UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the Quarterly Period Ended
or
For the transition period from __________________________ to __________________________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other Jurisdiction | (I.R.S. Employer | |
| of Incorporation or Organization) | Identification No.) |
| ||
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of October 11, 2023, there were shares of the registrant’s common stock outstanding.
PUREBASE CORPORATION AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2023
| 2 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| August 31, | November 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Settlement liability | ||||||||
| Line of credit | ||||||||
| Lease liability, current | ||||||||
| Note payable to officer | ||||||||
| Convertible notes payable, related party | ||||||||
| Notes payable, related party | ||||||||
| Total Current Liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Convertible notes payable; related party, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding, at August 31, 2023 and November 30, 2022 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding, at August 31, 2023 and November 30, 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| August 31, 2023 | August 31, 2022 | August 31, 2023 | August 31, 2022 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per Common Share - Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted Average Shares Outstanding - Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 2023 AND 2022
(Unaudited)
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance at November 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation - shares | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation - shares | - | |||||||||||||||||||||||||||
| Convertible debt converted into common stock | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at May 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation - shares | - | |||||||||||||||||||||||||||
| Settlement share surrender | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at August 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance at November 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation - shares | - | |||||||||||||||||||||||||||
| Settlement share surrender | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of February 28, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation - shares | - | |||||||||||||||||||||||||||
| Conversion of board of director accrued debt | - | | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at May 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation - shares | - | 100,000 | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at August 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| August 31, 2023 | August 31, 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Non-cash director compensation | ||||||||
| Gain on debt forgiveness | ( | ) | ||||||
| Gain on settlement | ( | ) | ||||||
Settlement liability | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Right of use asset | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Change in settlement liability | ( | ) | ||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net Cash Used In Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Advances from related party | ||||||||
| Proceeds from line of credit | ||||||||
| Payments on notes payable, related party | ( | ) | ( | ) | ||||
| Net Cash Provided By Financing Activities | ||||||||
| Net Increase (Decrease) In Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Noncash operating and financing activities: | ||||||||
| Forgiveness of accounts payable due to USMC | $ | ( | ) | $ | ||||
| Vendors paid for on behalf of the Company by USMC | $ | $ | ||||||
| Expenses paid for on behalf of the Company by USMC | $ | $ | ||||||
| Due to affiliates exchanged for convertible debt | $ | $ | ||||||
| Convertible debt converted to common stock | $ | $ | ||||||
| Accrued interest converted to common stock | $ | $ | ||||||
| Director compensation - accrued as convertible debt converted to common stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
PUREBASE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
Corporate Overview
PureBase
Corporation (“PureBase” or the “Company”) was incorporated in the State of
The Company’s headquarters is in Ione, California.
Agricultural Sector
The Company develops specialized fertilizers, sun protectants, soil amendments, and bio-stimulants for organic and non-organic sustainable agriculture. 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 and Humic Advantage, a humic acid product derived from leonardite.
Construction Sector
The Company has been developing and testing a kaolin-based product that it believes will help create a lower CO2-emitting concrete through the use of high-quality supplementary cementitious materials (“SCMs”). The Company is developing an 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.
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, exploration drilling, preparation of feasibility studies, mine modeling, on-site construction, production, site reclamation, and product fulfillment. Exploration services include securing necessary permits, environmental compliance, and reclamation plans. In addition, a substantial portion of the minerals used by the Company are obtained from properties owned or controlled by USMC. A. Scott Dockter, the Company’s Principal Executive Officer and a director, and John Bremer, a director, are also officers, directors, and owners of USMC.
NOTE 2 – GOING CONCERN AND LIQUIDITY
The
accompanying 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. As of August 31, 2023,
the Company had a significant accumulated deficit of $
| 7 |
The Company’s plan, through the continued promotion of its products 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 an additional line of credit and issuances of equity securities or equity-linked securities to USMC and other 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, including funding from USMC
in connection with the March 23, 2022 securities purchase agreement, the March 7, 2023 securities purchase agreement, and a July 10,
2023 line of credit agreement will provide the necessary funding for the Company to continue as a going concern for the next twelve months.
The March 23, 2022 securities purchase agreement provides for the issuance by the Company of up to an aggregate of $
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company has prepared the accompanying unaudited condensed consolidated financial statements 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 notes thereto for the year ended November 30, 2022, in our Annual Report on Form 10-K filed on February 28, 2023, with the SEC. The results of the nine months ended August 31, 2023, (unaudited) are not necessarily indicative of the results to be expected for the full year ending November 30, 2023.
| 8 |
Principles of Consolidation
These condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries PureBase AG and PureBase AM. 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 may be affected.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. Significant estimates include the useful lives of property and equipment, deferred tax asset and valuation allowance, and assumptions used in the Black-Scholes valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Revenue
The Company accounts for revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company derives revenues from the sale of products from its agricultural sector and construction sector. 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 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 and Partially Unsatisfied Performance Obligations – for 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 606 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 provided 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. |
| 9 |
Disaggregated Revenue
Revenue consists of the following by product offering for the nine months ended August 31, 2023:
| CROP WHITE II | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | |||||||||||
| $ | $ | $ | $ | |||||||||||
Revenue consists of the following by product offering for the nine months ended August 31, 2022:
| CROP WHITE II | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | |||||||||||
| $ | $ | $ | $ | |||||||||||
Cash and Cash Equivalents
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
Accounts Receivable
The
Company periodically assesses its accounts and other receivables for collectability on a specific identification basis. If collectability
of an account becomes unlikely, an allowance is recorded for that doubtful account. As of August 31, 2023 and November 30, 2022, the
Company has determined that
Property and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related
assets, generally to
| Equipment | |
| Autos and trucks |
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 $
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. The 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.
Shipping and Handling
The
Company incurs shipping and handling costs which are charged back to the customer. The Company incurred shipping and handling costs of
$
| 10 |
The
Company incurred shipping and handling costs of $
Advertising and Marketing Costs
The
Company expenses advertising and marketing costs as incurred and such costs are recorded in selling, general and administrative expenses
in the accompanying condensed consolidated statements of operations. Advertising and marketing expenses were $
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 the notes approximates the estimated fair value for these financial instruments as management believes that such notes constitute all of the Company’s debt and interest payable on the notes based on the Company’s incremental borrowing rate.
Net loss per share of common stock is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the three and nine months ended August 31, 2023 and 2022. 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, outstanding options have been excluded from the Company’s computation of net loss per share of common stock for the three and nine months ended August 31, 2023 and 2022.
| 11 |
| Three Months Ended, | ||||||||
August 31, 2023 | August 31, 2022 | |||||||
| Convertible Notes | ||||||||
| Stock Options | ||||||||
| Total | ||||||||
| Nine Months Ended, | ||||||||
August 31, 2023 | August 31, 2022 | |||||||
| Convertible Notes | ||||||||
| Stock Options | ||||||||
| Total | ||||||||
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 accompanying condensed consolidated 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 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 with 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 as noted above.
Leases
With the adoption of ASC 842, Leases, operating lease agreements are required to be recognized on the balance sheet as Right-of-Use (“ROU”) assets and corresponding lease liabilities. 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 the Company will exercise that option.
| 12 |
The
Company leases its corporate offices. The lease is classified as an operating lease. The Company is a party to a two-year lease with
USMC for
In accordance with ASC 842, the Company recognized a ROU asset and corresponding lease liability on the condensed consolidated balance sheet for long-term office leases. See Note 7 – Leases for further discussion, including the impact on the accompanying unaudited condensed 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 condensed 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 operations 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 condensed consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the condensed consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the condensed consolidated statements of operations.
Exploration Stage
In accordance with U.S. GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred until such time as the Company exits the exploration stage by establishing proven or probable reserves. Expenditures relating to exploration activities such as drill programs to establish mineralized materials are expensed as incurred. Expenditures relating to pre-extraction activities are expensed as incurred until such time proven or probable reserves are established for that project, after which expenditures relating to mine development activities for that particular project are capitalized as incurred. As of August 31, 2023, the Company was not engaged in any mine exploration.
Mineral Rights
Acquisition costs of mineral rights are capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred until such time as the Company exits the exploration stage by establishing proven or probable reserves, as defined by the SEC under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study. Expenditures relating to exploration activities are expensed as incurred and expenditures relating to pre-extraction activities are expensed as incurred until such time proven or probable reserves are established for that project, after which subsequent expenditures relating to development activities for that particular project are capitalized as incurred.
Where proven and probable reserves have been established, the project’s capitalized expenditures are depleted over proven and probable reserves upon commencement of production using the units-of-production method. Where proven and probable reserves have not been established, such capitalized expenditures are depleted over the estimated production life upon commencement of extraction using the straight-line method.
| 13 |
The carrying values of the mineral rights are assessed for impairment by management on a quarterly basis or when indicators of impairment exist. Should management determine that these carrying values cannot be recovered, the unrecoverable amounts are written off against earnings. As of August 31, 2023 and November 31, 2022, the Company did not have any capitalized mineral rights.
Recent Accounting Pronouncements
All newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
NOTE 4 – MINING RIGHTS
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. On December 1, 2014, USMC 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 provides for the sale of approximately
On
April 1, 2020, the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust (the “Trust”),
pursuant to which the Company will purchase the Snow White Mine for $
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
August 31, 2023 | November 30, 2022 | |||||||
| Furniture and equipment | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Automobiles and trucks | ||||||||
| Pilot plant | ||||||||
| Construction in process | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
There
was
| 14 |
NOTE 6 – NOTES PAYABLE
Bayshore Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note to Bayshore Capital Advisors, LLC (“Bayshore Capital”), an affiliate
through common ownership of a
A. Scott Dockter – Chief Executive Officer
On
August 31, 2017, the Company issued a note in the amount of $
Convertible Promissory Notes – USMC
December 1, 2019
On
December 1, 2019, in connection with the September 26, 2019 securities purchase agreement with USMC (See Note 12), the Company issued
a convertible promissory note in the amount of $
The
issuance of Tranche #1 resulted in a discount from the beneficial conversion feature totaling $
January 1, 2020
On
January 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC (See Note 12), the Company issued
a convertible promissory note in the amount of $
| 15 |
The
issuance of Tranche #2 resulted in a discount from the beneficial conversion feature totaling $
February 1, 2020
On
February 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC (See Note 12), the Company issued
a convertible promissory note in the amount of $
The
issuance of Tranche #3 resulted in a discount from the beneficial conversion feature totaling $
December 1, 2020
On
December 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC (See Note 12), the Company issued
a convertible promissory note in the amount of $
March 17, 2021
On
March 17, 2021, in connection with the March 11, 2021 securities purchase agreement with USMC (See Note 12), the Company issued a convertible
promissory note in the amount of $
| 16 |
March 14, 2022
On
March 14, 2022, in connection with the November 25, 2020 securities purchase agreement with USMC (See Note 12), the Company issued a
convertible promissory note in the amount of $
August 30, 2022
On
August 30, 2022, in connection with the April 7, 2022 securities purchase agreement with USMC (See Note 12), the Company issued a convertible
promissory note in the amount of $
November 29, 2022
On
November 29, 2022, in connection with the April 7, 2022 securities purchase agreement with USMC (See Note 12), the Company issued a convertible
promissory note in the amount of $
February 28, 2023
On
February 28, 2023, in connection with the April 7, 2022 securities purchase agreement with USMC (See Note 12), the Company issued a convertible
promissory note in the amount of $
May 31, 2023
On
May 31, 2023, in connection with the March 20, 2023 securities purchase agreement with USMC (See Note 12), the Company issued a convertible
promissory note in the amount of $
June 30, 2023
On
June 30, 2023, in connection with the March 20, 2023 securities purchase agreement with USMC (See Note 12), the Company issued a convertible
promissory note in the amount of $
| 17 |
Line of Credit –USMC
July 10, 2023
On
July 10, 2023, the Company entered into a line of credit agreement and unsecured convertible grid promissory note with USMC. The July
10, 2023 line of credit agreement provides for the issuance of up to an aggregate of $
Convertible Debt – Board of Directors
On
April 8, 2021, the Company entered into a twelve-month director agreement with Jeffrey Guzy, as amended on August 26, 2022 (the
“Guzy Director Agreement”) pursuant to which Mr. Guzy will serve as a director of the Company, which agreement will
automatically renew (the “Renewal Date”) for successive one-year terms unless either party notifies the other of its
desire not to renew the Agreement within 30 days of the expiration of the then current term. As compensation therefor, Mr. Guzy is
entitled to a cash fee of $
On
August 13, 2021, the Company entered into a twelve-month director agreement with Dr. Kurtis, as amended on August 26, 2022 (the “Kurtis
Director Agreement”) pursuant to which Dr. Kurtis will provide board services, which agreement will automatically renew for successive
one-year terms unless either party notifies the other of its desire not to renew the Agreement within 30 days of the expiration of the
then current term. As compensation therefor, Dr. Kurtis is entitled to a cash fee of $
NOTE 7 – LEASES
The following table presents net lease cost and other supplemental lease information:
Nine Months Ended August 31, 2023 | ||||
| Lease cost | ||||
| Operating lease cost (cost resulting from lease payments) | $ | |||
| Short term lease cost | ||||
| Sublease income | ||||
| Net lease cost | $ | |||
| Operating lease – operating cash flows (fixed payments) | $ | |||
| Operating lease – operating cash flows (liability reduction) | $ | |||
| Non-current leases – right of use assets | $ | |||
| Current liabilities – operating lease liabilities | $ | |||
| Non-current liabilities – operating lease liabilities | $ | |||
| 18 |
Nine Months Ended August 31, 2022 | ||||
| Lease cost | ||||
| Operating lease cost (cost resulting from lease payments) | $ | |||
| Short term lease cost | ||||
| Sublease income | ||||
| Net lease cost | $ | |||
| Operating lease – operating cash flows (fixed payments) | $ | |||
| Operating lease – operating cash flows (liability reduction) | $ | |||
| Non-current leases – right of use assets | $ | |||
| Current liabilities – operating lease liabilities | $ | |||
| 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 three months ended August 31, 2023:
| Fiscal Year | Operating Leases | |||
| Remainder of 2023 | $ | |||
| 2024 | ||||
| Total future minimum lease payments | ||||
| Amount representing interest | ( | ) | ||
| Present value of net future minimum lease payments | $ | |||
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following amounts as of:
| August 31, 2023 | November 30, 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest – related party | ||||||||
| Accrued compensation | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Office and Rental Property Leases
The Company is leasing office space from USMC, which is owned by the Company’s majority shareholders and directors, A. Scott Dockter and John Bremer (See Note 12).
| 19 |
Mineral Properties
The Company’s mineral rights require various annual lease payments (See Note 4).
Legal Matters
On
July 8, 2020, the Company’s former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for arbitration
alleging retaliation, wrongful termination, and demand for a minimum of $
Contractual Matters
On November 1, 2013, the Company entered into an agreement with USMC, in which USMC provides various technical evaluations and mine development services for the Company regarding the various mining properties/rights owned by the Company. Terms of services and compensation will be determined for each project undertaken by USMC.
On October 12, 2018, the Company entered into a material supply agreement with USMC, pursuant to which USMC provides designated natural resources to the Company at predetermined prices (See Note 12).
Note 10 - STOCKHOLDERS’ EQUITY
On May 19, 2022, the Company entered into an agreement with Newbridge Securities Corporation (“Newbridge”) for a twelve-month term, pursuant to which Newbridge provided investment banking and corporate advisory services to the Company. As consideration therefor, the Company issued Newbridge shares of common stock on June 17, 2022, which shares were subject to a 12-month lockup from the date of issuance. The shares were issued at a fair value of $ per share.
On June 9, 2023, effective April 8, 2023, the Company entered into a one-year advisory agreement with Dr. Karen Scrivener (“Scrivener Agreement”) pursuant to which Dr. Scrivener will provide certain strategic advisory services to the Company. As compensation therefor, on June 9, 2023, Dr. Scrivener was issued shares of the Company’s common stock at a fair value of $ per share.
The Company accounted for its stock-based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718.
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 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 August 31, 2023, options to purchase an aggregate of shares of common stock have been granted under the Option Plan.
| 20 |
The Company has also granted options to purchase an aggregate of shares of common stock pursuant to employment contracts with certain employees prior to the adoption of the Option Plan.
On June 3, 2022, in connection with a settlement agreement with Agregen, Robert Hurtado, James Todd Gauer and John Gingerich, the Company granted James Todd Gauer an immediately exercisable option to purchase shares of common stock, the equivalent number of shares of common stock that were surrendered to the Company, at an exercise price of $ per share and a fair value of $. The option was valued using the Black-Scholes option pricing model under the assumptions in the below table.
On August 26, 2022, the Company granted immediately exercisable options to purchase an aggregate of shares of common stock to members of the Board, consultants and employees for services to be performed. The options were issued at an exercise price of $ per share for a total fair value of $. The options were valued using the Black-Scholes option pricing model under the assumptions in the below table.
| Grant Date | Number of Options | Stock Price | Exercise Price | Expected Volatility | Risk-free Interest Rate | Dividend Rate | Expected Term | Fair Value | ||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
| $ | $ | % | % | % | years | $ | ||||||||||||||||||||||||
The Company did not grant stock options during the nine months ended August 31, 2023, and granted stock options to purchase an aggregate of shares of common stock during the nine months ended August 31, 2022.
The weighted average non-vested grant date fair value of non-vested options was $ and $ at August 31, 2023, and November 30, 2022, respectively.
| Weighted | ||||||||
| Number of | Average | |||||||
| Shares | Exercise Price | |||||||
| Outstanding at November 30, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at August 31, 2022 | $ | |||||||
| Outstanding at November 30, 2022 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired or cancelled | ||||||||
| Outstanding at August 31, 2023 | $ | |||||||
| 21 |
| Weighted- | Weighted- | |||||||||||||||||
| Average | Average | |||||||||||||||||
| Exercise | Outstanding | Remaining Life | Exercise | Number | ||||||||||||||
| Price | Options | In Years | Price | Exercisable | ||||||||||||||
| $ | $ | |||||||||||||||||
| $ | ||||||||||||||||||
The compensation expense attributed to the issuance of the options is recognized as vested options.
The stock options granted are exercisable over various terms from three to from the grant date and .
Total compensation expense related to the options was $and $for the nine months ended August 31, 2023, and August 31, 2022, respectively. Total compensation expense related to the options was $and $ for the three months ended August 31, 2023, and August 31, 2022, respectively. As of August 31, 2023, there was no future compensation cost related to non-vested stock options.
As of August 31, 2023, the aggregate intrinsic value of the total outstanding and exercisable options was $, which was based on an estimated fair value of the Company’s common stock of $ as of such date. and which represents 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 12 – RELATED PARTY TRANSACTIONS
Bayshore Capital Advisors, LLC
On
February 26, 2016, the Company issued a promissory note to Bayshore Capital Advisors, LLC (“Bayshore Capital”), an affiliate
through common ownership of a
US Mine Corporation
The
Company entered into a contract mining agreement with USMC, a company which A. Scott Dockter, the Company’s Chief Executive Officer
and a director, and John Bremer, a director, each own
| 22 |
USMC Notes
The
Company has entered into various securities purchase agreements with USMC pursuant to which USMC may purchase the Company’s unsecured
convertible promissory notes (See Note 6). The outstanding balance on the convertible notes due to USMC was $
USMC Line of Credit
On
July 10, 2023, the Company entered into a line of credit agreement and unsecured convertible grid promissory note with USMC. The July
10, 2023 line of credit agreement provides for the issuance of up to an aggregate of $
USMC Mining Agreements
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 on October 12, 2018. Under the terms of the Supply Agreement, all kaolin clay purchased by the
Company from USMC under the Supply Agreement must be used exclusively for agricultural products and supplementary cementitious materials.
The Company will pay $
US Mine LLC
| 23 |
On October 6, 2021, and prior to consummation of activities under the Materials Extraction Agreement, the Company and US Mine, LLC executed an amendment to the Materials Extraction Agreement (the “Amendment”). Pursuant to the Amendment, as further amended on June 17, 2022, 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, LLC as compensation. Shares subject to the option vested as to shares on April 6, 2022, shares on October 6, 2022, and shares on April 6, 2023. For the three and nine months ended August 31, 2023, the Company expensed $ and $, respectively, in stock-based compensation expense related to the issuance of the option on October 16, 2021, to US Mine LLC under the Amendment.
Transactions with Officers
On
August 31, 2017, the Company issued a note in the amount of $
Convertible Debt – Board of Directors
On
April 8, 2021, the Company entered into the Guzy Director Agreement (See Note 6) pursuant to which Mr. Guzy will serve as a director
of the Company, which agreement will automatically renew for successive one-year terms unless either party notifies the other of its
desire not to renew the Agreement within 30 days of the expiration of the then current term. As compensation therefor, Mr. Guzy is
entitled to a cash fee of $
On
August 13, 2021, the Company entered into the Kurtis Director Agreement (See Note 6) pursuant to which Dr. Kurtis will serve as a director
and provide board services, which agreement will automatically renew for successive one-year terms unless either party notifies the other
of its desire not to renew the Agreement within 30 days of the expiration of the then current term. As compensation therefor, Dr. Kurtis
is entitled to a cash fee of $
On June 9, 2023, effective April 8, 2023, the Company entered into the Scrivener Agreement pursuant to which Dr. Scrivener will provide certain strategic advisory services to the Company. As compensation therefor, Dr. Scrivener was issued shares of the Company’s common stock on June 9, 2023, at a fair value of $ per share.
| 24 |
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 $
NOTE 13 – 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 $
Revenues
Four
customers accounted for
| Customer A | % | |||
| Customer B | % | |||
| Customer C | % | |||
| Customer D | % |
Four
customers accounted for
| Customer A | % | |||
| Customer B | % | |||
| Customer C | % | |||
| Customer D | % |
Accounts Receivable
Two
customers accounted for
| Customer A | % | |||
| Customer B | % |
There were accounts receivable as of November 30, 2022.
Vendors
Three
suppliers accounted for
| Vendor A | % | |||
| Vendor B | % | |||
| Vendor C | % |
Five
suppliers accounted for
| Vendor A | % | |||
| Vendor B | % | |||
| Vendor C | % | |||
| Vendor D, a related party | % | |||
| Vendor E | % |
| 25 |
NOTE 14 – SUBSEQUENT EVENTS
In accordance with ASC 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events and transactions that occurred after August 31, 2023 through the date the condensed consolidated financial statements were filed. During this period the Company did not have any material reportable subsequent events other than those stated below:
Effective
September 11, 2023, Brady Barto was appointed to serve on the Company’s board of directors and entered into a twelve-month director
agreement with the Company, which automatically renews unless Mr. Barto gives 30 days prior written notice of his desire not to renew
the agreement. Pursuant to the agreement, Mr. Barto will be paid $
| 26 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q includes forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are statements in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| ● | absence of contracts with customers or suppliers; |
| ● | our ability to maintain and develop relationships with customers and suppliers; |
| ● | the impact of competitive products and pricing; |
| ● | supply constraints or difficulties; |
| ● | the retention and availability of key personnel; |
| ● | general economic and business conditions; |
| ● | substantial doubt about our ability to continue as a going concern; |
| ● | our ability to successfully implement our business plan; |
| ● | our need to raise additional funds in the future; |
| ● | our ability to successfully recruit and retain qualified personnel in order to continue our operations; |
| ● | our ability to successfully acquire, develop or commercialize new products; |
| ● | the commercial success of our products; |
| ● | the impact of any industry regulation; |
| ● | our ability to develop existing mining projects or establish proven or probable reserves; |
| ● | our dependence on one vendor for our minerals for our products; |
| ● | the impact of potentially losing the rights to properties; |
| ● | the impact of the increase in the price of natural resources; and |
| ● | the continued impact of the COVID-19 pandemic. |
We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report, except as required by law.
As used in this Quarterly Report and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our,” refer to PureBase Corporation and its wholly-owned subsidiaries, PureBase Agricultural, Inc., a Nevada corporation (“PureBase AG”) and U.S. Agricultural Minerals, LLC, a Nevada limited liability company (“PureBase AM”).
Business Overview
We are an industrial mineral and natural resource company that provides solutions to the agriculture and construction materials markets in the United States, through our two subsidiaries, PureBase AG, and PureBase AM, respectively. The Company has not yet commenced mining operations and relies on US Mine LLC for its raw materials.
| 27 |
Agricultural Sector
We develop specialized fertilizers, sun protectants, soil amendments and bio-stimulants for organic and non-organic sustainable agriculture. We have 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. We are 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 and Humic Advantage a humic acid product derived from leonardite.
Construction Sector
We are developing and testing a kaolin-based product that it believes will help create a lower CO2-emitting concrete through the use of high-quality supplementary cementitious materials (“SCMs”). We are developing SCMs for the construction material markets, particularly the cement markets that we believe 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, we believe there are significant opportunities for high-quality SCM products in the construction-materials sector.
We utilize the services of US Mine Corporation(“USMC”) for the development and contract mining of industrial mineral and metal projects, 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 used by the Company are obtained from properties owned or controlled by USMC.
A. Scott Dockter, the Company’s Chief Executive Officer and a director, and John Bremer, a director, are also officers, directors and owners of USMC.
Recent Developments
USMC Line of Credit
On July 10, 2023, the Company entered into a line of credit agreement with USMC which provides for the issuance of up to an aggregate of $1,000,000 of advances from USMC under an unsecured convertible grid promissory note until July 10, 2024 (the “Line of Credit”). The note accrues interest at 8% per annum and any outstanding principal or accrued interest under the note is convertible into shares of the Company’s common stock at a conversion price of $0.10 per share on the maturity date. As of August 31, 2023, there have been advances of $231,048 from USMC and $873 in accrued interest.
New Director
Effective September 11, 2023, Brady Barto was appointed to serve on the Company’s board of directors and entered into a twelve-month director agreement with the Company, which automatically renews unless Mr. Barto gives 30 days prior written notice of his desire not to renew the agreement. Pursuant to the agreement, Mr. Barto will be paid $1,000 per month for serving as a director, which shall accrue as debt until the Company has its first cash flow positive month. At the completion of the term of the agreement or if Mr. Barto has been removed or resigned, any accrued amount owed will be paid in shares of the Company’s common stock at the lower of $0.15 per share or the 20-day volume weighted average price from the date of termination or resignation. Also on September 11, 2023, Mr. Barto was granted a five-year option to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.15 per share which become exercisable one year from the date of grant. Mr. Barto is the son of Craig Barto who, together with John Bremer, a director and A. Scott Dockter, the Company’s Chief Executive Officer and a director, are owners of US Mine Corp. and US Mine LLC.
| 28 |
Results of Operations
Comparison of the Three Months Ended August 31, 2023 to the Three Months Ended August 31, 2022
| August 31, | August 31, | |||||||||||
| 2023 | 2022 | Variance | ||||||||||
| Revenue, net | $ | 207,243 | $ | 226,060 | $ | (18,817 | ) | |||||
| Cost of goods sold | 44,080 | 34,329 | 9,751 | |||||||||
| Operating income | $ | 163,163 | $ | 191,731 | $ | (28,568 | ) | |||||
| Operating Expenses: | ||||||||||||
| Selling, general and administrative | 288,487 | 348,925 | (60,438 | ) | ||||||||
| Stock based compensation | 2,000 | 7,883,082 | (7,881,082 | ) | ||||||||
| Loss from operations | (127,324 | ) | (8,040,276 | ) | 7,912,952 | |||||||
| Other income (expense) | - | - | - | |||||||||
| Interest expense | (24,702 | ) | (1,038 | ) | (23,664 | ) | ||||||
| Net Loss | $ | (152,026 | ) | $ | (8,041,314 | ) | $ | 7,889,288 | ||||
Revenues
Revenue decreased by $18,817, or 8%, for the three months ended August 31, 2023, as compared to the three months ended August 31, 2022. This decrease was primarily due to a decrease in purchases by the Company’s customers during the three months ended August 31, 2023.
Cost of Goods Sold
Cost of goods sold increased by $9,751, or 28%, for the three months ended August 31, 2023, as compared to the three months ended August 31, 2022, directly corresponding with the decrease in revenue during the three months ended August 31, 2023.
Operating Expenses
Total operating expenses decreased by $7,941,520, or 96%, for the three months ended August 31, 2023, as compared to the three months ended August 31, 2022. The decrease in operating expenses was primarily due to a decrease in stock-based compensation of $7,881,082 for the three months ended August 31, 2023, as compared to the three months ended August 31, 2022.
As of April 2023, the Company no longer expensed the option to purchase an aggregate of 116,000,000 shares of common stock issued to US Mine LLC on October 6, 2021, which resulted in a decreased stock-based compensation expense during the three months ended August 31, 2023 compared to the three months ended August 31, 2022.
Other Income
There was no change in other income for the three months ended August 31, 2023, as compared to the three months ended August 31, 2022.
Interest Expense
Interest expense increased by $23,664 for the three months ended August 31, 2023, as compared to the three months ended August 31, 2022, primarily due to increased borrowing from USMC.
| 29 |
Comparison of the Nine Months Ended August 31, 2023, to the Nine Months Ended August 31 , 2022.
| August 31, | August 31, | |||||||||||
| 2023 | 2022 | Variance | ||||||||||
| Revenue, net | $ | 325,875 | $ | 454,536 | $ | (128,661 | ) | |||||
| Cost of goods sold | 93,149 | 125,611 | (32,462 | ) | ||||||||
| Operating income | $ | 232,726 | $ | 328,925 | $ | (96,199 | ) | |||||
| Operating Expenses: | ||||||||||||
| Selling, general and administrative | 1,170,542 | 918,053 | 252,489 | |||||||||
| Stock based compensation | 7,328,400 | 26,137,165 | (18,808,765 | ) | ||||||||
| Loss from operations | (8,266,216 | ) | (26,726,293 | ) | 18,460,077 | |||||||
| Other income (expense) | 310,401 | 2,007 | 308,394 | |||||||||
| Interest expense | (46,226 | ) | (32,949 | ) | (13,277 | ) | ||||||
| Net Loss | $ | (8,002,041 | ) | $ | (26,757,235 | ) | $ | 18,755,194 | ||||
Revenues
Revenue decreased by $128,661, or 28%, for the nine months ended August 31, 2023, as compared to the nine months ended August 31, 2022. This decrease was primarily due to a decrease in purchases by the Company’s customers during the nine months ended August 31, 2023.
Cost of Goods Sold
Cost of goods sold expenses decreased by $32,462, or 26%, for the nine months ended August 31, 2023, as compared to the nine months ended August 31, 2022, directly corresponding with the decrease in revenue during the nine months ended August 31, 2023.
Operating Expenses
Total operating expenses decreased by $18,556,276, or 69%, for the nine months ended August 31, 2023, as compared to the nine months ended August 31, 2022. The decrease in operating expenses was primarily due to a decrease in stock-based compensation of $18,808,763 for the nine months ended August 31, 2023, as compared to the nine months ended August 31, 2022.
As of April 2023, the Company no longer expensed the option to purchase an aggregate of 116,000,000 shares of common stock issued to US Mine LLC on October 6, 2021, which resulted in a decreased stock-based compensation expense during the nine months ended August 31, 2023 compared to the nine months ended August 31, 2022.
Other Income
Other income increased by $308,394 for the nine months ended August 31, 2023, as compared to the nine months ended August 31, 2022, primarily due to a legal settlement of $275,000, and gain on forgiveness of debt and accrued interest in the amount of $35,401.
Interest Expense
Interest expense increased by $13,277, or 40%, for the nine months ended August 31, 2023, as compared to the nine months ended August 31, 2022, primarily due to increased borrowing from USMC.
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Liquidity and Capital Resources
As of August 31, 2023, we had cash on hand of $101,966 and a working capital deficiency of $470,294, as compared to cash on hand of $19,055 and a working capital deficiency of $620,290 as of November 30, 2022. The decrease in working capital deficiency is primarily a result of an increase in cash of $82,91l, accounts receivable increase of $100,270 and an increase in prepaid expenses and other assets of $9,804.
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 2023, 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 with cash advances from USMC and the sale of equity and convertible notes. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
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, including funding from USMC in connection with the March 23, 2022 securities purchase agreement, March 7, 2023 securities purchase agreement, and July 10, 2023 line of credit agreement will provide the necessary funding for the Company to continue as a going concern for the next twelve months.
On February 28, 2023, in connection with the securities purchase agreement with USMC, dated April 7, 2022, the Company issued a 5% convertible promissory note in the principal amount of $308,320 to USMC, which matures on February 28, 2025. 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 $0.39 per share.
On May 31, 2023, in connection with the securities purchase agreement with USMC, dated March 20, 2023, the Company issued an 8% convertible promissory note in the principal amount of $412,533 to USMC, which matures on May 31, 2025. 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 $0.10 per share.
The Company has a Line of Credit with USMC for up to $1,000.000.
Going Concern
The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. The Company has accumulated losses from inception through August 31, 2023 of $61,645,690, negative cash flows from operating activities of $900,536 and a working capital deficiency of $470,294. During the nine months ended August 31, 2023, the Company received net cash proceeds of $1,125,000 from USMC and USMC paid $20,836 to vendors on behalf of the Company. If the Company does not generate additional revenue and obtain equity and debt financing from USMC or other third parties, it will not have sufficient cash to meet its obligations for the next twelve months, following the date of this Quarterly Report. There currently are no other arrangements or agreements for financing, and there can be no assurances that any other 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.
Working Capital Deficiency
| August 31, | November 30, | |||||||
| 2023 | 2022 | |||||||
| Current assets | $ | 216,771 | $ | 23,786 | ||||
| Current liabilities | 687,065 | 644,076 | ||||||
| Working capital deficiency | $ | (470,294 | ) | $ | (620,290 | ) | ||
The increase in current assets as of August 31, 2023, is primarily due to the increase of cash of $82,911 and an increase in accounts receivable of $100,270. The increase in current liabilities is primarily a result of a reduction in settlement liability from $400,000 to $125,000, partially offset by an increase in accounts payable and accrued expenses of $278,453.
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Cash Flows
Nine Months Ended August 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (900,536 | ) | $ | (720,527 | ) | ||
| Net cash used in investing activities | (126,536 | ) | - | |||||
| Net cash provided by financing activities | 1,109,983 | 600,000 | ||||||
| Increase (decrease) in cash | $ | 82,911 | $ | (119,527 | ) | |||
Operating Activities
Net cash used in operating activities was $900,536 for the nine months ended August 31, 2023, primarily due to a net loss of $8,002,041, which primarily consisted of a non-cash expense of $7,328,402 related to stock-based compensation cost, professional fees of $670,528 and wages of $383,911, partially offset by an increase of $275,000 in a settlement liability.
Investing Activities
Net cash used in investing activities was $126,536 for the nine months ended August 31, 2023, as compared to no investing activities during the nine months ended August 31, 2022. The increase was primarily due to the increase investment in new material testing and manufacturing plant, this recorded under property and equipment, net.
Financing Activities
For the nine months ended August 31, 2023, net cash provided by financing activities was $1,109,983, consisting of $898,935 which was advanced to the Company by USMC and recorded as part of convertible notes payable, related party on the Company’s balance sheet and $231,048 from a line of credit from USMC. The increase from the advance and the line of credit was partially offset by $20,000 of principal payments on the note due to A. Scott Dockter.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Procedures
Our significant accounting policies are more fully described in Note 1 to our condensed consolidated financial statements included in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022, as filed with the SEC on February 28, 2023.
Recently Adopted Accounting Pronouncements
Our recently adopted accounting pronouncements are more fully described in Note 3 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective as of August 31, 2023 due to the material weaknesses in internal control over financial reporting described below.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness, as defined in the standards established by Sarbanes-Oxley is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses:
| ● | Inadequate segregation of duties consistent with control objectives; |
| ● | Lack of formal policies and procedures; |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner; and |
| ● | Lack of personnel with U.S. GAAP experience including a chief financial officer. |
Management’s Plan to Remediate the Material Weakness
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include:
| ● | Continue to search for and evaluate qualified independent outside directors; |
| ● | Hiring a qualified chief financial officer before December 31, 2023; |
| ● | Identify gaps in the Company’s skills base and expertise required to meet the financial reporting requirements of a public company; and |
| ● | Continue to develop policies and procedures on internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
We have engaged a third-party financial operations consulting firm to assist with the preparation of SEC reporting.
Management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the quarter ended August 31, 2023, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 8, 2020, the Company’s 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 the Company and because Calvanico never exercised his stock options. The Company and Calvanico engaged in binding arbitration which concluded on February 3, 2023. On June 20, 2023, the arbitrator decided in favor of the Company with respect to Calvanico’s breach of contract, fraud and negligent representation and wrongful discharge claims and in favor of Calvanico for asserted attorney fee claims in accordance with Calvanico’s employment agreement with the Company. At a July 18, 2023, teleconference regarding a determination of attorney fees to be paid, the arbitrator established a briefing schedule for the parties to formally present their legal arguments on the issue. Calvanico’s brief in support of attorney fees was due and timely filed on August 15, 2023. The Company’s brief in opposition was due and timely filed on September 19, 2023. Calvanico’s reply brief was filed on October 4, 2023. A decision regarding the amount of attorney fees to be paid, if any, is expected in November 2023.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
There were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company other than noted below.
On June 9, 2023, the Company issued 100,000 shares of common stock to Karen Scrivener for serving on the Company’s advisory board.
On June 20, 2023, the Company issued an option to purchase 350,000 shares of common stock at an exercise price of $0.10 per share to Jeffrey Guzy for serving on the Company’s board of directors.
The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit Number |
Description | |
| 31* | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer | |
| 32* | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and the Chief Financial Officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PUREBASE CORPORATION | ||
| By: | /s/ A. Scott Dockter | |
| A. Scott Dockter | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
Date: October 13, 2023
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