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 three months ended March 31, 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.

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.

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

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 we call BasaMax™. This new system has been designed in two versions, a quad-line system (for smaller bar sizes) and a dual-line system (for larger bar sizes), which not only have double the manufacturing capacity of the current machines, but they also run faster and they fit it 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. We expect to have these new machines in place during the third quarter of 2022. With the introduction of this new equipment and the establishment of our planned two-shift operations, our maximum manufacturing capacity for BasaFlex™ rebar will increase to approximately 128,000 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:

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.

Known Factors, Trends and Risks Impacting Our Business

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:

· the requirement for additional product and facility certifications from ICC

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

· 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

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

Our new manufacturing equipment mentioned above is expected to be installed during the third quarter of 2022, and operational shortly thereafter. This will simultaneously resolve questions about our manufacturing capacity and will materially improve our ability to generate sales.

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.

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 6 to 9 months 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, BasaFlexTM 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.

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.

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, UWF/Kamenny Vek. However, our primary supplier, Mafic, is U.S. based, and has ample capacity to support our current and anticipated future needs with 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 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. We are currently testing products at two independent laboratories in the pursuit of ICC-ES certification and a FDOT production facility approval, all of which is expected by the end of September 2022. We are already selling to FDOT projects on an individual basis through exemptions or specs. The FDOT approval will allow us to bid on any project approved for 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, until we hire a full time Chief Financial Officer, Mr. Kay will serve as Acting Interim Chief Financial Officer of our company.

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.

We presently do not have a separate Chief Financial Officer, and we will need to fill the position of Chief Financial Officer (or similar position) in order to grow our business as planned.

Revenue: We had revenue of $258,289 from sales of finished goods for the three months ended March 31, 2022, compared to $4,136 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: During the three months ended March 31, 2022, we had cost of sales of $585,811 compared to $1,316 in the prior year. We began our production activities in late 2021. The first activities were to build test articles for two sets of independent lab tests, and then the commencement of building finished goods inventory. However, we lost money on a gross margin basis due to normal inefficiencies in the start-up and ramping and scaling process, including limited initial sales volume, and further due to extremely narrow margins on the initial sales of our products as we began introducing them to the marketplace in the first quarter of 2022.

Sales, General, and Administrating Expenses: During the three months ended March 31, 2022, selling, general, and administrative were $1,047,378 compared to $1,064,867 in the prior year. The primary components of selling, general, and administrative expenses were as follows:

· Payroll and related costs: During the three months ended March 31, 2022,

· Stock based compensation: During the three months ended March 31, 2022,

· Consulting fees: During the three months ended March 31, 2022, consulting fees

· Product testing cost: During the three months ended March 31, 2022, product

· Legal fees: During the three months ended March 31, 2022, legal fees were

$32,280 compared to $50,931 in the prior period. Legal fees decreased primarily

due a decrease in litigation in the current period.

· Accounting and audit fees: During the three months ended March 31, 2022

Other Income (expense) During the three months ended March 31, 2022, other income (expense) was ($145,761) compared to ($3,610,158) in the prior year. The components of other income (expense) were as follows:

· Gain on settlement of payable: During the three months ended March 31, 2022, we

· Loss on extinguishment of debt: During the three months ended March 31, 2022,

· Loan forgiveness: During the three months ended March 31, 2022, we had loan

· Interest expense: During the three months ended March 31, 2022 and 2021, we

Since inception, we have incurred net operating losses and negative cash flow. As of March 31, 2022, we had an accumulated deficit of $47,641,871. 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 be cash flow positive.

Notwithstanding proceeds from the sale of our securities, a recent related party equipment lease transaction and warrant and option exercises in 2021 and 2022, current working capital is very 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) as well as our significant operating deficit while we seeking 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 uplist 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 required capital (whether through an underwritten uplist financing 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 of operations may suffer, and our business may fail.

At March 31, 2022, we had cash of $241,408 compared to $109,514 at December 31, 2021. The increase in cash was due to the sale of common stock and warrants which generated net cash proceeds to us of approximately $774,591. Notwithstanding this increase in cash, and although we recently announced on May 9, 2022 that we had raised sufficient capital to purchase our new manufacturing machines, we will require significant additional funding as described above.

Net cash provided by (used in) operating activities amounted to $71,166 and ($920,915) for the three months ended March 31, 2022 and 2021, respectively. The increase in net cash provided by (used in) operating activities was primarily a result of an increase in accounts payable in the amount of $770,746 during the three months ended March 31, 2022 compared to $116,071 in the prior period, and to the $400,000 in proceeds from the private placement offering for which the equity instruments have not yet been issued to the investors.

During the three months ended March 31, 2022, we used $713,863 net cash for investing activities compared to $131,903 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 first BasaMax™ prototype pultrusion machine, for the modifications and UL listing of the 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 three months ended March 31, 2022, we had $774,591 net cash provided by financing from the sale of common stock 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 $1,149,072.

We do not believe that our cash on hand as of March 31, 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.

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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