UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM
———————
(Mark One)
For the quarterly period ended:
or
For the transition period from: _____________ to _____________
Commission File Number:
———————
(Exact name of registrant as specified in its charter)
———————
| (State or other jurisdiction | (I.R.S. Employer |
| of incorporation or organization) | Identification No.) |
(Address of Principal Executive Office) (Zip Code)
(Registrant’s telephone number, including area code)
_______________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
———————
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, 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.
| Large accelerated filer ¨ | Accelerated filer ¨ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
| Class | Shares Outstanding as of November 15, 2023 | |
| Common Stock, $0.001 par value per share | ||
BASANITE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page No. | ||
| PART I. – FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated Financial Statements | |
| Condensed Consolidated Balance Sheets as of September 31, 2023 (Unaudited) and December 31, 2022 | 1 | |
| Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2023 and 2022 | 2 | |
| Condensed Consolidated Statements of Stockholder’s (Deficit) Equity (Unaudited) for Three Months Ended September 30, 2023 and 2022 | 3 | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2023 and 2022 | 5 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27 |
| Item 4. | Controls and Procedures | 27 |
| PART II. – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 28 |
| Item 1A. | Risk Factors | 28 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 28 |
| Item 3. | Defaults Upon Senior Securities | 28 |
| Item 4. | Mine Safety Disclosures | 28 |
| Item 5. | Other Information | 28 |
| Item 6. | Exhibits | 28 |
| Signatures | 29 | |
| 2 |
PART I. – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
BASANITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Lease right-of-use asset | ||||||||
| Fixed assets, net | ||||||||
| TOTAL NON CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued legal liability | ||||||||
| Subscription liability | ||||||||
| Notes payable | ||||||||
| Due to shareholders | ||||||||
| Notes payable - related party | ||||||||
| Notes payable - convertible - related party, net | ||||||||
| Lease liability – operating, current portion | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Lease liability – operating, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' (DEFICIT) EQUITY | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 3 |
BASANITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Products sales - rebar | $ | $ | $ | $ | ||||||||||||
| Total cost of goods sold | ||||||||||||||||
| Gross (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Sales, general, and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| NET LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Liquidated damages – loan commitment | ( | ) | ||||||||||||||
| Miscellaneous income | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||
| Gain on loan forgiveness | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share – | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding – | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 4 |
BASANITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | Deficit | ||||||||||||||||
| Balance January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Warrants exercised for cash | — | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Stock issued for cash | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||
| Stock issued to management | ||||||||||||||||||||
| Net loss | — | |||||||||||||||||||
| Balance September 30, 2023 | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 5 |
BASANITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
| Total | ||||||||||||||||||||
| Stockholders’ | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Equity | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock issued for cash, net
of costs of $ | ||||||||||||||||||||
| Stock issued for exercise of warrants | ||||||||||||||||||||
| Stock issued to service provider | ||||||||||||||||||||
| Warrants issued to management | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||
| Shares issued to related party for services | ||||||||||||||||||||
| Vesting of warrants issued to management | — | |||||||||||||||||||
| Warrants issued to Related Party for services provided | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||
| Shares issued for exercise of warrants | ||||||||||||||||||||
| Warrants issued to service provider | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 6 |
BASANITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the nine months ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Lease right-of-use asset amortization, operating lease | ||||||||
| Lease right-of-use asset amortization, financing lease | ( | ) | ||||||
| Lease right-of-use asset amortization, financing lease, related party | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Loan forgiveness | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Inventory | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Deposits and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Subscription liability | ||||||||
| Lease liability, operating lease | ( | ) | ( | ) | ||||
| Lease liability, financing lease | ( | ) | ||||||
| Lease liability, financing lease – related party | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Proceeds from sale of equipment | ||||||||
| Net cash used in investing activities | ( | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock, net of costs | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from notes payable and notes payable related party | ||||||||
| Repayments of notes payable and notes payable related party | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash Paid for interest | $ | $ | ||||||
| Forgiveness of Paycheck Protection Program loan and accrued interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Accounts payable paid by financing lease, related party | $ | $ | ||||||
| Extension of convertible note interest rolled in | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 7 |
BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
(A) Description of Business
Basanite, Inc., a Nevada corporation (the “Company”, “Basanite”, “we”, “us”, “our” or similar terminology), through our wholly owned subsidiary, Basanite Industries, LLC, a Delaware limited liability company (“BI”), manufactures a range of “green” (environmentally friendly), sustainable, non-corrosive, lightweight, composite products used in concrete reinforcement by the construction industry. Our core product is BasaFlex™, a basalt fiber reinforced polymer reinforcing bar (“rebar”) which we believe is a stronger, lighter, sustainable, non-conductive and corrosion-proof alternative to traditional steel.
Our two other main product lines are BasaMix™, which are fine denier basalt fibers available in various sizes, and BasaMesh™, a line of Basalt Geogrid Mesh Rolls, intended to replace welded wire mesh (made of steel) and other fiber reinforced polymer (“FRB”) grids and mesh.
BasaMix™ is designed to help absorb the stresses associated with early-aged plastic shrinkage and settlement cracking in concrete, as well as providing an increased toughness for enhanced reinforcement in Slab-on-Grade (“SOG”) and precast elements. BasaMix™ also serves in a “system approach” for optimum performance of a concrete element when used in conjunction with our BasaFlex™ rebar.
BasaMesh™ is designed for secondary and temperature shrinkage reinforcement. BasaMesh™ can also work in conjunction with the BasaFlex™ rebar or BasaMix™ for a total reinforcement program.
Each of our products is specifically designed to extend the lifecycle of concrete products by eliminating “concrete spalling.” Spalling results from the steel reinforcing materials embedded within the concrete member rusting (contrary to popular belief, concrete is porous and water can permeate into concrete). Rusting leads to the steel expanding and eventually causing the surrounding concrete to delaminate, crack, or even break off, resulting in potential structural failure. We believe that each Basanite product addresses this important need along with other key requirements in today’s construction market.
Manufacturing
We previously leased a fully permitted, 36,900 square foot facility located in Pompano Beach, Florida equipped with five customized, Underwriters Laboratories approved, Pultrusion manufacturing machines for BasaFlex™ production, plus other composite manufacturing equipment. Each Pultrusion machine has up to two linear production lines (we use one or two lines per machine depending on rebar size – giving a maximum capacity of 10 manufacturing lines). To date, BI’s operations team has successfully optimized and scaled the capacity of our manufacturing plant to produce up to 25,000 linear feet of BasaFlex™ rebar per shift, per day, depending on the product mix. BI’s own fully equipped test lab is utilized to evaluate, validate, and verify each product’s performance attributes. Depending on our manufacturing needs in the future, we have and may continue to explore alternative or additional manufacturing or corporate facilities. As of December 31, 2022, we no longer operate nor manufacture in our previous Pompano Beach facility.
To satisfy what we perceive the market interest for BasaFlex™ to be, and in particular to address potential large-scale customers like CPPB, we need to significantly accelerate the expansion of our manufacturing capacity. Our current goal is to locate a new manufacturing facility and restart our manufacturing operations and ultimately to reach a plant production capacity exceeding 73,000 linear feet per day per day on a two day shift basis (which would be 3 times our current capacity). To accomplish these goals, we have designed and developed customized pultrusion equipment which offers significantly increased capacity in the same footprint as our current equipment. Our new technology manufacturing system, named BasaMax™, has been specifically designed for the manufacture of BasaFlex™ using our patent pending process. Two versions of this equipment have been designed, and these will not only offer double the capacity of our current equipment (per machine), but also each will run at faster and more efficient rates. A prototype has completed thorough testing in our previous Pompano facility, including initial production runs, and is currently undergoing modifications and upgrades to the final production configuration.
Based on this trial, we are planning a two-phase plant expansion, eventually including a total of 10 of these new machines. Our goal, subject to raising sufficient funding of about 5 million dollars, is to have the first set of five of the new machines installed and be operational by the end of the second quarter of 2024 and to install and have operational five more, along with additional custom manufacturing equipment, by the fourth quarter of 2024 providing sales dictate for the 2025 production year. This would create the opportunity for BI to ultimately reach our production level target for the new facility by the end of the second quarter 2025.
(B) Liquidity and Management Plans
Since inception, the Company has incurred net operating losses and used cash in operations. As of September 30, 2023, and December 31, 2022, respectively, the Company reported:
| • | an accumulated deficit of $ |
| • | a working capital deficiency of $ |
| • | cash
used in operations of $ |
| 8 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 1 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)
Losses have principally occurred as a result of the substantial resources required for product research and development, establishment and upgrading of our manufacturing facility and equipment, and for certification, government approval and marketing of the Company’s products; including the general and administrative expenses associated with the organization.
While we have generated relatively little revenue to date, revenue from sales of product began to increase during the first half of 2023 (including the quarter ended September 30, 2023), and we continue to receive inquiries and solicit orders from a range of customers for our products, indicating what we believe is a significant level of market interest for BasaFlex™ and BasaMix™ products. We also spent time and resources during the first half of 2023 introducing our products to, and receiving approvals and certifications from, various county and local government agencies to have our products used in such agencies’ construction projects.
We have historically satisfied our working capital requirements through the sale of restricted Common Stock of the Company, $0.001 par value per share (the “Common Stock”), and the issuance of warrants to purchase Common Stock and promissory notes. Until we are able to internally generate meaningful revenue and positive cash flow, we will attempt to fund working capital requirements through third party financing, including through potential private or public offerings of our securities as well as bridge or other loan arrangements. However, a number of factors continue to hinder the Company’s ability to attract new capital investment. We cannot provide any assurances that the required capital will be obtained at all, or that the terms of such required capital may be acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities to reduce our cash use until sufficient funding is secured. If we are unable to secure funding when needed, our results of operations may suffer, and our business may fail.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties.
We have historically satisfied our working capital requirements through the sale of restricted common stock of the Company, $0.001 par value per share (the “Common Stock”), and the issuance of warrants to purchase Common Stock and promissory notes, some of which were or are convertible into shares of Common Stock. Until we are able to internally generate meaningful revenue and positive cash flow, we will attempt to fund working capital requirements through third party financing, including through potential private or public offerings of our securities as well as bridge or other loan arrangements. However, a number of factors continue to hinder the Company’s ability to attract new capital investment. We cannot provide any assurances that the required capital will be obtained at all, or that the terms of such required capital may be acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities to reduce our cash use until sufficient funding is secured. If we are unable to secure funding when needed, our results of operations may suffer, and our business may fail.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties.
At September 30, 2023, the Company had cash of $
| 9 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Use of Estimates in Financial Statements
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stock-based compensation and stock awards related to convertible debt instruments are recognized based on the fair value of the awards granted. The fair value of each award or conversion feature is typically estimated on the grant date using the Black-Scholes pricing model. The Black-Scholes pricing model requires the input of highly subjective assumptions, including the fair value of the underlying Common Stock, the expected term of the option, the expected volatility of the price of our Common Stock, risk-free interest rates and the expected dividend yield of our Common Stock. The assumptions used to determine the fair value of the stock awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment.
The Company used the Black Scholes valuation model to determine the fair value of the warrants and options issued, using the following key assumptions for the nine months ended September 30, 2022. There were no such valuations during the nine months ended September 30, 2023:
| Nine months | Nine months | |||||
| ended | ended | |||||
| September 30, | September 30, | |||||
| 2023 | 2022 | |||||
| (Unaudited) | ||||||
| Expected price volatility | N/A | -% | ||||
| Risk-free interest rate | N/A | - | ||||
| Expected life in years | N/A | |||||
| Dividend yield | N/A | N/A |
(B) Principles of Consolidation
The condensed consolidated financial statements include the accounts of Basanite, Inc. and its wholly owned subsidiaries, Basanite Industries, LLC and Basalt America, LLC. All intercompany balances have been eliminated in consolidation. The Company’s operations are conducted primarily through Basanite Industries, LLC. Basalt America, LLC is currently inactive.
| 10 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) Cash
The Company considers all
highly liquid temporary cash instruments with an original maturity of three months or less to be cash equivalents. The Company places
its cash, cash equivalents and restricted cash on deposit with financial institutions in the United States, which are insured by the Federal
Deposit Insurance Company “(“FDIC”) up to $
(D) Inventories
The Company’s inventories consist of raw materials, work in process and finished goods, both purchased and manufactured. Inventories are stated at lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Raw materials inventory consists of basalt fiber and other necessary elements to produce BasaFlex™ rebar and our other products. On a quarterly basis, the Company analyzes its inventory levels and records allowances for inventory that has become obsolete and inventory that has a cost basis in excess of the expected net realizable value.
The Company’s inventory at September 30, 2023 and December 31, 2022 was (0) zero.
(E) Fixed assets
Fixed assets consist of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Computer equipment | $ | $ | ||||||
| Machinery | ||||||||
| Leasehold improvements | ||||||||
| Office furniture and equipment | ||||||||
| Land improvements | ||||||||
| Website development | ||||||||
| Construction in process | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense
for the three and nine months ended September 30, 2023, was $
| 11 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) Deposits and other current assets
The Company’s deposits and other current assets consist of the deposits made on equipment, security deposits, utility deposits and other receivables. The deposits are reclassified as part of the fixed asset cost when received and placed into service.
The basic loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted loss per share is calculated by dividing the Company’s net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
The following are potentially dilutive shares not included in the loss per share computation:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Options | ||||||||
| Warrants | ||||||||
| Convertible securities | ||||||||
| Total | ||||||||
The Company recognizes compensation costs to employees under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. Under FASB ASC Topic 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the grant.
(I) Revenue Recognition
We recognize revenue when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration we expected to be entitled to in exchange for those goods or services. The timing of revenue recognition largely is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated free on board (“FOB”) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer’s delivery site.
| 12 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All
revenues recognized are net of trade allowances, cash discounts, and sales returns. Trade allowances are based on the estimated obligations.
Adjustments to earnings resulting from revisions to estimates on discounts and returns have been immaterial for each of the reported
periods. Shipping and handling amounts billed to a customer as part of a sales transaction are included in revenues, and the related
costs are included in cost of goods sold. Shipping and handling are treated as fulfillment activities, rather than promised services,
and therefore are not considered separate performance obligations. During the three and nine months ended September 30, 2023, and 2022,
the Company incurred shipping and handling costs in the amount of $
NOTE 3 – OPERATING LEASE
On
January 18, 2019, the Company entered into an agreement to lease approximately 25,470 square feet of office and manufacturing space in
Pompano Beach, Florida through March 2024. On March 25, 2019, the Company entered into an amendment to the agreement to increase the
square footage of leased premises to 36,900 square feet, increasing the Company’s base rent obligation to be approximately $
The right-of-use asset is composed of the sum of all remaining lease payments plus any initial direct costs and is amortized over the life of the expected lease term. For the expected term of the lease, the Company used the initial term of the five-year lease. If the Company does elect to exercise its option to extend the lease for another five years, for which the election will be treated as a lease modification, the lease will be reviewed for remeasurement.
On December 31, 2022 the Company and Landlord ended the lease agreement of the facility.
The future minimum lease payments to be made under the operating lease as of September 30, 2023, are zero.
On July 11, 2022, the Company entered into a sale leaseback transaction (the “Agreement”) with Quayco, LLC, a Pennsylvania limited liability company (the “Lessor”). The Company had previously ordered certain specialized BasaMax™ Pultrusion Machines (the “Machines”) from Upstate Custom Products LLC, a South Carolina limited liability company (the “Manufacturer”). The Machines are to be used to manufacture the Company’s basalt fiber reinforced polymer (BFRP) rebar products. Pursuant to the Agreement, the Lessor will pay the Company (Lessee) $450,000 and the Lessee will transfer to the Lessor secured rights to the ownership of one (1) BasaMax™ Tetrad Pultrusion Machine and all rights under the sales orders and agreements to purchase the Machines from Manufacturer. The Company had previously recorded this amount in accounts payable and construction in progress; at the date of the financing, the amount of $450,000 was transferred from construction in progress to a right of use asset and lease liability. The Company used a discount rate of 21% in calculating the lease liability and is the estimated rate the Company would be subject to for the financing of a similar equipment purchase. Pursuant to this lease, the Company will make payments in the amount of $8,250 per month for 24 months.
| 13 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 4 – FINANCING LEASE – RELATED PARTY
On April 27, 2022, the Company entered into an Equipment Rental Agreement (the “Agreement”) with First New Haven Mortgage Company, LLC, a Connecticut limited liability company and an affiliate of the Company (the “Lessor”). Ronald J. LoRicco, the Chairman of the Company’s Board of Directors, is the co-managing member of the Lessor and has an indirect pecuniary interest in the Lessor. In accordance with Nevada corporate law, the Agreement was independently reviewed and approved by the unanimous vote of the disinterested directors of the Company, with Mr. LoRicco recusing himself from voting.
Pursuant
to the Agreement, the Lessor paid approximately $
The
Company has not yet received the machine in order to satisfy the transfer of the asset. As such, the $
NOTE 5 – NOTES PAYABLE
Notes
payable totaled an aggregate of $
On February 25, 2021,
the Company entered a promissory note agreement with a bank for $
On April 2,
2021, the Company issued a promissory note with an investor in exchange for $
On
April 9, 2021, the Company issued a promissory note with an investor in exchange for $
On April 16,
2021, the Company issued a promissory note with an investor in exchange for $
On April 16,
2021, the Company issued a promissory note with an investor in exchange for $
The Company enters into
financing arrangements for its liability insurance premiums. The financings have a term of one year and an interest rate of
Interest expense for the Company’s
promissory notes payable for the three and nine months ended September 30, 2023 was, in the aggregate, $
Accrued interest for the
Company’s promissory notes payable on September 30, 2022 and December 31, 2022 was, in the aggregate, $
| 14 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 6 – NOTES PAYABLE – RELATED PARTY
Notes payable – Related Party, totaled an aggregate of $
On August 31, 2022
the Company issued a promissory note to a board member in exchange for $
On August 22, 2022
the Company issued a promissory note to a board member in exchange for $
On August 22, 2022
the Company issued a promissory note to a board member in exchange for $
On August 29, 2022
the Company issued a promissory note to a board member in exchange for $
On August 29, 2022
the Company issued a promissory note to a board member in exchange for $
On
August 31, 2022 the Company issued a promissory note to a board member in exchange for $
On August 1, 2022
the Company issued a promissory note to a board member in exchange for $
On
September 9, 2022 the Company issued a promissory note to a board member in exchange for $
On September 9, 2022
the Company issued a promissory note to a board member in exchange for $
On September 9, 2022
the Company issued a promissory note to a strategic partner in exchange for $
On September 9, 2022
the Company issued a promissory note to a strategic partner in exchange for $
On September 9, 2022
the Company issued a promissory note to an investor and advisor to the board, in exchange for $
On September 22, 2022
the Company issued a promissory note to a board member in exchange for $
On September 22, 2022
the Company issued a promissory note to a board member in exchange for $
On April 2, 2021,
the Company issued a promissory note to Paul Sallarulo, a member of our Board of Directors, in exchange for $
| 15 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 6 – NOTES PAYABLE – RELATED PARTY (CONTINUED)
On April 2, 2021,
the Company issued a promissory note to Michael V. Barbera, our Chairman of the Board, in exchange for $
On February 14, 2023
the Company issued a promissory note to a board member in exchange for $
On February 24, 2023
the Company issued a promissory note to a board member in exchange for $
On April 12, 2023
the Company issued a promissory note to a board member in exchange for $
On April 28, 2023
the Company issued a promissory note to a board member in exchange for $
On May 12, 2023 the
Company issued a promissory note to a board member in exchange for $
On June 5, 2023 the
Company issued a promissory note to a board member in exchange for $
On July 25, 2023 the
Company issued a promissory note to a board member in exchange for $
On September 11, 2023
the Company issued a promissory note to a board member in exchange for $
On September 11, 2023
the Company issued a promissory note to a board member in exchange for $
During the three and nine
months ended September 30, 2023, the Company made principal payments in the amount of $
Accrued interest for the
Company’s notes payable - related party on September 30, 2022, and December 31, 2021, was an aggregate of $
| 16 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 7 – NOTES PAYABLE – CONVERTIBLE – RELATED PARTY (CONTINUED)
Convertible Notes payable
– related party totaled an aggregate of $
On August 3, 2020, the Company
issued a secured convertible promissory note to certain investors in exchange for $1,000,000 in the aggregate bearing an interest rate
of
On February 12, 2021, the
Company exchanged the original debt for a newly issued amended and restated secured convertible promissory note with a new principal balance
of $
On May 12, 2021, the Company
extended the debt for a newly issued amended and restated secured convertible promissory note with a new principal balance of $
On September 15, 2022, the
Company extended the debt for a newly issued amended and restated secured convertible promissory note with a new principal balance of
$
Interest expense for the Company’s
convertible notes payable – related parties for the three and nine months ended September 30, 2023, was an aggregate of $
Accrued interest for the Company’s
convertible notes payable – related parties on September 30, 2023 and December 31, 2022, was an aggregate of $
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Company is the obligor under certain promissory notes that are currently past due (although formal events of default have not been declared).
The Company is presently in default of its obligations
under the terms of the Company’s private placement which closed in August 2021 to file a registration statement for an underwritten
public offering and concurrently listing on a national stock exchange. As a result, the Company is required to pay liquidated damages
in the amount of $
On August 17, 2021, the Company conducted the
closing of a private placement offering to accredited investors of the Company’s units at a price of $0.275 per unit, with each
unit consisting of: (i) one share of the Company’s common stock, (ii) a five-year, immediately exercisable warrant (“Warrant
A”) to purchase one share of common stock at an exercise price of $0.33 per share and (iii) an additional five-year, immediately
exercisable warrant to purchase one share of common stock at an exercise price of $0.33 per share (“Warrant B”). The Warrant
A and Warrant B are identical, except that the Warrant B has a call feature in favor of the Company, as defined in the offering agreements.
In connection with the closing,
NOTE 9 – STOCKHOLDERS’ DEFICIT
During the nine months ended
September 30, 2023, the Company issued shares at $ per share from subscription liabilities of $
| 17 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Stock Options:
The following table provides the activity in options for the respective periods:
| Total Options | Weighted Average | Aggregate Intrinsic | ||||||||||
| Outstanding | Exercise Price | Value | ||||||||||
| Balance at December 31, 2021 | $ | $ | ||||||||||
| Exercised | ( | ) | — | |||||||||
| Cancelled / Expired | ( | ) | — | |||||||||
| Balance at March 31, 2022 | ) | $ | $ | |||||||||
| Cancelled / Expired | ( | ) | ||||||||||
| Balance at June 30, 2022 | $ | $ | ||||||||||
| Balance at September 30, 2022 | $ | $ | ||||||||||
| Total Options | Weighted Average | Aggregate Intrinsic | ||||||||||
| Outstanding | Exercise Price | Value | ||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||
| Issued | ( | ) | — | |||||||||
| Cancelled / Expired | ( | ) | — | |||||||||
| Balance at March 31, 2023 | ) | $ | $ | |||||||||
| Cancelled / Expired | ||||||||||||
| Balance at June 30, 2023 | $ | $ | ||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||
Options exercisable and outstanding at September 30, 2023 are as follows:
| Range of | Number | Weighted Average Remaining Contractual | Weighted Average | Aggregate | ||||||||||||
| Exercise Prices | Outstanding | Life (Years) | Exercise Price | Intrinsic Value | ||||||||||||
| $ - $ | $ | |||||||||||||||
Stock Warrants:
The following table provides the activity in warrants to purchase shares of Common Stock for the respective periods:
| Weighted | |||||||||||||
| Average | Aggregate | ||||||||||||
| Total Warrants | Exercise Price | Intrinsic Value | |||||||||||
| Balance at December 31, 2021 | $ | $ | |||||||||||
| Granted | — | ||||||||||||
| Balance at March 31, 2022 | $ | $ | |||||||||||
| Granted | |||||||||||||
| Expired – cancelled | ( | ) | |||||||||||
| Balance at June 30, 2022 | $ | $ | |||||||||||
| Granted | — | ||||||||||||
| Exercised | ( | ) | |||||||||||
| Expired – cancelled | ( | ) | — | ||||||||||
| Balance at September 30, 2022 | $ | $ | |||||||||||
| Balance at December 31, 2022 | $ | $ | |||||||||||
| Granted | — | ||||||||||||
| Cancelled | — | ||||||||||||
| Balance at March 31, 2023 | $ | $ | |||||||||||
| Granted | — | ||||||||||||
| Expired – cancelled | ( | ) | — | ||||||||||
| Balance at June 30, 2023 | $ | $ | |||||||||||
| Granted | — | ||||||||||||
| Exercised | — | ||||||||||||
| Expired – cancelled | ( | ) | — | ||||||||||
| Balance at September 30, 2023 | $ | $ | |||||||||||
Warrants exercisable and outstanding at September 30, 2023 are as follows:
| Weighted Average | ||||||||||||||||||
| Remaining | ||||||||||||||||||
| Range of | Number | Contractual | Weighted Average | Aggregate | ||||||||||||||
| Exercise Prices | Outstanding | Life (Years) | Exercise Price | Intrinsic Value | ||||||||||||||
| $ - $ | $ | |||||||||||||||||
| $ - $ | — | |||||||||||||||||
| $ | ||||||||||||||||||
| 18 |
| BASANITE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 11 – SUBSEQUENT EVENTS
On November 9th, 2023 the Company and its
Interim CEO agreed to accrue a total of 50% of the monthly engagement fee of $
On or about September 15, 2023 the Company filed suit in the state of Florida for the ongoing lawsuit against UCP with regards to the completion of the equipment ordered in 2021. As of this filing the matter remains unresolved.
| 19 |
| ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important to understand our financial results for the six months ended June 30, 2023 and 2022, respectively. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this report, and our audited consolidated financial statements and accompanying notes included in the Annual Report in Form-10-K for the period ended December 31, 2022 and filed with the SEC on May 16, 2023.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). These forward-looking statements are based on our management’s beliefs, assumptions, and expectations and on information currently available to our management. Generally, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements, which generally are not historical in nature. All statements that address operating or financial performance, events, or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation our expectations with respect to the timing for our planned manufacturing expansion and/or new lease for manufacturing and headquarters space, the benefits of our products, customer leads, product sales, financings, or the commercial viability of, and prospects for, our business model. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events (including, without limitation, those related to our planned manufacturing relocation and expansion and our sales and marketing initiatives) could differ materially from those disclosed in the forward-looking statements. Our management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the date when made. We do not assume any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by federal securities laws and the rules of the Securities and Exchange Commission (the “SEC”). We may not actually achieve the plans, projections or expectations disclosed in our forward-looking statements, and actual results, developments or events could differ materially and adversely from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of significant risks and uncertainties, including without limitation those described from time to time in our reports filed with the SEC.
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the risk factors and other disclosures contained in our Annual Report on Form 10-K for the period ended December 31, 2022.
Basanite, Inc., and its wholly owned subsidiaries are referred to in this discussion as the “Company”, “we”, “our”, or “us”. “Common Stock” refers to the Common Stock of the Company.
Overview
On May 30, 2006, Basanite, Inc. was formed as a Nevada corporation. Through our wholly owned subsidiary, Basanite Industries, LLC, a Delaware limited liability company (“BI”), we manufacture a range of “green” (environmentally friendly), sustainable, non-corrosive, lightweight, composite products used in concrete reinforcement by the construction industry. Our core product is BasaFlex™, a basalt fiber reinforced polymer reinforcing bar (“rebar”) which we believe is a stronger, lighter, sustainable, non-conductive and corrosion-proof alternative to traditional steel.
Our two other main product lines are BasaMix™, which are fine denier basalt fibers available in various chopped sizes, and BasaMesh™, a line of Basalt Geogrid Mesh Rolls, intended to replace welded wire mesh (made of steel) and other fiber reinforced polymer grids and mesh.
BasaMix™ is designed to help absorb the stresses associated with early-aged plastic shrinkage and settlement cracking in concrete, as well as providing an increased toughness for enhanced reinforcement in Slab on Grade (SOG) and precast elements. BasaMix™ also serves in a “system approach” for optimum performance of a concrete element when used in conjunction with our BasaFlex™ rebar.
BasaMesh™ is designed for secondary and temperature shrinkage reinforcement. BasaMesh™ can also work in conjunction with the BasaFlex™ rebar or BasaMix™ for a total reinforcement program.
Each of our products is specifically designed to extend the lifecycle of concrete products by eliminating “concrete spalling.” Spalling results from the steel reinforcing materials embedded within the concrete member rusting (contrary to popular belief, concrete is porous, and water can permeate into concrete). Rusting leads to the steel expanding and eventually causing the surrounding concrete to delaminate, crack, or even break off, resulting in potential structural failure. We believe that each of our products addresses this important need along with other key requirements in today’s construction market.
| 20 |
We believe that the following attributes of BasaFlex™ provide it with a competitive advantage in the marketplace:
| • | BasaFlex™ never corrodes: steel reinforcement products rust, leading to spalling and significant repair costs down the road; |
| • | BasaFlex™ is sustainable: BasaFlex™ is made from Basalt rock, the most abundant rock found on Earth’s surface, and offers a longer product lifecycle than traditional steel (the lack of corrosion allows the life span of concrete products reinforced with BasaFlex to be significantly longer); |
| • | BasaFlex™ is “green”: From mining, through production, to installation at the building site, BasaFlex™ has an exceptionally low carbon footprint when compared with that of steel or with carbon fiber or glass fiber reinforced polymer rebar products; and |
| • | BasaFlex™ has a lower in-place cost: the physical nature of our products relative to steel result in a lower net cost to the contractor once installed, such as: BasaFlex™ is one-quarter of the weight of equivalent sized steel, meaning 4 times the quantity of material can be delivered by the same truck (or container); all Basanite products can be loaded/unloaded and moved around the jobsite by hand – no expensive handling equipment is needed; less concrete is required as BasaFlex™ does not require the extra concrete cover needed when using steel; and Basanite products are safer and easier to use. We believe all these factors materially reduce the net in-place cost of concrete reinforcement. |
During the past year, we have designed, developed, and prototyped a next generation Pultrusion manufacturing system we call BasaMax™. This new system has been designed in two versions, a quad-line system (for smaller bar sizes) and a dual-line system (for larger bar sizes), which not only have double the manufacturing capacity of the current machines, but they also run faster and they fit it the same manufacturing floorspace. We currently have five of these new BasaMax pultrusion machines on order: three quad-line machines and two dual-line machines. We expect to have these new machines in place during the third quarter of 2023. With the introduction of this new equipment and the establishment of our planned two-shift operations, our maximum manufacturing capacity for BasaFlex™ rebar will increase to approximately 128,000 linear feet per working day (on a two-shift basis).
Importantly, BI’s own fully equipped Test Lab is utilized to evaluate, validate, and verify each raw material and each batch of completed BasaFlex™ product, ensuring our finished goods meet the required specifications and performance attributes. We are also developing a new process specifically for manufacturing BasaFlex™ shapes (hoops; angles and stirrups) which we call BasaLinks™, which includes developing a next generation pultrusion system as part of this process. We expect our first BasaLinks system to be in place and operational during the second quarter of 2024.
We believe that macroeconomic factors are pressuring the construction industry to consider the use of alternative reinforcement materials for the following reasons:
| • | the increasing need for global infrastructure repair; |
| • | recent design trends towards increasing the lifespan of projects and materials; |
| • | the global interest in promoting the use of sustainable products; |
| • | increasing consideration of both the long-term costs and environmental impacts of material selections. |
| • | more recently, due to rising steel prices, an increasing level of price equivalence between steel rebar and our BFRP rebar. |
We believe we are well positioned to benefit from this renewed focus, particularly in light of the interest of the U.S. government in funding infrastructure improvements and events such as the collapse of a residential building in Surfside, Florida.
Inflation & Interest Rate Sensitivity
In the past two fiscal years, inflation has not had a significant impact on our business. However, during the second half of 2021 and into 2022, the U.S. economy has entered into a period of increasing inflation. Should inflation persist or increase, interest rates may continue to rise, and inflation overall could have a significant effect on the economy in general and the construction industry in particular, as well as create volatility in the capital markets. For example, inflation and increased interests could affect the prices of raw materials we use, demand for our products, our ability to attract and retain skilled labor and our ability to obtain financing. We are carefully watching chemical prices, which are following oil and gas prices, as a core component of BasaFlex™ is the chemical resin mix. Prices have risen, but we have been able to raise our own prices to support our margins, largely as the result of the increase in steel prices. We believe we have actually benefitted from the rapid rise in steel prices over the past 6 to 9 months as well as the reduced availability of steel rebar, both of which changes have opened opportunities to more readily introduce our products into the marketplace. As of the date of this report, BasaFlex™ has become directly competitive with steel on price alone, and it is relatively available, whereas steel has been impacted by raw material supply chain constraints. We will seek to continue to take advantage of these opportunities while high steel prices and restricted supply are prevalent. Supply Chain
Supply Chain
In the past year, supply chain shortages or delays have had an immaterial impact on our operations. Our raw material suppliers have maintained a consistent flow of goods which we receive monthly. Domestic suppliers have increased their in-stock flows to maintain adequate levels with our manufacturing needs. However, we might experience supply chain challenges in the future, which could harm our business and our results of operations.
War in Ukraine
The recent war in Ukraine has led the world to issue sanctions on the government of Russia. This has shut down our ability to procure basalt fiber material from our secondary supplier, UWF/Kamenny Vek. However, our primary supplier, Mafic, is U.S. based, and has ample capacity to support our current and anticipated future needs with 100% domestic source of raw materials. We have also recently increased the levels of our safety stock of raw materials as an additional cushion. Nonetheless, we are currently qualifying alternate material from other suppliers to preserve our options in case of further disruptions.
Government Approvals and Specifying of our Products
We continue to pursue additional product and facility qualifications and approvals, and these qualifications and approvals are critical to the market acceptance of our products. We are currently testing products at two independent laboratories in the pursuit of ICC-ES certification and a FDOT production facility approval which was awarded in July 2023. We are already selling to FDOT projects on an individual basis through exemptions or specs. The FDOT approval will allow us to bid on any project approved for basalt fiber reinforced polymer products. Although we have obtained these additional approvals, our opportunities to bid on certain projects will be limited due to the inability to produce products until 2024.
| 21 |
Known Factors, Trends and Risks Impacting Our Business
Search for New Facilities and Manufacturing Expansion
Our business plan calls for scaling the manufacturing capability to enable the potential for increased revenues and cash flow positive operations, and ultimately to profitability, in as short a timeframe as possible. As discussed above, we are currently searching for a new headquarters and manufacturing facility. Once and assuming this new facility is established and fully operational, we plan to open additional facilities around the country based on demand, each designed to service a circular area roughly 1,000 miles in diameter, with the plant at the center.
However, our manufacturing expansion plans have been hindered by several factors: the COVID-19 pandemic, our slower than expected rate of fundraising and our slower than expected ramp-up in sales. This last item has been caused by multiple factors, including:
| • | Customer requirements for multiple additional product and facility certifications, in particular: |
| o | International Code Council (or ICC) Evaluation Service (known as “ICC-ES”) Certification to AC 454. ICC-ES is an industry leader in performing technical evaluations of building products, materials and systems for code compliance. Basanite’s Product ICC-ES certification testing and facility audit were both successfully completed in the third quarter of 2022, and we received ICC-ES approval in September 2022; |
| o | Approval by the Florida Department of Transportation (“FDOT”). We have previously received FDOT with facility approval (FRP22), and our product approval is pending successful completion of FDOT’s product certification testing program, which is nearing the end of the long-duration product testing currently underway at the University of Sherbrooke, Canada (9 month program). This FDOT testing was completed during the third quarter of 2023 with final approval the third quarter of 2023 as well; |
| o | The lack of an ASTM (formerly known as the American Society for Testing and Materials) product standard specifically for basalt fiber. A member of our board of directors, Fred Tingberg, who was appointed as our Chief Technology Officer in June 2022, was appointed to the ASTM committee to review this and helped bring the process to conclusion. The new ASTM Specification for Basalt Fiber, D-8448-22 was issued in September 2022; |
| o | The lack of an ASTM product standard covering basalt fiber rebar (this process is underway). A new ASTM Specification for High-Performance Rebar is expected to be issued in the first quarter of 2024; |
| • | Customer concerns about our current manufacturing capacity, which have precluded us from bidding or winning several larger potential orders; |
| • | The Surfside Condo disaster, which has resulted in some local engineers being cautious around new product introductions. We believe, however, that we will be able to make a strong case that BasaFlex™ (which is corrosion proof) can remedy the structural failures (such as what occurred in Surfside) associated with steel reinforcement corrosion; |
Our new manufacturing equipment mentioned above is has not been completed by the manufacturer and was expected to be delivered and the installation and calibration process to commence during the fourth quarter of 2022 or early in 2023, assuming we are able to secure a new manufacturing facility. The equipment is expected to become fully operational shortly thereafter should both parties come to a resolution. We believe the achievement of this would simultaneously resolve questions about our manufacturing capacity and will materially improve our ability to generate larger sales order.
| 22 |
Supply Chain Issues
In the past year, supply chain shortages or delays have had an immaterial impact on our operations. However, on October 31, 2022, we were notified by Mafic USA, LLC (our primary U.S. supplier of basalt fiber, which is the key component in our products) that they would be ceasing manufacturing operations in order to engage in a possible restructuring. As discussed below, we have a second supplier of basalt fiber located in Russia, but at the present time, we require a U.S. supplier of basalt fiber, and the absence of such a supplier, if it continues, would have a material adverse effect on our ability to conduct operations. We have been diligently researching other domestic sources of basalt fiber, and we continue to work with a domestic broker of international basalt fiber sourcing.
War in Ukraine
The recent war in Ukraine has led the world to issue sanctions on the government of Russia. This directly resulted in a significant price increase of basalt fiber material from our fiber supplier in Russia, Kamenny Vek. Of note, as described above under “Supply Chain” Kamenny Vek is presently our only operating suppler for basalt fiber, and this dependence is a risk factor for us until we can identify alternate suppliers. We have been fortunate as we have been able to raise our finished goods pricing to compensate without any notable affect to customer demand. We have also recently increased the levels of our safety stock of raw materials as an additional cushion. Nonetheless, we are currently qualifying alternate fiber and other materials from other global suppliers to preserve our options in case of further disruptions. We might experience further supply chain challenges in the future because of the war in Ukraine, which could harm our business and our results of operations.
Government Approvals and Specifying of our Products
We continue to pursue additional product and facility qualifications and approvals, and these qualifications and approvals are critical to the market acceptance of our products. As previously noted, we are currently testing products at an independent university laboratory (University of Sherbrooke) in the pursuit of FDOT certification. Formal FDOT approval was granted the second quarter of 2023.
Inflation & Interest Rate Sensitivity
In the past two fiscal years, inflation has not had a significant impact on our business. However, during the second half of 2021 and into 2022, the U.S. economy has entered into a period of increasing inflation. Should inflation persist or increase, interest rates may continue to rise, and inflation overall could have a significant effect on the economy in general and the construction industry in particular, as well as create volatility in the capital markets. For example, inflation and increased interests could affect the prices of raw materials we use, demand for our products, our ability to attract and retain skilled labor and our ability to obtain financing. We are carefully watching chemical prices, which are following oil and gas prices, as a core component of BasaFlex™ is the chemical resin mix. Prices have risen, but we have been able to raise our own prices to support our margins, largely as the result of the increase in steel prices. We believe we have benefitted from the rapid rise in steel prices over the past several fiscal quarters as well as the reduced availability of steel rebar, both of which changes have opened opportunities to more readily introduce our products into the marketplace. As of the date of this report, BasaFlex™ has become competitive with steel on price alone, and it is relatively available, whereas steel has been impacted by raw material supply chain constraints. We will continue to seek opportunities to take advantage of high steel prices and restricted supply while these issues are prevalent.
| 23 |
Impact of COVID-19
The pandemic caused by the novel coronavirus (known as “COVID-19”) and governmental responses and efforts to curb the spread of the pandemic has caused great disruption to the U.S. national and international economies. We have been adversely impacted by COVID-19 in that we have been required to temporarily suspend operations during 2020 due to necessary quarantines, and the impact of COVID-19 on the construction industry we service has been significant. Government mandated shutdowns and other measures held less of an impact on our business during 2021, although we did have personnel absent for periods during the year due to COVID-19. During the first quarter of 2022, while certain of our personnel did contract COVID-19, overall COVID-19 did not have a material impact on our business, in part because we were operating with reduced personnel and personnel could work remotely in certain cases.
The continued prevalence of COVID-19 or outbreaks of new variants thereof could disrupt our supply chain, as well as our own operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to illness affecting others in our office or plant, or due to additional necessary quarantines. This could be particularly true as we seek to scale operations during 2022 and hire additional personnel. COVID-19 could also impact members of our Board of Directors as well as key providers of services to us, which could adversely impact the management of our affairs. Additionally, as the COVID-19 pandemic continues to develop, we may be required to continue to spend time and resources in monitoring and adhering to government regulations that impact both our company and our customers and potential customers as necessary, which could also adversely impact our business and results of operations. We continue to monitor our operations and applicable government recommendations and requirements.
| 24 |
Results of Operations for the Three Months Ended September 30, 2023, and 2022
Revenue: We had revenue of $49,140 from sales of finished goods for the three months ended September 30, 2023, a decrease of $186,439 compared to $235,579 in the prior year. While the decrease in revenue in the year over year periods was relatively significant due to our increasing sales success (across all product lines) in 2022, overall revenues continue to be minimal, largely due to our capacity ceasing in the third quarter of 2022 and limited working capital. We continued our efforts to increase our sales during the period and subsequently in 2024.
Cost of goods sold: Cost of goods sold was $53,640 for the three months ended September 30, 2023, a decrease of $333,981 compared to cost of goods sold of $387,621 during the prior year. The cost of goods sold reflects the fixed overhead costs absorbed by manufacturing, at low sales volumes this results in negative margins.
Our gross profit during the three months ended September 30, 2023, was a loss of $4,500 compared to a net gain of $150,442 during the prior period. This change is due to a need for outside production and higher overhead with limited staff. We expect our gross profit to increase as fixed overhead costs are absorbed over a greater volume of sales.
Sales, general, and administrative: Sales, general, and administrative expenses were $332,560 during the three months ended September 30, 2023, a decrease of $262,750 compared to $595,310 during the prior year. For the current quarter, sales, general, and administrative costs consisted primarily of professional fees of $52,003; payroll and related costs of $61,291, not including stock-based compensation of $32,939; consulting fees of $59,615.
Results of Operations for the Nine Months Ended September 30, 2023, and 2022
Revenue: The Company had revenue of $317,664 from sales of finished goods for the nine months ended September 30, 2023, compared to $781,918 in the prior year. While the decrease in revenue in the year over year periods was relatively significant due to our production ceasing at year end in 2022 and sales success (across all product lines) in the earlier quarters of 2022, overall revenues continue to be small, largely due to our capacity constraints and limited working capital.
Cost of goods sold: Cost of goods sold was $167,233 for the nine months ended September 30, 2023, a decrease of $1,417,362 compared to cost of goods sold of $1,584,595 during the prior year. The cost of goods sold reflects the fixed overhead costs absorbed by manufacturing, at low sales volumes this results in negative margins.
Our gross profit during the nine months ended September 30, 2023, was a gain of $150,432 compared to a loss of $802,677 during the prior period. We expect our gross profit to increase as fixed overhead costs are absorbed over a greater volume of sales.
Sales, general, and administrative:
Sales, general, and administrative expenses were $1,302,699 during the nine months ended September 30, 2023, a decrease of $1,375,706 compared to $2,678,405 during the prior period. For the current nine-month period, sales, general, and administrative costs consisted primarily of payroll and related costs of $244,356, not including stock-based compensation of $97,205; professional fees of $215,252; consulting fees of $229,615.
| 25 |
Liquidity and Capital Resources
Since inception, we have incurred net operating losses and negative cash flow. As of September 30, 2023, we had an accumulated deficit of $54,592,600. We have incurred general and administrative expenses associated with our product development and compliance while concurrently setting up our manufacturing facility, beginning operations, and developing our business plan. We also continue to incur legal fees arising from ongoing activities due to fundraising, ongoing public company costs and dispute resolution expenses. We expect operating losses to continue in the short term, and we require additional financing for securing and outfitting our proposed new headquarters and manufacturing space as well as ultimately expanding our manufacturing capability and generally scaling our business until we can generate sufficient revenues to achieve positive cash flow. These conditions raise substantial doubt about our ability to continue as a going concern.
We have historically satisfied our working capital requirements through the sale of restricted Common Stock and the issuance of warrants and promissory notes. We will continue our fundraising efforts until we have obtained positive cash flow to cover our expenses. No assurances can be given that we will be successful in raising capital at all or on terms acceptable to us, or at all, and no assurances can be given that even if we raise capital that we will be able to generate sufficient revenue to become cash flow positive.
On September 27, 2022, the Company furloughed the majority of the staff to reduce costs during a period of reduced production. We anticipate re-staffing as soon as we are in the new facility with the new equipment. In addition, due to our cash flow and liquidity challenges, we have received demand letters from a number of vendors to our company seeking payment of past due amounts to such vendors. As of the date of this report, such demands have not become formal litigations or other proceedings against our company, but they may become litigations against us in the future.
Notwithstanding proceeds from the sale of our securities, recent related party equipment lease transaction and warrant and option exercises in 2023 and 2022, our current working capital is extremely limited, and our projected sales revenue (together with our limited working capital) is presently insufficient to maintain our current operations. In order to establish and grow our manufacturing and sales and marketing operations and reach the level of revenue sufficient to provide positive cash flow, we require significant funding of both our expansion plans (which includes the finalization of our current manufacturing expansion plans and potential investments in other manufacturing facilities, as well as increased headcount necessary to operate our manufacturing at planned capacity). This will cover our significant operating deficit while we seek to establish and scale our manufacturing capability, secure orders from known potential customers, and introduce our products to new customers. We will attempt to raise this capital through third party financing, including potential private or public offerings of our securities (including a potential underwritten offering and listing of our Common Stock on a national securities exchange) as well as bridge or other loan arrangements. However, there is a material risk that we will be unable to secure the required capital (whether through an underwritten financing and/or uplisting to a national exchange or otherwise) at all or that the terms of such required financing may be available or acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities to reduce our cash use until sufficient funding is secured. If we are unable to secure funding when needed, our results from operations may suffer, and our business may fail.
As of September 30, 2023, we had cash of $115,273 compared to $30,340 as of December 31, 2022.
| 26 |
Cash Flows
Net cash used in operating activities amounted to 2,147,896 and $907,494 for the nine months ended September 30, 2023, and 2022, respectively. The increase in net cash used in operating activities was primarily a result of a decrease in subscription liability in the amount of $1,775,000.
During the nine months ended September 30, 2023, we used $0 cash for investing activities compared to $742,832 used in the same period in the prior fiscal year. The Company has elected to refrain from this expense while it adheres to a restart strategy within the current period, however, the Company will elect to expend funds in the closing of fundraising activities in the remaining quarter of 2023. During the nine months ended September 30, 2023, we had $410,000 net cash provided by proceeds from notes payable, and repayments of notes payable of $25,000.
Our cash on hand as of September 30, 2023 or as of the date of this report will not be sufficient to fund our current working capital requirements to the point where we are generating positive cash flow. We have recently entered into several convertible promissory notes and other loan transactions to help fund operations and will require substantial additional working capital in the short term. We continue working towards securing more working capital with a preference towards debt which may be convertible to equity. However, there is no assurance that we will be successful in our efforts or, if we are, that the terms will be beneficial to our shareholders.
We do not believe that our cash on hand as of September 30, 2023, will be sufficient to fund our current working capital requirements to the point where we are generating positive cash flow. We have recently entered into several convertible promissory notes to help fund operations and will require additional working capital in the short term. We continue working towards securing more working capital with a preference towards debt which may be convertible to equity. However, there is no assurance that we will be successful in our efforts or, if we are, that the terms will be beneficial to our shareholders.
Critical Accounting Estimates
The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Please see note 2 to the condensed financial statements included in this report.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable to smaller reporting companies.
| ITEM 4. | CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our then serving Interim Chief Executive Officer, our Interim Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) through September 30, 2023.
We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weaknesses described above are remediated as soon as possible. We believe we will have the opportunity to remediate these weaknesses when adequate funding is secured. We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.
Because of its inherent limitations, however, readers are cautioned that internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 27 |
PART II. – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, we may become involved in legal proceedings that, individually or in the aggregate, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
As of the date of this report, the Company has filed a lawsuit in the state of South Carolina against Upstate Custom Products, LLC. The lawsuit is based on the contract entered by both parties on August 2021 in relation to the manufacturing of the protrusion machines exclusively manufactured by Upstate Custom Products. LLC. As of this filing the lawsuit and claim for relief is ongoing .
On or about October 2023, the Company was served notice of a pending matter of litigation with GS Capital Partners of New York regarding the liquidated damages fees from the 2021 PIPE investment. As of this filing the matter remains unresolved.
Due to our cash flow and liquidity challenges, we have received demand letters from a number of vendors to our company seeking payment of past due amounts to such vendors. As of the date of this report, such demands have not become formal litigations or other proceedings against our company, but they may become litigations against us in the future.
Except as set forth above, as of the date of this report, we are not aware of any proceedings pending against our company.
| ITEM 1A. | RISK FACTORS |
Not required for smaller reporting companies.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| Incorporation by Reference | ||||||||||
| Exhibit Number | Description | Form | Exhibit | Date |
Filed/Furnished Herewith | |||||
| 31.1* | Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
| 31.2* | Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
| 32.1+ | Certification of Principal Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | XX | ||||||||
| 32.2+ | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | XX | ||||||||
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | X | ||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document. | X | ||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||
| 104* | Cover Page Interactive Date File (embedded with the Inline XBRL document) | X | ||||||||
| 28 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 20, 2023
| Basanite, Inc. | ||
| By: | /s/ Thomas Richmond | |
| Thomas Richmond
Interim Chief Financial Officer |
||
| By: | /s/ Jackie Placeres | |
| Jackie Placeres Interim Chief Financial Officer |
||
| 29 |