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 since 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 supplementary cementitious materials (“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 products 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 of USMC.
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 February
28, 2022, the Company had a significant accumulated deficit of approximately $32,283,769 and working capital deficit of approximately
$2,509,796. For the three months ended February 28, 2022, the Company had a loss from operations of approximately $11,222,544 and negative
cash flows from operations of approximately $239,544. 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 2022, 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 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, 2021 in our
Form 10-K filed on March 15, 2022 with the SEC. The results of the three months ended February 28, 2022 (unaudited) are not necessarily
indicative of the results to be expected for the full year ending November 30, 2022.
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.
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 were no cash equivalents as of February 28, 2022 and November 30, 2021.
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. The Company has determined that there was no allowance
for doubtful accounts as of February 28, 2022, and an allowance of $18,277 was necessary as of November 30, 2021.
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 February 28, 2022, 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 months ended February 28, 2022 and February 28, 2021.
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 months ended February 28, 2022 and February 28, 2021.
Advertising
and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $12,040 and $16,000 for
the three months ended February 28, 2022 and February 28, 2021, 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 share of common stock for the three months
ended February 28, 2022 and February 28, 2021.
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 stock:
SCHEDULE OF OUTSTANDING SHARES EXCLUDED FROM DILUTED LOSS PER SHARE
| | |
Three Months Ended | |
| | |
February 28, 2022 | | |
February 28, 2021 | |
| | |
| | |
| |
| Convertible Notes | |
| 6,250,000 | | |
| 6,250,000 | |
| Stock Options | |
| 1,595,000 | | |
| 1,345,000 | |
| Total | |
| 7,815,000 | | |
| 7,595,000 | |
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 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.
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. Right-of-use (“ROU”) assets include any prepaid lease payments and exclude any
lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over
the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that we will exercise
that option.
Leases
in which our company is the lessee are comprised of corporate offices. All of the leases are classified as operating leases. The Company
is a party to a two-year lease, with USMC, a related party, for 1,000 square feet of space located in Ione, California (the “Ione
Lease”) with respect to its corporate operations (See Note 10). The Ione Lease expires in November 2022 (subject to automatic extensions
on a month-to-month basis) and has a monthly base rental during the initial term of $1,500. The remaining weighted average term is .67
years.
In
accordance with ASC 842, Leases, we recognized a ROU asset and corresponding lease liability on our consolidated balance sheet
for long-term office leases. See Note 7 – Leases for further discussion, including the impact on our consolidated financial statements
and related disclosures.
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 initially recorded 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 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 is payable in full in cash at the closing which must occur at any time before April 1,
2022. (the “Closing Date”). On
April 14, 2022, the agreement was amended
to extend the Closing Date to April 14, 2023.
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 February 28,
2022. The balance on the note was $25,000 as of February 28, 2022 and November 30, 2021 (see Note 10). Total interest expense on the
note was $370 for the three months ended February 28, 2022 and February 29, 2021.
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
three months ended February 28, 2022, the Company did not make repayments towards the outstanding balance of the note. The balance on
the note was $58,716 as of February 28, 2022 and November 30, 2021 (See Note 10). Total interest expense on the note was $869 and $1,868
for the three months ended February 28, 2022 and February 28, 2021, 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 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. On April 7, 2022, the December
1, 2019 note was amended to extend the maturity date to April
30, 2022. Thereafter, on April 7,
2022, USMC converted the outstanding principal balance of $20,000 of the December 1, 2019 note, plus accrued
interest totaling $2,351
through such date, into 139,692
shares of the Company’s common stock.
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 $815 and $2,365 during the three months ended February 28, 2022 and February 28, 2021, respectively. Total interest
expense on Tranche #1 was approximately $250 for the three months ended February 28, 2022 and February 28, 2021.
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 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. On April 7, 2022, the January
1, 2020 note was amended to extend the maturity date to April
30, 2022. Thereafter, on April 7,
2022, USMC converted the outstanding principal balance of $86,000 of the January 1, 2020 note, plus accrued interest
totaling $9,743
through such date, into 598,392
shares of the Company’s common stock.
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 $1,412 and $3,971 for the three months ended February 28, 2022 and February 28, 2021, respectively. Total interest
expense on Tranche #2 was approximately $1,060 for the three months ended February 28, 2022 and February 28, 2021, 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 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. On April 7, 2022, the February
1, 2020 note was amended to extend the maturity date to April
30, 2022. Thereafter, on April 7,
2022, USMC converted the outstanding principal balance of $72,000 of the February 1, 2020 note, plus accrued interest
totaling $7,851
through such date, into 499,068
shares of the Company’s common stock.
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 $3,103 and $4,432 for the three months ended February 28, 2022 and February 28, 2021, respectively. Total interest
expense on Tranche #3 was approximately $900 for the three months ended February 28, 2022 and February 28, 2021.
December
1, 2020
On
December 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC, a related party, (See Note 10),
the Company issued a 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
for the three months ended February 28, 2022
and February 28, 2021. On April 7, USMC converted the outstanding principal balance of $822,000 of the December
1, 2020 note, plus accrued interest totaling $55,401
through such date, into 5,483,753
shares of the Company’s common stock.
March
17, 2021
On
March 17, 2021, in connection with the March 11, 2021, securities purchase agreement with USMC, a related party (see Note 10), the Company
issued a 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 expense on Tranche
#5 was approximately $7,150
for the three months ended February 28, 2022.
On April 7, USMC converted the outstanding principal balance of $579,769.39 of the March 17, 2021 note, plus accrued
interest totaling $30,656
through such date, into 6,936,656
shares of the Company’s common stock.
NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following amounts:
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| | |
As of February 28, 2022 | | |
As of November 30, 2021 | |
| | |
| | |
| |
| Accounts payable | |
$ | 24,547 | | |
$ | 2,647 | |
| Accrued interest – related party | |
| 147,522 | | |
| 126,806 | |
| Accrued compensation | |
| 18,719 | | |
| 27,163 | |
| Accounts payable and accrued expenses | |
$ | 190,788 | | |
$ | 156,616 | |
NOTE
7 – LEASES
The
following table presents net lease cost and other supplemental lease information:
SCHEDULE OF LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
| | |
Three
Months Ended February 28, 2022 | | |
Three
Months Ended February 28, 2021 | |
| Lease cost | |
| | | |
| | |
| Operating lease cost (cost resulting from lease payments) | |
$ | 4,500 | | |
$ | 4,500 | |
| Short term lease cost | |
| - | | |
| - | |
| Sublease income | |
| - | | |
| - | |
| Net lease cost | |
$ | 4,500 | | |
$ | 4,500 | |
| | |
| | | |
| | |
| Operating lease – operating cash flows (fixed payments) | |
$ | 4,500 | | |
$ | 4,500 | |
| Operating lease – operating cash flows (liability reduction) | |
$ | 4,317 | | |
$ | 4,107 | |
| Non-current leases – right of use assets | |
$ | 11,374 | | |
$ | 28,434 | |
| Current liabilities – operating lease liabilities | |
$ | 11,778 | | |
$ | 15,504 | |
| Non-current liabilities – operating lease liabilities | |
$ | - | | |
$ | 13,223 | |
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months ended
February 28, 2022:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| Fiscal Year | |
Operating Leases | |
| Remainder of 2022 | |
$ | 12,000 | |
| Total future minimum lease payments | |
| 12,000 | |
| Amount representing interest | |
| (222 | ) |
| Present value of net future minimum lease payments | |
$ | 11,778 | |
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Office
and Rental Property Leases
The
Company is using office space provided by USMC, a related party that is owned by the Company’s majority shareholders and directors
A. Scott Dockter and John Bremer. (See Note 10).
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 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 accordance with its terms, 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 arbitration discovery phase.
An arbitration hearing is scheduled for July 1 and 5-8, 2022 before arbitrator, Scott Silverman in Los Angeles. The Company is in the
process of scheduling a mediation to explore a possible settlement.
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.
A June 2021 trial date was postponed due to Covid-related delays but was rescheduled to begin during June 2022.
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. After settlement negotiations
were terminated, the matter was set for trial in April 2023.
Contractual
Matters
On
November 1, 2013, we entered into an agreement with USMC, a related party, in which USMC provides 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 Board 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).
Note
9 – STOCK-BASED 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 February
28, 2022, 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 did not grant stock options during the three months ended February 28, 2022 and February 28, 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, 2021 | |
| 117,795,000 | | |
$ | 0.39 | |
| Granted | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Expired or cancelled | |
| - | | |
| - | |
| Outstanding at February 28, 2022 | |
| 117,795,000 | | |
| 0.39 | |
The
following table summarizes information about options to purchase shares of the Company’s common stock outstanding and exercisable
at February 28, 2022:
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 | | |
| 2.39 | | |
$ | 0.099 | | |
| 400,000 | |
| | 0.10 | | |
| 645,000 | | |
| 3.54 | | |
| 0.10 | | |
| 645,000 | |
| | 0.12 | | |
| 50,000 | | |
| 6.57 | | |
| 0.12 | | |
| 50,000 | |
| | 0.36 | | |
| 200,000 | | |
| 4.45 | | |
| 0.36 | | |
| - | |
| | 0.38 | | |
| 116,000,000 | | |
| 6.59 | | |
| 0.38 | | |
| - | |
| | 3.00 | | |
| 500,000 | | |
| 4.01 | | |
| 3.00 | | |
| 500,000 | |
| | | | |
| 117,795,000 | | |
| 6.55 | | |
$ | 0.39 | | |
| 1,595,000 | |
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.
Total
compensation expense related to the options was $10,949,738 and $10,687 for the three months ended February 28, 2022 and February 28,
2021, respectively. As of February 28, 2022, there was $21,865,966 in future compensation cost related to non-vested stock options.
The
aggregate intrinsic value totaled $14,313,350 for total outstanding and exercisable options, which was based on our estimated fair value
of the common stock of $0.51 as of February 28, 2022, which is the aggregate fair value of the common stock that would have been received
by the option holders had all option holders exercised their options as of that date, net of the aggregate exercise price.
NOTE
10 – 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 February 28, 2022.
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 provides various technical evaluations and mine development services to the Company. During the
three months ended February 28, 2022 and 2021, the Company did not make any purchased from USMC. No services were rendered by USMC for
the three months ended February, 2022 and 2021. In addition, during the three months ended February 28, 2022 and 2021, USMC paid $2,284
and $0, respectively, of expenses to the Company’s vendors and creditors on behalf of the Company and also made cash advances to
the Company of $118,000 and $242,077, respectively, which are recorded as part of due to affiliates on the Company’s unaudited
consolidated balance sheets. The amounts owed for services rendered, expenses paid on behalf of the Company, and cash advances were converted
into the Company’s common stock pursuant to the September 5, 2019, Debt Exchange Agreement (See Note 5). The balance due to USMC
was $849,343 and $729,059 at February 28, 2022 and November 30, 2021, 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 February 28, 2022, 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 $12,329
for the three months ended February 28, 2022
and 2021, and is recorded as part of accrued expenses on the consolidated balance sheets. On April 7, 2022, the December 1, 2019,
January 1, 2020 and February 1, 2020 notes were amended to extend the maturity dates of all such notes to April
30, 2022. Thereafter, on April 7, 2022, USMC converted the aggregate outstanding principal balance of $1,000,000
of the December 1, 2019, January 1, 2020, February 1, 2020 and December 1, 2020 notes, plus accrued interest totaling $75,346
through such date, into 6,720,906
shares of the Company’s common stock.
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 February 28, 2022, USMC has
purchased notes totaling $1,579,769
with a maturity date of March
17, 2023 (see Note 5). Interest expense on these
notes totaled $19,477
for the three months ended February 28, 2022
and is recorded as part of accrued expenses on the consolidated balance sheets. On March 14, 2022, in connection with the November
25, 2020, securities purchase agreement with USMC, a related party, the Company issued a convertible promissory note in the amount of
$884,492.28
to USMC, with a maturity date of March
14, 2024. 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 Holder, at a conversion price of $0.088
per share.
On April 7, 2022 USMC converted the aggregate outstanding principal balance of $1,464,337 of the November 25,
2020 note and March 14, 2022 note, plus accrued interest totaling $33,564
through such date, into 17,020,749
shares of the Company’s common stock.
On April 7, 2022, the Company
entered into a securities purchase agreement with USMC, effective March 23, 2022, 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 $0.39 per share.
The
outstanding balance due on the above notes to USMC was $1,579,769 at February 28, 2022 and November 30, 2021.
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 will 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 ten-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.
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”). Pursuant to the Amendment, the Note was cancelled 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 LLC 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. For the three months
ended February 28, 2022 the Company expensed $10,917,826
in stock-based compensation expense related to
the issuance of the option on October 16, 2021 to US Mine LLC under the extraction agreement.
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 A. Scott Dockter, President, CEO 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 three months ended
February 28, 2022, the Company did not make any payments towards the balance of the note. As of February 28, 2022 and November 30, 2021,
the principal balance outstanding on this note was $58,716, respectively, and is recorded as Note Payable to Officer on the unaudited
condensed consolidated balance sheet. Interest expense for this note was $869 and $1,868 for the three months ended February 28, 2021
and February 28, 2021, respectively.
NOTE
11 – 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 February 28, 2022 and
November 30, 2021, the Company had no deposits in excess of the FDIC insured limit.
Revenues
The
Company had no revenue for the three months ended February 28, 2022 and 2021.
Accounts
Receivable
One
customer accounted for 100% of the accounts receivable as February 28, 2022 and November 30, 2021.
Vendors
SCHEDULE OF CONCENTRATION OF CREDIT RISK
Four
suppliers accounted for 70% of purchases as of February 28, 2022, as set forth below:
| Vendor A | |
| 22 | % |
| Vendor B | |
| 18 | % |
| Vendor C | |
| 16 | % |
| Vendor D | |
| 14 | % |
Two
suppliers accounted for 88% of purchases as of November 31, 2021, as set forth below:
| Vendor A, a related party | |
| 75 | % |
| Vendor B | |
| 13 | % |
NOTE
12 – SUBSEQUENT EVENTS
Conversion
of Related Party Notes
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 28, 2022, 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 $12,329 for
the three months ended February 28, 2022 and 2021, and is recorded as part of accrued expenses on the consolidated balance sheets.
On April 7, 2022, the December 1, 2019, January 1, 2020 and February 1, 2020 notes were amended to extend the
maturity dates to April 30, 2022. Thereafter, on April 7, 2022, USMC agreed to convert the principal balance of the
December 1, 2019, January 1, 2020, February 1, 2020 and December 1, 2020 notes, plus accrued interest totaling $75,346 through
such date, into 6,720,906 shares
of the Company’s common stock.
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 February 28, 2022, USMC has purchased notes totaling $1,579,769 with
a maturity date of March
17, 2023 (see Note 5). Interest expense on
these notes totaled $19,477 for
the three months ended February 28, 2022 and is recorded as part of accrued expenses on the consolidated balance sheets. On March
14, 2022, in connection with the November 25, 2020, securities purchase agreement with USMC, a related party, (see Note 10), the
Company issued a convertible promissory note in the amount of $884,492.28
to USMC, with a maturity date of March
14, 2024. 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 Holder, at a conversion price of $0.088 per
share. On April 7, 2022, USMC agreed to convert the
principal balance of the November 25, 2020, note, plus accrued interest totaling $33,564 through
such date, into 17,020,749 shares
of the Company’s common stock.
On April 1, 2020,
the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust, a related party of the Company, pursuant
to which the Company will purchase the Snow White Mine for $836,000. The purchase price plus 5% interest is payable in full in cash at
the closing which must occur at any time before April 1, 2022. On April 14, 2022, the agreement was amended to extend the closing date
to April 14, 2023.