued interestwas $561.

 

September1, 2021, the Company issued a $15,000 convertible promissory note to Livingston. The convertible note bears interest of 10% per annumand matures in nine months. The notes issued are convertible into shares of common stock at a discount of 50% of the lowest closing bidprice during the twenty trading days prior to conversion. The notes having a conversion feature are treated as stock settled debt underASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuance date. At September 30, 2021, the accrued interestwas $123.

 

OnSeptember 17, 2021, the Company entered into a convertible promissory note with Geneva Roth Remark Holdings, Inc. (“Lender”)in the principal amount of $50,000, (the “September 17, 2021 Note”). The September 17, 2021 Note carries interest at therate of 10%, matures on September 17, 2022, and is convertible into shares of the Company’s common stock, par value $0.0001, atthe Lender’s election, after 180 days, at a 35% discount, provided that the Lender may not own greater than 4.99% of the Company’scommon stock at any time. The note was funded for $46,250, with $3,750, disbursed for legal and execution fees. The Company treated theconvertible note in accordance with ASC 480 Stock Settled Debt, recognizing $26,923 of put premium for the stock price discount as aliability with a charge to interest expense at the date of the issuance of the convertible promissory note. At September 30, 2021, theaccrued interest was $205.

 

F-27

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE11 - NOTES AND LOANS PAYABLE

 

Thenotes balance consisted of the following at September 30, 2021 and 2020:

 

   September 30,
2021
   September 30,
2020
 
Principal loans and notes  $519,054   $990,305 
Discounts   (45,816)   (87,054)
Total   473,238    903,251 
Less Current portion   (170,036)   903,251 
Non-current  $303,202   $- 

 

OnJune 1, 2018 the Company entered into a consulting and services arrangement with Livingston Asset Management. The arrangement providesfor financial management services including accounting and related periodic reporting among other advisory services. The agreement wasamended on July 1, 2019 regard payment terms. Under the amended agreement the Company will issue to Livingston Asset Management Fee Noteshaving principal of $17,000, interest of 10% per annum, maturity of six or seven months. The Company will also pay $3,000 in cash dueon the first of each month. Following the assignments during fiscal year 2020, to Alpha Capital Anstalt and TBV LLC, the principal andaccrued interest of the promissory notes described below, held by Livingston totaled, $85,000 and $6,760, respectively at September 30,2020.

 

Duringthe year ended September 30, 2021, the conversion terms associated with the original October, November, December and January notes belowwere reinstated and the notes and accrued interest of $7,168, were converted into shares of common stock. The February note was forgivenby Livingston as of September 30, 2021. Following conversions, forgiveness and reclassification, the principal balance was $0, as ofSeptember 30, 2021.

 

OnOctober 1, 2019, the Company issued a promissory note to Livingston Asset Management LLC, for $17,000, under the terms of the agreementabove. The note is now in default and there are no cross-default provisions in the note. The principal amount was charged to professionalfees on the issuance date. The note bears interest at 10% and matures in nine months. At September 30, 2020, accrued interest was $1,637.Conversion terms of the original note were reinstated and the note and accrued interest of $1,924 were fully converted into common stockduring the year ended September 30, 2021. $17,000 was charged to loss on debt extinguishment due to reinstatement of conversion featuretreated as stock settled debt in accordance with ASC 480.

 

OnNovember 1, 2019, the Company issued a promissory note to Livingston Asset Management LLC, for $17,000, under the terms of the agreementabove. The note is now in default and there are no cross-default provisions in the note. The principal amount was charged to professionalfees on the issuance date. The note bears interest at 10% and matures in nine months. At September 30, 2020, accrued interest was $1,495.Conversion terms were reinstated and the note and accrued interest of $1,779 were fully converted into common stock during the year endedSeptember 30, 2021. $17,000 was charged to loss on debt extinguishment due to reinstatement of conversion feature treated as stock settleddebt in accordance with ASC 480.

 

OnDecember 1, 2019, the Company issued a promissory note to Livingston Asset Management LLC, for $17,000, under the terms of the agreementabove. The note is now in default and there are no cross-default provisions in the note. The principal amount was charged to professionalfees on the issuance date. The note bears interest at 10% and matures in six months. At September 30, 2020, accrued interest was $1,353.Conversion terms were reinstated and the note and accrued interest of $1,770 were fully converted into common stock during the year endedSeptember 30, 2021. $17,000 was charged to loss on debt extinguishment due to reinstatement of conversion feature treated as stock settleddebt in accordance with ASC 480.

 

OnJanuary 1, 2020, the Company issued a promissory note to Livingston Asset Management LLC, for $17,000, under the terms of the agreementabove. The note is now in default and there are no cross-default provisions in the note. The principal amount was charged to professionalfees on the issuance date. The note bears interest at 10% and matures in six months. The note principal balance was $17,000 at September30, 2020 and accrued interest was $1,209. During the year ended September 30, 2021, the principal and accrued interest were fully convertedfollowing an amendment to reinstate the original conversion terms.

 

F-28

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnFebruary 1, 2020, the Company issued a promissory note to Livingston Asset Management LLC, for $17,000, under the terms of the agreementabove. The note is now in default and there are no cross-default provisions in the note. The principal amount was charged to professionalfees on the issuance date. The note bears interest at 10% and matures in nine months The note principal of $17,000 and accrued interestof $1,491 were forgiven at September 30, 2021 and a gain on debt extinguishment was recognized for $18,491.

 

OnJanuary 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 originalissue discount of $58,500, and legal and other fees totaling $2,645, which was 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 140payments. The loan is secured by receipts from future revenue transactions. The principal balance was fully repaid as of September 30,2020.

 

OnApril 7, 2020, the Company through Howco, entered into a bank loan which is guaranteed by the Small Business Administration under thePaycheck Protection Plan for $220,710. The loan has a maturity of 24 months and an interest rate of .98%, which starts accruing on April7, 2020. The loan will be forgiven provided the terms of forgiveness upon submission of a valid application for loan forgiveness whenapproved by the agent bank. The terms call for Howco to use 75% of the funded amount for payroll costs. Howco has put in place controlsdesigned to ensure compliance with the terms of forgiveness. On January 20, 2021 the Company was notified by its bank that the SmallBusiness Administration authorized full forgiveness of its Paycheck Protection Program Loan in the amount of $220,710. The forgivenessof debt was recognized as a gain on debt extinguishment for the amount forgiven.

 

OnJune 2, 2020, the Company entered into a financing arrangement through its subsidiary Howco with Fora Financial Business Loans, LLC.Howco received $150,000, net of discounts totaling $60,000, less legal and underwriting fees of $3,750 and prior loan payoff amount of$40,975. A total of $210,000 was to be paid by direct debit of Howco’s bank account of $854, for 245 daily installments payments.The Company will recognize a principal amount of $210,000 with debt discounts of $63,750, and liquidate the principal balance and relateddiscounts from the 2019 financing. The Company’s CEO is a personal guarantor on financing facility. At September 30, 2020, theprincipal balance was $140,854, with unamortized debt discount of $28,944, having a net balance of $111,910. As of December 31, 2020,the principal balance was $87,927, with unamortized debt discount of $11,473, having a net balance of $76,454. The balance of $75,975on January 26, 2021 was fully liquidated upon funding of the IOU note discussed below.

 

OnJune 17, 2020, the Company through Howco, entered into a loan directly with the Small Business Administration for $150,000. The loanterm is thirty years and begins amortization one year from the date of promissory note to be issued upon funding. Amortization paymentsare $731 per month and include interest and principal of 3.75% from the date of funding. The loan is secured by the assets of Howco.As of September 30, 2021 and September 30, 2020, the principal balance is $150,000. As of September 30, 2021, $1,588 is classified ascurrent.

 

OnAugust 25, 2020, the Company entered into a financing arrangement through its subsidiary Howco with IOU Central Inc. Howco received $199,405less fees of $595 and Original Issue Discount of $22,000 and deferred finance charges of $47,606, for a total of $70,201 to be amortizedover the term of the note. A total of $269,606 was to be paid by direct debit of Howco’s bank account of $5,173, for 52 weeklypayments and 1 payment of $620. The Company recognized a principal amount of $269,606 with debt discounts of $70,201. The Company’sCEO is a personal guarantor on financing facility. At September 30, 2020, the principal balance was $243,742, with unamortized debt discountof $58,110 having a net balance of $185,632. As of December 31, 2020 the principal balance was $176,495, with unamortized debt discountof $26,544 having a net balance of $149,951. The principal balance of $152,318 on January 26, 2021 was fully liquidated upon fundingof the IOU note discussed below.

 

OnSeptember 11, 2020, the Company issued a promissory note in the amount of $150,000 to Trillium Partners LP and received the full amountof the note in cash. The note includes cross-default provisions. The note matured on June 30, 2021 and bears interest of 2%. The principalbalance was $150,000 at September 30, 2020. During the year ended September 30, 2021 the Company repaid $70,000 of note principal, andTrillium forgave $50,000 bringing the balance to $30,000 with accrued interest of $2,260. Default was given forbearance on the maturitydate. On September 30, 2021, the Company repaid the principal balance and accrued interest.

 

F-29

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnJanuary 26, 2021, the Company entered into a financing arrangement through its subsidiary Howco with IOU Central Inc. Howco received$121,707, net of discounts totaling $119,929 fees of $595 and prior loan payoff amounts of $75,975 (FORA) and $152,318 (IOU prior note).A total of $462,524 will be paid by direct debit of Howco’s bank account of $8,895, for 51 weekly payments and a final paymentof $8,894. The Company recognized a principal amount of $462,524 with debt discounts of $119,929, and liquidated the principal balanceand related discounts from the FORA and IOU prior notes. The Company’s CEO is a personal guarantor on financing facility. As ofSeptember 30, 2021, the principal balance is $140,449, with unamortized debt discount of $36,142, having a net balance of $104,307.

 

OnJanuary 29, 2021, the Company issued a promissory note in the amount of $95,000 to Trillium Partners LP and received cash amounting to$93,692, and OID of $1,308. The note includes cross-default provisions. The note matured on July 31, 2021 and bears interest of 2%. Theprincipal balance of $95,000 and accrued interest of $790 were forgiven during the year ended September 30, 2021. The Company recognizeda gain on debt extinguishment equal to the principal and interest forgiven.

 

OnFebruary 3, 2021, the Company issued a promissory note in the amount of $75,000 to Trillium Partners LP and received cash amounting to$73,085, and OID of $1,915. The note includes cross-default provisions. The note matured on July 31, 2021 and bears interest of 2%. Theprincipal balance of $75,000 and accrued interest of $604 were forgiven during the year ended September 30, 2021. The Company recognizeda gain on debt extinguishment equal to the principal and interest forgiven.

 

OnMarch 30, 2021, the Company entered into a financing arrangement through its subsidiary Howco with ODK Capital, LLC. Howco received $83,000less fees of $2,075 and Original Issue Discount of $29,631 to be amortized over the term of the note. A total of $112,631 will be paidby direct debit of Howco’s bank account of $2,166, for 52 weekly payments. The Company recognized a principal amount of $112,631,$2,075 charged to expense and debt discounts of $29,631. The Company’s CEO is a personal guarantor of the financing facility. Asof September 30, 2021 the principal balance is $56,315, with unamortized debt discount of $9,674 having a net balance of $46,641.

 

InMarch 2021, the Company through Howco, entered into a bank loan which is guaranteed by the Small Business Administration under the PaycheckProtection Plan for $154,790. The loan has a maturity of sixty months and an interest rate of .98%. The loan will be forgiven providedthe terms of forgiveness upon submission of a valid application for loan forgiveness when approved by the agent bank. The terms callfor Howco to use the funds for specified purposes. Howco has put in place controls designed to ensure compliance with the terms of forgiveness.The amount forgiven will be recognized as gain on debt extinguishment when approved. Any amount that is not forgiven is to be paid overthe eighteen months following the twelve month deferral period.

 

Duringthe year ended September 30, 2021, the Company issued seven notes payable totaling $17,500. The notes were issued for monthly fees ($2,500)for a service vendor and are issued the first day of the month and each has one year maturity and does not bear interest. The servicearrangement was terminated in April 2021.

 

NOTE12 - STOCKHOLDERS’ DEFICIT

 

PreferredStock

 

Asof September 30, 2021, 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.

 

Asof September 30, 2021 and September 30, 2020, the Company has designated 250 shares of $0.0001 par value Series A preferred stock, ofwhich 250 shares are issued and outstanding. These preferred shares have voting rights per shareholder equal to the total number of issuedand outstanding shares of common stock divided by 0.99.

 

F-30

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

CommonStock

 

OnJanuary 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 itsname to Bantec, Inc. The name change and the stock split became effective in February 2020, and the transfer agent adjusted the outstandingshares for the reverse split on February 10, 2020. All share and per share related amounts in the accompanying consolidated financialstatements and footnotes have been retroactively adjusted for all periods presented to recognize the reverse split. As of September 30,2021 and September 30, 2020 there were 2,470,510,585, and 491,032,439, shares outstanding, respectively.

 

StockIncentive Plan

 

TheCompany established its 2016 Stock Incentive Plan (the “Plan”) that permits the granting of incentive stock options and othercommon 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) immediatelyupon termination of an employee or consultant for cause or (ii) one year after termination of employment, but not later than the remainingterm of the option. As of September 30, 2021, 82,777 awards remain available for grant under the Plan.

 

S-1Offering and Issuances Under Subscription 2020

 

OnJuly 20, 2020, the Company submitted an amendment to its registration statement filed on Form S-1 in response to comments on its originalfiling on June 8, 2020. The Company requested accelerated status and the registration statement became effective on July 23, 2020. Theoffering provided for the issuance of up to 1,500,000,000 shares of common stock at a price of $.00175, under subscriptions. The Companyused the proceeds for working capital.

 

OnMarch 5, 2021, the Company submitted a second registration statement filed on Form S-1. The Company requested accelerated status andthe registration statement became effective on March 16, 2021. The offering provides for the issuance of up to 1,250,000,000 shares ofcommon stock at a price of $.0175, under subscriptions. The Company will use the proceeds for working capital and may seek to expandthe business through investment. On June 8, 2021, the offering was withdrawn.

 

OnJune 9, 2021, the Company submitted a third registration statement filed on Form S-1. The Company requested accelerated status and theregistration statement became effective on June 22, 2021. The offering provides for the issuance of up to 1,500,000,000 shares of commonstock at a price of $.0025, under subscriptions. The Company will use the proceeds for working capital and may seek to expand the businessthrough investment.

 

SubscriptionUnder S-1 2020 Offering

 

BetweenAugust 5, 2020 and September 30, 2020, Trillium Partners LP was issued 151,221,142 shares of common stock at the offering price for atotal of $264,637, in proceeds to the Company under the S-1 offering by subscription.

 

BetweenOctober 7, 2020 and February 3, 2021, the Company issued 617,162,196 shares of common stock to Trillium Partners LP for $1,080,032 ofcash under the terms of the S-1A offering statement.

 

SubscriptionsUnder March 16, 2021 S-1 Offering

 

OnJune 30, 2021, the Company issued 4,285,714 shares of common stock to Trillium Partners LP for $75,000 of cash under the terms of theMarch 16, 2021 S-1 offering statement.

 

F-31

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

SubscriptionsUnder June 9, 2021 S-1 Offering

 

Duringthe year ended September 30, 2021 a total of 771,559,000 shares of common stock were issued under the June 9, 2021 offering for $1,928,898in cash as detailed below.

 

BetweenJune 22, and July 8, 2021 Oscaleta Partners LLC was issued 24,000,000 common shares of stock for $60,000 of cash under the terms of theJune 9, 2021 S-1 offering statement.

 

BetweenJune 28, and September 30, 2021 Trillium Partners LP was issued 577,559,000 common shares of stock for $1,443,898 of cash under the termsof the June 9, 2021 S-1 offering statement.

 

BetweenJuly 6, and August 17, 2021 JP Carey was issued 120,000,000 common shares of stock for $300,000 of cash under the terms of the June 9,2021 S-1 offering statement.

 

OnSeptember 7, 2021, the Company issued 50,000,000 shares of common stock to Anvil Financial Management for $125,000 of cash under theterms of the June 9, 2021 S-1 offering statement.

 

CommonStock Issued for Employee Compensation

 

OnOctober 22, 2020, the Company granted 1,000,000 shares of common stock to an employee, which were valued at $0.0034, based on the stockprice on the date of the grant. The cost of $3,400 was charged to compensation expense.

 

OnOctober 22, 2020, the Company granted 5,000,000 shares of common stock to an employee, which were valued at $0.0034, based on the stockprice on the date of the grant. The cost of $17,000 was charged to compensation expense.

 

OnApril 13, 2021, the Company issued 5,000,000 shares of common stock to its then COO, which were valued at $0.0114, based on the stockprice on the date of the grant. The cost of $57,000 was charged to accrued salary.

 

SharesIssued for non-employee Services

 

OnOctober 7, 2019, the Company entered into a one-year agreement for professional services for a one-time fee to be paid with 50,000 commonshares of restricted stock. The services relate mostly to technology and related internet media and website improvement. The shares werevalued at $.05 per share based on the value of the services to be received for total expense of $2,500, charged to professional fees.

 

OnOctober 7, 2019, the Company entered into a one-year agreement for professional services for a one-time fee to be paid with 25,000 commonshares of restricted stock the services relate mostly to investor relations through internet media. The shares were valued at $.10 pershare based on the value of the services to be received for total expense of $2,500, charged to professional fees. An additional 25,000shares were authorized and issued to the service provider during the three months ended June 30, 2020. The shares were valued at $108.

 

OnDecember 31, 2019, the Company approved the issuance of 120,000 restricted common shares to Tysadco Partners for the prior three monthsinvestor relation services. The shares were valued at $12,000, and charged to professional fees.

 

OnDecember 31, 2019, the Company approved the issuance of 45,000 restricted common shares to an individual for the prior four months oftechnology support services. The shares were valued at $4,500, and charged to professional fees.

 

OnFebruary 21, 2020, the Company issued 23,948 shares of common stock to an attorney in settlement of amounts owed of $456.

 

F-32

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

OnOctober 22, 2020, the Company issued 10,000,000 shares of common stock to a consultant for services rendered, which were valued at $0.0034,based on the stock price on the date of the grant. The cost of $34,000 was charged to consulting expense.

 

OnApril 13, 2021, the Company issued 10,000,000 shares of common stock to a consultant for services, which were valued at $0.0114, basedon the stock price on the date of the grant. The cost of $114,000 was charged to consulting expense.

 

SharesIssued in Potential Settlement of Legal Matter

 

OnSeptember 30, 2021, the Company issued 36,821,330 common shares to a former officer in potential settlement of a claim for compensationdue plus accrued interest. The shares were valued $119,670, with $92,723 related to salary due and $26,947 was charged to interest expense.At September 30, 2021 $119,670 is recognized as a deferred charge presented as other assets on the balance sheet.

 

Allshares issued to employees and non-employees are valued at the quoted trading prices on the respective grant dates.

 

Returnand Cancellation of Unsold Shares of Common Stock from 3(a)(10) Arrangement

 

LivingstonAsset Management returned 194,520 unsold shares of common stock to the Company on November 7, 2019. The transfer agent cancelled theshares.

 

SharesIssued for Conversion of Convertible Notes

 

Intotal 336,461,204 shares of common stock were issued upon conversion of convertible notes and accrued interest during the year endedSeptember 30, 2020 as follows:

 

RelatedParty Conversions

 

Duringthe year ended September 30, 2020, the Company’s CEO was issued a total of 165,000,000 shares of common stock in conversion of$180,750 of principal on his January 19, 2019, note having an original principal amount of $200,000 and the note was fully converted;

 

ThirdParty Conversions

 

Duringthe year ended September 30, 2020, Alpha Capital Anstalt was issued a total of 400,000 shares of common stock in conversion of assignednotes. The principal and interest converted was $2,200;

 

Duringthe year ended September 30, 2020, Crown Bridge Partners was issued a total of 49,505,000 shares of common stock in conversion of theirMarch 1, 2019 note. The principal/default charges and conversion fees totaled $49,734, and $4,500, respectively;

 

Duringthe year ended September 30, 2020, Redstart Holdings Corp. was issued a total of 36,351,653 shares of common stock in conversion of theirMarch 2, 2019 note. The principal/default charges and accrued interest totaled $109,500, and $3,900, respectively;

 

Duringthe year ended September 30, 2020, Tri-Bridge Ventures LLC, was issued a total of 29,001,650 shares of common stock in conversion oftheir note acquired through assignment. The principal/accrued interest converted totaled $53,684; and

 

Duringthe year ended September 30, 2020, Trillium Partners LP was issued a total of 56,202,901 shares of common stock in conversion of theirnote acquired through assignment. The principal, accrued interest and conversion fees totaled $52,000, $13,000 and $16,105, respectively.

 

Intotal 518,649,906 shares of common stock were issued upon conversion of convertible notes and accrued interest during the year endedSeptember 30, 2021 as follows:

 

F-33

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

AlphaCapital Anstalt was issued a total of 88,302,923 shares of common stock in conversion of assigned notes. The principal and interest convertedwas $111,050 and the assigned notes were fully converted;

 

GenevaRoth Remark Holdings, Inc. was issued a total of 233,395,889 shares of common stock in conversion of nine notes. The principal and accruedinterest converted amounted to $553,875;

 

LivingstonAsset Management was issued a total of 72,642,483 shares of common stock in conversion of four notes. The principal, accrued interestand conversion fees totaled $68,000, $7,168 and $4,100 respectively;

 

Tri-BridgeVentures LLC was issued a total of 29,007,611 shares of common stock in conversion of a note. The principal and accrued interest convertedwas $35,000 and $1,550 respectively; and

 

TrilliumPartners LP was issued a total of 95,301,000 shares of common stock in conversion of assigned notes. The principal/accrued interest andconversion fees totaled $90,000, and $16,201, respectively.

 

Approximately$630,000 of put premiums (related to the Stock Settled Debt treatment of the conversions listed above) was reclassified to additionalpaid in capital in fiscal 2021.

 

StockOptions

 

TheCompany recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period.

 

Therewere no options granted under the 2016 Stock Incentive Plan for the years ended September 30, 2021 and 2020.

 

Forthe year ended September 30, 2021 and 2020, the Company recorded $82,308 and $103,793 of compensation and consulting expense relatedto stock options, respectively. Total unrecognized compensation and consulting expense related to unvested stock options at September30, 2021 amounted to $77,303. The weighted average period over which share-based compensation expense related to these options will berecognized is approximately 1 year.

 

Forthe years ended September, 2021 and 2020, 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, 2019    17,755    220.00    7.18    -    - 
Forfeited    -    -    -    -    - 
Outstanding at September 30, 2020    17,755    220.00    5.29    -    - 
Forfeited    (532)                    
Outstanding at September 30, 2021    17,223    230.00    3.71    -    - 
Exercisable at September 30, 2021    15,854    220.00    .57    -    - 

 

Alloptions were issued at an options price equal to the market price of the shares on the date of the grant.

 

F-34

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Warrants

 

OnSeptember 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, and have no intrinsic value. The warrants expired unexercised on September 9, 2021.

 

OnNovember 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October25, 2017, with Crown Bridge under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 anda five-year warrant to purchase 100 shares of the Company’s common stock at an exercise price of $350 as a commitment fee whichis equal to the product of one-third of the face value of each tranche divided by $0.35. On December 20, 2017 an additional 200,000 warrantswere issued as a penalty and in order to entice Crown Bridge to waive its right of first refusal to provide additional financing underthe terms of their convertible note. A debt discount of $44,036 was recorded for the relative fair market value of the total 300,000warrants and amortized to interest expense as of September 30, 2018. The warrants have full ratchet price protection and cashless exerciserights (See Note10). The warrant includes an anti-dilution clause that was triggered on June 4, 2018. On June 4, 2018 an unrelated convertiblenote holder became entitled to convert their note into common shares at a 60% discount to the stock’s market price. The anti-dilutionprovision trigger in the warrant agreement entitled Crown Bridge to exercise its warrants under a formula that increased the number ofcommon 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 tomarket changes in the price of the common stock the Company has concluded to treat the warrants as derivatives and to revalue that derivativeat each reporting date. Therefore a derivative liability of $261,484 with a charge to additional paid in capital was recorded on June4, 2018. As of September 30, 2021, the warrant was revalued and the warrant holder is entitled to exercise its warrants for 42,777,527common shares and the related derivative liability is $125,693.

 

Forthe years ended September 30, 2021 and 2020, 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   1,198,270   $0.40    4.1        $71,867 
Anti-dilution adjustment   24,286,214                     
Outstanding and exercisable at September 30, 2020   25,484,484   $.0019    2.11   $-   $71,866 
Anti-dilution adjustment   17,293,043                     
Outstanding and exercisable at September 30, 2021   42,777,527   $.00112    1.11    -   $93,255 

 

NOTE13 - DEFINED CONTRIBUTION PLANS

 

InAugust 2016, Bantec established a qualified 401(k) plan with a discretionary employer matching provision. All employees who are at leasttwenty-one years of age and no minimum service requirement are eligible to participate in the plan. The plan allows participants to deferup to 90% of their annual compensation, up to statutory limits. Employer contributions charged to operations for the years ended September30, 2021 and 2020, was $0 and $0, respectively.

 

TheCompany’s subsidiary, Howco, is the sponsor of a qualified 401(k) plan with a safe harbor provision. All employees are eligibleto enter the plan within one year of the commencement of employment. Employer contributions charged to expense for the years ended September30, 2021 and 2020, was $9,704 and $10,258, respectively.

 

F-35

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE14 - RELATED PARTY TRANSACTIONS

 

OnOctober 1, 2016, the Company entered into employment agreements with two of its officers. The employment agreement with the Company’sPresident 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 discretionarybonus and equity provision for the equivalent of 12 months’ base salary, and an additional one-time severance payment of $2,500,000upon termination under certain circumstances, as defined in the agreement. On September 16, 2019, this employment agreement was modifiedto provide an annual salary of $624,000. The Company recognized expenses of $624,000 for the years ended September 30, 2021 and 2020for the CEO’s base compensation.

 

OnMarch 28, 2017, Bantec entered into an at-will employment agreement with Matthew Wiles as General Manager of Howco. Under the terms ofthe employment agreement, Mr. Wiles’ compensation is $140,000 per annum and he also will be eligible for a bonus of 10% of Howco’sgross profits over $1.25 million to be paid in cash after the annual financial statements have been completed and, if applicable, auditedfor filing with the SEC. Mr. Wiles will also receive options to acquire 250 shares of Bantec’s common stock, vesting over fiveyears in equal amounts on the anniversary date of his Employment Agreement. On September 16, 2019, Mr. Wiles’ employment agreementwas modified to provide salary of $275,000, and an annual bonus of 2% of net income. At the Company’s discretion, salary and bonusmay be paid in cash or stock and payment may be deferred. The difference between the amended agreement and salary paid by Howco is recordedin the accounts of the parent company. $90,866 and $135,000 were recognized as expense in the parent company’s accounts for yearsended September 30, 2021 and 2020, respectively. Mr. Wiles resigned with effective date of June 2, 2021. Under the terms of the employmentagreement there is no continuing obligation from either party.

 

Sharesof Common Stock Issued to CEO

 

OnApril 14, 2020, the Company’s CEO was issued 15,000,000 shares of restricted common stock in conversion of $23,250 in principalon the note issued January 19, 2019 as amended on April 14, 2020 at the contractual price of $0.0016.

 

OnJuly 24, 2020, the CEO, was issued 150,000,000, restricted shares of common stock in conversion of $157,500 of principal and $5,460 ofaccrued interest on his January 19, 2019, note having an original principal amount of $200,000. The shares were priced at $.00105, inaccordance with the conversion terms within the amendment on April 14, 2020. Following the conversion the principal was fully liquidated.

 

Sharesof Common Stock Issued to Former COO

 

OnOctober 22, 2020, the Company granted 5,000,000 shares of common stock to its then COO, which were valued at $0.0034, based on the stockprice on the date of the grant. The cost of $17,000 was charged to compensation expense.

 

OnApril 13, 2021, the Company issued 5,000,000 shares of common stock to its then COO, which were valued at $0.0114, based on the stockprice on the date of the grant. The cost of $57,000 was charged to accrued salary.

 

TheCompany has certain other promissory notes payable to related parties (see Note 9).

 

F-36

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE15 - INCOME TAXES 

 

TheCompany recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statement and tax basisof assets and liabilities. A valuation allowance is established to reduce the deferred tax assets if it is more likely than not thata deferred tax asset will not be realized.

 

Asof September 30, 2021, the Company has net operating loss carryforwards of approximately $14,940,000 to reduce future taxable income.Of the $14,940,000, approximately $12,066,000 can be used through 2039, and $2,874,438 may be carried forward indefinitely. A valuationallowance for the entire amount of deferred tax assets has been established as of September 30, 2021 and 2020.

 

Theprovision for (benefit from) income taxes consists of the following:

 

   Year Ended
September 30,
2021
   Year Ended
September 30,
2020
 
Current          
Federal  $-   $- 
State   -    - 
    -    - 
Deferred          
Federal   -    - 
State   -    - 
    -    - 
Total income tax provision (benefit)  $-   $- 

 

Areconciliation of the provision for income taxes at the federal statutory rates of 21% to the Company’s provision for income taxis as follows:

 

   Year Ended
September 30,
2021
   Year Ended
September 30,
2020
 
U.S. Federal (tax benefit) provision at statutory rate  $(395,235)  $(908,947)
State (tax benefit) income taxes, net of federal benefit   (159,035)   (365,743)
Permanent differences   (1,040,685)   719,942 
True up   638,984    2,323,938 
Change in Federal tax rate   -    - 
Changes in valuation allowance   955,971    (1,769,189)
Total  $-   $- 

 

F-37

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Deferredincome taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’sdeferred tax assets and liabilities for the periods presented: 

 

   September 30,
2021
   September 30,
2020
 
Deferred Tax Assets          
Stock-based compensation  $872,055   $811,285 
Accrued salary - unpaid   826,390    768,803 
Net operating losses   4,400,030    3,562,416 
Other   -    - 
Total deferred tax assets   6,098,475    5,142,504 
Valuation allowance   (6,098,475)   (5,142,504)
Net deferred tax assets   -    - 
           
Deferred Tax Liabilities          
Identifiable intangibles - Howco Purchase   -    - 
Total deferred tax liabilities   -    - 
Net deferred tax  $-   $- 

 

TheCompany determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertainwhether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon thegeneration of future taxable income, if any, the timing and amount of which are uncertain. Due to the history of losses the Company hasgenerated 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 berealized as of September 30, 2021 and 2020, accordingly, the Company has recorded a full valuation allowance on its U.S. deferred taxassets.

 

TheCompany files income tax returns in the United States on federal basis and various states. The Company is not currently under any internationalor any United States federal, state and local income tax examinations for any taxable years. All of the Company’s net operatinglosses are subject to tax authority adjustment upon examination.

 

F-38

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE16 - COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

LegalMatters 

 

OnFebruary 6, 2018 the Company sent a letter to the previous owners of Howco Distributing Co. (“Howco”) alleging that theymade certain financial misrepresentations under the terms of the Stock Purchase Agreement by which the Company acquired control of Howcoduring 2016. The Company claimed that the previous owners took excessive amounts of cash from the business prior to the close of themerger. On March 13, 2018 the Company filed a lawsuit against the previous owners by issuing a summons. On April 12, 2018, the Companyreceived the Defendants’ answer. On July 22, 2019, the Company sought and was granted a dismissal without prejudice of the lawsuitfiled against the previous owners of Howco. The Company and the previous owners are in discussion to settle the matter as of September30, 2021. An informal oral agreement with the Seller has been made whereby the Company has been paying the previous owners $3,000 permonth since January 2021 in satisfaction of Seller’s note payable.

 

Inconnection 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 indemnificationclause in the merger agreement.

 

Inthe suit Drone USA, Inc and Michael Bannon (plaintiffs) vs Dennis Antonelos (former Chief Financial Officer or CFO), currently pendingin New York State court, the plaintiffs seek to compel the former CFO to meet his obligations under an agreement guaranteeing paymentsto another former executive. The former CFO filed a cross-claim against the plaintiffs for past due salary. The employment agreementwith the former CFO allowed salary payments to be paid in cash or stock. During the year ended September 30, 2021, the Company issued36,821,330 shares of its common stock for the past due salary and claims that this payment moots the former CFO’s claim for pastdue salary. The former CFO filed a motion for summary judgement which was denied, then filed an appeal to that order which is now pending.No trial date has been set.

 

OnApril 10, 2019, a former service provider filed a complaint with three charges with the Superior Court Judicial District of New Haven,CT seeking payment for professional services. The Company has previously recognized expenses of $218,637, which remain unpaid in accountspayable. The Company has retained an attorney who is currently working to address the complaint. On August 9, 2019 the Company fileda motion to dismiss the charge of unjust enrichment. The judge granted the Company’s motion to dismiss. The Company, through itsattorney, is working to negotiate a settlement.

 

Duringthe 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 claimsand expects to resolve the matters to satisfaction of all parties. 

 

OnDecember 30, 2020, a Howco vendor filed a lawsuit seeking payment of past due invoices totaling $276,430 and finance charges of $40,212.The Company has recorded the liability for the invoices in the normal course of business. Management at Howco as well as a consultantare in negotiation with the vendor and their legal counsel and expect to settle the matter.

 

F-39

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

TheImpact of COVID-19

 

TheCompany is a wholesale vendor to the Department of Defense through its wholly owned subsidiary Howco’s business has been affecteddue to the COVID-19 social distancing requirements mandated by the federal, state and local governments where the Company’s operationsoccur. For some businesses, like the Company’s, core business cannot always be done through “virtual” means, and evenwhen this is possible, it requires significant capital and time to achieve. During the year ended September 30, 2021 sales and shipmentsat Howco have continued at a lower rate than during the year ended September 30, 2020. It is anticipated that COVID-19 restrictions hadan impact on the Company’s operations during the year ended September 30, 2021, however the Company cannot assess the financialimpact of the related COVID-19 restrictions as compared to other economic and business factors.

 

Settlements

 

OnJanuary 29, 2018, the Company entered into a settlement agreement and mutual release with a vendor who had provided public relationsand other consulting services whereby the Company shall pay to this vendor an aggregate amount of $60,000 of which $30,000 was paid onFebruary 2, 2018. The Company was to have paid ten monthly payments of $3,000 per month beginning on February 29, 2018. The vendor isto return 400 common shares of the Company’s common stock which will be cancelled upon satisfaction of the liability. The liabilityis recorded at $21,000 as of September 30, 2021 and 2020. The Company is in discussion with the vendor to address the past due amounts.

 

OnNovember 13, 2018 the Company and a vendor agreed to settle $161,700 in past due professional fees for a convertible note in the amountof $90,000. The note bears interest at 5% and matures in July 2019, and has a fixed discount conversion feature. The note is now pastdue and remains unconverted at September 30, 2021; however there is no default interest or penalty associated with the default. The differencebetween the settlement amount and the recorded amount in accounts payable of $71,700 was recognized as a gain on debt extinguishmentupon receipt of the waiver and release from the vendor.

 

During2016, Company entered into an employment agreement with the Company’s former Chief Strategy Officer which provided for annual basecompensation of $400,000 for a period of three years and provided for other additional benefits as defined in the agreement includinga signing bonus of $100,000 payable during the first year of employment. During November 2018 the Company reached an agreement and executeda 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 accordancewith the settlement terms. Twelve monthly payments of approximately $33,333 were due starting on January 15, through December 15, 2019.At December 31, 2019, unpaid balance related to the settlement was $54,000, which was paid on February 27, 2020, to the US Departmentof Treasury for withheld taxes along with employer payroll taxes.

 

Asof September 30, 2021, the Company has received demand for payment of past due amounts for services by several consultants and serviceproviders.

 

F-40

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Commitments

 

LeaseObligations

 

TheCompany entered into an agreement with a manufacturer in Pismo Beach, California. The agreement provides for certain services to be providedby the manufacturer as needed by the Company. The agreement has an initial term of three years with one year renewals. In connectionwith this agreement, the Company has agreed to sublease space based in San Luis Obispo, California from the manufacturer for the purposesof the development and manufacturing of unmanned aerial vehicles. The lease provides for base monthly rent of approximately $15,000 forthe 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 July2017, the Company made a decision to not take possession of the premises. The Company is in default of the rent payments and had receivedoral demand for payments. As of September 30, 2021, the Company has not made any of the required monthly rent payments in connectionwith this agreement. During fiscal 2017, the Company had expensed and accrued into accounts payable the remaining amounts due under theterm of the lease for a total accrual of $360,000 pursuant to ASC 420-10-30. This balance remains accrued as of September 30, 2021 andSeptember 30, 2020.

 

OnApril 16, 2020 the Company’s subsidiary Howco renewed its office and warehouse lease in Vancouver, WA for a term commencing onJune 1, 2020 extending through June 1, 2023 at an initial monthly rent of approximately $5,154. The lease requires monthly payments includingbase rent plus CAM with annual increases. 

 

TheCompany recognized a right-of-use asset of and a lease liability of $156,554, which represents the fair value of the lease payments calculatedas present value of the minimum lease payments using a discount rate of 10% on date of the lease renewal in accordance with ASC 842.The asset and liability will be amortized as monthly payments are made and lease expense will be recognized on a straight-line basisover the term of the lease.

 

Rightof use asset (ROU) is summarized below:

 

   September 30,
2021
   September 30,
 2020
 
Operating lease at inception - June 2, 2020  $156,554   $156,554 
Less accumulated reduction   (70,807)   (17,778)
Balance ROU asset  $85,747   $138,776 

 

Operatinglease liability related to the ROU asset is summarized below:

 

Operating lease liabilities at inception - June 2, 2020  $156,554   $156,554 
Reduction of lease liabilities   (69,564)   (17,383)
Total lease liabilities  $86,990   $139,171 
Less: current portion   (52,178)   (52,180)
Lease liabilities, non-current  $34,812   $86,991 

 

Non-cancellableoperating lease total future payments are summarized below:

 

Total minimum operating lease payments  $106,298   $168,483 
Less discount to fair value   (19,308)   (29,312)
Total lease liability  $86,990   $139,171 

 

F-41

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

Futureminimum lease payments under non-cancellable operating leases at September 30, 2021 are as follows:

 

Years ending September 30,  Amount 
2022  $63,369 
2023   42,929 
Total minimum non-cancelable operating lease payments  $106,298 

 

Forthe years ended September 30, 2021 and 2020, rent expense for all leases amounted to $68,246 and $67,356, respectively.

 

InDecember 2019, the Company relocated its primary office to 195 Paterson Avenue, Little Falls, New Jersey, under a one-year lease witha renewal option having monthly payments of $500.

 

ProfitSharing Plan (for Howco)

 

OnApril 13, 2018, Howco announced to its employees a Company-wide profit sharing program. The employee profit share is equal to their annualsalary divided by the Company’s total annual payroll and multiplied by 10% of net income for the fiscal year. During the yearsended September 30, 2021 and 2020 the employees earned $0 and $0, under this plan.

 

Noticeof Default

 

OnSeptember 6, 2019, the Company received a notice of default under its senior secured credit facility with TCA, for non-payment of amountsdue 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.

 

OnDecember 30, 2019, the Company failed to pay the principal and accrued interest on its February 27, 2019, convertible note payable toRedstart Holdings Corp upon its maturity. Legal counsel for the note holder submitted a demand notice for payment for 150% of the remainingprincipal balance of $63,000, amounting to $94,500, plus accrued interest. The Company recorded the default penalty with a charge tointerest expense and increased the principal of the note as of December 30, 2019. The Company also recognized the additional put premiumof $22,810, related to the increased principal as interest expense for stock settled debt.

 

Duringthe year ended September 30, 2020, Crown Bridge Partners notified the Company of a default on their convertible note dated March 1, 2019.The principal was increased by charges of $17,500 for technical default effective June 30, 2020 and an additional put premium was calculatedto be $26,250.

 

Directors’& Officers’ Insurance Policy Expiration

 

OnOctober 11, 2019, the Company’s insurance policy covering directors and officers expired and the carrier declined to renew thepolicy. The Company is working with its broker and other carriers to obtain coverage. This lapse of insurance coverage exposes the Companyto 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.

 

F-42

 

 

BANTEC, INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE17 - CONCENTRATIONS

 

Concentrationof Credit Risk

 

TheCompany maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits of $250,000.At September 30, 2021, cash in a bank exceeded the federally insured limits by approximately $55,000. The Company has not experiencedany losses in such accounts through September 30, 2021.

 

EconomicConcentrations

 

Withrespect to customer concentration, two customers accounted for approximately 57%, and 23%, of total sales for the year ended September30, 2021. Two customers accounted for approximately 72% and 11%, of total sales for the period ended September 30, 2020.

 

Withrespect to accounts receivable concentration, three customers accounted for approximately 53%, 24%, and 20%, of total accounts receivableat September 30, 2021. Two customers accounted for approximately 75% and 21% of total accounts receivable at September 30, 2020.

 

Withrespect to supplier concentration, one supplier accounted for approximately 22% of total purchases for the year ended September 30, 2021.One supplier accounted for approximately 22% each of total purchases for the year ended September 30, 2020.

 

Withrespect to accounts payable concentration, three suppliers accounted for approximately 21%, 19%, and 14% of total accounts payable atSeptember 30, 2021. Three suppliers accounted for approximately 14%, 13%, and 10% of total accounts payable at September 30, 2020.

 

Withrespect to foreign sales, it totaled approximately $0 and $7,180 for the years ended September 30, 2021 and 2020 respectively. 

 

F-43

 

 

BANTEC,INC. AND SUBSIDIARIES

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER30, 2021 AND 2020

 

NOTE18 - SUBSEQUENT EVENTS

 

LegalMatters

 

NewSubsidiary

 

OnOctober 28, 2021, the Wyoming Secretary of State approved the application to create Bantec Logistics, LLC which will include a new lineof business focused on drone package delivery logistics and other delivery methods.

 

SharesIssued for Subscription

 

SinceSeptember 30, 2021, the Company issued 100,000,000 shares of common stock under the June 9, 2021 S-1 offering and received $250,000.

 

SharesIssued for Conversions of Convertible Notes

 

OnNovember 4, 2021, Geneva Roth Remark Holdings Inc. converted principal of $58,500 and accrued interest of $2,925 from its convertiblenote dated May 3, 2021 into 40,950,000 shares of common stock at contracted prices. Following the conversions, the balance of principaland accrued interest was $0.

 

OnDecember 17, 2021, Geneva Roth Remark Holdings Inc. converted principal of $58,500 and accrued interest of $2,925 from its convertiblenote dated June 14, 2021 into 81,900,000 shares of common stock at contracted prices. Following the conversions, the balance of principaland accrued interest was $0.

 

ConvertibleNotes Issued

 

OnOctober 1, 2021, the Company issued a convertible promissory note to Livingston Asset Management LLC for $15,000 in principal for services.The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of commonstock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversionfeature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuancedate.

 

OnNovember 1, 2021, the Company issued a convertible promissory note to Livingston Asset Management LLC for $15,000 in principal for services.The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of commonstock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversionfeature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuancedate.

 

OnNovember 12, 2021, the Company executed a convertible promissory note issued to Sixth Street Lending LLC for $55,000, having a 10% annualinterest rate, maturity of November 12, 2022, and conversion right to a 35% discount to the average of the two lowest traded price inthe 15 days prior to delivery of a conversion notice. The note was funded for $51,250, with $3,750, disbursed for legal and executionfees.

 

OnDecember 1, 2021, the Company issued a convertible promissory note to Frondeur PartnersLLC for $15,000 in principal for services (serviceagreement replacing agreement with Livingston Asset Management LLC). The convertible note bears interest of 10% per annum and maturesin nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price duringthe twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 anda debt premium of $15,000 is recognized as interest expense on note issuance date.

 

F-44

 

 

PARTII - INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item13. Other Expenses of Issuance and Distribution

 

TheRegistrant estimates that expenses in connection with the distribution described in this Registration Statement will be as shown below.All expenses incurred with respect to the distribution will be paid by the Company.

 

Expense    
Legal fees and expenses:  $20,000 
Accounting fees and expenses:  $15,000 
Total:  $35,000 

 

Item14. Indemnification of Directors and Officers

 

Seethe Bylaws of the Company as shown on Exhibit 3.2 herein.

 

Agreements

 

Weintend to modify the compensation agreements with selected officers and directors, pursuant to which we will agree, to the maximum extentpermitted by law, to defend, indemnify and hold harmless the officers and directors against any costs, losses, claims, suits, proceedings,damages or liabilities to which our officers and directors become subject to which arise out of or are based upon or relate to our officersand directors engagement by the Company.

 

Item15. Recent Sales of Unregistered Securities

 

SinceSeptember 30, 2021, the Company issued the following unregistered securities:

 

SharesIssued for Conversion of Convertible Notes

 

OnNovember 4, 2021, Geneva Roth Remark Holdings Inc. converted principal of $58,500 and accrued interest of $2,925 from its convertiblenote dated May 3, 2021 into 40,950,000 shares of common stock at contracted prices. Following the conversions, the balance of principaland accrued interest was $0.

 

OnDecember 17, 2021, Geneva Roth Remark Holdings Inc. converted principal of $58,500 and accrued interest of $2,925 from its convertiblenote dated June 14, 2021 into 81,900,000 shares of common stock at contracted prices. Following the conversions, the balance of principaland accrued interest was $0.

 

OnJanuary 20, 2022, Geneva Roth Remark Holdings Inc. converted principal of $53,750 and accrued interest of $2,688 from its convertiblenote dated July 19, 2021 into 78,385,417 shares of common stock at contracted prices. Following the conversions, the balance of principaland accrued interest was $0.

 

ConvertibleNotes Issued

 

OnOctober 1, 2021, the Company issued a convertible promissory note to Livingston Asset Management LLC for $15,000 in principal for services.The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of commonstock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversionfeature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuancedate

 

OnNovember 1, 2021, the Company issued a convertible promissory note to Livingston Asset Management LLC for $15,000 in principal for services.The convertible note bears interest of 10% per annum and matures in nine months. The note issued is convertible into shares of commonstock at a discount of 50% of the lowest closing bid price during the twenty trading days prior to conversion. The note has a conversionfeature and is treated as stock settled debt under ASC 480 and a debt premium of $15,000 is recognized as interest expense on note issuancedate

 

II-1

 

 

OnNovember 12, 2021, the Company executed a convertible promissory note issued to Sixth Street Lending LLC for $55,000, having a 10% annualinterest rate, maturity of November 12, 2022, and conversion right to a 35% discount to the average of the lowest traded price in the15 days prior to delivery of a conversion notice. The note was funded for $51,250, with $3,750, disbursed for legal and execution fees.

 

OnDecember 1, 2021, the Company issued a convertible promissory note to Frondeur Partners LLC for $15,000 in principal for services (serviceagreement replacing agreement with Livingston Asset Management LLC). The convertible note bears interest of 10% per annum and maturesin nine months. The note issued is convertible into shares of common stock at a discount of 50% of the lowest closing bid price duringthe twenty trading days prior to conversion. The note has a conversion feature and is treated as stock settled debt under ASC 480 anda debt premium of $15,000 is recognized as interest expense on note issuance date.

 

OnJanuary 11, 2022, the Company executed a convertible promissory note issued to Sixth Street Lending LLC for $53,750, having a 10% annualinterest rate, maturity of November 12, 2022, and conversion right to a 35% discount to the average of the lowest traded price in the15 days prior to delivery of a conversion notice. The note was funded for $50,000, with $3,750, disbursed for legal and execution fees.

 

Theissuances of the above securities were made in reliance upon exemptions from registration available under Section 3(a)(10) of the SecuritiesAct, among others, as transactions not involving a public offering. This exemption was claimed on the basis that these transactions didnot involve any public offering and the purchasers in each offering were accredited or sophisticated and had sufficient access to thekind of information registration would provide. In each case, appropriate investment representations were obtained and certificates representingthe securities were issued with restrictive legends. 

 

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Item16. Exhibits

 

Theexhibits and financial statement schedules filed as part of this registration statement are as follows:

 

Exhibit   Description
3.1   Certificate of Incorporation of Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 3.1 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
3.2   Amended and Restated Bylaws Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 3.2 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
3.3   Certificate of Amendment to the Certificate of Incorporation filed April 27, 2016 (incorporated by reference herein to Exhibit 3.3 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
4.1   Specimen Stock Certificate evidencing the shares of Common Stock (incorporated by reference herein to Exhibit 4.1 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
5.1   Opinion of Stout Law Group Regarding Legality of the Securities Being Registered.
     
10.1   Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) 2016 Stock Incentive Plan (incorporated by reference herein to Exhibit 10.1 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.2   Senior Secured Revolving Credit Facility Agreement (the “Credit Facility”) with TCA Global Credit Master Fund, L.P., dated September 13, 2016 (incorporated by reference herein to Exhibit 10.2 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.3   Stock Purchase Agreement among Paul Charles Joy II, Trustee of the Paul C. Joy and Kathryn B. Joy Trust-Fund B, Kathryn Blake Joy, Trustee of the Paul C. Joy and Kathryn B. Joy Trust-Fund C, Howco Distributing Co. and Drone USA, LLC, dated August 4, 2016 (incorporated by reference herein to Exhibit 10.3 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.4   Joint Venture Agreement dated June 1, 2016 between Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) and BRVANT (incorporated by reference herein to Exhibit 10.4 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.5   Howco Lease Agreement dated April 28, 2009., as amended (incorporated by reference herein to Exhibit 10.8 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.6   TCA Engagement Agreement dated March 28, 2017 (incorporated by reference herein to Exhibit 10.9 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.7   Sublease Agreement dated November 17, 2016 Between Empirical Systems Aerospace, Inc. and Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 10.12 to the Company’s Form 10 filed with the SEC on May 8, 2017).

 

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Exhibit   Description
10.8   Manufacturing Agreement dated November 2016 between Empirical Systems Aerospace, Inc. and Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 10.13 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.9   Employment Agreement dated July 1, 2016 between Michael Bannon and Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 10.14 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.10   Employment Agreement dated March 29, 2017 between Matthew Wiles and Howco Distributing Co. (incorporated by reference herein to Exhibit 10.17 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
10.11   Settlement Agreement dated August 18, 2016 between Rockwell Capital Partners, Inc. and Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 10.20 to the Company’s Amendment Form 10 filed with the SEC on June 27, 2017).
     
10.12   Equity Exchange Agreement dated January 26, 2016 between Texas Wyoming Drilling, Inc., Drone USA, LLC, the members of Drone USA, LLC and Margaret Cadena (incorporated by reference herein to Exhibit 10.21 to the Company’s Amendment to the Form 10 filed with the SEC on June 27, 2017).
     
10.13   Agreement dated September 2016 between the Portuguese Government, the National Aviation Authority of Portugal and Aeroportos de Portugal and Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) (incorporated by reference herein to Exhibit 10.22 to the Company’s Amendment to the Form 10 filed with the SEC on June 27, 2017).
     
10.14   Securities Purchase Agreement dated October 25, 2017 between Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) and Crown Bridge Partners, LLC ((incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 15, 2017).
     
10.15   Convertible Promissory Note dated October 25, 2017 Issued by Bantec, Inc. (f/k/a Bantek, Inc. and Drone USA, Inc.) to Crown Bridge Partners, LLC (incorporated by reference herein to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 15, 2017).
     
21.1   Subsidiaries (incorporated by reference herein to Exhibit 21 to the Company’s Form 10 filed with the SEC on May 8, 2017).
     
23.1   Consent of Stout Law Group, P.A. (included in Exhibit 5.1)
     
23.2   Consent of Salberg & Company, PA

 

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Item17. Undertakings

 

Theundersigned Registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

i.To include any prospectus required by Section 10(a) (3) of the Securities Act;

 

ii.To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement;

 

iii.To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(5) For determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

i.Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (Sec. 230-424);

 

ii.Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the registrant;

 

iii.The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

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(6) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(7) That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof

 

(8) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalfby the undersigned, thereunto duly authorized in the City of Little Falls, State of New Jersey on January 21, 2022.

 

  BANTEC, INC.
   
Date: January 21, 2022 /s/ Michael Bannon
  By: Michael Bannon
  Its: Chief Executive Officer; Director

 

 

Inaccordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in thecapacities and on the dates stated.

 

Signature   Capacity in Which Signed   Date
         
/s/ Michael Bannon   Chief Executive Officer   January 21, 2022
Michael Bannon   (Principal Executive Officer Principal Accounting Officer and Director)    
         
/s/ Michael Bannon   Chief Financial Officer   January 21, 2022
Michael Bannon   (Principal Accounting Officer and Director)    

 

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