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
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 1 ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
(A) Overview and Basis of Presentation
On May 30, 2006, Basanite, Inc. (Basanite) was organized as a Nevada corporation. Basanite and its wholly owned subsidiaries are herein referred to as the "Company", we, our, or us. Currently based in Pompano Beach, Florida, the Company intends to manufacture concrete-reinforcing products made from basalt fiber reinforced polymers (BFRP) such as its primary product BasaFlex. This UV-stable, chemical, acid and moisture resistant material is sustainable and environmentally friendly and has been engineered to replace steel as it never rusts, therefore, addressing the industrys current corrosion issues.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information necessary for a comprehensive presentation of financial position and results of operations. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on April 6, 2020. The interim results for the period ended September 30, 2020 are not necessarily indicative of results for the full fiscal year. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
(B) Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Basanite, Inc. and its wholly owned subsidiaries, Basanite Industries, LLC and Basalt America formerly known as Rockstar Acquisitions, LLC.
(C) Liquidity and Management Plans
Since inception, the Company has incurred net operating losses and used cash in operations. The Company has an accumulated deficit of approximately $27.8 million, a working capital deficit of approximately $1.9 million, and cash used in operations of approximately $1.6 million as of and for the period ended September 30, 2020. Losses have principally occurred as a result of the substantial resources required for product development and marketing of the Company's products, which include the general and administrative expenses associated with its organization and product development. The losses continue as the Company begins to scale its production process and hire the required minimum staff to effectively run the business. Basanite Industries submitted its first round of BasaFlex (Basalt Fiber Reinforced Polymer) rebar products to the Structures and Materials Department of the University of Miami (UM), Miami, Florida, an industry accredited independent testing laboratory, to obtain a Certified Test Report which allows Basanite to participate in approved fiber-reinforced polymer (FRP) applications, such as precast, architectural, flatwork and other non-structural engineered applications. On May 29th, 2020, a Certified Test Report was submitted to Basanite for engineering use. Basanite Industries has submitted a second round of BasaFlex rebars for additional testing, that will further certify and qualify BasaFlex for Federal and state government applications, to the University of Sherbrooke, Quebec, Canada. Basanite expects the results to be superior to the first round of testing. The Company will continue to scale its production process and build up its inventory through the end of 2020 to meet the expected demand volumes for alternative, non-corrosive reinforcement, however, as is customary with scaling production and staffing, operating losses will continue through 2021.
The Company had cash of $575,912 compared to $129,152 at September 30, 2020 and December 31, 2019, respectively. Currently, the Company requires sufficient capital to fund its planned operations through the end of calendar year 2020 and through the first quarter of 2021. We have historically satisfied our working capital requirements through the sale of restricted common stock and the issuance of warrants and promissory notes. Until future revenues and corresponding cash flows materialize, we will attempt to fund working capital requirements through third party financing, including a private placement of our securities as well as bridge loan arrangements. We cannot provide any assurances that required capital will be obtained 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 until sufficient funding is secured or revenues are generated to support operating activities.
6
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 1 ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN (continued)
The coronavirus (COVID-19) that was reported to have surfaced in Wuhan, China in December 2019 and that has now spread throughout the world could adversely impact our operations or those of our third-party partners. Additionally, the continued spread of the virus could negatively impact the manufacturing, supply, distribution and sale of our products and our financial results. The extent to which the coronavirus impacts our operations or those of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Such developments could have a material adverse effect on our financial results and our ability to conduct business as expected. Additionally, the disruption to capital markets caused by the pandemic may adversely affect the Companys ability to obtain funding to continue operations in the future.
All of these conditions raise substantial doubt about the Company's ability to continue as a going concern. As a result of these factors, the report of our independent auditors dated April 6, 2020, on our consolidated financial statements for the year ended December 31, 2019 included an emphasis of matter paragraph indicating that there is substantial doubt about the Companys 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. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) 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.
(B) 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.
(C) Inventories
The Companys 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 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.
7
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Companys inventory at September 30, 2020 and December 31, 2019 was comprised of:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Finished goods
|
|
$
|
116,134
|
|
|
$
|
47,462
|
|
Work in process
|
|
|
11,793
|
|
|
|
|
|
Raw materials
|
|
|
77,718
|
|
|
|
112,010
|
|
Total inventory
|
|
$
|
205,645
|
|
|
$
|
159,472
|
|
(D) Fixed assets
Fixed assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Computer equipment
|
|
$
|
7,268
|
|
|
$
|
7,268
|
|
Machinery
|
|
|
657,368
|
|
|
|
578,347
|
|
Leasehold improvements
|
|
|
161,579
|
|
|
|
137,217
|
|
Office furniture and equipment
|
|
|
71,292
|
|
|
|
62,926
|
|
Land improvements
|
|
|
7,270
|
|
|
|
7,270
|
|
Website development
|
|
|
27,275
|
|
|
|
27,275
|
|
Construction in process
|
|
|
30,000
|
|
|
|
|
|
|
|
|
962,052
|
|
|
|
820,303
|
|
Accumulated depreciation
|
|
|
(134,182
|
)
|
|
|
(48,307
|
)
|
|
|
$
|
827,870
|
|
|
$
|
771,996
|
|
Depreciation expense for the three and nine months ended September 30, 2020 was $30,102 and $85,875, respectively, compared to $6,187 and $10,595 to the three and nine months ended September 30, 2019.
(E) 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:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Options
|
|
|
4,542,500
|
|
|
|
5,042,500
|
|
Warrants
|
|
|
40,489,050
|
|
|
|
29,849,761
|
|
Convertible shares
|
|
|
108,853,912
|
|
|
|
984,014
|
|
|
|
|
153,885,462
|
|
|
|
35,876,275
|
|
8
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(F) 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 on July 9, 2020 for services in exchange for restricted common stock as compensation for the consulting services. 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. The Company recognized $78,590 in stock-based compensation as a result and is accrued as a subscription liability as of September 30, 2020. If the Company agrees to renew each quarter, an additional 350,000 shares are to be issued per quarter.
NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS
There are several new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Companys condensed consolidated financial position or operating results.
NOTE 4 OPERATING LEASE
On January 31, 2019, the Company entered into an agreement to lease approximately 25,470 square feet of office and manufacturing space in Pompano Beach, Florida. The original term of the lease was approximately five years and two months. 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 Companys 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 aggregate base rent payments for the term of the lease is $2,073,344. Additionally, as a result of the lease amendment, the lease deposit required was increased to $74,000.
The future minimum lease payments to be made under the operating lease as of September 30, 2020 are as follows:
|
|
|
|
|
|
2020
|
|
|
$
|
101,475
|
|
2021
|
|
|
|
415,033
|
|
2022
|
|
|
|
427,484
|
|
2023
|
|
|
|
440,308
|
|
2024
|
|
|
|
110,884
|
|
Total minimum lease payments
|
|
|
|
1,495,184
|
|
Discount
|
|
|
|
(342,527
|
)
|
Operating lease liability
|
|
|
$
|
1,152,657
|
|
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, 2020 and 2019, the Company expensed $106,920 and $105,730, respectively for rent. For the nine months ended September 30, 2020 and 2019, the Company expensed $322,103 and $317,426, respectively for rent.
9
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 5 NOTES PAYABLE CONVERTIBLE
Convertible notes payable, net of the related debt discounts, totaled $76,669 and $453,991 at September 30, 2020 and December 31, 2019, respectively.
On March 5, 2020, the Company issued a convertible promissory note to an accredited investor in exchange for $50,000 bearing an interest rate of 10% per annum and payable in nine months. After June 5, 2020, the holder may convert the unpaid principal and interest balance of the note into shares of common stock, par value $0.001 per share, at the conversion rate equal to 80% of the closing price on June 5, 2020 per share. At the time of conversion, the Company shall immediately also issue a five-year warrant to the holder to purchase an amount of warrants equal to the $50,000 divided by the conversion price of shares of common stock of the Company. The exercise price for such warrants shall be 3 times the conversion price. In addition, the warrants shall have an option whereby the Company can require the exercise of the warrants if the trading price is at or above the warrant price times 190% for 20 consecutive trading days. The conversion price was determined to be $0.132. A debt discount of $50,000 was recorded on the note payable at resolution of the contingent beneficial conversion feature. The noteholder converted the promissory note of $50,000 and accrued interest of $1,908 on July 21, 2020 in exchange for 393,246 restricted common shares and 126,263 five-year warrants with an exercise price of $0.396 per share.
On April 13, 2020, the Company entered into several convertible promissory notes. The Company issued convertible notes payable in exchange for $100,000 bearing an interest rate of 12% per annum and payable in six months. At the option of the holders, the principal and accrued interest may be converted to shares of common stock at a conversion rate of $0.092 per share. At the time of conversion, the Company shall immediately also issue an equal amount of five-year warrants to purchase common stock of the Company, at an exercise price of $0.312 per share. The warrants shall have an option whereby the Company can require the exercise of the warrants if the trading price is at or above $0.69 per share for 20 consecutive trading days. Upon issuance of the notes, the Company recorded debt discounts of $100,000 for the beneficial conversion features embedded in the notes. One of the noteholders converted their promissory note of $50,000 and accrued interest of $1,181 on June 26, 2020 in exchange for 556,313 restricted common shares and 556,313 five-year warrants with an exercise price of $0.312 per share. The remaining noteholders converted their promissory notes of $25,000 and accrued interest of $1,618 each on July 21, 2020. Each received in exchange for their notes 280,532 restricted common shares and 280,532 five-year warrants with an exercise price of $0.312 per share.
On April 13, 2020, the Company issued a convertible promissory note to an accredited investor in exchange for $50,000 bearing an interest rate of 12% per annum and payable in six months. After June 5, 2020, the holder may convert the unpaid principal and interest balance of the note into shares of common stock, par value $0.001 per share, at the conversion rate equal to 80% of the closing price on June 5, 2020 per share. At the time of conversion, the Company shall immediately also issue a five-year warrant to the holder to purchase the same number of shares of common stock of the Company as the holder receives in such conversion. The exercise price for such warrants shall be 3 times the conversion price. In addition, the warrants shall have an option whereby the Company can require the exercise of the warrants if the trading price is at or above the warrant price plus 150% for 20 consecutive trading days. The conversion price was determined to be $0.132. A debt discount of $50,000 was recorded on the note payable at resolution of the contingent beneficial conversion feature. The noteholder converted the promissory note of $50,000 and accrued interest of $1,615 on July 21, 2020 in exchange for 391,023 restricted common shares and 391,023 five-year warrants with an exercise price of $0.396 per share.
10
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 5 NOTES PAYABLE CONVERTIBLE (continued)
On June 1, 2020, the Company issued two convertible promissory notes with accredited investors in exchange for $100,000 bearing an interest rate of 12% per annum and payable in six months. At the option of holder, the principal may be converted to shares of common stock at a conversion rate of $0.096 per share. At the time of conversion, the Company shall immediately also issue an equal amount of five-year warrants to purchase common stock of the Company, at an exercise price of $0.288 per share. The warrants shall have an option whereby the Company can require the exercise of the warrants if the trading price is at or above $0.72 per share for 20 consecutive trading days. Upon maturity, the Company shall have the option to convert the unpaid principal balance of the note under the same terms as above. Upon issuance of the notes, the Company recorded debt discounts of $100,000 for the beneficial conversion features embedded in the notes. At September 30, 2020, the net debt balance on the outstanding convertible notes payable is $66,669.
On August 3, 2020, the Company issued an unsecured convertible promissory note to an accredited investor in exchange for $10,000 bearing an interest rate of 18% per annum and payable in six months. The Company shall pay interest on the unconverted and then outstanding principal amount of the note at a rate of 18% per annum, accrued monthly for the first four months of this note and payable thereafter until the maturity date of February 3, 2021, unless the note is converted or prepaid prior to maturity. The holder may convert the unpaid principal balance of the note into restricted common stock, par value $0.001 per share, 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 (the conversion price); provided, however, in no event shall the conversion price ever be less than $0.01 per share.
Interest expense for the Companys convertible notes payable for the three and nine months ended September 30, 2020 was $184,182 and $460,787, respectively, compared to $5,930 and $31,049 to the three and nine months ended September 30, 2019. Accrued interest for the Companys convertible notes payable at September 30, 2020 and December 31, 2019 was $4,239 and $86,520.
NOTE 6 NOTES PAYABLE CONVERTIBLE RELATED PARTY
Convertible notes payable related party, net of the related debt discounts, totaled $1,025,000 and $0 at September 30, 2020 and December 31, 2019, respectively.
On April 13, 2020, the Company issued a convertible promissory note with Michael V. Barbera, our Board Chairman, in exchange for $25,000 bearing an interest rate of 12% per annum and payable in six months. After June 5, 2020, the holder may convert the unpaid principal and interest balance of the note into shares of common stock, par value $0.001 per share, at the conversion rate equal to 80% of the closing price on June 5, 2020 per share. At the time of conversion, the Company shall immediately also issue a five-year warrant to the holder to purchase the same number of shares of common stock of the Company as the holder receives in such conversion. The exercise price for such warrants shall be 3 times the conversion price. In addition, the warrants shall have an option whereby the Company can require the exercise of the warrants if the trading price is at or above the warrant price plus 150% for 20 consecutive trading days. The conversion price was determined to be $0.132. A debt discount of $25,000 was recorded on the note payable at resolution of the contingent beneficial conversion feature. The noteholder converted the promissory note of $25,000 and accrued interest of $809 on July 21, 2020 in exchange for 195,522 restricted common shares and 195,522 five-year warrants with an exercise price of $0.396 per share.
11
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 6 NOTES PAYABLE CONVERTIBLE RELATED PARTY (continued)
On April 13, 2020, the demand notes payable entered on January 16, 2020 for $50,000 each from related parties; Michael V. Barbera, our Board Chairman and an entity managed by Ronald J. LoRicco, Sr., a Board Member were exchanged for convertible notes. The notes were accounted for as an extinguishment and the convertible debt valued at fair value in accordance with ASC 470. Per the addendums, the interest rate of 10% was increased to 12% per annum. The modification also allowed for a conversion option for the holder after June 5, 2020. After June 5, 2020, the holder may convert the unpaid principal and interest balance of the note into shares of common stock, par value $0.001 per share, at the conversion rate equal to 80% of the closing price on June 5, 2020 per share. At the time of conversion, the Company shall immediately also issue a five-year warrant to the holder to purchase the same number of shares of common stock of the Company as the holder receives in such conversion. The exercise price for such warrants shall be 3 times the conversion price. In addition, the warrants shall have an option whereby the Company can require the exercise of the warrants if the trading price is at or above the warrant price plus 150% for 20 consecutive trading days. The conversion price was determined to be $0.132. Debt discounts of $100,000 were recorded on the notes payable at resolution of the contingent beneficial conversion feature. One noteholder converted the promissory note of $50,000 and accrued interest of $2,440 on June 26, 2020 in exchange for 397,269 restricted common shares and 397,269 five-year warrants with an exercise price of $0.396 per share. The other noteholder converted the promissory note of $50,000 and accrued interest of $2,826 on July 21, 2020 in exchange for 400,195 restricted common shares and 400,195 five-year warrants with an exercise price of $0.396 per share.
On August 3, 2020, the Company issued an unsecured convertible promissory note to Michael V. Barbera, the Chairman of the Board, in exchange for $25,000 bearing an interest rate of 18% per annum and payable in six months. The Company shall pay interest on the unconverted and then outstanding principal amount of the note at a rate of 18% per annum, accrued monthly for the first four months of this note and payable thereafter until the maturity date of February 3, 2021, unless the note is converted or prepaid prior to maturity. The holder may convert the unpaid principal balance of the note into restricted common stock, par value $0.001 per share, 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 (the conversion price); provided, however, in no event shall the conversion price ever be less than $0.01 per share.
On August 3, 2020, the Company issued a secured convertible promissory note to certain accredited investors in exchange for $1,000,000 bearing an interest rate of 20% per annum and payable in six months. The Company shall pay interest on the unconverted and then outstanding principal amount of the note at a rate of 20% per annum, accrued monthly for the first four months of this note and payable thereafter until the maturity date of February 3, 2021, unless the note is converted or prepaid prior to maturity. The holder may convert the unpaid principal balance of the note into restricted common stock, par value $0.001 per share, 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 (the conversion price); provided, however, in no event shall the conversion price ever be less than $0.01 per share. 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 is maintained by Richard A. LoRicco Sr. and Lucille M. LoRicco, who are the parents of Ronald J. LoRicco Sr., one of the members of our Board. The disinterested members of the Board approved the terms of the note. 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.
Interest expense for the Companys convertible notes payable related parties for the three and six months ended September 30, 2020 was $71,803 and $314,582 compared to $1,332 and $4,704 to the three and nine months ended September 30, 2019. Accrued interest for the Companys convertible notes payable at September 30, 2020 and December 31, 2019 was $32,421 and $0.
12
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 7 NOTES PAYABLE
Notes payable totaled $147,128 and $219,617 at September 30, 2020 and December 31, 2019, respectively.
Due to the ongoing uncertainty about the severity and duration associated with the COVID-19 pandemic, the Company considered furloughing or eliminating employees and taking other measures to reduce operating costs until there is more certainty about the short-term and long-term effects of the COVID-19 pandemic on the nations economy and the Companys business. On May 1, 2020, the Company entered a promissory note agreement with its bank in exchange for $123,318 bearing an interest rate of 1.0% per annum. The loan was made pursuant to the Paycheck Protection Program under the CARES Act after receiving confirmation from the U.S. Small Business Administration (SBA). The note contains a deferment period of six months from the date of funding. After sixty, but not more than ninety, days from the date of funding, the Company can apply to the bank for loan forgiveness. The bank will then request confirmation from the SBA. If the SBA confirms full and complete loan forgiveness, the Companys obligation under the note will be deemed fully satisfied and paid in full. If the SBA denies full and complete loan forgiveness or only partly confirms forgiveness, the Company will be obligated to repay the bank for the total outstanding balance of the note, including principal and interest. The bank will establish terms, including monthly payments based on a maturity of two years from the date of funding and not more than 1.0% interest per annum. No principal or interest payments will be due prior to the end of the six-month deferment period. 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. After providing documented evidence of the number of employees and the use of funds, the SBA will provide loan forgiveness for the documented costs.
On July 8, 2020, the Company negotiated with an accredited investor who holds several demand notes payable to agree to settle the remaining principal balance of $191,965 and accrued interest of $15,729 for $150,000 of restricted common shares. The remaining balance of $57,694 was forgiven. The conversion price of $0.132 per share was agreed upon for 1,136,364 restricted common shares and an equal amount of five-year warrants with an exercise price of $0.396 per share.
Interest expense for the Companys notes payable for the three and nine months ended September 30, 2020 was $1,405 and $6,110, respectively, compared to $2,410 and $4,892 to the three and nine months ended September 30, 2019. Accrued interest for the Companys notes payable at September 30, 2020 and December 31, 2019 was $580 and $11,244, respectively.
NOTE 8 NOTES PAYABLE RELATED PARTY
Related party notes payable totaled $0 at September 30, 2020 and December 31, 2019.
Interest expense for the Companys notes payable related party for the three and nine months ended September 30, 2020 was $0 and $2,455, respectively compared to $0 and $1,926 for the three and nine months ended September 30, 2019. Accrued interest for the Companys notes payable-related party at September 30, 2020 and December 31, 2019 was $0.
13
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 9 COMMITMENTS AND CONTINGENCIES
Legal Matters
In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company's business, financial condition, cash flows, or results of operations except as provided below.
CalSTRS Judgement
On March 31, 2014, the Company received a Notice of Default letter from legal counsel representing the California State Teachers Retirement System (CalSTRS) (the landlord for the Companys office space) alerting that the Company was in default of its lease for failure to pay monthly rent for the office space located at 2400 East Commercial Boulevard, Suite 612, Fort Lauderdale, FL 33304. The letter demanded immediate payment of $41,937 for rent past due as of April 1, 2014. The Company had indicated in writing its intention to cooperate with the landlord while trying to resolve the matter. On February 11, 2015, the landlord, through its attorneys, filed a motion for summary judgment. The motion asked for $376,424 in unpaid rent, recovery of abated rents and tenant improvements and $12,442 in attorneys costs incurred by the landlord. On April 22, 2015, the motion for unpaid rent, recovery of abated rents and tenant improvements and attorneys costs was granted by the Circuit Court of the 17th Judicial Circuit in and for Broward County and the Company has reserved the entire judgement of $388,866. The total amount is accruing interest at the statutory rate of 4.75%. The accrued interest on the judgement at September 30, 2020 and December 31, 2019 is $100,605 and $86,739, respectively.
RAW Materials Litigation
On or about August 28, 2018, Raw Energy Materials Corp. filed an action for declaratory relief and breach of contract in Broward County, Florida, in the 17th Judicial Circuit Court, titled Raw Energy Materials Corp. v. Rockstar Acquisitions, LLC, Paymeon, Inc. (now Basanite, Inc.), and Basalt America, LLC, CASE NO.: CACE 18-020596.
An Amended Complaint was filed on or about December 19, 2018 adding Basanite Industries, LLC as a defendant, as well as an alleged claim under Florida Statute Section 501.201 and for injunction. The Company continues to contest plaintiff's claims vigorously.
The Company filed and has pending an amended counterclaim for breach of contract, fraud and civil conspiracy against Raw Energy affiliates, including Don Smith, his longtime girlfriend Elina Jenkins, Global Energy Sciences, LLC, Yellow Turtle Design, LLC, as well as former business affiliates/associates to Don Smith, Richard Laurin and Robert Ludwig. A response was ordered to be filed by December 7, 2020.
The nature of the dispute is based on representations (or misrepresentations) the Company alleges were made to it, as well as breaches of the terms of a licensing agreement, related consulting and other agreements, and failures and refusals of Plaintiff and Don Smith related entities to deliver equipment/machinery and goods paid for by the Company or its affiliates.
As it became apparent that the subject license agreement was effectively worthless and moot to the Company, and the purported and promised trade secrets and intellectual property were essentially non-existent, the Company and Plaintiff agree to an order terminating that license agreement, which resulted in the Agreed Order dated January 28, 2019.
The parties continue to litigate damages arising from the dispute.
A hearing is scheduled on November 23, 2020 for a Motion to Compel the plaintiff's prior counsel, Michael Flam, to produce documents in response to a subpoena.
14
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 9 COMMITMENTS AND CONTINGENCIES (continued)
HLM Paymeon Storefront Damage Settlement
On December 15, 2016, a third-party driver drove his car through the Companys retail storefront located at 2599 N. Federal Highway, Fort Lauderdale, FL 33305. The accident caused severe damage to the building causing the city of Fort Lauderdale to declare the building an unsafe structure. The Company was forced to vacate the premises, therefore, terminating the lease. The damaged storefront and terminated lease effectively terminated the business. On August 3, 2017, the Company filed a complaint with the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida for loss of income, beneficial lease and debt to the sub-landlord. On February 26, 2020, the Company was able to settle for $125,000 in exchange for a Complete Release for All Claims against all parties named in the case. The case was taken on a contingency basis by its attorney, therefore, reducing the settlement proceeds by 40% and related expenses. The Company received $70,817 in net proceeds on March 18, 2020 represented by the gain on settlement of lawsuit.
Lustig Litigation
In reviewing court records recently (late in 2020), counsel for the Company found names of its affiliates in a case filed in 2018 by Stephen Lustig against one of the Company's shareholders. The Company and its affiliates were not served and made a party to that case; and were listed as an attempt by Mr. Lustig to execute, attach or foreclosure on the defendant shareholder's stock in the Company. The Company did not breach any agreement and was not engaged in any wrongdoing. The Company is informed that the subject shareholder has made contact with Mr. Lustig and a resolution between them and a dismissal with prejudice is expected to be forthcoming.
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, FL. MEP engaged the Company as its sole and exclusive supplier for production of MEPs proprietary Hurricane Bar, a BFRP reinforcing bar (rebar) product owned by MEP. The Agreement also provides MEP with exclusive distribution rights to the Companys BasaFlexTM BFRP reinforcing bar (rebar) and other Basanite products in Miami-Dade County.
The Agreement allows for MEP or its designated customers to place orders from time to time for up to the total value of $50,000,000 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 (the option period), 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. To date, this portion of the agreement has not been fully executed.
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 Basanite products, and the Company has granted CRBC exclusive distribution rights of the Companys products in the Republic of Costa Rica and the and Republic of Panama. CRBC also has non-exclusive distribution rights in the following territories in South and Central America, the Caribbean Sea and the Atlantic Ocean: the six additional countries in Central America limited to: the Republic of El Salvador; Belize; the Republic of Guatemala; the Republic of Honduras; and the Republic of Nicaragua; the twelve countries in South America, limited to Argentina (Argentine Republic), Plurinational State of Bolivia, Federative Republic of Brazil, Republic of Chile, Republic of Colombia, Republic of Ecuador, Co-operative Republic of Guyana, Republic of Paraguay, Republic of Peru, Republic of Suriname, Oriental Republic of Uruguay, Bolivarian Republic of Venezuela, and a part of France, French Guiana; and the ABC islands of the Kingdom of the Netherlands; the Falkland Islands (a British Overseas Territory); and Republic of Trinidad and Tobago. Furthermore, CRBC can introduce additional customers to Basanite from other territories with no geographic restrictions, and where sales to such customers will be included under Terms of the Agreement.
15
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 9 COMMITMENTS AND CONTINGENCIES (continued)
The Agreement allows for CRBC or its designated customers to place orders from time to time for up to a total value of $50,000,000 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 (the option period), 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.
NOTE 10 STOCKHOLDERS DEFICIT
On July 21, 2020, noteholder Michael V. Barbera, our Chairman of the Board, converted a promissory note of $50,000 and accrued interest of $2,826 in exchange for 400,195 restricted common shares and 400,195 five-year warrants with an exercise price of $0.396 per share. (See Note 6.)
On July 21, 2020, two noteholders converted promissory notes of $25,000 and accrued interest of $809 each in exchange for 280,532 restricted common shares and 280,532 five-year warrants with an exercise price of $0.312 per share. (See Note 5.)
On July 21, 2020, noteholder Michael V. Barbera, our Chairman of the Board, converted a promissory note of $25,000 and accrued interest of $809 in exchange for 195,522 restricted common shares and 195,522 five-year warrants with an exercise price of $0.396 per share. (See Note 6.)
On July 21, 2020, a noteholder converted two promissory notes totaling $100,000 and accrued interest of $3,523 in exchange for 784,269 restricted common shares and 517,286 five-year warrants with an exercise price of $0.396 per share. (See Note 5.)
On August 5, 2020, a noteholder converted a promissory note of $258,524 and accrued interest of $102,176 in exchange for 2,061,143 restricted common shares. (See Note 5.)
On August 5, 2020, an accredited investor received 163,043 restricted common shares and 163,043 five-year warrants with an exercise price of $0.54 per share in exchange for $30,000.
On August 24, 2020, a noteholder settled the amount due on several promissory notes totaling $191,965 and accrued interest of $15,729 in exchange for 1,136,364 restricted common shares and 1,136,364 five-year warrants with an exercise price of $0.396 per share. (See Note 7.)
On September 25, 2020, an accredited investor exercised his warrants at an exercise price of $0.075. The investor received 500,000 restricted common shares in exchange for $37,500.
On September 28, 2020, the Company received $90,000 from an accredited investor to purchase 300,000 restricted common stock. The restricted common stock had not been issued as of September 30, 2020 and therefore, is represented as a subscription liability. (See Note 14.)
16
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 11 OPTIONS AND WARRANTS
Stock Options:
The following table summarizes all option grants outstanding to consultants, directors and employees as of September 30, 2020 and December 31, 2019 and the related changes during these periods are presented below.
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Options outstanding and exercisable
|
|
|
4,542,500
|
|
|
|
5,042,500
|
|
Weighted-average exercise price
|
|
$
|
0.41
|
|
|
$
|
0.40
|
|
Aggregate intrinsic value
|
|
$
|
1,058,430
|
|
|
|
|
|
Weighted-average remaining contractual term (years)
|
|
|
2.10
|
|
|
|
4.66
|
|
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 nine months ended September 30, 2020, no options were issued or exercised. 500,000 options were cancelled on May 30, 2020 upon expiration.
Stock Warrants:
The following table summarizes all warrant grants outstanding to consultants, directors and employees as well as investors as of September 30, 2020 and December 31, 2019 and the related changes during these periods are presented below.
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Warrants outstanding and exercisable
|
|
|
40,489,050
|
|
|
|
29,849,761
|
|
Weighted-average exercise price
|
|
$
|
0.26
|
|
|
$
|
0.23
|
|
Aggregate intrinsic value
|
|
$
|
15,821,830
|
|
|
$
|
1,956,750
|
|
Weighted-average remaining contractual term (years)
|
|
|
3.30
|
|
|
|
3.64
|
|
During the nine months ended September 30, 2020, 12,139,289 five-year warrants were issued. During the three months ended September 30, 2020, 500,000 warrants were exercised and 1,000,000 warrants were cancelled.
During the three months ended September 30, 2020 and 2019, total stock-based compensation expense amounted to $78,590 and $252,510 respectively. During the nine months ended September 30, 2020 and 2019, total stock-based compensation expense amounted to $78,590 and $1,371,847 respectively.
NOTE 12 INCOME TAXES
The Coronavirus Aid and Relief and Economic Security Act (the CARES Act) enacted on March 27, 2020 provided relief for individuals and businesses as a result of COVID-19 and its impact on the economy. The CARES Act provided for additional relief for businesses by amending the net operating loss (NOL) rules. The amendment allows for the carryback of NOLs to each of the five taxable years preceding the taxable year in which the loss arises. Since the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), NOLs generally could not be carried back but could be carried forward indefinitely. Further, the TCJA limited NOL absorption to 80% of taxable income. The CARES Act temporarily removes the 80% limitation, reinstating it for tax years beginning after 2020. This amendment does not currently benefit the Company as it has sustained losses in those years.
17
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 13 RELATED PARTIES
On July 21, 2020, noteholder Michael V. Barbera, our Chairman of the Board, converted a promissory note of $50,000 and accrued interest of $2,826 in exchange for 400,195 restricted common shares and 400,195 five-year warrants with an exercise price of $0.396 per share. (See Note 6.)
On July 21, 2020, noteholder Michael V. Barbera, our Chairman of the Board, converted a promissory note of $25,000 and accrued interest of $809 in exchange for 195,522 restricted common shares and 195,522 five-year warrants with an exercise price of $0.396 per share. (See Note 6.)
On August 3, 2020, the Company issued an unsecured convertible promissory note bearing an interest rate of 18% per annum and payable in six months to Michael V. Barbera, the Chairman of the Board, in exchange for $25,000. (See Note 6.)
On August 3, 2020, the Company issued a secured convertible promissory note bearing an interest rate of 20% per annum and payable in six months to The Richard A. LoRicco Sr. and Lucille M. LoRicco Irrevocable Insurance Trust DTD 4/28/95, Louis Demaio as Trustee (the Trust) and certain other accredited investors in exchange for $1,000,000. The Trust is the holder of $750,000 of the principal amount of this note. The Trust is maintained by Richard A. LoRicco Sr. and Lucille M. LoRicco, who are the parents of Ronald J. LoRicco Sr., one of the members of our Board. (See Note 6.)
NOTE 14 SUBSEQUENT EVENTS
On October 5, 2020, an accredited investor received 300,000 restricted common shares in exchange for $90,000.
On October 14, 2020, an accredited investor received 166,667 restricted common shares in exchange for $50,000.
The Company entered into a consulting agreement on October 13, 2020 for services in exchange for restricted common stock as compensation for the consulting services. If the Company agrees to renew after the initial six month term, they can do so on a quarterly basis with compensation of 250,000 shares due upon renewal.
On October 16, 2020, 600,000 shares were issued per the consulting agreement entered on July 9, 2020 for fundraising services. The value of the shares is $174,000 and will be expensed over the six-month term of the agreement.
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 Basanite products, and the Company has granted CRBC exclusive distribution rights of the Companys products in the Republic of Costa Rica and the and Republic of Panama. CRBC also has non-exclusive distribution rights in the following territories in South and Central America, the Caribbean Sea and the Atlantic Ocean: the six additional countries in Central America limited to: the Republic of El Salvador; Belize; the Republic of Guatemala; the Republic of Honduras; and the Republic of Nicaragua; the twelve countries in South America, limited to Argentina (Argentine Republic), Plurinational State of Bolivia, Federative Republic of Brazil, Republic of Chile, Republic of Colombia, Republic of Ecuador, Co-operative Republic of Guyana, Republic of Paraguay, Republic of Peru, Republic of Suriname, Oriental Republic of Uruguay, Bolivarian Republic of Venezuela, and a part of France, French Guiana; and the ABC islands of the Kingdom of the Netherlands; the Falkland Islands (a British Overseas Territory); and Republic of Trinidad and Tobago. Furthermore, CRBC can introduce additional customers to Basanite from other territories with no geographic restrictions, and where sales to such customers will be included under Terms of the Agreement.
The Agreement allows for CRBC or its designated customers to place orders from time to time for up to a total value of $50,000,000 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 (the option period), 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.
18
BASANITE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
NOTE 14 SUBSEQUENT EVENTS (continued)
On October 27, 2020, an accredited investor received 133,333 restricted common shares in exchange for $40,000.
On November 10, 2020, the Board of Directors approved offering the current holders of our warrants a discounted exercise price to their current exercise price if they exercised the warrant within a certain time period. The offer to the current holders of our warrant commenced on November 10, 2020 and extends through December 4, 2020 providing warrants holders with declining discounts on their exercise price per share in an effort to raise the capital required.
19
ITEM 2.