PART
I
ITEM
1. BUSINESS
Forward-Looking
Statements
This
Annual Report on Form 10-K includes a number of forward-looking statements that reflect management’s current views with
respect to future events and financial performance. Forward-looking statements are projections 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.
Those 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. Current and 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 in the section entitled “Risk Factors” set forth in this
Annual Report on Form 10-K for the fiscal year ended November 30, 2019, 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 by these forward-looking statements. These risks include, by way of
example and without limitation:
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absence
of contracts with customers or suppliers;
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our
ability to maintain and develop relationships with customers and suppliers;
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the
impact of competitive products and pricing;
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supply
constraints or difficulties;
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the
retention and availability of key personnel;
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general
economic and business conditions;
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substantial
doubt about our ability to continue as a going concern;
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our
ability to successfully implement our business plan;
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our
need to raise additional funds in the future;
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our
ability to successfully recruit and retain qualified personnel in order to continue our operations;
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our
ability to successfully acquire, develop or commercialize new products;
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the
commercial success of our products;
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the
impact of any industry regulation;
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our
ability to develop existing mining projects or establish proven or probable reserves;
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our
dependence on once vendor for our minerals for our products;
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the
impact of potentially losing the rights to properties; and
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the
impact of the increase in the price of natural resources.
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Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, or performance. Readers are urged to carefully review and consider the various disclosures made by us in this
Report and in our other reports filed with the Securities and Exchange Commission (the “SEC”). We undertake no obligation
to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes
in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable
data derived from and known about our business and operations. However, no assurances are made that actual results of operations
or the results of our future activities will not differ materially from our assumptions.
As
used in this Annual Report on Form 10-K 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”).
Corporate
History
PureBase
Corporation (the “Company”) was incorporated in the State of Nevada on March 2, 2010, under the name Port of Call
Online, Inc. (“POCO”) to create web-based services for boaters. As a result of a corporate reorganization on December
23, 2014, whereby POCO acquired 43,709,412 shares, representing 95%, of the issued and outstanding shares of PureBase,
Inc., a private Nevada Corporation (“PBI”) in exchange for 43,709,412 shares of POCO common stock. As a result
of the reorganization, PBI became a wholly-owned subsidiary of POCO. The Company succeeded to the business of PBI and changed
its focus to an exploration, mining and product marketing company engaged in identifying and developing advanced stage natural
resource projects which, the Company believes, show potential to achieve full production. Effective January 12, 2015, the Company
changed its name to PureBase Corporation and its trading symbol from “POCO.OB” to “PUBC”.
The
Company is headquartered in Ione, California.
Business
Overview
The
Company, through its wholly-owned operating subsidiaries PureBase AG and USAM is a diversified, industrial mineral and natural
resource company working to provide solutions to the agriculture and construction materials markets. It is engaged in the
identification, acquisition, exploration, development, mining and full-scale exploitation of its industrial and natural mineral
properties in the United States for the agriculture and construction materials markets. On the agricultural side, the Company’s
business is to develop agricultural specialized fertilizers, minerals and bio-stimulants for organic and sustainable agriculture.
In addition, the Company intends to focus on identifying and developing other advanced stage natural resource projects in support
of its agricultural business. On the construction side, the Company is focused on developing construction sector-related products
such as supplemental cementious material (“SCM”).
The
Company is developing pozzolan-based products that have applications in the construction materials sector. Pozzolans, also known
as SCM’s, may have beneficial qualities when added to concrete. The Company continues its research into SCM markets and
believes there are substantial opportunities with pozzolan-based products currently being tested.
The
Company’s initial focus has been on the organic agricultural market sector. The Company has developed products such as
PureBase Shade Advantage WP, PureBase SulFe Hume Si Advantage, and PureBase Humate INU Advantage and will seek to develop
additional products derived from mineralized materials of leonardite, kaolin clay, laterite, potassium silicate sulfate, and other
natural minerals. These agricultural minerals and soil amendments are used in the agricultural industry to protect crops, plants
and fruits from the sun and winter damage, provide nutrients to plants, and improve dormancy and soil ecology to help farmers
increase the yields of their harvests.
The
Company also seeks to acquire and develop mineralized materials of pozzolan and potassium silicate sulfate for agricultural applications.
While the Company’s current property, which it controls, contains pozzolan, potassium silicate sulfate, among
other minerals, such mineralizations have yet to be qualified and do not represent “proven” or “probable”
reserves as defined in Industry Guide 7 of the federal securities regulation.
The
Company utilizes the services of US Mine Corporation (“USMC”), a Nevada corporation, for the development and
contract mining of industrial mineral and metal projects. USMC performs exploration drilling, mine modeling, on-site construction,
mine production, and mine site reclamation, and prepares feasibility studies for the Company. Exploration services also include
securing necessary permits, environmental compliance, and reclamation plans. In addition, a substantial portion of the minerals
utilized by the Company is obtained USMC. A. Scott Dockter, our President, Chief Executive Officer, and Chief
Financial Officer, and John Bremer, a director, are the Treasurer and President, respectively, as well as directors of USMC.
We
hope to develop innovative solutions for our agricultural customers while building a brand under the name, “PureBase”,
consisting of three primary product lines: PureBase Shade Advantage WP, PureBase SulFi Hume Si Advantage, and PureBase Humate
INU Advantage.
PureBase
Shade Advantage WP
PureBase
Shade Advantage WP is a natural mineral plant protectant that reduces sunburn damage to plant tissue (including fruits and nuts)
exposed to UV and infrared radiation. The protection is achieved through the absorption and dissipation of ultraviolet and infrared
radiation, which protects and reduces the stress on plants.
The
anticipated benefits of this product include:
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Adherences
to plant tissue, fruit, and wood bark without the need for surfactants (stickers);
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Protection
against sunburn of plant tissue and sun scalding of fruits, nuts, and vegetables;
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Designed
for application on organic and sustainable crops; and
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When
sprayed on dormant trees, Shade Advantage WP has the potential of mitigating weather induced dormancy interference.
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Shade
Advantage WP is available in 25 lb. compostable and biodegradable bags.
PureBase
SulFe Hume Si Advantage
PureBase
SulFe Hume Si Advantage is derived from a proprietary silicate sulfate mineral deposit. It provides many essential minerals, while
improving the nutrient uptake to plants, and improving soil biology. It can be applied to most crops, trees, vines, and turf applications
and is available in granular grade and in bulk orders or 2,000 pound bags.
PureBase
Humate INU Advantage
PureBase
INU Humate Advantage is derived from a proprietary deposit of leonardite. The uniquely soluble iron leonardite with high organic
matter, carbon, and fulvic acid content allows PureBase Humate Advantage to improve soil quality. Products containing humic acids
may increase uptake of micronutrients. It is available in granular grade.
To
date, we have ongoing distributorship agreements with the Aligned Group, Helena Chemical, and Salida Ag and market and distribute
to ten western states. We have also begun exporting PureBase Humate INU Advantage to Vietnam, Laos, and Cambodia. As part of our
on-going research, we have successfully concluded product validation trials conducted by the Helena research and Development Center.
Employees
The
Company currently has three full-time employees. We currently anticipate hiring additional employees for the Company’s
agricultural production operations, subject to sufficient funding, if our agricultural products development and distribution programs
continue to expand. The Company currently relies on USMC to provide the Company’s mining services and Kaolin Clay material.
Outside
services, relating primarily to agricultural market research and product development, and the development and application of SCMs,
as well as other technical matters related to product development and branding activities, will be provided by various independent
contractors.
Industry
Overview
Agricultural
Industry
The
United States Fertilizer Market was valued at $13,687,900 during 2018 and is projected to register a compound annual growth rate
(“CAGR”) of 2.6% during the forecast period (2019-2024), according to Mordor Intelligence , a private market research
firm located in India.
The
US micronutrient fertilizer market was valued at $654.3 million in 2018, and it is projected to reach $1,096.8 million by 2024
while witnessing a CAGR of 9.2% during the forecast period. We believe that the popularity and consumption of micronutrient fertilizers,
in the United States, have consistently increased over the years in an effort to ensure that the nutrients requirements of crops
are met and to boost productivity. We believe that the increasing awareness among growers about the advantages of micronutrient
fertilizers in enhancing crop productivity may result in a robust growth rate of the fertigation, irrigation, and foliar micronutrient
fertilizer market.
Crops
account for the largest share of the value of U.S. agricultural production. The value of agricultural production in the United
States has risen over the past decade due to increases in production as well as higher prices. Yield gains for crops have been
particularly important, although acreage has also risen recently in response to elevated prices since 2008. Falling prices led
to a slight decline in value of crop production in 2013. While livestock production increased over the decade, prices were up
more than 60% between 2003 and 2013, contributing to the rising value of livestock production and its agricultural consumption.
Climate
change including an increase in drought trends and an increasing population base are exacerbating the problem of adequate food
production. Pesticides, GMO crops and irrigation with reclaimed water are some of the current solutions, but may be toxic
to the environment, plant, animal and human health. We intend to promote environmental conservation through the manufacture,
sale, and distribution of high quality industrial minerals and natural resources. Our plan is to create a high-quality alternative
to current GMO limited use soil amendments by offering a high quality water conservation product.
Competition
Major
competitors with our agricultural products include:
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PureShade
with Calcium Carbonate: Mined and manufactured in Georgia,
USA and Novasource, part of the Tessenederlo Group.
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The
Andersons Humic Solutions: A humic based products mining and manufacturing firm focused in the US Midwest, produces
highly competitive organic products. Their products are sold and distributed throughout the United States.
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Pricing
Competition
Many
of our competitors have greater exploration, production, and capital resources than we do, and may be able to compete more effectively
in any of these areas. For example, these competitors may be able to spend greater amounts on acquisition of desirable mineral
properties, on exploration of their mineral properties and on development of their mineral properties. This competition could
result in competitors having mineral properties of greater quality and interest to prospective investors who may finance the exploration
and development of their mineral properties. Our inability to secure capital to fund exploration and, if warranted, development
costs for our mineral properties would create a competitive cost disadvantage in the marketplace which would have a material adverse
effect on our operations and potential profitability.
Government
Controls and Regulations
Natural
resource exploration, mining and processing operations are subject to various federal, state and local laws and regulations governing
prospecting, exploration, development, production, labor standards, occupational health, mine safety, control of toxic substances,
and other matters involving environmental protection and employment. United States environmental protection laws address the maintenance
of air and water quality standards, the preservation of threatened and endangered species of wildlife and vegetation, the preservation
of certain archaeological sites, reclamation, and limitations on the generation, transportation, storage and disposal of solid
and hazardous wastes, among other things. There can be no assurance that all the required permits and governmental approvals necessary
for any mining project with which we may be associated can be obtained on a timely basis, or maintained in good standing. Delays
in obtaining or failure to obtain necessary government permits and approvals may adversely impact our operations. The regulatory
environment in which we operate could change in ways that would substantially increase costs to achieve compliance. In addition,
significant changes in regulations could have a material adverse effect on our operations and ability to timely and effectively
implement our drilling/mapping programs and develop our mining properties.
The
following governmental controls and regulations materially affect the mining properties we or our third party mineral suppliers
will seek to explore and develop.
Federal
Regulation of Mining Activity
Mining
operations are subject to numerous federal, state and local laws and regulations. At the federal level, mining properties are
subject to inspection and regulation by the Division of Mine Safety and Health Administration of the Department of Labor (“MSHA”)
under provisions of the Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health Administration (“OSHA”)
also has jurisdiction over certain safety and health standards not covered by MSHA. Mining operations and all proposed exploration
and development will require a variety of permits. In addition, any mining operations occurring on federal property are subject
to regulation and inspection by the Bureau of Land Management (“BLM”). While we have considerable experience in the
mining permitting process, permitting procedures are complex, costly, time consuming and subject to potential regulatory delay.
We currently own mining rights in several properties having existing permits in place or properties where existing permitting
requirements and other applicable environmental protection laws and regulations would not pose a material hindrance to our ability
to explore and develop such properties. As part of our initial evaluation of suitable projects, we will ascertain a property’s
regulatory compliance status and any issues affecting current or future permitting requirements. However, we cannot be certain
that future changes in laws and regulations would not result in significant additional expenses, capital expenditures, restrictions
or delays associated with the exploration and development of our current or future projects. We cannot predict whether we will
be able to obtain new permits or whether material changes in permit conditions will be imposed. Obtaining new mining permits or
the imposition of additional conditions could have a material adverse effect on our ability to develop the mining properties in
which we have an interest or ownership or could increase the costs charged by third party suppliers or decrease the amount of
minerals available from third party suppliers.
Legislation
to make significant revisions to the U.S. General Mining Law of 1872 would affect our potential development of unpatented mining
claims on federal lands, including any royalty on mineral production. It cannot be predicted whether any of these proposals will
become law. Any levy of the type proposed would only apply to unpatented federal lands and accordingly could adversely affect
the profitability of any future mineral production from projects being explored by the Company on federal property.
All
of our current mining projects are governed by the BLM and the US Forest Service. The Federal Land Policy and Management Act (1976)
established the BLM’s multiple-use mandate to manage the public lands “in a manner that will protect the quality of
scientific, scenic, historical, ecological, environmental, air and atmospheric, water resource, and archeological values; that,
where appropriate, will preserve and protect certain public lands in their natural condition”. The Lands, Minerals &
Water Rights branch coordinates with BLM planning and resource specialists to manage surface resources, minerals and water rights
to ensure that authorized uses of public lands.
We
may not be able to obtain permits required for our projects in a timely manner, on reasonable terms, or at all. If we,
or our third party suppliers, cannot obtain or maintain the necessary permits, or if there is a delay in receiving such permits,
our timetable and business plan for development and mining of these properties or those of third party suppliers could be adversely
affected.
Mining
Environmental Regulations
Mining
activities, including drilling, mapping and development and production activities are subject to environmental laws, policies
and regulations. These laws, policies and regulations affect, among other matters, emissions to the air, discharges to water,
management of waste, management of hazardous substances, protection of natural resources, protection of endangered species, protection
of antiquities and reclamation of mined land. Legislation and implementation of regulations adopted or proposed by the United
States Environmental Protection Agency (“EPA”), the BLM and by comparable agencies in various states, directly and
indirectly affect the mining industry in the United States. These laws and regulations address the environmental impact of mining
and mineral processing, including potential contamination of soil and water from tailings, discharges and other wastes generated
by the mining process. In particular, legislation such as the Clean Water Act, the Clean Air Act, the Federal Resource Conservation
and Recovery Act (“RCRA”), and the National Environmental Policy Act require analysis and/or impose effluent standards,
new source performance standards, air quality standards and other design or operational requirements for various components of
mining and mineral processing, including natural resource mining and processing of the type presently or to be conducted by the
Company. Such statutes also may impose liability on mine developers for remediation of waste they have created.
Mining
projects also are subject to regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (“CERCLA” or “Superfund”) which regulates and establishes liability for the release of hazardous
substances and (ii) the Endangered Species Act (“ESA”) which identifies endangered species of plants and animals and
regulates activities to protect these species and their habitats. Revisions to “CERCLA” and “ESA” are
being considered by Congress; however, the impact of these potential revisions on our business is not clear at this time.
The
Clean Air Act, as amended, mandates the establishment of a Federal air permitting program, identifies a list of hazardous air
pollutants, including various metals and pollutants, and establishes new EPA enforcement authority. The EPA has published final
regulations establishing the minimum elements of state operating permit programs. We will be required to comply with these EPA
standards to the extent adopted by the State in which development projects are located.
In
addition, developing mining sites requires mitigation of long-term environmental impacts by stabilizing, contouring, re-sloping,
and revegetating various portions of a site. While a portion of the required work can be performed concurrently with developing
the property, completion of the environmental mitigation occurs once removal of all materials and facilities has been completed.
These reclamation efforts are conducted in accordance with detailed plans which have been reviewed and approved by the appropriate
regulatory agencies. The mining developer must insure that all necessary cash deposits and financial resources to cover the estimated
costs of such reclamation as required by permit are made.
Any
exploration and development of mining projects by the Company will be conducted in substantial compliance with federal and state
regulations and be consistent with the need to remediate any environmental impact.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a number of very significant risks. You should carefully consider the following risks
and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing
shares of our common stock. Our business, operating results and financial condition could be seriously harmed due to any of the
following risks. You could lose all or part of your investment due to any of these risks.
Risks
Related to Our Business
We
are a development stage company which makes the evaluation of its future business prospects difficult.
The
Company changed its business focus to its current business of developing agricultural and natural resources as a result of a reorganization
with its wholly owned subsidiary PureBase Ag which occurred in December, 2014. Consequently, the Company only commenced selling
its agricultural products during 2017 and has not yet achieved profitable operations.. As such we may not be able to achieve positive
cash flows and our recent operating history makes evaluation of our future business and prospects difficult. The Company’s
success is dependent upon the successful development of suitable mineral projects, establishing its production capability and
establishing a customer base for its agricultural products. Any future success that we might achieve will depend upon many factors,
including factors beyond our control which cannot be predicted at this time. These factors may include but are not limited to:
changes in or increased levels of competition; the availability and cost of bringing mineral projects into production; the amount
of agricultural and/or natural resources available and the market price of and the uses for such minerals. These factors may have
a material adverse effect upon our business operating results and financial condition.
Our
independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which may
hinder our ability to obtain future financing to fund our operations.
Our
audited consolidated financial statements as of November 30, 2019 have been prepared under the assumption that we will continue
as a going concern. Our independent registered public accounting firm has issued a report that included an explanatory paragraph
referring to our recurring losses from operations and net capital deficiency and expressing substantial doubt in our ability to
continue as a going concern without additional capital becoming available. For the fiscal year ended November 30, 2019, we had
a loss from operations of approximately $1.7 million and negative cash flows from operations of approximately $461,000. We anticipate
that we will continue to incur operating losses as we execute our development plans for 2020, as well as other potential strategic
and business development initiatives. In addition, we expect to have negative cash flows from operations, at least into the near
future. We have previously funded and plan to continue funding these losses primarily through the sale of equity and debt. Our
ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further
operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. There can be no assurance that we will continue
to be successful in raising capital and have adequate capital resources to fund our operations or that any additional funds will
be available to us on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund
operations, we may be required to delay, scale back or eliminate some or all of our plan of operations, which may have a material
adverse effect on our business, results of operations and ability to operate as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
We
will need to raise additional capital for the foreseeable future in order to continue operations and realize our business plans,
the failure of which could adversely impact our operations.
Although
we have started to generate revenue, such revenue is not sufficient to cover our operating expenses and financing costs. As of
November 30, 2019, we had liabilities of $976,821 and a working capital deficiency of $946,405. To stay in business,
we will need to raise additional capital through public or private sales of our securities, debt financing or short-term bank
loans, or a combination of the foregoing. In the past, we have financed our operations by issuing secured and unsecured convertible
debt and equity securities in private placements, in some cases with equity incentives for the investor in the form of warrants
to purchase our common stock and have borrowed from related parties. We have sought and will continue to seek various sources
of financing but there are no commitments from anyone to provide us with financing. We can provide no assurance as to whether
our capital raising efforts will be successful or as to when, or if, we will be profitable in the future. Even if the Company
achieves profitability, it may not be able to sustain such profitability. If we are unable to obtain financing or achieve and
sustain profitability, we may have to suspend operations, sell assets and will not be able to execute our business plan. Failure
to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and
continue operations.
We
will need to grow the size and capabilities of our company, and we may experience difficulties in managing this growth.
If
and when our marketing plans and business strategies develop, we may need to recruit additional managerial, operational, sales
and marketing, financial, IT and other personnel. Future growth will impose significant added responsibilities on management:
Our
management may have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a
substantial amount of time to managing these growth activities.
We
depend on third parties for services
We
currently rely, and for the foreseeable future will continue to rely, in substantial part on advisors and consultants to provide
certain services. There can be no assurance that the services of these independent advisors and consultants will continue to be
available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively
manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any
reason, our business operations may be interrupted. There can be no assurance that we will be able to manage our existing consultants
or find other competent outside contractors and consultants on economically reasonable terms, if at all. If we are not able to
effectively expand our company by hiring new employees and expanding our consultants and contractors, we may not be able to successfully
implement the tasks necessary to achieve our marketing, research, development, and expansion goals, and we may face loss and liability
in connection with any deficiency in service caused by the lack of capable personnel or errors made by third parties.
If
we lose key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.
Our
future success depends, in part, on our ability to attract, retain and motivate highly qualified technical, marketing, engineering,
and management personnel. Any inability in hiring and retaining qualified personnel could result in delays in development or fulfillment
of any current strategic and operational plans.
Our
officer and directors are able to control the Company.
Our
officer and directors and their affiliates control the vast majority of common stock of our company. As a result they have
significant influence over the management and affairs of the Company and control over matters requiring stockholder approval,
including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our
assets, for the foreseeable future. Their interests may differ from the interests of other stockholders and thus result in corporate
decisions that are disadvantageous to other shareholders.
Raising
funds through debt or equity financings in the future, would dilute the ownership of our existing stockholders and possibly subordinate
certain of their rights to the rights of new investors or creditors.
We
hope to raise additional funds in debt or equity financings if they are available to us on terms we believe reasonable to provide
for working capital, carry out mining development and production programs, expand our marketing efforts or to make acquisitions.
Any sales of additional equity or convertible debt securities would result in dilution of the equity interests of our existing
stockholders, which could be substantial. Additionally, if we issue shares of preferred stock or convertible debt to raise funds,
the holders of those securities might be entitled to various preferential rights over the holders of our common stock and such
debt instruments may contain negative covenants restricting corporate actions which could have an adverse affect, the rights and
the value of our common stock and our operations.
We
face increased competition.
At
the present time the Company is aware of other companies providing similar agricultural and natural resources to those of the
Company’s. In addition, other entities not currently offering the minerals or product uses similar to the Company’s
may enter the industrial and agricultural markets. The Company’s natural resources and products will also have to compete
with established minerals (such as fly ash for use in making cement) which are already in commercial and agricultural use. Any
such competitors would likely have greater financial, mining production, production facilities, marketing and sales resources
than the Company. Increased competition may result in pricing pressures and the inability to increase market share, which may
have an adverse effect on the Company’s business, operating results and financial condition.
At
present, our sales are concentrated in a few customers.
The
Company’s sales are presently concentrated within a few customers. If any of these customers, in particular, the customers
that provide the most significant percentage of revenue, are no longer customers, for any reason, and these customers are not
replaced, we will sustain additional losses as our fixed cost base will be left uncovered and consume working capital leading
to significant cash flow problems.
An
increase in the price of natural resources will adversely affect our chances of success.
The
Company’s business plan is based on current development costs and current prices of the natural resources being developed
or purchased by the Company. However the price of minerals can be very volatile and subject to numerous factors beyond our control
including industrial and agricultural demand, inflation, the supply of certain minerals in the market, and the costs of mining,
refining and shipping of the minerals. Since the Company will be obtaining the majority of its minerals from third party suppliers,
any significant increase in the price of these natural resources will have a materially adverse effect on the results of the Company’s
operations unless it is able to offset such a price increase by implementing other cost cutting measures or passing such increases
on to its customers. While the Company has attempted to secure stable pricing and supply pursuant to its agreement with USMC,
there is no assurance that the Company will not incur future price increases or supply shortages of its raw materials.
We
may lose rights to properties if we fail to meet payment requirements or development and/or production schedules.
We
expect to acquire rights to some of our mineral properties from leaseholds or purchase mining rights that require the payment
of royalties, rent, minimum development expenditures or other installment fees or specified expenditures. If we fail to make these
payments/expenditures when they are due, our mineral rights to the property may be terminated. This would be true for any other
mineral rights which require payments to be made in order to maintain such rights. Some contracts with respect to mineral rights
we may acquire may require development or production schedules. If we are unable to meet any or all of the development or production
schedules, we could lose all or a portion of our interests in such properties. Moreover, we may be required in certain instances
to pay for government permitting or posting reclamation bonds in order to maintain or utilize our mineral rights in such properties.
Because our ability to make some of these payments is likely to depend on our ability to generate internal cash flow or obtain
external financing, we may not have the funds necessary to meet these development/production schedules by the required dates.
Management
may be unable to implement its business strategy.
The
Company’s business strategy is to develop and extract or obtain certain minerals which they believe can have significant
commercial applications and value. The Company’s business strategy also includes developing new uses and products derived
from these mineral resources, such as the use of pozzolan as an ingredient for cement or sulfate and Humate for agricultural uses.
There is no assurance that we will be able to identify and/or develop commercially viable uses for the minerals we will be mining
or obtaining. In addition, even if we identify and/or develop commercial uses and markets for our minerals, the time and cost
of mining or otherwise obtaining, refining, blending and distributing such minerals may exceed our expectations or, when developed,
the amount of minerals available may fall significantly short of our expectations thus providing a lower return on investment
or a loss to the Company.
We
have not yet established sustained and increasing sales from our customer base or distribution system.
During
fiscal 2019 we established a customer base and distribution system for our agricultural products but have experienced only
modest increasing sales. However, we are now engaged in promoting sales and marketing in an effort to increase the sales
revenue of our agricultural products to customers and through the distribution system. To date we have one long term supply contract
for our minerals and agricultural products. We have not yet entered into any agreements for the purchase of
our minerals or SCM products nor have we established a distribution system to deliver our minerals and SCM products to customers.
Our inability to attract additional customers for our agricultural products, to deliver products in a time and cost effective
manner or develop our SCM business would have an adverse effect on the growth of our business.
Mineral
exploration and mining are highly regulated industries.
Mining
is subject to extensive regulation by state and federal regulatory authorities. State and federal statutes regulate environmental
quality, safety, exploration procedures, reclamation, employees’ health and safety, use of explosives, air quality standards,
pollution of stream and fresh water sources, noxious odors, noise, dust, and other environmental protection controls as well as
the rights of adjoining property owners. We will strive to verify that projects currently owned or being considered, are currently
operating or can be operated in substantial compliance with all known safety and environmental standards and regulations applicable
to such mining properties and activities. We will also seek suppliers and service providers, such as USMC, who we believe are
operating in substantial compliance with all safety and environmental standards and regulations applicable to such mining properties
and activities. However, there can be no assurance that our compliance efforts regarding our own properties could be challenged
or that future changes in federal or state laws, regulations or interpretations thereof will not have a material adverse effect
on our ability to establish and sustain mining operations of our own properties or adversely affect the mining properties of our
suppliers.
Certain
of our current and proposed products will require certifications before being suitable for intended purposes.
Some
of our agricultural products and our SCM’s will require certain certifications before being suitable for labelling and usage.
For example, our SCM must be certified by the ASTM International (American Society for Testing and Materials International) to
meet certain strength standards in order to be certified for use in large government projects. Similarly, our agricultural products
must be certified under US Department of Agriculture (“USDA”) and CDFA specifications and properly labeled. While
the Company has certified two of its agricultural products under USDA and CDFA specifications and is currently working with various
laboratories and agencies to acquire future certifications, there is no assurance as to if or when such certifications will be
obtained.
We
incur increased costs as a result of being a public company.
We
are a public “reporting company” with the Securities and Exchange Commission (“SEC”). As a public reporting
company, we incur significant legal, accounting, reporting and other expenses not generally applicable to a private company. We
also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002
as well as other rules implemented by the SEC. These rules and regulations to increase our legal and financial compliance costs
and to make some activities more time-consuming and costly.
Risks
Related to Our Common Stock and Its Market Value
Our
Common Stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited,
which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
SEC
Rule 15g-9 establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security
that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
●
|
that
a broker or dealer approve a person’s account for transactions in penny stocks; and
|
●
|
the
broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
|
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
●
|
obtain
financial information and investment experience objectives of the person; and
|
●
|
make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
●
|
sets
forth the basis on which the broker or dealer made the suitability determination; and
|
●
|
that
the broker or dealer received a signed, written agreement from the investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our stock.
Our
securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell
to persons other than established customers and “accredited investors.” The term “accredited investor”
refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form
prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that
is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade
our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our Common
Stock; however, we have the option to execute a reverse split which could mitigate this issue.
Our
securities are quoted on the OTCQB, which may not provide us much liquidity for our investors as an exchange, such as the NASDAQ
Stock Market or other national or regional exchanges.
Our
securities are quoted on the OTCQB, which provides significantly less liquidity than the NASDAQ Stock Market or other national
or regional exchanges. Securities quoted on the OTC are usually thinly traded, highly volatile, have fewer market makers and are
not followed by analysts. The SEC’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities
quoted on the OTCQB. Quotes for stocks included on the OTC markets are not listed in newspapers. Therefore, prices for securities
traded solely on the OTC Market may be difficult to obtain and holders of our securities may be unable to resell their securities
at or near their original acquisition price, or at any price. We cannot assure you a liquid public trading market will develop.
The
market price of our Common Stock may be adversely affected by several factors.
The
market price of our Common Stock could fluctuate significantly in response to various factors and events, including:
●
|
our
ability to execute our business plan;
|
●
|
operating
results below expectations;
|
●
|
announcements
of technological innovations or new products by us or our competitors;
|
●
|
loss
of any strategic relationship;
|
●
|
industry
developments;
|
●
|
economic
and other external factors; and
|
●
|
period-to-period
fluctuations in our financial results.
|
In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our Common Stock.
Because
we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders
have limited protections against interested director transactions, conflicts of interest and similar matters.
The
Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York Stock Exchange, the Amex Equities
Exchanges and NASDAQ, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance.
These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities
which are listed on those exchanges or the NASDAQ. Because we will not be seeking to be listed on any of the exchanges in the
near term, we are not presently required to comply with many of the corporate governance provisions. We do not currently have
independent audit or compensation committees. Until then, the directors who are part of management have the ability, among other
things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether
such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections
against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide
us with funds necessary to expand our operations.
We
have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited
to the value of our Common Stock.
We
have never paid cash dividends on our capital stock and do not anticipate paying cash dividends on our capital stock in the foreseeable
future. The payment of dividends on our capital stock will depend on our earnings, financial condition and other business and
economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our Common
Stock may be less valuable because a return on any investment in our Common Stock will only occur if our Common Stock price appreciates.
A
sale of a substantial number of shares of our Common Stock may cause the price of our Common Stock to decline.
If
our stockholders sell substantial amounts of our Common Stock in the public market under Rule 144 or upon the exercise of outstanding
options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our Common Stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring,
also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities
in the future at a time and price that we deem reasonable or appropriate.
We
may, in the future, issue additional shares of Common Stock, which would reduce the percent of ownership held by current stockholders
Our
Certificate of Incorporation authorizes the issuance of 520,000,000 shares of Common Stock of which as of February 28,
2020, 208,650,741 shares are issued and outstanding. The future issuance of Common Stock may result in substantial dilution
in the percentage of our Common Stock held by our then existing stockholders. We may value any Common Stock issued in the future
on an arbitrary basis. The issuance of Common Stock for future services or acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by our investors, and may have an adverse effect on any trading market of our
Common Stock.
Compliance
with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
In
recent years, there have been several changes in laws, rules, regulations and standards relating to corporate governance and public
disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Sarbanes-Oxley
Act of 2002 (“Sarbanes-Oxley”) and various other new regulations promulgated by the SEC and rules promulgated by the
national securities exchanges. The Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters
and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic
advisory vote on executive compensation and also adds compensation committee reforms and enhanced pay-for-performance disclosures.
While some provisions of the Dodd-Frank Act were effective upon enactment, others will be implemented upon the SEC’s adoption
of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and accordingly,
the cost of compliance with the Dodd-Frank Act is also uncertain. In addition, Sarbanes-Oxley specifically requires, among other
things, that we maintain effective internal control over financial reporting and disclosure of controls and procedures. These
and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases
due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided
by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations
and standards are likely to continue to result in increased general and administrative expenses and a diversion of management
time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws,
rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board
of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability
in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors
and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot
estimate the timing or magnitude of additional costs we may incur as a result.
We
have reported material weaknesses in internal controls over financial reporting as of November 30, 2019, and we cannot provide
any assurances that additional material weaknesses will not be identified in the future or that we can effectively remediate our
reported weaknesses. If our internal controls over financial reporting or disclosure controls and procedures are not effective,
there may be errors in our financial statements that could require a restatement, or our filings may not be timely, and investors
may lose confidence in our reported financial information.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting
every quarter and as of the end of each year, and to include a management report assessing the effectiveness of our internal controls
over financial reporting in each Annual Report on Form 10-K. Our management, including our Chief Executive Officer, who is also
our acting Principal Financial Officer, does not expect that our internal control over financial reporting will prevent all errors
and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Furthermore, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time,
controls may become inadequate because changes in the conditions or deterioration in the degree of compliance with policies or
procedures may occur. Because the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
As
a result, we cannot assure you that additional significant deficiencies or material weaknesses in our internal control over financial
reporting will not be identified in the future or that we can effectively remediate our reported weaknesses. Any failure to maintain
or implement required new or improved controls, or any difficulties we may encounter in their implementation, could result in
significant deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result
in material misstatements in our consolidated financial statements. Any such failure could also adversely affect the results of
periodic management evaluations regarding disclosure controls and the effectiveness of our internal control over financial reporting
required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The existence of material weaknesses
could result in errors in our consolidated financial statements and subsequent restatements of our consolidated financial statements,
cause us to fail to timely meet our reporting obligations and cause investors to lose confidence in our reported financial information.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below are the present directors and executive officers of the Company.
Name
|
|
Age
|
|
Position
|
|
Since
|
A.
Scott Dockter
|
|
63
|
|
Chief
Executive Officer, Chief Financial Officer, President and Director
|
|
2014
|
Calvin
Lim
|
|
62
|
|
Director
|
|
2014
|
John
Bremer
|
|
70
|
|
Director
|
|
2014
|
Our
directors are elected for a term of one year and serve such director’s successor is duly elected and qualified. Each executive
officer serves at the pleasure of the Board.
Our
Directors and Executive Officers
A.
Scott Dockter – Chief Executive Officer, Chief Financial Officer and President
A
Scott Dockter has been the Chief Executive Officer and Director of the Company since September 24, 2014, Chief Financial Officer
since May 24, 2019 and President and a Director of PureBase Ag since January 22, 2014. Mr. Dockter has also served as the
Treasurer and a Director of USMC from 2012 to the present. Mr. Dockter was also a Manager-Member of USAM from its inception
in June 2013 until its acquisition by PureBase Ag on November 24, 2014, and continues to serve as Chief Operating Officer. Mr.
Dockter is also a Manager-Member of US Mine, LLC which owns a 3,306 - acre mining property located in Ione, California.
From July 2010 to June 2012, Mr. Dockter served as Chief Executive Officer, President and Chairman of Steele Resources Corp.,
a public company and its subsidiary Steele Resources, Inc. which were involved in the property evaluation and exploration for
gold. Over the course of his 30-year career, Mr. Dockter has been responsible for the development of several large open pit and
underground mines in the United States, having worked extensively in the states of Nevada, California, Idaho, and Montana. Mr.
Dockter has had comprehensive involvement in all aspects of the mining business, including exploration, permitting, mine development,
financing, operations, asset acquisitions, and marketing and sales. His experience covers a wide range of commodities including
industrial minerals, gold, silver, copper and other precious metals. Mr. Dockter has over 20-years’ experience as a director
of public corporations and has broad experience in the debt and equity markets. He has personally owned mines, operated mines,
constructed mine infrastructures (physical, production and process) and produced precious metals. Mr. Dockter is not currently
an officer or director of any other reporting company.
Mr.
Dockter’s significant experience relating to operational management, industry expertise, and his years of involvement with
our company make him suitable to serve as a director of our company.
Calvin
Lim – Director
Calvin
Linn has been a director since October 27, 2014. Mr. Lim was also appointed a Director of PureBase Ag on February 5, 2015.
Mr. Lim owned and operated two large Chinese restaurants in Sacramento, California from 1981 to 2003. From 1984 to 2006 he served
as President of Hoi Sing Inc., a company which invested in properties located in Hong Kong and China and was co-owner of the Oriental
Trading Company which was involved in the Chinese imports and exports business until its closure in 2008. Mr. Lim is now retired.
Mr. Lim earned his bachelor’s degree in Business Administration from Sacramento State University. Mr. Lim is not currently
an officer or director of any other reporting company.
Mr.
Lim was appointed to the Board because of his experience and demonstrated successes in leading enterprises over the last 35 years.
John
Bremer – Director
John
Bremer has been a Director since December 24, 2014. Mr. Bremer was also appointed a Director of PureBase
Ag on February 5, 2015. Since February 20, 2014, Mr. Bremer has served as a Director and President of USMC. Mr. Bremer was also
a Manager-Member of USAM from its inception in June, 2013 until its acquisition by PureBase Ag on November 24, 2014. Mr. Bremer
is also a Manager-Member of US Mine, LLC which owns a 3,306 - acre mining property located in Ione, California. For the
past 21 years Mr. Bremer has been the Chief Executive Officer of GroWest, Inc. a holding company with subsidiary companies
in the heavy equipment rental and property development business in California. Mr. Bremer started his career teaching college
level horticulture and soil science classes, opened and managed large mining operations for Riverside Cement and California Portland
Cement Company and has worked with cement producers including to help design material input methodologies to reduce nitrogen oxide
emissions from calcining cement. Mr. Bremer also developed a large organic composting operation in Riverside County, California
which he sold to Synagro Technologies, Inc., currently part of The Carlyle Group. Mr. Bremer has been involved in property development
in Riverside County and Napa Valley in California including permitting processes. Mr. Bremer earned his Bachelor’s degree
in Agri-Business from California State Polytechnic University, Pomona, California. Mr. Bremer is not currently an officer
or director of any other reporting company.
Mr.
Bremer was appointed to the Board because of his industry experience.
Family
Relationships
There
are no arrangements or understandings between our directors and directors and any other person pursuant to which they were appointed
as an officer and director of the Company. In addition, there are no family relationships between any of our directors or executive
officers.
Involvement
in Certain Legal Proceedings
There
are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved
a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the
securities or banking industries, or a finding of securities or commodities law violations.
Committees
of the Board of Directors
Our
Board of Directors has three directors. We are not currently listed on a national securities exchange or on an inter-dealer quotation
system that has requirements that a majority of the Board of Directors be independent.
The
Company does not have an audit or nominating committee. We are not a “listed company” under SEC rules and are therefore
not required to have an audit committee comprised of independent directors.
We
do not currently have a “financial expert” within the meaning of the rules and regulations of the SEC.
Compensation
Committee
The
Company has a Compensation Committee currently consisting of Calvin Lim. The Compensation Committee initially determines matters
relating to executive officer compensation, issuances of stock options and other compensatory matters. The Compensation
Committee will then make recommendations to the Board of Directors, who will then participate in discussions concerning executive
officer compensation, issuances of stock options and other compensatory matters. The Compensation Committee did not meet during
the fiscal year ended November 30, 2019. The Compensation Committee’s charter has been included as an Exhibit to this Annual
Report.
Compensation
of Directors
During
the year ended November 30, 2019, no compensation has been paid to our directors in consideration for their services rendered
in their capacities as directors.
Code
of Ethics
Our
Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code”) for directors and executive officers
of the Company. The Code is intended to focus each director and executive officer on areas of ethical risk, provide guidance
to directors and executive officer to help them recognize and deal with ethical issues, provide mechanisms to report unethical
conduct, and help foster a culture of honesty and accountability.
Delinquent
Section 16(a) Reports
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more
than 10% of our equity securities (“Reporting Persons”), to file reports ownership and changes in ownership with the
Securities and Exchange Commission.
Based
solely on our review of copies of such reports and representations from Reporting Persons, we believe that during the fiscal year
ended November 30, 2019, the Reporting Persons timely filed all such reports. Except that A. Scott Dockter did not file a Form
4 indicating that he became the Chief Financial Officer of the Company on May 24, 2019, and A. Scott Dockter and John Bremer
did not file individual Form 4s indicating they were deemed indirect beneficial owners of 66,538,568 shares of the Company’s
common stock which were issued to USMC on September 5, 2019.
Changes
in Nominating Process
There
are no material changes to the procedures by which security holders may recommend nominees to our Board.
ITEM
11. EXECUTIVE COMPENSATION
General
Philosophy
The
Compensation Committee is responsible for establishing and administering
the Company’s executive and director compensation.
Summary
Compensation Table
The
following table shows the total compensation paid or accrued during the fiscal years ended November 30, 2019 and 2018, to our
Chief Executive Officer, and our former Chief Financial Officer. The Company had no other highly compensated executive officers
who earned more than $100,000 during the fiscal years ended November 30, 2019 and 2018, and were serving as executive officers
as of such date (the “Named Executive Officers”).
Name
and
Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
(1)
|
|
|
Non-Equity
Incentive
Plan
Compensa-
tion
($)
|
|
|
Non-qualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensa-
tion
($)
|
|
|
Total
($)
|
|
A.
Scott Dockter,
|
|
|
2019
|
|
|
|
106,400
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106,400
|
|
CEO,
CFO, President & Director
|
|
|
2018
|
|
|
|
120,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
Al
Calvanico,
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
former
CFO
|
|
|
2018
|
|
|
|
230,000
|
(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230,000
|
|
(1)
|
In
accordance with SEC rules, the amounts in this column reflect the fair value on the grant date of the option awards granted
to the named executive, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model.
The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect
to these awards. The grant-date fair value of the stock options in this column is a non-cash expense for the Company that
reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value
of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number
of options exercised and the market price of our Common Stock on the date of exercise. For a discussion of the assumptions
made in the valuation of the stock options, see Note 10 to this Annual Report on Form 10-K for the fiscal year ended November
30, 2019.
|
|
|
(2)
|
Mr.
Dockter was appointed to serve as our Chief Financial Officer on September 14, 2019, in connection with the Company terminating
the employment of Mr. Calvanico’s employment agreement. In addition to the 2019 compensation provided to Mr. Dockter
as set forth in the table above, we accrued at total of $4,615 in salaries at November 30, 2019, which was paid in December
2019.
|
|
|
(3)
|
On
May 24, 2019, the Company notified Mr. Calvanico that it would not be renewing his current employment agreement upon expiration
of the current extension of his employment agreement. In connection with the termination of Mr. Calvanico’s employment
agreement the Company appointed Mr. Dockter Chief Financial Officer until a new CFO can be identified and hired.
|
Employment
Agreements
The
Company does not have any employment agreements with its executive officer.
Change-in-Control
Agreements
The
Company does not have any change-in-control agreements with its executive officer.
Outstanding
Equity Awards
The
table below reflects all outstanding equity awards made to our Named Executive Officers that were outstanding as of November 30,
2019:
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expir-
ation
Date
|
|
Number
of
Shares
or
Units
of
Stock
that
have
not
Vested
(#)
|
|
|
Market
Value
of
Shares
or
Units
of
Stock
that
have
not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
that
have
not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
that
Have
not
Vested
($)
|
|
Al
Calvanico,
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.00
|
|
|
3/14/26
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Former
CFO(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On
May 24, 2019, the Company notified Mr. Calvanico that it would not be renewing his current employment agreement upon expiration
of the current extension of his employment agreement. In connection with the termination of Mr. Calvanico’s employment
agreement the Company appointed Mr. Dockter Chief Financial Officer until a new CFO can be identified and hired.
|
Non-Plan
Option Grants
On
March 14, 2016, the Company issued options to its then Chief Financial Officer to purchase 300,000 shares of its common stock
with an exercise price of $3.00 per share. These options expire on March 14, 2026.
On
February 16, 2016, the Company issued options to an employee to purchase 200,000 shares of its common stock with an exercise price
of $3.00 per share. These options expire on February 16, 2026.
2017
Stock Option Plan
The
Board of Directors approved the Company’s 2017 Stock Option Plan (the “2017 Plan”) on November 10, 2017, and
the Company’s stockholders approved the 2017 Plan on November 10, 2017. The 2017 Plan provides for stock-based and
other awards to the Company’s employees, consultants and directors.
The
maximum number of shares of our Common Stock that may be issued under our 2017 Plan is 10,000,000 shares, which may be replenished
and shall automatically increase on January 1st of each year for a period of nine years commencing on January 1, 2018,
and ending on (and including) January 1, 2026, in an amount equal to the greater of (i) 10% of the total number of shares of common
stock issued and outstanding on the last day of the immediately preceding fiscal year, or (ii) 10,000,000 shares. As of the date
of this Report, 9,950,000 shares of the Company’s common stock are available for issuance under the 2017 Plan.
Shares
subject to stock awards granted under the 2017 Plan that expire or terminate without being exercised in full, or that are paid
out in cash rather than in shares, do not reduce the number of shares available for issuance under the 2017 Plan.
The
maximum number of shares of common stock that may be subject to awards granted under the 2017 Plan to any one individual during
any calendar year may not exceed 1% of the total number of shares of common stock issued and outstanding as of the award grant
date (as adjusted from time to time in accordance with the provisions of the 2017 Plan).
Plan
Administration. Our Board of Directors, or a duly authorized committee of our Board of Directors, will administer the 2017
Plan. Our Board of Directors may also delegate to one or more of our officers the authority to designate employees (other than
officers) to receive specified stock awards and determine the number of shares subject to such stock awards. Under the 2017 Plan,
the Board has the authority to determine and amend the terms of awards and underlying agreements, including:
●
|
whether
each option granted will be an incentive stock option or a non-statutory stock option;
|
●
|
the
fair market value of the common stock;
|
●
|
recipients;
|
●
|
whether
and to what extent 2017 Plan awards are granted;
|
●
|
the
exercise and purchase price of stock awards, if any;
|
●
|
the
number of shares subject to each stock award;
|
●
|
the
form of agreement(s) used under the 2017 Plan;
|
●
|
the
vesting schedule applicable to the awards, together with any vesting acceleration, pro
rata adjustments to vesting;
|
●
|
any
waiver of forfeiture restrictions; and
|
●
|
the
form of consideration, if any, payable on exercise or settlement of the award.
|
Under
the 2017 Plan, the Board also generally has the authority to effect, with the consent of any adversely affected participant:
●
|
the
reduction of the exercise, purchase, or strike price of any outstanding award;
|
●
|
the
cancellation of any outstanding award and the grant in substitution therefore of other
awards, cash, or other consideration; or
|
●
|
any
other action that is treated as a repricing under generally accepted accounting principles.
|
Stock
Options. Incentive stock options may only be granted to employees and non-statutory stock options may be granted to
employees and consultants under stock option agreements subject to the terms of the 2017 Plan, provided that the exercise
price of a stock option generally cannot be less than 100% of the fair market value (110% of the fair market value to an employee
who is also a 10% stockholder) of our common stock on the date of grant. Options granted under the 2017 Plan vest at the rate
specified in the stock option agreement. The term of an option shall be no more than ten years from the date of grant and, in
the case of an incentive stock option granted to a person who at the time of such grant is a 10% stockholder, the term shall be
no more than five years from the date of grant.
Termination.
An optionee shall have 30 days to exercise an option, to the extent vested upon termination for service, unless such termination
is for cause in which case such option shall terminate immediately. An option to the extent vested shall terminate 6 months after
termination for disability and 12 months after death of the optionee that occurs within 30 days of termination of service.
Stock
Purchase Right. Restricted stock awards may also be granted under the 2017 Plan and are granted under restricted stock
purchase agreements. If a participant’s service relationship with us ends for any reason, we may receive any or all of the
shares of common stock held by the participant that have not vested as of the date the participant terminates service with us
through a forfeiture condition or a repurchase right.
Changes
to Capital Structure. Subject to any action required under applicable laws by the stockholders of the Company, the number
of shares of common stock covered by each outstanding award, and the number of shares of common stock that have been authorized
for issuance under the 2017 Plan but as to which no awards have yet been granted or that have been returned to the 2017 Plan upon
cancellation or expiration of an award, as well as the price per share of common stock covered by each such outstanding award,
shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a
stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the common stock, or any
other increase or decrease in the number of issued shares of common stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration.” Such adjustment shall be made by the administrator, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of common stock subject to an award.
Corporate
Transactions. Our 2017 Plan provides that in the event of certain specified significant corporate transactions, including:
(1) a sale of all or substantially all of our assets, (2) the consummation of a merger, consolidation or other capital reorganization,
or business combination transaction where we do not survive the transaction each outstanding option or stock purchase right shall
be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such
successor corporation (the “Successor Corporation”), unless the Successor Corporation does not agree to assume
the award or to substitute an equivalent option or right, in which case the vesting of each option or stock purchase right shall
fully and immediately accelerate or the repurchase rights of the Company shall fully and immediately terminate, as the case may
be, immediately prior to the consummation of the transaction.
For
purposes of a corporate transaction, an option or a stock purchase right shall be considered assumed, without limitation, if,
at the time of issuance of the stock or other consideration upon a corporate transaction or a change of control, as the case may
be, each holder of an option or stock purchase right would be entitled to receive upon exercise of the award the same number and
kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number
of shares of common stock covered by the award at such time (after giving effect to any adjustments in the number of shares covered
by the option or stock purchase right as provided for); provided that if such consideration received in the transaction is not
solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide
for the consideration to be received upon exercise of the award to be solely common stock of the Successor Corporation equal to
the fair market value of the per share consideration received by holders of common stock in the transaction.
Transferability.
A participant may not transfer stock awards under our 2017 Plan other than by will, the laws of descent and distribution, or as
otherwise provided under our 2017 Plan.
Term.
The term of the 2017 Plan is 10 years.
Plan
Amendment or Termination. Our Board of Directors has the authority to amend, alter, suspend, or terminate our 2017 Plan, provided
that such action does not materially impair the existing rights of any participant without such participant’s written consent.
Certain material amendments also require the approval of our stockholders. No incentive stock options may be granted after the
tenth anniversary of the date our Board of Directors adopted our 2017 Plan.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table lists, as of February 28, 2020, the number shares of Common Stock beneficially owned by (i) each person
or entity known to the Company to be the beneficial owner of more than 5% of the Company’s outstanding common stock; (ii)
each Named Executive Officer; and (iii) all officers and directors as a group. Information relating to beneficial ownership of
Common Stock by our principal shareholders and management is based upon information furnished by each person using “beneficial
ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security
if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment
power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner
of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than
one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner
of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole
voting and investment power with respect to the shares beneficially owned. Unless otherwise indicated, the business address of
each such person is c/o PureBase Corporation, 8625 Highway 124, Ione, California 95640. The percentages below are calculated based
on 208,650,741 shares of Common Stock issued and outstanding as of February 28, 2020.
Security
Ownership of Certain Beneficial Holders
Name
and Address of
Beneficial
Owner
|
|
Amount
and Nature of
Beneficial
Ownership
|
|
|
Percent
|
|
US
Mine Corporation (1)
8625
Highway 124
Ione,
California 95640
|
|
|
66,538,568
|
|
|
|
31.9
|
%
|
Baystreet
Capital Management Corp (2)
2 Woodgreen Place
Toronto, Ontario, Canada M4M2J2
|
|
|
21,338,800
|
(3)
|
|
|
10.2
|
%
|
Bremer
Family 1995 Living Family Trust (4)
1660 Chicago Avenue
Riverside, California 92506
|
|
|
40,163,000
|
|
|
|
19.2
|
%
|
Security
Ownership of Management
Name
and Address of
Beneficial
Owner
|
|
Amount
and
Nature
of
Beneficial
Ownership
|
|
|
Percent
|
|
A.
Scott Dockter
|
|
|
38,665,932
|
(6)
|
|
|
18.5
|
%
|
John
Bremer
|
|
|
40,163,000
|
(5)
(7)
|
|
|
19.2
|
%
|
Directors
and Officers as a Group (3 persons)
|
|
|
78,828,932
|
|
|
|
37.8
|
%
|
(1)
|
A.
Scott Dockter, Treasurer and a director, and John Bremer, President and a director, of USMC are both 33% owners
and share voting and dispositive power over the shares held by USMC.
|
|
|
(2)
|
Todd
Gauer, President of Baystreet Capital Management Corp. (“Baystreet”) has
sole voting and dispositive power over the shares held by Baystreet.
|
|
|
(3)
|
Includes
168,000 shares owned by Bayshore Capital, LLC, an affiliate through common ownership
of Baystreet Capital Management Corp.
|
|
|
(4)
|
John
Bremer, as executor of the Bremer Family 1995 Living Family Trust, has voting and dispositive
power over the shares held by the Bremer Family 1995 Living Family Trust.
|
|
|
(5)
|
Consists
of 40,163,000 shares owned by the Bremer Family 1995 Living Family Trust.
|
|
|
(6)
|
Amount
excludes 21,957,727 shares which represents Mr. Dockter’s 33% voting and dispositive
power over the shares held by USMC.
|
|
|
(7)
|
Amount
excludes 21,957,727 shares which represents Mr. Bremer’s 33% voting and dispositive power over the shares held by USMC.
|
Changes
in Control Agreements.
The
Company does not have any change-in-control agreements with any of its executive officers.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions
with Related Persons
Except
as set forth below, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant
and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at November 30, 2019
for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material
interest:
●
|
any
director or executive officer of our company;
|
●
|
any
person who beneficially owns, directly or indirectly, more than 5% of our outstanding
shares of common stock;
|
●
|
any
promoters and control persons; and
|
●
|
any
member of the immediate family (including spouse, parents, children, siblings and in
laws) of any of the foregoing persons.
|
The
Company utilizes the services of its affiliate, USMC, for exploration services and other services. Since December 31, 2018, all
Company purchases, including all minerals utilized by the Company, where made from USMC. A. Scott Dockter, the principal executive
officer and a director of the Company, and John Bremer, a director of the Company, are also officers, directors and shareholders
of USMC.
The
following tables outline the related parties associated with the Company and amounts due for each period indicated:
Name
of Related Party
|
|
Relationship
with the Company
|
US
Mine Corporation
|
|
Common
Ownership
|
Bayshore
Capital Advisors, LLC
|
|
Affiliate
of 10% Shareholder
|
A.
Scott Dockter
|
|
Chief
Executive Officer
|
|
|
November
30, 2019
|
|
|
November
30, 2018
|
|
US
Mine Corporation – Expenses Paid, Services Provided and Cash Advances
|
|
$
|
-
|
|
|
$
|
3,669,275
|
|
Craig
Barto – Promissory Note, Principal and Interest
|
|
$
|
-
|
|
|
$
|
1,191,903
|
|
A.
Scott Dockter – Promissory Note, Principal and Interest
|
|
$
|
168,207
|
|
|
$
|
179,952
|
|
Bayshore
Capital Advisors, LLC – Promissory Note, Principal and Interest
|
|
$
|
27,630
|
|
|
$
|
29,142
|
|
US
Mine Corporation
The
Company assumed a $1,000,000 promissory note with Craig Barto, an owner of USMC, on November 24, 2014, in connection with
the acquisition of USAM by the Company. The note bears simple interest at an annual rate of 5% and the principal and accrued interest
were payable on May 1, 2016. Upon the occurrence of an event of default, which includes voluntary or involuntary bankruptcy, all
unpaid principal, accrued interest and other amounts owing are immediately due and payable by the borrower pursuant
to applicable law. During fiscal year 2019, the note was in default and the Company continued to have discussions with Mr.
Barto to extend the note under the same terms and conditions to cure the default. Pursuant to the February 7, 2020, Amendment
to the September 5, 2019, Debt Exchange Agreement, Mr. Barto assigned the note to USMC effective July 31, 2019.
On
September 5, 2019, the Company entered into a Debt Exchange Agreement with USMC pursuant to which an aggregate of $5,988,471 of
debt, including accrued and unpaid interest, was converted to an aggregate of 66,538568 shares of the Company’s common stock
at a per share conversion price of $0.09. Included in the $5,988,471 of settled debt was $1,000,000 in principal and $234,247
in unpaid and accrued interest related to the above note.
The
Company entered into a contract mining agreement with USMC, a company owned by the majority stockholders of the Company, A. Scott
Dockter, our Chief Executive Officer, Chief Financial Officer, Secretary, and Treasurer and a director and John Bremer, a director,
pursuant to which USMC will provide various technical evaluations and mine development services to the Company. Services totaling
$142,210 and $195,116 were rendered by USMC for the fiscal years ended November 30, 2019 and 2018, respectively.
During
the fiscal years ended November 30, 2019 and 2018, USMC paid $23,403 and $174,451, respectively, of expenses to the Company’s
vendors and creditors on behalf of the Company and also made cash advances to the Company of $595,513 and $802,000, respectively.
On
September 5, 2019, the Company entered into the Debt Exchange Agreement with USMC. A. Scott Dockter is the Treasurer and a director
of USMC and a 33% shareholder. John Bremer is the President and a director of USMC and a 33% shareholder.
On
September 26, 2019, the Company entered into a Securities Purchase Agreement with USMC, dated September 26, 2019, pursuant to
which USMC may purchase up to $1,000,000 of the Company’s 5% unsecured convertible two-year promissory notes (the “Convertible
Notes”) in one or more closings. Amounts due under the Convertible Notes may be converted into shares of the Company’s
common stock, at any time at the option of the holder, at a conversion price of $0.16 per share. Convertible Notes in the principal
amounts of $20,000, $86,000, and $72,000 were purchased on December 1, 2019, January 1, 2019, and February 1, 2020, respectively.
On
February 7, 2020, the Company and USMC entered into an amendment to the Debt Exchange Agreement (the “Amendment to Debt
Exchange Agreement”), pursuant to which to the Company agreed to issue to USMC the 851,916 Additional Conversion Shares
and 5,438,178 Payable Conversion Fee Shares. The USMC Debt has been deemed paid-in-full and cancelled as a result of the issuances
of the Initial Conversion Shares, the Additional Conversion Shares and the Payable Conversion Fee Shares.
Executive
Officer
On
August 31, 2017, the Company issued a note in the amount of $197,096 to A. Scott Dockter, President, Chief Executive Officer,
Chief Financial Officer and a director of the Company to consolidate the total amounts due to Mr. Dockter. The note bears interest
at 6% and is due upon demand. During the year ended November 30, 2019, the Company repaid $44,500 towards the balance of the note.
As of November 30, 2019 and 2018, the principal balance due on this note is $132,596 and $177,096, respectively.
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 10% shareholder of the Company, for $25,000 for working capital at an interest rate of 6% per annum. The note was payable
August 26, 2016, or when the Company closes a bridge financing, whichever occurs first. The Company is in default on this note.
Insider
Transactions Policies and Procedures
The
Company does not currently have an insider transaction policy.
Director
Independence
As
of November 30, 2019, only one director, Calvin Lim would be deemed “independent” under the applicable NASDAQ definition.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit
and Accounting Fees
Effective
as of December 13, 2019, we dismissed Rose, Snyder & Jacobs (“RSJ”) as our independent registered public accounting
firm engaged to audit our consolidated financial statements and engaged Turner, Stone & Company, LLC as the Company’s
independent registered public accounting firm for the fiscal year ended November 30, 2019. The following table sets forth the
fees billed to the Company for professional services rendered by RSJ for each of the years ended November 30, 2019 and 2018:
Services
|
|
2019
|
|
|
2018
|
|
Audit
fees
|
|
$
|
87,250
|
|
|
$
|
68,000
|
|
Audit
related fees
|
|
|
-
|
|
|
|
-
|
|
Tax
fees
|
|
|
850
|
|
|
|
11,300
|
|
All
other fees
|
|
|
-
|
|
|
|
-
|
|
Total
fees
|
|
$
|
88,100
|
|
|
$
|
79,300
|
|
Audit
Fees
The
aggregate audit fees billed and unbilled for the fiscal years ended November 30, 2019 and 2018 were for professional services
rendered by RSJ for the audits of our annual consolidated financial statements, the review of our consolidated financial statements
included in our quarterly reports on Form 10-Q and the review of our registration statement on Form S-1.
Tax
Fees
The
aggregate tax fees billed and unbilled for the fiscal years ended November 30, 2019 and 2018 were for professional services rendered
by our principal accountants in connection with tax, compliance and preparation of our corporate tax returns.
Pre-Approval
Policies and Procedures
Prior
to retaining Turner Stone to provide services in the current fiscal year (beginning December 1, 2019), the Audit Committee reviewed
and approved Turner Stone’s fee proposal and engagement letter. In the fee proposal, each category of services (Audit, Audit
Related, Tax and All Other) is broken down into subcategories that describe the nature of the services to be rendered, and the
fees for such services. The Company’s pre-approval policy provides that the Audit Committee (or the Board in the absence
of an Audit Committee) must specifically pre-approve any engagement of Turner Stone for services outside the scope of the fee
proposal and engagement letter.
The
percentage of hours expended on RSJ’s engagement to audit our consolidated financial statements for the most recent fiscal
year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees
was 0%.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – organization and business operations
Corporate
History
PureBase
Corporation (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 an exploration, mining
and product marketing company engaged in identifying and developing advanced stage natural resource projects which, the Company
believes, show potential to achieve full production. Effective January 12, 2015, the Company amended its articles of incorporation
to change its name to PureBase Corporation. The Company, through its wholly-owned operating subsidiaries PureBase Agricultural,
Inc., a Nevada corporation, (“PureBase AG”) and U.S. Agricultural Minerals, LLC, a Nevada limited liability company
(“USAM”) is engaged in the identification, acquisition, exploration, development, mining and full-scale exploitation
of its industrial and natural mineral properties in the United States for the agriculture and construction materials markets.
On the agricultural side, the Company’s business is to develop agricultural specialized fertilizers, minerals and bio-stimulants
for organic and sustainable agriculture. On the construction side, the Company is focused on developing construction sector-related
products such as cements. The Company intends to provide for distribution of its products into each industry related market.
The
Company is headquartered in Ione, California.
Business
Overview
PureBase
is a diversified, industrial mineral and natural resource company working to provide solutions to the agriculture and construction
materials markets. In addition, the Company intends to focus on identifying and developing other advanced stage natural resource
projects in support of its agricultural business. PureBase’s business is currently divided into two divisions: “PureBase
Agricultural, Inc.” to develop agricultural specialized fertilizers, minerals and biostimulants for organic and sustainable
agriculture and “PureBase Build/SCM” which will be focused on developing construction sector related products such
as cements. PureBase will provide for distribution of those products into each industry related market.
The
Company’s initial focus is on the organic agricultural market sectors. The Company has developed and will seek to develop
additional products derived from mineralized materials of Leonardite, Kaolin Clay, Laterite, Potassium Silicate Sulfate, and other
natural minerals. These important minerals are used in the agricultural industry to protect crops, plants and fruits from the
sun, winter damage, provide nutrients to plants, improve dormancy and improve soil ecology with agricultural minerals and soil
amendments to help farmers increase the yields of their harvests.
The
Company utilizes the services of US Mine Corporation (“USMC”), a private company focusing on the development and contract
mining of industrial mineral and metal projects throughout North America to perform exploration drilling, preparation of feasibility
studies, mine modeling, on-site construction, mine production, and mine site reclamation. Exploration services also 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 of which Scott Dockter and John Bremer are
officers, directors, and owners.
We
intend to develop innovative solutions that represent an important value-enhancing element for our agricultural customers. We
are building a brand family under the parent trade name, “PureBase”, consisting of three primary product lines: PureBase
Shade Advantage WP, PureBase SulFi Hume Si Advantage, and PureBase Humate INU Advantage.
NOTE
2 – GOING CONCERN AND LIQUIDITY
The
accompanying 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 November 30,
2019, the Company had a significant accumulated deficit of approximately $11.2 million and working capital deficit of approximately
$946,000. For the fiscal year ended November 30, 2019, we had a loss from operations of approximately $3.1 million
and negative cash flows from operations of approximately $551,000. The Company’s operating activities consume the
majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development
plans for 2020, as well as other potential strategic and business development initiatives. In addition, the Company has had and
expects to have negative cash flows from operations, at least into the near future. The Company has previously funded, and plans
to continue funding, these losses primarily additional infusions of cash from advances from an affiliate, the sale of equity,
and convertible notes. The accompanying consolidated financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
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.
On
December 1, 2019, the Company issued a two-year convertible promissory note totaling $20,000, in connection with the September
26, 2019, Securities Purchase Agreement, with USMC, with a maturity date of December 1, 2021. The principal bears interest at
5% per annum which is also payable on maturity. Amounts due under the note may be converted into shares of the Company’s
common stock, $0.001 par value per share, at any time at the option of the Holder, at a conversion price of $0.16 per share.
On
January 1, 2020, the Company issued a two-year convertible promissory note totaling $86,000, in connection with the September
26, 2019, Securities Purchase Agreement, with USMC, with a maturity date of January 1, 2022. The principal bears interest at 5%
per annum which is also payable on maturity. Amounts due under the note may be converted into shares of the Company’s common
stock, $0.001 par value per share, at any time at the option of the Holder, at a conversion price of $0.16 per share.
On
February 1, 2020, the Company issued a two-year convertible promissory note totaling $72,000, in connection with the September
26, 2019, Securities Purchase Agreement, with USMC, with a maturity date of February 1, 2022. The principal bears interest at
5% per annum which is also payable on maturity. Amounts due under the note may be converted into shares of the Company’s
common stock, $0.001 par value per share, at any time at the option of the Holder, at a conversion price of $0.16 per share.
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 believes that the revenue to be generated from operations together with potential equity and debt financing or other
potential financing will provide the necessary funding for the Company to continue as a going concern, management cannot guarantee
any potential debt or equity financing will be 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 audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). The summary of significant accounting policies presented below is designed
to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying
notes are the representations of Company’s management, who is responsible for their integrity and objectivity.
Principles
of Consolidation
These
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.
The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation
of the 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 accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which the Company adopted
beginning on December 1, 2018, utilizing the modified retrospective method. The approach was applied to contracts that were in
process as of December 1, 2018. The adoption of ASC 606 did not have an impact on the Company’s reported revenue or contracts
in process at December 1, 2018. The reported results for the fiscal year 2019 reflect the application of ASC topic 606, while
the reported results for fiscal year 2018 are not adjusted and continue to be reported under ASC Topic 605.
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, which occurs when the product is shipped from the Company’s warehouse.
Practical
Expedients
As
part of ASC Topic 606, the Company has adopted several practical expedients including that the Company has determined that it
need 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 service to the customer and when the customer
pays for that service will be one year or less.
Disaggregated
Revenue
Revenue
consists of the following by product offering for the year ended November 30, 2019:
Soil
Advantage
|
|
|
Humate
INU Advantage
|
|
|
SHADE
ADVANTAGE (WP)
|
|
|
SulFe
Hume Si ADVANTAGE
|
|
|
Solu-Sul
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
9,450
|
|
|
$
|
182,238
|
|
|
$
|
170,242
|
|
|
$
|
-
|
|
|
$
|
361,930
|
|
Revenue
consists of the following by product offering for the year ended November 30, 2018:
Soil
Advantage
|
|
|
Humate
INU Advantage
|
|
|
SHADE
ADVANTAGE (WP)
|
|
|
SulFe
Hume Si ADVANTAGE
|
|
|
Solu-Sul
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,728
|
|
|
$
|
-
|
|
|
$
|
376,125
|
|
|
$
|
68,413
|
|
|
$
|
43,030
|
|
|
$
|
564,296
|
|
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 no cash equivalents as of November 30, 2019 or 2018.
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. As of and for the years ended November 30,
2019 and 2018, the Company has determined that an allowance of $11,137 for doubtful accounts was necessary, respectively.
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.
Equipment
|
3-5
years
|
Autos
and trucks
|
5
years
|
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.
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. No impairment losses were recorded during the years ended November 30, 2019 and 2018.
Exploration
Stage
In
accordance with U.S. GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred while
exploration and pre-extraction expenditures are expensed as incurred until such time as the Company exits the Exploration Stage
by establishing proven or probable reserves. Expenditures relating to exploration activities such as drill programs to establish
mineralized materials are expensed as incurred. Expenditures relating to pre-extraction activities are expensed as incurred until
such time proven or probable reserves are established for that project, after which expenditures relating to mine development
activities for that particular project are capitalized as incurred. There were no costs related to exploration activities for
the years ended November 30, 2019 and 2018.
Mineral
Rights
Acquisition
costs of mineral rights are capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred
until such time as the Company exits the exploration stage by establishing proven or probable reserves, as defined by the SEC
under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study. Expenditures
relating to exploration activities are expensed as incurred and expenditures relating to pre-extraction activities are expensed
as incurred until such time proven or probable reserves are established for that project, after which subsequent expenditures
relating to development activities for that particular project are capitalized as incurred.
Where
proven and probable reserves have been established, the project’s capitalized expenditures are depleted over proven and
probable reserves upon commencement of production using the units-of-production method. Where proven and probable reserves have
not been established, such capitalized expenditures are depleted over the estimated production life upon commencement of extraction
using the straight-line method.
The
carrying values of the mineral rights are assessed for impairment by management on a quarterly basis or when indicators of impairment
exist. Should management determine that these carrying values cannot be recovered, the unrecoverable amounts are written off against
earnings. Total capitalized costs related to mineral rights was $200,000 as of November
30, 2019 and 2018.
Shipping
and Handling
The
Company incurs shipping and handling costs which are charged back to the customer. The net amounts incurred were $0 and $1,156
included in general administrative expenses for the years ended November 30, 2019 and 2018, respectively.
Advertising
and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $2,065 and $11,417
for the years ended November 30, 2019 and 2018, respectively, and are recorded in selling, general and administrative expenses
on the statement of operations.
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
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 vested outstanding options are considered potential common stock. The dilutive effect, if any, of stock options
are calculated using the treasury stock 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 years ended November
30, 2019 and 2018.
The
following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including
these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less
than the average market price of the common shares:
|
|
Year
Ended November 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
550,000
|
|
|
|
550,000
|
|
Total
|
|
|
550,000
|
|
|
|
550,000
|
|
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 board of directors 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.
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.
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
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of
over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use
asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these
leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs
of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term.
Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use
asset) and interest expense (for interest on the lease liability). This standard will be effective for the Company’s interim
and annual periods beginning December 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or
entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is
permitted. The adoption of ASU 2016-02 did not have a material impact on the Company’s consolidated financial statements
and related disclosures.
All
other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the
Company.
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
November
30, 2019
|
|
|
November
30, 2018
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
$
|
6,952
|
|
|
$
|
6,952
|
|
Machinery
and equipment
|
|
|
35,151
|
|
|
|
35,151
|
|
Automobiles
and trucks
|
|
|
25,061
|
|
|
|
25,061
|
|
|
|
|
67,164
|
|
|
|
67,164
|
|
Less:
accumulated depreciation
|
|
|
(66,392
|
)
|
|
|
(64,076
|
)
|
Property
and equipment, net
|
|
$
|
772
|
|
|
$
|
3,088
|
|
Total
depreciation expense for the years ended November 30, 2019 and 2018 was $2,316 and $10,006, respectively.
NOTE
5 – MINING RIGHTS
Placer
Mining Claims Lassen County, CA
Placer
Mining Claim Notices have been filed and recorded with the US Bureau of Land Management (the “BLM”) relating to 50
Placer mining claims identified as “USMC 1” thru “USMC 50” covering 1,145 acres of mining property located
in Lassen County, California and known as the “Long Valley Pozzolan Deposit”. The Long Valley Pozzolan Deposit is
a placer claims resource in which the Company holds non-patented mining rights to 1,145acres of contiguous placer claims within
the boundaries of a known and qualified Pozzolan deposit. These claims were assigned to the Company by one of its founders at
his original cost basis of $0. These claims require a payment of $30,000 per year to the BLM.
On
September 5, 2019, the Company’s Board of Directors approved to discontinue any and all mining and related activities at
the Long Valley project. As a result, the claims have reverted back to the BLM.
Federal
Preference Rights Lease in Esmeralda County NV
This
Preference Rights Lease is granted by the BLM covering approximately 2,500 acres of land located in the Mount Diablo Meridian
area of Nevada. Contained in the leased property is the Chimney 1 Potassium/Sulfur Deposit which consists of 15.5 acres of land
fully permitted for mining operation which is situated within the 2,500 acres held by the Company. All rights and obligations
under the Preference Rights lease have been assigned to the Company by USMC. These rights are presented at their cost of $200,000.
This lease requires a payment of $7,503 per year to the BLM.
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 US Mining and Minerals Corp. 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 280 acres of mining property containing 5 placer mining claims
known as the Snow White Mine located near Barstow, California in San Bernardino County. The property is covered by a Conditional
Use Permit allowing the mining of the property and a Plan of Operation and Reclamation Plan has been approved by San Bernardino
County and the BLM. An initial deposit of $50,000 was paid to escrow, and the agreement required the payment of an additional
$600,000 at the end of the escrow period. There was a delay in the seller receiving a clear title to the property and a fully
permitted project, both of which were conditions to closing. In light of the foregoing, and the payment of another $25,000, the
parties agreed to extend the closing. Due to delays in the Company securing the necessary funding to close the purchase of the
Snow White Mine property, John Bremer, a shareholder and a director of the Company, paid $575,000 to acquire the property on or
about October 15, 2015. Mr. Bremer will transfer title to the Company when the Company pays Mr. Bremer $575,000 plus expenses,
however, the Company is under no obligation to do so. The mining claims require a minimum royalty payment of $3,500 per year.
During
the year ended November 30, 2017, USMC, agreed to offset the $75,000 deposit against money owed to USMC. As a result, the purchase
price is $650,000 plus expenses. Mr. Bremer has not restricted the Company from continuing its exploration on the property or
access to property in any way.
On
September 5, 2019, the Company’s Board of Directors approved to discontinue any and all mining and related activities at
the Snow White project. The Company has no further obligation related to this project.
NOTE
6 – NOTES PAYABLE
The
Company assumed a $1,000,000 promissory note with Craig Barto, an owner of USMC, on November 24, 2014, in connection with
the acquisition of USAM by the Company. The note bears simple interest at an annual rate of 5% and the principal and accrued interest
were payable on May 1, 2016. Upon the occurrence of an event of default, which includes voluntary or involuntary bankruptcy, all
unpaid principal, accrued interest and other amounts owing are immediately due, payable and collectible by the lender pursuant
to applicable law. During fiscal year 2019, the note was in default and the Company continued to have discussions with holder
of the note to extend the note under the same terms and conditions to cure the default. Pursuant to the February 7, 2020 Amendment
to the September 5, 2019, Debt Exchange Agreement, Mr. Barto assigned the note to USMC effective July 31, 2019. On September
5, 2019, the Company entered into a Debt Exchange Agreement with USMC pursuant to which an aggregate of $5,988,471 of debt, including
accrued and unpaid interest, was converted to an aggregate of 66,538568 shares of the Company’s common stock at a per share
conversion price of $0.09. Included in the $5,988,471 of settled debt was $1,000,000 in principal and $234,247 in unpaid and accrued
interest related to the note. On September 5, 2019, the fair value of the Company’s common stock was $0.1085 per share.
The $0.0185 difference in share price resulted in a loss on conversion of $1,230,964 for the year ended November 30, 2019, which
the Company recorded on the consolidated statements of operations as a loss on conversion of related party debt and payables.
The balance of the note was $0 and $1,000,000 as of November 30, 2019 and 2018, respectively (See Note 11).
On
February 26, 2016, the Company entered into a promissory note with Bayshore Capital Advisors, LLC, an affiliate through common
ownership of a 10% major shareholder of the Company, for $25,000 for working capital at an interest rate of 6% per annum.
The note was payable August 26, 2016, or when the Company closes a bridge financing, whichever occurs first. The Company is in
default on this note at November 30, 2019. The balance on the note was $25,000 as of November 30, 2019 and 2018, respectively
See (Note 11).
On
August 31, 2017, the Company issued a note in the amount of $197,096 to Arthur Scott Dockter, President, CEO and a director of
the Company, to consolidate the total amounts due to and assumed by Mr. Dockter. The note to Mr. Dockter bears interest at 6%
and is due upon demand. During the year ended November 30, 2019, the Company repaid $44,500 towards the balance of the note. The
balance on the note was $132,596 and $177,096 as of November 30, 2019 and 2018, respectively (See Note 11).
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following amounts:
|
|
November
30, 2019
|
|
|
November
30, 2018
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
265,449
|
|
|
$
|
59,712
|
|
Accrued
interest
|
|
|
44,847
|
|
|
|
215,768
|
|
Accrued
compensation
|
|
|
33,930
|
|
|
|
74,138
|
|
Accounts
payable and accrued expenses
|
|
$
|
344,226
|
|
|
$
|
349,618
|
|
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. There is currently no lease for use of such office space.
Mineral
Properties
The
Company’s mineral rights require various annual lease payments (See Note 5).
Legal
Matters
On
September 21, 2016 the Company its employment agreement with its then President, David Vickers. Subsequently, Mr. Vickers alleged
claims of age discrimination, fraud in the inducement, violation of California Labor Code §970 and breach of contract against
the Company. On April 14, 2017 the Company was served with a demand for arbitration of the above referenced claims. The arbitration
proceeding is being handled by the Judicial Arbitration and Mediation Services, Inc. and is currently in the discovery phase.
On June 5, 2018 the parties participated in a voluntary mediation but were unable to reach a resolution. The arbitration proceeding
based on Vickers demand for arbitration was held in August 6-8, 2019. The case is still pending. An interim-preliminary decision
has been rendered in connection with the arbitration, however, the Final Award has not yet been fully determined. Although the
evidentiary hearing at the Arbitration has been completed, the Parties have filed supplemental briefing on a multitude of issues
before the Arbitrator will release his Final Award. The Arbitrator has tentatively set a conference regarding those supplemental
issues for April 10, 2020, and it is estimated the Arbitrator’s Final Award would be released 30-60 days after that time.
Should the Final Award issue liability against Respondents, the Company believes its potential exposure to be approximately $475,000,
plus potential pre-and-post judgment interest. While the Company believes the potential liability is estimated to the above, there
is, however, the potential for the Arbitrator to render a ruling where the Company could be liable for more, or less.
On
August 30, 2018 the Company was named as a defendant in a complaint filed by Tessenderlo Kerley, Inc. (“Tessenderlo”)
alleging trademark infringement relating to the plaintiff’s trademark PURSHADE and the Company’s product PureBase
Shade Advantage. The Company filed its answer on September 21, 2018, denying the allegations set forth in the complaint. A settlement
conference was held on June 11, 2019. The Company entered into a Settlement Agreement and Release (the “Settlement Agreement”)
with Tessenderlo effective July 8, 2019. Pursuant to the Settlement Agreement the Company agreed, among other requirements for
dissemination of information with its product, to make various changes to the packaging of its Purebase Shade Advantage products
relating to the visual representation of the product’s names. Under the Settlement Agreement, each party fully released
the other party from all existing claims and liabilities. There were no monetary damages as part of the Settlement Agreement.
As a result of the Settlement Agreement, the case was dismissed on July 9, 2019.
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. A trial is currently scheduled to be held in July 2020.
On
March 29, 2019, the Company was served with a complaint filed by Superior Soils Supplements LLC (“Superior Soils”)
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. The parties are currently in settlement negotiations.
Contractual
Matters
On
November 1, 2013, we entered into an agreement with USMC, a related party, in which USMC performs services relating to 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 Company’s board of directors 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 11).
Note
9 - Stockholders’ Equity
Equity
Transactions During the Period
During
the year ended November 30, 2019, the Company issued 66,538,568 shares of the Company’s common stock with a fair value of
$0.1085 per share to a USMC for the conversion of $5,988,471 of debt pursuant to a Debt Exchange Agreement (See Note 6).
During
the year ended November 30, 2019, the Company issued 100,000 shares of the Company’s common stock with a fair value of $0.10
per share to a consultant for services rendered.
During
the year ended November 30, 2019, the Company issued 665,000 shares of the Company’s common stock with a range of fair values
of $0.13 - $0.14 per share to an investor pursuant to an investment agreement.
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 Company’s Board of Directors (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 allocated up to 10,000,000
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 November 30, 2019, 50,000 options have been granted under the
Option Plan.
The
Company has also granted an aggregate of 500,000 options pursuant to employment contracts with certain employees prior to the
adoption of the Option Plan.
There
were no stock options granted during the year ended November 30, 2019.
On
September 25, 2018, the Company issued 50,000 options to a consultant for consulting services provided to the Company with an
exercise price of $0.12 per share and a fair value of $5,556. The options vest on the one-year anniversary of the grant date.
The options issued were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.12;
strike price - $0.12; expected volatility – 150%; risk-free interest rate – 2.17%; dividend rate – 0%; and expected
term – 5.50 years.
Compensation
based stock option activity for qualified and unqualified stock options are summarized as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
Outstanding
at November 30, 2017
|
|
|
500,000
|
|
|
$
|
3.00
|
|
Granted
|
|
|
50,000
|
|
|
|
0.12
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at November 30, 2018
|
|
|
550,000
|
|
|
|
2.74
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at November 30, 2019
|
|
|
550,000
|
|
|
$
|
2.74
|
|
The
following table summarizes information about options to purchase shares of the Company’s Common Stock outstanding and exercisable
at November 30, 2019:
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Range
of
|
|
|
Outstanding
|
|
|
Remaining
Life
|
|
|
Exercise
|
|
|
Number
|
|
exercise
prices
|
|
|
Options
|
|
|
In
Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.12
|
|
|
|
50,000
|
|
|
|
8.83
|
|
|
$
|
0.12
|
|
|
|
50,000
|
|
|
3.00
|
|
|
|
500,000
|
|
|
|
6.26
|
|
|
|
3.00
|
|
|
|
500,000
|
|
|
|
|
|
|
550,000
|
|
|
|
6.75
|
|
|
$
|
2.74
|
|
|
|
550,000
|
|
The
compensation expense attributed to the issuance of the options is recognized as they are vested.
The
employee stock option plan stock options are exercisable for ten years from the grant date and vest over various terms from the
grant date to three years.
The
aggregate intrinsic value totaled $14,000 and was based on the Company’s closing stock price of $0.40 as of November 30,
2019, 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 $60,854 and $203,414 for the years ended November 30, 2019 and 2018, respectively.
As of November 30, 2019, there was no future compensation cost related to non-vested stock options.
NOTE
11 – RELATED PARTY TRANSACTIONS
Bayshore
Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note in the principal amount of $25,000 with an interest rate of 6% per annum
to Bayshore Capital Advisors, LLC, an affiliate through common ownership of a 10% shareholder of the Company for
working capital purposes. The note was payable August 26, 2016, or when the Company closes a bridge financing, whichever occurs
first. The Company is in default on this note at November 30, 2019.
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 years ended November 30, 2019 and 2018, the Company made purchases from USMC totaling $153,180 and $0,
respectively, and are recorded as part of accounts payable on the Company’s consolidated balance sheets. Services totaling
$142,210 and $195,116 were rendered by USMC for the years ended November 30, 2019 and 2018, respectively, and are recorded as
part of due to affiliates on the Company’s consolidated balance sheets. In addition, during the years ended November 30,
2019 and 2018, USMC paid $23,403 and $174,451, respectively, of expenses to the Company’s vendors and creditors on behalf
of the Company and also made cash advances to the Company of $595,513 and $802,000, respectively, and are recorded as part
of due to affiliates on the Company’s consolidated balance sheets. The amounts owed for services rendered, expenses paid
on behalf of the Company, and cash advances were converted into the Company’s common stock as part of the September 5, 2019
Debt Exchange Agreement (See Note 6). The balance due to USMC is $0 and $3,669,275 at November 30, 2019 and 2018, respectively.
On
September 26, 2019, the Company entered into a securities purchase agreement with USMC pursuant to which USMC may purchase up
to $1,000,000 of the Company’s 5% unsecured convertible two-year promissory notes in one or more closings. The notes would
be convertible into the Company’s common stock at a conversion price of $0.16 per share. As of November 30, 2019, USMC has
not purchased any additional notes.
The
Company is using office space provided by USMC rent-free. There is currently no lease for its use of such office space.
Transactions
with Officers
On
August 31, 2017, the Company issued a note in the amount of $197,096 to Arthur Scott Dockter, President, CEO and a director of
the Company to consolidate the total amounts due to and assumed by Mr. Dockter. The note bears interest at 6% and is due upon
demand. During the year ended November 30, 2019, the Company repaid $44,500 towards the balance of the note. As of November 30,
2019 and 2018, the principal balance due on this note is $132,596 and $177,096, respectively, and is recorded as Note Payable
to Officer on the consolidated balance sheet.
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 $250,000. As of November
30, 2019 and 2018, the Company had approximately no deposits in excess of the FDIC insured limit.
Revenues
Four
customers accounted for 87% of total revenue for the fiscal year ended November 30, 2019, as set forth below:
Customer
A
|
|
|
35
|
%
|
Customer
B
|
|
|
23
|
%
|
Customer
C
|
|
|
18
|
%
|
Customer
D
|
|
|
11
|
%
|
The
Company had three major customers that represented 74% of total revenue for the year ended November 30, 2018, as set forth below:
Customer
A
|
|
|
35
|
%
|
Customer
B
|
|
|
24
|
%
|
Customer
C
|
|
|
15
|
%
|
Accounts
Receivable
Two
customers accounted for 100% of the accounts receivable as of November 30, 2019, as set forth below:
Customer
A
|
|
|
66
|
%
|
Customer
B
|
|
|
34
|
%
|
Two
customers accounted for 100% of the accounts receivable as of November 30, 2018, as set forth below:
Customer
A
|
|
|
73
|
%
|
Customer
B
|
|
|
27
|
%
|
Vendors
Two
suppliers accounted for 100% of purchases as of November 30, 2019, as set forth below:
Customer
A, a related party
|
|
|
88
|
%
|
Customer
B
|
|
|
12
|
%
|
One
supplier, a related party, accounted for 100% of purchases as of November 30, 2018.
NOTE
13 – INCOME TAXES
The
Company identified their federal and California state tax returns as their “major” tax jurisdictions. The periods
our income tax returns are subject to examination for these jurisdictions are 2014 through 2019. The Company believe their income
tax filing positions and deductions will be sustained on audit, and they do not anticipate any adjustments that would result in
a material change to their financial position. Therefore, no liabilities for uncertain tax positions have been recorded.
At
November 30, 2019, we had available net operating loss carry-forwards for federal income tax reporting purposes of approximately
$2,256,065 which are available to offset future taxable income. As a result of the Tax Cuts Job Act 2017 (the Act), certain
of these carry-forwards do not expire. We have not performed a formal analysis, but we believe our ability to use such net operating
losses and tax credit carry-forwards is subject to annual limitations due to change of control provisions under Sections 382 and
383 of the Internal Revenue Code, which significantly impacts our ability to realize these deferred tax assets.
Our
net deferred tax assets, liabilities and valuation allowance as of November 30, 2019 and 2018 are summarized as follows:
|
|
Year
Ended November 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
2,140,900
|
|
|
$
|
1,309,600
|
|
Changes
in prior year estimates
|
|
|
-
|
|
|
|
-
|
|
Total
deferred tax assets
|
|
|
2,140,900
|
|
|
|
1,309,600
|
|
Valuation
allowance
|
|
|
(2,140,900
|
)
|
|
|
(1,309,600
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
We
record a valuation allowance in the full amount of our net deferred tax assets since realization of such tax benefits has been
determined by our management to be less likely than not. The valuation allowance increased $831,300 during the fiscal year
ended November 30, 2019. The valuation allowance decreased $150,107 during the fiscal year ended November 30, 2018.
A
reconciliation of the statutory federal income tax benefit to actual tax benefit for the years ended November 30, 2019 and 2018
is as follows:
|
|
2019
|
|
|
2018
|
|
Federal
statutory blended income tax rates
|
|
|
(21
|
)%
|
|
|
(22
|
)%
|
State
statutory income tax rate, net of federal benefit
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Change
in effective federal tax rate
|
|
|
-
|
|
|
|
14
|
|
Incentive
stock options
|
|
|
2
|
|
|
|
17
|
|
Change
in valuation allowance
|
|
|
27
|
|
|
|
(13
|
)
|
Other
|
|
|
(1
|
)
|
|
|
11
|
|
Effective
tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
As
of the date of this filing, the Company has not filed its 2019 federal and state corporate income tax returns. The Company expects
to file these documents as soon as practicable.
The
Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21% and will require the Company
to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future,
which is generally 21%. The Company adopted the new rate as it relates to the calculations of deferred tax amounts as of November
30, 2018.
NOTE
14 – SUBSEQUENT EVENTS
On
December 1, 2019, the Company issued a two-year convertible promissory note totaling $20,000, in connection with the September
26, 2019, Securities Purchase Agreement, to USMC, with a maturity date of December 1, 2021. The principal bears interest at 5%
per annum which is also payable on maturity. Amounts due under the note may be converted into shares of the Company’s common
stock, $0.001 par value per share, at any time at the option of the Holder, at a conversion price of $0.16 per share.
On
January 1, 2020, the Company issued a two-year convertible promissory note totaling $86,000, in connection with the September
26, 2019, Securities Purchase Agreement, with USMC, with a maturity date of January 1, 2022. The principal bears interest at 5%
per annum which is also payable on maturity. Amounts due under the note may be converted into shares of the Company’s common
stock, $0.001 par value per share, at any time at the option of the Holder, at a conversion price of $0.16 per share.
On
February 1, 2020, the Company issued a two-year convertible promissory note totaling $72,000, in connection with the September
26, 2019, Securities Purchase Agreement, with USMC, with a maturity date of February 1, 2022. The principal bears interest at
5% per annum which is also payable on maturity. Amounts due under the note may be converted into shares of the Company’s
common stock, $0.001 par value per share, at any time at the option of the Holder, at a conversion price of $0.16 per share.
On
February 7, 2020, the Company and USMC entered into an amendment to the Debt Exchange Agreement (the “Amendment to Debt
Exchange Agreement”), pursuant to which to the Company agreed to issue to USMC the 851,916 Additional Conversion Shares
and 5,438,178 Payable Conversion Fee Shares. In addition, Craig Barto assigned the assumed $1,000,000 note payable and $234,247
in accrued interest to USMC, effective July 31, 2019. The USMC Debt has been deemed paid-in-full and cancelled as a result of
the issuances of the Initial Conversion Shares, the Additional Conversion Shares and the Payable Conversion Fee Shares.