10-K/A: Basanite Inc. Files Amended 10-K, Citing Material Weaknesses and Going Concern Uncertainty

Basanite Inc.'s amended 10-K filing reveals ongoing financial challenges, including material weaknesses in internal controls and substantial doubt about the company's ability to continue as a going concern.

Summary

• Basanite Inc. has filed an amendment to its 2023 annual report on Form 10-K to clarify its assessment of internal controls over financial reporting.
• The company is facing significant financial challenges, including a history of operating losses and limited cash resources.
• There is substantial doubt about Basanite's ability to continue as a going concern due to its limited revenues and ongoing losses.
• The company reported a net loss of $2,169,379 for the year ended December 31, 2023, and $7,971,799 for the year ended December 31, 2022.
• Basanite's cash flow from operating activities was negative $3,811,627 in 2023 and negative $3,907,401 in 2022.
• The company is seeking to raise approximately $5 million in additional funding to increase manufacturing capacity and meet anticipated demand.
• Basanite has identified material weaknesses in its internal control over financial reporting, including a lack of U.S. GAAP expertise and segregation of duties.
• The company's primary product is BasaFlex, a basalt fiber reinforced polymer rebar, which it believes is a superior alternative to steel.
• Basanite is currently searching for a new manufacturing facility after exiting its previous location in December 2022.
• The company has a limited number of employees, with only two full-time employees as of December 31, 2023.

Sentiment

Score: 3

Explanation: The document presents a concerning financial picture with significant losses, material weaknesses, and going concern issues. While there are some positive aspects regarding the product and market potential, the overall sentiment is negative due to the company's financial instability and operational challenges.

Positives

• Basanite's products, particularly BasaFlex, are positioned as a sustainable and corrosion-proof alternative to traditional steel rebar.
• The company has secured strategic commercial relationships with CPPB and USS, which could drive sales and market recognition.
• Basanite has developed BasaPro design software to facilitate the use of BasaFlex in construction projects.
• The company has obtained ICC-ES certification and Florida Department of Transportation (FDOT) production facility and product approval.
• The company has a patent pending application for BasaFlex and plans to expand its intellectual property portfolio.

Negatives

• Basanite has a history of operating losses and may never achieve profitability.
• The company has extremely limited cash resources and may have difficulty raising capital.
• There is substantial doubt about Basanite's ability to continue as a going concern.
• The company has identified material weaknesses in its internal control over financial reporting.
• Basanite is reliant on the commercial viability of BasaFlex and other BFRP products.
• The company has a limited operating history and a new business model in an emerging market.
• Basanite has a limited number of employees and may be unable to attract and retain skilled personnel.
• The company is dependent on the availability of basalt fiber and other raw materials.
• Basanite is subject to intense competition from larger, more established companies.
• The company has a secured convertible promissory note of $2,144,357 plus $554,595 of accrued interest, which matured on February 12, 2024.

Risks

• The company's extremely limited cash resources and resulting doubt regarding its ability to continue as a going concern.
• The early-stage nature of the company, including its limited manufacturing capacity.
• Factors that impair the company's ability to commence meaningful revenue-generating operations, including its ability to raise needed capital.
• The company's dependence on key personnel and its ability to comply with applicable laws and regulations.
• The longand short-term impact of the COVID-19 pandemic, inflation, and interest rate increases on the company's industry.
• The company's ability to address and adapt to competition effectively, particularly with larger, more established companies.
• Volatility in prices for raw materials and the impact of natural disasters on the company's operations.
• The risk that the company may not be able to consummate its contemplated private and/or public financing.
• The limited market for the company's common stock and the potential for significant volatility in its market price.
• The rights of the holder of the company's outstanding secured convertible promissory note, which are senior to the rights of common stockholders.

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 an additional five machines by the fourth quarter of 2025, subject to 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 has concluded that the company's internal control over financial reporting has material weaknesses and is not effective as of December 31, 2023.

Industry Context

The document highlights the increasing need for infrastructure repair, the trend towards longer lifespans for projects, and the global interest in sustainable products, all of which position Basanite's products favorably in the construction industry. The company is also seeking to benefit from the Infrastructure Investment and Jobs Act (IIJA).

Comparison to Industry Standards

• The document notes that the concrete reinforcement market in the U.S. is estimated to be approximately $9.4 billion, indicating a large potential market for Basanite's products.
• The company competes with established steel rebar producers and other FRP manufacturers, including Neuvokas, Kodiak, Armastek, Galen, Sudaglass, Owens Corning/Mateen, Liberty, American Fiberglass Rebar, Tuf-Bar, Pulltrall and Pultron.
• The document mentions that 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 is working to obtain certifications from various private and public entities, such as the Federal and State Departments of Transportation, the ISO, and the US Army Corps of Engineers, which are standard requirements for the industry.

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 board members and related parties.
• 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 a related party associated with our director Ronald J. LoRicco, Sr.
• The company has a Supplier Agreement with Concrete Products of the Palm Beaches, Inc. and a Distribution Agreement with U.S. Supplies, Inc., both of 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 are impacted by the company's limited resources and potential for job insecurity.
• Customers may be affected by the company's limited manufacturing capacity and potential for supply chain disruptions.
• Suppliers may be impacted by the company's financial challenges and potential for payment delays.
• Creditors face the risk of non-payment due to the company's limited cash resources.

Next Steps

• The company plans to secure additional funding of approximately $5 million.
• The company aims to locate a new manufacturing facility and restart manufacturing operations.
• The company intends to install and operate five new BasaMax machines by the end of the third quarter of 2024.
• The company plans to install and operate an additional five BasaMax machines by the fourth quarter of 2025.
• The company will continue to pursue product and facility qualifications and approvals.

Key Dates

Keywords

Basanite, BasaFlex, BFRP, rebar, concrete reinforcement, basalt fiber, manufacturing, construction industry, financial reporting, going concern, internal controls, capital raise, promissory note, material weakness