Purebase Corp 10-Q for FY2022 Q1
Purebase Corp (PUBC)
About this 10-Q
Purebase Corp filed this 10-Q on April 14, 2022, covering the quarter ended February 28, 2022 (FY2022 Q1).
Headline figures
Quarter ended February 28, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $11.22M
- compared with a net loss of $238K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended:
or
| 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:
(Exact name of registrant as specified in its charter)
(State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former address)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
| None | N/A | N/A |
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark 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 ☐
As of April 14, 2022, there were shares of the registrant’s common stock outstanding.
PUREBASE CORPORATION AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2022
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PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| February 28, | November 30, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances for uncollectables of $ and $ | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Settlement liability | ||||||||
| Lease liability | ||||||||
| Note payable to officer | ||||||||
| Due to affiliated entities | ||||||||
| Convertible notes payable - related party, net of discount of $ and $ | ||||||||
| Notes payable, related party | ||||||||
| Total Current Liabilities | ||||||||
| Convertible notes payable - related party, net of current portion, and net of discount of $ | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 8) | - | - | ||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value; shares authorized; and shares issued and outstanding, respectively | - | - | ||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding, at February 28, 2022 and November 30, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
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PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Revenue, net | $ | $ | ||||||
| Operating Expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Product fulfillment | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Income (Expense): | ||||||||
| Other income | - | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total Other Income (Expense) | ( | ) | ( | ) | ||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Loss per Common Share - Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares Outstanding - Basic and Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2022 AND 2021
(UNAUDITED)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance at November 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance at November 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock based compensation - shares | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Loss on impairment of mineral rights | ||||||||
| Amortization of debt discount | ||||||||
| Settlement liability | ||||||||
| Non-cash effect of right of use asset | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Net Cash Used In Investing Activities | ||||||||
| Cash Flows From Financing Activities: | ||||||||
| Advances from related parties | ||||||||
| Payments on notes due to officers | ( | ) | ||||||
| Net Cash Provided By Financing Activities | ||||||||
| Net Increase In Cash | ( | ) | ( | ) | ||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for: | ||||||||
| Noncash investing and financing activities: | ||||||||
| Vendors paid for on behalf of the Company by USMC | $ | ( | ) | $ | ||||
| Due to affiliates exchanged for convertible debt | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
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PUREBASE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – ORGANIZATION AND BUSINESS OPERATIONS
Corporate History
The Company was incorporated in the State of Nevada on March 2, 2010, under the name Port of Call Online, Inc. to create a web-based service that would offer boaters an easy, convenient, fun, easy to use, online resource to help them plan and organize their boating trips. Pursuant to a corporate reorganization consummated on December 23, 2014, the Company changed its business focus to the identification, acquisition, exploration, development and full-scale exploitation of industrial and natural mineral properties in the United States for the development of products for the construction and agriculture markets. In line with this business focus, the Company changed its name to PureBase Corporation in January 2015.
The Company is headquartered in Ione, California.
Business Overview
The Company, through its two divisions, Purebase Ag and Purebase SCM, is engaged in the agricultural and construction-materials sectors. In the agricultural sector, the Company’s business is to develop specialized fertilizers, sun protectants, soil amendments, and bio-stimulants for organic and non-organic sustainable agriculture.
In the construction sector, the Company’s focus since 2020 has been to develop and test a kaolin-based product that will help create a lower CO2-emitting concrete (through the use of high-quality supplementary cementitious materials (“SCM’s”.)) The Company is developing a SCM that it believes can potentially replace up to 40% of cement, the most polluting part of concrete. As government agencies continue to enact stricter requirements for less-polluting forms of concrete, the Company believes there are significant opportunities for high-quality SCM products in the construction-materials sector.
In the agricultural sector, the Company has developed and will seek to develop additional products derived from mineralized materials of leonardite, kaolin clay, laterite, and other natural minerals. These mineral and soil amendments are used to protect crops, plants and fruits from the sun and winter damage, to provide nutrients to plants, and to improve dormancy and soil ecology to help farmers increase the yields of their harvests.
The Company is building a brand family under the parent trade name “Purebase,” consisting of its Purebase Shade Advantage WP product, a kaolin-clay based sun protectant for crops. It is also involved in the early testing of soil amendment products based on humic and fulvic acids derived from leonardite. Other agricultural products are in the development stage.
The Company utilizes the services of US Mine Corporation (“USMC”), a Nevada corporation, and a significant shareholder of the Company for the development and contract mining of industrial mineral and metal projects throughout North America, exploration drilling, preparation of feasibility studies, mine modeling, on-site construction, production, site reclamation and for product fulfillment. Exploration services include securing necessary permits, environmental compliance, and reclamation plans. In addition, a substantial portion of the minerals to be utilized by the Company is obtained from properties owned or controlled by USMC. A. Scott Dockter and John Bremer are officers, directors, and owners of USMC.
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NOTE 2 – GOING CONCERN AND LIQUIDITY
The
accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as
a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At February
28, 2022, the Company had a significant accumulated deficit of approximately $
The Company’s plan, through the continued promotion of its services to existing and potential customers, is to generate sufficient revenues to cover its anticipated expenses. The Company is currently exploring several options to meet its short-term cash requirements, including issuances of equity securities or equity-linked securities from third parties.
Although no assurances can be given as to the Company’s ability to deliver on its revenue plans or that unforeseen expenses may arise, management currently believes that the revenue to be generated from operations together with equity and debt financing will provide the necessary funding for the Company to continue as a going concern. However, there currently are no arrangements or agreements for such financing and management cannot guarantee any potential debt or equity financing will be available, or if available, on favorable terms. As such, these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations completely.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments, unless otherwise indicated) which are, in the opinion of management, necessary to fairly state the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations. These financial statements and the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited financial statements and explanatory notes for the year ended November 30, 2021 in our Form 10-K filed on March 15, 2022 with the SEC. The results of the three months ended February 28, 2022 (unaudited) are not necessarily indicative of the results to be expected for the full year ending November 30, 2022.
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and wholly-owned subsidiaries PureBase AG and USAM. Intercompany accounts and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and equity-based transactions at the date of the financial statements and the revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful accounts, useful lives of property and equipment, deferred tax asset and valuation allowance, assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Revenue
The Company derives revenues from the sale of its agricultural products. The Company’s contracted transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s contracts have a single performance obligation which are not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company’s performance obligation is satisfied upon the transfer of risk of loss to the customer.
Cash
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
There were
Account Receivable
The
Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. If collectability
of an account becomes unlikely, an allowance is recorded for that doubtful account. The Company has determined that there was allowance
for doubtful accounts as of February 28, 2022, and an allowance of $
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the related assets, generally three to five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated.
SCHEDULE OF ESTIMATED USEFUL LIFE OF PROPERTY AND EQUIPMENT
| Equipment | |
| Autos and trucks |
Maintenance
and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the cost and
accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations. The
Company currently has $
Impairment of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of
the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying
amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair
value is determined based on discounted cash flows or appraised values, depending on the nature of the assets.
Shipping and Handling
The Company incurs shipping and handling costs which are charged back to the customer. There were no shipping and handling costs incurred during the three months ended February 28, 2022 and February 28, 2021.
| 9 |
Advertising and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $
Fair Value Measurements
As defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
| Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. |
| Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. |
| Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of notes approximates the estimated fair value for these financial instruments as management believes that such notes constitute substantially all of the Company’s debt and interest payable on the notes approximates the Company’s incremental borrowing rate.
Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. All outstanding options are considered potential common stock. The dilutive effect, if any, of stock options are calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, the options have been excluded from the Company’s computation of net loss per share of common stock for the three months ended February 28, 2022 and February 28, 2021.
| 10 |
SCHEDULE OF OUTSTANDING SHARES EXCLUDED FROM DILUTED LOSS PER SHARE
| Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Convertible Notes | ||||||||
| Stock Options | ||||||||
| Total | ||||||||
Stock-Based Compensation
The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.
For stock options issued to employees and members of the Company’s Board of Directors (the “Board”) for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
Pursuant to ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.
Leases
With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as Right-of-Use (“ROU”) assets and corresponding lease liabilities. Right-of-use (“ROU”) assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that we will exercise that option.
Leases
in which our company is the lessee are comprised of corporate offices. All of the leases are classified as operating leases. The Company
is a party to a two-year lease, with USMC, a related party, for
In accordance with ASC 842, Leases, we recognized a ROU asset and corresponding lease liability on our consolidated balance sheet for long-term office leases. See Note 7 – Leases for further discussion, including the impact on our consolidated financial statements and related disclosures.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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The Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations.
Recent Accounting Pronouncements
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 4 – MINING RIGHTS
Federal Preference Rights Lease in Esmeralda County NV
This
Preference Rights Lease is granted by the Bureau of Land Management (“BLM”) covering approximately
Snow White Mine located in San Bernardino County, CA – Deposit
On
November 28, 2014 US Mining and Minerals Corporation entered into a Purchase Agreement in which it agreed to sell its fee simple property
interest and certain mining claims to USMC. In contemplation of the Plan and Agreement of Reorganization, on December 1, 2014, USMC,
a related party, assigned its rights and obligations under the Purchase Agreement to the Company pursuant to an Assignment of Purchase
Agreement. As a result of the Assignment, the Company assumed the purchaser position under the Purchase Agreement. The Purchase Agreement
involves the sale of approximately
During
the year ended November 30, 2017, USMC, agreed to offset the $
| 12 |
On September 5, 2019, the Board approved the discontinuance of all mining and related activities at the Snow White project. The Company has no further obligation related to this project.
On
April 1, 2020, the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust, a related party of the
Company, pursuant to which the Company will purchase the Snow White Mine for $
NOTE 5 – NOTES PAYABLE
Bayshore Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note to Bayshore Capital Advisors, LLC, an affiliate through common ownership of a
A. Scott Dockter – President and Chief Executive Officer
On
August 31, 2017, the Company issued a note in the amount of $
Convertible Promissory Notes – USMC
December 1, 2019
On
December 1, 2019, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note 10),
the Company issued a convertible promissory note in the amount of $
The
issuance of Tranche #1 resulted in a discount from the beneficial conversion feature totaling $
January 1, 2020
On
January 1, 2020, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note 10),
the Company issued a convertible promissory note in the amount of $
| 13 |
The
issuance of Tranche #2 resulted in a discount from the beneficial conversion feature totaling $
February 1, 2020
On
February 1, 2020, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note 10),
the Company issued a convertible promissory note in the amount of $
The
issuance of Tranche #3 resulted in a discount from the beneficial conversion feature totaling $
December 1, 2020
On
December 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC, a related party, (See Note 10),
the Company issued a convertible promissory note in the amount of $
March 17, 2021
On
March 17, 2021, in connection with the March 11, 2021, securities purchase agreement with USMC, a related party (see Note 10), the Company
issued a convertible promissory note in the amount of $
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following amounts:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| As of February 28, 2022 | As of November 30, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest – related party | ||||||||
| Accrued compensation | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
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NOTE 7 – LEASES
The following table presents net lease cost and other supplemental lease information:
SCHEDULE OF LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
Three Months Ended February 28, 2022 | Three Months Ended February 28, 2021 | |||||||
| Lease cost | ||||||||
| Operating lease cost (cost resulting from lease payments) | $ | $ | ||||||
| Short term lease cost | ||||||||
| Sublease income | ||||||||
| Net lease cost | $ | $ | ||||||
| Operating lease – operating cash flows (fixed payments) | $ | $ | ||||||
| Operating lease – operating cash flows (liability reduction) | $ | $ | ||||||
| Non-current leases – right of use assets | $ | $ | ||||||
| Current liabilities – operating lease liabilities | $ | $ | ||||||
| Non-current liabilities – operating lease liabilities | $ | $ | ||||||
Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months ended February 28, 2022:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| Fiscal Year | Operating Leases | |||
| Remainder of 2022 | $ | |||
| Total future minimum lease payments | ||||
| Amount representing interest | ( | ) | ||
| Present value of net future minimum lease payments | $ | |||
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Office and Rental Property Leases
The Company is using office space provided by USMC, a related party that is owned by the Company’s majority shareholders and directors A. Scott Dockter and John Bremer. (See Note 10).
Mineral Properties
The Company’s mineral rights require various annual lease payments (See Note 4).
Legal Matters
On
July 8, 2020, former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for arbitration alleging retaliation,
wrongful termination, and demand for a minimum of $
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On
January 11, 2019, the Company filed a complaint in the Nevada District Court for Washoe County (Case # CV19-00097) against Agregen International
Corp (“Agregen”) and Robert Hurtado alleging the misuse of proprietary and confidential information acquired by Mr. Hurtado
while employed by the Company as VP of Agricultural Research and Development. Mr. Hurtado was terminated in March 2018 and since that
time the Company alleges that he conspired with Agregen to improperly use proprietary and confidential information to compete with the
Company which constitute breaches of the non-compete and confidentiality provisions of his employment agreement with the Company. The
Company is seeking $
On
March 29, 2019, the Company was served with a complaint filed by Superior Soils Supplements LLC (“Superior Soils”) in the
Superior Court of the State of California in and for the County of Kings (Case #19C-0124) relating to 64 truckloads of soil amendments
delivered to a customer by the Company on behalf of Superior Soils. Superior Soils alleged that the soil amendments were not labeled
correctly requiring the entire shipment of product to be returned to the Company. The complaint alleges breach of contract, misrepresentations,
fraudulent concealment and unfair competition. The complaint seeks damages of approximately $
Contractual Matters
On November 1, 2013, we entered into an agreement with USMC, a related party, in which USMC provides various technical evaluations and mine development services for the Company with regard to the various mining properties/rights owned by the Company. Terms of services and compensation will be determined for each project undertaken by USMC.
On October 12, 2018, the Board approved a material supply agreement with USMC, a related party, pursuant to which USMC will provide designated natural resources to the Company at predetermined prices (see Note 10).
Note 9 – STOCK-BASED COMPENSATION
2017 Equity Incentive Plan
On November 10, 2017 the Board approved the 2017 PureBase Corporation Stock Option Plan which is intended to be a qualified stock option plan (the “Option Plan”). The Board reserved shares of the Company’s common stock to be issued pursuant to options granted under the Option Plan. The Option Plan was subsequently approved by shareholders on September 28, 2018. As of February 28, 2022, options to purchase an aggregate of shares of common stock have been granted under the Option Plan.
The Company has also granted options to purchase an aggregate of shares of common stock pursuant to employment contracts with certain employees prior to the adoption of the Option Plan.
The Company did not grant stock options during the three months ended February 28, 2022 and February 28, 2021.
| 16 |
SCHEDULE OF STOCK OPTION ACTIVITY
| Weighted | ||||||||
| Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding at November 30, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at February 28, 2022 | ||||||||
SCHEDULE OF STOCK OPTION SHARES OUTSTANDING AND EXERCISABLE
| Weighted- | Weighted- | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Range of | Outstanding | Remaining Life | Exercise | Number | ||||||||||||||
| exercise prices | Options | In Years | Price | Exercisable | ||||||||||||||
| $ | $ | |||||||||||||||||
| $ | ||||||||||||||||||
The compensation expense attributed to the issuance of the options is recognized as they are vested.
The stock options granted under the Option Plan are exercisable for from the grant date and vest over various terms from the grant date to .
Total
compensation expense related to the options was $ and $ for the three months ended February 28, 2022 and February 28,
2021, respectively. As of February 28, 2022, there was $
The aggregate intrinsic value totaled $ for total outstanding and exercisable options, which was based on our estimated fair value of the common stock of $ as of February 28, 2022, which is the aggregate fair value of the common stock that would have been received by the option holders had all option holders exercised their options as of that date, net of the aggregate exercise price.
NOTE 10 – RELATED PARTY TRANSACTIONS
Bayshore Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note in the principal amount of $
| 17 |
US Mine Corporation
The
Company entered into a contract mining agreement with USMC, a company owned by the majority stockholders of the Company, A. Scott Dockter
and John Bremer, pursuant to which USMC provides various technical evaluations and mine development services to the Company. During the
three months ended February 28, 2022 and 2021, the Company did not make any purchased from USMC. No services were rendered by USMC for
the three months ended February, 2022 and 2021. In addition, during the three months ended February 28, 2022 and 2021, USMC paid $
On
September 26, 2019, the Company entered into a securities purchase agreement with USMC pursuant to which USMC may purchase up to $
On
November 25, 2020, the Company entered a securities purchase agreement with USMC pursuant to which USMC may purchase up to $
On April 7, 2022, the Company
entered into a securities purchase agreement with USMC, effective March 23, 2022, pursuant to which USMC may purchase up to $
The
outstanding balance due on the above notes to USMC was $
On
April 22, 2020, the Company entered into a Material Supply Agreement (the “Supply Agreement”) with USMC which amended the
prior Materials Supply Agreement entered into on October 12, 2018. All kaolin clay purchased by the Company from USMC under the Supply
Agreement must be used exclusively for agricultural products and supplementary cementitious materials. Under the terms of the Supply
Agreement, the Company will pay $
US Mine LLC
On
May 27, 2021, the Company entered into the Extraction Agreement with US Mine LLC, pursuant to which the Company acquired the right to
extract up to 100,000,000 of certain raw clay materials. The Extraction Agreement is effective until 100,000,000 tons of material are
extracted. As compensation for such right the Company issued a ten-year convertible promissory note in the principal amount of $
| 18 |
On October 6, 2021, and prior to consummation of activities under the Extraction Agreement, the Company and US Mine executed an amendment to the Extraction Agreement (the “Amendment”). Pursuant to the Amendment, the Note was cancelled and an option to purchase an aggregate of shares of the Company’s common stock at an exercise price of $per share until April 6, 2028, was issued to US Mine LLC as compensation. Shares subject to the option vest as to shares on April 6, 2022, shares on October 6, 2022, and shares on April 6, 2023. For the three months ended February 28, 2022 the Company expensed $in stock-based compensation expense related to the issuance of the option on October 16, 2021 to US Mine LLC under the extraction agreement.
Leases
On
October 1, 2020 the Company entered into a
Transactions with Officers
On
August 31, 2017, the Company issued a note in the amount of $
NOTE 11 – CONCENTRATION OF CREDIT RISK
Cash Deposits
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Revenues
The Company had no revenue for the three months ended February 28, 2022 and 2021.
Accounts Receivable
One
customer accounted for
Vendors
SCHEDULE OF CONCENTRATION OF CREDIT RISK
Four
suppliers accounted for
| Vendor A | % | |||
| Vendor B | % | |||
| Vendor C | % | |||
| Vendor D | % |
Two
suppliers accounted for
| Vendor A, a related party | % | |||
| Vendor B | % |
| 19 |
NOTE 12 – SUBSEQUENT EVENTS
Conversion of Related Party Notes
On
September 26, 2019, the Company entered into a securities purchase agreement with USMC pursuant to which USMC may purchase up to
$
On
November 25, 2020, the Company entered a securities purchase agreement with USMC pursuant to which USMC may purchase up to $
On April 1, 2020,
the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust, a related party of the Company, pursuant
to which the Company will purchase the Snow White Mine for $
| 20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are statements in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| ● | absence of contracts with customers or suppliers; |
| ● | our ability to maintain and develop relationships with customers and suppliers; |
| ● | the impact of competitive products and pricing; |
| ● | supply constraints or difficulties; |
| ● | the retention and availability of key personnel; |
| ● | general economic and business conditions; |
| ● | substantial doubt about our ability to continue as a going concern; |
| ● | our ability to successfully implement our business plan; |
| ● | our need to raise additional funds in the future; |
| ● | our ability to successfully recruit and retain qualified personnel in order to continue our operations; |
| ● | our ability to successfully acquire, develop or commercialize new products; |
| ● | the commercial success of our products; |
| ● | the impact of any industry regulation; |
| ● | our ability to develop existing mining projects or establish proven or probable reserves; |
| ● | our dependence on one vendor for our minerals for our products; |
| ● | the impact of potentially losing the rights to properties; |
| ● | the impact of the increase in the price of natural resources; and |
| ● | the continued impact of the COVID-19 pandemic. |
We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report, except as required by law.
As used in this Quarterly Report and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our,” refer to PureBase Corporation and its wholly-owned subsidiaries, PureBase Agricultural, Inc., a Nevada corporation (“PureBase AG”) and U.S. Agricultural Minerals, LLC, a Nevada limited liability company (“USAM”).
Business Overview
The Company, through its two divisions, Purebase Ag and Purebase SCM, is engaged in the agricultural and construction-materials sectors. In the agricultural sector, the Company’s business is to develop specialized fertilizers, sun protectants, soil amendments and bio-stimulants for organic and non-organic sustainable agriculture.
In the construction sector, the Company’s focus since 2020 has been to develop and test a kaolin-based product that will help create a lower CO2-emitting concrete (through the use of high-quality SCM’s.) The Company is developing a SCM that it believes can potentially replace up to 40% of cement, the most polluting part of concrete. As government agencies continue to enact stricter requirements for less-polluting forms of concrete, the Company believes there are significant opportunities for high-quality SCM products in the construction-materials sector.
| 21 |
In the agricultural sector, the Company has developed and will seek to develop additional products derived from mineralized materials of leonardite, kaolin clay, laterite, and other natural minerals. These mineral and soil amendments are used to protect crops, plants and fruits from the sun and winter damage, to provide nutrients to plants, and to improve dormancy and soil ecology to help farmers increase the yields of their harvests.
The Company is building a brand family under the trade name “Purebase,” consisting of its Purebase Shade Advantage WP product, a kaolin-clay based sun protectant for crops. The Company is also involved in the early testing of soil amendment products based on humic and fulvic acids derived from leonardite. Other agricultural products are in the development stage.
The Company utilizes the services of US Mine Corporation (“USMC”), a Nevada corporation, and a significant shareholder of the Company for the development and contract mining of industrial mineral and metal projects throughout North America, exploration drilling, preparation of feasibility studies, mine modeling, on-site construction, production, site reclamation and for product fulfillment. Exploration services include securing necessary permits, environmental compliance, and reclamation plans. In addition, a substantial portion of the minerals to be utilized by the Company is obtained from properties owned or controlled by USMC. A. Scott Dockter and John Bremer are officers, directors, and owners of USMC.
Recent Developments
On March 14, 2022, the Company issued a two-year 5% unsecured convertible promissory note to USMC in the principal amount of $884,492.28 (the “March 14, 2022 Note”), pursuant to the terms of a securities purchase agreement, dated March 17, 2021, with USMC. Amounts due under the March 14, 2022 Note may be converted into shares of common stock, at any time at the option of the holder, at a conversion price of $0.088 per share. The conversion price and number of shares issuable upon conversion of the March 14, 2022 Note is subject to adjustment from time to time for any subdivision or consolidation of the Company’s shares and other dilutive events.
On April 7, 2022, the “Company entered into a First Amendment to Promissory Notes (the “Note Amendment”) with USMC, the holder of the Company’s outstanding 5% unsecured convertible promissory notes (the “2019/2020 Notes”) issued under a securities purchase agreement, dated September 26, 2019. Pursuant to the Note Amendment, the maturity dates were extended, to April 30, 2022, for: (i) a 2019/2020 Note in the principal amount of $20,000, originally issued on December 1, 2019, with a maturity date of December 1, 2021, (ii) a 2019/2020 Note in the principal amount of $86,000, originally issued on January 1, 2020, with a maturity date of January 1, 2022, and (iii) a 2019/2020 Note in the principal amount of $72,000, originally issued on February 1, 2022, with a maturity date of February 1, 2022 (collectively, the “2019/2020 Amended Notes”). In addition, USMC waived any “Event of Default” under the 2019/2020 Amended Notes for the Company’s failure to pay any principal amount or interest due under the 2019/2020 Amended Notes, or failure to perform any other covenant, obligation, condition or agreement contained in any of the 2019/2020 Amended Notes. Except as expressly provided in the Note Amendment, all of the terms of the 2019/2020 Notes remain in full force and effect.
On April 7, 2022, the Company also entered into a securities purchase agreement with USMC, effective as of March 23, 2022, pursuant to which USMC may purchase up to an additional $1,000,000 of two year 5% unsecured convertible promissory notes (“2022/2023 Notes”), in one or more closings. Amounts due under the 2022/2023 Notes are convertible into shares of common stock at any time at the option of the holder, at a conversion price of $0.39 per share, subject to adjustment for any subdivision or consolidation of the Company’s shares and other standard dilutive events.
On April 7, 2022, USMC converted all amounts due under the 5% unsecured convertible promissory notes into shares of common stock of the Company as follows: (i) the principal amount of $20,000, and accrued interest in the aggregate amount of $2,350.68, due under the outstanding note issued on December 1, 2019, was converted into a total of 139,692 shares, (ii) the principal amount of $86,000, and accrued interest in the aggregate amount of $9,742.74, due under the outstanding note issued on January 1, 2020, was converted into a total of 598,392 shares, (iii) the principal amount of $72,000, and accrued interest in the aggregate amount of $7,850.96, due under the outstanding note issued on February 1, 2020, was converted into a total of 499,068 shares, (iv) the principal amount of $822,000, and accrued interest in the aggregate amount of $55,400.55, due under the outstanding note issued on November 25, 2020, was converted into a total of 5,483,753 shares, (v) the principal amount of $579,769.39, and accrued interest in the aggregate amount of $30,656.30, due under the outstanding note issued on March 17, 2021, was converted into a total of 6,936,656 shares, and (vi) the principal amount of $884,492.28, and accrued interest in the aggregate amount of $2,907.92, due under the outstanding note issued on March 14, 2022, was converted into a total of 10,084,093 shares.
A. Scott Dockter, the principal executive officer and a director and shareholder of the Company, and John Bremer, a director and shareholder of the Company, are also officers, directors and shareholders of USMC.
Results of Operations
Comparison of the Three Months Ended February 28, 2022 and the Three Months Ended February 28, 2021
A comparison of the Company’s operating results for the three months ended February 28, 2022 and February 28, 2021 are summarized as follows:
| February 28, | February 28, | |||||||||||
| 2022 | 2021 | Variance | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| Operating expenses: | ||||||||||||
| Selling, general & administrative | 11,200,401 | 220,926 | 10,979,475 | |||||||||
| Product fulfillment, exploration and mining | 3,252 | 2,114 | 1,138 | |||||||||
| Loss from operations | (11,203,653 | ) | (223,040 | ) | (10,980,613 | ) | ||||||
| Other income (expense) | (18,891 | ) | (14,960 | ) | (3,931 | ) | ||||||
| Net Loss | $ | (11,222,544 | ) | $ | (238,000 | ) | $ | (10,984,544 | ) | |||
Revenues
The Company did not generate any revenue during the three months ended February 28, 2022 February 28, 2021.
Operating Expenses
Total operating expenses increased by $10,980,613, or 4,923% for the three months ended February 28, 2022 as compared to the three months ended February 28, 2021 as a result of an increase in stock compensation cost resulting primarily from the Company issuing stock options to US Mine, LLC.
Selling, general and administrative expenses increased by $10,979,475, or 4,970%, for the three months ended February 28, 2022, as compared to the three months ended February 28, 2021, due to an increase of approximately $10,939,000 in stock compensation cost resulting primarily from the Company issuing stock option to US Mine, LLC.
Product fulfillment, exploration and mining expenses for the three months ended February 28, 2022, increased $1,138, or 58% as compared to the three months ended February 28, 2021 due to an increase in exploration costs.
| 22 |
Other Income (Expense)
Other income (expense) increased by $3,931, or 26%, for the three months ended February 28, 2022, as compared to the three months ended February 28, 2021, primarily due to an increase in interest expense as a result of the Company entering into $579,769 of convertible debt with USMC subsequent to the three months ended February 29, 2021.
Liquidity and Capital Resources
As of February 28, 2022, we had $10,765 in cash on hand and a working capital deficiency of $2,509,796, as compared to cash on hand of $132,209 and a working capital deficiency of $2,241,254 as of November 30, 2021. The decrease in working capital deficiency is mainly due to an approximate $121,500 decrease in cash on hand that was spent on operating activities.
We will require additional funds to implement our growth strategy. We do not believe that our current cash and cash equivalents will be sufficient to meet our working capital requirements for the next twelve months. We have had negative cash flow from operating activities as we have not yet begun to generate sufficient and consistent revenues to cover our operating expenses. Until we are able to establish a sufficient revenue stream from operations our ability to meet our current financial liabilities and commitments will be primarily dependent upon proceeds from outside capital sources including USMC, an affiliated entity. There is no assurance that we will be able to obtain necessary capital or that our estimates of our capital requirements will prove to be accurate. Even if we are able to secure outside financing, it may not be available in the amounts or times when we require or on favorable terms. We currently do not have any agreements or understandings for additional financing. If we are unable to raise sufficient capital we will be required to delay or forego some portion of our business plan or cease operations.
Furthermore, such outside financing would likely take the form of bank loans, private offerings of debt or equity securities, advances from affiliates or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current shareholders while incurring debt by the Company would increase the Company’s cash flow requirements and may subject the Company to restrictions on its operations and corporate actions.
Going Concern
The unaudited condensed consolidated financial statements presented in this Quarterly Report have been prepared under the assumption that the Company will continue as a going concern. The Company has accumulated losses from inception through February 28, 2022, of approximately $32,283,769, as well as negative cash flows from operating activities. During the three months ended February 28, 2022, the Company received net cash proceeds of approximately $118,000 from USMC, an affiliated entity. Presently the Company does not have sufficient cash to meet its debt obligations in the twelve months following the date of this Quarterly Report. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance the capital requirements of the Company. There can be no assurance that the Company will be successful with its fund-raising initiatives.
The unaudited condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.
| 23 |
Working Capital Deficiency
Our working capital deficiency as of February 28, 2022, in comparison to our working capital deficiency as of November 30, 2021, can be summarized as follows:
| February 28, | November 30, | |||||||
| 2022 | 2021 | |||||||
| Current assets | $ | 25,829 | $ | 138,903 | ||||
| Current liabilities | 2,535,625 | 2,380,157 | ||||||
| Working capital deficiency | $ | (2,509,796 | ) | $ | (2,241,254 | ) | ||
The decrease in current assets is primarily due to a decrease in cash of 121,544, partially offset by an increase in prepaid expenses and other assets of $8,470. Current liabilities increased $155,468, or 7% during the three months ended February 28, 2022, as compared to the three months ended February 28, 2021 primarily due to an increase in account payable and accrued expenses, and amounts due to affiliated entities of $34,172 and $120,284, respectively, during the three months ended February 28, 2022.
Cash Flows
| Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Net cash used in operating activities | $ | (239,544 | ) | $ | (238,787 | ) | ||
| Net cash provided by financing activities | 118,000 | 236,477 | ||||||
| Decrease in cash | $ | (121,544 | ) | $ | (2,310 | ) | ||
Operating Activities
Net cash used in operating activities was $239,544 for the three months ended February 28, 2022, primarily due to a net loss of $11,222,544, which primarily consisted of a non-cash expense of $10,949,738 related to stock based compensation cost, wages of $128,217 and professional fees of $88,320, which was partially offset by an increase of $36,455 in accounts payable.
Net cash used in operating activities was $238,787 for the three months ended February 28, 2021, primarily due to a net loss of $238,000 and an increase of $24,224 in accounts payable and accrued expenses which was partially offset by non-cash expenses of $21,749 related to stock-based compensation and amortization of debt discount.
Investing Activities
There were no investing activities during the three months ended February 28, 2022 and February 28, 2021.
Financing Activities
For the three months ended February 28, 2022, net cash provided by financing activities was $118,000, which was advanced to the Company by USMC and recorded as part of due to affiliated entities on the balance sheet.
For the three months ended February 28, 2021, net cash provided by financing activities was $236,477, primarily due to $24,077 advanced to the Company by USMC and recorded as part of due to affiliated entities on the balance sheet.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Procedures
Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in this Quarterly Report, and in our Annual Report on Form 10-K for the fiscal year ended November 30, 2021, as filed with the SEC on March 15, 2022.
Recently Adopted Accounting Pronouncements
Our recently adopted accounting pronouncements are more fully described in Note 2 to our condensed consolidated financial statements included in this Report.
| 24 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure 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 SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective as of February 28, 2022 due to the material weaknesses in internal control over financial reporting described below.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness, as defined in the standards established by the Sarbanes-Oxley 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 consolidated financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses:
| ● | Inadequate segregation of duties consistent with control objectives; |
| ● | Lack of formal policies and procedures; |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner; and |
| ● | Lack of personnel with GAAP experience. |
Management’s Plan to Remediate the Material Weakness
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include:
| ● | Continue to search for and evaluate qualified independent outside directors; |
| ● | Continue to search for a qualified chief financial officer; |
| ● | Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; and |
| ● | Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
| 25 |
Management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended February 28, 2022 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, there are no material pending legal proceedings in which we or any of our subsidiaries is a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
On July 8, 2020, former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for arbitration alleging retaliation, wrongful termination, and demand for a minimum of $600,000 in alleged stock value, plus interest, recovery of past and future wages, attorneys’ fees, and punitive damages (collectively, the “Calvanico Claims”). The Company denied all Calvanico Claims. The Company believes Calvanico is owed nothing because it takes the position that Calvanico was not terminated, but rather, his employment contract expired on September 21, 2019, in accordance with its terms, and was not renewed by Company and because Calvanico never exercised his stock options. On February 14, 2020, the Company requested in writing that Calvanico exercise his stock options within 30 days. Calvanico failed to do so. To date, Calvanico has not exercised his stock options. This dispute is currently in the arbitration discovery phase. An arbitration hearing is scheduled for July 1 and 5-8, 2022 before arbitrator, Scott Silverman in Los Angeles. The Company is in the process of scheduling a mediation to explore a possible settlement.
On January 11, 2019, the Company filed a complaint in the Nevada District Court for Washoe County (Case # CV19-00097) against Agregen International Corp (“Agregen”) and Robert Hurtado alleging the misuse of proprietary and confidential information acquired by Mr. Hurtado while employed by the Company as VP of Agricultural Research and Development. Mr. Hurtado was terminated in March 2018 and since that time the Company alleges that he conspired with Agregen to improperly use proprietary and confidential information to compete with the Company which constitute breaches of the non-compete and confidentiality provisions of his employment agreement with the Company. The Company is seeking $100,000,000 in monetary damages. On March 14, 2019, Agregen and Mr. Hurtado filed an answer to the Company’s Complaint that the allegations were false. An Early Case Conference was held on April 26, 2019, and a pre-trial conference was held on July 10, 2019. On March 13, 2020, the Company filed a First Amended Complaint, adding Todd Gauer and John Gingerich as additional defendants. A default has been taken against Mr. Gingerich. Litigation is actively proceeding against Mr. Hurtado, Mr. Gauer, and Agregen. A June 2021 trial date was postponed due to Covid-related delays but was rescheduled to begin during June 2022.
On March 29, 2019, the Company was served with a complaint filed by Superior Soils Supplements LLC (“Superior Soils”) in the Superior Court of the State of California in and for the County of Kings (Case #19C-0124) relating to 64 truckloads of soil amendments delivered to a customer by the Company on behalf of Superior Soils. Superior Soils alleged that the soil amendments were not labeled correctly requiring the entire shipment of product to be returned to the Company. The complaint alleges breach of contract, misrepresentations, fraudulent concealment and unfair competition. The complaint seeks damages of approximately $300,000. The Company filed its answer on May 6, 2019, denying responsibility for the mis-labelling and denying any liability for damages therefrom. After settlement negotiations were terminated, the matter was set for trial in April 2023.
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ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
There were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no defaults upon senior securities that were not previously reported in a Current Report on Form 8-K.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Number |
Description | |
| 31* | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer | |
| 32* | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and the Chief Financial Officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 27 |
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.
| PUREBASE CORPORATION | ||
| By: | /s/ A. Scott Dockter | |
| A. Scott Dockter | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial | ||
| and Accounting Officer) | ||
| Date: April 14, 2022 | ||
| 28 |
Exhibit 31
PUREBASE CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, A. Scott Dockter, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of PureBase Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| By: | /s/ A. Scott Dockter | |
| A. Scott Dockter | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | ||
| Date: April 14, 2022 |
Exhibit 32
PUREBASE CORPORATION
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of PureBase Corporation as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the registrant.
| By: | /s/ A. Scott Dockter | |
| A. Scott Dockter | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | ||
| Date: April 14, 2022 |