The following 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 three and
nine months ended September 30, 2022, and 2021, 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, 2021 and filed with
the SEC on April 15, 2022.
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,
2021.
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.
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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.
BI is currently leasing 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; one proprietary BasaMaxTM pultrusion manufacturing machine (see
following paragraph) for BasaFlex™ production; plus additional composite
manufacturing equipment. Pultrusion is a manufacturing process for converting
reinforced fibers and liquid resin into a fiber-reinforced polymer product. Each
of our current pultrusion machines has up to two linear production lines or
"cavities" (we use one or two lines per machine depending on rebar size) giving
a maximum capacity of 10 manufacturing lines (smaller bar sizes only). To date,
BI's operations team has successfully optimized and scaled the capacity of our
manufacturing plant to be able to produce up to 22,800 linear feet of BasaFlex™
rebar per shift, per working day, depending on the product mix. We are planning
on vacating this facility on Pompano Beach and relocating to a new facility to
accommodate our current and planned additional manufacturing machines (see note
12 to the accompanying financial statements for further information).
During the past year, we designed, developed, and prototyped a next generation
Pultrusion manufacturing system for BasaFlexTM rebar we call BasaMax™. This new
system has been designed in two versions, a quad-line system named "Tetrad" (for
smaller bar sizes) and a dual-line system named "Dyad" (for larger bar sizes).
Each machine not only offers double the manufacturing capacity of the current
machines for a given bar size, but they also run faster, and they fit in the
same manufacturing floorspace. We currently have five of these new BasaMax
pultrusion machines manufactured and ready for delivery: three quad-line
machines and two dual-line machines.
During the third quarter of 2022, we conducted an evaluation of our current
facility in Pompano Beach with a longer-term view and determined that its
current facility layout significantly limits our options for growth. In
addition, due to limitations on our cash resources, we have been late in our
payments to our current landlord, who has taken action to evict us. As a result
of these factors, we have been looking for a new facility that will allow for
future expansion and be better suited for our manufacturing processes. We have
placed the planned installation of our new equipment temporarily on hold, and
our current plan is to lease a new facility and accept delivery of new machines
by the end of the fourth quarter of 2022 or early in 2023, with installation and
calibration of our new machines to commence immediately thereafter. Assuming we
are able to secure appropriate manufacturing space, with the introduction of
this new equipment and the subsequent establishment of our planned two-shift
operations, our maximum manufacturing capacity for BasaFlex™ rebar will increase
to more than 100,000 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.
Again, assuming we are able to secure appropriate manufacturing space, we expect
our first BasaLinks system to be in place and operational during the second
quarter of 2023.
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.
17
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 is expected to complete during the fourth quarter of 2022
with final approval to follow in the first quarter of 2023;
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 2023;
· 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 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. 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.
18
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 is expected by the end
of the first quarter of 2023. However, we are already selling to FDOT projects
on an individual basis through exemptions or via previously issued material
specs. Formal FDOT approval will allow us to bid on any FDOT project that is
approved to use basalt fiber reinforced polymer products. Until we have obtained
these additional approvals, our opportunities to bid on certain projects will be
limited.
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.
19
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.
Results of Operations for the Three Months Ended September 30, 2022, and 2021
Revenue: We had revenue of $235,579 from sales of finished goods for the three
months ended September 30, 2022, an increase of $80,102 compared to $155,477 in
the prior year. While the increase 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 constraints and limited working capital. We continued our efforts to
increase our sales during the period.
Cost of goods sold: Cost of goods sold was $387,621 for the three months ended
September 30, 2022, an increase of $210,627 compared to cost of goods sold of
$176,994 during the prior period. 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, 2022, was
negative $152,042 compared to $21,517 during the prior period. This change is
due to a reduction in selling price. 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 $595,310 during the three months ended September 30, 2022, a decrease of
$1,037,646 compared to $1,632,956 during the prior period. For the current
quarter, sales, general, and administrative costs consisted primarily of
professional fees of $113,596; payroll and related costs of $200,572, not
including stock-based compensation of $71,178; consulting fees of $54,895;
investor relations costs of $11,630; research and development of $3,195;
advertising and marketing of $24,452; rent of $55,956; computer and IT costs of
$29,547, and office costs of $15,371. The primary reason for the decrease in
sales, general, and administrative costs compared to the prior period was
$774,749 decrease in compensation, professional fees and consulting plus a
decrease of $156,439 in other overhead costs due to a reduction in production.
Gain on settlement of legal contingency: There was no gain on legal contingency
during the three months ended September 30, 2022. During the prior period, the
Company recognized a gain on settlement of legal contingency in the amount of
$94,127 in connection with the settlement of accounts payable related to legal
matters
Interest expense: Interest expense was $84,467 during the three months ended
September 30, 2022, a decrease of $35,603 compared to interest expense of
$120,070 during the prior period. Interest expense consists of interest on the
Company's notes and loans payable along with late fees on past due invoices
charged by vendors.
Results of Operations for the Nine Months Ended September 30, 2022, and 2021
Revenue: The Company had revenue of $781,918 from sales of finished goods for
the nine months ended September 30, 2022, compared to $175,162 in the prior
year. While the increase 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 small, largely due to our capacity
constraints and limited working capital.
Cost of goods sold: Cost of goods sold was $1,584,595 for the nine months ended
September 30, 2022, an increase of $1,389,908 compared to cost of goods sold of
$194,687 during the prior period. 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, 2022, was
negative $802,677 compared to negative $19,525 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 $2,678,405 during the nine months ended September 30, 2022, a decrease of
$1,466,998 compared to $4,145,403 during the prior period. For the current
nine-month period, sales, general, and administrative costs consisted primarily
of payroll and related costs of $691,549, not including stock-based compensation
of $509,013; professional fees of $500,492; consulting fees of $322,837;
research and development of $184,227; investor relations costs of $122,843;
advertising and marketing of $95,943; rent of $74,976; computer and IT costs of
$71,152; and office costs of $50,531. The primary reason for the decrease in
sales, general, and administrative costs compared to the prior period was
$537,353 in overhead and depreciation charges in the prior period; these costs
were absorbed by cost of sales during the nine months ended September 30, 2022
as well as a decrease in stock-based compensation of 477,654 and a decrease in
payroll of 164,981 due to a reduction in production.
20
Gain on settlement of legal contingency: There was no gain on legal contingency
during the nine months ended September 30, 2022. During the prior period, the
Company recognized a gain on settlement of legal contingency in the amount of
$438,649 in connection with the settlement of accounts payable related to legal
matters.
Liquidated damages - loan commitment: During the nine months ended September 30,
2022, the company recognized liquidated damages - loan commitment in the amount
of $426,759 in connection with our obligations under the terms of our private
placement to file a registration statement for an underwritten public offering
and concurrent listing on a national stock exchange. There were no such charges
during the prior period.
Loss on extinguishment of debt: The Company recognized no loss on extinguishment
of debt during the nine months ended September 30, 2022, compared to $6,743,015
during the nine months ended September 30, 2021. For more information about the
transaction leading to the extinguishment of debt refer to footnote 7 of the
financial statements included in this Form 10-Q.
Gain on loan forgiveness: The Company recognized a gain on loan forgiveness
during the nine months ended September 30, 2022 and 2021 of $167,996 and
$124,143 respectively due to the PPP loan forgiveness program. The Company
received two PPP loans that were both fully forgiven. During the nine months
ended September 20, 2022, the Company received a credit from a vendor forgiving
an old outstanding balance of $2,100.
Interest expense: Interest expense was $388,701 during the nine months ended
September 30, 2022, an increase of $62,757 compared to interest expense of
$325,944 during the prior period. Interest expense consists of interest on the
Company's notes and loans payable along with late fees on past due invoices
charged by vendors.
Liquidity and Capital Resources
Since inception, we have incurred net operating losses and negative cash flow.
As of September 30, 2022, we had an accumulated deficit of $50,247,626. 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, we furloughed the majority of our 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 2022 and 2021,
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, 2022, we had cash of $71,293 compared to $109,514 as of
December 31, 2021. The decrease in cash was due to our net loss of $4,126,416,
offset primarily by $658,090 in non-cash expenses, a $1,300,000 increase in
stock subscription liability, an increase in accounts payable of $1,159,258. We
used $780,476 of cash for the purchase of equipment during the period and raised
$450,000 in a financing leases. We raised $874,591 from the sales for Common
Stock and the exercise of warrants and stock options.
21
Cash Flows
Net cash used in operating activities amounted to negative $907,494 and
$3,879,286 for the nine months ended September 30, 2022, and 2021, respectively.
The decrease in net cash used in operating activities was primarily a result of
an increase in subscription liability in the amount of $1,300,000, a decrease in
net loss of $6,536,548 offset by a decrease in non-cash items of $6,816,896 and
an increase in accounts payable in the amount of $1,159,268 and a decrease in
inventory of $431,098 during the nine months ended September 30, 2022.
During the nine months ended September 30, 2022, we used $330,476 cash for
investing activities compared to a negative $1,868,896 used in the same period
in the prior fiscal year. The increase is largely due to a reduction in the
costs associated with the customization, installation, and verification and
validation testing of the prototype BasaMax™ pultrusion machine, for the
modifications and UL listing of the current production machinery, and the final
payments for the enhancements made to our production facility as compared to the
deposits made on machinery and equipment offset by an equipment financing
transactions totaling $450,000.
During the nine months ended September 30, 2022, we had $1,199,749 net cash
provided by financing from the sale of Common Stock of $649,591, warrants for
net proceeds of $225,000, proceeds from notes payable of $305,000, and
repayments of notes payable of $20,158. During the prior period, cash provided
by financing activities was $6,796,904.
Our cash on hand as of September 30, 2022 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.
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.
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