CBNT.OTC.PinkC-bond Systems, INC
10-Q: C-Bond Systems Reports Increased Revenue but Continues to Face Going Concern Challenges in Q1 2024
Sentiment:
Quarterly Report
C-Bond Systems saw an 81.8% increase in revenue in Q1 2024 compared to Q1 2023, but ongoing losses and a working capital deficit raise concerns about its ability to continue as a going concern.
Delay expectedThe company experienced a delay in completing a large job due to inclement weather, resulting in a shortfall of approximately $115,000 in expected revenue for the quarter.
Capital raiseThe company is actively seeking additional debt and/or equity financing to fund its operations.The company has historically raised capital from sales of common shares and preferred shares, and from the issuance of promissory notes and convertible promissory notes.
Worse than expectedThe company's net loss and negative cash flow from operations were worse than expected, raising concerns about its financial stability.The company's working capital deficit and low cash balance indicate a worsening financial position.
Summary
- C-Bond Systems, a nanotechnology company, reported a net loss of $307,648 for the three months ended March 31, 2024, compared to a net loss of $723,087 for the same period in 2023.
- The company's revenue increased by 81.8% to $936,804 in Q1 2024, up from $515,220 in Q1 2023, primarily due to increased sales of window tint installation and services.
- Despite the revenue growth, C-Bond Systems experienced a net cash outflow from operations of $651,236 in Q1 2024, compared to $290,971 in Q1 2023.
- As of March 31, 2024, the company had an accumulated deficit of $61,183,221, a shareholders deficit of $4,151,924, and a working capital deficit of $980,944.
- The company's cash balance was $197,863 as of March 31, 2024, down from $736,461 at the end of 2023.
- C-Bond Systems is seeking additional debt and/or equity financing to fund its operations, but there is no guarantee that it will be successful.
- The company sold its nanoShield product line in May 2023 for $4,042,631, using the proceeds to repay debt and accrued interest.
Sentiment
Score: 3
Explanation: The document presents a mixed picture. While there is significant revenue growth, the company's ongoing losses, cash flow issues, and going concern doubts overshadow the positive aspects. The ineffective disclosure controls and SEC investigation further contribute to a negative sentiment.
Positives
- The company experienced a substantial increase in revenue, growing by 81.8% compared to the same quarter last year.
- Gross profit also saw a significant increase, rising by 76% year-over-year.
- The company recorded a gain on debt extinguishment of $347,990, which positively impacted the bottom line.
Negatives
- The company continues to operate at a loss, with a net loss of $307,648 for the quarter.
- Operating expenses increased significantly, primarily due to a large increase in stock-based compensation.
- The company's cash balance has decreased significantly, raising concerns about its short-term liquidity.
- C-Bond Systems has a substantial accumulated deficit and a working capital deficit, indicating financial instability.
Risks
- The company's ability to continue as a going concern is in doubt due to ongoing losses, a working capital deficit, and a low cash balance.
- There is no assurance that the company will be able to raise additional capital through debt or equity financing.
- If the company is unable to secure additional funding, it may need to curtail its operations.
- The company's disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting.
- The company is subject to an SEC investigation and has agreed to pay penalties of $175,000.
Future Outlook
The company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Management expects that the company will need to curtail its operations if it is unable to raise additional capital or secure additional lending in the near future.
Management Comments
- Management acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements.
- Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital.
- Management expects that the Company will need to curtail its operations if it is unable to raise additional capital or secure additional lending in the near future.
Industry Context
The company's primary focus is in the multi-billion-dollar glass and window film industry, with target markets in the United States. The increase in sales is partly due to the Texas Education Agency (TEA) mandate for schools to install entry-resistant film or fencing on ground-floor windows.
Comparison to Industry Standards
- It is difficult to compare C-Bond's results directly to industry standards due to its unique nanotechnology focus and the specific market it serves.
- However, the company's revenue growth of 81.8% in Q1 2024 is a positive sign, but the continued losses and cash flow issues are concerning.
- Compared to other companies in the window film industry, C-Bond's financial position is weaker, as many established players have positive cash flow and profitability.
- The company's reliance on debt and equity financing to fund operations is a common practice for early-stage technology companies, but the lack of profitability is a significant risk.
- The company's ongoing SEC investigation and the associated penalties are also a negative factor compared to industry peers.
Legal Proceedings
- The company received an Order Directing Examination and Designating Officers to Take Testimony from the SEC.
- The company filed an amendment to its Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
- The company received a subpoena from the SEC requesting documents and communications concerning the review of C-Bond's revenue recognition practices for fiscal year 2020.
- The company and its Chief Executive Officer submitted offers to settle and close the pending SEC investigation, and on May 8, 2024, the SEC filed an administrative proceeding and agreed to accept the settlement offers.
- The company and its Chief Executive Officer consented to a cease-and-desist order and agreed to pay penalties of $175,000 and $50,000, respectively.
- A former officer of the company resigned, and both parties alleged certain claims against the other.
Related Party Transactions
- On May 2, 2022, the company entered into a Promissory Note with the company's chief executive officer.
Stakeholder Impact
- Shareholders face significant risk due to the company's going concern issues and potential for dilution from future capital raises.
- Employees may be impacted by potential curtailment of operations if the company is unable to secure additional funding.
- Customers may be affected by potential disruptions in service or product availability if the company's financial situation worsens.
- Creditors face increased risk of non-payment due to the company's financial instability.
Next Steps
- The company will seek to raise additional capital through debt and/or equity financings.
- The company expects to complete the delayed job in the second and third quarter of 2024.
- The company will continue to address the material weaknesses in its internal control over financial reporting.
Key Dates
| Date | Description |
|---|---|
| 2018-11-14 | The company entered into a Revolving Credit Facility Loan and Security Agreement with BOCO Investments, LLC. |
| 2019-12-12 | The company filed an Amendment to its Articles of Incorporation to designate Series B Convertible Preferred Stock. |
| 2020-04-28 | The company entered into a Paycheck Protection Program Promissory Note. |
| 2020-08-20 | The company filed an Amendment to its Articles of Incorporation to designate Series C Convertible Preferred Stock. |
| 2021-05-10 | The company entered into a Loan and Security Agreement and a Secured Promissory Note. |
| 2021-07-21 | The company entered into an Employment Agreement with Mr. Wanke, the President of Patriot Glass. |
| 2021-07-22 | The company acquired 80% of Patriot Glass's units. |
| 2021-10-15 | The company entered into a Securities Purchase Agreement with Mercer Street Global Opportunity Fund, LLC. |
| 2022-03-14 | The company entered into an Original Issue Discount Promissory Note and Security Agreement with Mercer Street Global Opportunity Fund, LLC. |
| 2022-04-20 | The company and Mercer Street Global Opportunity Fund, LLC entered into an Exchange Agreement. |
| 2022-06-23 | The company entered into a Securities Purchase Agreement with GS Capital Partners, LLC. |
| 2022-07-26 | The company closed a Securities Purchase Agreement with GS Capital Partners, LLC. |
| 2022-09-06 | The company closed a Securities Purchase Agreement with GS Capital Partners, LLC. |
| 2022-11-08 | The company entered into a Promissory Note with a lender investor. |
| 2022-11-09 | The company closed a Securities Purchase Agreement with 1800 DIAGONAL LENDING LLC. |
| 2022-11-22 | The company entered into a Promissory Note and Security Agreement with Mercer Street Global Opportunity Fund, LLC. |
| 2022-12-27 | The company closed a Securities Purchase Agreement with 1800 Diagonal Lending LLC. |
| 2023-01-17 | The company entered into a Subscription Agreement with its Chairman and Chief Executive Officer. |
| 2023-02-06 | The company issued shares of its common stock for public relations services. |
| 2023-03-17 | The company closed a Securities Purchase Agreement with 1800 Diagonal Lending LLC. |
| 2023-05-08 | The company entered into an Asset Purchase Agreement with Apex Protect GPS, LLC to sell its C-Bond nanoShield product line. |
| 2023-06-15 | The company entered into an Assignment and Agreement to Re-Execute with Apex Protect GPS, LLC and CB Nanoshield, LLC. |
| 2023-09-20 | The company and the Patriot Glass Shareholder entered into an amendment to the Exchange Agreement. |
| 2023-12-04 | The company entered into a letter agreement with Mercer Street Global Opportunity Fund, LLC. |
| 2023-12-07 | The company's board of directors approved a bonus to two officers. |
| 2024-01-02 | The company's Board of Directors agreed to satisfy accrued compensation with Series B convertible preferred stock. |
| 2024-02-08 | 120 shares of Series B Preferred Stock and 5,250,000 shares of common stock were forfeited. |
| 2024-02-21 | The company entered into a Promissory Note with a lender. |
| 2024-03-01 | The company executed a Promissory Note in favor of 1800 Diagonal Lending LLC. |
| 2024-04-08 | The company executed a Promissory Note in favor of 1800 Diagonal Lending LLC. |
| 2024-05-01 | The company issued shares of its common stock upon the conversion of Series C preferred stock. |
| 2024-05-14 | The date of this quarterly report. |
Keywords
nanotechnology, window film, glass strengthening, ballistic resistant, revenue growth, net loss, going concern, debt financing, equity financing, working capital, SEC investigation
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