Basanite (BASA) Risk Analysis

Our common stock is subject to the SEC's "penny stock" rule, which imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established distributors or accredited investors. Penny stocks are generally defined to be an equity security that has a market price of less than $5.00 per share. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of our stockholders to sell their securities in any market that might develop. Stockholders should be aware that, according to the SEC, the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include: - control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;   - manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;   - "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;   - excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and   - the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our common stock.

The principal holder of the $1,689,745 convertible note mentioned above (a trust associated with one of our directors, Ronald J. LoRicco, Sr., which trust acts as agent for all noteholders) is party to a security agreement with us granting such holder a secured interest in all of our assets. In addition, our agreements with this principal note holder contain a negative covenant explicitly requiring such holder's consent in order for us to incur any debt or issue of any equity securities. The interests of such debt holder are senior to the rights of our common stockholders and may impede our ability to obtain new financing. Furthermore, such holder's interest may not coincide with the interests of other stockholders, and such holder may become subject to conflicts of interest given its affiliation with one of our directors. These conflicts may not be resolved in favor of our common stockholders.

Our articles of incorporation authorize the Board of Directors, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series, with the numbers of shares of each series to be determined by the Board of Directors. Our articles of incorporation further authorize the Board of Directors to fix and determine the powers, designations, preferences and relative, participating, optional or other rights (including, without limitation, voting powers, preferential rights to receive dividends or assets upon liquidation, rights of conversion or exchange into common stock or preferred stock of any series, redemption provisions and sinking fund provisions) between series and between the preferred stock or any series thereof and the common stock, and the qualifications, limitations or restrictions of such rights. In the event of issuance, preferred stock could be used, under certain circumstances, as a method of discouraging, delaying, or preventing a change of control of our company. Although we have no present plans to issue additional series or shares of preferred stock, we can give no assurance that we will not do so in the future.

As of the date of this Annual Report, we had warrants outstanding that were exercisable for an aggregate of 142,434,090 shares of common stock. The shares of common stock issuable upon exercise of these warrants is substantial, currently constituting approximately 57% of the total number of shares of common stock currently issued and outstanding. Therefore, the exercise of a large number of these warrants and public sales of the shares of common stock underlying these warrants would cause substantial dilution to our stockholders and could adversely impact the price of our common stock from time to time. The timing for such dilution and adversely price impact is uncertain as we have no control over when warrants held by third parties will be exercised. For more information regarding the terms of our warrants, please refer to the footnotes accompanying the audited and unaudited financial statements included as part of this Annual Report.

Under the terms of certain of our outstanding warrants (notably the Warrant As and Warrant Bs issued in our August 2021 and January 2022 private placements), the exercise price of such warrants may be adjusted downward in certain circumstances. If a downward adjustment were to occur in the exercise price of such warrants, the exercise of such warrants would result in the issuance of a significant number of additional shares of our common stock and cause significant dilution. Moreover, the public sale of such shares could adversely impact the price of our common stock from time to time.

The market price for our common stock may be significantly volatile and subject to wide fluctuations in response to factors, including the following: - our ability to develop and implement our business plans;   - actual or anticipated fluctuations in our quarterly or annual operating results;   - changes in financial or operational estimates or projections;   - conditions in markets generally;   - changes in the economic performance or market valuations of companies similar to ours; and   - general economic or political conditions in the United States or elsewhere. In some cases, following periods of volatility in the market price of a company's securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our business operations and reputation.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We are a Nevada corporation, and the anti-takeover provisions of the Nevada law may discourage, delay or prevent a change in control by, among other things: (i) prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders and (ii) making it more difficult to remove our directors and officers, which might discourage transactions that could involve payment to stockholders of a premium over the market price of our securities. In addition, our certificate of incorporation, as amended, and our amended and restated bylaws may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. In particular, our certificate of incorporation, as amended, and our amended and restated bylaws, among other matters: - permit our Board of Directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences, and privileges as they may designate;   - provide that all vacancies on our Board of Directors, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;   - provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder's notice; and   - do not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election;

Activist investors or other stockholders who disagree with our management (including legacy stockholders of our company from a time prior to the commencement of our current business plan) may attempt to effect changes in our strategic direction and how our company is governed or may seek to acquire control over our company. Some investors (commonly known as "activist investors") seek to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. Activist campaigns can also seek to change the composition of our Board of Directors, and campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. In addition, perceived uncertainties as to our future direction that can arise from potential changes to the composition of our Board of Directors sought by activists may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may cause concern to our current or potential customers or other partners, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could divert our management's attention from our business or cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business, all of which could have a material adverse effect on our company.

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (or the Code), a corporation that undergoes an "ownership change," generally defined as a greater than 50% change by value in its equity ownership over a three-year period, is subject to limitations on its ability to utilize its pre-change net operating losses (or NOLs) and its research and development credit carryforwards to offset future taxable income. Our existing NOLs and research and development credit carryforwards may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs and research and development credit carryforwards could be further limited by Sections 382 and 383 of the Code. In addition, our ability to deduct net interest expense may be limited if we have insufficient taxable income for the year during which the interest is incurred, and any carryovers of such disallowed interest would be subject to the limitation rules similar to those applicable to NOLs and other attributes. Future changes in our stock ownership, some of which might be beyond our control, could result in an ownership change under Section 382 of the Code. For these reasons, in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs, research and development credit carryforwards or disallowed interest expense carryovers, even if we attain profitability.

The projections that our management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts, product approval, production and supply dates, commercial launch dates, and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There will be differences between actual and projected results, and actual results may be materially different from those contained in the projections. The inclusion of the projections in this Annual Report should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.

We have never declared or paid any cash dividend on our common stock. We currently intend to retain any future earnings and do not expect to pay any dividends for the foreseeable future. Therefore, you should not invest in our common stock in the expectation that you will receive dividends.

Since the inception of current business in 2017, we have generated minimum revenues, have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended December 31, 2021, and 2020, we reported net losses of $16,079,961 and $4,199,331 respectively, and negative cash flow from operating activities of $4,407,270 and $2,799,499, respectively. As of December 31, 2021, we had an aggregate accumulated deficit of $46,121,210. We anticipate that we will continue to report losses and negative cash flow. There is therefore a risk that we will be unable to operate our business in a manner that generates positive cash flow or profit, and our failure to operate our business profitably would damage our reputation and stock price.

Give the early-stage nature of our company, we have limited accounting and financial reporting personnel (including the current lack of a full-time Chief Financial Officer) and other resources with which to address our internal controls and related procedures. We and our independent registered public accounting firm have identified material weaknesses in our internal controls over financial reporting 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. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we are unable to remedy our material weaknesses, or if we generally fail to establish and maintain effective internal controls appropriate for a public company, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors' confidence and our stock price.

Our operating results may fluctuate from period to period as a result of a number of factors, many of which are outside of our control. The following and similar factors may affect our operating results: - our ability to gain market acceptance of BasaFlex as an alternative to traditional steel rebar.   - our ability to compete effectively with larger, more established providers of rebar.   - supply chain interruptions or major price increases in raw materials.   - the actions of other rebar manufacturers and distribution companies (including "dumping" or other price manipulative activity).   - significant reductions in steel rebar and mesh pricing in the market, which would greatly compress margins.   - our ability to attract and maintain customers.   - the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business operations and infrastructure.   - general economic conditions and those economic conditions specific to the construction and rebar industries.   - our ability to attract, motivate and retain top-quality employees and distribution partners. These and similar factors could cause our results of operations to fluctuate in unanticipated ways and deviate from our forecasts.

We currently owe approximately $1,690,000 plus $338,000 of accrued interest under a 20% Convertible Promissory Note held by The Richard A. LoRicco Sr. and Lucille M. LoRicco Irrevocable Insurance Trust DTD 4/28/95, which is a related party associated with our director Ronald J. LoRicco, Sr.. This note matured on February 12, 2022, and as of the date of this Annual Report, no event of default has been called by the note holder. In addition, in April 2021, we entered into six simple Promissory Notes with certain related parties and their associates for total proceeds $595,000. These notes each carried a 12-month term at 18% simple interest and are now due or about to come due.  The accumulated interest under these notes is approximately $107,000. Given our limited cash resources at this time, we have been unable to repay this indebtedness, and interest on this indebtedness continues to accrue. If all or any of these note holders elect to call an event of default under these notes, we may have increased difficulty raising additional funds and we could be forced into bankruptcy.

We presently have extremely limited cash resources to meet our current or future capital requirements. We do not expect to generate significant revenues for the foreseeable future, and we may not be able to raise the funds we require immediately or in the future, which would leave us without resources to continue our operations. We have faced difficulties recently in raising needed capital, and may continue to have difficulty raising needed capital in the near or longer term as a result of, among other factors, the very early stage of our business plan. Further, we may consume any available cash resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. Our inability to raise funds could lead to decreases in the price of our common stock and the failure of our businesses.

In February 2021, we received loan proceeds in the amount of approximately $165,000 under the Paycheck Protection Program (or PPP), established as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provides economic relief to businesses in response to the COVID-19 pandemic. The loan and accrued interest are forgivable after 24 weeks as long as we use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and our employee head count remains consistent with our baseline period over the 24-week period after the loan was received. The amount of loan forgiveness will be reduced if we terminate employees or reduce salaries during the 24-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. While we believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, there is a risk that the loan will not be forgiven or that we will take actions that could cause us to be ineligible for forgiveness of the loan, there is a risk that (i) the loan will not be forgiven, in whole or in part, (ii) we will take actions that could cause us to be ineligible for forgiveness of the loan, in whole or in part or (iii) we may be required to repay the loan, in whole or in part, upon event of default under the loan or upon a breach of applicable PPP regulations. We applied for forgiveness of our February 2021 PPP loan on January 17, 2022. No assurances can be given that our application will be approved.

Under the terms of our August 2021 Private Placement, we are required to conduct a Re-IPO whereby we will seek to raise additional funding in a registered underwritten offering and concurrently list our common stock on a national securities exchange. We are presently in default of our obligations under the terms of the August 2021 Private Placement to file a registration statement for the Re-IPO, and are accruing liquidated damages as a result to the investors in the August 2021 Private Placement, which we may not have the cash resources to pay. Moreover, investors are cautioned that the Re-IPO may not take for any number of reasons, many of which are beyond our control. You should not invest in our company in reliance on the fact that the Re-IPO will take place. If the Re-IPO does not occur, our common stock would still be quoted on the OTCQB Market, but your opportunity for liquidity in your common stock would be significantly limited.