I am positive its concrete block.
My basement is very dry do to me
1. extending the gutters and putting in drain tile that slopes away from the house this stopped all the water from splashing and allowed the water to drain away from the basment. I used 4'' black perf pipe and 2/b stone, sloped at 1/4 bubble.
2. fixing all the gutters so that they dont leak
3. putting dry lock and hydraulic cement on the inside walls and around the base of the wall where it meets the slab.
Flaking occured about 2' up on the exterior wall. It was where the rain gutters previously ended. I power washed with tsp, bleach, and water, then use a concrete patch to fix the flaking. Since then I have not had any flaking.
After posting this question on another forum, I recieved an answer.
Since the size of the stone that i will be using is only going to be 1/4-3/4 of an inch; It was suggested to install it like tile. And since the flaking has stopped and i have all the flaked parts cleaned up I wont have to put lathe down.
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