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 customer leads, product sales, future financings, or the commercial success of our business model. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events 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.

Basanite and its wholly owned subsidiaries are herein referred to as the "Company", "we", "our", or "us".





Overview

This overview 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 six months ended June 30, 2021, and 2020, 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, 2020 and filed with the SEC on March 31, 2021.

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.





18

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.

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.

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. Each Pultrusion machine 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). To date, BI's operations team has successfully optimized and scaled the capacity of our manufacturing plant to produce up to 25,000 linear feet of BasaFlex™ rebar per shift, per day, depending on the product mix. BI's own fully equipped Test Lab is utilized to evaluate, validate, and verify each product's performance attributes.

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; and

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


   of material selections.

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 tragic collapse of a residential building in Surfside, Florida.





19





Impact of COVID-19

The novel coronavirus ("COVID-19") that surfaced in December 2019 and spread throughout the world resulted in our company undergoing a 2-month operational shutdown early in the second quarter of 2020, with normal business operations resuming in June 2019. A second coronavirus related event occurred early in the fourth quarter of 2020, when two employees tested positive for COVID-19 and we became concerned they had potentially exposed the others. Out of an abundance of caution, we temporarily shut down operations for one week and entered a 10-day quarantine period (during this time certain key employees remained active, working from home). We strictly followed CDC guidelines for required quarantining periods and testing of all employees before re-opening. Notwithstanding this, since the beginning of the third quarter of 2020, COVID-19 has not materially impacted our operations or those of our third-party partners. However, the continued spread of variants of the virus could negatively impact the manufacturing, supply, distribution and sale of our products and our financial results in the future. The extent to which COVID-19 may impact the construction industry, our operations or the operations of our third-party partners will depend on future developments, which are uncertain and cannot be predicted with confidence.





Results of Operations

Revenue - The Company had $15,549 of revenues as a result of sales for the three months ended June 30, 2021 compared to $593 for the same period in the prior year and $19,685 of revenues as a result of sales of finished goods sold for the six months ended June 30, 2021 compared to $2,218 for the same period in the prior year. Revenues have been minimal as a result of the Company's focus on the scaling of production and inventory.

Cost of goods sold - During the three and six months ended June 30, 2021, the Company had cost of sales of $19,493 and $20,809 compared to $1,603 and $2,222, respectively for the same period in the prior year.

For the three months ended June 30, 2021, the Company had a gross margin from operations in the amount of $3,944 compared to a gross margin in the amount of $1,010 in the same period of the prior year.

For the six months ended June 30, 2021, the Company had a gross margin from operations in the amount of $1,124 compared to a gross margin in the amount of $4 in the same period of the prior year.

The Company has small margins as it sold existing inventory while preparing for the scaling the manufacture of BasaFlex™.





Operating Expenses

Professional fees - During the three months ended June 30, 2021, professional fees were $79,355 compared to $53,016 for the same period in the prior year. During the six months ended June 30, 2021, professional fees were $193,087 compared to $162,874 for the same period in the prior year. The Company has increased fees as it relates to legal fees with the ongoing litigation, and new supplier and consulting agreements as it tries to secure relationships in the industry.

Payroll and payroll taxes - During the three months ended June 30, 2021, payroll and payroll taxes were $300,683 compared to $162,455 for the same period in the prior year. During the six months ended June 30, 2021, payroll and payroll taxes were $554,798 compared to $399,886 for the same period in the prior year. The company retained a total of 27 employees at the period end June 30, 2021 as compared to 9 employees at the close of the June 30, 2020 period.

Consulting - During the three months ended June 30, 2021, consulting fees were $117,375 compared to $81,875 in the prior year. During the six months ended June 30, 2021, consulting fees were $230,625 compared to $98,938 in the prior year. The increase is due to additional consulting agreements: our Chief Executive Officer is currently compensated as a consultant. The Company's previous Chief Executive Officer was compensated as an employee. The Company has also retained a capital markets consultant to assist in financial planning and fundraising.

General and administrative - During the three months ended June 30, 2021, general and administrative expenses were $972,342 compared to $283,034 for the same period in the prior year. During the six months ended June 30, 2021, general and administrative expenses were $1,556,112 compared to $500,987 for the same period in the prior year. The increase is largely due to an increase in stock-based compensation expense.





20





Other Income

Gain on settlement of legal contingency - During the three months ended June 30, 2021, the Company had a gain of $320,037 compared to $0 for the same period in the prior year. During the six months ended June 30, 2021, the Company had a gain of $344,522 compared to $0 for the same period in the prior year. The increase in the current year is largely due to the writing off of payables that had finalized with regards to legal matters in 2021.

Loan forgiveness - During the three months ended June 30, 2021, the Company had forgiveness of $0 compared to $0 for the same period in the prior year. During the six months ended June 30, 2021, the Company had forgiveness of $124,143 compared to $0 for the same period in the prior year. The balance increased due to the forgiveness from activities related to a note payable loan on May 21, 2021.

Miscellaneous Income -During the three months ended June 30, 2021, the Company had forgiveness of $3,116 compared to $0 for the same period in the prior year. During the six months ended June 30, 2021, the Company had forgiveness of $3,116 compared to $70,187 for the same period in the prior year. The balance increased due to a credit of materials damaged in transit from a primary vendor of the company.





Other Expenses

Loss on Extinguishment of Debt - During the three months ended June 30, 2021, the Company had a gain of $3,056,892 compared to $980 for the same period in the prior year. During the six months ended June 30, 2021, the Company had a loss of $6,743,015 compared to $980 for the same period in the prior year. For more information about the transaction leading to the extinguishment of debt refer to footnote 6 of the financial statements included in this Form 10-Q.

Interest expense - During the three months ended June 30, 2021, interest expense was $133,211 compared to $201,007 for the same period in the prior year. During the six months ended June 30, 2021, interest expense was $205,874 compared to $251,830 for the same period in the prior year. The decrease is due to the volume of lending committed to during the second quarter of 2021.

Liquidity and Capital Resources

Since inception, we have incurred net operating losses and negative cash flow. As of June 30, 2021, the Company had an accumulated deficit of $38,634,066. The Company has 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. The Company also continues 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 continued support of our BasaFlex™ manufacturing 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 be cash flow positive.

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™. Some of these inquiries would be for very large potential orders for new, multi-year construction projects. Based on our current limited manufacturing capacity (which we plan to begin to expand with the net proceeds of our private placement offering), these inquiries (if they lead to actual orders) would exceed our capability to deliver within the customer's requested timeframe, and largely because of this, there is no guarantee that orders will actually be received.

Notwithstanding proceeds from the sale of our common stock this year, current working capital and projected sales revenue are insufficient to maintain our current operations. In order to scale up operations and reach the level of sales revenue sufficient to provide positive cash flow, we require funding of both our expansion plan and our operating deficit through the period while we are scaling our manufacturing capability. We will attempt to raise this capital through third party financing, including potential private or public offerings of our securities as well as bridge or other loan arrangements. We cannot provide any assurances that required capital will be obtained at all or that the terms of such required financing 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.

At June 30, 2021, the Company had cash of $77,400 compared to $259,505 at December 31, 2020. Subsequent to the quarter end, we closed a private placement on August 17, 2021 that generated net cash proceeds to us of approximately $4,770,000.





21





Cash Flows

Net cash used in operating activities amounted to $2,294,501 and $1,040,380 for the six months ended June 30, 2021, and 2020, respectively. In the current period a loss was recorded related to the issuance of warrants at fair value issued as compensation for the extension of the maturity date of an amended note.

During the six months ended June 30, 2021, net cash used for investing activities were $270,330 compared to $59,377 for the same period in the prior year. The increase is largely due to costs associated with the customization, installation, and verification and validation testing of the first BasaMax™ prototype pultrusion machine.

During the six months ended June 30, 2021, we had $2,382,726 net cash provided by financing activities compared to $1,087,088 in the prior year. Issuance of common shares for $331,776, and $123,500 from warrants exercised; borrowing of $579,741 from the issuance of convertible and short-term notes payable, including from related parties; less $35,000 of a full repayment of convertible notes; and less $8,485 of partial repayment of notes payable provided the net cash during the six months ended June 30, 2021. Further the Company borrowed $1,091,194 from the issuance of notes payable, including from related parties. Additionally, the Company borrowed $300,000 in notes payable which was later exchanged for 6,000,0000 five-year warrants on May 21, 2021.

We do not believe that our cash on hand as of June 30, 2021, will be sufficient to fund our current working capital requirements as we try to develop our fiber reinforced polymer rebar manufacturing business. We entered into promissory notes and issued restricted common shares in an effort to raise additional working capital. Additionally, the Company entered into an agreement with Aegis Capital, LLC to secure working capital for equipment and manufacturing improvements. See Note 13 - Subsequent Events in the accompanying condensed consolidated financial statements for more details on recent financing activity. We will continue working towards securing more working capital. However, there is no assurance that we will be successful in securing working capital or, if we are, that the terms will be beneficial to our shareholders.





Risk Factors

Investing in our securities is speculative and involves a high degree of risk. You should carefully consider the risk factors included in the Company's annual report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 31, 2021, before deciding whether to invest in the Company. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition.

© Edgar Online, source Glimpses