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
six months ended June 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, 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 capacity 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.
14
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 leases 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, plus other
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 (we use one or two lines per machine depending on rebar size) giving a
maximum capacity of 10 manufacturing lines (smaller bar sizes). 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.
During the past year, we have 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 offers not only have 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 on order: three quad-line machines and two dual-line
machines. Design changes and other improvements we wanted to incorporate (based
on reviews of the prototype), coupled with supply chain issues prevalent in
today's economic environment have led to some delay in the completion of the new
equipment. We now expect to accept delivery of these custom manufactured new
machines early in the fourth quarter of 2022, with installation and calibration
also to be completed in fourth quarter of 2022. 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 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.
We expect our first BasaLinks system to be in place and operational during the
fourth quarter of 2022.
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.
15
Known Factors, Trends and Risks Impacting Our Business
Manufacturing Expansion
Our business plan calls for scaling the manufacturing capability at our Florida
facility in order to enable the potential for increased revenues and cash flow
positive operations, and ultimately to profitability, in as short a timeframe as
possible. Following this, we plan to open additional facilities around the
country, each designed to service a circular area roughly 1,000 miles in
diameter, with the plant at the center. Locations will be selected based upon
regional demand and using the South Florida facility as the model.
However, our South Florida 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 from the International Code Council (or ICC)
Evaluation Service (known as "ICC-ES"), an industry leader in performing
technical evaluations of building products, materials and systems for code
compliance; and from the Florida Department of Transportation ("FDOT"). Both
certification programs are underway, and each requires separate, long-duration
product testing (7 to 9 months). ICC testing is expected to complete by the end
of September 2022 with approval to follow; and FDOT testing is expected to
complete during the fourth quarter of 2022 with approval to follow;
· the lack of an ASTM (formerly known as the American Society for Testing and
Materials) product standard specifically for basalt fiber rebar (this process
is also underway, and a member of our board of directors, Fred Tingberg, who
was appointed as our Chief Technology Officer in June 2022 is on the ASTM
committee reviewing this; we currently expect the ASTM to be issued in
September 2022);
· our current manufacturing capacity limitations, 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;
· concerns about the current state of our manufacturing capability and our
ability to deliver product(s).
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. 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 sales.
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.
16
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 actually 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 directly competitive with steel on
price alone, and it is relatively available, whereas steel has been impacted by
raw material supply chain constraints. We will seek to continue to take
advantage of these opportunities while high steel prices and restricted supply
are prevalent.
Supply Chain
In the past year, supply chain shortages or delays have had an immaterial impact
on our operations. Our raw material suppliers have maintained a consistent flow
of goods which we receive monthly. Domestic suppliers have increased their
in-stock flows to maintain adequate levels with our manufacturing needs.
However, we might experience supply chain challenges in the future, which could
harm our business and our results of operations.
Supply chain shortages have, however, negatively impacted the scheduled delivery
of our new custom manufacturing equipment, which are now scheduled to be
installed and calibrated in the fourth quarter of 2022 (we had previously
anticipated this process to be completed earlier in 2022). While we believe
these supply chain issues are resolved, we still might experience further delays
which are beyond our control or that of the machine manufacturer. Such
additional delay(s) could further delay the delivery, installation and
calibration of our new manufacturing equipment, which in turn would harm our
business and/or our results of operations.
War in Ukraine
The recent war in Ukraine has led the world to issue sanctions on the government
of Russia. This has shut down our ability to procure basalt fiber material from
our secondary supplier in Russia, Kamenny Vek. However, our primary supplier,
Mafic, is U.S. based, and has ample capacity to support our current and
anticipated future needs with a 100% domestic source of raw materials. We have
also recently increased the levels of our safety stock of raw materials as an
additional cushion. Nonetheless, we are currently qualifying alternate material
from other global suppliers to preserve our options in case of further
disruptions.
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 two independent laboratories in the pursuit of ICC-ES and FDOT
certifications. These also include production facility approvals. ICC-ES
approval is expected by the end of September 2022, and FDOT approval by the end
of 2022 (including the facility approvals). However, we are already selling to
FDOT projects on an individual basis through exemptions or 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.
Need to Expand Management Personnel
During the quarter ended March 31, 2022, our company and Simon R. Kay (who had
been serving as our Acting Interim Chief Executive Officer on a consulting
basis) entered into a Transition Services Agreement in contemplation of our
search for a permanent Chief Executive Officer. On March 25, 2022, our Board of
Directors appointed Mr. Kay as our Chief Executive Officer and President.
Additionally, Mr. Kay served as Acting Interim Chief Financial Officer and
Acting Interim Principal Financial Officer of our company until August 1st,
2022, when we engaged NowCFO (see below).
On August 1, 2022, the Company engaged NowCFO, a third-party consulting firm, to
provide chief financial officer services for quarterly reporting and additional
accounting matters. However, we believe that hiring a full time Chief Financial
Officer is in our company's long term best interests and the Company continues
to recruit and interview candidates.
On February 20, 2022, David L. Anderson ("Anderson"), our Executive Vice
President and Chief Operating Officer provided written notice to our Board of
Directors of his resignation, and on February 24, 2022, we provided written
notice to Anderson that his resignation of employment was accepted, effective
immediately. As such, Anderson is not affiliated with us as of February 24,
2022, and the position of Chief Operating Officer remains unfilled as of the
date of this report. We will need to fill the position of Chief Operating
Officer (or similar position) in order to grow our business as planned.
17
Results of Operations for the Three Months Ended June 30, 2022, and 2021
Revenue: We had revenue of $288,050 from sales of finished goods for the three
months ended June 30, 2022, an increase of $272,501 compared to $15,549 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
scale our production capacity, increase our sales, and grow finished goods
inventory during the period.
Cost of goods sold:Cost of goods sold was $611,163 for the three months ended
June 30, 2022, an increase of $591,670 compared to cost of goods sold of $19,493
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 June 30, 2022, was
negative $323,113 compared to negative $3,944 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 $1,035,717 during the three months ended June 30, 2022, a decrease of
$411,863 compared to $1,447,580 during the prior period. For the current
quarter, sales, general, and administrative costs consisted primarily of
professional fees of $286,853; payroll and related costs of $239,145, not
including stock-based compensation of $197,633; consulting fees of $82,591;
investor relations costs of $49,180; research and development of $42,427;
advertising and marketing of $42,099; rent of $30,778; computer and IT costs of
$26,187, and office costs of $20,839. The primary reason for the decrease in
sales, general, and administrative costs compared to the prior period was
$443,436 in overhead and depreciation charges in the prior period; these costs
were absorbed by cost of sales during the three months ended June 30, 2022.
Other Income (Expense):
Gain on settlement of legal contingency: There was no gain on legal contingency
during the three months ended June 30, 2022. During the prior period, the
Company recognized a gain on settlement of legal contingency in the amount of
$320,037 in connection with the settlement of accounts payable related to legal
matters.
Liquidated damages - loan commitment: During the three months ended June 30,
2022, the company recognized liquidated damages - loan commitment in the amount
of $403,643 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 three months ended June 30, 2022, compared to $3,056,892
during the three months ended June 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.
Interest expense: Interest expense was $181,589 during the three months ended
June 30, 2022, an increase of $48,378 compared to interest expense of $133,211
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 Six Months Ended June 30, 2022, and 2021
Revenue: We had revenue of $546,339 from sales of finished goods for the six
months ended June 30, 2022, compared to $19,685 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. We continued our efforts to scale our production
capacity, increase our sales, and grow finished goods inventory during the
period.
Cost of goods sold:Cost of goods sold was $1,196,974 for the six months ended
June 30, 2022, an increase of $1,176,165 compared to cost of goods sold of
$20,809 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 six months ended June 30, 2022, was
negative $650,635 compared to negative $1,124 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 $2,083,095 during the six months ended June 30, 2022, a decrease of
$429,352 compared to $2,512,447 during the prior period. For the current
six-month period, sales, general, and administrative costs consisted primarily
of payroll and related costs of $490,977, not including stock-based compensation
of $426,856; professional fees of $386,896; consulting fees of $267,942;
research and development of $181,032; investor relations costs of $111,213;
advertising and marketing of $71,491; rent of $41,869; computer and IT costs of
$41,605; and office costs of $35,160. The primary reason for the decrease in
sales, general, and administrative costs compared to the prior period was
$443,436 in overhead and depreciation charges in the prior period; these costs
were absorbed by cost of sales during the six months ended June 30, 2022.
18
Other Income (Expense):
Gain on settlement of legal contingency: There was no gain on legal contingency
during the six months ended June 30, 2022. During the prior period, the Company
recognized a gain on settlement of legal contingency in the amount of $344,522
in connection with the settlement of accounts payable related to legal matters.
Liquidated damages - loan commitment: During the six months ended June 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 six months ended June 30, 2022, compared to $6,743,015 during
the six months ended June 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: There was no gain on loan forgiveness during the six
months ended June 30, 2022. The Company recognized a gain on loan forgiveness in
the amount of $124,143 during the prior period in connection with a note payable
loan on May 21, 2021.
Interest expense: Interest expense was $304,234 during the six months ended June
30, 2022, an increase of $98,360 compared to interest expense of $205,874 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 June 30, 2022, we had an accumulated deficit of $49,585,933. 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.
We expect operating losses to continue in the short term, and we require
additional financing for 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.
Notwithstanding proceeds from the sale of our securities, recent related party
equipment lease transaction and warrant and option exercises in 2021 and 2022,
our current working capital is extremely limited, and our projected sales
revenue (together with our limited working capital) are presently insufficient
to maintain our current operations. In order to 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 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 up
list/re-IPO to a national 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 June 30, 2022, we had cash of $58,893 compared to $109,514 as of December
31, 2021. The decrease in cash was due to our net loss of $3,464,723, offset
primarily by $636,466 in non-cash expenses, a $1,227,774 increase in accounts
payable and a decrease of $396,683 in inventory. We also raised $1,300,000
pursuant to a private placement of Common Stock and warrants - this amount is
carried on the Company's balance sheet as a current liability as of June 30,
2022 because the shares have not yet been issued to the investors. The Company
used $742,832 of cash for the purchase of equipment during the period and raised
$774,591 from the sales for Common Stock and the exercise of stock options.
19
Cash Flows
Net cash used in operating activities amounted to $81,529 and $2,294,501 for the
six months ended June 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 and an increase in accounts
payable in the amount of $1,227,774 during the six months ended June 30, 2022.
During the six months ended June 30, 2022, we used $742,832 cash for investing
activities compared to $270,330 used in the same period in the prior fiscal
year. The increase is largely due to 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.
During the six months ended June 30, 2022, we had $773,740 net cash provided by
financing from the sale of Common Stock and warrants for net proceeds of
$649,591 and exercise of stock options in the amount of $125,000. During the
prior period, cash provided by financing activities was $2,382,726.
We do not believe that our cash on hand as of June 30, 2022, will 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 to help fund operations and will require 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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