NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 – ORGANIZATION AND BUSINESS OPERATIONS
Corporate
History
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 the identification, acquisition,
exploration, development and full-scale exploitation of industrial and natural mineral properties in the United States for the development
of products for the construction and agriculture markets. In line with this business focus, the Company changed its name to PureBase
Corporation in January 2015.
The
Company is headquartered in Ione, California.
Business
Overview
The
Company, through its two divisions, Purebase Ag and Purebase SCM, is engaged in the agricultural and construction-materials sectors.
In the agricultural sector, the Company’s business is to develop specialized fertilizers, sun protectants, soil amendments, and
bio-stimulants for organic and non-organic sustainable agriculture.
In
the construction sector, the Company’s focus in 2020 has been to develop and test a kaolin-based product that will help create
a lower CO2-emitting concrete through the use of high-quality SCM’s. The Company is developing a SCM that it believes can potentially
replace up to 40% of cement, the most polluting part of concrete. As government agencies continue to enact stricter requirements for
less-polluting forms of concrete, the Company believes there are significant opportunities for high-quality SCM poducts in the construction-materials
sector.
In
the agricultural sector, the Company has developed and will seek to develop additional products derived from mineralized materials of
leonardite, kaolin clay, laterite, and other natural minerals. These mineral and soil amendments are used to protect crops, plants and
fruits from the sun and winter damage, to provide nutrients to plants, and to improve dormancy and soil ecology to help farmers increase
the yields of their harvests.
The
Company is building a brand family under the parent trade name “Purebase,” consisting of its Purebase Shade Advantage WP
product, a kaolin-clay based sun protectant for crops. It is also involved in the early testing of soil amendment products based on humic
and fulvic acids derived from leonardite. Other agricultural products are in the development stage.
The
Company utilizes the services of US Mine Corporation (“USMC”), a Nevada corporation, and a significant shareholder of the
Company for the development and contract mining of industrial mineral and metal projects throughout North America, exploration drilling,
preparation of feasibility studies, mine modeling, on-site construction, production, site reclamation and for product fulfillment. Exploration
services include securing necessary permits, environmental compliance, and reclamation plans. In addition, a substantial portion of the
minerals to be utilized by the Company is obtained from properties owned or controlled by USMC. A. Scott Dockter and John Bremer are
officers, directors, and owners.
NOTE
2 – GOING CONCERN AND LIQUIDITY
The
accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as
a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At May
31, 2021, the Company had a significant accumulated deficit of approximately $13,398,000 and working capital deficit of approximately
$1,101,000. For the six months ended May 31, 2021, the Company had a loss from operations of approximately $621,000 and negative
cash flows from operations of approximately $526,000. 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 2021, as well as other
potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from
operations, at least into the near future. The Company has previously funded, and plans to continue funding, these losses primarily with
additional infusions of cash from advances from an affiliate, the sale of equity, and convertible notes. The accompanying consolidated
financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The
Company’s plan, through the continued promotion of its services to existing and potential customers, is to generate sufficient
revenues to cover its anticipated expenses. The Company is currently exploring several options to meet its short-term cash requirements,
including issuances of equity securities or equity-linked securities from third parties.
Although
no assurances can be given as to the Company’s ability to deliver on its revenue plans or that unforeseen expenses may arise, management
currently believes that the revenue to be generated from operations together with equity and debt financing will provide the necessary
funding for the Company to continue as a going concern. However, there currently are no arrangements or agreements for such financing
and management cannot guarantee any potential debt or equity financing will be available, or if available, on favorable terms. As such,
these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months
from the issue date of these this report. If adequate funds are not available on acceptable terms, or at all, the Company will
need to curtail operations, or cease operations completely.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein
reflects all adjustments (consisting of normal recurring accruals and adjustments, unless otherwise indicated) which are, in the opinion
of management, necessary to fairly state the operating results for the respective periods. Certain information and footnote disclosures
normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations. These financial statements and the information
included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
should be read in conjunction with the audited financial statements and explanatory notes for the year ended November 30, 2020 in our
Form 10-K filed on March 16, 2021 with the SEC. The results of the three and six months ended May 31, 2021 (unaudited) are not necessarily
indicative of the results to be expected for the full year ending November 30, 2021.
Principles
of Consolidation
These
unaudited condensed consolidated financial statements include the accounts of the Company and wholly-owned subsidiaries PureBase AG and
USAM. Intercompany accounts and transactions have been eliminated upon consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and equity-based transactions at the date of the financial statements and the revenues and
expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation
of the 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.
Practical
Expedients
|
As
part of ASC Topic 606, the Company has adopted several practical expedients including: |
|
|
● |
Significant
Financing Component – the Company does not adjust the promised amount of consideration for the effects of a significant financing
component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or
service to the customer and when the customer pays for that good or service will be one year or less. |
● |
Unsatisfied
Performance Obligations – all performance obligations related to contracts with a duration for less than one year, the Company
has elected to apply the optional exemption provided in ASC Topic 60 and therefore, is not required to disclose the aggregate amount
of transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting
period. |
● |
Shipping
and Handling Activities – the Company elected to account for shipping and handling activities as a fulfillment cost rather
than as a separate performance obligation. |
● |
Right
to Invoice – the Company has a right to consideration from a customer in an amount that corresponds directly with the value
to the customer of the Company’s performance completed to date the Company may recognize revenue in the amount to which the
entity has a right to invoice. |
Disaggregated
Revenue
Revenue
consists of the following by product offering for the six months ended May 31, 2021:
SCHEDULE OF DISAGGREGATED REVENUE
Humate INU
Advantage | | |
SHADE
ADVANTAGE (WP) | | |
SulFe
Hume Si ADVANTAGE | | |
Total | |
| | | |
| | | |
| | | |
| | |
$ | - | | |
$ | 30,000 | | |
$ | - | | |
$ | 30,000 | |
Revenue
consists of the following by product offering for the six months ended May 31, 2020:
Humate
INU Advantage | | |
SHADE
ADVANTAGE
(WP) | | |
SulFe
Hume Si ADVANTAGE | | |
Total | |
| | | |
| | | |
| | | |
| | |
$ | 6,129 | | |
$ | - | | |
$ | - | | |
$ | 6,129 | |
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, 2021 and November 30, 2020.
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. At May 31, 2021 and November 30, 2020, the Company
has determined that an allowance of $18,277 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.
SCHEDULE OF ESTIMATED USEFUL LIFE OF PROPERTY AND EQUIPMENT
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. The
Company currently has $620,000 in property and equipment that it acquired on May 1, 2020. As of May 31, 2021, the Company has not put
the acquired property and equipment to use. As such, the Company has not recorded depreciation.
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, 2021 and 2020.
Shipping
and Handling
The
Company incurs shipping and handling costs which are charged back to the customer. There were no shipping and handling costs incurred
during the three and six months ended May 31, 2021 and 2020.
Advertising
and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $42,000 and $2,052 for
the six months ended May 31, 2021 and 2020, respectively, and $26,000 and $490 for the three months ended May 31, 2021 and 2020, respectively,
and are recorded in selling, general and administrative expenses on the statement of operations.
Fair
Value Measurements
As
defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The
Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated,
or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and
the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent
measurement.
Level
1: |
Quoted
prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed
equities. |
Level
2: |
Pricing
inputs are other than quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reported date. Level 2 includes those financial
instruments that are valued using models or other valuation methodologies. These models are
primarily industry-standard models that consider various assumptions, including quoted forward
prices for commodities, time value, volatility factors and current market and contractual
prices for the underlying instruments, as well as other relevant economic measures. Substantially
all of these assumptions are observable in the marketplace throughout the full term of the
instrument, can be derived from observable data or are supported by observable levels at
which transactions are executed in the marketplace. Instruments in this category generally
include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options
and collars. |
|
|
Level
3: |
Pricing
inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally
developed methodologies that result in management’s best estimate of fair value. |
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term
maturity of these instruments. The carrying amount of notes approximates the estimated fair value for these financial instruments as
management believes that such notes constitute substantially all of the Company’s debt and interest payable on the notes approximates
the Company’s incremental borrowing rate.
Net
Loss Per Common Share
Net
loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year.
All outstanding options are considered potential common stock. The dilutive effect, if any, of stock options are calculated using the
treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of
issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to
losses, the options have been excluded from the Company’s computation of net loss per common share for the three and six months
May 31, 2021 and 2020.
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:
SCHEDULE OF OUTSTANDING SHARES EXCLUDED FROM DILUTED LOSS PER SHARE
| |
Six
Months Ended | |
| |
May
31, 2021 | | |
May
31, 2020 | |
| |
| | |
| |
Convertible Notes | |
| 129,117,358 | | |
| 1,112,500 | |
Stock Options | |
| 1,595,000 | | |
| 550,000 | |
Total | |
| 130,712,358 | | |
| 1,662,500 | |
| |
Three
Months Ended | |
| |
May
31, 2021 | | |
May
31, 2020 | |
| |
| | |
| |
Convertible Notes | |
| 129,117,358 | | |
| 1,112,500 | |
Stock Options | |
| 1,595,000 | | |
| 550,000 | |
Total | |
| 130,712,358 | | |
| 1,662,500 | |
Stock-Based
Compensation
The
Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement
and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements
of operations.
For
stock options issued to employees and members of the Company’s Board of Directors (the “Board”) for their services,
the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes
option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility
of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common
Stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes
stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service
period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time
of grant and revised.
Pursuant
to ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company
accounts for stock options issued to non-employees for their services in accordance ASC 718. The Company uses valuation methods and assumptions
to value the stock options that are in line with the process for valuing employee stock options noted above.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss
and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date.
The
Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts
for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and
the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized.
For
uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax
positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related
to uncertain tax positions in income tax expense in the consolidated statements of operations.
Recent
Accounting Pronouncements
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 were presented at their cost of
$200,000. At November 30, 2020, the Company fully impaired the asset. This lease requires a payment of $7,503 per year to the BLM.
Snow
White Mine located in San Bernardino County, CA – Deposit
On
November 28, 2014 US Mining and Minerals Corporation entered into a Purchase Agreement in which it agreed to sell its fee simple property
interest and certain mining claims to USMC. In contemplation of the Plan and Agreement of Reorganization, on December 1, 2014, USMC,
a related party, assigned its rights and obligations under the Purchase Agreement to the Company pursuant to an Assignment of Purchase
Agreement. As a result of the Assignment, the Company assumed the purchaser position under the Purchase Agreement. The Purchase Agreement
involves the sale of approximately 280 acres of mining property containing 5 placer mining claims known as the Snow White Mine located
near Barstow, California in San Bernardino County. The property is covered by a Conditional Use Permit allowing the mining of the property
and a Plan of Operation and Reclamation Plan has been approved by San Bernardino County and the BLM. An initial deposit of $50,000 was
paid to escrow, and the Purchase Agreement required the payment of an additional $600,000 at the end of the escrow period. There was
a delay in the original seller, Joseph Richard Matthewson, 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 an additional $25,000, the parties agreed to extend
the closing. Due to delays in the Company securing the necessary funding to close the purchase of the Snow White Mine property, John
Bremer, a shareholder and a director of the Company, paid $575,000 to acquire the property on or about October 15, 2015. Mr. Bremer will
transfer title to the Company when the Company pays Mr. Bremer $575,000 plus expenses, however, the Company is under no obligation to
do so. The mining claims require a minimum royalty payment of $3,500 per year to be made by the Company.
During
the year ended November 30, 2017, USMC, agreed to offset the $75,000 deposit against money owed to USMC. As a result, the purchase price
is $650,000 plus expenses. Mr. Bremer has not restricted the Company from continuing its exploration on or access to the Snow White mine
property.
On
September 5, 2019, the Board approved the discontinuance of all mining and related activities at the Snow White project. The Company
has no further obligation related to this project.
On
April 1, 2020, the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust, a related party through
19% beneficial ownership of the Company, pursuant to which the Company will purchase the Snow White Mine for $836,000 (the “Purchase
Price”). The Purchase Price plus 5% interest shall be payable in full in cash at the closing which can occur at any time before
April 1, 2022. As of May 31, 2021, 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 to Bayshore Capital Advisors, LLC, an affiliate through common ownership of a
10% major shareholder of the Company, for $25,000 for working capital at an interest rate of 6% per annum. The note was payable August
26, 2016, or when the Company closes a bridge financing, whichever occurs first. The Company is in default on this note at May 31, 2021.
The balance on the note was $25,000 as of May 31, 2021 and November 30, 2020. See (Note 10). Total interest expense on the note was $748
and $752 for the six months ended May 31, 2021 and 2020, respectively. Total interest expense on the note was $370 for the three months
ended May 31, 2021 and 2020.
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, CEO 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
six months ended May 31, 2021, the Company repaid $38,100 towards the outstanding balance of the note. The balance on the note was $89,716
and $127,816 as of May 31, 2021 and November 30, 2020, respectively (See Note 11). Total interest expense on the note was $3,368 and
$4,834 for the six months ended May 31, 2021 and 2020, respectively. Total interest expense on the note was $1,500 and $2,916 for the
three months ended May 31, 2021 and 2020, 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 12),
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 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 $2,417 and $4,783 for the three and six months ended May 31, 2021 and 2020, respectively. Total interest expense
on Tranche #1 was approximately $250 and $500 for the three and six months ended May 31, 2021 and 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 11),
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 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 $8,029 and $6,662 for the six months ended May 31, 2021 and 2020, respectively. Total straight-line amortization
of this discount totaled $4,059 for the three months ended May 31, 2021 and 2020. Total interest expense on Tranche #2 was approximately
$2,100 and $1,780 for the six months ended May 31, 2021 and 2020, respectively. Total interest expense on Tranche #2 was approximately
$1,040 and $1,080 for the three months ended May 31, 2021 and 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 11),
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 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 $8,963 and $5,910 for the six months ended May 31, 2021 and 2020, respectively. Total straight-line amortization
of this discount totaled $4,531 for the three months ended May 31, 2021 and 2020. Total interest expense on Tranche #3 was approximately
$1,785 and $1,200 for the six months ended May 31, 2021 and 2020, respectively. Total interest expense on Tranche #3 was approximately
$900 for the three months ended May 31, 2021 and 2020.
December
1, 2020
On
December 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC, a related party, (See Note 11),
the Company issued a two-year convertible promissory note in the amount of $822,000 to USMC, with a maturity date of November 25, 2022
(“Tranche 4”). The note bears interest at 5% per annum which is payable on maturity. Amounts due under the note may be converted
into shares of the Company’s common stock at any time at the option of the noteholder, at a conversion price of $0.16 per share.
Total interest expense on Tranche #4 was approximately $10,100 and $20,300 for the three and six months ended May 31, 2021, respectively.
March
17, 2021
On
March 17, 2021, in connection with the March 11, 2021 securities purchase agreement with USMC, a related party, (See Note 11), the Company
issued a two-year convertible promissory note in the amount of $579,769 to USMC, with a maturity date of March 17, 2023 (“Tranche
#5”). The note bears interest at 5% per annum which is payable on maturity. Amounts due under the note may be converted into shares
of the Company’s common stock at any time at the option of the noteholder, at a conversion price of $0.088 per share. Total interest
on Tranche #5 was approximately $5,800 for the three and six months ended May 31, 2021.
Convertible Promissory Note – US Mine,
LLC
On
May 27, 2021, in connection with the Materials Extraction Agreement (the “Extraction Agreement”) with US Mine, LLC, a related
party, (See Note 11), the Company issued a -year convertible promissory note in the principal amount of $ to US Mine, LLC
(the “US Mine Note”). The US Mine Note bears interest at per annum which is payable upon maturity. Amounts due under
the US Mine Note may be converted into shares of the Company’s common stock at the option of the noteholder, at a conversion price
of $ per share. Total interest on the US Mine Note was approximately $ for the three and six months ended May 31,
2021. Subsequent to May 31, 2021, on October 6, 2021, the Extraction Agreement was amended, and the US Mine Note was retroactively
rescinded, ab initio; refer to Note 11 for more details of the amendment.
NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following amounts:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| |
May
31, 2021 | | |
November
30, 2020 | |
| |
| | |
| |
Accounts payable | |
$ | 77,988 | | |
$ | 84,600 | |
Accrued interest – related party | |
| 81,800 | | |
| 39,948 | |
Accrued compensation | |
| 21,138 | | |
| 39,492 | |
Accrued expenses | |
| 3,323 | | |
| - | |
Accounts payable and
accrued expenses | |
$ | 184,249 | | |
$ | 164,040 | |
NOTE
7 – LEASES
With
the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as Right-of-Use (“ROU”)
assets and corresponding lease liabilities.
The
Company is a party to a two-year lease, with USMC, a related party, for 1,000 square feet of office space located in Ione, California
(the “Ione Lease”) with respect to its corporate operations (See Note 11). The Ione Lease expires in November 2022 (subject
to automatic extensions of one month) and has an annual base rental during the initial term of $1,500.
On
December 1, 2020, the Company recognized ROU assets and lease liabilities of $35,543. The Company elected to not recognize ROU assets
and lease liabilities arising from short-term office leases (leases with initial terms of twelve months or less, which are deemed immaterial)
on its balance sheets.
When
measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated
incremental borrowing rate at December 1, 2020. The weighted average incremental borrowing rate applied was 5%.
The
following table presents net lease cost and other supplemental lease information:
SCHEDULE OF LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
| |
Six
Months Ended
May
31, 2021 | |
Lease cost | |
| | |
Operating lease
cost (cost resulting from lease payments) | |
$ | 9,000 | |
Short term lease cost | |
| - | |
Sublease
income | |
| - | |
Net lease cost | |
$ | 9,000 | |
| |
| | |
Operating lease – operating cash flows
(fixed payments) | |
$ | 9,000 | |
Operating lease – operating cash flows
(liability reduction) | |
$ | 8,265 | |
Non-current leases – right of use assets | |
$ | 24,169 | |
Current liabilities – operating lease
liabilities | |
$ | 17,161 | |
Non-current liabilities – operating lease
liabilities | |
$ | |
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the six months ended
May 31, 2021:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
Fiscal
Year | |
Operating
Leases | |
Remainder of 2021 | |
$ | 9,000 | |
2022 | |
| 16,500 | |
Total future minimum lease payments | |
| 25,500 | |
Amount representing interest | |
| (932 | ) |
Present value of net
future minimum lease payments | |
$ | 24,568 | |
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Mineral
Properties
The
Company’s mineral rights require various annual lease payments (See Note 4).
Legal
Matters
On
July 8, 2020, former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for arbitration alleging retaliation,
wrongful termination, and demand for a minimum amount of $600,000 in alleged stock value, plus interest, recovery of past and future
wages, attorneys’ fees, and punitive damages (collectively, the “Calvanico Claims”). The Company denied all Calvanico
Claims. The Company believes Calvanico is owed nothing because it takes the position that Calvanico was not terminated, but rather, his
employment contract expired on September 21, 2019 in the normal course, and was not renewed by Company and because Calvanico never exercised
his stock options. On February 14, 2020, the Company requested in writing that Calvanico exercise his stock options within 30 days. Calvanico
failed to do so. To date, Calvanico has not exercised his stock options. This dispute is currently in the midst of the arbitration discovery
phase. An arbitration hearing date has been scheduled for January 24, 2022.
On
January 11, 2019, the Company filed a complaint in the Nevada District Court for Washoe County
(Case # CV19-00097) against Agregen International Corp (“Agregen”) and Robert
Hurtado alleging the misuse of proprietary and confidential information acquired by Mr. Hurtado
while employed by the Company as VP of Agricultural Research and Development. Mr. Hurtado
was terminated in March 2018 and since that time the Company alleges that he conspired with
Agregen to improperly use proprietary and confidential information to compete with the Company
which constitute breaches of the non-compete and confidentiality provisions of his employment
agreement with the Company. The Company is seeking $100,000,000 in monetary damages. On March
14, 2019 Agregen and Mr. Hurtado filed an answer to the Company’s Complaint that the
allegations were false. An Early Case Conference was held on April 26, 2019 and a pre-trial
conference was held on July 10, 2019. On March 13, 2020, the Company filed a First Amended
Complaint, adding Todd Gauer and John Gingerich as additional defendants. A default has been
taken against Mr. Gingerich. Litigation is actively proceeding against Mr. Hurtado, Mr. Gauer,
and Agregen. The June 2021 trial date was postponed due to Covid-related delays but is in
the process of being rescheduled.
On
March 29, 2019, the Company was served with a complaint filed by Superior Soils Supplements LLC (“Superior Soils”) in the
Superior Court of the State of California in and for the County of Kings (Case #19C-0124) relating to 64 truckloads of soil amendments
delivered to a customer by the Company on behalf of Superior Soils. Superior Soils alleged that the soil amendments were not labeled
correctly requiring the entire shipment of product to be returned to the Company. The complaint alleges breach of contract, misrepresentations,
fraudulent concealment and unfair competition. The complaint seeks damages of approximately $300,000. The Company filed its answer on
May 6, 2019, denying responsibility for the mis-labelling and denying any liability for damages therefrom. The parties are currently
in settlement negotiations. The Company believes its potential exposure to be approximately $400,000 and, as such, has accrued this amount
on the unaudited condensed consolidated balance sheet at May 31, 2021.
On
April 16, 2021, LexisNexis, a division of RELX, Inc., filed a Complaint against the Company and its former attorney, Michael Kessler,
Esq., in the Superior Court of the State of California, Amador County (Case No. 21-CV-12123). This is a limited jurisdiction lawsuit
seeking payment of $18,211. The basis of the Complaint is that Mr. Kessler incurred this debt to LexisNexis, a legal research company.
Mr. Kessler is alleged to have failed to pay the annual bill. After the matter was sent to collections, it is the Company’s understanding
that Mr. Kessler claimed that he was employed by the Company as its general counsel at the time and that Purebase is therefore responsible
for payment. The Company strongly disputes this characterization and maintains that it has no obligation to LexisNexis under the facts
or the law. The Company and LexisNexis are engaged in settlement negotiations. The Company believes its potential exposure to be $0 and
that the lawsuit will be dismissed.
Contractual
Matters
USMC
On
November 1, 2013, the Company entered into an agreement with USMC, a related party, under which USMC performs services relating to various
technical evaluations and mine development for various mining properties/rights owned by the Company. Terms of services and compensation
are determined for each project undertaken by USMC.
On
October 12, 2018, the Board approved a material supply agreement with USMC, a related party, pursuant to which USMC provides designated
natural resources to the Company at predetermined prices (See Note 11).
NOTE
9 – STOCKHOLDERS’ DEFICIT
Equity
Transactions During the Period
During
the six months ended May 31, 2021, the Company issued an aggregate of 350,000 shares of common stock with a fair value range between
$0.07 and $0.15 per share to an investment banking firm pursuant to an investment banking agreement for services rendered to the Company.
During
the six months ended May 31, 2021, the Company issued 80,000 shares of common stock with a fair value of $0.15 per share to a director
pursuant to a directors agreement for services rendered.
Note
10 – STOCK-BASED COMPENSATION
The
Company accounted for its stock-based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, “Compensation
– Stock Compensation.”
2017
Equity Incentive Plan
On
November 10, 2017 the Board approved the 2017 PureBase Corporation Stock Option Plan which is intended to be a qualified stock option
plan (the “Option Plan”). The Board reserved 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, 2021, options to purchase an aggregate of 50,000 shares of common stock have been granted under the Option Plan.
The
Company has also granted options to purchase an aggregate of 500,000 shares of common stock pursuant to employment contracts with certain
employees prior to the adoption of the Option Plan.
The
Company granted options to purchase 250,000 shares of common stock during the six months ended May 31, 2021.
The
Company granted options to purchase an aggregate of 450,000 shares of common stock during the six months ended May 31, 2020.
The
weighted average grant date fair value of options granted and vested during the six months ended May 31, 2021 was $36,708 and $19,481,
respectively. The weighted average grant date fair value of options granted and vested during the six months ended May 31, 2020, was
$23,905 and $27,088, respectively. The weighted average non-vested grant date fair value of non-vested options was $32,030 at May 31,
2021.
Compensation
based stock option activity for qualified and unqualified stock options are summarized as follows:
SCHEDULE OF STOCK OPTION ACTIVITY
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Shares | | |
Exercise
Price | |
Outstanding at November 30, 2020 | |
| 1,345,000 | | |
$ | 1.18 | |
Granted | |
| 250,000 | | |
| 0.10 | |
Exercised | |
| - | | |
| - | |
Expired or cancelled | |
| - | | |
| - | |
Outstanding at May 31, 2021 | |
| 1,595,000 | | |
| 1.01 | |
The
following table summarizes information about options to purchase shares of the Company’s common stock outstanding and exercisable
at May 31, 2021:
SCHEDULE OF STOCK OPTION SHARES OUTSTANDING AND EXERCISABLE
| | |
| | |
Weighted- | | |
Weighted- | | |
| |
| | |
| | |
Average | | |
Average | | |
| |
Range of | | |
Outstanding | | |
Remaining
Life | | |
Exercise | | |
Number | |
exercise
prices | | |
Options | | |
In
Years | | |
Price | | |
Exercisable | |
| | |
| | |
| | |
| | |
| |
$ | 0.099 | | |
| 400,000 | | |
| 3.14 | | |
$ | 0.099 | | |
| 200,000 | |
| 0.10 | | |
| 645,000 | | |
| 4.29 | | |
| 0.10 | | |
| 350,000 | |
| 0.12 | | |
| 50,000 | | |
| 7.32 | | |
| 0.12 | | |
| 50,000 | |
| 3.00 | | |
| 500,000 | | |
| 5.76 | | |
| 3.00 | | |
| 500,000 | |
| | | |
| 1,595,000 | | |
| 4.24 | | |
$ | 1.01 | | |
| 1,100,000 | |
The
compensation expense attributed to the issuance of the options is recognized as they are vested.
The
stock options granted under the Option Plan are exercisable for ten years from the grant date and vest over various terms from the grant
date to three years.
On
April 8, 2020, the Company granted a director an option to purchase 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.
On
April 8, 2021, 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 $36,708. These options vest one year from the grant date. The options were valued
using the Black-Scholes option pricing model under the following assumptions: stock price - $0.15; strike price - $0.10; expected volatility
– 281%; risk-free interest rate – 0.85%; dividend rate – 0%; and expected term – 2.50 years.
The
aggregate intrinsic value totaled $448,350 and was based on the Company’s closing stock price of $0.51 as of May 31, 2021, which
would have been received by the option holders had all option holders exercised their options as of that date.
Total
compensation expense related to the options was $44,148 and $54,836 for the three months ended May 31, 2021 and 2020, respectively.
Total compensation expense related to the options was $24,246 and $30,335 for the six months ended May 31, 2021 and 2020, respectively.
As of May 31, 2021, there was $36,428 in future compensation cost related to non-vested stock options.
NOTE
11 – RELATED PARTY TRANSACTIONS
Bayshore
Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note in the principal amount of $25,000 with an interest rate of 6% per annum to Bayshore
Capital Advisors, LLC, an affiliate through common ownership of a 10% shareholder of the Company for working capital purposes. The note
was payable August 26, 2016, or when the Company closes a bridge financing, whichever occurs first. The Company is in default on this
note at May 31, 2021.
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, 2021 the Company made $12,000 in purchases from USMC. During the three and six months ended May
31, 2020, the Company did not make any purchases from USMC. No services were rendered by USMC for the three and six months ended May
31, 2021 and 2020. In addition, during the three and six months ended May 31, 2021, USMC paid $22,150 to the Company’s vendors
and creditors on behalf of the Company which is recorded as part of due to affiliates on the Company’s unaudited condensed consolidated
balance sheets. During the three and six months ended May 31, 2020, USMC made no payment to the Company’s vendors and creditors
on behalf of the Company. During the three and six months ended May 31, 2021 and 2020, USMC made cash advances to the Company of $316,000
and $558,077 and $33,000 and $125,000, respectively, which are recorded as part of due to affiliates on the Company’s unaudited
condensed consolidated balance sheets. During the six months ended June 30, 2021, the Company and USMC converted an aggregate
of $1,401,769 of outstanding payables into two convertible notes (See Note 5). The balance due to USMC was $269,616 and $1,091,158
at May 31, 2021 and November 30, 2020, respectively.
On
September 26, 2019, the Company entered into a securities purchase agreement with USMC pursuant to which USMC may purchase up to $1,000,000
of the Company’s 5% unsecured convertible two-year promissory notes in one or more closings. The notes are convertible into the
Company’s common stock at a conversion price of $0.16 per share. As of May 31, 2021, USMC has purchased notes totaling $1,000,000
with maturity dates ranging from December 1, 2021 through November 25, 2022 (See Note 5). Interest expense on these notes totaled $12,466
and $3,461 for the three months ended May 31, 2021 and 2020, respectively. Interest expense on these notes totaled $24,795 and $3,461
for the six months ended May 31, 2021 and 2020, respectively, and is recorded as part of accrued expenses on the unaudited condensed
consolidated balance sheets.
On
November 25, 2020, the Company entered a securities purchase agreement with USMC pursuant to which USMC may purchase up to $2,000,000
of the Company’s 5% unsecured two-year promissory notes in one or more closings. The notes are convertible into the Company’s
common stock at a conversion price of $0.088 per share. As of May 31, 2021, USMC has purchased notes totaling $5,798,769 with a maturity
date of March 17, 2023 (See Note 5). Interest expense on these notes totaled $5,877 for the three and six months ended May 31, 2021 and
is recorded as part of accrued expenses on the unaudited condensed consolidated balance sheets.
The
outstanding balance due on the above notes to USMC is $1,579,769 and $178,000 at May 31, 2021 and November 30, 2020, respectively.
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.
US Mine LLC
On May 27, 2021, the Company
entered into the Extraction Agreement with US Mine LLC, pursuant to which the Company acquired the right to extract up to 100,000,000
of certain raw clay materials. The Extraction Agreement is effective until 100,000,000 tons of material are extracted. As compensation
for such right the Company issued a -year convertible promissory note in the principal amount of $ to US Mine, LLC (the
“US Mine Note”). The US Mine Note bears interest at the rate of per annum which is payable upon maturity. Amounts due
under the US Mine Note may be converted into shares of the Company’s common stock at the option of the noteholder, at a conversion
price of $ per share. In addition, the Company will pay US Mine LLC a royalty fee of $ per ton of materials extracted and any
royalty not paid in a timely manner with be subject to 15% interest per annum and compounded monthly.
Subsequent to May 31, 2021, on
October 6, 2021, and prior to consummation of activities under the Extraction Agreement, the Company and US Mine executed an amendment
to the Extraction Agreement (the “Amendment”) (See Note 13). Pursuant to the Amendment, the US Mine Note was retroactively
rescinded, ab initio, and an option to purchase an aggregate of shares of the Company’s common stock at
an exercise price of $ per share until April 6, 2028 was issued to US Mine as compensation. Shares subject to the option vest as
to 58,000,000 shares on April 6, 2022, 29,000,000 shares on October 6, 2022, and 29,000,000 shares on April 6, 2023.
Leases
On
October 1, 2020 the Company entered into a two-year lease agreement for its office space with USMC with a monthly rent of $1,500 (See
Note 7).
Transactions
with Officers
On
August 31, 2017, the Company issued a note in the amount of $197,096 to Arthur Scott Dockter, President, CEO and a director of the Company
to consolidate the total amounts due to and assumed by Mr. Dockter. The note bears interest at 6% and is due upon demand. During the
six months ended May 31, 2021, the Company repaid $38,100 towards the balance of the note. As of May 31, 2021 and November 30, 2020,
the principal balance due on this note was $89,716 and $127,816, respectively, and is recorded as Note Payable to Officer on the unaudited
condensed consolidated balance sheet. Total interest expense on the note was $3,368 and $4,834 for the six months ended May 31, 2021
and 2020, respectively. Total interest expense on the note was $1,500 and $2,916 for the three months ended May 31, 2021 and 2020, respectively.
NOTE
12 – CONCENTRATION OF CREDIT RISK
Cash
Deposits
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of May 31, 2021 and November
30, 2020, the Company had no deposits in excess of the FDIC insured limit.
Revenues
One
customer accounted for 100% of total revenue for the six months ended May 31, 2021.
Three
customers accounted for 100% of total revenue for the six months ended May 31, 2020, as set forth below:
SCHEDULE OF CONCENTRATION OF CREDIT RISK
Customer A | |
| 74 | % |
Customer B | |
| 16 | % |
Customer C | |
| 10 | % |
Accounts
Receivable
One
customer accounted for 92% of the accounts receivable as of May 31, 2021.
Vendors
One
supplier accounted for 85% of purchases as of November 30, 2020.
NOTE
13 – SUBSEQUENT EVENTS
On
October 6, 2021, prior to the consummation of activities under the Extraction Agreement, the Company and US Mine executed an amendment
to the Extraction Agreement (the “Amendment”). Pursuant to the Amendment, the US Mine Note was retroactively rescinded,
ab initio, and an option to purchase an aggregate of shares of the Company’s common stock at an exercise price
of $ per share until April 6, 2028, was issued to US Mine as compensation. Shares subject to the option vest as to 58,000,000 shares
on April 6, 2022, 29,000,000 shares on October 6, 2022, and 29,000,000 shares on April 6, 2023.