UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June~~September 30, 2021

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

Commission File Number: 000-53574

———————

Basanite, Inc.

(Exact name of registrant as specified in its charter)

———————

Nevada	20-4959207
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

2041 NW 15th Avenue, Pompano Beach, Florida 33069

(Address of Principal Executive Office) (Zip Code)

(954) 532-4653

(Registrant’s telephone number, including area code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

———————

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ¨

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Shares Outstanding as of ~~August 21,~~November 15, 2021
Common Stock, $0.001 par value per share		248,520,598

BASANITE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page No.
	PART I. – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2021 (Unaudited) and December 31, 2020	1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and ~~Six~~Nine Months ended ~~June~~September 30, 2021 and 2020	2
	Condensed Consolidated Statements of Stockholder’s ~~Deficit~~Equity (Deficit) (Unaudited) for ~~Six~~Nine Months ended ~~June~~September 30, 2021 and 2020	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020	45
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2321
Item 4.	Controls and Procedures	2321

	PART II. – OTHER INFORMATION

Item 1.	Legal Proceedings	2423
Item 1A.	Risk Factors	2523
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2523
Item 3.	Defaults Upon Senior Securities	2623
Item 4.	Mine Safety Disclosures	2623
Item 5.	Other Information	2623
Item 6.	Exhibits	2724
Signatures		2825

PART I. – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

BASANITE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~JUNE~~SEPTEMBER 30, 2021 (UNAUDITED) AND DECEMBER 31, 2020

June 30,
2021 December 31,
2020,
(Unaudited)
ASSETS

CURRENT ASSETS
Cash $ 77,400 $ 259,505
Accounts receivable, net 8,509 1,907
Inventory 678,159 446,575
Prepaid expenses 129,915 40,283
Deposits and other current assets 278,323 75,995
TOTAL CURRENT ASSETS 1,172,306 824,265

Lease right-of-use asset 881,666 1,004,167
Fixed assets, net 1,226,440 1,020,035
Total Long-Term Assets 2,108,106 2,024,202

TOTAL ASSETS $ 3,280,412 $ 2,848,467
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable $ 358,916 $ 249,353
Accrued expenses 136,950 197,350
Accrued legal liability 503,286 809,127
Notes payable 787,412 128,021
Notes payable – related party 300,000 0
Notes payables - convertible, net 0 10,000
Notes payable - convertible - related party, net 1,689,746 1,025,000
Subscription liability — 40,000
Lease liability - current portion 209,034 267,289
TOTAL CURRENT LIABILITIES 3,985,344 2,726,140

Lease liability - net of current portion 756,793 826,388
TOTAL LIABILITIES 4,742,137 3,552,528

STOCKHOLDERS’ DEFICIT
Preferred stock, $0.001 par value, 5,000,000 shares authorized, NaN issued and outstanding — —
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 228,522,454 and 224,836,785 shares issued and outstanding, respectively 228,523 224,838
Additional paid-in capital 36,943,818 28,714,488
Accumulated deficit (38,634,066 ) (29,643,387 )
TOTAL STOCKHOLDERS' DEFICIT (1,461,725 ) (704,061 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,280,412 $ 2,848,467


	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	1,308,227		$	259,505
Accounts receivable, net		35,963			1,907
Inventory		654,128			446,575
Prepaid expenses		76,546			40,283
Deposits and other current assets		266,199			75,995
TOTAL CURRENT ASSETS		2,341,063			824,265

Lease right-of-use asset		816,703			1,004,167
Fixed assets, net		2,611,376			1,020,035
Total long term assets		3,428,079			2,024,202

TOTAL ASSETS	$	5,769,142		$	2,848,467

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	150,184		$	249,353
Accrued expenses		210,413			197,350
Accrued legal liability		165,000			809,127
Notes payable		478,704			128,021
Notes payable – related party		300,000			0
Notes payable - convertible, net		0			10,000
Notes payable - convertible - related party, net		1,689,746			1,025,000
Subscription liability		—			40,000
Lease liability - current portion		308,697			267,289
TOTAL CURRENT LIABILITIES		3,302,744			2,726,140

Lease liability - net of current portion		587,972			826,388

TOTAL LIABILITIES		3,890,716			3,552,528

STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 5,000,000 shares authorized, NaN issued and outstanding		—			—
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 248,520,598 and 224,836,785 shares issued and outstanding, respectively as of September 30, 2021, and December 31, 2020		248,522			224,838
Additional paid-in capital		41,936,255			28,714,488
Accumulated deficit		(40,306,351	)		(29,643,387	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		1,878,426			(704,061	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	5,769,142		$	2,848,467

The accompanying notes are an integral part of the condensed consolidated financial statements.

BASANITE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE ~~& SIX~~AND NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)


	For the three months ended						For the six months ended						For the three months ended						For the nine months ended
	June 30,						June 30,						September 30,						September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Revenue
Products Sales - Rebar	$	15,549		$	593		$	19,685		$	2,218
Products Sales - rebar													$	155,477		$	2,408		$	175,162		$	4,626

Total cost of goods sold		19,493			1,603			20,809			2,222
Total Cost of goods sold														176,994			919			194,687			3,065

Gross loss		(3,944	)		(1,010	)		(1,124	)		(4	)
Gross (loss) profit														(21,517	)		1,489			(19,525	)		1,561

OPERATING EXPENSES

Professional fees		79,355			53,016			193,087			162,874			382,233			127,294			575,320			290,168
Payroll, taxes and benefits		300,683			162,455			554,798			399,886			301,732			107,284			856,530			507,170
Consulting		117,375			81,875			230,625			98,938			173,050			71,260			403,675			170,198
General and administrative		950,167			283,034			1,533,937			500,987			775,941			402,217			2,309,878			903,279
Total operating expenses		1,469,755			580,380			2,534,622			1,162,685			1,632,956			708,055			4,145,403			1,870,815

NET LOSS FROM OPERATIONS		(1,451,524	)		(581,390	)		(2,513,571	)		(1,162,689	)		(1,654,473	)		(706,566	)		(4,164,928	)		(1,869,254	)

OTHER INCOME (EXPENSE)
Gain on settlement of legal contingency		320,037			—			344,522			—			94,127			40,838			438,649			40,838
Miscellaneous income		3,116			—			3,116			70,817			—			—			—			70,817
Loss (gain) on extinguishment of debt		(3,056,892	)		980			(6,743,015	)		980
Gain on settlement of payable														8,131			292,112			8,131			292,112
Loss on extinguishment of debt														—			(63,914	)		(6,743,015	)		(62,934	)
Loan forgiveness		—			—			124,143			—			—			—			124,143			—
Interest expense		(133,211	)		(201,007	)		(205,874	)		(251,830	)		(120,070	)		(550,094	)		(325,944	)		(801,925	)
Total other income (expense)		(2,866,950	)		(200,027	)		(6,477,108	)		(180,033	)
Total other expense														(17,812	)		(281,058	)		(6,498,036	)		(461,092	)

NET LOSS		(4,318,474	)		(781,417	)		(8,990,679	)		(1,342,722	)	$	(1,672,285	)	$	(987,624	)	$	(10,662,964	)	$	(2,330,346	)

Net loss per share – basic and diluted		(0.019	)		(0.003	)		(0.039	)		(0.007	)
Net loss per share - basic and diluted													$	(0.007	)	$	(0.005	)	$	(0.046	)	$	(0.011	)

Weighted average number of shares outstanding - basic and diluted		227,837,337			234,917,946			227,115,792			205,202,856			238,136,804			213,142,631			233,829,833			207,868,768

The accompanying notes are an integral part of the condensed consolidated financial statements.

BASANITE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ~~DEFICIT~~EQUITY (DEFICIT)

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)


									Additional					Total
	Preferred Stock				Common Stock				Paid-in		Accumulated			Stockholders'
	Shares		Par Value		Shares		Par Value		Capital		Deficit			Equity (Deficit)

Balance January 1, 2021		—	$	—		224,836,785	$	224,838	$	28,714,488	$	(29,643,387	)	$	(704,061	)

Warrants exercised for cash		—		—		1,000,000		1,000		122,500		—			123,500
Stock-based compensation		—		—		600,000		600		173,400		—			174,000
Stock issued for cash		—		—		450,000		450		89,550		—			90,000
Warrants issued		—		—		—		—		3,686,123		—			3,686,123
Net loss		—		—		—		—		—		(4,672,205	)		(4,672,205	)

Balance March 31, 2021		—		—		226,886,785		226,888		32,786,061		(34,315,592	)		(1,302,643	)

Stock issued for cash		—		—		735,669		735		241,041		—			241,776
Stock-based compensation		—		—		900,000		900		554,625		—			555,525
Warrants issued		—		—		—		—		3,362,091		—			3,362,091
Net loss		—		—		—		—		—		(4,318,474	)		(4,318,474	)

Balance June 30, 2021		—		—		228,522,454		228,523		36,943,818		(38,634,066	)		(1,461,725	)

Stock issued for cash		—		—		19,398,144		19,399		4,703,487		—			4,722,886
Stock-based compensation		—		—		600,000		600		288,950		—			289,550
Net loss		—		—		—		—		—		(1,672,285	)		(1,672,285	)

Balance September 30, 2021		—	$	—		248,520,598	$	248,522	$	41,936,255	$	(40,306,351	)	$	1,878,426

The accompanying notes are an integral part of the condensed consolidated financial statements.

BASANITE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

Additional Total
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Par Value Shares Par Value Capital Deficit Deficit

Balance January 1, 2020 — $ — 200,735,730 $ 200,736 $ 24,216,042 $ (25,444,056 ) $ (1,027,278 )

Net loss — — — — — (561,305 ) (561,305 )

Balance March 31, 2020 — — 200,735,730 200,736 24,216,042 (26,005,361 ) (1,588,583 )

Stock issued for cash — — 6,040,614 6,041 610,626 — 616,667

Return of shares issued as loan committee fee — — (1,300,000 ) (1,300 ) (128,700 ) — (130,000 )

Convertible debt and debt discount — — 3,125,201 3,125 761,932 — 765,057

Net loss — — — — — (781,417 ) (781,417 )

Balance June 30, 2020 — $ — 208,601,545 $ 208,602 $ 25,459,900 $ (26,786,778 ) $ (1,118,276 )

Additional Total
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Par Value Shares Par Value Capital Deficit Deficit

Balance January 1, 2021 — $ — 224,836,785 $ 224,838 $ 28,714,488 $ (29,643,387 ) $ (704,061 )

Warrants exercised for cash — — 1,000,000 1,000 122,500 — 123,500

Stock-based compensation — — 600,000 600 173,400 — 174,000

Stocks issued for cash — — 450,00 450 89,550 — 90,000

Warrants issued with Debt — — — — 3,686,123 — 3,686,123

Net loss — — — — — (4,672,205 ) (4,672,205 )

Balance March 31, 2021 — — 226,886,785 226,888 32,786,061 (34,315,592 ) (1,302,643 )

Stock issued for cash — — 735,669 735 241,041 — 241,776

Stock-Based Compensation — — 900,000 900 554,625 — 555,525

Warrant Issued with Debt — — — — 3,362,091 — 3,362,091

Net loss — — — — — (4,318,474 ) (4,318,474 )

Balance June 30, 2021 — $ — 228,522,454 $ 228,523 $ 36,943,818 $ (38,634,066 ) $ (1,461,725 )

											Additional						Total
	Preferred Stock				Common Stock						Paid-in			Accumulated			Stockholders'
	Shares		Par Value		Shares			Par Value			Capital			Deficit			Equity (Deficit)

Balance January 1, 2020		—	$	—		200,735,730		$	200,736		$	24,216,042		$	(25,444,056	)	$	(1,027,278	)

Net loss		—		—		—			—			—			(561,305	)		(561,305	)

Balance March 31, 2020		—		—		200,735,730			200,736			24,216,042			(26,005,361	)		(1,588,583	)

Stock issued for cash		—		—		6,040,614			6,041			610,626			—			616,667
Return of shares issued as loan committee fee		—		—		(1,300,000	)		(1,300	)		(128,700	)		—			(130,000	)
Conversion of convertible debt and debt discount		—		—		3,125,201			3,125			761,932			—			765,057
Net loss		—		—		—			—			—			(781,417	)		(781,417	)

Balance June 30, 2020		—		—		208,601,545			208,602			25,459,900			(26,786,778	)		(1,118,276	)

Stock issued for cash		—		—		163,043			163			29,837			—			30,000
Warrants exercised for cash		—		—		500,000			500			37,000			—			37,500
Conversion of convertible debt and debt discount		—		—		5,138,557			5,139			1,147,784			—			1,152,923
Net loss		—		—		—			—			—			(987,624	)		(987,624	)

Balance September 30, 2020		—	$	—		214,403,145		$	214,404		$	26,674,521		$	(27,774,402	)	$	(885,477	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

BASANITE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)


	For the nine months ended
	September 30,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,662,964	)	$	(2,330,346	)
Adjustments to reconcile net loss to net cash used in operating activities:
Lease right-of-use asset amortization		187,464			160,856
Depreciation		96,355			85,875
Amortization of debt discount		—			674,202
Gain on settlement of legal contingency		(438,649	)		(40,838	)
Gain on settlement payable		(8,131	)		—
Loss on extinguishment of debt		6,743,015			62,934
Loan forgiveness		(124,143	)		—
Stock-based compensation		1,019,075			78,590
Changes in operating assets and liabilities:
Prepaid expenses		(36,263	)		(14,499	)
Inventory		(207,553	)		(46,173	)
Accounts receivable		(34,056	)		—
Other current assets		(9,004	)		4,955
Accounts payable and accrued expenses		(167,424	)		(174,174	)
Subscription liability		(40,000	)		90,000
Lease liability		(197,008	)		(164,310	)
Net cash used in operating activities		(3,879,286	)		(1,612,928	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		(1,687,696	)		(115,956	)
Deposits on machinery and equipment		(181,200	)		—
Net cash used in investing activities		(1,868,896	)		(115,956	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock		5,054,662			684,167
Proceeds from warrants exercised for cash		123,500			—
Repayment of convertible notes payable and convertible notes payable related party		(35,000	)		(348,000	)
Proceeds from notes payable and notes payable related party		1,491,194			166,727
Proceeds from convertible notes payable and convertible notes payable related party		579,741			1,720,000
Repayment of notes payable and notes payable related party		(417,193	)		(47,250	)
Net cash provided by financing activities		6,796,904			2,175,644

NET INCREASE IN CASH		1,048,722			446,760
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		259,505			129,152
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,308,227		$	575,912

Supplemental cash flow information:
Cash paid for interest	$	—		$	34,747
Forgiveness of Paycheck Protection Program loan and accrued interest	$	124,143		$	—

Supplemental disclosure of non-cash investing and financing activities:
Conversion of notes payable into common stock	$	1,487,386		$	150,000
Return of loan commitment shares	$	—		$	(130,000	)
Issuance of warrants for services	$	143,595		$	—
Recording of debt discount on convertible notes	$	—		$	685,000
Conversion of convertible notes payable into common stock	$	—		$	961,373
Conversion of note payable in exchange for cash	$	300,000		$	—

The accompanying notes are an integral part of the condensed consolidated financial statements.

~~BASANITE, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~FOR THE SIX MONTHS ENDED JUNE 30, 2021, AND 2020~~

~~(UNAUDITED)~~

For the six months ended
June 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,990,679 ) $ (1,342,722 )
Adjustments to reconcile net loss to net cash used in operating activities:
Lease right-of-use asset amortization 122,501 105,184
Depreciation 63,925 55,774
Amortization of debt discount — 186,237
Gain on settlement of legal contingency (344,522 ) —
Loss (gain) on extinguishment of debt 6,743,015 (980 )
Loan forgiveness (124,143 ) —
Stock-based compensation 729,525 —
Changes in operating assets and liabilities:
Prepaid expenses (89,632 ) (33,252 )
Inventory (231,584 ) 15,639
Accounts receivable (208,930 ) —
Other current assets — 47,888
Accounts payable and accrued expenses (203,873 ) 33,339
Subscription liability (40,000 ) —
Lease liability (127,850 ) (107,487 )
Net cash used in operating activities (2,294,501 ) (1,040,380 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (270,330 ) (59,377 )
Net cash used in investing activities (270,330 ) (59,377 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 331,776 616,667
Proceeds from warrants exercised for cash 123,500 —
Repayment of convertible notes payable and convertible notes payable related party (35,000 ) (348,000 )
Proceeds from notes payable and notes payable related party 1,391,194 266,727
Proceeds from convertible notes payable and convertible notes payable related party 579,741 585,000
Repayment of notes payable and notes payable related party (8,485 ) (33,306 )
Net cash provided by financing activities 2,382,726 1,087,088

NET INCREASE (DECREASE) IN CASH (182,105 ) (12,669 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 259,505 129,152

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 77,400 $ 116,483

Supplemental cash flow information:
Cash paid for interest $ 4,016 $ 34,747
Forgiveness of Paycheck Protection Program loan and accrued interest 124,143 —

~~The accompanying notes are an integral part of the condensed consolidated financial statements.~~

~~BASANITE, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)~~

~~FOR THE SIX MONTHS ENDED JUNE 30, 2021, AND 2020~~

~~(UNAUDITED)~~

For the six months ended
June 30,
2021 2020
Supplemental disclosure of non cash investing and financing activities:
Return of loan commitment shares $ — $ (130,000 )
Issuance of warrants for services 64,045 —
Recording of debt discount on convertible notes — 685,000
Conversion of convertible notes payable into common stock — 80,057
Conversion of note payable in exchange for warrants 305,199 —

~~The accompanying notes are an integral part of the condensed consolidated financial statements.~~

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN

(A) Description of Business

Basanite, Inc., a Nevada corporation (the “Company”, “Basanite”, “we”, “us”, “our” or similar terminology), through our wholly owned subsidiary, Basanite Industries, LLC, a Delaware limited liability company (“BI”), manufactures a range of “green” (environmentally friendly), sustainable, non-corrosive, lightweight, composite products used in concrete reinforcement by the construction industry. Our core product is BasaFlex™, a basalt fiber reinforced polymer reinforcing bar (“rebar”) which we believe is a stronger, lighter, sustainable, non-conductive and corrosion-proof alternative to traditional steel.

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

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

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

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

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

BasaFlex™ never corrodes: steel reinforcement products rust, leading to spalling and significant repair costs down the road;

BasaFlex™ is sustainable: BasaFlex™ is made from Basalt rock, the most abundant rock found on Earth’s surface, and offers a longer product lifecycle than traditional steel (the lack of corrosion allows the life span of concrete products reinforced with BasaFlex to be significantly longer);

BasaFlex™ is “green”: From mining, through production, to installation at the building site, BasaFlex™ has an exceptionally low carbon footprint when compared with that of steel; and

BasaFlex™ has a lower in-place cost: the physical nature of our products relative to steel result in a lower net cost to the contractor once installed, such as: BasaFlex™ is one-quarter of the weight of equivalent sized steel, meaning 4 times the quantity of material can be delivered by the same truck (or container); all Basanite products can be loaded/unloaded and moved around the jobsite by hand – no expensive handling equipment is needed; less concrete is required as BasaFlex™ does not require the extra concrete cover needed when using steel; and Basanite products are safer and easier to use. We believe all these factors materially reduce the net in-place cost of concrete reinforcement.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)

(B) Liquidity and Management ~~Plan~~Planss

Since inception, the Company has incurred net operating losses and used cash in operations. As of ~~June~~September 30, 2021, and December 31, 2020, respectively, the Company reported:

an accumulated deficit of $~~38,634,066~~40,306,351 and $29,643,387;

a working capital deficiency of $~~2,813,038~~961,681 and $1,901,875; and

cash used in operations of $~~2,294,501~~3,879,286 and $2,799,499.

Losses have principally occurred as a result of the substantial resources required for product research and development and for marketing of the ~~Company's~~Company’s products; including the general and administrative expenses associated with the organization.

While we have generated relatively little revenue to date, we continue to receive inquiries from a range of customers for our products, indicating what we believe is a significant level of market interest for BasaFlex™. ~~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 described in note 13 below), 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.

We have historically satisfied our working capital requirements through the sale of restricted common stock and the issuance of warrants and promissory notes. Until we are able to internally generate meaningful revenue and positive cash flow, we will attempt to fund working capital requirements through third party financing, including through potential private or public offerings of our securities as well as bridge or other loan arrangements. However, a number of factors continue to hinder the Company’s ability to attract new capital investment. We cannot provide any assurances that the required capital will be obtained at all, or that the terms of such required capital may be acceptable to us. If we are unable to obtain adequate financing, we may reduce our operating activities to reduce our cash use until sufficient funding is secured. If we are unable to secure funding when needed, our results of operations may suffer, and our business may fail.

These conditions raise substantial doubt about the ~~Company's~~Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. ~~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.~~

At ~~June~~September 30, 2021, the Company had cash of $~~77,400~~1,308,227 compared to $259,505 at December 31, 2020. ~~Subsequent to June~~During the quarter ended September 30, 2021, cash on hand was increased due to the closing of our private placement offering in August 2021 (see note 13).

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Use of Estimates in Financial Statements

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

Stock-based compensation and stock awards related to convertible debt instruments are recognized based on the fair value of the awards granted. The fair value of each award or conversion feature is typically estimated on the grant date using the Black-Scholes pricing model. The Black-Scholes pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates and the expected dividend yield of our common stock. The assumptions used to determine the fair value of the stock awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(B) Principles of Consolidation

The condensed consolidated financial statements include the accounts of Basanite, Inc. and its wholly owned subsidiaries, Basanite Industries, LLC and Basalt America, LLC. All intercompany balances have been eliminated in consolidation. The Company’s operations are conducted primarily through Basanite Industries, LLC. Basalt America, LLC is currently inactive.

(C) Cash

The Company considers all highly liquid temporary cash instruments with an original maturity of three months or less to be cash equivalents. The Company places its cash, cash equivalents and restricted cash on deposit with financial institutions in the United States, which are insured by the Federal Deposit Insurance Company ("“("FDIC") up to $250,000. The ~~Company's~~Company’s credit risk in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on deposit. Management monitors the financial institutions credit worthiness in conjunction with balances on deposit to minimize risk. The Company from time to time may have amounts on deposit in excess of the insured limits.

(D) Inventories

The Company’s inventories consist of raw materials, work in process and finished goods, both purchased and manufactured. Inventories are stated at ~~the~~ lower of cost or net realizable value. Cost is determined on the first-in, first-out basis. Raw materials inventoryconsists ~~primarily~~ of basalt fiber and other necessary elements to produce the basalt rebar. On a quarterly basis, the Company analyzes its inventory levels and records allowances for inventory that has become obsolete and inventory that has a cost basis in excess of the expected net realizable value.

The Company’s inventory at ~~June~~September 30, 2021 and December 31, 2020 was comprised of:

Schedule of Inventory
June 30,
2021
December 31,
2020

(Unaudited)
Finished goods $ 575,360 $ 305,550
Work in process 23,932 35,286
Raw materials 78,867 105,739
Total inventory $ 678,159 $ 446,575

Schedule of Inventory
	September 30, 2021		December 31, 2020
	(Unaudited)
Finished goods	$	515,077	$	305,550
Work in process		47,233		35,286
Raw materials		91,818		105,739
Total inventory	$	654,128	$	446,575

(E) Fixed assets

Fixed assets consist of the following:

Schedule of Fixed Assets
	June 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020
	(Unaudited)						(Unaudited)
Computer equipment	$	117,141		$	15,780		$	117,141		$	15,780
Machinery		686,237			667,536			686,237			667,536
Leasehold improvements		163,882			161,579			163,882			161,579
Office furniture and equipment		71,292			71,292			71,292			71,292
Land improvements		7,270			7,270			7,270			7,270
Website development		2,500			2,500			2,500			2,500
Construction in process		382,915			234,950			1,800,281			234,950
Total fixed assets		1,431,237			1,160,907
								2,848,603			1,160,907
Accumulated depreciation		(204,797	)		(140,872	)		(237,227	)		(140,872	)
Total fixed assets, net	$	1,226,440		$	1,020,035
							$	2,611,376		$	1,020,035

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Depreciation expense for the three and ~~six~~nine months ended ~~June~~September 30, 2021 was $~~32,216~~32,430 and $~~63,925~~96,355, respectively, compared to $~~29,947~~30,102 and $~~55,774~~85,875 to the three and ~~six~~nine months ended ~~June~~September 30, 2020.

(F) Deposits and other current assets

The Company’s deposits and other current assets consist of the deposits made on equipment, security deposits, utility deposits and other receivables. The deposits are reclassified as part of the fixed asset cost when received and placed into service.

(G) Loss Per Share

The basic loss per share is calculated by dividing the ~~Company’s~~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~~Company's net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

The following are potentially dilutive shares not included in the loss per share computation:

Schedule of Dilutive Shares Not Included in Loss Per Share Computation
	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
	(Unaudited)				(Unaudited)
Options		4,727,778		4,542,500		4,727,778		4,542,500
Warrants		78,620,378		38,920,378		117,691,666		38,920,378
Convertible shares		173,579,371		112,233,406
		256,927,527		155,696,284
Convertible securities						182,403,859		112,233,406
Total						304,823,303		155,696,284

(H) Stock-Based Compensation

The Company recognizes compensation costs to employees under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. Under FASB ASC Topic 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the grant.

The Company entered into a consulting agreement with Bridgeview Capital on July 9, 2020, for strategic planning and financial markets services in exchange for shares of restricted common stock as compensation. The term of the agreement is for six months with the option for renewal quarterly. Upon execution of the agreement, 600,000 shares were due within 5 days of execution. The execution date fair value of the shares was $0.29 per share or $174,000. If the Company agrees to renew each quarter, an additional 350,000 shares are to be issued per quarter. On July 9, 2021, the Company agreed to renew another quarter and issued 350,000 restricted common shares per the agreement. The ~~execution~~renewal date fair value of the shares was $~~0.23~~0.35 per share or $~~80,500~~122,500.

The Company entered into a consulting agreement with Seth Shaw on October 13, 2020, for strategic planning and financial markets services in exchange for shares of restricted common ~~stock as compensation.~~stock. The term of the agreement is for six months with the option for renewal quarterly. Upon execution of the agreement, no shares were due to be issued. If the Company agrees to renew each quarter, 250,000shares are to be issued per quarter. On July 9, 2021, the Company agreed to renew another quarter and issued 250,000restricted common shares per the agreement. The ~~execution~~renewal date fair value of the shares was $~~0.23~~0.35 per share or $~~57,500~~87,500.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company entered into a renewed consulting agreement with Frederick Berndt on September 3, 2021, for strategic planning and financial markets services in exchange for shares of restricted common stock and cash compensation of $12,500 per month. The term of the agreement is for twelve months with the option for renewal quarterly for a maximum of two years from the effective date of the agreement. Previously, The Company entered into a consulting agreement with Frederick Berndt on May 12, 2021 for capital markets advisory services in exchange for restricted warrants to purchase shares of common stock as compensation. The term of the agreement is for twelve months with the option for renewal for an additional six months as needed. If the Company agrees to renew every twelve months, 250,000 warrants are to be issued at that time. On May 12, 2021, the Company issued 250,000 restricted common share warrants per the agreement. The execution date fair value of the warrants was $0.256 per warrant or $64,045.

The Company entered into a consulting agreement with Integrous Communications on May 17, 2021 for investor communications services in exchange for shares of restricted common stock as compensation. The termUpon execution of the renewed agreement, is275,000 warrants were issued for ~~six months with~~ the ~~option for renewal for an additional six months as needed. If the Company agrees to renew every six months,~~ ~~300,000~~ ~~shares are to be issued at that time. On June 10, 2021, the Company issued~~ ~~300,000~~ ~~restricted common shares per the agreement.~~previous agreement’s fulfillment. The execution date fair value of the ~~shares~~warrants was $~~0.299~~0.29 per ~~share~~warrant or $~~89,700~~79,550.

~~On May 20, 2021,~~(I) Revenue Recognition

We recognize revenue when control of the ~~Company issued~~ ~~777,778~~ ~~options with a strike price~~promised goods or services is transferred to The Company’s customers in an amount that reflects the consideration we expected to be entitled to in exchange for those goods or services. The timing of $~~0.27~~revenue recognition largely is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated free on board (“FOB”) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the ~~Chairman~~customer’s delivery site.

All revenues recognized are net of trade allowances, cash discounts, and sales returns. Trade allowances are based on the estimated obligations. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been immaterial for each of the ~~Board as partial compensation for the services rendered in such role. The execution date fair value of the options was $160,857. The options vested fully on May 20, 2021,~~reported periods. Shipping and ~~expire in~~ 5 ~~years which resulted in stock compensation expense of $160,857~~ ~~being recorded as of June 30, 2021.~~

~~On May 20, 2021, the Company issued~~ ~~500,000~~ ~~options with a strike price of $0.28~~handling amounts billed to a ~~director~~customer as part of ~~the Company as partial compensation for services rendered in such role. The execution date fair value of the options was $102,923. The options vested fully on May 20, 2021, and expire in~~ 5 ~~years which resulted in stock compensation expense of $102,923~~ ~~being recorded as of June 30, 2021.~~

~~The Company recognized $729,525~~ ~~in stock-based compensation as of June 30, 2021. As of June 30, 2021, $81,563~~ ~~of stock was issued for the consulting agreements but not earned as compensation and is~~a sales transaction are included in ~~prepaid expenses on~~revenues, and the ~~condensed consolidated balance sheet.~~related costs are included in cost of goods sold. Shipping and handling is treated as a fulfillment activity, rather than a promised service, and therefore is not considered a separate performance obligation.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

Described below is a new accounting pronouncements issued or proposed by the FASB that has been adopted by the Company. Management does not believe this accounting pronouncement has had or will have a material impact on the Company’s consolidated financial position or operating results, except as disclosed below or in future filings of the Company.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and other Options (Subtopic 70-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s instruments by removing major separation models required under current accounting principles generally accepted in the United States of America (“U.S. GAAP”). ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years beginning after December 15, 2021. The Company early adopted this standard on January 1, 2021. By no longer recording embedded conversion features separately from the convertible debt instrument, and instead as a single liability, the Company’s financial statements reflect a more simplified view of convertible debt instruments and cash interest expense that is believed to be more relevant than an imputed interest expense that results from the separation of conversion features previously required by U.S. GAAP. The adoption of this standard had no material effect on the Company's condensed consolidated financial statements as of ~~June~~September 30, 2021.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – OPERATING LEASE

On January 18, 2019, the Company entered into an agreement to lease approximately 25,470 square feet of office and manufacturing space in Pompano Beach, Florida through March 2024. On March 25, 2019, the Company entered into an amendment to the agreement to increase the square footage of leased premises to 36,900 square feet, increasing the Company’s base rent obligation to be approximately $33,825 per month for one year and nine months, and increasing annually at a rate of three percent for the remainder of the lease term.

The right-of-use asset is composed of the sum of all remaining lease payments plus any initial direct costs and is amortized over the life of the expected lease term. For the expected term of the lease, the Company used the initial term of the five-year lease. If the Company does elect to exercise its option to extend the lease for another five years, ~~that~~which election will be treated as a lease modification and the lease will be reviewed for remeasurement.

The future minimum lease payments to be made under the operating lease as of ~~June~~September 30, 2021, ~~are:~~are as follows:

Schedule of Maturity of Operating Lease Liability
2021	$	209,034		$	104,520
2022		427,484			427,484
2023		440,308			440,308
2024		110,888			110,888
Total minimum lease payments		1,187,714			1,083,196
Discount		(221,887	)		(186,527	)
Operating lease liability	$	965,827		$	896,669

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used the incremental borrowing rate based on the information available at the lease commencement date. As of ~~June~~September 30, ~~2021,~~2020, the weighted-average remaining lease term is 33.5 years and the weighted-average discount rate used to determine the operating lease liability was 15.0%. For the three months ended ~~June~~September 30, 2021 and 2020, the Company expensed $107,117 and $~~107,595~~106,920., respectively for rent. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company expensed $~~214,036~~321,153 and $~~215,183~~322,103, respectively for rent.

NOTE 5 – NOTES PAYABLE – CONVERTIBLE

Convertible Notes payable, ~~– convertible~~net of the related debt discounts, totaled $0 and $10,000 ~~at June~~on September 30, 2021, and December 31, 2020, respectively.

On August 3, 2020, the Company issued an unsecured convertible promissory note to an investor in exchange for $10,000 bearing an interest rate of 18% per annum and payable in 6 months. The note included provisions which allowed the holder to convert the unpaid principal balance of the note into restricted common stock, of the Company at the conversion rate equal to the per share cash price paid for the shares by any third-party investor(s) with total proceeds to the Company of not less than $500,000 provided, however, in no event shall the conversion price ever be less than $0.01 per share. On February 16, 2021, the $10,000 note was paid along with accrued interest in the amount of $1,007.

Interest expense for the Company’s convertible notes payable for the three and ~~six~~nine months ended ~~June~~September 30, 2021, was $0 and $161, respectively, compared to $~~118,443~~184,182 and $~~158,250~~460,787 ~~for~~to the three and ~~six~~nine months ended ~~June~~September 30, ~~2020, respectively.~~2020.

Accrued interest for the Company’s convertible notes payable on ~~June~~September 30, 2021, and December 31, 2020 was $0 and $760, respectively, and is included in accrued expenses on the condensed consolidated balance sheets.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – NOTES PAYABLE – CONVERTIBLE – RELATED PARTY

Convertible Notes payable – ~~convertible –~~ related party, net of the related debt discounts, totaled $1,689,746 and $1,025,000 on ~~June~~September 30, 2021, and December 31, 2020, respectively.

On August 3, 2020, the Company issued a secured convertible promissory note to certain investors in exchange for $1,000,000 in the aggregate bearing an interest rate of 20% per annum and payable in6 months. The holder may convert the unpaid principal balance of the note into shares of restricted common stock of the Company at the conversion ~~rate~~price equal to ~~the~~$0.275 per share, ~~cash price paid for the shares by any third-party investor(s) with total proceeds to the Company of not less than $500,000~~ ~~provided, however, in no event shall the~~which conversion price ~~ever be less than $0.01~~ ~~per share.~~was set with the consummation of the Company’s private placement of Units (described in note 10) which closed on August 17, 2021. This note contains a negative covenant that requires the Company to obtain consent prior to incurring any additional equity or debt investments and is secured by all of the assets of the Company. The Richard A. LoRicco Sr. and Lucille M. LoRicco Irrevocable Insurance Trust DTD 4/28/95, Louis Demaio as Trustee (the “Trust”) is the holder of $750,000 of the principal amount of this note. The Trust was created by Richard A. LoRicco Sr. and Lucille M. LoRicco, who were the parents of Ronald J. LoRicco Sr., one of the members of the Company’s Board of Directors and is maintained by an independent ~~trustee~~trustee. Ronald J. LoRicco Sr. does not have voting or investment control of or power over the Trust but is an anticipated, partial beneficiary of the Trust.

On February 12, 2021, the Company exchanged the original debt for a newly issued amended and restated secured convertible promissory note with a new principal balance of $1,610,005bearing an interest rate of 20% per annum and fully payable in 3 months. This was accounted for as a debt extinguishment and the new promissory note was recorded at fair value in accordance with ASC 470 “Debt”. The original principal of $1,000,000 and accrued interest of $110,005calculated as of the date of amendment and restatement along with an additional advance of $500,000 determined the principal amount of the new note. In consideration of the additional advance and the extension of the maturity date of the original note, the Company issued to the noteholders 15,000,0005~~-year~~ 5-year common stock warrants with an exercise price of $0.20. The issuance of the warrants for the extension generated a loss on extinguishment of $3,686,136 for the fair value of the warrants issued.

On May 12, 2021, the Company extended the debt for a newly issued amended and restated secured convertible promissory note with a new principal balance of $1,689,746bearing an interest rate of 20% per annum and fully payable in 9 months. The original principal of $1,610,005 and accrued interest of $79,742 calculated as of the date of amendment and restatement determined the principal amount of the new note. In consideration of the additional advance and the extension of the maturity date of the original note, the Company issued to the noteholders 7,500,0005-year common stock warrants with an exercise price of $0.35. The issuance of the warrants for the extension generated a loss on extinguishment of $1,874,705 for the fair value of the warrants issued.

On August 17, 2021, the Company completed an offering which subsequently reset the executable price of the outstanding convertible shares of the note payable, thus resulting in a new price per share of $0.275.

Interest expense for the Company’s convertible notes payable – related parties for the three and ~~six~~nine months ended ~~June~~September 30, 2021, was $~~84,605~~88,244 and $~~151,521~~239,766 ~~, respectively,~~ compared to $~~74,029~~71,803 ~~for~~and $314,582 to the three and ~~six~~nine months ended ~~June~~September 30, 2020.

Accrued interest for the Company’s convertible notes payable – related parties on ~~June~~September 30, 2021, and December 31, 2020, was $~~46,048~~134,292 and $86,574, respectively, and is included in accrued expenses on the condensed consolidated balance sheets.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 – NOTES PAYABLE

Notes payable totaled $~~787,412~~478,704 and $128,021on ~~June~~September 30, 2021, and December 31, 2020, respectively.

On March 30, 2021, and May 18, 2021, the Company entered financing arrangements to finance the insurance premiums for its liability coverage. The financing has an interest rate of 9.67% and lasts through March 2022. The balance as of ~~June~~September 30, 2021, was $~~26,665~~17,957.

On February 25, 2021, the Company entered a promissory note agreement with its bank ~~to memorialize a~~for $165,747 loan bearing an interest rate of 1.0% per annum. The loan was made pursuant to the Paycheck Protection Program under the Second Draw PPP Legislation after receiving confirmation from the U.S. Small Business Administration (“SBA”). The Paycheck Protection Program Flexibility Act requires that the funds be used to maintain the current number of employees as well as cover payroll-related costs, monthly mortgage or rent payments and utilities and not more than 40% can be expended on non-payroll-related costs. The applicable maturity date will be the maturity date as established by the SBA. If the SBA does not establish a maturity date or range of allowable maturity dates, the term will be five years.

On April 2, 2021, the Company issued a promissory note with an investor in exchange for $200,000 bearing an interest rate of 18% per annum and payable in 1 year. The company also issued 2,000,000 common stock warrants at an exercise price of $0.20 per share expiring in 5 years.

On April 9, 2021, the Company issued a promissory note with an investor in exchange for $50,000 bearing an interest rate of 18% per annum and payable in 1 year. The company also issued 500,000 common stock warrants at an exercise price of $0.20 per share expiring in 5 years.

On April 16, 2021, the Company issued a promissory note with an investor in exchange for $~~300,000~~ ~~bearing an interest rate of~~ 18~~% per annum. The maturity date for the promissory note is~~ ~~April 16, 2022. The company also issued~~ ~~3,000,000~~ ~~common stock warrants at exercise price of $0.25~~ ~~per share expiring in~~ 5 ~~years. As of this filing the note remains unexecuted.~~

~~On April 16, 2021, the Company issued a promissory note with an investor in exchange for $~~25,000 bearing an interest rate of 18% per annum and payable in 1 year. The company also issued 250,000 common stock warrants at an exercise price of $0.25 per share expiring in 5 years.

On April 16, 2021, the Company issued a promissory note with an investor in exchange for $20,000bearing an interest rate of 18% per annum and payable in 1year. The company also issued 200,000common stock warrants at an exercise price of $0.25 per share expiring in 5years.

~~On April 16, 2021, the Company issued a promissory note with an investor in exchange for $300,000~~ ~~bearing an interest rate of~~ 18~~% per annum and payable in~~ 1 ~~year. The company also issued~~ ~~3,000,000~~ ~~common stock warrants at an exercise price of $0.25~~ ~~per share expiring in~~ 5 ~~years.~~

~~On April 16, 2021, the Company issued a promissory note with an investor in exchange for $300,000~~ ~~bearing an interest rate of~~ 18~~% per annum and payable in one year. The company also issued~~ ~~3,000,000~~ ~~common stock warrants at an exercise price of $0.25~~ ~~per share expiring in~~ 5 ~~years. On May 21, 2021, the investor converted the promissory note of $300,000~~ ~~in exchange for~~ ~~6,000,000~~ ~~common stock warrants at an exercise price of $0.15~~ ~~per share expiring in~~ 5 ~~years. The accrued interest of $5,199~~ ~~was forgiven. The conversion of the debt to warrants generated a loss on extinguishment of $1,487,386~~ ~~for the fair value of the warrants issued.~~

Interest expense for the Company’s notes payable for the three and ~~six~~nine months ended ~~June~~September 30, 2021, was $~~29,802~~23,666 and $~~30,177~~53,784, respectively, compared to $~~2,025~~1,405 and $~~3,986~~6,110 to the three and ~~six~~nine months ended ~~June~~September 30, 2020.

Accrued interest for the Company’s notes payable on ~~June~~September 30, 2021, and December 31, 2020, was $~~24,540~~27,760 and $0, respectively, and is included in accrued expenses on the condensed consolidated balance sheets.

~~BASANITE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

NOTE 8 – NOTES PAYABLE - RELATED PARTY

~~Notes~~Related party notes payable ~~- related party~~ totaled $300,000 and $0 on ~~June~~September 30, 2021, and December 31, ~~2020, respectively.~~2020.

On ~~April 2,~~July 7, 2021, the Company issued a promissory note with ~~Paul Sallarulo,~~an entity managed by Ronald J. LoRicco, Sr., a member of our Board of Directors, in exchange for $~~150,000~~50,000 bearing an interest rate of 1810% per ~~annum and~~annum. The maturity date for the promissory note is July 23, 2021. The note payable was paid in 1 ~~year. The company also issued~~ ~~1,500,000~~ ~~common stock warrants at an exercise price of $0.20~~ ~~per share expiring in~~ 5 ~~years.~~full on August 24, 2021.

On ~~April 2,~~July 7, 2021, the Company issued a promissory note with Michael V. Barbera, our Chairman of the Board, in exchange for $~~150,000~~50,000 bearing an interest rate of 10% per annum. The maturity date for the promissory note is July 23, 2021. The note payable was paid in full on August 24, 2021.

On July 15, 2021, the Company issued a promissory note with David Anderson, our Chief Operating Officer, in exchange for $20,000 bearing an interest rate of 10% per annum. The maturity date for the promissory note is July 23, 2021. The note payable was paid in full on August 18, 2021.

On July 26, 2021, the Company issued a promissory note with David Anderson, our Chief Operating Officer, in exchange for $30,500 bearing an interest rate of 1810% per ~~annum~~annum. The maturity date of the promissory note is August 2, 2021. The note payable was paid in full on August 18, 2021.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On July 27, 2021, the Company issued a promissory note with Simon Kay, our Interim Acting Chief Executive Officer and Principal Financial Officer, in exchange for $10,000 bearing an interest rate of 10% per annum. The maturity date of the promissory note is August 3, 2021. The note payable was paid in full on August 18, 2021.

On August 6, 2021, the Company issued a promissory note with an entity managed by Ronald J. LoRicco, Sr., a member of our Board of Directors, in exchange for $1100,000 ~~year.~~bearing an interest rate of 10% per annum. The ~~company also issued~~maturity date for the promissory note is ~~1,500,000~~August 24, 2021 ~~common stock warrants at an exercise price of $0.20~~ ~~per share expiring~~. The note payable was paid in 5 ~~years.~~full on August 24, 2021.

Interest expense for the Company’s notes payable – related party for the three and ~~six~~nine months ended ~~June~~September 30, 2021, was $16,635 and $~~13,335~~27,648, respectively, compared to $~~364~~0 and $2,455 for the three and ~~six~~nine months ended ~~June~~September 30, 2020.

Accrued interest for the Company’s notes payable - related party on ~~June~~September 30, 2021, and December 31, 2020, was $~~13,335~~27,648 and $0, respectively, and is included in accrued expenses on the condensed consolidated balance sheets.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

~~Supplier Agreement~~On October 28^,2021 the Company proposed a liquidation of liability to John Cessario. The proposed settlement would be 500,000 shares of Basanite common stock with a value of $0.33 per share. The Company elected to accrue an estimate for this amount in the third quarter of 2021.

Supplier Agreement -- MEP Consulting Engineers, Inc.

On July 23, 2020, the Company entered into an Exclusive Supplier Agreement with MEP Consulting Engineers, Inc. (“MEP”) of Miami, Florida. MEP engaged the Company as its sole and exclusive supplier and producer of basalt fiber reinforced polymer (“BFRP”) rebar, with the intent of developing a proprietary rebar to be named “Hurricane Bar.” The agreement also provides MEP with exclusive distribution rights to the Company’s BasaFlex™ BFRP rebar and other Company products in Miami-Dade County.

The agreement is targeting substantial volumes of South Florida construction projects in the works, which is expected to generate material revenues over the 5-year period. As compensation, MEP was provided the ability to exercise options to purchase a total of 5,000,000restricted common shares of the Company, over the 5years from the supplier agreement effective date, tied to sales performance. This ~~option~~option shall automatically expire after the end of the option period. An extension period is available through specific clauses in the agreement. ~~To date, the compensation portion of the agreement has not been fully executed.~~

The Company did ~~not~~ produce product under this contract for the period ending ~~June~~September 30, 2021. The Company generated $31,141 in revenue for custom rebar products delivered under this contract for the three and nine months ending September 30, 2021.

Supplier Agreement -- CR Business Consultants, Inc.

On October 22, 2020, the Company entered into an Exclusive Supplier Agreement with CR Business Consultants, Inc. (“CRBC”). CRBC agreed to utilize the Company as its exclusive supplier for all Company products, and the Company has granted CRBC exclusive distribution rights of the Company’s products in the Republic of Costa Rica and the Republic of Panama. Furthermore, CRBC has key relationships that could be a source of additional customers for the Company in other territories with no geographic restrictions.

The agreement is targeting multiple large projects in Costa Rica, to include the rebuilding of the Port of Limon, which Basanite has been specified. The recognized construction projects are expected to produce material revenues over the 5-year period. As compensation, CRBC was provided the ability to exercise options to purchase a total of 5,000,000 restricted common shares of the Company, over the 5 years from the supplier agreement effective date, tied to sales performance. This option shall automatically expire after the end of the option period. An extension period is available through specific clauses in the agreement.

The Company has not generated revenue under this contract for the period ending September 30, 2021.

BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~NOTE 9 – COMMITMENTS AND CONTINGENCIES (CONTINUED)~~

~~The Company did not produce product under this contract for the period ending June 30, 2021.~~

~~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 Company’s 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, Florida 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 CalSTRS while trying to resolve the matter. On February 11, 2015, CalSTRS, 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 attorney’s costs incurred by the landlord. On April 22, 2015, the motion for unpaid rent, recovery of abated rents and tenant improvements and attorney’s 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 on June 30, 2021, and December 31, 2020, is $114,419.95 and $105,260, respectively.~~

~~RAW Materials Litigation~~

~~On or about August 28, 2018, Raw Energy Materials Corp. (“Raw Energy”) filed an action for declaratory relief and breach of contract in Broward County, Florida, in the 17~~^th 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 the Company’s subsidiary Basanite Industries, LLC as a defendant, as well as an alleged claim under Florida Statute Section 501.201 and for injunction. The Company filed and has pending an amended counterclaim for breach of contract, fraud, and civil conspiracy against Raw Energy affiliates, including Donald R. Smith, Elina Jenkins, Global Energy Sciences, LLC, Yellow TurtleDesign, LLC (“YellowTurtle”), as well as former business affiliates/associates to Don Smith, Richard Laurin and Robert Ludwig. 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.

A mediation was scheduled on March 4, 2021, which resulted in an impasse. Negotiations were continued, and on April 14, 2021, Basanite, Inc. entered into a settlement and release agreement with RAW, LLC (“RAW”), Donald R. Smith, YellowTurtle and Elina B. Jenkins among others. The settlement agreement provides for, among other things, the following: (i) a dismissal of the legal action as to the above-referenced parties and their owners, agents, affiliated companies, successors and assigns, having Case Number 18-020596 (21) in the Seventeenth Judicial Circuit Court in and for Broward County, Florida (the “Litigation”) upon the Company’s timely purchase of the shares as set forth in the next paragraph below and (ii) mutual general releases for the above-referenced parties relating to the Litigation upon the Company’s timely purchase of the shares as set forth in the next paragraph below.

Simultaneously with the execution of the settlement agreement settling the litigation in full and release of all claims among the parties, the Company entered into stock purchase agreements with both RAW and YellowTurtle to repurchase the ~~10,000,000~~ ~~shares of the Company’s common stock held by RAW for $1,212,121~~ ~~and the~~ ~~6,500,000~~ ~~shares of the Company’s common stock held by YellowTurtle for $787,879, or an aggregate purchase price of $2,000,000~~. On May 17, 2021, the settlement shares were purchased by a group of related and non-related investors which resulted in the closing of this legal action. As a result of the settlement, the Company recognized a gain on settlement of $~~320,037~~ ~~from the derecognition of previously accrued contingent legal liabilities.~~

~~BASANITE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

NOTE 10 – STOCKHOLDERS’ DEFICIT

On ~~May 21,~~July 9, 2021, ~~the Company converted a $300,000~~600,000 ~~note payable into~~ ~~6,000,000~~ ~~warrants to purchase~~ shares of ~~the Company’s~~ common stock ~~warrants. The fair value of the warrants was recorded as a loss on extinguishment of debt for $1,487,386~~ ~~and is included in additional paid-in capital of the statement of stockholders’ deficit.~~

~~On June 10, 2021,~~ ~~600,000~~ ~~shares~~ were issued per the two consulting agreements entered on July 9, 2020, and October 16, 2020, for fundraising services. The value of the shares for both agreements is $~~138,000~~210,000 and will be expensed over the renewable three-month term of the agreement.

On ~~June 10, 2021,~~ ~~300,000~~ ~~shares were issued per the consulting agreement entered on May~~August 17, 2021, ~~for investor relations services. The value~~the Company conducted the closing of a private placement offering to accredited investors of the ~~shares for agreement is $89,700~~ ~~and will be expensed over the renewable six-month term~~Company’s units at a price of $0.275 per unit, with each unit consisting of: (i) one share of the ~~agreement.~~Company’s common stock, (ii) a five-year, immediately exercisable warrant (“Warrant A”) to purchase one share of common stock at an exercise price of $0.33 per share (“Exercise Price”) and (iii) an additional five-year, immediately exercisable warrant to purchase one share of common stock at the Exercise Price (“Warrant B”). The Warrant A and Warrant B are identical, except that the Warrant B has a call feature in favor of the Company, as defined in the offering agreements. In connection with the closing, the Company entered into definitive securities purchase agreements with 19 accredited investors and issued an aggregate of 19,398,144 shares of common stock, Warrant A to purchase up to an aggregate of 19,398,144 shares of common stock, and Warrant B to purchase up to an aggregate of 19,398,144 shares of Common Stock (for an aggregate of 38,796,288 Warrant Shares), for aggregate gross proceeds to the Company of approximately $5,334,490. The Company expensed a total of $611,603 in related costs to the offering which has been capitalized and offset to the gross proceeds recorded in additional paid in capital.

The Company ~~issued~~sold ~~735,669~~19,398,144 and ~~1,185,669~~20,583,813 restricted common shares to various investors for the three and ~~six~~nine months ended ~~June~~September 30, 2021 (including the shares sold in the Offering described above), for cash proceeds totaling $~~241,776~~4,722,886 and $~~331,776~~5,054,662, respectively. The Company ~~issued~~sold 163,043 and ~~6,040,614~~6,203,657 restricted common shares to various investors for the three and ~~six~~nine months ended ~~June~~September 30, 2020, for cash proceeds totaling $30,000 and $~~616,667~~646,667., respectively.

NOTE 11 – OPTIONS AND WARRANTS

Stock Options:

The following table summarizes all option grants outstanding to consultants, directors and employees as of ~~June~~September 30, 2021, and December 31, 2020 and the related changes during these periods are presented below.

Schedule of Summary of Options and Warrants Assumptions to Estimate Fair Value of Options Granted
	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Options outstanding and exercisable		4,727,778		4,542,500		4,227,778		4,542,500
Weighted-average exercise price	$	0.36	$	0.41	$	0.33	$	0.41
Aggregate intrinsic value	$	579,494		118,148	$	98,556	$	118,148
Weighted-average remaining contractual term (years)		4.19		3.86		2.00		3.86

The Company ~~uses~~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 ~~six~~three months ended ~~June~~September 30, 2021, ~~1,092,500~~500,000 options were cancelled.During the nine months ended September 30, 2021, 1,592,500 options were cancelled. The company granted 1,277,778 options for the period ending ~~June~~September 30, 2021.

Stock Warrants:

The following table summarizes all warrant grants outstanding to consultants, directors and employees as well as investors as of ~~June~~September 30, 2021, and December 31, 2020 and the related changes during these periods are presented below.

Schedule of Summary of Options and Warrants Assumptions to Estimate Fair Value of Options Granted
	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Warrants outstanding and exercisable		78,620,378		38,920,378		117,691,666		38,920,378
Weighted-average exercise price	$	0.25	$	0.27	$	0.28	$	0.28
Aggregate intrinsic value	$	15,067,991	$	2,973,660	$	5,176,833	$	2,785,075
Weighted-average remaining contractual term (years)		3.86		3.37		4.03		3.37

During the ~~six~~three months ended ~~June~~September 30, 2021, ~~40,700,000~~39,071,288 five-year5 warrants were issued. During the ~~six~~nine months ended ~~June~~September 30, 2021, 79,771,288 five-year warrants were issued. During the nine months ended September 30, 2021, 1,000,000 warrants were exercised.

During the three months ended ~~June~~September 30, 2021 and 2020, total stock-based compensation expense amounted to $~~482,953~~327,431 and $078,590 , respectively.

During the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, total stock-based compensation expense amounted to $~~647,963~~983,803 and $078,590, respectively.

As of September 30, 2021, $43,682 of stock was issued for the consulting agreements but not earned as compensation and is included in prepaid expenses on the condensed consolidated balance sheet.

��

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BASANITE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – RELATED PARTIES

In addition to those transactions discussed in Notes 56 and 7,8, the Company had ~~the following~~no further related party transactions.

~~Issuance of notes payable - related parties, totaling $100,000~~ ~~and detailed in Note 13 – Subsequent Events.~~

NOTE 13 – SUBSEQUENT EVENTS

~~On July 7, 2021,~~

The Company has evaluated subsequent events through the ~~Company issued a promissory note with an entity managed by Ronald J. LoRicco, Sr., a member~~filing of this Quarterly Report on Form 10-Q, and determined that there have been no events that have occurred that would require adjustments to our ~~Board of Directors,~~disclosures in ~~exchange for $50,000~~ ~~bearing an interest rate of~~ 10~~% per annum. The maturity date for~~ the ~~promissory note is~~ ~~July 23, 2021. The note payable remains outstanding~~consolidated financial statements as of ~~this filing.~~

~~On July 7,~~September 30, 2021 ~~the Company issued a promissory note with Michael V. Barbera, our Chairman of the Board, in exchange for $50,000~~ contained herein.~~bearing an interest rate of~~ 10~~% per annum. The maturity date for the promissory note is~~ ~~July 23, 2021. The note payable remains outstanding as of this filing.~~

~~On July 9, 2021,~~ ~~600,000~~ ~~shares of common stock were issued per the two consulting agreements entered on July 9, 2020, and October 16, 2020, for fundraising services.~~

~~On July 15, 2021, the Company issued a promissory note with David Anderson, our Chief Operating Officer, in exchange for $20,000~~ ~~bearing an interest rate of~~ 10~~% per annum. The maturity date for the promissory note is~~ ~~July 23, 2021. The note payable was paid in full on~~ ~~August 18, 2021~~.

~~On July 26, 2021, the Company issued a promissory note with David Anderson, our Chief Operating Officer, in exchange for $30,500~~ ~~bearing an interest rate of~~ 10~~% per annum. The maturity date of the promissory note is~~ ~~August 2, 2021. The note payable was paid in full on August 18, 2021.~~

~~On July 27, 2021, the Company issued a promissory note with Simon Kay, our Interim Acting Chief Executive Officer and Principal Financial Officer, in exchange for $10,000~~ ~~bearing an interest rate of~~ 10~~% per annum. The maturity date of the promissory note is~~ ~~August 3, 2021. The note payable was paid in full on August 18, 2021.~~

On August 17, 2021, the Company conducted the closing (the “Closing”) of a private placement offering to accredited investors (the “Offering”) of the Company’s units (the “Units”) at a price of $0.275 per Unit, with each Unit consisting of: (i) one (1) share of the Company’s common stock, (ii) a five-year, immediately exercisable warrant (“Warrant A”) to purchase one (1) share of common stock at an exercise price of $0.33 per share (“Exercise Price”) and (iii) an additional five-year, immediately exercisable warrant to purchase one (1) share of common stock at the Exercise Price (“Warrant B”). The Warrant A and Warrant B are identical, except that the Warrant B has a call feature in favor of the Company.

~~In connection with the Closing, the Company entered into definitive securities purchase agreements with 17 accredited investors and issued an aggregate of~~ ~~19,398,144~~ shares of common stock, Warrant As to purchase up to an aggregate of 19,398,144 shares of Common Stock, and Warrant Bs to purchase up to an aggregate of 19,398,144 shares of Common Stock (for an aggregate of 38,796,288 Warrant Shares), for aggregate gross proceeds to the Company of approximately $~~5,334,490~~. No actual Units were issued in the Offering. Aegis Capital Corp. (“Aegis”) acted as the Company’s placement agent in connection with the Offering, for which Aegis received customary cash fees and expense reimbursements.

~~The net proceeds of the Offering (approximately $4,770,000) will be used by the Company for expansion of its manufacturing capability, sales and marketing, satisfaction of certain indebtedness and general working capital purposes.~~

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ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 (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.

Basanite, Inc., 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~~September 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.

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.

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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~~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 ~~Pultrusion~~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 be able 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 are also developing a new generation of pultrusion line (which we call BasaMax™) for manufacturing BasaFlex™.

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.

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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, we do not believe that COVID-19 has ~~not~~ materially impacted our operations or those of our third-party partners. However, the continued outbreak or spread of variants of the virus (and private and governmental efforts to curb such outbreaks and spreading) 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 and variants thereof 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.

Other Factors Impacting Our Business

Inflation

In the past two fiscal years, inflation has not had a significant impact on our business. However, we believe the U.S. economy has entered into a period of increasing inflation. Any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect prices for raw materials we use, demand for our products, and our future operating results.

Supply Chain

In the past year, supply chain shortages or delays have had an immaterial impact on our operations. Relationships with our raw materials suppliers have maintained a consistent flow of goods received 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.

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~~$155,477 and ~~$19,685~~$175,162 of revenues as a result of sales of finished goods sold for the ~~six~~three and nine months ended ~~June~~September 30, 2021, compared to ~~$2,218~~$2,408 and $4,626, respectively for the same period in the prior year. ~~Revenues~~While the increase in revenue in the year over year periods was material due to our ability to sell some BasaFlex™ product in 2021, overall revenues have been minimal due to our lack of funding and as a result ~~of the Company’s~~our continuing shift in focus onto the scaling of production and ~~inventory.~~inventory during both periods.

Revenue recognition - We recognize revenue when the following criteria are met: (1) Contract with the customer has been identified; (2) Performance obligations in the contract have been identified; (3) Transaction price has been determined; (4) Transaction price has been allocated to the performance obligations; and (5) When (or as) performance obligations are satisfied.

Cost of Goods Sold

Cost of goods sold – During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company had cost of sales of ~~$19,493~~$176,994 and ~~$20,809~~$194,687 compared to ~~$1,603~~$919 and ~~$2,222,~~$3,065, respectively for the same period in the prior year.

For the three months ended ~~June~~September 30, 2021, the Company had a negative gross margin from operations in the amount of ~~$3,944~~$21,517 compared to a gross margin in the amount of ~~$1,010~~$1,489 in the same period of the prior year.

For the ~~six~~nine months ended ~~June~~September 30, 2021, the Company had a negative gross margin from operations in the amount of ~~$1,124~~$19,525 compared to a gross margin in the amount of $4$1,561 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~~September 30, 2021, and 2020 professional fees were ~~$79,355~~$382,233 compared to ~~$53,016~~$127,294 for the same period in the prior year. During the ~~six~~nine months ended ~~June~~September 30, 2021, and 2020, professional fees were ~~$193,087~~$575,320 compared to ~~$162,874~~$290,168 for the same period in the prior year. The Company has increased fees as it relates to legal fees associated with ~~the ongoing litigation,~~our financing efforts, and preparation of new supplier and consulting ~~agreements as it tries to secure relationships in the industry.~~agreements.

Payroll and payroll taxes –During the three and nine months ended ~~June~~September 30, 2021, payroll and payroll taxes were ~~$300,683~~$301,732 and $856,530 compared to ~~$162,455~~$107,284 and $507,170 in the prior year. The Company retained a total of 23 employees at the period end September 30, 2021, as compared to 13 employees at the close of the September 30, 2020, period.

Consulting - During the three months ended September 30, 2021, consulting fees was $173,050 and $71,260 for the same period in the prior year. During the ~~six~~nine months ended ~~June~~September 30, 2021, ~~payroll and payroll taxes~~consulting fees were ~~$554,798~~$403,675 compared to ~~$399,886~~$170,198 for the same period in the prior year. The ~~company retained a total of 27 employees at~~increase is due to consulting agreements for the ~~period end June 30, 2021 as compared to 9 employees at the close of the June 30, 2020 period.~~Company’s senior management.

~~Consulting~~General and administrative – 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~~September 30, 2021, general and administrative expenses were ~~$972,342~~$775,941 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~~$$402,217 for the same period in the prior year. The increase is largely due to anthe stock-based compensation expense in the current year of $252,510 added to the increase in overall general and administrative costs, including but not limited to, supplies, computers, furniture and other overhead costs. During the nine months ended September 30, 2021, general and administrative expenses were $2,309,878 compared to $903,279 for the same period in the prior year. The increase is largely due to the stock-based compensation ~~expense.~~expense in the current year of $1,371,847 added to that by the increase in overall general and administrative costs.

Other Income

Gain on settlement of legal contingency - During the three months ended ~~June~~September 30, 2021, the Company had a gain of ~~$320,037~~$94,127, compared to $0$40,838 for the same period in the prior year. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company had a gain of ~~$344,522~~$438,649 compared to $0$40,838 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 – California State Teacher’s Retirement System.

Gain on settlement of payable - During the three and nine months ended September 30, 2021, the Company had a gain of $8,131 in 2021 as compared to $292,112 for 2020, respectively. The decrease is due to the Company settling the previously outstanding legal matters in 2020 during the first, second and third quarter of the 2021.

Miscellaneous income - During the three and nine months ended September 30, 2021, miscellaneous income was $0 compared to $0 and $70,817 for the same period in the prior year. The decrease is due to the settlement in 2020 and the allocation of the revenue to the company. In 2021 funds are recognized as part of gain on settlement of legal contingency.

Loan forgiveness - During the three months ended ~~June~~September 30, 2021, the Company had forgiveness of $0 compared to $0 for the same period in the prior year. During the ~~six~~nine months ended ~~June~~September 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,~~January 4, 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~~September 30, 2021, the Company had a ~~gain~~loss of ~~$3,056,892~~$0 compared to ~~$980~~$63,914 for the same period in the prior year. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company had a loss of $6,743,015 compared to ~~$980~~$62,934 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 and nine months ended ~~June~~September 30, 2021, and 2020, interest expense was ~~$133,211~~$120,070 and $325,944 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~~$550,094 and $801,925, respectively, for the same period in the prior year. The decrease is mainly due to the ~~volume~~payment of ~~lending committed~~debts due to ~~during the second quarter of 2021.~~increased cashflow.

Liquidity and Capital Resources

Since inception, we have incurred net operating losses and negative cash flow. As of ~~June~~September 30, 2021, the Company had an accumulated deficit of ~~$38,634,066.~~$40,306,351. 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.~~fundraising and litigation. 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~~grow our manufacturing and sales and marketing operations and reach the level of ~~sales~~ revenue sufficient to provide positive cash flow, we require funding of both our expansion plan (which includes investments in new BasaMax™ pultrusion lines, on which we plan to manufacture our BasaFlex™ rebar at our Pompano facility and potentially other manufacturing facilities) and our operating deficit through the period while we seeking to are ~~scaling~~scale our manufacturing ~~capability.~~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 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~~September 30, 2021, the Company had cash of ~~$77,400~~$1,308,227 compared to $259,505 at December 31, 2020. ~~Subsequent~~The increase in cash was due to the ~~quarter end, we closed a~~closing of our private placement on August 17, 2021 ~~that~~which generated net cash proceeds to us of approximately ~~$4,770,000.~~$4,723,000. Notwithstanding this increase in cash, we will require additional funding as described above.

Cash Flows

Net cash used in operating activities amounted to ~~$2,294,501~~$3,879,286 and ~~$1,040,380~~$1,612,928 for the ~~six~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 30, 2021, we used $1,868,896 net cash ~~used~~ for investing activities ~~were $270,330~~ compared to ~~$59,377 for~~$115,956 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.~~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 ~~six~~nine months ended ~~June~~September 30, 2021, we had ~~$2,382,726~~$6,796,904 net cash provided by financing activities compared to ~~$1,087,088~~$2,175,644 in the prior year. ~~Issuance~~Sale of common stock shares for ~~$331,776,~~$5,054,662, 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~~$417,193 of partial and full repayment of multiple notes payable provided the net cash during the ~~six~~nine months ended ~~June~~September 30, 2021. Further the Company borrowed ~~$1,091,194~~$1,091,195 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~~6,000,000 five-year warrants on May 21, 2021.

We do not believe that our cash on hand as of ~~June~~September 30, 2021, will be sufficient to fund our current working capital requirements asto the point where we ~~try to develop our fiber reinforced polymer rebar manufacturing business.~~are generating positive cash flow. We have recently entered into several convertible promissory notes to help fund operations and ~~issued restricted common shares in an effort to raise~~will require 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.~~short term. We ~~will~~ continue working towards securing more working ~~capital.~~capital with a preference towards debt which may be convertible to equity. However, there is no assurance that we will be successful in ~~securing working capital~~our efforts 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company's Interim Chief Executive Officer and Controller, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) through ~~June~~September 30, 2021.

2221

During our assessment of the effectiveness of internal control over financial reporting as of ~~June~~September 30, 2021, management identified material weaknesses related to (i) the U.S. GAAP expertise and experience of our internal accounting personnel and (ii) a lack of segregation of duties within accounting functions. As a result of these material weaknesses, our Chief Executive Officer and Controller concluded that our internal control over financial reporting was not effective as of ~~June~~September 30, 2021.

Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weaknesses described above are remediated as soon as possible. We believe we will have the opportunity to remediate these weaknesses when adequate funding is secured. We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2322

PART II. – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

~~Legal Matters~~

~~CalSTRS Judgement~~operations.

~~On March 31, 2014, the~~The Company ~~received a “Notice~~did not have any open legal matters and is not aware of ~~Default” letter from~~any pending legal counsel representing the California State Teachers Retirement System (“CalSTRS”) (the landlord for the Company’s previous 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 duematters as of ~~April 1, 2014. The Company had indicated in writing its intention to cooperate with CalSTRS while trying to resolve~~ the ~~matter. On February 11, 2015, CalSTRS, through its attorneys, filed a motion for summary judgment. The motion asked for $376,424 in unpaid rent, recovery~~filing of abated rents and tenant improvements and $12,442 in attorney’s costs incurred by the landlord. On April 22, 2015, the motion for unpaid rent, recovery of abated rents and tenant improvements and attorney’s 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 on June 30, 2021, and December 31, 2020, is $114,420 and $105,260, respectively.

~~RAW Materials Litigation~~this report.

~~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 17~~^th 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 our subsidiary Basanite Industries, LLC as a defendant, as well as an alleged claim under Florida Statute Section 501.201 and for injunction. The Company filed and has pending an amended counterclaim for breach of contract, fraud, and civil conspiracy against Raw Energy affiliates, including Donald R. Smith, Elina Jenkins, Global Energy Sciences, LLC, YellowTurtle Design, LLC (“YellowTurtle”), as well as former business affiliates/associates to Don Smith, Richard Laurin and Robert Ludwig. 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.

Simultaneously with the execution of the settlement agreement settling the litigation in full and release of all claims among the parties, the Company entered into stock purchase agreements with both RAW and YellowTurtle to repurchase the 10,000,000 shares of the Company’s common stock held by RAW for $1,212,121 and the 6,500,000 shares of the Company’s common stock held by YellowTurtle for $787,879, or an aggregate purchase price of $2,000,000. On May 17, 2021, the settlement shares were purchased by a group of related and non-related investors which resulted in the closing of this legal action. As a result of the settlement, the Company recognized a gain on settlement of $320,037 from the derecognition of previously accrued contingent legal liabilities.

~~To our knowledge, we are not currently subject to any legal proceedings.~~

ITEM 1A.

RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 12, 2021 (the “Issuance Date”), the Company entered into an Amended and Restated 20% Secured Convertible Promissory Note (the “Restated Promissory Note”) with certain accredited investors (the “Holders”) for an aggregate of $1,610,004.54 in principal amount which cancelled and restated in its entirety the 20% Secured Convertible Promissory Note entered into by the Company and the same Holders on August 3, 2020 and is more fully described in Amendment No. 1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 10, 2020 (the “Original Promissory Note”). On the Issuance Date, the Holders advanced the Company an additional $500,000 pursuant to the terms and conditions of the Restated Promissory Note (the “Additional Advance”). Additionally, the accrued but unpaid interest through February 11, 2021 under the Original Promissory Note in the amount of $110,004.54 was added to the principal amount of the Restated Promissory Note The Restated Promissory Note has a maturity date of May 12, 2021 (the “Maturity Date”) and will continue to have an interest rate of 20% per annum. Interest will be payable in cash at the Maturity Date. If, prior to the Maturity Date, the Company consummates an equity financing, revenue sharing transaction, joint venture, or other similar type transaction (including any combination and/or multiple transactions thereof) with total cash proceeds to the Company of not less than $3,000,000, the Agent (as defined below), at its sole discretion and by providing written notice to the Company, may elect to extend the Maturity Date of this Note by an additional six months such that the Maturity Date shall then be November 12, 2021. In connection with the issuance of the Restated Promissory Note and in consideration of the Additional Advance and the extension of the Maturity Date under the Original Promissory Note, on February 12, 2021 the Company issued to the Holders, on a pro rata basis, Common Stock Warrants to purchase up to an aggregate of 15,000,000 shares of the Company’s Common Stock at a per share exercise price of $0.20 (the “Warrants”). Pursuant to the terms of the Restated Promissory Note, The Richard A. LoRicco Sr. and Lucille M. LoRicco Irrevocable Insurance Trust DTD 4/28/95, Louis Demaio as Trustee will serve as the agent for the benefit of the Holders (the “Agent”). The Agent is a trust created by Richard A. LoRicco Sr. and Lucille M. LoRicco, who were the parents of Ronald J. LoRicco (“Mr. LoRicco”), one of the members of the Company’s Board of Directors (the “Board”) and is maintained by an independent trustee. The Agent is the Holder of $1,207,503.40 of the principal amount of the Restated Promissory Note and the Holder of 11,250,000 of the Warrants. The disinterested members of the Board approved the terms of the Restated Promissory Note. Mr. LoRicco does not have voting or investment control of or power over the Agent but is an anticipated, partial beneficiary of the Agent. On May 12, 2021, the Company extended the debt for a newly issued amended and restated secured convertible promissory note with a new principal balance of $1,689,746 bearing an interest rate of 20% per annum and fully payable in 9 months. The original principal of $1,610,005 and accrued interest of $79,742 calculated as of the date of amendment and restatement determined the principal amount of the new note. In consideration of the additional advance and the extension of the maturity date of the original note, the Company issued to the noteholders 7,500,000 5-year common stock warrants with an exercise price of $0.35. The issuance of the warrants for the extension generated a loss on extinguishment of $1,874,705 for the fair value of the warrants issued.

On ~~April 5, 2021, the Company issued the 127,128 restricted common shares to the investor in exchange for the funds received and recorded as a subscription liability of $23,900 on March 31, 2021.~~

On April 16, 2021, upon the conversion of a note $300,000 into 3,000,000 common stock warrants additional paid-in capital was generated in the amount of $300,000 for the original principal of the note.

~~On May 21, 2021, upon the conversion of a $300,000 note into 6,000,000 common stock warrants additional paid-in capital was generated in the amount of $300,000 for the original principal of the note.~~

~~On June 10,~~July 9, 2021, 600,000 shares of common stock were issued per the two consulting agreements entered on July 9, 2020, and October 16, 2020, for fundraising services. The value of the shares for both agreements is $210,000 and will be expensed over the renewable three-month term of the agreement.

On ~~June 10, 2021, 300,000 shares were issued per the consulting agreement entered on May~~August 17, ~~2021, for investor relations services.~~

~~On June 10,~~ 2021, the Company conducted the closing (the “Closing”) of a private placement offering to accredited investors (the “Offering”) of the Company’s units (the “Units”) at a price of $0.275 per Unit, with each Unit consisting of: (i) one (1) share of the Company’s common stock, (ii) a five-year, immediately exercisable warrant (“Warrant A”) to purchase one (1) share of common stock at an exercise price of $0.33 per share (“Exercise Price”) and (iii) an additional five-year, immediately exercisable warrant to purchase one (1) share of common stock at the Exercise Price (“Warrant B”). The Warrant A and Warrant B are identical, except that the Warrant B has a call feature in favor of the Company.

In connection with the Closing, the Company entered into definitive securities purchase agreements with 17 accredited investors and issued ~~45,455 restricted~~an aggregate of 19,398,144 shares of common ~~shares~~stock, Warrant As to purchase up to an ~~investor in exchange~~aggregate of 19,398,144 shares of Common Stock, and Warrant Bs to purchase up to an aggregate of 19,398,144 shares of Common Stock (for an aggregate of 38,796,288 Warrant Shares), for ~~$10,000.~~

~~On June 10, 2021,~~aggregate gross proceeds to the Company of approximately $5,334,490. No actual Units were issued ~~47,619 restricted common shares to an investor~~ in ~~exchange~~the Offering. Aegis Capital Corp. (“Aegis”) acted as the Company’s placement agent in connection with the Offering, for ~~$10,000.~~

~~On June 10, 2021, the Company issued 36,372 restricted common shares to an investor in exchange for $14,545.~~

~~On June 10, 2021, the Company issued 72,744 restricted common shares to an investor in exchange for $29,091.~~

~~On June 10, 2021, the Company issued 60,620 restricted common shares to an investor in exchange for $24,242.~~

~~On June 10, 2021, the Company issued 96,992 restricted common shares to an investor in exchange for $38,788.~~

~~On June 10, 2021, the Company issued 30,310 restricted common shares to an investor in exchange for $12,121.~~

~~On June 10, 2021, the Company issued 60,620 restricted common shares to an investor in exchange for $24,242.~~

~~On June 10, 2021, the Company issued 15,155 restricted common shares to an investor in exchange for $6,061.~~

~~On June 10, 2021, the Company issued 24,248 restricted common shares to an investor in exchange for $9,697.~~

~~On June 10, 2021, the Company issued 12,124 restricted common shares to an investor in exchange for $4,848.~~

~~On June 10, 2021, the Company issued 30,310 restricted common shares to an investor in exchange for $12,121.~~

~~On June 24, 2021, the Company issued 45,662 restricted common shares to an investor in exchange for $10,000.~~which Aegis received customary cash fees and expense reimbursements.

All of the shares issued and sold described above were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act. Each investor represented that it was an accredited investor (as defined by Rule 501 under the Securities Act).

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

2623

ITEM 6.

EXHIBITS

Exhibit		Incorporated by Reference			Filed or Furnished
No.	Exhibit Description	Form	Date Filed	Number	Herewith
~~4.1~~	~~Form of Warrant A (relating to August 2021 private placement offering)~~				~~Filed~~
~~4.2~~	~~Form of Warrant B (relating to August 2021 private placement offering)~~				~~Filed~~
~~10.1~~	~~Form of Securities Purchase Agreement (relating to August 2021 private placement offering)~~				~~Filed~~
~~10.2~~	~~Placement Agent Agreement, dated August 17, 2021, between the Company and Aegis Capital Corp. (relating to August 2021 private placement offering)~~				~~Filed~~
31.1	Certification of Interim Chief Executive Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the Securities Exchange Act				Filed
31.2	Certification of Chief Financial Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the Securities Exchange Act				Filed
32.1	Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Furnished
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				Furnished
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)				Filed
101.SCH	Inline XBRL Taxonomy Extension Schema Document				Filed
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document				Filed
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document				Filed
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document				Filed
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document				Filed
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)				Filed

2724

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~August 23,~~November 15, 2021


	Basanite, Inc.

	By:	/s/ Simon R. Kay
		Simon R. Kay
		Company’s Interim Chief Executive Officer and Principal Financial Officer


		~~/s/~~ ~~Simon R. Kay~~
		~~Simon R. Kay~~
		~~Company’s Interim Chief Executive Officer and Principal Financial Officer~~

2825


	June 30, 2021			December 31, 2020,
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	77,400		$	259,505
Accounts receivable, net		8,509			1,907
Inventory		678,159			446,575
Prepaid expenses		129,915			40,283
Deposits and other current assets		278,323			75,995
TOTAL CURRENT ASSETS		1,172,306			824,265

Lease right-of-use asset		881,666			1,004,167
Fixed assets, net		1,226,440			1,020,035
Total Long-Term Assets		2,108,106			2,024,202

TOTAL ASSETS	$	3,280,412		$	2,848,467
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	358,916		$	249,353
Accrued expenses		136,950			197,350
Accrued legal liability		503,286			809,127
Notes payable		787,412			128,021
Notes payable – related party		300,000			0
Notes payables - convertible, net		0			10,000
Notes payable - convertible - related party, net		1,689,746			1,025,000
Subscription liability		—			40,000
Lease liability - current portion		209,034			267,289
TOTAL CURRENT LIABILITIES		3,985,344			2,726,140

Lease liability - net of current portion		756,793			826,388
TOTAL LIABILITIES		4,742,137			3,552,528

STOCKHOLDERS’ DEFICIT
Preferred stock, $0.001 par value, 5,000,000 shares authorized, NaN issued and outstanding		—			—
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 228,522,454 and 224,836,785 shares issued and outstanding, respectively		228,523			224,838
Additional paid-in capital		36,943,818			28,714,488
Accumulated deficit		(38,634,066	)		(29,643,387	)
TOTAL STOCKHOLDERS' DEFICIT		(1,461,725	)		(704,061	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	3,280,412		$	2,848,467