NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 – organization and business operations
Corporate
History
PureBase
Corporation (the “Company”) was incorporated in the State of Nevada on March 2, 2010, under the name Port of Call
Online, Inc. to create a web-based service that would offer boaters an easy, convenient, fun, easy to use, online resource to
help them plan and organize their boating trips. Pursuant to a corporate reorganization consummated on December 23, 2014, the
Company changed its business focus to an exploration, mining and product marketing company engaged in identifying and developing
advanced stage natural resource projects which, the Company believes, show potential to achieve full production. Effective January
12, 2015, the Company amended its articles of incorporation to change its name to PureBase Corporation. The Company, through its
wholly-owned operating subsidiaries PureBase Agricultural, Inc., a Nevada corporation, (“PureBase AG”) and U.S. Agricultural
Minerals, LLC, a Nevada limited liability company (“USAM”) is engaged in the identification, acquisition, exploration,
development, mining and full-scale exploitation of industrial and natural mineral properties in the United States for the
agriculture and construction materials markets. On the agricultural side, the Company’s business is to develop agricultural
specialized fertilizers, minerals and bio-stimulants for organic and sustainable agriculture. On the construction side, the Company
intends to focus on developing construction sector-related products such as cements. The Company intends to provide for
distribution of its products into each industry related market.
The
Company is headquartered in Ione, California.
Business
Overview
PureBase
is a diversified, industrial mineral and natural resource company working to provide solutions to the agriculture and construction
materials markets. In addition, the Company intends to focus on identifying and developing other advanced stage natural resource
projects in support of its agricultural business. PureBase’s business is currently divided into two divisions: “PureBase
AG” to develop agricultural specialized fertilizers, minerals and biostimulants for organic and sustainable agriculture
and “USAM” which will be focused on developing construction sector related products such as cements.
The
Company’s initial focus is on the organic agricultural market sectors. The Company has developed and will seek to develop
additional products derived from mineralized materials of Leonardite, Kaolin Clay, Laterite, Potassium Silicate Sulfate, and other
natural minerals. These important minerals and soil amendments are used in the agricultural industry to protect crops, plants
and fruits from the sun and winter damage, to provide nutrients to plants, and to improve dormancy and soil ecology to help farmers
increase the yields of their harvests.
The
Company utilizes the services of US Mine Corporation (“USMC”), a private company and a significant shareholder of
the Company focusing on the development and contract mining of industrial mineral and metal projects throughout North America,
to perform exploration drilling, preparation of feasibility studies, mine modeling, on-site construction, mine production, and
mine site reclamation. Exploration services also include securing necessary permits, environmental compliance, and reclamation
plans. In addition, a substantial portion of the minerals to be utilized by the Company is obtained from properties owned or controlled
by USMC of which Scott Dockter and John Bremer are officers, directors, and owners.
The
Company is building a brand family under the parent trade name, “PureBase”, consisting of three primary product lines:
PureBase Shade Advantage WP, PureBase SulFi Hume Si Advantage, and PureBase Humate INU Advantage.
NOTE
2 – GOING CONCERN AND LIQUIDITY
The
accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern,
which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At May 31, 2020,
the Company had a significant accumulated deficit of approximately $11.6 million and working capital deficit of approximately
$918,000. For the six months ended May 31, 2020, the Company had a loss from operations of approximately $350,000 and negative
cash flows from operations of approximately $396,000. The Company’s operating activities consume the majority of its cash
resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans for 2020,
as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have
negative cash flows from operations, at least into the near future. The Company has previously funded these losses primarily from
additional infusions of cash from advances from an affiliate and the sale of equity and convertible notes. The accompanying consolidated
financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going
concern.
The
Company’s plan, through the continued promotion of its services to existing and potential customers, is to generate sufficient
revenues to cover its anticipated expenses. The Company is currently exploring several options to meet its short-term cash requirements,
including issuances of equity securities or equity-linked securities from third parties. Although no assurances can be given as
to the Company’s ability to deliver on its revenue plans or that unforeseen expenses may arise, management believes that
the revenue expected to be generated from operations, together with potential equity and debt financing or other potential financing,
will provide the necessary funding for the Company to continue as a going concern. However, management cannot guarantee any potential
debt or equity financing will be available, or if available, on favorable terms.
As
such, these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve
months from the issue date of this report. If adequate funds are not available on acceptable terms, or at all, the Company will
need to curtail operations, or cease operations completely.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information
furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments, unless otherwise indicated)
which are, in the opinion of management, necessary to fairly state the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations.
These financial statements and the information included under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” should be read in conjunction with the audited financial statements and explanatory
notes for the year ended November 30, 2019 in our Form 10-K filed on February 28, 2020 with the SEC. The results of the six months
ended May 31, 2020 (unaudited) are not necessarily indicative of the results to be expected for the full year ending November
30, 2020.
Principles
of Consolidation
These
unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries PureBase
AG and USAM. Intercompany accounts and transactions have been eliminated upon consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and equity-based transactions at the date of the financial statements and the revenues
and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation
of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the allowance for doubtful
accounts, useful lives of property and equipment, deferred tax asset and valuation allowance, assumptions used in Black-Scholes-Merton,
or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Revenue
The
Company derives revenues from the sale of its agricultural products. The Company’s contracted transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s
contracts have a single performance obligation which are not separately identifiable from other promises in the contracts and
is, therefore, not distinct. The Company’s performance obligation is satisfied upon the transfer of risk of loss to the
customer, which occurs when the product is shipped from the Company’s warehouse.
Practical
Expedients
As
part of ASC Topic 606, the Company has adopted several practical expedients including that the Company has determined that it
need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects,
at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer
pays for that service will be one year or less.
Disaggregated
Revenue
Revenue
consists of the following by product offering for the six months ended May 31, 2020:
Soil Advantage
|
|
|
Humate INU Advantage
|
|
|
Shade Advantage (WP)
|
|
|
SulFe Hume Si Advantage
|
|
|
Solu-Sul
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
6,129
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,129
|
|
Revenue
consists of the following by product offering for the six months ended May 31, 2019:
Soil Advantage
|
|
|
Humate INU Advantage
|
|
|
Shade Advantage (WP)
|
|
|
SulFe Hume Si Advantage
|
|
|
Solu-Sul
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
47,250
|
|
|
$
|
46,500
|
|
|
$
|
92,708
|
|
|
$
|
-
|
|
|
$
|
186,458
|
|
Cash
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
There are no cash equivalents as of May 31, 2020 or May 31, 2019.
Account
Receivable
The
Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. If collectability
of an account becomes unlikely, an allowance is recorded for that doubtful account. As of and for the six months ended May 31,
2020 and May 31, 2019, the Company has determined that an allowance of $11,137 for doubtful accounts was necessary.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the
related assets, generally three to five years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated.
Equipment
|
3-5
years
|
Autos
and trucks
|
5
years
|
Maintenance
and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, the
cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected
in operations.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net
cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to
recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the
operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature
of the assets. No impairment losses were recorded during the three and six months ended May 31, 2020 and May 31, 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 as the Company exits the Exploration Stage
by establishing proven or probable reserves. Expenditures relating to exploration activities such as drill programs to establish
mineralized materials are expensed as incurred. Expenditures relating to pre-extraction activities are expensed as incurred until
such time proven or probable reserves are established for that project, after which expenditures relating to mine development
activities for that particular project are capitalized as incurred. There were no costs related to exploration activities for
the three and six months ended May 31, 2020 and May 31, 2019.
Mineral
Rights
Acquisition
costs of mineral rights are capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred
until such time as the Company exits the exploration stage by establishing proven or probable reserves, as defined by the SEC
under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study. Expenditures
relating to exploration activities are expensed as incurred and expenditures relating to pre-extraction activities are expensed
as incurred until such time proven or probable reserves are established for that project, after which subsequent expenditures
relating to development activities for that particular project are capitalized as incurred.
Where
proven and probable reserves have been established, the project’s capitalized expenditures are depleted over proven and
probable reserves upon commencement of production using the units-of-production method. Where proven and probable reserves have
not been established, such capitalized expenditures are depleted over the estimated production life upon commencement of extraction
using the straight-line method.
The
carrying values of the mineral rights are assessed for impairment by management on a quarterly basis or when indicators of impairment
exist. Should management determine that these carrying values cannot be recovered, the unrecoverable amounts are written off against
earnings. Total capitalized costs related to mineral rights were $200,000 as of May 31,
2020 and May 31, 2019.
Shipping
and Handling
The
Company incurs shipping and handling costs which are charged back to the customer. The net amounts incurred were $180 and $0 included
in general administrative expenses for the three and six months ended May 31, 2020 and May 31, 2019, respectively.
Advertising
and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $490 and $2,052
for the three and six months ended May 31, 2020 and $0 for the three and six months ended May 31, 2019 and are recorded in selling,
general and administrative expenses on the statement of operations.
Fair
Value Measurements
As
defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement
framework applies at both initial and subsequent measurement.
Level
1:
|
Quoted
prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those
in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities
and listed equities.
|
|
|
Level
2:
|
Pricing
inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well
as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the
full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions
are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity
swaps, interest rate swaps, options and collars.
|
|
|
Level
3:
|
Pricing
inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with
internally developed methodologies that result in management’s best estimate of fair value.
|
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the
short-term maturity of these instruments. The carrying amount of notes approximates the estimated fair value for these financial
instruments as management believes that such notes constitute substantially all of the Company’s debt and interest payable
on the notes approximates the Company’s incremental borrowing rate.
Net
Loss Per Common Share
Net
loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during
the year. All vested outstanding options are considered potential common stock. The dilutive effect, if any, of stock options
are calculated using the treasury stock method. Since the effect of common stock equivalents is anti-dilutive with respect to
losses, the options have been excluded from the Company’s computation of net loss per common share for the three and six
months ended May 31, 2020 and May 31, 2019.
The
following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including
these potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less
than the average market price of the common shares:
|
|
Six Months Ended
|
|
|
|
May 31, 2020
|
|
|
May 31, 2019
|
|
|
|
|
|
|
|
|
Convertible Notes
|
|
|
1,112,500
|
|
|
|
-
|
|
Stock Options
|
|
|
550,000
|
|
|
|
550,000
|
|
Total
|
|
|
1,662,500
|
|
|
|
550,000
|
|
|
|
Three Months Ended
|
|
|
|
May 31, 2020
|
|
|
May 31, 2019
|
|
|
|
|
|
|
|
|
Convertible Notes
|
|
|
1,112,500
|
|
|
|
-
|
|
Stock Options
|
|
|
550,000
|
|
|
|
550,000
|
|
Total
|
|
|
1,662,500
|
|
|
|
550,000
|
|
Stock-Based
Compensation
The
Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement
and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the
statements of operations.
For
stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date
fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires
management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent
with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock. For awards subject
to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation
expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which
is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant
and revised.
Pursuant
to ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,
the Company accounts for stock options issued to non-employees for their services in accordance ASC 718. The Company uses valuation
methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted
above.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including
tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The
Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements
or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between
the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance
is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
For
uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain
tax positions in the unaudited condensed consolidated financial statements. The Company’s practice is to recognize interest
and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements
of operations.
Recent
Accounting Pronouncements
In
January 2017, FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment, which eliminated the calculation of implied goodwill fair value. Instead, companies will record
an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. This guidance
simplifies the accounting as compared to prior US GAAP. The guidance is effective for fiscal years beginning after December 15,
2019. The Company does not expect the implementation of this new pronouncement to have a material impact on its consolidated financial
statements.
All
other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the
Company.
NOTE
4 – MINING RIGHTS
Federal
Preference Rights Lease in Esmeralda County, NV
This
Preference Rights Lease is granted by the Bureau of Land Management (“BLM”) covering approximately 2,500 acres of
land located in the Mount Diablo Meridian area of Nevada. Contained in the leased property is the Chimney 1 Potassium/Sulfur Deposit
which consists of 15.5 acres of land fully permitted for mining operation which is situated within the 2,500 acres held by the
Company. All rights and obligations under the Preference Rights lease have been assigned to the Company by USMC. These rights
are presented at their cost of $200,000. This lease requires a payment of $7,503 per year to the BLM.
Snow
White Mine located in San Bernardino County, CA – Deposit
On
April 1, 2020, the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust, a related party
through 19% beneficial ownership of the Company, pursuant to which the Company will purchase the Snow White Mine for a purchase
price of $836,000 (the “Purchase Price”). The Purchase Price plus 5% interest shall be payable in full in cash at
the closing date. The closing date can be completed any time before April 1, 2022. As of May 31, 2020, the Company has yet to
close on the purchase.
NOTE
5 – NOTES PAYABLE
Bayshore
Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note in the principal amount of $25,000 to Bayshore Capital Advisors, LLC,
an affiliate through common ownership of a 10% major shareholder of the Company, for $25,000 for working capital. The note bears interest at the rate of 6% per annum and was payable August 26, 2016, or when the Company
closes a bridge financing, whichever occurs first. The Company is in default on this note as of May 31, 2020. The balance on the
note was $25,000 as of May 31, 2020 and November 30, 2019, respectively See (Note 10). Total interest expense on the note was
$370 and $752 for the three and six months ended May 31, 2020 and May 31, 2019, respectively.
A.
Scott Dockter – President and Chief Executive Officer
On
August 31, 2017, the Company issued a note in the amount of $197,096 to A. Scott Dockter, President, Chief Executive Officer and
a director of the Company, to consolidate the total amounts due to Mr. Dockter. The note to Mr. Dockter bears interest at 6% and
is due upon demand. During the year ended November 30, 2019, the Company repaid $44,500 towards the balance of the note. The balance
on the note was $127,816 and $132,596 as of May 31, 2020 and November 30, 2019, respectively (See Note 10). Total interest expense
on the note was $2,916 and $4,834 for the three and six months ended May 31, 2020 and May 31, 2019, respectively.
Convertible
Promissory Notes - USMC
December
1, 2019
On
December 1, 2019, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note
10), the Company issued a two-year convertible promissory note in the amount of $20,000 to USMC, with a maturity date of December
31, 2021 (“Tranche #1”). The note bears interest at 5% per annum which is also payable on maturity. Amounts due under
the note may be converted into shares of the Company’s common stock, $0.001 par value, at any time at the option of the
holder, at a conversion price of $0.16 per share.
The
issuance of Tranche #1 resulted in a discount from the beneficial conversion feature totaling $20,000. Total straight-line amortization
of this discount totaled $2,365 and $4,783 during the three and six months ended May 31, 2020, respectively. Total interest expense
on Tranche #1 was approximately $250 and $500 for the three and six months ended May 31, 2020, respectively.
January
1, 2020
On
January 1, 2020, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note
10), the Company issued a two-year convertible promissory note in the amount of $86,000 to USMC, with a maturity date of January
1, 2022 (“Tranche #2”). The note bears interest at 5% per annum which is also payable on maturity. Amounts due under
the note may be converted into shares of the Company’s common stock, $0.001 par value, at any time at the option of the
Holder, at a conversion price of $0.16 per share.
The
issuance of Tranche #2 resulted in a discount from the beneficial conversion feature totaling $32,250. Total straight-line amortization
of this discount totaled $2,603 and $6,662 during the three and six months ended May 31, 2020, respectively. Total interest expense
on Tranche #2 was approximately $700 and $1,780 for the three and six months ended May 31, 2020, respectively.
February
1, 2020
On
February 1, 2020, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note
10), the Company issued a two-year convertible promissory note in the amount of $72,000 to USMC, with a maturity date of February
1, 2022 (“Tranche #3”). The note bears interest at 5% per annum which is also payable on maturity. Amounts due under
the note may be converted into shares of the Company’s common stock, $0.001 par value, at any time at the option of the
Holder, at a conversion price of $0.16 per share.
The
issuance of Tranche #3 resulted in a discount from the beneficial conversion feature totaling $36,000. Total straight-line amortization
of this discount totaled $1,379 and $5,910 during the three and six months ended May 31, 2020, respectively. Total interest expense
on Tranche #3 was approximately $275 and $1,200 for the three and six months ended May 31, 2020, respectively.
NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following amounts:
|
|
May 31, 2020
|
|
|
November 30, 2019
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
94,007
|
|
|
$
|
265,449
|
|
Accrued interest – related party
|
|
|
35,353
|
|
|
|
44,846
|
|
Accrued compensation
|
|
|
39,025
|
|
|
|
33,930
|
|
Bank overdraw
|
|
|
53,796
|
|
|
|
-
|
|
Accounts payable and accrued expenses
|
|
$
|
222,181
|
|
|
$
|
344,225
|
|
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Office
and Rental Property Leases
The
Company is using office space provided by USMC, a related party that is owned by the Company’s majority shareholders and
directors A. Scott Dockter and John Bremer. There is currently no lease for use of such office space.
Mineral
Properties
The
Company’s mineral rights require various annual lease payments (See Note 5).
Legal
Matters
On
September 21, 2016 the Company terminated its employment agreement with its then President, David Vickers (“Vickers”).
Subsequently, Vickers alleged claims of age discrimination, fraud in the inducement, violation of California Labor Code §970
and breach of contract against the Company. On April 14, 2017 the Company was served with a demand for arbitration of the above
referenced claims. The arbitration proceeding is being handled by the Judicial Arbitration and Mediation Services, Inc. On June
5, 2018 the parties participated in a voluntary mediation but were unable to reach a resolution. The arbitration proceeding, based
on Vickers’ demand for arbitration, was held August 6, 2019 to August 8, 2019. An interim-preliminary decision has been
rendered in connection with the arbitration, however, the final award has not yet been fully determined. Although the evidentiary
hearing has been completed, the parties have filed supplemental briefs. Oral arguments commenced on June 4, 2020 and the Company
is currently in negotiations regarding those supplemental briefs. The Company believes its potential exposure to be
approximately $475,000, plus potential pre-and-post judgment interest. While the Company believes the potential liability is estimated
to the above, there is, however, the potential for the Arbitrator to render a ruling where the Company could be liable for more,
or less. On January 20, 2020, the Company paid Vickers an initial $50,000 towards the estimated liability noted above.
On
August 30, 2018, the Company was named as a defendant in a complaint filed by Tessenderlo Kerley, Inc. (“Tessenderlo”)
alleging trademark infringement relating to the plaintiff’s trademark PURSHADE and the Company’s product PureBase
Shade Advantage. The Company filed its answer on September 21, 2018, denying the allegations set forth in the complaint. A settlement
conference was held on June 11, 2019. The Company entered into a Settlement Agreement and Release (the “Settlement Agreement”)
with Tessenderlo effective July 8, 2019. Pursuant to the Settlement Agreement, the Company agreed, among other requirements for
dissemination of information with its product, to make various changes to the packaging of its PureBase Shade Advantage products
relating to the visual representation of the product’s names. Under the Settlement Agreement, each party fully released
the other party from all existing claims and liabilities. There were no monetary damages as part of the Settlement Agreement.
As a result of the Settlement Agreement, the case was dismissed on July 9, 2019. The settlement provided for the Company to make
changes to its Shade Advantage product, to refrain from making certain claims about Shade Advantage, to make certain disclosures
about the Shade Advantage product, and to provide internal training and policies about those actions. There was no monetary payment
as part of the settlement and each party bore its own attorney fees. On January 16, 2020, counsel for Tessenderlo sent a letter
asserting that PureBase had not complied with some of its obligations under the settlement and invoking the arbitration provision
of the settlement agreement. The parties have been in negotiation to resolve the matter without the necessity of arbitration.
On February 25, 2020, Tessenderlo offered a standstill of the arbitration until April 5, 2020 to give the Company time to make
additional changes to the packaging and remove existing inventory from the market. The Company has reported to counsel that it
has made those changes. Tessenderlo has agreed that if the Company certifies and provides documentary evidence demonstrating that
it has fully complied with its obligation as set forth in the original Settlement Agreement and in the standstill agreement, and
Tessenderlo is able to confirm the same within five business days of the Company’s certification/documentation of full compliance,
the arbitration will be dismissed. The Company complied with all of the items requested and, on April 8, 2020, the arbitration
was dismissed.
On
January 11, 2019, the Company filed a complaint in the Nevada District Court for Washoe County (Case # CV19-00097) against Agregen
International Corp (“Agregen”) and Robert Hurtado (“Hurtado”) alleging the misuse of proprietary and confidential
information acquired by Hurtado while employed by the Company as VP of Agricultural Research and Development. Hurtado was terminated
in March 2018 and since that time the Company alleges that he conspired with Agregen to improperly use proprietary and confidential
information to compete with the Company which constitute breaches of the non-compete and confidentiality provisions of his employment
agreement with the Company. The Company is seeking $100,000,000 in monetary damages. On March 14, 2019, Agregen and Hurtado filed
an answer to the Company’s complaint that the allegations were false. An Early Case Conference was held on April 26, 2019
and a pre-trial conference was held on July 10, 2019. On March 13, 2020, the Company filed its First Amended Complaint in this
lawsuit, adding Todd Gauer and John Gingerich, former board members of the Company, as additional defendants. A default has been
taken against Mr. Gingerich, and the Company is in the process of serving Mr. Gauer. Trial is scheduled for June 21, 2021.
On
March 29, 2019, the Company was served with a complaint filed by Superior Soils Supplements LLC (“Superior Soils”)
relating to 64 truckloads of soil amendments delivered to a customer by the Company on behalf of Superior Soils. Superior Soils
alleged that the soil amendments were not labeled correctly requiring the entire shipment of product to be returned to the Company.
The complaint alleges breach of contract, misrepresentations, fraudulent concealment and unfair competition. The complaint seeks
damages of approximately $300,000. The Company filed its answer on May 6, 2019, denying responsibility for the mis-labelling and
denying any liability for damages therefrom. The parties are currently in ongoing settlement negotiations.
Contractual
Matters
On
November 1, 2013, we entered into an agreement with USMC, a related party, in which USMC performs services relating to various
technical evaluations and mine development services for the Company with regard to the various mining properties/rights owned
by the Company. Terms of services and compensation will be determined for each project undertaken by USMC.
On
October 12, 2018 the Company’s board of directors approved a material supply agreement with USMC, a related party, pursuant
to which USMC will provide designated natural resources to the Company at predetermined prices (See Note 10).
Resignation
of Directors
Effective
April 8, 2020, Calvin Lim resigned as a member of the Board of Directors (the “Board”) of the Company. His resignation
was not the result of any dispute or disagreement with the Company or the Board on any matter relating to the operations, policies,
or practices of the Company.
Appointment
of Directors
The
Company entered into a twelve-month director agreement with Mr. Jeffrey Guzy (“Guzy”), effective as of April 8, 2020,
(the “Director Agreement”). Pursuant to the Director Agreement, Guzy will be entitled to $1,000 per month, which will
accrue as debt until the Company has its first cash flow positive month. Upon the termination of the initial term of the Director
Agreement or Guzy’s earlier removal or resignation, such accrued amount will be paid in common stock of the Company at a
conversion rate of the lower of $0.15 per share of the 20-day volume weighted average price from the last date Guzy was on the
board. Guzy was also granted an immediately exerciseable five-year option to purchase 250,000 shares of common stock at
an exercise price of $0.10 per share. Guzy was appointed as the chairman of the Audit Committee
and the Compensation Committee.
Note
8 – StocK-BASED COMPENSATION
The
Company accounted for its stock-based compensation in accordance with the fair value recognition provisions of FASB ASC Topic
718, “Compensation – Stock Compensation.”
2017
Equity Incentive Plan
On
November 10, 2017 the Company’s Board of Directors (the “Board”) approved the 2017 PureBase Corporation Stock
Option Plan which is intended to be a qualified stock option plan (the “Option Plan”). The Board reserved up to 10,000,000
shares of the Company’s common stock to be issued pursuant to options granted under the Option Plan. The Option Plan was
subsequently approved by shareholders on September 28, 2018. As of May 31, 2020, 50,000 options have been granted under the Option
Plan.
The
Company has also granted options to purchase an aggregate of 500,000 shares of common stock to certain employees pursuant to employment
contracts prior to the adoption of the Option Plan.
The
Company granted options to purchase an aggregate of 450,000 shares of common stock during the six months ended May 31, 2020.
There
were no stock options granted during the six months ended May 31, 2019.
The
weighted average grant date fair value of options granted and vested during the six months ended May 31, 2020 and 2019, was $23,905
and $27,088, respectively. The weighted average non-vested grant date fair value of non-vested options was $19,481 at May 31,
2020.
Compensation
based stock option activity for qualified and unqualified stock options are summarized as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at November 30, 2019
|
|
|
550,000
|
|
|
$
|
2.74
|
|
Granted
|
|
|
450,000
|
|
|
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at May 31, 2020
|
|
|
1,000,000
|
|
|
$
|
1.91
|
|
The
following table summarizes information about options to purchase shares of the Company’s common stock outstanding and exercisable
at May 31, 2020:
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Range of
|
|
|
Outstanding
|
|
|
Remaining Life
|
|
|
Exercise
|
|
|
Number
|
|
exercise prices
|
|
|
Options
|
|
|
In Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.099
|
|
|
|
200,000
|
|
|
|
3.86
|
|
|
$
|
0.99
|
|
|
|
-
|
|
|
0.10
|
|
|
|
250,000
|
|
|
|
4.86
|
|
|
|
0.10
|
|
|
|
250,000
|
|
|
0.12
|
|
|
|
50,000
|
|
|
|
8.32
|
|
|
|
0.12
|
|
|
|
50,000
|
|
|
3.00
|
|
|
|
500,000
|
|
|
|
5.75
|
|
|
|
3.00
|
|
|
|
500,000
|
|
|
|
|
|
|
1,000,000
|
|
|
|
5.38
|
|
|
$
|
1.91
|
|
|
|
800,000
|
|
The
compensation expense attributed to the issuance of the options is recognized as such options vest.
Stock
options granted under the Option Plan are exercisable for ten years from the grant date and vest over various terms from the grant
date to three years.
The
aggregate intrinsic value of the options totaled $0 and was based on the Company’s closing stock price of $0.10 as of May
31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.
On
April 8, 2020, the Company granted a director an option to purchase 250,000 shares of the Company’s common stock at an exercise
price of $0.10 per share and a fair value of $27,088. The options vest immediately at the grant date. The options were valued
using the Black-Scholes option pricing model under the following assumptions: stock price - $0.11; strike price - $0.10; expected
volatility – 305%; risk-free interest rate – 0.47%; dividend rate – 0%; and expected term – 2.50 years.
On
April 15, 2020, the Company granted two advisory board members options to purchase an aggregate of 200,000 shares of the Company’s
common stock at an exercise price of $0.10 per share and a fair value of $19,481. The options vest one year from the date of grant.
The options were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.099; strike
price - $0.10; expected volatility – 304%; risk-free interest rate – 0.34%; dividend rate – 0%; and expected
term – 2.50 years.
Total
compensation expense related to stock options was $30,335 for the three and six months ended May 31, 2020. Total compensation
expense related to stock options was $9,172 and $60,451 for the three and six months ended May 31, 2019, respectively. As of May
31, 2020, there was $16,234 in future compensation cost related to non-vested stock options.
NOTE
9 – RELATED PARTY TRANSACTIONS
Bayshore
Capital Advisors, LLC
On February 26, 2016, the Company issued a promissory note in the
principal amount of $25,000 to Bayshore Capital Advisors, LLC, an affiliate through common ownership of a 10% shareholder of the
Company. The note accrued interest at 6% per annum and was payable August 26, 2016, or upon the closing of a bridge financing by
the Company, whichever occurs first. The Company is in default on this note as of May 31, 2020.
US
Mine Corporation
The
Company entered into a contract mining agreement with USMC, a company owned by the majority stockholders of the Company, A. Scott
Dockter and John Bremer, pursuant to which USMC will provide various technical evaluations and mine development services to the
Company. During the three and six months ended May 31, 2020 and May 31, 2019, the Company made no purchases from USMC. There were
no services rendered by USMC to the Company for the three and six months ended May 31, 2020. Services totaling $31,747 and $43,036
were rendered by USMC for the three and six months ended May 31, 2019, respectively. In addition, USMC made no payments to the
Company’s vendors and creditors on behalf of the Company during the three and six months ended May 31, 2020. During the
three and six months ended May 31, 2019, USMC paid $690 and $271,059, respectively, of expenses to the Company’s vendors
and creditors on behalf of the Company. During the three and six months ended May 31, 2020 and May 31, 2019 USMC made cash advances
to the Company of $33,000 and $125,000 and $201,125 and $413,125, respectively, and which are recorded as part of due to affiliates
on the unaudited condensed consolidated balance sheets.
On
September 26, 2019, the Company entered into a securities purchase agreement with USMC pursuant to which USMC may purchase up
to $1,000,000 of the Company’s 5% unsecured convertible two-year promissory notes in one or more closings. The notes are
convertible into the Company’s common stock at a conversion price of $0.16 per share. As of February 29, 2020, USMC has
purchased such notes totaling $178,000 with maturity dates ranging from December 1, 2021 through February 1, 2022 (See Note 6).
Interest expense on these notes totaled $3,461 for the three and six months ended May 31, 2020 and are recorded as part of due
to affiliates on the unaudited condensed consolidated balance sheets. The outstanding balance due on the notes to USMC is $158,000
and $0 at May 31, 2020 and November 30, 2019, respectively.
On
April 9, 2020, USMC agreed to forgive of $150,257 in outstanding accounts payable from PureBase AG effective February 29, 2020.
The Company treated this as a capital contribution and recorded the forgiveness as an increase in additional paid in capital on
the unaudited condensed consolidated balance sheet at May 31, 2020.
On April 22, 2020,
the Company entered into a Material Supply Agreement (the “Supply Agreement”) with USMC which amended the prior
Materials Supply Agreement entered into on October 12, 2018. All kaolin clay purchased by the Company from USMC under the
Supply Agreement must be used exclusively for agricultural products and supplementary cementitious materials. Under the terms
of the Supply Agreement, the Company will pay $25 per ton for the kaolin clay for supplementary cementitious materials and $145
per ton for bagged products for clay for agriculture (in
each case plus an additional $5 royalty fee per ton). The Supply Agreement also provides that if USMC
provides pricing to any other customer which is more favorable than that provided to the Company, USMC shall adjust the cost to
the Company to conform to the more favorable terms. The initial term of the Agreement is three years, which automatically
renews for three successive one-year terms, unless either party provides notice of termination at least sixty days prior to the
end of the then current term. Either party has the right to terminate the Agreement for a material breach which is not cured
within 90 days.
The
Company is using office space provided by USMC rent-free. There is currently no lease for its use of such office space.
Transactions
with Officers
On
August 31, 2017, the Company issued a note in the amount of $197,096 to A. Scott Dockter, President, Chief Executive Officer and
a director of the Company to consolidate the total amounts due to Mr. Dockter. The note bears interest at 6% and is due upon demand.
During the six months ended May 31, 2020, the Company repaid $4,780 towards the balance of the note. As of May 31, 2020 and November
30, 2019, the principal balance due on this note was $127,816 and $132,596, respectively, and is recorded as Note Payable to Officer
on the unaudited condensed consolidated balance sheets. Interest expense for this note was $1,918 and $3,866 and $2,981 and $5,896
for the three and six months ended May 31, 2020 and 2019.
NOTE
10 – CONCENTRATION OF CREDIT RISK
Cash
Deposits
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of May 31,
2020 and November 30, 2019, the Company had no deposits in excess of the FDIC insured limit.
Revenues
Three
customers accounted for 100% of total revenue for the six months ended May 31, 2020.
Customer A
|
|
|
74
|
%
|
Customer B
|
|
|
16
|
%
|
Customer C
|
|
|
10
|
%
|
Three
customers accounted for 98% of total revenue for the six months ended May 31, 2019.
Customer A
|
|
|
48
|
%
|
Customer B
|
|
|
25
|
%
|
Customer C
|
|
|
25
|
%
|
Accounts
Receivable
One
customer accounted for 100% of the accounts receivable as of May 31, 2020. This customer is a parent distributor that has numerous
individual distributors at various locations. These individual distributors make buying decisions and purchase product from the
Company independently from the parent distributor.
Two
customers accounted for 100% of the accounts receivable as of November 30, 2019, as set forth below:
Customer A
|
|
|
66
|
%
|
Customer B
|
|
|
34
|
%
|
Vendors
Two
suppliers accounted for 100% of purchases as of May 31, 2020, as set forth below:
Vendor A, a related party
|
|
|
76
|
%
|
Vendor B
|
|
|
24
|
%
|
Two
suppliers accounted for 100% of purchases as of November 30, 2019, as set forth below:
Vendor A, a related party
|
|
|
88
|
%
|
Vendor B
|
|
|
12
|
%
|
NOTE
11 – SUBSEQUENT EVENTS
On
June 2, 2020, the Company granted options to an employee to purchase 100,000 shares of common stock with an exercise price of
$0.10 per share.
On
June 11, 2020, the Company executed an asset purchase agreement (the “Purchase Agreement”) with Quove Corporation,
a Colorado corporation, (“Quove”), pursuant to which the Company will purchase from Quove all of the assets used in
conjunction with the operating of its gold processing plant. In consideration therefor, the Company issued 6,200,000 shares of
its common stock at a fair value of $0.10 per share to Quove and agreed to assume up to $10,000 of Quove’s liabilities.