BASA.OTC.PinkBasanite, INC
10-Q: Basanite Inc. Reports Q3 2024 Results Amidst Financial Challenges and Restructuring Efforts
Sentiment:
Quarterly Report
Basanite Inc.'s Q3 2024 results reveal ongoing financial difficulties, including net losses and a working capital deficiency, while the company focuses on restructuring and securing additional funding.
Delay expectedThe company is in default of its obligations under the terms of the Companys 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.The company has not paid promissory notes by their due dates and has had to extend the due dates.
Capital raiseThe company will attempt to fund working capital requirements through third party financing, including potential private or public offerings of its securities as well as bridge or other loan arrangements.The company has recently entered into several convertible promissory notes to help fund operations and will require additional working capital in the short term.The company is working towards securing more working capital with a preference towards debt which may be convertible to equity.
Worse than expectedThe company's revenue decreased year-over-year, indicating a decline in sales performance.The company's net loss has increased, reflecting worsening financial results.The company's accumulated deficit and working capital deficiency have worsened, highlighting significant financial challenges.
Summary
- Basanite Inc. reported a net loss of $1,085,131 for the nine months ended September 30, 2024, and a net loss of $373,992 for the three months ended September 30, 2024.
- The company's revenue from product sales was $209,176 for the nine months and $62,836 for the three months ended September 30, 2024, compared to $317,664 and $49,140 respectively in the prior year.
- The company's accumulated deficit has increased to $57.3 million as of September 30, 2024, from $56.3 million at the end of 2023.
- Basanite has a working capital deficiency of $8.8 million as of September 30, 2024.
- The company is facing challenges in securing new capital investment and has a limited manufacturing capacity.
- The company is actively engaged in a nationwide search to secure a manufacturing facility.
- The company is in default of its obligations under the terms of the Companys 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.
- The company is required to pay liquidated damages in the amount of $53,345 per month starting in March 2022, and the maximum amount of such liquidated damages could be approximately $480,000 if such filing is not made.
Sentiment
Score: 2
Explanation: The document paints a very negative picture of the company's current financial state, with significant losses, a large deficit, and a working capital deficiency. The company is also facing legal issues, potential delisting, and has material weaknesses in its internal controls. While there are some positive notes about restructuring and new leadership, the overall outlook is highly concerning.
Positives
- The company is actively working to address the issues that led to the OTCQB notice and is committed to regaining compliance.
- The company has secured a new Acting Chief Executive Officer and advisors to help with restructuring and fundraising.
- The company has received ICC-ES certification and a Florida Department of Transportation (FDOT) production facility and product approval.
Negatives
- The company has incurred significant net operating losses and negative cash flow.
- The company has a substantial accumulated deficit and a working capital deficiency.
- The company's revenue has decreased year-over-year.
- The company is facing challenges in securing new capital investment.
- The company is in default of its obligations under the terms of the Companys private placement which closed in August 2021.
- The company has received a notice from OTC Markets Group Inc. indicating that it does not meet the financial reporting requirements necessary to maintain its listing on the OTCQB market.
- The company has identified material weaknesses in its internal controls.
Risks
- The company's ability to continue as a going concern is in doubt due to its financial condition.
- The company may be unable to secure adequate financing to fund its operations and expansion plans.
- The company may face challenges in restarting its manufacturing operations.
- The company may be delisted from the OTCQB market if it fails to regain compliance.
- The company is subject to legal proceedings that could have a material adverse effect on its business.
- The company is exposed to risks related to supply chain disruptions and inflation.
Future Outlook
The company expects to restart its manufacturing during 2025 and will attempt to fund working capital requirements through third party financing, including potential private or public offerings of its securities as well as bridge or other loan arrangements. The company is also working to address the issues that led to the OTCQB notice and is committed to regaining compliance.
Management Comments
- Management believes that the attributes of BasaFlex provide it with a competitive advantage in the marketplace.
- Management believes that macroeconomic factors are pressuring the construction industry to consider the use of alternative reinforcement materials.
- Management is working on a plan to rectify the deficiencies outlined in the OTCQB notice, which may include a reverse split of the Company's common stock.
Industry Context
The company operates in the construction materials industry, specifically focusing on concrete reinforcement. The industry is seeing a growing interest in sustainable and corrosion-resistant alternatives to traditional steel rebar, which positions Basanite's products well. The company's products are designed to address the need for longer-lasting and more environmentally friendly construction materials.
Comparison to Industry Standards
- The company's financial performance is significantly below industry standards for companies of similar size and stage.
- The company's revenue is significantly lower than that of established competitors in the concrete reinforcement market.
- The company's accumulated deficit and working capital deficiency are indicative of severe financial distress, which is not typical for companies with established products and market presence.
- The company's reliance on related-party debt financing is a common practice for early-stage companies but is not sustainable in the long term.
- The company's failure to meet its obligations under the private placement agreement and its non-compliance with OTCQB listing standards are significant deviations from industry norms.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Acting Chief Executive Officer | Unknown | Ali Manav | 2024-10-02 | To provide leadership and guidance during the restructuring process. |
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 several vendors seeking payment of past due amounts.
Related Party Transactions
- The company has entered into multiple promissory notes with board members and related parties.
- The company has convertible notes payable to related parties.
Stakeholder Impact
- Shareholders are at risk of losing their investment due to the company's financial difficulties and potential delisting.
- Employees may face job insecurity due to the company's restructuring efforts.
- Customers may experience disruptions in product supply due to the company's manufacturing challenges.
- Suppliers and creditors are at risk of not being paid due to the company's financial difficulties.
Next Steps
- The company will attempt to secure additional financing through third-party sources.
- The company will work to regain compliance with OTCQB listing standards.
- The company will continue its search for a new manufacturing facility.
- The company expects to restart its manufacturing during 2025.
Key Dates
| Date | Description |
|---|---|
| 2019-01-18 | Company entered into an agreement to lease office and manufacturing space. |
| 2019-03-25 | Company amended lease agreement to increase square footage. |
| 2020-01-16 | Company entered into a demand note agreement with Michael V. Barbera. |
| 2020-04-13 | Addendum executed to change terms of Michael V. Barbera note to a convertible note. |
| 2020-08-03 | Company issued secured convertible promissory note to investors. |
| 2021-02-12 | Company exchanged original debt for a newly issued amended and restated secured convertible promissory note. |
| 2021-04-02 | Company issued promissory note with Paul Sallarulo. |
| 2021-04-02 | Company issued promissory note with Michael V. Barbera. |
| 2021-04-09 | Company issued a promissory note with an investor. |
| 2021-04-16 | Company issued a promissory note with an investor. |
| 2021-05-12 | Company extended debt for a newly issued amended and restated secured convertible promissory note. |
| 2021-08-17 | Company conducted the closing of a private placement offering. |
| 2022-08-22 | Company issued multiple promissory notes to board members. |
| 2022-08-29 | Company issued multiple promissory notes to board members. |
| 2022-08-31 | Company issued multiple promissory notes to board members. |
| 2022-09-09 | Company issued multiple promissory notes to board members and strategic partners. |
| 2022-09-15 | Company extended debt for a newly issued amended and restated secured convertible promissory note. |
| 2022-09-22 | Company issued a promissory note to a board member. |
| 2022-12-31 | Company vacated the lease of its office and manufacturing space. |
| 2023-01-01 | Company entered into an agreement to lease temporary office and manufacturing space. |
| 2023-02-14 | Company issued a promissory note to a board member. |
| 2023-02-24 | Company issued a promissory note to a board member. |
| 2023-03-03 | Company issued a promissory note to a board member. |
| 2023-03-24 | Company issued a promissory note to a board member. |
| 2023-04-12 | Company issued a promissory note to a board member. |
| 2023-04-28 | Company issued a promissory note to a board member. |
| 2023-05-12 | Company issued a promissory note to a board member. |
| 2023-06-05 | Company issued a promissory note to a board member. |
| 2023-07-25 | Company issued a promissory note to a board member. |
| 2023-09-11 | Company issued multiple promissory notes to board members and an advisor. |
| 2023-11-02 | Company issued a promissory note to a board member. |
| 2023-12-12 | Company issued a promissory note to a board member. |
| 2024-01-09 | Company issued a promissory note to a board member. |
| 2024-03-06 | Company issued a promissory note to a board member. |
| 2024-03-21 | Company issued a promissory note to a board member. |
| 2024-05-12 | Company issued a promissory note to a board member. |
| 2024-06-26 | Company issued a promissory note to a board member. |
| 2024-07-30 | Company received notice from OTC Markets Group Inc. regarding non-compliance with listing standards. |
| 2024-08-13 | Company issued a promissory note to a board member. |
| 2024-09-06 | Company issued a promissory note to a board member. |
| 2024-10-02 | Ali Manav agreed to become the Acting Chief Executive Officer of Basanite, Inc. |
| 2024-10-02 | Steve Heard agreed to become an advisor to the Board of Directors of Basanite, Inc. |
| 2024-10-02 | Maxwell J. Heard agreed to become an advisor to the Board of Directors of Basanite, Inc. |
| 2024-10-28 | Deadline for the Company to cure deficiencies outlined in the OTCQB notice. |
Keywords
Basanite, BasaFlex, rebar, financial results, net loss, working capital, manufacturing, fundraising, OTCQB, restructuring, promissory notes, convertible notes, material weaknesses, going concern
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