UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

OR

 

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2019

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT FOR THE TRANSITION PERIOD FROM

_______________ to _______________

 

Commission File Number 333-188575

 

PUREBASE CORPORATION

(Exact name of registrant as specified in its charter)

 

NEVADA   27-2060863
(State of other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

 

8625 State Hwy. 124

Ione, CA

  95640
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number: (209) 257-4331

 

 

(Former name, address and former fiscal year if changed since last report)

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

 

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes [  ] No [X]

 

Indicate the number of shares outstanding of the issuer’s common stock, as of March 29, 2019 was 141,347,173.

 

 

 

     

 

 

INDEX

 

PART I - FINANCIAL INFORMATION 3
   
ITEM 1. FINANCIAL STATEMENTS 3
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 18
   
ITEM 4. CONTROLS AND PROCEDURES 22
   
PART II - OTHER INFORMATION 23
   
ITEM 1. LEGAL PROCEEDINGS 23
   
ITEM 1A. RISK FACTORS 23
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES 24
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 24
   
ITEM 4. MINE SAFETY DISCLOSURES 24
   
ITEM 5. OTHER INFORMATION 24
   
ITEM 6. EXHIBITS 24
   
SIGNATURES 25

 

  2  

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Balance Sheets as of February 28, 2019 (unaudited) and November 30, 2018 (audited) 4
   
Condensed Consolidated Statements of Operations for the Three Months Ended February 28, 2019 and February 28, 2018 (unaudited) 5
   
Condensed Consolidated Statement of Stockholders’ Equity for the period ended February 28, 2019 (unaudited) 6
   
Condensed Consolidated Statements of Cash Flows for the Three Months Ended February 28, 2019 and February 28, 2018 (unaudited) 7
   
Notes to Financial Statements (unaudited) 8

 

  3  

 

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    February 28, 2019     November 30, 2018  
    (Unaudited)     (Audited)  
ASSETS                
                 
Current assets                
Cash   $ 32,326     $ 8,281  
Accounts Receivable, net of allowance for doubtful accounts of $11,137     5,563       8,271  
Prepaid expenses and other assets     5,365       7,738  
Total current assets     43,254       24,290  
                 
Property and Equipment                
Property and Equipment     42,103       42,103  
Autos and Trucks     25,061       25,061  
Accumulated Depreciation     (64,655 )     (64,076 )
Total Property and Equipment     2,509       3,088  
                 
Mineral Rights Acquisition Costs     200,000       200,000  
Total Assets   $ 245,763     $ 227,378  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current Liabilities                
Accounts Payable   $ 84,135     $ 59,712  
Accrued Payroll and Related Expenses     76,376       74,138  
Accrued Interest     231,554       215,768  
Note Payable to Officer     177,096       177,096  
Due to Affiliated Entities     3,931,825       3,669,275  
Notes Payable - Current     1,025,000       1,025,000  
Total Current Liabilities     5,525,986       5,220,989  
                 
Commitments and Contingencies                
                 
Stockholders’ Equity (Deficit)                
Purebase Corp. Stockholders’ Equity (Deficit)                
Common stock $0.001 par value, 520,000,000 shares authorized, 141,347,173 shares issued and outstanding     70,943       70,943  
Additional paid in capital     3,102,172       3,050,893  
Accumulated deficit     (8,453,338 )     (8,115,447 )
Total Stockholders’ Equity (Deficit)     (5,280,223 )     (4,993,611 )
                 
Total Liabilities and Stockholders’ Deficit   $ 245,763     $ 227,378  

 

The accompanying notes are an integral part of these financial statements

 

  4  

 

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS

ENDED FEBRUARY 28, 2019 AND FEBRUARY 28, 2018

(UNAUDITED)

 

    Three Months     Three Months  
    Ended     Ended  
    February 28, 2019     February 28, 2018  
             
Revenue   $ 47,250     $ 124,491  
                 
Operating expenses:                
General and administrative     314,540       485,745  
Product fulfillment, exploration and mining expenses     54,815       15,315  
Total Operating Expense     369,355       601,060  
                 
Other Income (Expenses)                
Interest Expense     (15,786 )     (21,408 )
Total Other Income (Expenses)     (15,786 )     (21,408 )
                 
Net Loss   $ (337,891 )   $ (497,977 )
                 
Basic and Diluted Loss Per Share   $ (0.00 )   $ (0.01 )
                 
Weighted average common shares outstanding - basic and diluted     141,347,173       141,347,173  

 

The accompanying notes are an integral part of these financial statements

 

  5  

 

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

    Common Stock     Paid in     Accumulated     Stockholders’    
    Shares     Amount     Capital     Deficit     Equity  
                                         
Balance, November 30, 2017     141,347,173     $ 70,943     $ 2,847,479     $ (6,950,984 )   $          (4,032,562 )
                                         
Stock-based compensation                   $ 203,414             $ 203,414  
                                         
Net Loss                           $ (1,164,463 )   $ (1,164,463 )
                                         
Balance, November 30, 2018     141,347,173     $ 70,943     $ 3,050,893     $ (8,115,447 )   $ (4,993,611 )
                                         
Stock-based compensation                   $ 51,279             $ 51,279  
                                         
Net Loss                           $ (337,891 )   $ (337,891 )
Balance, February 28, 2019     141,347,173     $ 70,943     $ 3,102,172     $ (8,453,338 )   $ (5,280,223 )

 

The accompanying notes are an integral part of these financial statements

 

  6  

 

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED FEBRUARY 28, 2019 AND FEBRUARY 28, 2018

(UNAUDITED)

 

    Three Months Ended
February 28, 2019
    Three Months Ended
February 28, 2018
 
             
Operating activities:                
Net Loss   $ (337,891 )   $ (497,977 )
                 
Adjustments to reconcile net loss to cash used in operating activities:                
Depreciation and amortization     579       3,590  
Stock Based Compensation     51,279       49,909  
                 
Effect of changes in:                
Accounts Receivable     2,708       34,021  
Prepaid expenses and other current assets     2,374       759  
Accounts payable and accrued expenses     92,997       120,047  
Net cash used in operating activities     (187,955 )     (289,651 )
                 
Financing activities:                
Advances from affiliated entity     212,000       325,000  
Net cash provided by financing activities     212,000       325,000  
                 
Net change in cash     24,045       35,349  
Cash, beginning of period     8,281       6,286  
Cash, end of period   $ 32,326     $ 41,635  
                 
Supplemental cash flow information:                
Income taxes paid in cash   $ 0     $ 0  
Vendors paid by affiliated entity   $ 12,433     $ 165,857  

 

The accompanying notes are an integral part of these financial statements

 

  7  

 

 

PUREBASE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FEBRUARY 28, 2019

Note 1. Nature of Business

 

Business Overview

 

Purebase Corporation (the “Company”), was incorporated in the State of Nevada on March 2, 2010 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 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 intends to engage in the identification, acquisition, development, mining and full-scale exploitation of industrial and natural mineral properties in the United States. 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

 

The Company is headquartered in Ione, California. The Company’s business is divided into wholly-owned and majority-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 condensed 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”), collectively referred to as the “Company”. All intercompany transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring entries), which in the opinion of management, are necessary to present fairly the consolidated financial position at February 28, 2019 and the consolidated results of operations and cash flows of the Company for the three months ended February 28, 2019 and February 28, 2018. Operating results for the three months ended February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending November 30, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended November 30, 2018 filed on Form 10-K on March 15, 2019.

 

  8  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

Going Concern

 

The Company incurred a net loss of $337,891 for the fiscal quarter ended February 28, 2019 and generated negative cash flows from operations. In addition, the Company has generated only limited revenue in conjunction with its business plan. In order to support its operations, the Company will require additional infusions of cash from 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 condensed 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 condensed 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 condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

Accounts Receivable

 

The Company uses the specific identification method for recording the provision for doubtful accounts, which was $11,137 at February 28, 2019 and November 30, 2018, respectively. Accounts receivable are written off when all collection attempts have failed.

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 and its related amendments regarding Accounting Standards Codification Topic 606 (ASC Topic 606), Revenue from Contracts with Customers . The standard provides principles for recognizing revenue for transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASC Topic 606, effective December 1, 2018, utilizing the modified retrospective method. This approach was applied to contracts that were in process as of December 1, 2018. The adoption of ASC Topic 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 now applies the five-step approach outlined in revenue standard ASC Topic 606:

 

  Step 1: Identify the contract with a customer
  Step 2: Identify the performance obligations in the contract
  Step 3: Determine the transaction price

 

  9  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

  Step 4: Allocate the transaction price to the performance obligations in the contract
  Step 5: Recognize revenue when (or as) the performance obligation is satisfied

 

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 quarters ended February 28, 2019 and February 28, 2018 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:

 

Property and 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’s accounts are insured by the FDIC but, at times, may exceed federally insured limits. At February 28, 2019 no accounts exceeded FDIC limits.

 

  10  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

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 incurred were $1,900 and $237 included in general administrative expenses for the three months ended February 28, 2019 and February 28, 2018, respectively.

 

Fair Value of Financial Instruments

 

Financial assets and liabilities recorded at fair value in the Company’s condensed consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

 

  11  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

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.

 

Income Taxes

 

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 three months ended February 28, 2019 and February 28, 2018. 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 quarters ended February 28, 2019 and February 28, 2018.

 

  12  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

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.

 

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 1,145acres 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 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 Purebase. 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 a minimum 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 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.

 

  13  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

During the fiscal year ended November 30, assurance 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 currently back to $650,000 plus expenses.

 

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 February 28, 2019 and November 30, 2018. The Note is in default, however the Company continues to have discussions with the Note Holder to extend the Note under the same terms and conditions but no assurances can be provided that the Note Holder will agree to such terms.

 

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. As of February 28, 2019, this note had not been repaid and is currently in default.

 

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 payable on demand. The balance on the Note was $177,096 as of February 28, 2019 and 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

 

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.

 

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PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

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 the 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 end of the first quarter, 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 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 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 will need to pay Mr. Bremer, a director of both US Mine Corp and Purebase, the sum of $650,000 plus expenses, in order to obtain title to the Snow White Mine property.

 

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 February 28, 2019 there were no accounts which exceeded FDIC insurance limits.

 

  15  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

Note 6. Stockholder’s 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 February 28, 2019 and November 30, 2018.

 

Warrants and Option Awarded

 

Warrants Outstanding

 

There were no warrants issued or outstanding as of February 28, 2019.

 

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. The Option Plan was subsequently approved by shareholders on September 28, 2018. As of February 28, 2019, 50,000 options had been granted under the Option Plan.

 

The Company has also granted 500,000 options pursuant to employment contracts entered into by the Company and the respective employee.

 

There were no stock options granted during the three months ended February 28, 2019 or February 28, 2018.

 

Employee stock-based options compensation expenses for the three-month period ended February 28, 2019 and 2018 included in general and administrative expense totaled $51,279 and $49,909, 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.

 

  16  

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
FEBRUARY 28, 2019

 

The following is a schedule summarizing employee and non-employee stock option activity for the three months ended February 28, 2019:

 

   

Number of

Options

    Weighted Average Exercise Price     Aggregate Intrinsic Value     Weighted Average
Contractual terms
                       
Outstanding at December 1, 2018     550,000     $ 2.74     $ 0      
Granted     0     $ 0       0      
Exercised     0     $ 0       0      
Expired/Cancelled     0     $ 0       0      
Outstanding 2/28/19     550,000     $ 2.74     $ 0     7.25 years
Exercisable 2/28/19     400,000     $ 3.00     $ 0     7.01 years
Expected to vest 2/28/19     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.

 

As of February 28, 2019, the total unrecognized fair value compensation cost related to non-vested stock options to employees was approximately $10,945 which is expected to be recognized over approximately 7 months.

 

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 February 28, 2019.

 

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 $38,116 and $104,091 were rendered by USMC for the three-month period ended February 28, 2019 and 2018, respectively.

 

During the three-month period ended February 28, 2019, USMC paid $12,433 of expenses to the Company’s vendors and creditors on behalf of the Company and also made cash advances to the

Company of $212,000. The balance due to USMC is $3,931,824 and $3,669,275 at February 28, 2019 and November 30, 2018, 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 on demand. In 2018, the Company paid Mr. Docker $20,000 against his Note. As of February 28, 2019 the principal balance due on this Note of $177,096 had not been paid.

 

Purebase is using office space provided by U S Mine Corp, a company that is owned by the Company’s majority stockholders and Directors, A. Scott Dockter and John Bremer. There is currently no lease between the two Companies and US Mine Corp does not charge rent for the use of the office space provided.

 

  17  

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO. IN ADDITION, MATERIAL EVENTS DESCRIBED BELOW UNDER “OTHER INFORMATION” OCCURRING AFTER THE QUARTER ENDED FEBRUARY 29, 2016 WILL HAVE A MATERIAL IMPACT ON THE COMPANY’S FUTURE BUSINESS.

 

Cautionary Note About Forward-Looking Statements :

 

THIS FORM 10-Q INCLUDES “FORWARD-LOOKING” STATEMENTS ABOUT FUTURE FINANCIAL RESULTS, FUTURE BUSINESS CHANGES AND OTHER EVENTS THAT HAVE NOT YET OCCURRED. FOR EXAMPLE, STATEMENTS LIKE THE COMPANY “EXPECTS,” “ANTICIPATES” OR “BELIEVES” ARE FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD BE AWARE THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE COMPANY’S EXPRESSED EXPECTATIONS BECAUSE OF RISKS AND UNCERTAINTIES ABOUT THE FUTURE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE INFORMATION IN THIS FORM 10-Q IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. DETAILS ABOUT RISKS AFFECTING VARIOUS ASPECTS OF THE COMPANY’S BUSINESS ARE DISCUSSED THROUGHOUT THIS FORM 10-Q AND SHOULD BE CONSIDERED CAREFULLY.

 

Current Plan of Operations

 

Purebase Corp. (“the Company, “we” or “us”), and its wholly-owned subsidiary, Purebase Agricultural, Inc. (“Purebase Ag”) is in the business of pursuing interests in the field of industrial minerals and natural resources. The Company is engaged in the identification, acquisition, exploration, development, mining and full-scale exploitation of its industrial and natural mineral properties in the United States. The Company is a diversified, industrial mineral and natural resource company working to provide solutions to the agriculture and construction materials markets. The Company’s business is currently divided into two divisions, “Purebase Agricultural, Inc.” to develop agricultural specialized fertilizers, minerals and bio-stimulants for organic and sustainable agriculture. Purebase Build “SCM” 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.

 

Results of Operation

 

We have included a discussion and analysis of the Company’s current consolidated operations for the quarter ending February 28, 2019 as compared to the Company’s previous consolidated operations for the quarter ending February 28, 2018.

 

Overview

 

During the current fiscal quarter ended February 28, 2019, the Company generated revenue of $47,250. Total assets increased slightly from $227,378 as of November 30, 2018 to $245,763 as of February 28, 2019. Total liabilities increased from $5,220,989 at November 30, 2018 to $5,525,986 at February 28, 2019 reflecting an increase of $304,997.

 

  18  

 

 

Results of Operations for the fiscal quarter ended February 28, 2019 compared to the quarter ended February 28, 2018

 

The Company’s operating results for the quarters ended February 28, 2019 and February 28, 2018 are summarized as follows:

 

    Quarter Ended     Quarter Ended  
      2/28/19       2/28/18  
Revenue   $ 47,250     $ 124,491  
Operating Expenses   $ 369,355     $ 601,060  
Other Income (Expense)     (15,786 )     (21,408 )
Net Loss   $ 337,891     $ 497,977  

 

Revenue

 

Since inception the Company and its subsidiary Purebase Agricultural, Inc. have generated only minimal revenue from operations with revenues commencing during the second quarter of FY 2016. Revenues decreased during the current fiscal quarter to $47,250 compared to $124,491 for the comparable fiscal quarter last year. The decrease is attributable to lower demand for the Company’s agricultural products during the quarter.

 

Operating Costs and Expenses

 

Total operating expenses for the Company for the fiscal quarter ended February 28, 2019 were $369,355 compared to $601,060 of expenses incurred for the fiscal quarter ended February 28, 2018. This decrease is attributed to a significant decrease in general and administrative expenses of $171,205.

 

General and administrative costs for the Company for the three months ended February 28, 2019 were $314,540 and the general and administrative costs for the same period in 2018 were $485,745. The decrease in general and administrative expenses is attributed to the decreases in expenses incurred due to reduced staff and the conclusion of the Durand litigation. Included in G&A expenses are professional fees for the fiscal quarter ended February 28, 2019 which were $98,983 compared to professional fees of $200,917 for the same quarter in 2018. The decrease in professional fees is attributed to the decrease in legal expenses due to the conclusion of litigation related to the Durand litigation.

 

Product fulfillment and exploration and mining expenses for the three months ended February 28, 2019 were $54,815 compared to $15,315 of such expenses incurred during the same period in 2018. The decrease in product fulfillment and exploration and mining costs is the result of costs attributable to the decreased revenues of the Company’s agricultural products.

 

The Company’s interest expense decreased to $15,786 for the quarter ended February 28, 2019 compared to $21,408 for the fiscal quarter ended February 28, 2018. The decrease was due to reduced interest paid on payroll taxes.

 

Net Loss

 

The Company incurred a net loss of $337,891 for the fiscal quarter ended February 28, 2019 compared to the Company’s net loss of $497,977 for the fiscal quarter ended February 28, 2018, a decrease of 32%. The decrease in net loss is the result of the decrease in operating expenses during the quarter ended February 28, 2019.

 

  19  

 

 

Liquidity and Capital Resources

 

At February 28, 2019, the Company’s cash balance was $32,326 and it had a working capital deficit of $5,482,732. The Company has insufficient cash on hand to pursue its current or long range business plan and the Company will be required to raise additional capital to fund its operations. Until we are able to establish a sufficient revenue stream from operations our ability to meet our current financial liabilities and commitments will be primarily dependent upon the continued advances from USMC, investments from new or existing investors or loans from existing stockholders and management or outside capital sources. During the three-month period ended February 28, 2019, the Company was primarily reliant for its working capital needs on advances and support from USMC which aggregated $262,550 for the three-month period ended February 28, 2019. Management believes that our current cash and cash equivalents will not be sufficient to meet our working capital requirements for the next twelve-month period. We have had negative cash flow from operating activities as we have not yet begun to generate sufficient revenues from mineral production or product sales to offset operating expenses. The Company plans to raise the capital required to satisfy its immediate short-term needs and additional capital required to meet its estimated funding requirements for the next twelve months primarily through additional advances from USMC, the private placement of Company equity securities, by way of loans, and through such other financing transactions as the Company may determine.

 

We expect further exploration and development of our current or future projects and the sale of our agricultural products to continue generating sales revenues, but we do not expect revenues from these activities to cover our entire current operating expenses which we expect to increase as we implement our business plan. Consequently, we will be dependent on outside sources of capital to sustain our operations and implement our business plan until operating revenues are sufficient to cover our operating expenses. If we are unable to raise sufficient capital we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate. Even if we are able to secure outside financing, it may not be available in the amounts or times when we require or on terms we find acceptable. Furthermore, such financing would likely take the form of bank loans, private placements of debt or equity securities or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, lines of credit or long-term debt by the Company would increase its cash flow requirements and possible loss of valuable assets if such obligations were not repaid in accordance with their terms.

 

Going Concern

 

The consolidated financial statements presented in this quarterly report have been prepared under the assumption that the Company will continue as a going concern. The Company had net operating losses of $337,891 and $497,977 during the first fiscal quarters of 2019 and 2018, respectively. The Company had a working capital deficiency of $5,482,732 at February 28, 2019. The Company did not have sufficient cash at February 28, 2019 to fund normal operations for the next 12 months. The Company has realized modest revenues and its ability to continue as a going concern is dependent on the Company’s ability to raise capital to fund its future product development and sales as well as working capital requirements. The Company’s plans for the long-term attainment and continuation as a going concern include financing the Company’s future operations through outside capital advances from USMC, sales of its common stock, entering into debt or line of credit facilities, generating increasing revenue from the sale of agricultural production and sales activities and the eventual profitable exploitation of its mineral resource properties. There is no assurance that the Company will be able to obtain funds from any of these potential sources of capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently investigating a number of alternatives for raising additional capital with potential investors, lenders and joint venture partners.

 

  20  

 

 

Financings

 

During the first quarter of FY 2019 our operations have been funded by short-term loans and advances from affiliates. All of our equity funding has come from the private placement of our securities while loans and advances have been obtained from related parties.

 

Debt Financing During the Quarter

 

None

 

Issuance of Common Stock During the Quarter

 

No shares of the Company’s common stock were issued during the fiscal quarter ended February 28, 2019.

 

Contractual Obligations

 

Tabular Disclosure of Contractual Obligations as of February 28, 2019:

 

Contractual Obligations                              
          Payment due by period  
    Total     Less than
1 year
    1-3 years     3-5 years     More than
5 years
 
                               
Long-Term Debt Obligations   $ 1,025,000       1,025,000       -0-       -0-       -0-  
                                         
Mineral Lease Obligations     30,012       7,503       15,006     $ 7,503     $ 0  
                                         
Total   $ 1,055,012     $ 1032,503     $ 15,006     $ 7,503     $ 0  

 

Off-Balance Sheet Arrangements

 

As of the end of the quarter we had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Basis of Presentation and Going Concern

 

The condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

 

The Company has incurred a net loss of $337,891 for the three months ended February 28, 2019 and had a total accumulated deficit of $5,280,223 as of February 28, 2019.

 

  21  

 

 

During the quarter ended February 28, 2019 the Company had minimal recurring revenue-generating operations. For the Company to continue as a going concern it will continue to be dependent on fund raising for project development, product marketing and payment of general and administration expenses until significant revenue-generating operations are achieved. The Company has no commitment from any party to provide additional working capital and there is no assurance that such funding will be available if needed, or if available, that its terms will be favorable or acceptable to the Company.

 

The Company’s condensed consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As of the end of the period covered by this Report, the Company’s President, and principal financial officer (the “Certifying Officers”), evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Certifying Officers concluded that, as of the date of the evaluation, the Company’s disclosure controls and procedures were currently ineffective in providing reasonable assurance that the information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management to allow timely decisions regarding required disclosure.

 

Management has identified three material weaknesses and is taking action to remedy and remove the weakness in its internal controls over financial reporting:

 

  Lack of an independent financial expert on the Board. The current board of directors now includes a majority of non-employee Directors however the Board still lacks an independent financial expert. The current board is composed of five members and may be expanded to as many as nine members under the Company’s By-Laws.
  Lack of adequate accounting resources and adequate segregation of duties over various accounting and reporting functions. The Company plans to diversify some of the CFO’s current functions in order to achieve adequate segregation of duties over various accounting and reporting functions.
  Lack of adequate oversight/approval of transactions with related parties of the Company. In order to partially address this issue, the Board consented to appointing its two independent directors, Messrs. Swett and Lim, as “Negotiators” to negotiate any transactions on behalf of the Company with affiliated entities or where a conflict of interest may be present. The Company intends to adopt additional procedures for disbursing funds to officers and affiliates of the Company.

 

Changes in Internal Control Over Financial Reporting.

 

The Certifying Officers have indicated that in order to address the material weakness of adequate oversight/approval of transactions with related parties of the Company, the Board of Directors requires that any transactions involving affiliates of the Company, such as US Mine Corp, or where a conflict of interest may be present, must be reviewed and approved by the Board’s two independent Directors, Messrs. Swett and Lim. Other than as noted above, there were no corrective actions with regard to significant deficiencies and material weaknesses.

 

  22  

 

 

Our management, including the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On January 11, 2019 the Company filed a Complaint in the Nevada District Court for Washoe County (Case # CV19-00097) against Agregen International Corp and Robert Hurtado. The Complaint alleges misuse of proprietary and confidential information acquired by Mr. Hurtado while employed by Purebase as VP of Agricultural Research and Development. Mr. Hurtado was terminated in March, 2018 and since that time the Company alleges he formed and has conspired with Agregen Intl. Corp 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 monetary damages. Subsequent to the end of the first quarter, on March 14, 2019 Agregen and Mr. Hurtado filed their Answer. The case is in its early stages with the next step being an Early Case Conference.

 

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. A settlement conference is currently scheduled for early May, 2019. The Company intends to vigorously defend this lawsuit.

 

Subsequent to the end of the first quarter, 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 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 Complaint alleges breach of contract, misrepresentations, fraudulent concealment and unfair competition. The Complaint makes a demand of approximately $300,000. The Company does not believe it was responsible for the mis-labelling and, therefore, intends to vigorously defend this legal action.

 

ITEM 1A. - RISK FACTORS

 

As of the end of the quarter, there were no changes to our risk factors from those disclosed in our annual report on Form 10-K filed with the SEC on March 15, 2019.

 

  23  

 

 

ITEM 2. - UNREGISTERED SALES OF EQUITY SECURITIES

 

During the quarter ended February 28, 2019, there were no unregistered sales of the Company’s securities.

 

ITEM 3. - DEFAULTS UPON SENIOR SECURITIES

 

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 principal and accrued interest balance of the note was $1,204,403 at February 28, 2019. 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 but no assurances can be provided that the Note Holder will agree to such terms.

 

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. As of February 28, 2019, the amount due of $29,512 on this note had not been repaid and is currently in default.

 

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 as of that date. The Note to Mr. Dockter bears interest at 6% and is due on demand. In 2018, the Company paid Mr. Docker $20,000 against his Note. As of February 28, 2019 the balance due on this Note including accrued interest was $197,899.

 

ITEM 4. - MINE SAFETY DISCLOSURES

 

There are no mine safety violations or other regulatory matters required to be disclosed which occurred during the fiscal quarter covered by this report.

 

ITEM 5. - OTHER INFORMATION

 

On March 15, 2019 the employment agreement with the Company’s CFO, Al Calvanico, was extended for an additional six months.

 

ITEM 6. EXHIBITS

 

The following documents are filed as exhibits to this report:

 

  31.1 Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).
     
  31.2 Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).
     
  32.1 Certification of Chief Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

 

  24  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  PUREBASE CORPORATION
   
Dated: April 12, 2019 /s/ A. Scott Dockter
  A. Scott Dockter
  Chief Executive Officer
   
Dated: April 12, 2019 /s/ Al Calvanico
  Al Calvanico
  Chief Financial Officer

 

  25  

 

 

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