The accompanying notes are an integral part of
the condensed consolidated financial statements.
The accompanying notes are an integral part of
the condensed consolidated financial statements.
The accompanying notes are an integral part
of the condensed consolidated financial statements.
The accompanying notes are
an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of
the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
(A) Description of Business
Basanite, Inc., a Nevada corporation
(the “Company”, “Basanite”, “we”, “us”, “our” or similar terminology), through
our wholly owned subsidiary, Basanite Industries, LLC, a Delaware limited liability company (“BI”), manufactures 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 (“FRB”) 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 Basanite product addresses this important need along with other key
requirements in today’s construction market.
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; 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.
|
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
(CONTINUED)
(B) Liquidity and Management Plans
Since
inception, the Company has incurred net operating losses and used cash in operations. As of September 30, 2021, and December 31, 2020,
respectively, the Company reported:
|
·
|
an accumulated deficit of $40,306,351 and $29,643,387;
|
|
·
|
a working capital deficiency of $961,681 and $1,901,875; and
|
|
·
|
cash used in operations of $3,879,286 and $2,799,499.
|
Losses have principally occurred
as a result of the substantial resources required for product research and development and for marketing of the Company’s products;
including the general and administrative expenses associated with the organization.
While we have generated relatively
little revenue to date, we continue to receive inquiries from a range of customers for our products, indicating what we believe is a significant
level of market interest for BasaFlex™. Based on our current limited manufacturing capacity there is no guarantee that orders will
actually be received.
We have historically satisfied
our working capital requirements through the sale of restricted common stock and the issuance of warrants and promissory notes. Until
we are able to internally generate meaningful revenue and positive cash flow, we will attempt to fund working capital requirements through
third party financing, including through potential private or public offerings of our securities as well as bridge or other loan arrangements.
However, a number of factors continue to hinder the Company’s ability to attract new capital investment. We cannot provide any assurances
that the required capital will be obtained at all, or that the terms of such required capital may be 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 of operations may suffer, and our business may fail.
These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include
any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of these uncertainties.
At September 30, 2021, the
Company had cash of $1,308,227 compared to $259,505
at December 31, 2020. During the quarter ended September 30, 2021, cash on hand was increased due to the closing of our private
placement offering in August 2021 (see note 13).
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Use of Estimates in Financial Statements
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.
Stock-based
compensation and stock awards related to convertible debt instruments are recognized based on the fair value of the awards granted. The
fair value of each award or conversion feature is typically estimated on the grant date using the Black-Scholes pricing model. The Black-Scholes
pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected
term of the option, the expected volatility of the price of our common stock, risk-free interest rates and the expected dividend yield
of our common stock. The assumptions used to determine the fair value of the stock awards represent management’s best estimates.
These estimates involve inherent uncertainties and the application of management’s judgment.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(B) Principles of Consolidation
The condensed consolidated financial
statements include the accounts of Basanite, Inc. and its wholly owned subsidiaries, Basanite Industries, LLC and Basalt America, LLC.
All intercompany balances have been eliminated in consolidation. The Company’s operations are conducted primarily through Basanite
Industries, LLC. Basalt America, LLC is currently inactive.
(C) Cash
The Company considers all highly
liquid temporary cash instruments with an original maturity of three months or less to be cash equivalents. The Company places its cash,
cash equivalents and restricted cash on deposit with financial institutions in the United States, which are insured by the Federal Deposit
Insurance Company “("FDIC") up to $250,000. The Company’s credit risk in the event of failure of these financial institutions
is represented by the difference between the FDIC limit and the total amounts on deposit. Management monitors the financial institutions
credit worthiness in conjunction with balances on deposit to minimize risk. The Company from time to time may have amounts on deposit
in excess of the insured limits.
(D) Inventories
The Company’s inventories
consist of raw materials, work in process and finished goods, both purchased and manufactured. Inventories are stated at lower of cost
or net realizable value. Cost is determined on the first-in, first-out basis. Raw materials inventory
consists of basalt fiber and other necessary elements to produce the basalt rebar. On a quarterly basis, the Company analyzes its inventory
levels and records allowances for inventory that has become obsolete and inventory that has a cost basis in excess of the expected net
realizable value.
The Company’s inventory
at September 30, 2021 and December 31, 2020 was comprised of:
Schedule of Inventory
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Finished goods
|
|
$
|
515,077
|
|
|
$
|
305,550
|
|
Work in process
|
|
|
47,233
|
|
|
|
35,286
|
|
Raw materials
|
|
|
91,818
|
|
|
|
105,739
|
|
Total inventory
|
|
$
|
654,128
|
|
|
$
|
446,575
|
|
(E) Fixed assets
Fixed assets consist of the
following:
Schedule of Fixed Assets
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Computer equipment
|
|
$
|
117,141
|
|
|
$
|
15,780
|
|
Machinery
|
|
|
686,237
|
|
|
|
667,536
|
|
Leasehold improvements
|
|
|
163,882
|
|
|
|
161,579
|
|
Office furniture and equipment
|
|
|
71,292
|
|
|
|
71,292
|
|
Land improvements
|
|
|
7,270
|
|
|
|
7,270
|
|
Website development
|
|
|
2,500
|
|
|
|
2,500
|
|
Construction in process
|
|
|
1,800,281
|
|
|
|
234,950
|
|
|
|
|
2,848,603
|
|
|
|
1,160,907
|
|
Accumulated depreciation
|
|
|
(237,227
|
)
|
|
|
(140,872
|
)
|
|
|
$
|
2,611,376
|
|
|
$
|
1,020,035
|
|
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Depreciation expense for the
three and nine months ended September 30, 2021 was $32,430 and $96,355,
respectively, compared to $30,102 and $85,875 to the three and nine
months ended September 30, 2020.
(F) Deposits and other current assets
The Company’s deposits
and other current assets consist of the deposits made on equipment, security deposits, utility deposits and other receivables. The deposits
are reclassified as part of the fixed asset cost when received and placed into service.
(G) Loss Per Share
The basic loss per share is
calculated by dividing the Company's net loss available to common shareholders by the weighted average number of common shares during
the period. The diluted loss per share is calculated by dividing the Company's net loss by the diluted weighted average number of shares
outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted
for any potentially dilutive debt or equity.
The following are potentially
dilutive shares not included in the loss per share computation:
Schedule of Dilutive Shares Not Included in Loss Per Share Computation
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
Options
|
|
|
4,727,778
|
|
|
|
4,542,500
|
|
Warrants
|
|
|
117,691,666
|
|
|
|
38,920,378
|
|
Convertible securities
|
|
|
182,403,859
|
|
|
|
112,233,406
|
|
Total
|
|
|
304,823,303
|
|
|
|
155,696,284
|
|
(H) Stock-Based Compensation
The Company recognizes compensation
costs to employees under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 718, Compensation – Stock Compensation. Under FASB ASC Topic 718, companies are required to measure the compensation costs
of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the
period during which employees are required to provide services. Share based compensation arrangements include stock options, restricted
share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured
on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the
grant.
The Company entered into a
consulting agreement with Bridgeview Capital on July 9, 2020, for strategic planning and financial markets services in exchange for
shares of restricted common stock as compensation. The term of the agreement is
for six months with the option for renewal quarterly. Upon execution of the agreement, 600,000
shares were due within 5 days of execution. The execution date fair value of the shares was $0.29
per share or $174,000. If the Company agrees to renew each quarter, an additional 350,000
shares are to be issued per quarter. On July 9, 2021, the Company agreed to renew another quarter and issued 350,000
restricted common shares per the agreement. The renewal date fair value of the shares was $0.35
per share or $122,500.
The Company entered into a
consulting agreement with Seth Shaw on October 13, 2020, for strategic planning and financial markets services in exchange for shares
of restricted common stock. The term of the agreement is for six months with the option for renewal quarterly. Upon execution of the
agreement, no shares were due to be issued. If the Company agrees to renew each quarter, 250,000
shares are to be issued per quarter. On July 9, 2021, the Company agreed to renew another quarter and issued 250,000
restricted common shares per the agreement. The renewal date fair value of the shares was $0.35
per share or $87,500.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Company entered into a renewed
consulting agreement with Frederick Berndt on September 3, 2021, for strategic planning and financial markets services in exchange for shares of restricted common
stock and cash compensation of $12,500 per month. The term of the agreement is for twelve months with the option for renewal quarterly
for a maximum of two years from the effective date of the agreement. Previously, The Company entered into a
consulting agreement with Frederick Berndt on May 12, 2021 for capital markets advisory services in exchange for restricted warrants
to purchase shares of
common stock as compensation. The term of the agreement is for twelve months with the option for
renewal for an additional six months as needed. If the Company agrees to renew every twelve months, 250,000
warrants are to be issued at that time. On May 12, 2021, the Company issued 250,000
restricted common share warrants per the agreement. The execution date fair value of the warrants was $0.256
per warrant or $64,045.
Upon execution of the renewed
agreement, 275,000
warrants were issued for the previous agreement’s
fulfillment. The execution date fair value of the warrants was $0.29 per warrant or $79,550.
(I) Revenue Recognition
We recognize revenue when control
of the promised goods or services is transferred to
The Company’s customers in an amount that reflects the consideration we expected
to be entitled to in exchange for those goods or
services. The timing of revenue recognition largely is dependent on shipping terms. Revenue is recorded at the time
of shipment
for terms designated free on board (“FOB”)
shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer’s delivery site.
All revenues recognized
are net of trade allowances, cash discounts,
and sales returns. Trade allowances are based on the estimated obligations. Adjustments to earnings resulting
from revisions to estimates on discounts and returns have
been immaterial for each of the reported periods. Shipping and handling
amounts billed to a customer as part of a sales transaction are included in revenues, and the
related costs are included in cost of goods sold. Shipping and handling is treated as a fulfillment activity, rather than a promised
service, and therefore is not considered a separate performance obligation.
NOTE 3 – RECENT
ACCOUNTING PRONOUNCEMENTS
In August 2020, the FASB issued
ASU No. 2020-06, Debt – Debt with Conversion and other Options (Subtopic 70-20) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s instruments by
removing major separation models required under current accounting principles generally accepted in the United States of America (“U.S.
GAAP”). ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope
exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business
entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within
those fiscal years beginning after December 15, 2021. The Company early adopted this standard on January 1, 2021. By no longer recording
embedded conversion features separately from the convertible debt instrument, and instead as a single liability, the Company’s financial
statements reflect a more simplified view of convertible debt instruments and cash interest expense that is believed to be more relevant
than an imputed interest expense that results from the separation of conversion features previously required by U.S. GAAP. The adoption
of this standard had no material effect on the Company's condensed consolidated financial statements as of September 30, 2021.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 – OPERATING LEASE
On January 18, 2019, the Company
entered into an agreement to lease approximately 25,470 square feet of office and manufacturing space in Pompano Beach, Florida through
March 2024. On March 25, 2019, the Company entered into an amendment to the agreement to increase the square footage of leased premises
to 36,900 square feet, increasing the Company’s base rent obligation to be approximately $33,825 per month for one year and nine
months, and increasing annually at a rate of three percent for the remainder of the lease term.
The right-of-use asset is composed
of the sum of all remaining lease payments plus any initial direct costs and is amortized over the life of the expected lease term. For
the expected term of the lease, the Company used the initial term of the five-year lease. If the Company does elect to exercise its option
to extend the lease for another five years, which election will be treated as a lease modification and the lease will be reviewed for remeasurement.
The future minimum lease payments
to be made under the operating lease as of September 30, 2021, are as follows:
Schedule of Maturity of Operating Lease Liability
|
|
|
|
|
|
2021
|
|
|
$
|
104,520
|
|
2022
|
|
|
|
427,484
|
|
2023
|
|
|
|
440,308
|
|
2024
|
|
|
|
110,888
|
|
Total minimum lease payments
|
|
|
|
1,083,196
|
|
Discount
|
|
|
|
(186,527
|
)
|
Operating lease liability
|
|
|
$
|
896,669
|
|
Operating lease liabilities
are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of
lease payments, the Company used the incremental borrowing rate based on the information available at the lease commencement date. As
of September 30, 2020, the weighted-average remaining lease term is 3.5 years and the weighted-average discount rate used to determine the operating
lease liability was 15.0%. For the three months ended September 30, 2021 and 2020, the Company expensed $107,117 and 106,920, respectively for rent. For the nine
months ended September 30, 2021 and 2020, the Company expensed $321,153 and $322,103, respectively for rent.
NOTE 5 – NOTES PAYABLE – CONVERTIBLE
Convertible Notes payable, net of the related debt
discounts, totaled $0 and $10,000 on September 30, 2021, and December 31, 2020, respectively.
On
August 3, 2020, the Company issued an unsecured convertible promissory note to an investor in exchange for $10,000 bearing an interest
rate of 18% per annum and payable in 6 months. The note included provisions which allowed the holder to convert the unpaid principal
balance of the note into restricted common stock, of the Company at the conversion rate equal to the per share cash price paid for the
shares by any third-party investor(s) with total proceeds to the Company of not less than $500,000 provided, however, in no event shall
the conversion price ever be less than $0.01 per share. On February 16, 2021, the $10,000 note was paid along with accrued interest in
the amount of $1,007.
Interest expense for the Company’s convertible notes payable for
the three and nine months ended September 30, 2021, was $0 and $161, respectively, compared to $184,182 and $460,787 to the three and nine months
ended September 30, 2020.
Accrued interest for the Company’s
convertible notes payable on September 30, 2021, and December 31, 2020 was $0 and $760, respectively, and is included in accrued expenses on
the condensed consolidated balance sheets.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – NOTES PAYABLE – CONVERTIBLE – RELATED
PARTY
Convertible Notes
payable – related party, net of the related debt discounts, totaled
$1,689,746 and $1,025,000 on September
30, 2021, and December 31, 2020, respectively.
On
August 3, 2020, the Company issued a secured convertible promissory note to certain investors in exchange for $1,000,000
in the aggregate bearing an interest rate of 20%
per annum and payable in 6 months. The holder may convert the unpaid principal balance of the note into shares of
restricted common stock of the Company at the conversion price equal to $0.275 per share, which conversion price
was set with the consummation of the Company’s private placement of
Units (described in note 10) which closed on August
17, 2021. This note contains a negative covenant that requires the Company to obtain
consent prior to incurring any additional equity or debt investments and is secured by all of the assets of the Company. The Richard
A. LoRicco Sr. and Lucille M. LoRicco Irrevocable Insurance Trust DTD 4/28/95, Louis Demaio as Trustee (the “Trust”) is
the holder of $750,000
of the principal amount of this note. The Trust was created by Richard A. LoRicco Sr. and Lucille M. LoRicco, who were the
parents of Ronald J. LoRicco Sr., one of the members of the Company’s Board of Directors and is maintained by an independent
trustee. Ronald J. LoRicco Sr. does not have voting or investment control of or power over
the Trust but is an anticipated, partial beneficiary of the Trust.
On February 12, 2021, the Company
exchanged the original debt for a newly issued amended and restated secured convertible promissory note with a new principal balance
of $1,610,005
bearing an interest rate of 20%
per annum and fully payable in 3 months.
This was accounted for as a debt extinguishment and the new promissory note was recorded at fair value in accordance with ASC 470 “Debt”.
The original principal of $1,000,000
and accrued interest of $110,005
calculated as of the date of amendment and restatement along with an additional advance of $500,000 determined the principal amount
of the new note. In consideration of the additional advance and the extension of the maturity date of the original note, the Company
issued to the noteholders 15,000,000
5-year
common stock warrants with an exercise price of $0.20.
The issuance of the warrants for the extension generated a loss on extinguishment of $3,686,136
for the fair value of the warrants issued.
On May 12, 2021, the Company
extended the debt for a newly issued amended and restated secured convertible promissory note with a new principal balance of $1,689,746
bearing an interest rate of 20%
per annum and fully payable in 9 months. The original principal of $1,610,005
and accrued interest of $79,742
calculated as of the date of amendment and restatement determined the principal amount of the new note. In consideration of the
additional advance and the extension of the maturity date of the original note, the Company issued to the noteholders 7,500,000
5-year common stock warrants with an exercise price of $0.35.
The issuance of the warrants for the extension generated a loss on extinguishment of $1,874,705
for the fair value of the warrants issued.
On August 17, 2021, the Company
completed an offering which subsequently reset the executable price of the outstanding convertible shares of the note payable, thus resulting
in a new price per share of $0.275.
Interest expense for the Company’s convertible notes payable –
related parties for the three and nine months ended September 30, 2021, was $88,244 and $239,766 compared to $71,803 and $314,582 to the
three and nine months ended September 30, 2020.
Accrued interest for the Company’s
convertible notes payable – related parties on September 30, 2021, and December 31, 2020, was $134,292 and $86,574, respectively, and
is included in accrued expenses on the condensed consolidated balance sheets.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 – NOTES PAYABLE
Notes payable totaled $478,704
and $128,021 on September 30, 2021, and December 31, 2020, respectively.
On
March 30, 2021, and May 18, 2021, the Company entered financing arrangements to finance the insurance premiums for its liability coverage.
The financing has an interest rate of 9.67% and lasts through March 2022. The balance as of September 30, 2021, was $17,957.
On February 25, 2021, the Company
entered a promissory note agreement with its bank for $165,747 loan bearing an interest rate of 1.0% per annum. The loan
was made pursuant to the Paycheck Protection Program under the Second Draw PPP Legislation after receiving confirmation from the U.S.
Small Business Administration (“SBA”). The Paycheck Protection Program Flexibility Act requires that the funds be used to
maintain the current number of employees as well as cover payroll-related costs, monthly mortgage or rent payments and utilities and not
more than 40% can be expended on non-payroll-related costs. The applicable maturity date will be the maturity date as established by the
SBA. If the SBA does not establish a maturity date or range of allowable maturity dates, the term will be five years.
On April 2, 2021, the Company
issued a promissory note with an investor in exchange for $200,000 bearing an interest rate of 18% per annum and payable in 1 year.
The company also issued 2,000,000 common stock warrants at an exercise price of $0.20 per share expiring in 5 years.
On April 9, 2021, the Company
issued a promissory note with an investor in exchange for $50,000 bearing an interest rate of 18% per annum and payable in 1 year. The
company also issued 500,000 common stock warrants at an exercise price of $0.20 per share expiring
in 5 years.
On April 16, 2021, the Company
issued a promissory note with an investor in exchange for $25,000 bearing an interest rate of 18% per annum and payable in 1 year. The
company also issued 250,000 common stock warrants at an exercise price of $0.25 per share expiring in 5 years.
On April 16, 2021, the Company
issued a promissory note with an investor in exchange for $20,000
bearing an interest rate of 18%
per annum and payable in 1
year. The company also issued 200,000
common stock warrants at an exercise price of $0.25 per share expiring in 5
years.
Interest expense for the Company’s
notes payable for the three and nine months ended September 30, 2021, was $23,666
and $53,784,
respectively, compared to $1,405
and $6,110
to the three and nine months ended September 30, 2020.
Accrued interest for the Company’s
notes payable on September 30, 2021, and December 31, 2020, was $27,760
and $0,
respectively, and is included in accrued expenses on the condensed consolidated balance sheets.
NOTE 8 – NOTES PAYABLE - RELATED PARTY
Related party
notes payable totaled $300,000 and $0 on September 30, 2021, and December 31, 2020.
On July 7, 2021, the Company
issued a promissory note with an entity managed by Ronald J. LoRicco, Sr., a member of our Board of Directors, in exchange for $50,000 bearing an interest rate of
10% per annum. The maturity date for the promissory note is July 23, 2021. The note payable was paid in full on August 24, 2021.
On July 7, 2021, the Company issued a promissory note with Michael V. Barbera, our Chairman of the Board, in exchange for $50,000 bearing an interest rate of 10% per annum.
The maturity
date for the promissory note is July 23, 2021. The note payable was paid in full on August 24, 2021.
On July 15, 2021, the Company
issued a promissory note with David Anderson, our Chief Operating Officer, in exchange for $20,000 bearing an interest rate of 10% per annum. The maturity
date for the promissory note is July 23, 2021. The note payable was paid in full on August 18, 2021.
On July 26, 2021, the Company issued a promissory
note with David Anderson, our Chief Operating Officer, in exchange for $30,500 bearing an interest rate of 10%
per annum. The maturity
date of the promissory note is August 2, 2021. The note payable was paid in full on August 18, 2021.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 27, 2021, the Company issued a promissory
note with Simon Kay, our Interim Acting Chief Executive Officer and Principal Financial Officer, in exchange for $10,000 bearing an interest
rate of 10% per annum. The maturity date of the promissory note is August 3, 2021. The note payable was paid in full on August 18, 2021.
On August 6, 2021, the Company issued a promissory note with an entity managed by Ronald J. LoRicco, Sr., a member of our Board of Directors, in exchange for $100,000 bearing an interest rate of 10% per annum. The maturity
date for the promissory note is August 24, 2021. The note payable was paid in full on August 24, 2021.
Interest expense for the Company’s
notes payable – related party for the three and nine months ended September 30, 2021, was $16,635 and $27,648, respectively, compared to $0 and
$2,455 for the three and nine months ended September 30, 2020.
Accrued interest for the Company’s
notes payable - related party on September 30, 2021, and December 31, 2020, was $27,648 and $0, respectively, and is included in accrued expenses
on the condensed consolidated balance sheets.
NOTE 9 –
COMMITMENTS AND CONTINGENCIES
On October 28, 2021
the Company proposed a liquidation of liability to John Cessario. The proposed settlement would be 500,000 shares of Basanite common stock
with a value of $0.33 per share. The Company elected to accrue an estimate for this amount in the third quarter of 2021.
Supplier Agreement -- MEP Consulting Engineers, Inc.
On July 23, 2020, the Company entered into an Exclusive Supplier Agreement
with MEP Consulting Engineers, Inc. (“MEP”) of Miami, Florida. MEP engaged the Company as its sole and exclusive supplier
and producer of basalt fiber reinforced polymer (“BFRP”) rebar, with the intent of developing a proprietary rebar to be named
“Hurricane Bar.” The agreement also provides MEP with exclusive distribution rights to the Company’s BasaFlex™
BFRP rebar and other Company products in Miami-Dade County.
The agreement is targeting substantial
volumes of South Florida construction projects in the works, which is expected to generate material revenues over the 5-year
period. As compensation, MEP was provided the ability to exercise options to purchase a total of 5,000,000
restricted common shares of the Company, over the 5
years from the supplier agreement effective date, tied to sales performance. This option
shall automatically expire after the end of the option period. An extension period is available through specific clauses in the agreement.
The Company did produce
product under this contract for the period ending September 30, 2021. The Company generated $31,141 in revenue for custom rebar products delivered
under this contract for the three and nine months ending September 30, 2021.
Supplier Agreement -- CR Business Consultants, Inc.
On October 22, 2020, the Company entered into an Exclusive Supplier
Agreement with CR Business Consultants, Inc. (“CRBC”). CRBC agreed to utilize the Company as its exclusive supplier for all
Company products, and the Company has granted CRBC exclusive distribution rights of the Company’s products in the Republic of Costa
Rica and the Republic of Panama. Furthermore, CRBC has key relationships that could be a source of additional customers for the Company
in other territories with no geographic restrictions.
The agreement is targeting
multiple large projects in Costa Rica, to include the rebuilding of the Port of Limon, which Basanite has been specified. The
recognized construction projects are expected to produce material revenues over the 5-year
period. As compensation, CRBC was provided the ability to exercise options to purchase a total of 5,000,000
restricted common shares of the Company, over the 5
years from the supplier agreement effective date, tied to sales performance. This option shall automatically expire after the end of
the option period. An extension period is available through specific clauses in the agreement.
The Company has not generated
revenue under this contract for the period ending September 30, 2021.
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 – STOCKHOLDERS’ DEFICIT
On July 9, 2021, 600,000 shares of common stock were issued per the two
consulting agreements entered
on July 9, 2020,
and October 16, 2020,
for fundraising services. The value of the shares for both agreements is $210,000 and will be expensed over the renewable three-month term of the agreement.
On August 17, 2021, the Company
conducted the closing of a private placement offering to accredited investors of the Company’s units at a price of $0.275 per unit,
with each unit consisting of: (i) one share of the Company’s common stock, (ii) a five-year, immediately exercisable
warrant (“Warrant A”) to purchase one share of common stock at an exercise price of $0.33 per share (“Exercise Price”)
and (iii) an additional five-year, immediately exercisable warrant to purchase one share of common stock at the Exercise Price
(“Warrant B”). The Warrant A and Warrant B are identical, except that the Warrant B has a call feature in favor of the Company,
as defined in the offering agreements. In connection with the closing, the
Company entered into definitive securities purchase agreements with 19 accredited investors and issued an aggregate of 19,398,144 shares
of common stock, Warrant A to purchase up to an aggregate of 19,398,144 shares of common stock, and Warrant B to purchase up to an aggregate
of 19,398,144 shares of Common Stock (for an aggregate of 38,796,288 Warrant Shares), for aggregate gross proceeds to the Company of
approximately $5,334,490. The Company expensed a total of $611,603 in related costs to the offering which has been capitalized and offset
to the gross proceeds recorded in additional paid in capital.
The Company
sold 19,398,144 and 20,583,813 restricted common shares to various investors for the three and nine months ended September 30, 2021 (including the shares sold in the Offering described above), for cash
proceeds totaling $4,722,886 and $5,054,662, respectively. The Company sold 163,043 and 6,203,657 restricted common shares to various investors for
the three and nine months ended September 30, 2020, for cash proceeds totaling $30,000 and $646,667, respectively.
NOTE 11 – OPTIONS AND WARRANTS
Stock Options:
The following table summarizes
all option grants outstanding to consultants, directors and employees as of September 30, 2021, and December 31, 2020 and the related
changes during these periods are presented below.
Schedule of Summary of Options and Warrants Assumptions to Estimate Fair Value of Options Granted
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Options outstanding and exercisable
|
|
|
4,227,778
|
|
|
|
4,542,500
|
|
Weighted-average exercise price
|
|
$
|
0.33
|
|
|
$
|
0.41
|
|
Aggregate intrinsic value
|
|
$
|
98,556
|
|
|
$
|
118,148
|
|
Weighted-average remaining contractual term (years)
|
|
|
2.00
|
|
|
|
3.86
|
|
The Company chose the “straight-line”
attribution method for allocating compensation costs of each stock option over the requisite service period using the Black-Scholes Option
Pricing Model to calculate the grant date fair value.
During the three months ended September
30, 2021, 500,000 options were cancelled.
During the nine months ended September 30, 2021, 1,592,500 options were cancelled. The company granted 1,277,778 options for the period ending September 30, 2021.
Stock Warrants:
The following table summarizes all warrant grants outstanding to consultants,
directors and employees as well as investors as of September 30, 2021, and December 31, 2020 and the related changes during these periods
are presented below.
Schedule of Summary of Options and Warrants Assumptions to Estimate Fair Value of Options Granted
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Warrants outstanding and exercisable
|
|
|
117,691,666
|
|
|
|
38,920,378
|
|
Weighted-average exercise price
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
Aggregate intrinsic value
|
|
$
|
5,176,833
|
|
|
$
|
2,785,075
|
|
Weighted-average remaining contractual term (years)
|
|
|
4.03
|
|
|
|
3.37
|
|
During the three months ended
September 30, 2021, 39,071,288 five-year warrants were issued. During the nine months ended September 30, 2021, 79,771,288 five-year warrants
were issued. During the nine months ended September 30, 2021, 1,000,000 warrants were exercised.
During the three months ended
September 30, 2021 and 2020, total stock-based compensation expense amounted to $327,431 and $78,590 respectively. During the nine months
ended September 30, 2021 and 2020, total stock-based compensation expense amounted to $983,803 and $78,590 respectively.
As of September 30, 2021, $43,682
of stock was issued for the consulting agreements but not earned as compensation and is included in prepaid expenses on the condensed
consolidated balance sheet.
BASANITE, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12 – RELATED PARTIES
In
addition to those transactions discussed in Notes 6 and 8, the Company had no further related party transactions.
NOTE 13 – SUBSEQUENT EVENTS
The Company has evaluated subsequent
events through the filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that
would require adjustments to our disclosures in the consolidated financial statements as of September 30, 2021 contained herein.