BASANITE, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important to understand our financial results for the three and six months ended June 30, 2022, and 2021, respectively. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this report, and our audited consolidated financial statements and accompanying notes included in the Annual Report in Form-10-K for the period ended December 31, 2021, and filed with the SEC on April 15, 2022.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). These forward-looking statements are based on our management's beliefs, assumptions, and expectations and on information currently available to our management. Generally, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements, which generally are not historical in nature. All statements that address operating or financial performance, events, or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation our expectations with respect to the timing for our planned manufacturing expansion, the benefits of our products, customer leads, product sales, financings, or the commercial viability of, and prospects for, our business model. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events (including, without limitation, those related to our planned manufacturing capacity expansion and our sales and marketing initiatives) could differ materially from those disclosed in the forward-looking statements. Our management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the date when made. We do not assume any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by federal securities laws and the rules of the Securities and Exchange Commission (the "SEC"). We may not actually achieve the plans, projections or expectations disclosed in our forward-looking statements, and actual results, developments or events could differ materially and adversely from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of significant risks and uncertainties, including without limitation those described from time to time in our reports filed with the SEC.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the risk factors and other disclosures contained in our Annual Report on Form 10-K for the period ended December 31, 2021.

Basanite, Inc., and its wholly owned subsidiaries are referred to in this discussion as the "Company", "we", "our", or "us". "Common Stock" refers to the Common Stock of the Company.

Overview

On May 30, 2006, Basanite, Inc. was formed as a Nevada corporation. Through our wholly owned subsidiary, Basanite Industries, LLC, a Delaware limited liability company ("BI"), we manufacture a range of "green" (environmentally friendly), sustainable, non-corrosive, lightweight, composite products used in concrete reinforcement by the construction industry. Our core product is BasaFlex™, a basalt fiber reinforced polymer reinforcing bar ("rebar") which we believe is a stronger, lighter, sustainable, non-conductive and corrosion-proof alternative to traditional steel.

Our two other main product lines are BasaMix™, which are fine denier basalt fibers available in various chopped sizes, and BasaMesh™, a line of Basalt Geogrid Mesh Rolls, intended to replace welded wire mesh (made of steel) and other fiber reinforced polymer grids and mesh.

BasaMix™ is designed to help absorb the stresses associated with early-aged plastic shrinkage and settlement cracking in concrete, as well as providing an increased toughness for enhanced reinforcement in Slab on Grade (SOG) and precast elements. BasaMix™ also serves in a "system approach" for optimum performance of a concrete element when used in conjunction with our BasaFlex™ rebar.

BasaMesh™ is designed for secondary and temperature shrinkage reinforcement. BasaMesh™ can also work in conjunction with the BasaFlex™ rebar or BasaMix™ for a total reinforcement program.

Each of our products is specifically designed to extend the lifecycle of concrete products by eliminating "concrete spalling." Spalling results from the steel reinforcing materials embedded within the concrete member rusting (contrary to popular belief, concrete is porous, and water can permeate into concrete). Rusting leads to the steel expanding and eventually causing the surrounding concrete to delaminate, crack, or even break off, resulting in potential structural failure. We believe that each of our products addresses this important need along with other key requirements in today's construction market.

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We believe that the following attributes of BasaFlex™ provide it with a competitive advantage in the marketplace:

· BasaFlex™ never corrodes: steel reinforcement products rust, leading to

   spalling and significant repair costs down the road;

· BasaFlex™ is sustainable: BasaFlex™ is made from Basalt rock, the most abundant

   rock found on Earth's surface, and offers a longer product lifecycle than
   traditional steel (the lack of corrosion allows the life span of concrete
   products reinforced with BasaFlex to be significantly longer);

· BasaFlex™ is "green": From mining, through production, to installation at the

   building site, BasaFlex™ has an exceptionally low carbon footprint when
   compared with that of steel or with carbon fiber or glass fiber reinforced
   polymer rebar products; and

· BasaFlex™ has a lower in-place cost: the physical nature of our products

relative to steel result in a lower net cost to the contractor once installed,

such as: BasaFlex™ is one-quarter of the weight of equivalent sized steel,

meaning 4 times the quantity of material can be delivered by the same truck (or

container); all Basanite products can be loaded/unloaded and moved around the

jobsite by hand - no expensive handling equipment is needed; less concrete is

required as BasaFlex™ does not require the extra concrete cover needed when

using steel; and Basanite products are safer and easier to use. We believe all

these factors materially reduce the net in-place cost of concrete

   reinforcement.

BI leases a fully permitted, 36,900 square foot facility located in Pompano Beach, Florida equipped with five customized, Underwriters Laboratories approved, pultrusion manufacturing machines for BasaFlex™ production, plus other composite manufacturing equipment. Pultrusion is a manufacturing process for converting reinforced fibers and liquid resin into a fiber-reinforced polymer product. Each of our current pultrusion machines has up to two linear production lines (we use one or two lines per machine depending on rebar size) giving a maximum capacity of 10 manufacturing lines (smaller bar sizes). To date, BI's operations team has successfully optimized and scaled the capacity of our manufacturing plant to be able to produce up to 22,800 linear feet of BasaFlex™ rebar per shift, per working day, depending on the product mix.

During the past year, we have designed, developed, and prototyped a next generation Pultrusion manufacturing system for BasaFlexTM rebar we call BasaMax™. This new system has been designed in two versions, a quad-line system named "Tetrad" (for smaller bar sizes) and a dual-line system named "Dyad" (for larger bar sizes). Each offers not only have double the manufacturing capacity of the current machines for a given bar size, but they also run faster, and they fit in the same manufacturing floorspace. We currently have five of these new BasaMax pultrusion machines on order: three quad-line machines and two dual-line machines. Design changes and other improvements we wanted to incorporate (based on reviews of the prototype), coupled with supply chain issues prevalent in today's economic environment have led to some delay in the completion of the new equipment. We now expect to accept delivery of these custom manufactured new machines early in the fourth quarter of 2022, with installation and calibration also to be completed in fourth quarter of 2022. With the introduction of this new equipment and the subsequent establishment of our planned two-shift operations, our maximum manufacturing capacity for BasaFlex™ rebar will increase to 100,000+ linear feet per working day (on a two-shift basis).

Importantly, BI's own fully equipped Test Lab is utilized to evaluate, validate, and verify each raw material and each batch of completed BasaFlex™ product, ensuring our finished goods meet the required specifications and performance attributes. We are also developing a new process specifically for manufacturing BasaFlex™ shapes (hoops; angles and stirrups) which we call BasaLinks™, which includes developing a next generation pultrusion system as part of this process. We expect our first BasaLinks system to be in place and operational during the fourth quarter of 2022.

We believe that macroeconomic factors are pressuring the construction industry to consider the use of alternative reinforcement materials for the following reasons:

· the increasing need for global infrastructure repair;

· recent design trends towards increasing the lifespan of projects and materials;

· the global interest in promoting the use of sustainable products;

· increasing consideration of both the long-term costs and environmental impacts

   of material selections.

· more recently, due to rising steel prices, an increasing level of price

equivalence between steel rebar and our BFRP rebar.

We believe we are well positioned to benefit from this renewed focus, particularly in light of the interest of the U.S. government in funding infrastructure improvements and events such as the collapse of a residential building in Surfside, Florida.

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Known Factors, Trends and Risks Impacting Our Business

Manufacturing Expansion

Our business plan calls for scaling the manufacturing capability at our Florida facility in order to enable the potential for increased revenues and cash flow positive operations, and ultimately to profitability, in as short a timeframe as possible. Following this, we plan to open additional facilities around the country, each designed to service a circular area roughly 1,000 miles in diameter, with the plant at the center. Locations will be selected based upon regional demand and using the South Florida facility as the model.

However, our South Florida manufacturing expansion plans have been hindered by several factors: the COVID-19 pandemic, our slower than expected rate of fundraising and our slower than expected ramp-up in sales. This last item has been caused by multiple factors, including:

· customer requirements for multiple additional product and facility

   certifications, in particular from the International Code Council (or ICC)
   Evaluation Service (known as "ICC-ES"), an industry leader in performing
   technical evaluations of building products, materials and systems for code
   compliance; and from the Florida Department of Transportation ("FDOT"). Both
   certification programs are underway, and each requires separate, long-duration
   product testing (7 to 9 months). ICC testing is expected to complete by the end
   of September 2022 with approval to follow; and FDOT testing is expected to
   complete during the fourth quarter of 2022 with approval to follow;

· the lack of an ASTM (formerly known as the American Society for Testing and

   Materials) product standard specifically for basalt fiber rebar (this process
   is also underway, and a member of our board of directors, Fred Tingberg, who
   was appointed as our Chief Technology Officer in June 2022 is on the ASTM
   committee reviewing this; we currently expect the ASTM to be issued in
   September 2022);

· our current manufacturing capacity limitations, which have precluded us from

   bidding or winning several larger potential orders;

· the Surfside Condo disaster, which has resulted in some local engineers being

   cautious around new product introductions. We believe, however, that we will be
   able to make a strong case that BasaFlex™ (which is corrosion proof) can remedy
   the structural failures (such as what occurred in Surfside) associated with
   steel reinforcement corrosion;

· concerns about the current state of our manufacturing capability and our

   ability to deliver product(s).

Our new manufacturing equipment mentioned above is expected to be delivered and the installation and calibration process to commence during the fourth quarter of 2022. The equipment is expected to become fully operational shortly thereafter. We believe the achievement of this would simultaneously resolve questions about our manufacturing capacity and will materially improve our ability to generate sales.

Impact of COVID-19

The pandemic caused by the novel coronavirus (known as "COVID-19") and governmental responses and efforts to curb the spread of the pandemic has caused great disruption to the U.S. national and international economies. We have been adversely impacted by COVID-19 in that we have been required to temporarily suspend operations during 2020 due to necessary quarantines, and the impact of COVID-19 on the construction industry we service has been significant. Government mandated shutdowns and other measures held less of an impact on our business during 2021, although we did have personnel absent for periods during the year due to COVID-19. During the first quarter of 2022, while certain of our personnel did contract COVID-19, overall COVID-19 did not have a material impact on our business, in part because we were operating with reduced personnel and personnel could work remotely in certain cases.

The continued prevalence of COVID-19 or outbreaks of new variants thereof could disrupt our supply chain, as well as our own operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to illness affecting others in our office or plant, or due to additional necessary quarantines. This could be particularly true as we seek to scale operations during 2022 and hire additional personnel. COVID-19 could also impact members of our Board of Directors as well as key providers of services to us, which could adversely impact the management of our affairs. Additionally, as the COVID-19 pandemic continues to develop, we may be required to continue to spend time and resources in monitoring and adhering to government regulations that impact both our company and our customers and potential customers as necessary, which could also adversely impact our business and results of operations. We continue to monitor our operations and applicable government recommendations and requirements.

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Inflation & Interest Rate Sensitivity

In the past two fiscal years, inflation has not had a significant impact on our business. However, during the second half of 2021 and into 2022, the U.S. economy has entered into a period of increasing inflation. Should inflation persist or increase, interest rates may continue to rise, and inflation overall could have a significant effect on the economy in general and the construction industry in particular, as well as create volatility in the capital markets. For example, inflation and increased interests could affect the prices of raw materials we use, demand for our products, our ability to attract and retain skilled labor and our ability to obtain financing. We are carefully watching chemical prices, which are following oil and gas prices, as a core component of BasaFlex™ is the chemical resin mix. Prices have risen, but we have been able to raise our own prices to support our margins, largely as the result of the increase in steel prices. We believe we have actually benefitted from the rapid rise in steel prices over the past several fiscal quarters as well as the reduced availability of steel rebar, both of which changes have opened opportunities to more readily introduce our products into the marketplace. As of the date of this report, BasaFlex™ has become directly competitive with steel on price alone, and it is relatively available, whereas steel has been impacted by raw material supply chain constraints. We will seek to continue to take advantage of these opportunities while high steel prices and restricted supply are prevalent.

Supply Chain

In the past year, supply chain shortages or delays have had an immaterial impact on our operations. Our raw material suppliers have maintained a consistent flow of goods which we receive monthly. Domestic suppliers have increased their in-stock flows to maintain adequate levels with our manufacturing needs. However, we might experience supply chain challenges in the future, which could harm our business and our results of operations.

Supply chain shortages have, however, negatively impacted the scheduled delivery of our new custom manufacturing equipment, which are now scheduled to be installed and calibrated in the fourth quarter of 2022 (we had previously anticipated this process to be completed earlier in 2022). While we believe these supply chain issues are resolved, we still might experience further delays which are beyond our control or that of the machine manufacturer. Such additional delay(s) could further delay the delivery, installation and calibration of our new manufacturing equipment, which in turn would harm our business and/or our results of operations.

War in Ukraine

The recent war in Ukraine has led the world to issue sanctions on the government of Russia. This has shut down our ability to procure basalt fiber material from our secondary supplier in Russia, Kamenny Vek. However, our primary supplier, Mafic, is U.S. based, and has ample capacity to support our current and anticipated future needs with a 100% domestic source of raw materials. We have also recently increased the levels of our safety stock of raw materials as an additional cushion. Nonetheless, we are currently qualifying alternate material from other global suppliers to preserve our options in case of further disruptions.

Government Approvals and Specifying of our Products

We continue to pursue additional product and facility qualifications and approvals, and these qualifications and approvals are critical to the market acceptance of our products. As previously noted, we are currently testing products at two independent laboratories in the pursuit of ICC-ES and FDOT certifications. These also include production facility approvals. ICC-ES approval is expected by the end of September 2022, and FDOT approval by the end of 2022 (including the facility approvals). However, we are already selling to FDOT projects on an individual basis through exemptions or previously issued material specs. Formal FDOT approval will allow us to bid on any FDOT project that is approved to use basalt fiber reinforced polymer products. Until we have obtained these additional approvals, our opportunities to bid on certain projects will be limited.

Need to Expand Management Personnel

During the quarter ended March 31, 2022, our company and Simon R. Kay (who had been serving as our Acting Interim Chief Executive Officer on a consulting basis) entered into a Transition Services Agreement in contemplation of our search for a permanent Chief Executive Officer. On March 25, 2022, our Board of Directors appointed Mr. Kay as our Chief Executive Officer and President. Additionally, Mr. Kay served as Acting Interim Chief Financial Officer and Acting Interim Principal Financial Officer of our company until August 1st, 2022, when we engaged NowCFO (see below).

On August 1, 2022, the Company engaged NowCFO, a third-party consulting firm, to provide chief financial officer services for quarterly reporting and additional accounting matters. However, we believe that hiring a full time Chief Financial Officer is in our company's long term best interests and the Company continues to recruit and interview candidates.

On February 20, 2022, David L. Anderson ("Anderson"), our Executive Vice President and Chief Operating Officer provided written notice to our Board of Directors of his resignation, and on February 24, 2022, we provided written notice to Anderson that his resignation of employment was accepted, effective immediately. As such, Anderson is not affiliated with us as of February 24, 2022, and the position of Chief Operating Officer remains unfilled as of the date of this report. We will need to fill the position of Chief Operating Officer (or similar position) in order to grow our business as planned.

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Results of Operations for the Three Months Ended June 30, 2022, and 2021

Revenue: We had revenue of $288,050 from sales of finished goods for the three months ended June 30, 2022, an increase of $272,501 compared to $15,549 in the prior year. While the increase in revenue in the year over year periods was relatively significant due to our increasing sales success (across all product lines) in 2022, overall revenues continue to be minimal, largely due to our capacity constraints and limited working capital. We continued our efforts to scale our production capacity, increase our sales, and grow finished goods inventory during the period.

Cost of goods sold:Cost of goods sold was $611,163 for the three months ended June 30, 2022, an increase of $591,670 compared to cost of goods sold of $19,493 during the prior period. Cost of goods sold reflects the fixed overhead costs absorbed by manufacturing, at low sales volumes this results in negative margins. Our gross profit during the three months ended June 30, 2022, was negative $323,113 compared to negative $3,944 during the prior period. We expect our gross profit to increase as fixed overhead costs are absorbed over a greater volume of sales.

Sales, general, and administrative: Sales, general, and administrative expenses were $1,035,717 during the three months ended June 30, 2022, a decrease of $411,863 compared to $1,447,580 during the prior period. For the current quarter, sales, general, and administrative costs consisted primarily of professional fees of $286,853; payroll and related costs of $239,145, not including stock-based compensation of $197,633; consulting fees of $82,591; investor relations costs of $49,180; research and development of $42,427; advertising and marketing of $42,099; rent of $30,778; computer and IT costs of $26,187, and office costs of $20,839. The primary reason for the decrease in sales, general, and administrative costs compared to the prior period was $443,436 in overhead and depreciation charges in the prior period; these costs were absorbed by cost of sales during the three months ended June 30, 2022.

Other Income (Expense):

Gain on settlement of legal contingency: There was no gain on legal contingency during the three months ended June 30, 2022. During the prior period, the Company recognized a gain on settlement of legal contingency in the amount of $320,037 in connection with the settlement of accounts payable related to legal matters.

Liquidated damages - loan commitment: During the three months ended June 30, 2022, the company recognized liquidated damages - loan commitment in the amount of $403,643 in connection with our obligations under the terms of our private placement to file a registration statement for an underwritten public offering and concurrent listing on a national stock exchange. There were no such charges during the prior period.

Loss on extinguishment of debt: The Company recognized no loss on extinguishment of debt during the three months ended June 30, 2022, compared to $3,056,892 during the three months ended June 30, 2021. For more information about the transaction leading to the extinguishment of debt refer to footnote 7 of the financial statements included in this Form 10-Q.

Interest expense: Interest expense was $181,589 during the three months ended June 30, 2022, an increase of $48,378 compared to interest expense of $133,211 during the prior period. Interest expense consists of interest on the Company's notes and loans payable along with late fees on past due invoices charged by vendors.

Results of Operations for the Six Months Ended June 30, 2022, and 2021

Revenue: We had revenue of $546,339 from sales of finished goods for the six months ended June 30, 2022, compared to $19,685 in the prior year. While the increase in revenue in the year over year periods was relatively significant due to our increasing sales success (across all product lines) in 2022, overall revenues continue to be small, largely due to our capacity constraints and limited working capital. We continued our efforts to scale our production capacity, increase our sales, and grow finished goods inventory during the period.

Cost of goods sold:Cost of goods sold was $1,196,974 for the six months ended June 30, 2022, an increase of $1,176,165 compared to cost of goods sold of $20,809 during the prior period. Cost of goods sold reflects the fixed overhead costs absorbed by manufacturing, at low sales volumes this results in negative margins. Our gross profit during the six months ended June 30, 2022, was negative $650,635 compared to negative $1,124 during the prior period. We expect our gross profit to increase as fixed overhead costs are absorbed over a greater volume of sales.

Sales, general, and administrative: Sales, general, and administrative expenses were $2,083,095 during the six months ended June 30, 2022, a decrease of $429,352 compared to $2,512,447 during the prior period. For the current six-month period, sales, general, and administrative costs consisted primarily of payroll and related costs of $490,977, not including stock-based compensation of $426,856; professional fees of $386,896; consulting fees of $267,942; research and development of $181,032; investor relations costs of $111,213; advertising and marketing of $71,491; rent of $41,869; computer and IT costs of $41,605; and office costs of $35,160. The primary reason for the decrease in sales, general, and administrative costs compared to the prior period was $443,436 in overhead and depreciation charges in the prior period; these costs were absorbed by cost of sales during the six months ended June 30, 2022.

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Other Income (Expense):

Gain on settlement of legal contingency: There was no gain on legal contingency during the six months ended June 30, 2022. During the prior period, the Company recognized a gain on settlement of legal contingency in the amount of $344,522 in connection with the settlement of accounts payable related to legal matters.

Liquidated damages - loan commitment: During the six months ended June 30, 2022, the company recognized liquidated damages - loan commitment in the amount of $426,759 in connection with our obligations under the terms of our private placement to file a registration statement for an underwritten public offering and concurrent listing on a national stock exchange. There were no such charges during the prior period.

Loss on extinguishment of debt: The Company recognized no loss on extinguishment of debt during the six months ended June 30, 2022, compared to $6,743,015 during the six months ended June 30, 2021. For more information about the transaction leading to the extinguishment of debt refer to footnote 7 of the financial statements included in this Form 10-Q.

Gain on loan forgiveness: There was no gain on loan forgiveness during the six months ended June 30, 2022. The Company recognized a gain on loan forgiveness in the amount of $124,143 during the prior period in connection with a note payable loan on May 21, 2021.

Interest expense: Interest expense was $304,234 during the six months ended June 30, 2022, an increase of $98,360 compared to interest expense of $205,874 during the prior period. Interest expense consists of interest on the Company's notes and loans payable along with late fees on past due invoices charged by vendors.

Liquidity and Capital Resources

Since inception, we have incurred net operating losses and negative cash flow. As of June 30, 2022, we had an accumulated deficit of $49,585,933. We have incurred general and administrative expenses associated with our product development and compliance while concurrently setting up our manufacturing facility, beginning operations, and developing our business plan. We also continue to incur legal fees arising from ongoing activities due to fundraising. We expect operating losses to continue in the short term, and we require additional financing for expanding our manufacturing capability and generally scaling our business until we can generate sufficient revenues to achieve positive cash flow. These conditions raise substantial doubt about our ability to continue as a going concern.

We have historically satisfied our working capital requirements through the sale of restricted Common Stock and the issuance of warrants and promissory notes. We will continue our fundraising efforts until we have obtained positive cash flow to cover our expenses. No assurances can be given that we will be successful in raising capital at all or on terms acceptable to us, or at all, and no assurances can be given that even if we raise capital that we will be able to generate sufficient revenue to become cash flow positive.

Notwithstanding proceeds from the sale of our securities, recent related party equipment lease transaction and warrant and option exercises in 2021 and 2022, our current working capital is extremely limited, and our projected sales revenue (together with our limited working capital) are presently insufficient to maintain our current operations. In order to grow our manufacturing and sales and marketing operations and reach the level of revenue sufficient to provide positive cash flow, we require significant funding of both our expansion plans (which includes the finalization of our current manufacturing expansion plans and potential investments in other manufacturing facilities, as well as increased headcount necessary to operate our manufacturing at planned capacity). This will cover our significant operating deficit while we seek to scale our manufacturing capability, secure orders from known potential customers, and introduce our products to new customers. We will attempt to raise this capital through third party financing, including potential private or public offerings of our securities (including a potential underwritten offering and up list/re-IPO to a national exchange) as well as bridge or other loan arrangements. However, there is a material risk that we will be unable to secure the required capital (whether through an underwritten financing and/or uplisting to a national exchange or otherwise) at all or that the terms of such required financing may be available or acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities to reduce our cash use until sufficient funding is secured. If we are unable to secure funding when needed, our results from operations may suffer, and our business may fail.

As of June 30, 2022, we had cash of $58,893 compared to $109,514 as of December 31, 2021. The decrease in cash was due to our net loss of $3,464,723, offset primarily by $636,466 in non-cash expenses, a $1,227,774 increase in accounts payable and a decrease of $396,683 in inventory. We also raised $1,300,000 pursuant to a private placement of Common Stock and warrants - this amount is carried on the Company's balance sheet as a current liability as of June 30, 2022 because the shares have not yet been issued to the investors. The Company used $742,832 of cash for the purchase of equipment during the period and raised $774,591 from the sales for Common Stock and the exercise of stock options.

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Cash Flows

Net cash used in operating activities amounted to $81,529 and $2,294,501 for the six months ended June 30, 2022, and 2021, respectively. The decrease in net cash used in operating activities was primarily a result of an increase in subscription liability in the amount of $1,300,000 and an increase in accounts payable in the amount of $1,227,774 during the six months ended June 30, 2022.

During the six months ended June 30, 2022, we used $742,832 cash for investing activities compared to $270,330 used in the same period in the prior fiscal year. The increase is largely due to costs associated with the customization, installation, and verification and validation testing of the prototype BasaMax™ pultrusion machine, for the modifications and UL listing of the current production machinery, and the final payments for the enhancements made to our production facility as compared to the deposits made on machinery and equipment.

During the six months ended June 30, 2022, we had $773,740 net cash provided by financing from the sale of Common Stock and warrants for net proceeds of $649,591 and exercise of stock options in the amount of $125,000. During the prior period, cash provided by financing activities was $2,382,726.

We do not believe that our cash on hand as of June 30, 2022, will be sufficient to fund our current working capital requirements to the point where we are generating positive cash flow. We have recently entered into several convertible promissory notes to help fund operations and will require additional working capital in the short term. We continue working towards securing more working capital with a preference towards debt which may be convertible to equity. However, there is no assurance that we will be successful in our efforts or, if we are, that the terms will be beneficial to our shareholders.

Critical Accounting Estimates

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Please see note 2 to the condensed financial statements included in this report.

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