Purebase Corp 10-Q for FY2021 Q3
Purebase Corp (PUBC)
About this 10-Q
Purebase Corp filed this 10-Q on October 28, 2021, covering the quarter ended August 31, 2021 (FY2021 Q3).
Headline figures
Quarter ended August 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $338.7K
- up 99.3% from $169.98K a year earlier
- Net loss
- $82.07K
- compared with a net loss of $270.76K 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 October 25, 2021, there were shares of the registrant’s common stock outstanding.
PUREBASE CORPORATION AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2021
| 2 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| August 31, | November 30, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances for uncollectables of $ | ||||||||
| 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 $ | - | |||||||
| Notes payable, related party | ||||||||
| Total Current Liabilities | ||||||||
| Lease liability, net of current portion | - | |||||||
| Convertible notes payable - related party, net of current portion, and net of discount of $ and $ | ||||||||
| 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; shares issued and outstanding, at August 31, 2021 and November 30, 2020, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 3 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| August 31, 2021 | August 31, 2020 | August 31, 2021 | August 31, 2020 | |||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| August 31, 2021 | August 31, 2020 | August 31, 2021 | August 31, 2020 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Product fulfillment | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Other income | - | |||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
| 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 unaudited condensed consolidated financial statements
| 4 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 2021 AND 2020
(Unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance at November 30, 2020 | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Stock based compensation - options | - | - | - | - | - | |||||||||||||||||||||||
| Stock based compensation - shares | ||||||||||||||||||||||||||||
| Stock based compensation - shares, shares | ||||||||||||||||||||||||||||
| Forgiveness of related party liabilities | ||||||||||||||||||||||||||||
| Beneficial conversion feature on convertible debt | ||||||||||||||||||||||||||||
| Common shares issued in Quove asset purchase | ||||||||||||||||||||||||||||
| Common shares issued in Quove asset purchase, shares | ||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at February 28, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock based compensation - shares | - | - | - | |||||||||||||||||||||||||
| Stock based compensation - options | - | - | - | - | - | |||||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at May 31, 2021 | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock based compensation - shares | - | - | - | - | ||||||||||||||||||||||||
| Stock based compensation - options | - | - | - | - | - | |||||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at August 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance at November 30, 2019 | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Forgiveness of related party liabilities | - | - | - | - | - | |||||||||||||||||||||||
| Beneficial conversion feature on convertible debt | - | - | - | - | - | |||||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of February 29, 2020 | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock based compensation - options | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of May 31, 2020 | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Beginning balance | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Common shares issued in Quove asset purchase | - | - | - | |||||||||||||||||||||||||
| Stock based compensation - options | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of August 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 5 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| August 31, 2021 | August 31, 2020 | |||||||
| For the Nine Months Ended | ||||||||
| August 31, 2021 | August 31, 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for Doubtful Accounts | - | |||||||
| Depreciation | - | |||||||
| Stock based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Settlement liability | - | |||||||
| Non-cash effect of right of use asset | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Advances from related parties | ||||||||
| Proceeds from convertible notes payable - related party | - | |||||||
| 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: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
| Forgiveness of accounts payable due to USMC | $ | $ | ||||||
| Vendors paid for on behalf of the Company by USMC | $ | $ | ||||||
| Due to affiliates exchanged for convertible debt | $ | $ | ||||||
| Purchase of assets from Quove Corporation | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 6 |
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
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 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.
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 August
31, 2021, the Company had a significant accumulated deficit of approximately $
| 7 |
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, 2020, in our Annual Report on Form 10-K filed on March 16, 2021, with the SEC. The results (unaudited) of the three and nine months ended August 31, 2021, are not necessarily indicative of the results to be expected for the full year ended November 30, 2021.
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and wholly-owned subsidiaries PureBase Agricultural, Inc., a Nevada corporation (“PureBase AG”) and U.S. Agricultural Minerals, LLC, a Nevada limited liability company (“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.
| 8 |
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 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.
Practical Expedients
| As part of ASC Topic 606, the Company has adopted several practical expedients including: | |
| ● | Significant Financing Component – the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. |
| ● | Unsatisfied Performance Obligations – all performance obligations related to contracts with a duration for less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606 and therefore, is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period. |
| ● | Shipping and Handling Activities – the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation. |
| ● | Right to Invoice – the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date the Company may recognize revenue in the amount to which the entity has a right to invoice. |
Disaggregated Revenue
Revenue consists of the following by product offering for the nine months ended August 31, 2021:
SCHEDULE OF DISAGGREGATED REVENUE
| Humate INU Advantage | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | |||||||||||
| $ | $ | $ | $ | |||||||||||
Revenue consists of the following by product offering for the nine months ended August 31, 2020:
| Humate INU Advantage | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | |||||||||||
| $ | $ | $ | $ | |||||||||||
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 are
| 9 |
Accounts Receivable
The
Company periodically assesses its accounts receivable 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. At August 31, 2021, and November 30,
2020, the Company has determined that 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. Useful lives by asset category are as follows:
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 carrying amount to the forecasted undiscounted
net cash flows from the operation to which the assets relate. If an operation is determined to be unable to recover the carrying amount
of its assets, then these assets are written down to their 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
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.
| 10 |
| 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 common share for the three and nine months ended August 31, 2021 and 2020.
SCHEDULE OF OUTSTANDING SHARES EXCLUDED FROM DILUTED LOSS PER SHARE
| Nine Months Ended | ||||||||
| August 31, 2021 | August 31, 2020 | |||||||
| Convertible Notes | ||||||||
| Stock Options | ||||||||
| Total | ||||||||
| Three Months Ended | ||||||||
| August 31, 2021 | August 31, 2020 | |||||||
| Convertible Notes | ||||||||
| Stock Options | ||||||||
| Total | ||||||||
| 11 |
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.
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 with ASC 718. To value the stock options, the Company uses valuation methods and assumptions that are in line with the process for valuing employee stock options noted above.
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 of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
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 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
| 12 |
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 $
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 through
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 $
| 13 |
Convertible Notes Payable – Related Party (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 11),
the Company issued a two-year 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 11),
the Company issued a convertible promissory note in the amount of $
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 11),
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 11),
the Company issued a convertible promissory note in the amount of $
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March 17, 2021
On
March 17, 2021, in connection with the March 11, 2021, securities purchase agreement with USMC, a related party, (See Note 11), the Company
issued a convertible promissory note in the amount of $
Convertible Note Payable – Related Party (US Mine, LLC)
On
May 27, 2021, in connection with the Materials Extraction Agreement (the “Extraction Agreement”) with US Mine, LLC, a related
party, (See Note 11), the Company issued a convertible promissory note in the principal 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
| August 31, 2021 | November 30, 2020 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest – related party | ||||||||
| Accrued compensation | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
NOTE 7 – 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.
The
Company is a party to a lease, with USMC, a related party, for
On
December 1, 2020, the Company recognized ROU assets and lease liabilities of $
When
measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated
incremental borrowing rate at December 1, 2020. The weighted average incremental borrowing rate applied was
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The following table presents net lease cost and other supplemental lease information:
SCHEDULE OF LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
Nine
Months | ||||
| 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 nine months ended August 31, 2021:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| Fiscal Year | Operating Leases | |||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| Total future minimum lease payments | ||||
| Amount representing interest | ( | ) | ||
| Present value of net future minimum lease payments | $ |
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Mineral Properties
The Company’s mineral rights require various annual lease payments (See Note 4).
Legal Matters
On
July 8, 2020, the Company’s former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for
arbitration alleging retaliation, wrongful termination, and demand for a minimum amount of $
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 $
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On
March 29, 2019, the Company was served with a complaint 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 $
On
April 16, 2021, LexisNexis, a division of RELX, Inc., filed a Complaint against the Company and its former attorney, Michael Kessler,
Esq., in the Superior Court of the State of California, Amador County (Case No. 21-CV-12123). This is a limited jurisdiction lawsuit
seeking payment of $
Contractual Matters
USMC
On November 1, 2013, the Company entered into an agreement with USMC, a related party, under which USMC performs services relating to various technical evaluations and mine development for various mining properties/rights owned by the Company. Terms of services and compensation are 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 provides designated natural resources to the Company at predetermined prices (See Note 11).
NOTE 9 – STOCKHOLDERS’ DEFICIT
Equity Transactions During the Period
During the nine months ended August 31, 2021, the Company issued an aggregate of shares of common stock with a fair value range between $ and $ per share to an investment banking firm pursuant to an investment banking agreement for services rendered to the Company.
During the nine months ended August 31, 2021, the Company issued shares of common stock with a fair value of $per share to a director pursuant to a director’s agreement for services rendered.
Note 10 – STOCK-BASED COMPENSATION
The Company accounted for its stock-based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, “Compensation – Stock 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 August 31, 2021, options to purchase an aggregate of shares of common stock have been granted under the Option Plan.
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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 granted options to purchase shares of common stock during the nine months ended August 31, 2021.
The Company granted options to purchase an aggregate of shares of common stock during the nine months ended August 31, 2020.
The weighted average grant date fair value of options granted and vested during the nine months ended August 31, 2021, was $ and $, respectively. The weighted average grant date fair value of options granted and vested during the nine months ended August 31, 2020, was $ and $, respectively. The weighted average non-vested grant date fair value of non-vested options was $760 at August 31, 2021.
| Weighted | ||||||||
| Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding at November 30, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at August 31, 2021 | ||||||||
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 ten years from the grant date and vest over various terms from the grant date to three years.
On
April 8, 2020, the Company granted a director an option to purchase shares of the Company’s common stock at an exercise
price of $ per share and a fair value of $. The options vest immediately at the grant date. The options were valued using the
Black-Scholes option pricing model under the following assumptions: stock price - $; strike price - $
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On
April 15, 2020, the Company granted two advisory board members options to purchase an aggregate of shares of the Company’s
common stock at an exercise price of $ per share and a fair value of $. The options vest one year from the date of grant. The
options were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $; strike price
- $
On
April 8, 2021, the Company granted a director an option to purchase shares of the Company’s common stock at an exercise
price of $ per share and a fair value of $. These options vest one year from the grant date. The options were valued using
the Black-Scholes option pricing model under the following assumptions: stock price - $; strike price - $
The aggregate intrinsic value totaled $ and was based on the Company’s closing stock price of $ as of August 31, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.
Total
compensation expense related to the options was $ and $ for the three months ended August 31, 2021 and 2020, respectively.
Total compensation expense related to the options was $and $ for the nine months ended August 31, 2021 and 2020, respectively.
As of August 31, 2021, there was $
NOTE 11 – RELATED PARTY TRANSACTIONS
Bayshore Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note in the principal amount of $
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 will provide various technical evaluations and mine development services to the Company. During
the three and nine months ended August 31, 2021, the Company made $
On
September 26, 2019, the Company entered into a securities purchase agreement with USMC pursuant to which USMC may purchase up to $
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On
November 25, 2020, the Company entered a securities purchase agreement with USMC pursuant to which USMC may purchase up to $
The
outstanding balance due on the above notes to USMC is $
On
April 22, 2020, the Company entered into a Material Supply Agreement (the “Supply Agreement”) with USMC which amended the
prior Material 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 $
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 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.
Leases
On
October 1, 2020, the Company entered into a -year
lease agreement for its office space with USMC with a monthly rent of $
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Transactions with Officers
On
August 31, 2017, the Company issued a note in the amount of $
NOTE 12 – 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
Four
customers accounted for
SCHEDULE OF CONCENTRATION OF CREDIT RISK
| Customer A | % | |||
| Customer B | % | |||
| Customer C | % | |||
| Customer D | % |
Three
customers accounted for
| Customer A | % | |||
| Customer B | % | |||
| Customer C | % |
Accounts Receivable
Three
customers accounted for
| Customer A | % | |||
| Customer B | % | |||
| Customer C | % |
Two
customers accounted for
| Customer A | % | |||
| Customer B | % |
Vendors
Three
vendors accounted for
| Vendor A | % | |||
| Vendor B | % | |||
| Vendor C | % |
One
supplier accounted for
NOTE 13 – SUBSEQUENT EVENTS
On October 6, 2021, prior to the 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 US Mine 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 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.
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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 us and members 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, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2021, 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; | |
| ● | business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as the outbreak of COVID-19, or the novel coronavirus); | |
| ● | 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 once vendor for our minerals for our products; | |
| ● | the impact of potentially losing the rights to properties; and | |
| ● | the impact of the increase in the price of natural resources. |
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.
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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.
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, a Nevada corporation (“USMC”) 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
Minerals Extraction Agreement and Convertible Debt – US Mine LLC
On May 27, 2021, the Company entered in a Materials Extraction Agreement (the “Extraction Agreement”) with US Mine LLC, a California limited liability company (“US Mine”), pursuant to which the Company acquired the right to extract up to 100,000,000 of metakaolin supplementary cementitious materials (“SCM”) from property owned by US Mine in Ione, California (the “Property”), for a purchase price of $50,000,000, which was paid through the Company’s issuance to US Mine of a ten-year convertible promissory note (the “Note”) in the principal amount of $50,000,000. The Extraction Agreement will remain in effect until such time as 100,000,000 tons of SCM have been extracted from the Property, or the Extraction Agreement is sooner terminated.
On October 6, 2021, prior to the 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 116,000,000 shares of the Company’s common stock at an exercise price of $0.38 per share until April 6, 2028, was issued to US Mine as compensation. Shares subject to the option vest as to 58,000,000 shares on April 6, 2022, 29,000,000 shares on October 6, 2022, and 29,000,000 shares on April 6, 2023.
In addition, the Company will pay US Mine LLC a royalty fee of $5.00 per ton of materials extracted and any royalty not paid in a timely manner will be subject to 15% interest per annum and compounded monthly.
A. Scott Dockter, the Company’s Chief Executive Officer and a director, and John Bremer, a director, are also owners and manager members of US Mine.
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Results of Operations
Comparison of the Three Months Ended August 31, 2021, and the Three Months Ended August 31, 2020
A comparison of the Company’s operating results for the three months ended August 31, 2021, and August 31, 2020, are summarized as follows:
| August 31, | August 31, | |||||||||||
| 2021 | 2020 | Variance | ||||||||||
| Revenues | $ | 338,700 | $ | 169,980 | $ | 168,720 | ||||||
| Operating expenses: | ||||||||||||
| Selling, general & administrative | 293,293 | 405,291 | (111,998 | ) | ||||||||
| Product fulfillment, exploration and mining | 85,343 | 34,751 | 50,592 | |||||||||
| Loss from operations | (39,936 | ) | (270,062 | ) | 230,126 | |||||||
| Other income (expense) | (42,129 | ) | (698 | ) | (37,575 | ) | ||||||
| Net Loss | $ | (82,065 | ) | $ | (270,760 | ) | $ | 188,695 | ||||
Revenues
Revenue increased by $168,720, or 99%, for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020, primarily due to the Company acquiring new customers during the three months ended August 31, 2021.
Operating Costs and Expenses
Selling, general and administrative expenses decreased by $111,998, or 28%, for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020, primarily due to a decrease in professional fees.
Product fulfillment and exploration and mining expenses for the three months ended August 31, 2021, increased by $50,592, or 146%, as compared to the three months ended August 31, 2020, primarily due to the increase in revenue during the three months ended August 31, 2021.
Other Income (Expense)
Other expense increased by $37,575, or 5,936%, for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020, primarily due to an increase in interest expense as a result of the Company issuing additional convertible debt to USMC in the period since August 31, 2020.
Comparison of the Nine Months Ended August 31, 2021, and the Nine Months Ended August 31, 2020
A comparison of the Company’s operating results for the nine months ended August 31, 2021, and August 31, 2020, are summarized as follows:
| August 31, | August 31, | |||||||||||
| 2021 | 2020 | Variance | ||||||||||
| Revenues | $ | 368,700 | $ | 176,109 | $ | 192,591 | ||||||
| Operating expenses: | ||||||||||||
| Selling, general & administrative | 927,080 | 760,725 | 166,355 | |||||||||
| Product fulfillment, exploration and mining | 103,051 | 39,945 | 63,106 | |||||||||
| Loss from operations | (661,431 | ) | (624,561 | ) | (36,870 | ) | ||||||
| Other income (expense) | (64,977 | ) | 5,343 | (70,320 | ) | |||||||
| Net Loss | $ | (726,408 | ) | $ | (619,218 | ) | $ | (107,190 | ) | |||
Revenues
Revenue increased by $192,591, or 109%, for the nine months ended August 31, 2021, as compared to the nine months ended August 31, 2020, primarily due to the Company acquiring new customers during the nine months ended August 31, 2021.
| 24 |
Operating Costs and Expenses
Selling, general and administrative expenses increased by $166,355, or 22%, for the nine months ended August 31, 2021, as compared to the nine months ended August 31, 2020, due to an increase in compensation and compensation-related expenses of approximately $273,000, partially offset by a decrease in professional fees of approximately $97,000.
Product fulfillment and exploration and mining expenses for the nine months ended August 31, 2021, increased by $63,106, or 158%, as compared to the nine months ended August 31, 2020, primarily due to the increase in revenue during the nine months ended August 31, 2021.
Other Income (Expense)
Other income (expense) decreased by $70,320, or 1,316%, for the nine months ended August 31, 2021, as compared to the nine months ended August 31, 2020, primarily due to an increase in interest expense as a result of the Company issuing additional convertible debt to USMC in the period since August 31, 2020.
Liquidity and Capital Resources
As of August 31, 2021, we had $12,777 in cash on hand and a working capital deficiency of $1,164,810, as compared to cash on hand of $7,450 and a working capital deficiency of $1,792,674 as of November 30, 2020. The decrease in working capital deficiency is mainly due to an approximate $1,401,000 decrease in due to affiliated entities as a result of the conversion of $1,401,000 in payables to a convertible note payable.
Future Financing
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 investors 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 August 31, 2021, of approximately $13.5 million, as well as negative cash flows from operating activities. During the nine months ended August 31, 2021, the Company received net cash proceeds of approximately $979,000 from USMC, an affiliated entity. Presently the Company does not have sufficient cash resources 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.
| 25 |
Working Capital Deficiency
Our working capital deficiency as of August 31, 2021, in comparison to our working capital deficiency as of November 30, 2020, can be summarized as follows:
| August 31, | November 30, | |||||||
| 2021 | 2020 | |||||||
| Current assets | $ | 390,291 | $ | 15,340 | ||||
| Current liabilities | 1,555,101 | 1,808,014 | ||||||
| Working capital deficiency | $ | 1,164,810 | $ | 1,792,674 | ||||
The increase in current assets is primarily due to an increase in accounts receivable of $368,700. The decrease in current liabilities is primarily due to a decrease in due to affiliated entities of approximately $400,000 during the nine months ended August 31, 2021.
Cash Flows
| Nine Months Ended | ||||||||
| August 31, 2021 | August 31, 2020 | |||||||
| Net cash used in operating activities | $ | (935,034 | ) | $ | (644,924 | ) | ||
| Net cash provided by financing activities | 940,361 | 645,259 | ||||||
| Increase (decrease) in cash | $ | 5,327 | $ | 335 | ||||
Operating Activities
Net cash used in operating activities was $935,034 for the nine months ended August 31, 2021, primarily due to a net loss of $726,408 which was partially offset by non-cash expenses of $116,391 related to stock-based compensation and amortization of debt discount and $340,289 of cash used by changes in the levels of operating assets and liabilities, primarily as a result of increases in accounts receivable. Net cash used in operating activities was $644,924 for the nine months ended August 31, 2020, primarily due to a net loss of $619,218 which was partially offset by non-cash expenses of $88,194 related to stock-based compensation, amortization of debt discount and lawsuit settlement liability and $113,900 of cash used by changes in the levels of operating assets and liabilities, primarily as a result of increases in prepaid expenses and other current assets and accounts receivable.
Investing Activities
There were no investing activities during the nine months ended August 31, 2021, and August 31, 2020.
Financing Activities
For the nine months ended August 31, 2021, net cash provided by financing activities was $940,361, primarily due to $979,461 advanced to the Company by USMC.
For the nine months ended August 31, 2020, net cash provided by financing activities was $645,259, which was primarily due to $472,039 advanced to the Company by USMC and $178,000 received from convertible notes payable with USMC.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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Critical Accounting Policies and Procedures
Our significant accounting policies are more fully described in the notes to our condensed consolidated financial statements included in this Report, and in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020, as filed with the SEC on March 16, 2021.
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.
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 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 August 31, 2021, 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 Act of 2002 (the “Sarbanes-Oxley Act”), 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 a functioning audit committee and independent directors on the Company’s board of directors to oversee financial reporting responsibilities; |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner; |
| ● | Lack of personnel with GAAP experience. |
We have engaged a third-party financial operations consulting firm to assist with the preparation of SEC reporting.
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Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and hope to implement changes in the future if and when resources permit, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses, including hiring a chief financial officer with relevant expertise and experience.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls 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 August 31, 2021, 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 set forth below, there are no pending legal proceedings to which the Company or its subsidiaries are a party or in which any director, officer or affiliate of the Company, any owner of record of beneficially or more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.
On July 8, 2020, the Company’s former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for arbitration alleging retaliation, wrongful termination, and demand for a minimum amount 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 the normal course 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. The parties have recently stipulated to a continuance of the January 24, 2022, hearing and are in the process of selecting a new available arbitration hearing date with the arbitrator, Scott Silverman, which is tentatively scheduled for July 1 and 5-8, 2022, in Los Angeles.
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 has been rescheduled to begin January 11, 2022.
On March 29, 2019, the Company was served with a complaint 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 mislabeling and denying any liability for damages therefrom. The parties are currently in settlement negotiations. The Company believes its potential exposure to be approximately $400,000 and, as such, has accrued this amount on the unaudited condensed consolidated balance sheet at August 31, 2021.
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On April 16, 2021, LexisNexis, a division of RELX, Inc., filed a Complaint against the Company and its former attorney, Michael Kessler, Esq., in the Superior Court of the State of California, Amador County (Case No. 21-CV-12123). This is a limited jurisdiction lawsuit seeking payment of $18,211.30. The basis of the Complaint was that Mr. Kessler incurred this debt to LexisNexis, a legal research company. Mr. Kessler was alleged to have failed to pay the annual bill. After the matter was sent to collections, it is the Company’s understanding that Mr. Kessler claimed that he was employed by Purebase Corporation as its general counsel at the time and that the Company is therefore responsible for payment. The Company strongly disputed this characterization and maintained that it had no obligation to LexisNexis under the facts or the law. This lawsuit was dismissed on August 23, 2021.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this Item.
Investors should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended November 30, 2020, as filed with SEC on March 16, 2021. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
In addition:
We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations.
Our business and operating results could be adversely impacted by the effects of epidemics, including but not limited to the COVID-19 pandemic. We are closely monitoring the impact of the COVID-19 global outbreak, although there remains significant uncertainty related to the public health situation globally.
Our results of operations could be adversely affected to the extent that such COVID-19, or any other epidemic, generally harms the global economy. In addition, our customers and/or personnel may be adversely impacted as a result of a health epidemic or other outbreak. Our operation may experience disruptions, such as temporary closure of our offices, facilities and/or those of our customers, suspension of services and the shut-down of our sales efforts. These disruptions may require us to curtail our sales efforts or even force us to reduce our workforce in an effort to conserve capital. Additionally, the continued spread of COVID-19 and the resulting uncertain market conditions may limit the Company’s ability to access capital and adversely affect our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the three months ended August 31, 2021, 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
None.
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) |
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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: October 27, 2021 | ||
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