10-K: Basanite Inc. Faces Going Concern Doubts Amidst Operating Losses and Limited Cash Resources

Basanite Inc.'s 10-K filing reveals significant operating losses, limited cash resources, and substantial doubt about the company's ability to continue as a going concern, despite efforts to expand manufacturing and sales.

Summary

• Basanite Inc. reported a net loss of $2,169,379 for the fiscal year ended December 31, 2023, and $7,971,799 for the prior year.
• The company's cash flow from operating activities was negative, with $3,811,627 used in 2023 and $3,907,401 in 2022.
• As of December 31, 2023, Basanite had an accumulated deficit of $56,262,389.
• The company has very limited cash resources and is seeking to raise approximately $5 million to increase manufacturing capacity.
• There is substantial doubt about the company's ability to continue as a going concern due to its history of losses and limited cash.
• The company's revenue decreased from $1,356,165 in 2022 to $376,096 in 2023.
• The company is currently searching for a new manufacturing facility after exiting its previous facility in December 2022.
• The company has identified material weaknesses in its internal control over financial reporting.

Sentiment

Score: 2

Explanation: The document paints a very concerning picture of the company's financial health, with significant losses, limited cash, and doubts about its ability to continue as a going concern. While there are some positives regarding the product and market potential, the overwhelming financial challenges and risks dominate the narrative.

Positives

• The company has developed BasaFlex, a product that addresses the construction industry's corrosion issues.
• The company has secured a strategic commercial relationship with CPPB and USS, which are expected to accelerate market recognition of its products.
• The company has developed BasaPro, a design software specifically for use with BasaFlex.
• The company has received ICC-ES certification and Florida Department of Transportation (FDOT) production facility and product approval.

Negatives

• The company has a history of operating losses and may never achieve significant revenues or cash flow positive results.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company has very limited cash resources and needs substantial additional capital to fund its operations.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company may be unable to repay its outstanding secured indebtedness, which is past due.
• The company's operating results may fluctuate in unanticipated ways and for reasons beyond its control.
• The company may be unable to develop the manufacturing capability and infrastructure necessary to achieve potential sales growth.

Risks

• The company has a history of operating losses and may never achieve significant revenues or positive cash flow.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company has very limited cash resources and needs substantial additional capital to fund its operations.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company may be unable to repay its outstanding secured indebtedness, which is past due.
• The company is reliant on the commercial viability of BasaFlex and other BFRP products.
• The company may be unable to develop the manufacturing capability and infrastructure necessary to achieve potential sales growth.
• The company faces intense competition from larger, more established companies.
• The company is dependent on the availability of basalt fiber and other raw materials.
• The company is subject to various governmental regulations and requirements.
• The company's business is subject to adverse weather conditions and seasonality.
• The company may face legacy issues and potential liabilities arising from prior management and operations.
• The company may not be able to consummate its contemplated private and/or public financing.
• The market price of the company's common stock may be significantly volatile.
• The company may be unable to protect its intellectual property rights.

Future Outlook

The company is working to secure additional funding of approximately $5 million to increase its manufacturing capacity and meet anticipated demand. The company plans to have the first set of five new machines installed and operational by the end of the third quarter of 2024, and to install and have operational five more by the fourth quarter of 2025, subject to raising sufficient funding.

Management Comments

• Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
• Management is aware of the abuses that have occurred historically in the penny stock market and will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our common stock.

Industry Context

The company operates in the concrete reinforcement market, which is estimated to be approximately $9.4 billion in the U.S. The company is focused on introducing composite products for the reinforcement of concrete and secondarily for asphalt. The company believes it is well positioned to benefit from the Infrastructure Investment and Jobs Act (IIJA).

Comparison to Industry Standards

• The company competes with traditional steel rebar producers, which are well-established and present in every major U.S. city.
• The company also competes with other FRP manufacturers, including Neuvokas, Kodiak, Armastek, Galen, Sudaglass, and several manufacturers based in China.
• The company believes BFRP has a wider application temperature range, higher oxidation resistance, higher radiation resistance, higher compression strength and higher shear strength than its previously noted contemporaries.
• The company believes BFRP represents the best value proposition compared to carbon and fiberglass FRPs.
• The company's competitors are generally larger, more established, and more financially stable.

Management Changes

Corporate Governance

Legal Proceedings

• The Company has filed a lawsuit in the state of South Carolina against Upstate Custom Products, LLC.
• 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.
• The Company has received demand letters from a number of vendors seeking payment of past due amounts.

Related Party Transactions

• The company has entered into several promissory note agreements with related parties, including board members and their associates.
• The company has a secured convertible promissory note with a related party, The Richard A. LoRicco Sr. and Lucille M. LoRicco Irrevocable Insurance Trust DTD 4/28/95, which is past due.
• The company has a Supplier Agreement with CPPB and a Distribution Agreement with USS, which are related parties via the common control of Manuel A. Rodriguez.

Stakeholder Impact

• Shareholders face significant risks due to the company's financial instability and potential for dilution.
• Employees face uncertainty due to the company's financial challenges and potential for layoffs.
• Customers may be hesitant to rely on the company due to its financial instability and potential for supply chain disruptions.
• Suppliers may be concerned about the company's ability to pay for goods and services.
• Creditors face the risk of not being repaid due to the company's limited cash resources and potential for bankruptcy.

Next Steps

• The company is working to secure additional funding of approximately $5 million.
• The company is searching for a new manufacturing facility.
• The company plans to install new manufacturing equipment, subject to raising sufficient funding.
• The company is working to establish a remediation plan to address material weaknesses in its internal control over financial reporting.

Key Dates

Keywords

Basanite, BasaFlex, BFRP, rebar, concrete reinforcement, basalt fiber, manufacturing, construction industry, financial results, going concern, operating losses, capital raise, internal control, promissory note, convertible note