NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER
30, 2018
NOTE
1. NATURE OF BUSINESS
Business
Activity
Purebase
Corporation (the “Company”), was incorporated in the State of Nevada on March 2, 2010. Pursuant to a corporate reorganization
consummated on December 23, 2014, the Company changed its business focus to an exploration, mining and product marketing company
which will focus on identifying and developing advanced stage natural resource projects which show potential to achieve full production.
The business strategy of the Company is to identify, acquire, define, develop and operate world-class industrial and natural resource
properties and to contract for mine development and operations services to its mining properties located initially in the Western
United States and currently in California and Nevada. The Company plans to package and market such industrial and natural minerals
to retail and wholesale industrial and agricultural market sectors. The Company will initially seek to develop deposits of pozzolan,
and potassium sulfate on its own properties or acquire such minerals from other sources. These minerals have a wide range of uses
including construction, agriculture additives, animal feedstock, ceramics, synthetics, absorbents and electronics. The Company’s
activities are subject to significant risks and uncertainties including its ability to secure additional funding to pursue its
operations.
Purebase
is headquartered in Ione, California. Purebase’s business is divided into wholly-owned subsidiaries which will operate as
business divisions, whose sole focus is to develop sector related products and to provide for distribution of those products into
primarily the agricultural and construction industry sectors.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements include the accounts of Purebase Corporation and its wholly owned subsidiaries
Purebase Agricultural, Inc. (f.k.a. Purebase, Inc.) and US Agricultural Minerals, LLC (“USAM”) and its majority-owned
subsidiary Purebase Networks, Inc. (FY 2017 only), collectively referred to as the “Company”. All intercompany transactions
have been eliminated in consolidation. The consolidated financial statements reflect all adjustments, which in the opinion of
management, are necessary to present fairly the consolidated financial position at November 30, 2018 and November 30, 2017 and
the consolidated results of operations and cash flows of the Company for the fiscal years ended November 30, 2018 and November
30, 2017.
Going
Concern
The
Company incurred a net loss of $1,164,463 for the fiscal year ended November 30, 2018 and generated negative cash flows from operations.
In addition the Company has generated modest revenue in conjunction with its business plan. In order to support its operations,
the Company will require additional infusions of cash from advances from an affiliate, the sale of equity instruments or the issuance
of debt instruments, or the commencement of profitable revenue generating activities. If adequate funds are not available or are
not available on acceptable terms, the Company’s ability to fund its operations, take advantage of potential acquisition
opportunities, develop or enhance its properties in the future or respond to competitive pressures would be significantly limited.
Such limitations could require the Company to curtail, suspend or discontinue parts of its business plan.
These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that
could result from the outcome of this uncertainty. The consolidated financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
Accounts
Receivable
The
Company uses the specific identification method for recording the provision for doubtful accounts, which was $11,137 and $0 at
November 30, 2018 and 2017, respectively. Accounts receivable are written off when all collection attempts have failed.
Revenue
Recognition
Revenue
is recognized when the product has shipped, and the title has transferred to the customer.
Basic
and Diluted Net Loss Per Share
Basic
loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted loss per share includes potentially dilutive securities such as outstanding warrants and
stock options. The outstanding warrants and stock options have been excluded from the calculation of the diluted loss per share
due to their anti-dilutive effect. For the years ended November 30, 2018 and 2017 warrants and options to purchase 550,000 and
500,000, respectively, have been excluded from the computation of potential dilutive securities.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of 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.
Property
and Equipment
Property
and equipment are carried at cost. Depreciation is computed using straight line depreciation methods over the estimated useful
lives as follows:
Equipment
|
3-5
years
|
Autos
and trucks
|
5
years
|
Major
additions and improvements are capitalized. Costs of maintenance and repairs which do not improve or extend the life of the associated
assets are expensed in the period in which they are incurred
.
When there is a disposition of property and equipment,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in net income.
Cash
and Cash Equivalents
The
Company considers cash in banks, deposits in transit, and highly liquid debt instruments purchased with original maturities of
three months or less to be cash and cash equivalents. The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company’s accounts
are insured by the FDIC but at times may exceed federally insured limits. At November 30, 2018 no accounts exceeded FDIC limits.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
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 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.
Mineral
Rights
Acquisition
costs of mineral rights are capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred
until such time 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.
Shipping
and Handling
The
Company incurs shipping and handling costs which are charged back to the customer. The net amounts recovered were $1,156 and a
credit of $1,341 included in general administrative expenses for the years ending November 30, 2018 and November 30, 2017, respectively.
Fair
Value of Financial Instruments
Financial
assets and liabilities recorded at fair value in the Company’s balance sheet are categorized based upon the level of judgment
associated with the inputs used to measure their fair value. The categories, as defined by the standard, are as follows:
Level
Input:
|
|
Input
Definition:
|
Level
I
|
|
Inputs
are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
Level
II
|
|
Inputs,
other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market
data at the measurement date.
|
Level
III
|
|
Unobservable
inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability
at the measurement date.
|
For
certain of our financial instruments, including accounts receivable, accounts payable and accrued expenses, the carrying amounts
approximate fair value due to their short-term nature. The carrying amount of the Company’s notes payable approximates fair
value based on prevailing interest rates.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
Income
Taxes
No
provision for Income Taxes has been recognized for the years ended November 30, 2018 and 2017, due to continued net losses from
operations. Cumulative net losses from operations are $6,950,984 at November 30, 2018. The Company’s effective income tax
rate is reduced to 0% due to changes in the valuation allowance for deferred income tax assets.
The
Company is expected to have net operating loss carryforwards that it can use to offset a certain amount of taxable income in the
future. The Company is currently analyzing the amount of loss carryforwards that will be available to reduce future taxable income.
The resulting deferred tax assets will be offset by a valuation allowance due to the uncertainty of its realization. The primary
difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result
from applying domestic federal statutory rates to income before income taxes relates to the recognition of a valuation allowance
for deferred income tax assets.
The
Company has adopted FASB ASC 740-10, “
Income Taxes”
which clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not
as a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will
be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will
be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax
benefits in income tax expense. Interest and penalties totaled $0 for the years ended November 30, 2018 and 2017. The Company’s
net operating loss carryforwards are subject to IRS examination until they are fully utilized and such tax years are closed.
Impairment
of Long-lived Assets
The
Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 350,
“Intangibles –
Goodwill and Other
” and ASC 360,
“Property and Equipment”
. Long-lived assets to be held and used
are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. We measure
recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the
asset. If we determine that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future
undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair value and the asset’s
carrying amount. No impairment losses were recorded during the years ended November 30, 2018 and 2017.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which supersedes existing guidance on accounting for leases
in “Leases (Topic 840)” and generally requires all leases to be recognized in the consolidated balance sheet. ASU
2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted.
The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the
impact of the adoption of this standard on its consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU is designed to simplify
several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification
of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU
2016-09 became effective for the Company in the quarter ending February 2018 with no significant impact on the Company’s
financial statements.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
In
April 2016, the FASB issued AS 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the
Board’s new revenue standard, ASU 201-09, Revenue from Contracts with Customers. The standard should be adopted concurrently
with the adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. The Company
has not yet selected a transition method, nor has it determined the effect of the standard on its ongoing financial reporting.
NOTE
3. PROPERTIES
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 1,145 acres of contiguous placer claims within
the boundaries of a known and qualified Pozzolan deposit. These claims were assigned to Purebase 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.
Federal
Preference Rights Lease in Esmeralda County NV
This
Preference Rights Lease was granted by the BLM to US Mine Corp. 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. All rights and obligations under
the Preference Rights lease have been assigned to the Company by US Mine Corp. These rights are presented at their cost of $200,000.
This lease requires minimum payments 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 US Mine Corp. In contemplation of the Plan and Agreement
of Reorganization, on December 1, 2014, US Mine Corp 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 US Bureau of Land Management (“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 Purebase,
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. The mining claims require a minimum royalty payment of $3,500 per year. During the year
ended November 30, 2017, US Mine Corp. agreed to offset the $75,000 deposit against money owed to US Mine Corp. As a result, the
purchase price is now back to $650,000 plus expenses.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
NOTE
4. NOTES PAYABLE
Purebase
assumed a $1,000,000 promissory note on November 24, 2014 in connection with the acquisition of USAM by Purebase. 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. The balance of the note was $1,000,000
at November 30, 2018 and November 30, 2017. The Note is in Default however, the Company continues to have discussions with Note
Holder to extend the Note under the same terms and conditions.
On
February 26, 2016, Bayshore Capital, a major shareholder, advanced $25,000 to Purebase Corp for working capital at 6% per annum.
The note was payable August 26, 2016, or when the Company closes its bridge financing, whichever occurs first. The Company is
in default on this note at November 30, 2018.
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 and payable on demand. The balance of the Note was $177,096 at November 30, 2018.
NOTE
5. COMMITMENTS AND CONTINGENCIES
Office
and Rental Property Leases
Purebase
is using office space provided by U S Mine Corporation, a company that is owned by the Company’s Majority Shareholders and
Directors A. Scott Dockter and John Bremer. There is currently no lease between the two Companies for Purebase’s use of
the office space provided.
Mineral
Properties
Our
mineral rights require various annual lease payments. See Note 3.
Legal
Matters
Purebase
and US Agricultural Minerals, LLC along with certain principals of those entities were named as defendants in a Complaint filed
in the Second Judicial District Court in Washoe County, Nevada (Case # CV14 01348) on June 23, 2014. The Complaint was filed by
Madelaine and Edwin Durand alleging various causes of action including breach of contract and misrepresentations by various defendants
and certain principals of Purebase and USAM. The substance of the Complaint involves the alleged breach and other wrongful acts
pertaining to a Mineral Lease Contract and a Non-Disclosure, Confidentiality and Non-Compete Agreement entered into between the
Plaintiffs and the Defendants. Discovery closed in June, 2017. The jury trial commenced on February 12, 2018 and following the
Plaintiff’s presentation of their case, on February 14, 2018 the Judge entered a Directed Verdict in favor of the Defendants.
Furthermore, in exchange for the Defendants waiving their cross complaint for damages, Plaintiffs agreed to waive all rights to
appeal the verdict. Purebase paid the total cost to defend this case which amounted to $420,989.
On
April 30, 2016, the Purebase Board of Directors agreed to form a joint venture with John Wharton and Steve Ridder to develop certain
technologies to allow farmers to optimize crop growth. In May, 2016 Messrs. Wharton and Ridder incorporated a Delaware corporation
called Purebase Networks, Inc.(“PNI”) to develop these technologies. Purebase owned a 82% interest in this new company
and Scott Dockter was a Director along with Messrs. Wharton and Ridder. In order to fund this farming technology PNI raised approximately
$750,000 from investors of which $500,000 was recorded as a subscription liability on November 30, 2016. However, in November,
2016 Purebase became dissatisfied with the management and progress of PNI’s business and on November 16, 2016 the PNI Board
relieved Mr. Ridder of his officer duties. Subsequent to this action, PNI obtained a Temporary Restraining Order against Mr. Ridder
to prevent him from taking any further action relating to PNI’s business or corporate funds. In March 2017 PNI entered into
a Settlement Agreement with Mr. Ridder to resolve the dispute, terminate the legal actions against Mr. Ridder and restructure
the management and ownership of PNI. Mr. Ridder’s Settlement Agreement stipulates that the ownership of PNI by Purebase
will be reduced to 10%. This settlement resulted in a deconsolidation of PNI from the Purebase financial statements which is discussed
in Note 7 below. Mr. Ridder’s and Mr. Wharton’s Settlement Agreement also includes a mutual release from any actions
by PNI against Mr. Ridder and Mr. Wharton and Mr. Ridder and Mr. Wharton against PNI. An Amended and Restated Settlement Agreement
was entered into on August 10, 2017 pursuant to which Teralytics Inc. (formerly PNI) repurchased Purebase’s remaining interest
in Teralytics, Inc. and the Company received $250,000.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
On
September 21, 2016 the Company’s President, David Vickers, left the Company. Subsequent to his departure, Mr. Vickers has
retained legal counsel and is now alleging 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 by Mr. Vickers’ attorney
with a demand for arbitration of the above referenced claims. It is too early to estimate the likelihood of an unfavorable outcome,
however Mr. Vickers’ demand for arbitration stated a claim of over $850,000. On June 5, 2018 the parties participated in
a voluntary mediation however the parties were unable to reach a resolution. The Company plans to vigorously defend these claims
in arbitration which is currently scheduled for May 7, 2019.
On
August 30, 2018 the Company was named as a Defendant in a Complaint filed by Tessenderlo Kerley, Inc. 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. The lawsuit is in its early stages of discovery.
The Company intends to vigorously defend this lawsuit.
Subsequent
to the Company’s fiscal year end, the Company received a letter dated January 7, 2019 from attorney’s representing
Superior Soils Supplements LLC (“Superior Soils”) relating to 64 truckloads of soil amendments delivered to a customer
by Purebase on behalf of Superior Soils. The soil amendments were not labeled correctly requiring the entire shipment of product
to be returned to Purebase. The letter makes a demand for approximately $300,000 and threatens litigation if such amount is not
paid. The Company does not believe it was responsible for the mis-labelling and, therefore, does intend to pay any claims by Superior
Soils and has not reserved any amounts to pay any claims Superior Soil may pursue.
Contractual
Matters
On
November 1, 2013, Purebase entered into an agreement with US Mine Corp, which performs services relating to product fulfillment
and various technical evaluations and mine development services to Purebase with regard to the various mining properties/rights
owned by Purebase. Terms of services and compensation will be determined for each project undertaken by US Mine Corp.
On
October 12, 2018 the Purebase Board approved a Material Supply Agreement with US Mine Corp pursuant to which USMC will provide
designated natural resources to Purebase at predetermined prices.
Snow
White Mine
The
Company made payments totaling $75,000 towards the purchase of the Snow White Mine. During the year ended November 30, 2017, US
Mine Corp. agreed to offset the $75,000 deposit against money owed to US Mine Corp. The Company will need to pay Mr. Bremer, a
director of both US Mine Corp and Purebase, the additional sum of $650,000 plus expenses, in order to obtain title of this property.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
Concentration
of Credit Risk
The
Company maintains cash accounts at financial institutions. The accounts are insured by the Federal Deposit Insurance Corporation
(“FDIC”). The cash accounts, at times, may exceed federally insured limits. At November 30, 2018 there were no accounts
which exceeded FDIC insurance limits.
NOTE
6. STOCKHOLDERS’ EQUITY
Authorized
Shares
The
Company’s amended Articles of Incorporation authorize the issuance of up to 520,000,000 shares of $0.001 par value common
stock and up to 10,000,000 shares of $0.001 par value preferred shares. No preferred stock was outstanding at November 30, 2018
and 2017.
Warrants
and Option Awarded
Warrants
During
the course of the year ended November 30, 2015, the Company raised capital through the sale of units. Each unit was comprised
of one share of common stock and one warrant. There were no warrants outstanding at November 30, 2018.
The
following table summarizes all warrant activity for the years ended November 30, 2018 and 2017:
|
|
Warrants
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2016
|
|
|
477,494
|
|
|
$
|
3.42
|
|
Granted
|
|
|
0
|
|
|
|
0
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
(477,494
|
)
|
|
|
3.42
|
|
Outstanding at November 30, 2017
|
|
|
0
|
|
|
$
|
0
|
|
Granted
|
|
|
0
|
|
|
|
0
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
0
|
|
|
$
|
0
|
|
Outstanding at November 30, 2018
|
|
|
0
|
|
|
$
|
0
|
|
Stock
Options
On
November 10, 2017 the Company’s Board of Directors 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 Purebase common
stock to be issued pursuant to options granted under the Option Plan. As of November 30, 2018 and 2017 50,000 and 0 options had
been granted under the Option Plan, respectively.
The
Company has also granted 500,000 options pursuant to employment contracts entered into by the Company and the respective employee.
The
estimated weighted average fair values of the options granted during the year ended November 30, 2018 is $0.12 per share.
The
Company estimates the fair value of each option award using the Black-Scholes option-pricing model.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
The
Company used the following assumptions to estimate the fair value of stock options issued during the year ended November 30, 2018.
|
|
November
30, 2018
|
|
|
|
|
|
Expected volatility
|
|
|
150
|
%
|
Expected Term
|
|
|
5.5
years
|
|
Dividend Yield
|
|
|
0
|
%
|
Risk-free interest Rate
|
|
|
2.17
|
%
|
Employee
stock-based options compensation expenses for the years ended November 30, 2018 and 2017 included in general and administrative
expense totaled $203,414 and $384,907, respectively.
Common
stock, stock options or other equity instruments issued to non-employees (including consultants) as consideration for goods or
services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value
of the consideration received can be more reliably measured). The fair value of stock options is determined using the Black-Scholes
option-pricing model and is periodically re-measured as the underlying options vest.
The
following is a schedule summarizing employee and non-employee stock option activity for the years ended November 30, 2018 and
2017.
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate
Intrinsic Value
|
|
|
Weighted
Average
Contractual terms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 1, 2016
|
|
|
6,500,000
|
|
|
|
2.54
|
|
|
$
|
0
|
|
|
|
|
|
Granted
|
|
|
0
|
|
|
$
|
N/A
|
|
|
|
0
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
|
|
Expired/Cancelled
|
|
|
(6,000,000
|
)
|
|
$
|
2.50
|
|
|
$
|
0
|
|
|
|
|
|
Outstanding 11/30/17
|
|
|
500,000
|
|
|
$
|
3.00
|
|
|
$
|
0
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
$
|
0.12
|
|
|
|
0
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
$
|
N/A
|
|
|
|
0
|
|
|
|
|
|
Expired/Cancelled
|
|
|
0
|
|
|
$
|
N/A
|
|
|
|
0
|
|
|
|
|
|
Outstanding 11/30/18
|
|
|
550,000
|
|
|
$
|
2.74
|
|
|
$
|
0
|
|
|
|
7.50
years
|
|
Exercisable 11/30/2018
|
|
|
400,000
|
|
|
$
|
3.00
|
|
|
|
0
|
|
|
|
7.25
years
|
|
Expected to vest
11/30/18
|
|
|
150,000
|
|
|
$
|
2.04
|
|
|
$
|
0
|
|
|
|
|
|
The
aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of
the Company’s common stock for each of the respective periods.
The
aggregate intrinsic value of options outstanding and exercisable was $0 for the years ended November 30, 2018 and 2017.
As
of November 30, 2018 the total unrecognized fair value compensation cost related to non-vested stock options to employees was
approximately $62,224 which is expected to be recognized over approximately 1 year.
Purebase
Corporation and Subsidiaries
Notes
to Consolidated Financial Statements
NOTE
7. RELATED PARTY TRANSACTIONS
On
February 26, 2016, Bayshore Capital, a major shareholder of the Company, advanced $25,000 to the Company for working capital
at 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, 2018.
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 Product fulfillment and various technical evaluations and
mine development services to the Company. Services totaling $195,116 and $155,534 were rendered by USMC for the year ended
November 30, 2018 and 2017, respectively.
During
the year ended November 30, 2018, USMC paid $174,451 of expenses to the Company’s vendors and creditors on behalf of the
Company and also made cash advances to the Company of $802,000. During the year ended November 30, 2017, USMC paid $736,038 of
expenses to the Company’s vendors and creditors on behalf of the Company and made cash advances to the Company of $432,000
and offset a $75,000 deposit on the Snow White Mine property. The balance due to USMC is $3,669,275 and $2,497,708 at November
30, 2018 and November 30, 2017, respectively.
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. A payment of $20,000 was made on this Note during 2018, leaving a balance of $177,096 as of November 30, 2018.
In
April, 2016, the Company entered into a joint venture in order to develop proprietary technologies for use in the agricultural
markets, primarily to assist farmers in managing their crops. In furtherance of this joint venture, in May, 2016 a Delaware corporation
called Purebase Networks, Inc. (“PNI”) was formed in order to develop these farming technologies. The Board of Directors
consisted of John Wharton, Steve Ridder and Scott Dockter with Mr. Wharton and Mr. Ridder serving as the executive officers. As
of November 30, 2016, the Company owned an 82% ownership interest in PNI. In order to fund PNI’s technology development,
it raised investor funds of $750,000 of which $500,000 was recorded as a subscription liability on PNI’s balance sheet.
The Company became dissatisfied with the management and progress of PNI’s business and on November 16, 2016 the PNI Board
relieved Mr. Ridder of his officer duties. PNI commenced negotiating a Settlement Agreement with Mr. Ridder and Mr. Wharton and
entered into Settlement Agreements dated March 27, 2017 with Mr. Ridder and Mr. Wharton to resolve their dispute, terminate the
legal actions against Mr. Ridder and restructure the management and ownership of PNI. Mr. Wharton’s Settlement Agreement
provided for the cancellation of certain stock options granted to him to purchase 1,000,000 shares of the Company’s common
stock. Mr. Ridder’s Settlement Agreement provided for the cancellation of certain stock options granted to him to purchase
5,000,000 shares of the Company’s common stock and stipulates that the ownership of PNI by the Company will be reduced to
10%. This settlement has resulted in a deconsolidation of PNI from the Company’s financial statements as of the fiscal quarter
ended May 31, 2017. On August 10, 2017 Mr. Ridder and the Company entered into an Amended and Restated Settlement Agreement pursuant
to which Teralytics, Inc. (formerly PNI) obtained the Company’s remaining 10% interest for $250,000. Due to the elimination
of any ownership in Teralytics, Inc. and the absence of any of the Company’s officers or Directors serving in similar or
any capacity with Teralytics, Inc., the Company will no longer have any ownership interest in or influence over Teralytics, Inc.
NOTE
8. CONCENTRATIONS
Major
Customers
The
Company had three major customers that represented 74% and 53% of total sales for the years ended November 30, 2018 and 2017,
respectively. Accounts receivable from two customers represented 100% of total accounts receivable at November 30, 2018 and 2017,
respectively.
Major
Vendors
For
the years ended November 30, 2018 and 2017, purchases from one vendor comprised approximately 100% and 85% of total purchases,
respectively. This one vendor was US Mine Corp, a related party to the Company.