UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
☒(Amendment No. 1)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: MayAugust 31, 20212022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to _________
Commission file number: 000-55517
PUREBASE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada | 27-2060863 | |
(State or other Jurisdiction of | (I.R.S. Employer Identification No.) |
8631 State Highway 124 Ione, California | 95640 | |
(Address of Principal Executive Offices) | (Zip Code) |
(209) 274-9143
(Registrant’s telephone number, including area code)
N/A
(Former address)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
None | N/A | N/A |
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. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-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 13(a) of the Exchange Act: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒.
As of October 12, 2021,13, 2022, there were shares of the registrant’s common stock outstanding.
EXPLANATORY NOTE
Purebase Corporation, a Nevada corporation (the “Company”), is filing this Amendment No. 1 to Form 10-Q/A (the “Amended 10-Q”) to amend the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2021, originally filed with the Securities and Exchange Commission (the “SEC”) on October 13, 2021 (the “Original 10-Q”), solely to amend certain disclosures related to a promissory note the Company issued to U.S. Mine, LLC, a related party, on May 27, 2021, which was retroactively rescinded, ab initio, on October 6, 2021.
Except as described above, no other amendments are being made to the Original 10-Q. This Amended 10-Q does not reflect events occurring after the filing of the Original 10-Q or modify or update the disclosure contained therein in any way other than as required to reflect the amendments discussed above.
The Company is filing with this Amended 10-Q updated certifications executed as of the date of this Amended 10-Q by its Principal Executive Officer and Principal Financial and Accounting Officer as required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002. These updated certifications are attached as Exhibits 31 and 32 to this Amended 10-Q.
PUREBASE CORPORATION AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED MAYAUGUST 31, 20212022
2 |
PUREBASE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 31, | November 30, | 1 | 2 | |||||||||||||
2021 | 2020 | August 31, 2022 | November 30, 2021 | |||||||||||||
(Unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 12,890 | $ | 7,450 | $ | 11,782 | $ | 132,309 | ||||||||
Accounts receivable, net of allowances for uncollectables of $18,277 | 32,500 | 2,500 | ||||||||||||||
Accounts receivable, net of allowances for uncollectables of $- and $18,277, respectively | 209,809 | 2,000 | ||||||||||||||
Prepaid expenses and other assets | 1,014 | 5,390 | 5,909 | 4,594 | ||||||||||||
Total Current Assets | 46,404 | 15,340 | 227,500 | 138,903 | ||||||||||||
Property and equipment, net | 620,000 | 620,000 | 620,000 | 620,000 | ||||||||||||
Right of use asset | 24,169 | - | 2,843 | 15,639 | ||||||||||||
Total Assets | $ | 690,573 | $ | 635,340 | $ | 850,343 | $ | 774,542 | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 184,249 | $ | 164,040 | $ | 115,067 | $ | 156,616 | ||||||||
Settlement liability | 400,000 | 400,000 | 400,000 | 400,000 | ||||||||||||
Lease liability | 17,161 | - | 2,981 | 16,095 | ||||||||||||
Note payable to officer | 89,716 | 127,816 | 38,716 | 58,716 | ||||||||||||
Due to affiliated entities | 281,000 | 1,091,158 | - | 729,059 | ||||||||||||
Convertible notes payable - affiliated entity, net of discount of $27,224 | 150,776 | - | ||||||||||||||
Convertible notes payable - related party, net of discount of $- and $5,329, respectively | 30,000 | 994,671 | ||||||||||||||
Notes payable, related party | 25,000 | 25,000 | 25,000 | 25,000 | ||||||||||||
Total Current Liabilities | 1,147,902 | 1,808,014 | 611,764 | 2,380,157 | ||||||||||||
Lease liability, net of current portion | 7,408 | - | ||||||||||||||
Convertible notes payable - affiliated entity, net of current portion, and net of discount of $- and $49,000, respectively | 1,401,769 | 129,000 | ||||||||||||||
Convertible notes payable - related party, net of current portion, and net of discount of $- | 470,862 | 579,769 | ||||||||||||||
Total Liabilities | 2,557,079 | 1,937,014 | 1,082,626 | 2,959,926 | ||||||||||||
Commitments and Contingencies (Note 8) | - | - | - | |||||||||||||
Stockholders’ Deficit: | ||||||||||||||||
Preferred stock, $ par value; shares authorized; and shares issued and outstanding, respectively | - | - | ||||||||||||||
Common stock, $ par value; shares authorized; shares issued and outstanding, at May 31, 2021 and November 30, 2020, respectively | 144,977 | 144,547 | ||||||||||||||
Preferred stock, $ | par value; shares authorized; shares issued and outstanding, at August 31, 2022 and November 30, 2021, respectively- | - | ||||||||||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding, at August 31, 2022 and November 30, 2021, respectively160,350 | 144,977 | ||||||||||||||
Additional paid in capital | 11,386,887 | 11,307,806 | 47,425,827 | 18,730,863 | ||||||||||||
Accumulated deficit | (13,398,370 | ) | (12,754,027 | ) | (47,818,460 | ) | (21,061,224 | ) | ||||||||
Total Stockholders’ Deficit | (1,866,506 | ) | (1,301,674 | ) | (232,283 | ) | (2,185,384 | ) | ||||||||
Total Liabilities and Stockholders’ Deficit | $ | 690,573 | $ | 635,340 | $ | 850,343 | $ | 774,542 |
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)
May 31, 2021 | May 31, 2020 | May 31, 2021 | May 31, 2020 | |||||||||||||||||||||||||||||
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||
May 31, 2021 | May 31, 2020 | May 31, 2021 | May 31, 2020 | August 31, 2022 | August 31, 2021 | August 31, 2022 | August 31, 2021 | |||||||||||||||||||||||||
Revenue, net | $ | 30,000 | $ | 1,619 | $ | 30,000 | $ | 6,129 | $ | 226,060 | $ | 338,700 | $ | 454,536 | $ | 368,700 | ||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 412,861 | 193,456 | 633,787 | 355,434 | 8,232,007 | 293,293 | 27,055,218 | 927,080 | ||||||||||||||||||||||||
Product fulfillment | 15,594 | 3,435 | 17,708 | 5,194 | 34,329 | 85,343 | 125,611 | 103,051 | ||||||||||||||||||||||||
Loss on impairment of mineral rights | - | - | - | - | ||||||||||||||||||||||||||||
Total Operating Expenses | 428,455 | 196,891 | 651,495 | 360,628 | 8,266,336 | 378,636 | 27,180,829 | 1,030,131 | ||||||||||||||||||||||||
Loss From Operations | (398,455 | ) | (195,272 | ) | (621,495 | ) | (354,499 | ) | (8,040,276 | ) | (39,936 | ) | (26,726,293 | ) | (661,431 | ) | ||||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||||||||||
Other income | 23,200 | - | 23,200 | - | - | - | 2,007 | 23,200 | ||||||||||||||||||||||||
Interest expense, net | (31,088 | ) | 3,226 | (46,048 | ) | 6,041 | ||||||||||||||||||||||||||
Interest expense | (1,038 | ) | (42,129 | ) | (32,949 | ) | (88,177 | ) | ||||||||||||||||||||||||
Total Other Income (Expense) | (7,888 | ) | 3,226 | (22,848 | ) | 6,041 | (1,038 | ) | (42,129 | ) | (30,942 | ) | (64,977 | ) | ||||||||||||||||||
Net Loss | $ | (406,343 | ) | $ | (192,046 | ) | $ | (644,343 | ) | $ | (348,458 | ) | $ | (8,041,314 | ) | $ | (82,065 | ) | $ | (26,757,235 | ) | $ | (726,408 | ) | ||||||||
Loss per Common Share - Basic and Diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.00 | ) | $ | (0.12 | ) | $ | (0.00 | ) | ||||||||
Weighted Average Shares Outstanding - Basic and Diluted | 214,981,071 | 208,650,741 | 214,965,990 | 208,650,741 | 237,482,318 | 215,380,741 | 227,480,727 | 215,105,759 |
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 SIXNINE MONTHS ENDED MAYAUGUST 31, 20212022 AND 20202021
(Unaudited)
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance at November 30, 2020 | - | $ | - | 214,950,741 | $ | 144,547 | $ | 11,307,806 | $ | (12,754,027 | ) | $ | (1,301,674 | ) | ||||||||||||||
Stock based compensation - options | - | - | - | - | 10,688 | - | 10,688 | |||||||||||||||||||||
Forgiveness of related party liabilities | ||||||||||||||||||||||||||||
Beneficial conversion feature on convertible debt | ||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | (238,000 | ) | (238,000 | ) | |||||||||||||||||||
Balance at February 28, 2021 | - | - | 214,950,741 | 144,547 | 11,318,494 | (12,992,027 | ) | (1,528,986 | ) | |||||||||||||||||||
Stock based compensation - shares | - | - | 430,000 | 430 | 24,245 | - | 24,675 | |||||||||||||||||||||
Stock based compensation - options | - | - | - | - | 44,148 | - | 44,148 | |||||||||||||||||||||
Net Loss | - | - | - | - | - | (375,753 | ) | (375,753 | ) | |||||||||||||||||||
Balance at May 31, 2021 | - | $ | - | 215,380,741 | $ | 144,977 | $ | 11,386,887 | $ | (13,367,780 | ) | $ | (1,866,506 | ) | ||||||||||||||
Balance at November 30, 2019 | - | - | 208,650,741 | 138,247 | 10,364,990 | (11,248,870 | ) | (745,633 | ) | |||||||||||||||||||
Forgiveness of related party liabilities | - | - | - | - | 150,257 | - | 150,257 | |||||||||||||||||||||
Beneficial conversion feature on convertible debt | - | - | - | - | 88,250 | - | 88,250 | |||||||||||||||||||||
Net Loss | - | - | - | - | - | (156,412 | ) | (156,412 | ) | |||||||||||||||||||
Balance as of February 29, 2020 | - | - | 208,650,741 | 138,247 | 10,603,497 | (11,405,282 | ) | (663,538 | ) | |||||||||||||||||||
Stock based compensation - options | - | - | - | - | 30,335 | - | 30,335 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (192,046 | ) | (192,046 | ) | |||||||||||||||||||
Balance as of May 31, 2020 | - | $ | - | 208,650,741 | $ | 138,247 | $ | 10,633,832 | $ | (11,597,328 | ) | $ | (825,249 | ) |
Additional | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance at November 30, 2020 | - | $ | - | 214,950,741 | $ | 144,547 | $ | 11,307,806 | $ | (12,754,027 | ) | $ | (1,301,674 | ) | ||||||||||||||
Stock based compensation - shares | - | - | - | - | 10,688 | - | 10,688 | |||||||||||||||||||||
Stock based compensation - shares, shares | ||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (238,000 | ) | (238,000 | ) | |||||||||||||||||||
Balance at February 28, 2021 | - | $ | - | 214,950,741 | $ | 144,547 | $ | 11,318,494 | $ | (12,992,027 | ) | $ | (1,528,986 | ) | ||||||||||||||
Stock based compensation - shares | - | - | 430,000 | 430 | 68,393 | - | 68,823 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (406,343 | ) | (406,343 | ) | |||||||||||||||||||
Balance at May 31, 2021 | - | $ | - | 215,380,741 | 144,977 | 11,386,887 | (13,398,370 | ) | (1,866,506 | ) | ||||||||||||||||||
Stock based compensation - shares | - | - | - | - | 23,993 | - | 23,993 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (82,065 | ) | (82,065 | ) | |||||||||||||||||||
Balance at August 31, 2021 | - | $ | - | 215,380,741 | 144,977 | 11,410,880 | (13,480,435 | ) | (1,924,578 | ) | ||||||||||||||||||
Balance at November 30, 2021 | - | - | 215,380,751 | 144,977 | 18,730,863 | (21,061,224 | ) | (2,185,384 | ) | |||||||||||||||||||
Stock based compensation - shares | - | - | - | - | 10,949,738 | - | 10,949,738 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (11,222,544 | ) | (11,222,544 | ) | |||||||||||||||||||
Balance as of February 28, 2022 | - | $ | - | 215,380,751 | 144,977 | 29,680,601 | (32,283,769 | ) | (2,458,191 | ) | ||||||||||||||||||
Stock based compensation - shares | - | - | - | - | 7,304,345 | - | 7,304,345 | |||||||||||||||||||||
Convertible debt converted into common stock | - | - | 23,741,655 | 23,742 | 2,549,429 | - | 2,573,171 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (7,493,377 | ) | (7,493,377 | ) | |||||||||||||||||||
Balance at May 31, 2022 | - | $ | - | 239,122,406 | $ | 168,719 | $ | 39,534,375 | $ | (39,777,146 | ) | $ | (74,052 | ) | ||||||||||||||
Stock based compensation - shares | - | - | 300,000 | 300 | 7,882,782 | - | 7,883,082 | |||||||||||||||||||||
Settlement share surrender | - | - | (8,669,400 | ) | (8,669 | ) | 8,669 | - | - | |||||||||||||||||||
Net loss | - | - | - | - | - | (8,041,314 | ) | (8,041,314 | ) | |||||||||||||||||||
Balance at August 31, 2021 | - | $ | - | 230,753,005 | 160,350 | 47,425,827 | (47,818,460 | ) | (232,283 | ) |
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)
May 31, 2021 | May 31, 2020 | 1 | 2 | |||||||||||||
For the Six Months Ended | For the Nine Months Ended | |||||||||||||||
May 31, 2021 | May 31, 2020 | August 31, 2022 | August 31, 2021 | |||||||||||||
Cash Flows From Operating Activities: | ||||||||||||||||
Net loss | $ | (644,343 | ) | $ | (348,458 | ) | $ | (26,757,235 | ) | $ | (726,408 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation | - | 772 | ||||||||||||||
Stock based compensation | 79,511 | 30,335 | 26,137,165 | 98,426 | ||||||||||||
Amortization of debt discount | 21,775 | 17,354 | 5,329 | 32,783 | ||||||||||||
Settlement liability | - | (50,000 | ) | |||||||||||||
Non-cash board of director compensation | 30,000 | - | ||||||||||||||
Non-cash effect of right of use asset | 401 | - | - | 454 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (30,000 | ) | 12,700 | (207,809 | ) | (368,700 | ) | |||||||||
Prepaid expenses and other current assets | 4,376 | (33,332 | ) | (1,315 | ) | (924 | ) | |||||||||
Accounts payable and accrued expenses | 42,359 | (25,582 | ) | 73,338 | 29,335 | |||||||||||
Net Cash Used In Operating Activities | (525,921 | ) | (396,211 | ) | (720,527 | ) | (935,034 | ) | ||||||||
Cash Flows From Financing Activities: | ||||||||||||||||
Bank overdraft | - | 53,795 | ||||||||||||||
Advances from related parties | 569,461 | 160,796 | 620,000 | 979,461 | ||||||||||||
Proceeds from convertible notes payable - affiliated entities | - | 178,000 | ||||||||||||||
Payments on notes due to officers | (38,100 | ) | (4,780 | ) | (20,000 | ) | (39,100 | ) | ||||||||
Net Cash Provided By Financing Activities | 531,361 | 387,811 | 600,000 | 940,361 | ||||||||||||
Net Increase (Decrease) In Cash | 5,440 | (8,400 | ) | |||||||||||||
Net Increase In Cash | (119,527 | ) | 5,327 | |||||||||||||
Cash - Beginning of Period | 7,450 | 8,400 | 132,309 | 7,450 | ||||||||||||
Cash - End of Period | $ | 12,890 | $ | - | $ | 12,782 | $ | 12,777 | ||||||||
Supplemental Cash Flow Information: | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Interest paid | $ | - | $ | 4,383.00 | ||||||||||||
Income taxes paid | $ | - | $ | - | ||||||||||||
Noncash investing and financing activities: | ||||||||||||||||
Forgiveness of accounts payable due to USMC | $ | - | $ | 150,257 | ||||||||||||
Noncash operating and financing activities: | ||||||||||||||||
Vendors paid for on behalf of the Company by USMC | $ | 22,150 | $ | - | $ | 6,296 | $ | 22,150 | ||||||||
Due to affiliates exchanged for convertible debt | $ | 1,401,769 | $ | - | $ | 1,355,355 | $ | 1,401,769 | ||||||||
Convertible debt converted to common stock | $ | 2,464,262 | $ | - | ||||||||||||
Accrued interested converted to common stock | $ | 108,909 | $ | - | ||||||||||||
Board of director compensation - accrued as convertible debt | $ | 30,000 | $ | - |
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 HistoryOverview
The CompanyPurebase Corporation (“Purebase” or 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 service2010. The Company is an industrial mineral and natural resource company 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 focusprovides solutions to the identification, acquisition, exploration, developmentagriculture and full-scale exploitation of industrial and natural mineral propertiesconstruction materials markets in the United States for the development of products for the constructionthrough its two subsidiaries, Purebase Agricultural, Inc., a Nevada corporation (“Purebase AG”), and agriculture markets. In line with this business focus, the Company changed its name to PureBase Corporation in January 2015.U.S. Agricultural Minerals, LLC, a Nevada limited liability company (“Purebase SCM”), respectively.
The Company is headquartered in Ione, California.
Business OverviewAgricultural Sector
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 developdevelops specialized fertilizers, sun protectants, soil amendments and bio-stimulants for organic and non-organic sustainable agriculture.
In the construction sector, the Company’s focus in 2020 has been to develop and test a kaolin-based product that will help create a lower CO2-emitting concrete through the use of high-quality SCM’s. The Company is developing a SCM that it believes can potentially replace up to 40% of cement, the most polluting part of concrete. As government agencies continue to enact stricter requirements for less-polluting forms of concrete, the Company believes there are significant opportunities for high-quality SCM poducts in the construction-materials sector.
In the agricultural sector, the Company has developed and will seek to develop additional products derived from mineralized materials of leonardite, kaolin clay, laterite, and other natural minerals. These mineral and soil amendments are used to protect crops, plants and fruits from the sun and winter damage, to provide nutrients to plants, and to improve dormancy and soil ecology to help farmers increase the yields of their harvests.
The Company is building a brand family under the parent trade name “Purebase,” consisting of its Purebase Shade Advantage WP product, a kaolin-clay based sun protectant for crops. It
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 also involveddeveloping 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 early testing of soil amendment products based on humic and fulvic acids derived from leonardite. Other agricultural products are in the development stage.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, 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 utilizedused by the Company isare 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.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 MayAs of August 31, 2021,2022, the Company had a significant accumulated deficit of approximately $13,398,00047,818,460 and working capital deficit of approximately $1,101,000384,264. For the sixnine months ended MayAugust 31, 2021,2022, the Company had a loss from operations of approximately $621,00026,726,293 and negative cash flows from operations of approximately $526,000720,527. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans for 2021,2022, 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 consolidatedunaudited condensed financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
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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, including funding from USMC in connection with the March 23, 2022 securities purchase agreement, will provide the necessary funding for the Company to continue as a going concern.concern for the next twelve months. On April 7, 2022, the Company entered into a securities purchase agreement with USMC, a related party, pursuant to which the Company may issue up to an aggregate of $1,000,000 of two-year convertible promissory notes to USMC, a related party (see Note 10). The notes bear interest at 5% per annum and any outstanding principal or interest under the notes are convertible into shares of the Company’s common stock, at any time at the option of the holder, at a conversion price of $0.39 per share. Currently, the Company has issued $470,862 of convertible notes under such securities purchase agreement and may issue an additional $529,138 of convertible notes. However, there currently are no other arrangements or agreements for such financing, and management cannot guarantee 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 these this report. If adequate funds are not available on acceptable terms, or at all, the Company will need to curtail operations, or cease operations completely.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments, unless otherwise indicated) which are, in the opinion of management, necessary to fairly state the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations. These financial statements and the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited financial statements and explanatory notes for the year ended November 30, 20202021 in our Form 10-K filed on March 16, 202115, 2022 with the SEC. The results of the three and sixnine months ended MayAugust 31, 20212022 (unaudited) are not necessarily indicative of the results to be expected for the full year ending November 30, 2021.2022.
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries PureBase AG and USAM.Purebase SCM. 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.
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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, and assumptions used in the Black-Scholes-Merton or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Revenue
The Company derives revenues from the sale of its agricultural products. The Company’s contracted transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s contracts have a single performance obligation which are not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company’s performance obligation is satisfied upon the transfer of risk of loss to the customer.
Practical Expedients
Disaggregated Revenue
Revenue consists of the following by product offering for the sixnine months ended MayAugust 31, 2021:2022:
SCHEDULE OF DISAGGREGATED REVENUE CONSIST OF PRODUCT OFFERING
Humate INU Advantage | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | |||||||||||||||||||||||||
CROP WHITE II | CROP WHITE II | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | ||||||||||||||||||||||||
$ | - | $ | 30,000 | $ | - | $ | 30,000 | 192,780 | $ | 210,296 | $ | 51,460 | $ | 454,536 |
Revenue consists of the following by product offering for the sixnine months ended MayAugust 31, 2020:2021:
Humate INU Advantage | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | |||||||||||||||||||||||||
CROP WHITE II | CROP WHITE II | SHADE ADVANTAGE (WP) | SulFe Hume Si ADVANTAGE | Total | ||||||||||||||||||||||||
$ | 6,129 | $ | - | $ | - | $ | 6,129 | - | $ | 144,750 | $ | 223,950 | $ | 368,700 |
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 arewere 0no cash equivalents as of MayAugust 31, 20212022 and November 30, 2020.2021.
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. At May 31, 2021 and November 30, 2020, theThe Company has determined that there was no allowance for doubtful accounts as of August 31, 2022 and an allowance of $18,277 for doubtful accounts 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 |
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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 MayAugust 31, 2021,2022, the Company has not putplaced 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. NaNNo impairment losses were recorded during the three and sixnine months ended MayAugust 31, 20212022 and 2020.2021.
Shipping and Handling
The Company incurs shipping and handling costs which are charged back to the customer. There were 0no shipping and handling costs incurred during the three and sixnine months ended MayAugust 31, 20212022 and 2020.2021.
Advertising and Marketing Costs
The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $42,00015,040 and $2,05254,031 for the sixnine months ended MayAugust 31, 20212022 and 2020,2021, respectively, and $26,0000 and $49012,031 for the three months ended MayAugust 31, 20212022 and 2020,2021, 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. |
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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 share of common sharestock is computed by dividing the net loss by the weighted average number of shares of common sharesstock 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, theoutstanding options have been excluded from the Company’s computation of net loss per share of common sharestock for the three and sixnine months Mayended August 31, 2022 and 2021, and 2020.respectively.
SCHEDULE OF OUTSTANDING SHARES EXCLUDED FROM DILUTED LOSS PER SHARE
Six Months Ended | ||||||||
May 31, 2021 | May 31, 2020 | |||||||
Convertible Notes | 129,117,358 | 1,112,500 | ||||||
Stock Options | 1,595,000 | 550,000 | ||||||
Total | 130,712,358 | 1,662,500 |
Three Months Ended | Nine Months Ended | |||||||||||||||
May 31, 2021 | May 31, 2020 | August 31,2022 | August 31,2021 | |||||||||||||
Convertible Notes | 129,117,358 | 1,112,500 | 1,398,498 | 129,117,358 | ||||||||||||
Stock Options | 1,595,000 | 550,000 | 62,018,787 | 1,595,000 | ||||||||||||
Total | 130,712,358 | 1,662,500 | 63,417,285 | 130,712,358 |
Three Months Ended | ||||||||
August 31, 2022 | August 31, 2021 | |||||||
Convertible Notes | 1,398,498 | 129,117,358 | ||||||
Stock Options | 62,018,787 | 1,595,000 | ||||||
Total | 63,417,285 | 130,712,358 |
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.
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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. 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.
The Company leases its 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 office 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 0.17 years.
In accordance with ASC 842, Leases, the Company recognized a ROU asset and corresponding lease liability on the consolidated balance sheet for long-term office leases. See Note 7 – Leases for further discussion, including the impact on the 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 leaseLease have been assigned to the Company by USMC. These rights were presentedinitially 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.
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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 5placer 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$575,000 to acquire the property on or about October 15, 2015. Mr. Bremer will transfer title to the Company when the Company pays Mr. Bremer $575,000 plus expenses, however, the Company is under no obligation to do so. The mining claims require a minimum royalty payment of $3,500 per year to be made by the Company.
During the year ended November 30, 2017, USMC, agreed to offset the $75,000 deposit against money owed to USMC. As a result, the purchase price is $650,000 plus expenses. Mr. Bremer has not restricted the Company from continuing its exploration on or access to the Snow White mine property.
On September 5, 2019, the Board approved the discontinuance of all mining and related activities at the Snow White project. The Company has no further obligation related to this project.
On April 1, 2020, the Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust, a related party through 19% beneficial ownership of the Company, pursuant to which the Company will purchase the Snow White Mine for $836,000 (the “Purchase Price”). The Purchase Price plus 5% interest shall beis payable in full in cash at the closing which canmust occur at any time before April 1, 2022. As of May 31, 2021,2022 (the “Closing Date”). On April 14, 2022, the Company has yetagreement was amended to close onextend the purchase.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%10% major shareholder of the Company, for $25,000 for working capital at an interest rate of 6%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 Mayas of August 31, 2021.2022. During the nine months ended August 31, 2022, the Company did not make repayments towards the outstanding balance of the note. The balance on the note was $25,000 as of MayAugust 31, 20212022 and November 30, 2020. See (Note2021 (see Note 10). Total interest expense on the note was $7481,126 and $752 for the sixnine months ended MayAugust 31, 20212022 and 2020,2021, respectively. Total interest expense on the note was $370378 for the three months ended MayAugust 31, 20212022 and 2020.2021.
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, CEOChief Executive Officer and a director of the Company, to consolidate the total amounts due to Mr. Dockter. The note to Mr. Dockter bears interest at 6%6% and is due upon demand. During the sixnine months ended MayAugust 31, 2021,2022, the Company repaidpaid $38,10020,000 towards the outstanding balance of the note. The balance on the note was $89,71638,716 and $127,81658,716 as of MayAugust 31, 20212022 and November 30, 2020,2021, respectively (See Note 11)10). Total interest expense on the note was $3,3682,291 and $4,8344,761 for the sixnine months ended MayAugust 31, 20212022 and 2020,2021, respectively. Total interest expense on the note was $1,500586 and $2,916 1,346for the three months ended MayAugust 31, 20212022 and 2020,2021, respectively.
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Convertible Promissory Notes – USMC
December 1, 2019
On December 1, 2019, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note 12)10), the Company issued atwo-year convertible promissory note in the amount of $20,000 to USMC, with a maturity date of December 31, 2021 (“Tranche #1”). The note bears interest at 5%5% per annum which is payable on maturity. Amounts due under the note may be converted into shares of the Company’s common stock, $ par value, at any time at the option of the holder, at a conversion price of $0.16per 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 gave notice of conversion of the outstanding principal balance of $20,000 of the December 1, 2019 note, plus accrued interest totaling $2,351 through such date, into 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 $2,4170 and $4,7837,201 forduring the nine months ended August 31, 2022 and 2021, respectively. Total straight-line amortization of this discount totaled $0 and $2,418 during the three and six months ended MayAugust 31, 20212022 and 2020,2021, respectively. Total interest expense on Tranche #1 was approximately $250350 and $750 for the nine months ended August 31, 2022 and 2021, respectively. Total interest expense on Tranche #1 was approximately $5000 and $250 for the three and six months ended MayAugust 31, 20212022 and 2020,2021, respectively.
January 1, 2020
On January 1, 2020, in connection with the September 26, 2019, securities purchase agreement with USMC, a related party, (See Note 11)10), the Company issued atwo-year convertible promissory note in the amount of $86,000 to USMC, with a maturity date of January 1, 2022 (“Tranche #2”). The note bears interest at 5%5% per annum which is payable on maturity. Amounts due under the note may be converted into shares of the Company’s common stock, $ par value, at any time at the option of the Holder,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 gave notice of conversion of the outstanding principal balance of $86,000 of the January 1, 2020 note, plus accrued interest totaling $9,743 through such date, into 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 $8,0291,412 and $6,66212,088 for the sixnine months ended MayAugust 31, 20212022 and 2020,August 31, 2021, respectively. Total straight-line amortization of this discount totaled $0 and $4,059 for during the three months ended MayAugust 31, 20212022 and 2020. Total interest expense on Tranche #2 was approximately $2,100 and $1,780 for the six months ended MayAugust 31, 2021, and 2020, respectively. Total interest expense on Tranche #2 was approximately $1,0401,500 and $1,0803,278 for the nine months ended August 31, 2022 and 2021, respectively. Total interest expense on Tranche #2 was approximately $0 and $1,100 for the three months ended MayAugust 31, 20212022 and 2020,2021, 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 11)10), the Company issued atwo-year convertible promissory note in the amount of $72,000 to USMC, with a maturity date of February 1, 2022 (“Tranche #3”). The note bears interest at 5%5% per annum which is payable on maturity. Amounts due under the note may be converted into shares of the Company’s common stock, $ par value, at any time at the option of the Holder,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 gave notice of conversion of the outstanding principal balance of $72,000 of the February 1, 2020 note, plus accrued interest totaling $7,851 through such date, into 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 $8,9633,103 and $5,91013,494 for the sixnine months ended MayAugust 31, 20212022 and 2020,2021, respectively. Total straight-line amortization of this discount totaled $0 and $4,531 for during the three months ended MayAugust 31, 20212022 and 2020. Total interest expense on Tranche #3 was approximately $1,785 and $1,200 for the six months ended May 31, 2021, and 2020, respectively. Total interest expense on Tranche #3 was approximately $1,260 and $2,702 for the nine months ended August 31, 2022 and 2021, respectively. Total interest expense on Tranche #3 was approximately $0 and $900 for the three months ended MayAugust 31, 2022 and 2021, and 2020.respectively.
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December 1, 2020
On December 1, 2020, in connection with the September 26, 2019 securities purchase agreement with USMC, a related party, (See Note 11)10), the Company issued atwo-year convertible promissory note in the amount of $822,000 to USMC, with a maturity date of November 25, 2022 (“Tranche 4”). The note bears interest at 5%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. On April 7, 2022 USMC gave notice of conversion of the outstanding principal balance of $822,000 of the December 1, 2020 note, plus accrued interest totaling $55,401 through such date, into shares of the Company’s common stock. Total interest expense on Tranche #4 was approximately $ 17,700 and $30,800 for the nine months ended August 31, 2022 and 2021, respectively. Total interest expense on Tranche #4 was approximately $10,1000 and $20,30010,500 for the three and six months ended MayAugust 31, 2022 and 2021, respectively.
March 17, 2021
On March 17, 2021, in connection with the March 11, 2021, securities purchase agreement with USMC, a related party (See(see Note 11)10), the Company issued atwo-year convertible promissory note in the amount of $579,769 to USMC, with a maturity date of March 17, 2023 (“Tranche #5”). The note bears interest at 5%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. On April 7, 2022 USMC gave notice of conversion of the outstanding principal balance of $579,769.39 of the March 17, 2021 note, plus accrued interest totaling $30,656 through such date, into shares of the Company’s common stock. Total interest expense on Tranche #5 was approximately $8,800 and $5,80013,300 for the nine months ended August 31, 2022 and 2021, respectively. Total interest expense on Tranche #5 was approximately $0 and $7,400 for the three and six months ended MayAugust 31, 2021.2022 and 2021, respectively.
Convertible Promissory Note – US Mine, LLCMarch 14, 2022
On May 27, 2021,March 14, 2022, in connection with the Materials Extraction Agreement (the “Extraction Agreement”)November 25, 2020, securities purchase agreement with US Mine, LLC,USMC, a related party (See(see Note 11)10), the Company issued a ten-year convertible promissory note in the principal amount of $50,000,000884,429.28 to US Mine, LLC (the “US Mine Note”USMC, with a maturity date of March 14, 2024 (“Tranche #6”). The US Mine Notenote bears interest at 2.5%5% per annum which is payable uponon maturity. Amounts due under the US Mine Notenote 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 $0.430.088 per share. The noteholder may convert (i) up to 50%On April 7, 20222 USMC gave notice of conversion of the outstanding principal balance on or afterof $884,492.28 of the March 14, 2022 note, plus accrued interest totaling $2,908 through such date, as the Company is listed for trading on any national securities exchange, (ii) up to an additional 25%into shares of the outstanding balance on or after the six-month anniversary of the initial trading date on such national securities exchange, and (iii) the remaining 25% on or after the twelve-month anniversary of the initial trading date.Company’s common stock. Total interest expense on the US Mine NoteTranche #6 was approximately $10,3002,908 for the nine months ended August 31, 2022. Total interest expense on Tranche #6 was $0 for the three and six months ended MayAugust 31, 2021. Subsequent2022.
August 30, 2022
On August 30, 2022, in connection with the April 7, 2022, securities purchase agreement with USMC, a related party (see Note 10), the Company issued a convertible promissory note in the amount of $470,862 to MayUSMC, with a maturity date of August 30, 2024 (“Tranche #7”). 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 $0.39 per share. Total interest expense on Tranche #7 was approximately $0 for the nine months ended August 31, 2021,2022. Total interest expense on October 6,Tranche #7 was $0 for the three months ended August 31, 2022.
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Convertible Debt – Board of Directors
On April 8, 2021, the ExtractionCompany entered into a twelve-month Director Agreement was amended, andwith Jeffrey Guzy whereby Mr. Guzy will receive a $1,000 cash fee each month for services performed. The fee will accrue as 0% interest debt to the US Mine Note was retroactively rescinded, ab initio; refer to Note 11 for more detailsCompany until the Company has its first cash-flow positive month. If a debt is still owed at the end of the amendment.term, the debt shall be converted into common stock at the lower price of the market value of such common stock on the date of termination or renewal of the Director Agreement, as the case may be, or the 20-day volume-weighted average price (“VWAP”) immediately prior to the end of the term or renewal date. The Director Agreement shall automatically renew for successive one-year periods unless either party terminates the agreement at least 30 days prior to the end of the then current term. As of August 31, 2022, the Company has debt in the amount of $17,000 owed to Mr. Guzy.
On August 10, 2021, the Company entered into a twelve-month Director Agreement with Dr. Kimberly Kurtis whereby Dr. Kurtis will receive a $1,000 cash fee each month for services performed. The fee will accrue as 0% interest debt to the Company until the Company has its first cash-flow positive month. If a debt is still owed at the end of the term, the debt shall be converted into common stock at the lower price of the market value of such common stock on the date of termination or renewal of the Director Agreement, as the case may be, or the 20-day VWAP immediately prior to the end of the term or renewal date. The Director Agreement shall automatically renew for successive one-year periods unless either party terminates the agreement at least 30 days prior to the end of the then current term. As of August 31, 2022, the Company has debt in the amount of $13,000 owed to Dr. Kurtis.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following amounts:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
May 31, 2021 | November 30, 2020 | As of | As of November 30, 2021 | |||||||||||||
Accounts payable | $ | 77,988 | $ | 84,600 | $ | 46,084 | $ | 2,647 | ||||||||
Accrued interest – related party | 81,800 | 39,948 | 50,460 | 126,806 | ||||||||||||
Accrued compensation | 21,138 | 39,492 | 18,523 | 27,163 | ||||||||||||
Accrued expenses | 3,323 | - | ||||||||||||||
Accounts payable and accrued expenses | $ | 184,249 | $ | 164,040 | $ | 115,067 | $ | 156,616 |
NOTE 7 – LEASES
With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as Right-of-Use (“ROU”) assets and corresponding lease liabilities.
The Company is a party to a two-year lease, with USMC, a related party, for 1,000 square feet of office space located in Ione, California (the “Ione Lease”) with respect to its corporate operations (See Note 11). The Ione Lease expires in November 2022 (subject to automatic extensions of one month) and has an annual base rental during the initial term of $1,500.
On December 1, 2020, the Company recognized ROU assets and lease liabilities of $35,543. The Company elected to not recognize ROU assets and lease liabilities arising from short-term office leases (leases with initial terms of twelve months or less, which are deemed immaterial) on its balance sheets.
When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated incremental borrowing rate at December 1, 2020. The weighted average incremental borrowing rate applied was 5%.
The following table presents net lease cost and other supplemental lease information:
SCHEDULE OF LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
Nine Months Ended | ||||||||
Six Months Ended May 31, 2021 | August 31, 2022 | |||||||
Lease cost | ||||||||
Operating lease cost (cost resulting from lease payments) | $ | 9,000 | $ | 13,500 | ||||
Short term lease cost | - | - | ||||||
Sublease income | - | - | ||||||
Net lease cost | $ | 9,000 | $ | 9,000 | ||||
Operating lease – operating cash flows (fixed payments) | $ | 9,000 | $ | 13,500 | ||||
Operating lease – operating cash flows (liability reduction) | $ | 8,265 | $ | 13,113 | ||||
Non-current leases – right of use assets | $ | 24,169 | $ | 2,843 | ||||
Current liabilities – operating lease liabilities | $ | 17,161 | $ | 2,981 | ||||
Non-current liabilities – operating lease liabilities | $ | 7,407 | $ | - |
Nine Months Ended August 31, 2021 | ||||
Lease cost | ||||
Operating lease cost (cost resulting from lease payments) | $ | 13,500 | ||
Short term lease cost | - | |||
Sublease income | - | |||
Net lease cost | $ | 13,500 | ||
Operating lease – operating cash flows (fixed payments) | $ | 13,500 | ||
Operating lease – operating cash flows (liability reduction) | $ | 12,475 | ||
Non-current leases – right of use assets | $ | 19,904 | ||
Current liabilities – operating lease liabilities | $ | 17,377 | ||
Non-current liabilities – operating lease liabilities | $ | 2,981 |
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Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the sixnine months ended MayAugust 31, 2021:2022:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
Fiscal Year | Operating Leases | Operating Leases | ||||||
Remainder of 2021 | $ | 9,000 | ||||||
2022 | 16,500 | |||||||
Remainder of 2022 | $ | 3,000 | ||||||
Total future minimum lease payments | 25,500 | 3,000 | ||||||
Amount representing interest | (932 | ) | 19 | |||||
Present value of net future minimum lease payments | $ | 24,568 | $ | 2,981 |
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 amount of $600,000 in alleged stock value, plus interest, recovery of past and future wages, attorneys’ fees, and punitive damages (collectively, the “Calvanico Claims”). The Company denied all Calvanico Claims. The Company believes Calvanico is owed nothing because it takes the position that Calvanico was not terminated, but rather, his employment contract expired on September 21, 2019, in the normal course,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 midst of the arbitration discovery phase. An arbitration hearing date has beenis scheduled for January 24, 2022.10 - 13, 2023, before arbitrator, Scott Silverman in Los Angeles.
On January 11, 2019, the Company filed a complaint in the NevadaSecond Judicial District Court forin the State of Nevada, 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 VPVice President 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 James Todd Gauer and John Gingerich as additional defendants. A default has been taken against Mr. Gingerich. Litigation is actively proceeding against Mr. Hurtado,settlement agreement was entered into between the parties, effective June 3, 2022 and a Notice of Settlement was filed in the District Court pursuant to which, shares of the Company’s common stock beneficially owned by the defendants were surrendered to the Company and the Company granted Mr. Gauer an immediately exercisable option to purchase shares of common stock, the equivalent number of common shares surrendered to the Company, at an exercise price of $ . The lawsuit was fully settled and Agregen. The June 2021 trial date was postponed due to Covid-related delays but is in the process of being rescheduled.dismissed on August 9, 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-labellingmislabeling and denying any liability for damages therefrom. The parties are currentlymatter is set for trial in settlement negotiations. The Company believes its potential exposure to be approximately $400,000 and, as such, has accrued this amount on the unaudited condensed consolidated balance sheet at May 31, 2021.April 2023.
On April 16, 2021, LexisNexis, a division of RELX, Inc., filed a Complaint against the Company and its former attorney, Michael Kessler, Esq., in the Superior Court of the State of California, Amador County (Case No. 21-CV-12123). This is a limited jurisdiction lawsuit seeking payment of $18,211. The basis of the Complaint is that Mr. Kessler incurred this debt to LexisNexis, a legal research company. Mr. Kessler is alleged to have failed to pay the annual bill. After the matter was sent to collections, it is the Company’s understanding that Mr. Kessler claimed that he was employed by the Company as its general counsel at the time and that Purebase is therefore responsible for payment. The Company strongly disputes this characterization and maintains that it has no obligation to LexisNexis under the facts or the law. The Company and LexisNexis are engaged in settlement negotiations. The Company believes its potential exposure to be $0 and that the lawsuit will be dismissed.
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Contractual Matters
USMC
On November 1, 2013, the Companywe entered into an agreement with USMC, a related party, underin which USMC performs services relating toprovides 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 arewill 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 provideswill provide designated natural resources to the Company at predetermined prices (See(see Note 11)10).
NOTE 9 – STOCKHOLDERS’ DEFICIT
Equity Transactions During the Period
During the six months ended May 31, 2021, the Company issued an aggregate of shares of common stock with a fair value range between $ and $ per share to an investment banking firm pursuant to an investment banking agreement for services rendered to the Company.
During the six months ended May 31, 2021, the Company issued shares of common stock with a fair value of $ per share to a director pursuant to a directors agreement for services rendered.
Note 10NOTE 9 – STOCK-BASED COMPENSATION
The Company accounted for its stock-based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, “Compensation – Stock Compensation.”
2017 Equity Incentive Plan
On November 10, 2017 the Board approved the 2017 PureBase Corporation Stock Option Plan which is intended to be a qualified stock option plan (the “Option Plan”). The Board reserved MayAugust 31, 2021,2022, options to purchase an aggregate of shares of common stock have been granted under the Option Plan. 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
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 May 19, 2022, the Company entered into an agreement with Newbridge Securities Corporation (“Newbridge”), pursuant to which Newbridge will provide 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 are subject to a 12-month lockup from the date of issuance.
On June 3, 2022, in conjunction with the settlement agreement with Agregen International Corp, Robert Hurtado, James Todd Gauer and John Gingerich (see Note 8), the Company granted James Gauer the option to purchase shares of common stock, the equivalent number of common shares surrendered to the Company, at an exercise price of $ and a fair value of $ . The options vest immediately. The options were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below.
On August 26, 2022, the Company granted options to purchase duringto members of the six months ended May 31, 2021.Board, consultants and employees for services to be performed. The options were issued at an exercise price of $ and a total fair value of $ . The options vest immediately. The options were valued using the Black-Scholes option pricing model under the following assumptions as found in the table below. shares of common stock
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Date | Number of Options | Stock Price | Strike Price | Expected Volatility | Risk-free Interest Rate | Dividend Rate | Expected Term | Fair Value | ||||||||||||||||||||||
6/3/2022 | 8,699,400 | $ | 0.22 | $ | 2.50 | 274.50 | % | 2.95 | % | 0.00 | % | years | $ | 1,856,151 | ||||||||||||||||
8/26/2022 | 1,734,615 | $ | 0.24 | $ | 0.24 | 269.24 | % | 3.20 | % | 0.00 | % | years | $ | 411,668 | ||||||||||||||||
8/26/2022 | 242,424 | $ | 0.24 | $ | 0.24 | 276.76 | % | 3.20 | % | 0.00 | % | years | $ | 57,264 | ||||||||||||||||
8/26/2022 | 246,748 | $ | 0.24 | $ | 0.24 | 207.37 | % | 3.20 | % | 0.00 | % | years | $ | 53,479 |
The Company granted options to purchase an aggregate of sixnine months ended MayAugust 31, 2020.2022 and 2021, respectively. and shares of common stock during the
The weighted average grant date fair value of options granted and vested during the sixnine months ended MayAugust 31, 20212022, was $ and $, respectively. The weighted average grant date fair value of options granted and vested during the sixnine months ended MayAugust 31, 2020,2021, was $ and $ , respectively. The weighted average non-vested grant date fair value of non-vested options was $ at MayAugust 31, 2021.2022.
SCHEDULE OF STOCK OPTION ACTIVITY
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Shares | Exercise Price | Shares | Exercise Price | |||||||||||||
Outstanding at November 30, 2020 | 1,345,000 | $ | 1.18 | |||||||||||||
Outstanding at November 30, 2021 | $ | |||||||||||||||
Granted | 250,000 | 0.10 | ||||||||||||||
Exercised | - | - | ||||||||||||||
Expired or cancelled | - | - | ||||||||||||||
Outstanding at May 31, 2021 | 1,595,000 | 1.01 | ||||||||||||||
Outstanding at August 31, 2022 |
SCHEDULE OF STOCK OPTION SHARES OUTSTANDING AND EXERCISABLE
Weighted- | Weighted- | Weighted- | Weighted- | |||||||||||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||||||||||||||
Range of | Range of | Outstanding | Remaining Life | Exercise | Number | Range of | Outstanding | Remaining Life | Exercise | Number | ||||||||||||||||||||||||||
exercise prices | exercise prices | Options | In Years | Price | Exercisable | exercise prices | Options | In Years | Price | Exercisable | ||||||||||||||||||||||||||
$ | 0.099 | 400,000 | $ | 0.099 | 200,000 | 0.099 | 400,000 | $ | 0.099 | 400,000 | ||||||||||||||||||||||||||
0.10 | 645,000 | 0.10 | 350,000 | 0.10 | 645,000 | 0.10 | 645,000 | |||||||||||||||||||||||||||||
0.12 | 50,000 | 0.12 | 50,000 | 0.12 | 50,000 | 0.12 | 50,000 | |||||||||||||||||||||||||||||
3.00 | 500,000 | 3.00 | 500,000 | 0.24 | 2,223,787 | 0.24 | 2,223,787 | |||||||||||||||||||||||||||||
1,595,000 | $ | 1.01 | 1,100,000 | 0.36 | 200,000 | 0.36 | 200,000 | |||||||||||||||||||||||||||||
0.38 | 116,000,000 | 0.38 | 58,000,000 | |||||||||||||||||||||||||||||||||
2.50 | 8,669,400 | 2.50 | 8,669,400 | |||||||||||||||||||||||||||||||||
3.00 | 500,000 | 3.00 | 500,000 | |||||||||||||||||||||||||||||||||
128,688,187 | $ | 0.39 | 70,688,187 |
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 from the grant date and vest over various terms from the grant date to .
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On April 8, 2020,Total compensation expense related to the Company granted a director an optionoptions was $ and $ for the nine months ended August 31, 2022 and 2021, respectively. Total compensation expense related to purchase the options was $ sharesand $21,83 for the three months ended August 31, 2022 and 2021, respectively. As of the Company’s commonAugust 31, 2022, there was $12,737,463 in future compensation cost related to non-vested stock at an exercise price of $ per share and a fair value of $. The options vest immediately at the grant date. The options were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $; strike price - $0.10; expected volatility – ; risk-free interest rate – ; dividend rate – ; and expected term – years.options.
On April 15, 2020, the Company granted two advisory board members options to purchase an aggregate of shares of the Company’s common stock at an exercise price of $ per share and a fair value of $. The options vest one year from the date of grant. The options were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $; strike price - $0.10; expected volatility – ; risk-free interest rate – ; dividend rate – ; and expected term – years.
On April 8, 2021, the Company granted a director an option to purchase shares of the Company’s common stock at an exercise price of $ per share and a fair value of $. These options vest one year from the grant date. The options were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $; strike price - $0.10; expected volatility – ; risk-free interest rate – ; dividend rate – ; and expected term – years.
The aggregate intrinsic value totaledis $ for total outstanding and exercisable options, which was based on our estimated fair value of the Company’s closingcommon stock price of $ as of MayAugust 31, 2021,2022, 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.date, net of the aggregate exercise price.
Total compensation expense related to the options was $ and $ for the three months ended May 31, 2021 and 2020, respectively. Total compensation expense related to the options was $ and $ for the six months ended May 31, 2021 and 2020, respectively. As of May 31, 2021, there was $36,428 in future compensation cost related to non-vested stock options.
NOTE 1110 – 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 MayAugust 31, 2021.2022.
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 will provideprovides various technical evaluations and mine development services to the Company. During the three and sixnine months ended MayAugust 31, 2022 and 2021, the Company made purchases of $12,00033,150 in purchases from USMC. During the three and six months ended May 31, 2020, the Company did not make any purchases$101,400 and $85,343 and $97,343, respectively, from USMC. No services were rendered by USMC for the three and sixnine months ended MayAugust 31, 20212022 and 2020.2021. In addition, during the three and sixnine months ended MayAugust 31, 2022 and 2021, USMC paid $6,296 and $22,150 and $2,014 to the Company’s vendors and creditors on behalf$0 respectively, of the Company which is recorded as part of due to affiliates on the Company’s unaudited condensed consolidated balance sheets. During the three and six months ended May 31, 2020, USMC made no paymentexpenses to the Company’s vendors and creditors on behalf of the Company. During the three and sixnine months ended MayAugust 31, 20212022 and 2020,2021 USMC made cash advances to the Company of $316,000620,000 and $558,077976,000 and $33,000210,000 and $125,000410,000, respectively, which are recorded as part of due to affiliates on the Company’s unaudited condensed consolidated balance sheets. During the six months ended June 30, 2021,All amounts owed for services rendered, expenses paid on behalf of the Company, and USMCcash advances were converted an aggregate of $1,401,769 of outstanding payables into two convertible notesthe Company’s common stock pursuant to the September 5, 2019, Debt Exchange Agreement (See Note 5), the November 25, 2020, Securities Purchase Agreement (See Note 5) and the April 7, 2022, Securities Purchase Agreement (See Note 5). The balance due to USMC was $269,6160 and $1,091,158729,059 at MayAugust 31, 20212022 and November 30, 2020,2021, 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 May 31, 2021,April 7, 2022, USMC hashad purchased notes totaling $1,000,000 with maturity dates ranging from December 1, 2021, through November 25, 2022 (See(see Note 5). Interest expense on these notes totaled $12,46620,756 and $3,46137,530 for the threenine months ended MayAugust 31, 20212022 and 2020,2021, respectively. Interest expense on these notes totaled $24,795 0and $3,46112,750 for the sixthree months ended MayAugust 31, 2022 and 2021, respectively. On April 7, 2022, the December 1, 2019, January 1, 2020 and February 1, 2020 respectively,notes were amended to extend the maturity dates 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 is recorded as partDecember 1, 2020 notes, plus accrued interest totaling $75,346 through such date, into shares of accrued expenses on the unaudited condensed consolidated balance sheets.Company’s common stock.
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On November 25, 2020, the Company entered a securities purchase agreement with USMC pursuant to which USMC may purchase up to $2,000,000 of the Company’s 5% unsecured two-year promissory notes in one or more closings. The notes are convertible into the Company’s common stock at a conversion price of $0.088 per share. As of May 31, 2021,April 7, 2022, USMC has purchased notes totaling $5,798,7691,579,769 with a maturity date of March 17, 2023 (See(see Note 5). Interest expense on these notes totaled $8,800 and $13,300for the nine months ended August 31, 2022 and 2021, respectively. Interest expense on these notes totaled $0 and $7,400for the three months ended August 31, 2022 and 2021, respectively. 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. Interest expense on this note totaled $2,908 for the nine months ended August 31, 2022. There was no interest expense on this note for the three months ended August 31, 2022. 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 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. As August 31, 2022, USMC has purchased notes totaling $470,862 with a maturity date of August 30, 2024 (see Note 5). Interest expense on these notes totaled $5,8770 for the nine months ended August 31, 2022. Interest expense on these notes totaled $0 for the three and six months ended MayAugust 31, 2021 and2022.
August 30, 2022
On August 30, 2022, in connection with the April 7, 2022, securities purchase agreement with USMC, a related party (see Note 10), the Company issued a convertible promissory note in the amount of $470,862 to USMC, with a maturity date of August 30, 2024 (“Tranche #7”). The note bears interest at 5% per annum which is recorded as partpayable on maturity. Amounts due under the note may be converted into shares of accrued expensesthe Company’s common stock at any time at the option of the noteholder, at a conversion price of $0.39 per share. Total interest expense on Tranche #7 was approximately $0 for the unaudited condensed consolidated balance sheets.nine months ended August 31, 2022. Total interest expense on Tranche #7 was $0 for the three months ended August 31, 2022.
The outstanding balance due on the above notes to USMC iswas $470,862 and $1,579,769 and $178,000at MayAugust 31, 20212022 and November 30, 2020,2021, respectively.
On April 22, 2020, the Company entered into a Material Supply Agreement (the “Supply Agreement”) with USMC which amended the prior Materials Supply Agreement entered into on October 12, 2018. All kaolin clay purchased by the Company from USMC under the Supply Agreement must be used exclusively for agricultural products and supplementary cementitious materials. Under the terms of the Supply Agreement, the Company will pay $25 per ton for the kaolin clay for supplementary cementitious materials and $145 per ton for bagged products for clay for agriculture (in each case plus an additional $5 royalty fee per ton). The Supply Agreement also provides that if USMC provides pricing to any other customer which is more favorable than that provided to the Company, USMC shallwill 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. For the three and nine months ended August 31, 2022, the Company purchased $33,150 and $101,400, respectively, under the Supply Agreement. Since April 22, 2020, the Company has purchased $251,156 under the Supply Agreement.
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-yearten-year convertible promissory note in the principal amount of $50,000,000 to US Mine, LLC (the “US Mine Note”). The US Mine Note bears interest at the rate of 2.5% 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. The noteholder may convert (i) up to 50% of the outstanding balance on or after such date as the Company’s common stock is listed for trading on any national securities exchange, (ii) up to an additional 25% of the outstanding balance on or after the six-month anniversary of such initial trading date, and (iii) the remaining 25% on or after the twelve-month anniversary of such initial trading date. In addition, the Company will pay US Mine, LLC a royalty fee of $5.00 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.
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Subsequent to May 31, 2021, on
On October 6, 2021, and prior to consummation of activities under the Extraction Agreement, the Company and US Mine executed an amendment to the Extraction Agreement (the “Amendment”) (See Note 13). Pursuant to the Amendment, the US Mine Note was retroactively rescinded, ab initio and an option to purchase an aggregate of shares of the Company’s common stock at an exercise price of $ per share until April 6, 2028, was issued to US Mine, LLC as compensation. Shares subject to the option vest as to shares on April 6, 2022, shares on October 6, 2022, and shares on April 6, 2023.
For the nine months ended August 31, 2022, the Company expensed $
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 ArthurA. Scott Dockter, President, CEOChief Executive Officer and a director of the Company, to consolidate the total amounts due to and assumed by Mr. Dockter. The note bears interest at 6% and is due upon demand. During the sixnine months ended MayAugust 31, 2021,2022, the Company repaidpaid $38,10020,000 towards the outstanding balance of the note. As of May 31, 2021 and November 30, 2020, the principalThe balance due on this note was $89,716 and $127,816, respectively, and is recorded as Note Payable to Officer on the unaudited condensed consolidated balance sheet. Total interest expense on the note was $3,36838,716 and $4,83458,716 for the six months ended Mayas of August 31, 20212022 and 2020,November 30, 2021, respectively. Total interest expense on the note was $1,5002,291 and $2,9164,761 for the nine months ended August 31, 2022 and 2021, respectively. Total interest expense on the note was $586 and $1,346 for the three months ended MayAugust 31, 20212022 and 2020,2021, respectively.
Convertible Debt – Board of Directors
On April 8, 2021, the Company entered into a twelve-month Director Agreement with Jeffrey Guzy whereby Mr. Guzy will receive a $1,000 cash fee each month for services performed. The fee will accrue as 0% interest debt to the Company until the Company has its first cash-flow positive month. If a debt is still owed at the end of the term, the debt shall be converted into common stock at the lower price of the market value of such common stock on the date of termination or renewal of the Director Agreement, as the case may be, or the 20-day VWAP immediately prior to the end of the term or renewal date. The Director Agreement shall automatically renew for successive one-year periods unless either party terminates the agreement at least 30 days prior to the end of the then current term. As of August 31, 2022, the Company has debt in the amount of $17,000 owed to Mr. Guzy.
On August 10, 2021, the Company entered into a twelve-month Director Agreement with Dr. Kimberly Kurtis whereby Dr. Kurtis will receive a $1,000 cash fee each month for services performed. The fee will accrue as 0% interest debt to the Company until the Company has its first cash-flow positive month. If a debt is still owed at the end of the term, the debt shall be converted into common stock at the lower price the market value of such common stock on the date of termination or renewal date of the Director Agreement, as the case may be, or the 20-day VWAP immediately prior to the end of the term or renewal date. The Director Agreement shall automatically renew for successive one-year periods unless either party terminates the agreement at least 30 days prior to the end of the then current term. As of August 31, 2022, the Company has debt in the amount of $13,000 owed to Dr. Kurtis.
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).
NOTE 1211 – 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 MayAugust 31, 20212022 and November 30, 2020,2021, the Company had no deposits in excess of the FDIC insured limit.
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Revenues
One customer accounted for 100% of total revenue for the six months ended May 31, 2021.
Three customers accounted for 100% of total revenue for the six months ended May 31, 2020, as set forth below:
SCHEDULE OF CONCENTRATION OF CREDIT RISK
Four customers accounted for 99% of total revenue for the nine months ended August 31, 2022, as set forth below:
Customer A | 42 | % | |||||
Customer B | 29 | % | |||||
Customer C | 16 | % | |||||
Customer D | 12 | % |
Four customers accounted for 98% of total revenue for the nine months ended August 31, 2021, as set forth below:
Customer A | 46 | % | ||
Customer B | % | |||
Customer C | 17 | % | ||
Customer D | 11 | % |
Accounts Receivable
One customerThree customers accounted for 92%99% of the accounts receivable as of MayAugust 31, 2021.2022, as set forth below:
Customer A | 54 | % | ||
Customer B | 28 | % | ||
Customer C | 17 | % |
Two customersOne customer accounted for 100% of the accounts receivable as of November 30, 2020,2021.
Vendors
Five suppliers accounted for 87% of purchases as of August 31, 2022, as set forth below:
Vendor A | % | ||||||
Vendor B | % | ||||||
Vendor C | 17 | % | |||||
Vendor D, a related party | 13 | % | |||||
Vendor E | % |
Vendors
Three vendorsTwo suppliers accounted for 84%88% of purchases as of MayAugust 31, 2021, as set forth below:
Vendor A, a related party | 75 | % | |||||
Vendor B | 13 | % | |||||
One supplier accounted for 85% of purchases as of November 30, 2020.
NOTE 1312 – SUBSEQUENT EVENTS
On October 6, 2021, prior toThe Company has evaluated all subsequent events through the consummation of activities under the Extraction Agreement, the Companyfiling date and US Mine executed an amendment to the Extraction Agreement (the “Amendment”). Pursuant to the Amendment, the US Mine Note was retroactively rescinded, ab initio, and an option to purchase an aggregate of shares of the Company’s common stock at an exercise price of $ per share until April 6, 2028, was issued to US Mine as compensation. Shares subject to the option vest as to shares on April 6, 2022, shares on October 6, 2022, and shares on April 6, 2023.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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 us and members 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, 2020,2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2021,15, 2022, 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 | |
● | the impact of potentially losing the rights to properties; | |
● | the impact of the increase in the price of natural | |
● | 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 (“USAM”Purebase SCM”).
Business Overview
The Company,We are an industrial mineral and natural resource company that provides solutions to the agriculture and construction materials markets in the United States, through itsour two divisions,subsidiaries, Purebase AgAG, and Purebase SCM, is engaged in the agricultural and construction-materials sectors.respectively. The Company has not yet commenced mining operations.
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Agricultural Sector
In the agricultural sector, the Company’s business is toWe 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 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 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.
The Company is 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. 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 utilizesConstruction Sector
We have 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”). We are developing a SCM 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”), a Nevada corporation (“USMC”), 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 utilizedused by the Company isare 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.
Recent Developments
Minerals Extraction AgreementA settlement agreement was entered into between the Company and Convertible Debt – US Mine LLCAgregen International Corp, Robert Hurtado, James Todd Gauer and John Gingerich, effective June 3, 2022 (the “Settlement Agreement”), and a Notice of Settlement was filed in the Second Judicial District Court in the State of Nevada, Washoe County pursuant to which, among other things, 8,669,400 shares of the Company’s common stock beneficially owned by the defendants were surrendered to the Company on August 11, 2022.
On May 27, 2021,June 3, 2022, in conjunction with the Settlement Agreement, the Company entered in a Materials Extraction Agreement (the “Extraction Agreement”) with US Mine LLC, a California limited liability company (“US Mine”), pursuantgranted Mr. Gauer an immediately exercisable option to whichpurchase 8,669,400 shares of common stock, the equivalent number of common shares surrendered to the Company, acquired the right to extract up to 100,000,000 of metakaolin supplementary cementitious materials (“SCM”) from property owned by US Mine in Ione, California (the “Property”), for a purchaseat an exercise price of $50,000,000, which was paid through the Company’s issuance to US Mine of a ten-year convertible promissory note (the “Note”) in the principal amount of $50,000,000. The Extraction Agreement will remain in effect until such time as 100,000,000 tons of SCM have been extracted from the Property, or the Extraction Agreement is sooner terminated.$2.50.
On October 6, 2021, prior to the consummation of activities under the Extraction Agreement,August 26, 2022, the Company and US Mine executed an amendment to the Extraction Agreement (the “Amendment”). Pursuant to the Amendment, the Note was retroactively rescinded, ab initio, and an optiongranted immediately exercisable options to purchase an aggregate of 116,000,0002,223,788 shares of the Company’s common stock at an exercise price of $0.38$0.24 per share until April 6, 2028, was issued to US Mine as compensation. Shares subjectcertain directors, consultants and employees for services provided 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.
In addition, the Company will pay US Mine LLC a royalty fee of $5.00 per ton of materials extracted and any royalty not paid in a timely manner will be subject to 15% interest per annum and compounded monthly.
Company.
A. Scott Dockter,On August 30, 2022, the Company issued a two-year convertible promissory note in the principal amount of $470,862 to USMC. The note bears interest at 5% per annum. Amounts due under the note may be converted into shares of the Company’s Chief Executive Officer andcommon stock at any time at the option of the noteholder at a director, and John Bremer, a director, are also owners and manager membersconversion price of US Mine.$0.39 per share.
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Results of Operations
Comparison of the Three Months Ended MayAugust 31, 20212022 and the Three Months Ended MayAugust 31, 20202021
A comparison of the Company’s operating results for the three months ended MayAugust 31, 20212022 and MayAugust 31, 20202021 are summarized as follows:
May 31, | May 31, | |||||||||||
2021 | 2020 | Variance | ||||||||||
Revenues | $ | 30,000 | $ | 1,619 | $ | 28,381 | ||||||
Operating expenses: | ||||||||||||
Selling, general & administrative | 412,861 | 193,456 | 219,405 | |||||||||
Product fulfillment, exploration and mining | 15,594 | 3,435 | 12,159 | |||||||||
Loss from operations | (398,455 | ) | (195,272 | ) | (194,183 | ) | ||||||
Other income (expense) | (7,888 | ) | 3,226 | (11,114 | ) | |||||||
Net Loss | $ | (406,343 | ) | $ | (192,046 | ) | $ | (214,297 | ) |
August 31, | August 31, | |||||||||||
2022 | 2021 | Variance | ||||||||||
Revenues | $ | 226,060 | $ | 338,700 | $ | (112,640 | ) | |||||
Operating expenses: | ||||||||||||
Selling, general & administrative | 8,232,007 | 293,293 | 7,938,714 | |||||||||
Product fulfillment, exploration and mining | 34,329 | 85,343 | (51,014 | ) | ||||||||
Loss from operations | (8,040,276 | ) | (39,936 | ) | (8,000,340 | ) | ||||||
Other expense | (1,038 | ) | (42,129 | ) | (41,019 | ) | ||||||
Net Loss | $ | (8,041,314 | ) | $ | (82,065 | ) | $ | (7,959,249 | ) |
Revenues
Revenue increaseddecreased by $28,381,$112,640, or 1,752%33%, for the three months ended MayAugust 31, 20212022, as compared to the three months ended MayAugust 31, 2020,2021. This was primarily due to a decrease in purchases by the Company’s clients not buying productcustomers during the three months ended May 31, 2020 due to buying more than they anticipated needing in prior periods.2022.
Operating Costs and Expenses
Selling, general and administrativeTotal operating expenses increased by $219,405, or 113%,$7,887,700 for the three months ended MayAugust 31, 2021,2022, as compared to the three months ended MayAugust 31, 2020, due to2021, primarily as a result of an increase of approximately (i) $38,000 in stock based compensation (ii) $26,000 in advertising and marketing costs, (iii) $140,000 in payroll expensescost of $7,830,799 resulting primarily from the Company hiringCompany’s issuance of stock options to US Mine, LLC, directors, consultants and employees. This increase was partially offset by a chief financial officer and additional workforce.
Productdecrease of $51,014 in product fulfillment, and exploration and mining expenses for the three months ended MayAugust 31, 2021 increased2022.
Other Expense
Other expense decreased by $12,159,$41,091, or 353%98%, for the three months ended August 31, 2022, as compared to the three months ended MayAugust 31, 2020,2021, primarily due to the increase in revenue during the three months ended May 31, 2021.
Other Income (Expense)
Other income (expense) decreased by $11,114, or 345%, for the three months ended May 31, 2021, as compared to the three months ended May 31, 2020, primarily due to an increasea decrease in interest expense as a result of the Company issuing $50,597,769Company’s conversion of convertible debt to USMC during the three months ended May 31, 2021.into common stock in April 2022.
Comparison of the SixNine Months Ended MayAugust 31, 20212022 and the SixNine Months Ended MayAugust 31, 20202021
A comparison of the Company’s operating results for the sixnine months ended MayAugust 31, 20212022 and MayAugust 31, 20202021 are summarized as follows:
May 31, | May 31, | August 31, | August 31, | |||||||||||||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||||||||||||
Revenues | $ | 30,000 | $ | 6,129 | $ | 23,871 | $ | 454,536 | $ | 368,700 | $ | 85,836 | ||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling, general & administrative | 633,787 | 355,434 | 278,353 | 27,055,218 | 927,080 | 26,128,138 | ||||||||||||||||||
Product fulfillment, exploration and mining | 17,708 | 5,194 | 12,514 | 125,611 | 103,051 | 22,560 | ||||||||||||||||||
Loss from operations | (621,495 | ) | (354,499 | ) | (266,996 | ) | (26,726,293 | ) | (661,431 | ) | (26,064,862 | ) | ||||||||||||
Other income (expense) | (22,848 | ) | 6,041 | (28,889 | ) | |||||||||||||||||||
Other expense | (30,942 | ) | (64,977 | ) | 34,035 | |||||||||||||||||||
Net Loss | $ | (644,343 | ) | $ | (348,458 | ) | $ | (295,885 | ) | $ | (26,757,235 | ) | $ | (726,408 | ) | $ | (26,030,827 | ) |
Revenues
Revenue increased by $23,871,$85,836, or 389%23%, for the sixnine months ended MayAugust 31, 20212022, as compared to the sixnine months ended August 31, 2021, primarily due to an increase in purchases from the Company’s customers during our second fiscal quarter ended May 31, 2020, primarily due to the Company’s clients not buying product during the six months ended May 31, 2020 due to buying more than they anticipated needing in prior periods.2022.
Operating Costs and Expenses
Selling, general and administrativeTotal operating expenses increased by $278,353, or 78%,$26,150,698 for the sixnine months ended MayAugust 31, 2021,2022, as compared to the sixnine months ended MayAugust 31, 2020, due to2021, primarily as a result of an increase of approximately (i) $18,000 in stock based compensation (ii) $40,000 in advertising and marketing costs, (iii) $190,000 in payroll expensescost of $26,129,138 resulting primarily from the Company hiring a chief financial officer and additional workforce.
Company’s issuance of stock options to US Mine, LLC. Product fulfillment, and exploration and mining expenses for the sixnine months ended MayAugust 31, 20212022, increased by $12,514,$22,569, or 241%22%, as compared to the sixnine months ended MayAugust 31, 2020, primarily2021 due to thean increase in revenue during the six months ended May 31, 2021.exploration costs.
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Other Income (Expense)Expense
Other income (expense)expense decreased by $28,889,$34,035, or 478%52%, for the sixnine months ended MayAugust 31, 2021,2022, as compared to the sixnine months ended MayAugust 31, 2020,2021, primarily due to an increasea decrease in interest expense as a result of the Company issuing $51,401,769Company’s conversion of convertible debt to USMC during the six months ended May 31, 2021.into common stock in April 2022.
Liquidity and Capital Resources
As of MayAugust 31, 2021,2022, we had $12,890$11,782 in cash on hand and a working capital deficiency of $1,101,498,$384,264, as compared to cash on hand of $7,450$132,209 and a working capital deficiency of $1,792,674$2,241,254 as of November 30, 2020.2021. The decrease in working capital deficiency is mainly due to an approximate $1,401,000 decrease in due to affiliated entities as a result of the conversion of $1,401,000 in payablesnotes due to a convertible note payable.
Future FinancingUSMC into an aggregate of 22,889,337 shares of common stock.
We will require additional funds to implement our growth strategy. We do not believe that our current cash and cash equivalents will be sufficient to meet our working capital requirements for the next twelve months. We have had negative cash flow from operating activities as we have not yet begun to generate sufficient and consistent revenues to cover our operating expenses. Until we are able to establish a sufficient revenue stream from operations, our ability to meet our current financial liabilities and commitments will be primarily dependent upon proceeds from outside capital sources including USMC, an affiliated entity. There isOn April 7, 2022, the Company entered into a securities purchase agreement with USMC, a related party, pursuant to which the Company may issue up to an aggregate of $1,000,000 of two-year convertible promissory notes to USMC, a related party. The notes bear interest at 5% per annum and any outstanding principal or interest under the notes are convertible into shares of the Company’s common stock, at any time at the option of the holder, at a conversion price of $0.39 per share. Currently, the Company has issued $470,862 of convertible notes under such securities purchase agreement and may issue an additional $529,138 of convertible notes. However, there currently are no assurance that weother arrangements or agreements for financing, and management cannot guarantee any other potential debt or equity financing will be able to obtain necessary capitalavailable, or that our estimates of our capital requirements will prove to be accurate. Even if we are able to secure outside financing, it may not be available, in the amounts or times when we require or on favorable terms. We currently do not have any agreements or understandings for additional financing. If we are unable to raise sufficient capital we will be required to delay or forego some portion of our business plan or cease operations.
Furthermore, such outside financing would likely take the form of bank loans, private offerings of debt or equity securities, advances from affiliates or some combination of these. The issuance of additional equity securities wouldfinancing may dilute the stock ownership of current investorsshareholders while incurring debt by the Company would increase the Company’s cash flow requirements andfinancing may subject the Company to restrictions on its operations and corporate actions. 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.
Going Concern
The unaudited condensed consolidated financial statements presented in this Quarterly Report have been prepared under the assumption that the Company will continue as a going concern. The Company has accumulated losses from inception through MayAugust 31, 2021,2022 of approximately $13.4 million,$47,818,460, as well as negative cash flows from operating activities. During the sixnine months ended MayAugust 31, 2021,2022, the Company received net cash proceeds of approximately $569,000$620,000 from USMC, an affiliated entity. Additionally, USMC paid $6,296 to vendors on behalf of the Company during the nine months ended August 31, 2022. Presently the Company does not have sufficient cash resources to meet its debt obligations in the twelve months following the date of this Quarterly Report. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance the capital requirements of the Company. There can be no assurance that the Company will be successful with its fund-raising initiatives.
The unaudited condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.
Working Capital Deficiency
Our working capital deficiency as of MayAugust 31, 2021,2022, in comparison to our working capital deficiency as of November 30, 2020, can be2021, is summarized as follows:
May 31, | November 30, | August 31, | November 30, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Current assets | $ | 46,404 | $ | 15,340 | $ | 227,500 | $ | 138,903 | ||||||||
Current liabilities | 1,147,902 | 1,808,014 | 611,764 | 2,380,157 | ||||||||||||
Working capital deficiency | $ | 1,101,498 | $ | 1,792,674 | $ | (384,264 | ) | $ | (2,241,254 | ) |
The $88,597, or 64%, increase in current assets is primarily due to an increase in accounts receivable of $30,000. The$207,809, partially offset by a decrease in currentcash of $120,527. Current liabilities isdecreased $1,768,393, or 74%, during the nine months ended August 31, 2022, as compared to the nine months ended August 31, 2021, primarily due to a decrease in convertible notes payable of $963,671 and a decrease of amounts due to affiliated entities of approximately $821,000$729,059 during the sixnine months ended MayAugust 31, 2021.2022.
Cash Flows
Six Months Ended | Nine Months Ended | |||||||||||||||
May 31, 2021 | May 31, 2020 | August 31, 2022 | August 31, 2021 | |||||||||||||
Net cash used in operating activities | $ | (525,921 | ) | $ | (396,211 | ) | $ | (720,527 | ) | $ | (935,034 | ) | ||||
Net cash provided by financing activities | 531,361 | 387,811 | 600,000 | 940,361 | ||||||||||||
Increase (decrease) in cash | $ | 5,440 | $ | (8,400 | ) | |||||||||||
Increase or (decrease) in cash | $ | (120,527 | ) | $ | 5,327 |
Operating Activities
Net cash used in operating activities was $525,921$720,527 for the sixnine months ended MayAugust 31, 2021,2022, as compared to $935,034 for the same period ended August 31, 2021. The increase was primarily due to a net lossdecrease in accounts receivable of $644,343 which was partially offset by non-cash expenses of $101,687 related to stock based compensation$160,891 and amortization of debt discount and $16,735 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result of increasesan increase in accounts payable and accrued expenses partially offset by an increase in accounts receivable. Net cash used in operating activities was $396,211 for the six months ended May 31, 2020, primarily due to a net loss of $348,458 which was partially offset by non-cash expenses of $1,539 related to stock based compensation, amortization of debt discount, and lawsuit settlement liability and $46,214 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result in increases in prepaid expenses and other current assets, partially offset by a decrease in accounts receivable and accounts payable and accrued expenses.
Investing Activities
There were no investing activities during the six months ended May 31, 2021 and May 31, 2020.$44,003.
Financing Activities
For the six months ended May 31, 2021, netNet cash provided by financing activities was $531,361,$600,000 for the nine months ended August 31, 2022, as compared to $940,361 for the same period ended August 31, 2021. The increase was primarily due to $569,461 advanceda decrease in advances of $359,461 to the Company by USMC.
For the six months ended May 31, 2020, net cash provided by financing activities was $387,811,USMC, which was primarilypartially offset by a decrease of $19,100 of payments on notes due to $178,000 received from convertible notes payable with USMC and $161,000 advanced to the Company by USMC.officers.
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 the notesNote 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, 2020,2021, as filed with the SEC on March 16, 2021.15, 2022.
Recently Adopted Accounting Pronouncements
Our recently adopted accounting pronouncements are more fully described in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
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
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We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) 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 Quarterly 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 MayAugust 31, 20212022 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 the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), 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 |
● | Lack of personnel with GAAP |
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; |
● | Continue to search for a qualified chief financial officer; |
● | Identify gaps in our skills base and the expertise of our staff 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.
Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and hope to implement changes in the future if and when resources permit, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our managementManagement will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls 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
On March 25, 2021, Michael Fay resigned as the Company’s Chief Financial Officer.
Other than what is stated above thereThere have been no changes in our internal control over financial reporting that occurred during the quarter ended MayAugust 31, 20212022 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
Except as set forthdescribed below, there are no material pending legal proceedings toin which the Companywe or itsany of our subsidiaries areais a party or in which any director, officer or affiliate of the Company,ours, any owner of record ofor beneficially orof more than 5% of any class of our voting securities, of the Company, or security holder is a party adverse to the Companyus or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.us.
On July 8, 2020, former Chief Financial Officer, Al Calvanico (“Calvanico”), filed a demand for arbitration alleging retaliation, wrongful termination, and demand for a minimum amount of $600,000 in alleged stock value, plus interest, recovery of past and future wages, attorneys’ fees, and punitive damages (collectively, the “Calvanico Claims”). The Company denied all Calvanico Claims. The Company believes Calvanico is owed nothing because it takes the position that Calvanico was not terminated, but rather, his employment contract expired on September 21, 2019, in the normal course,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 midst of the arbitration discovery phase. An arbitration hearing date has beenis scheduled for January 24, 2022.10 - 13, 2023,before arbitrator, Scott Silverman in Los Angeles.
On January 11, 2019, the Company filed a complaint in the NevadaSecond Judicial District Court forin the State of Nevada, 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 VPVice President 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 James 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,settlement agreement was entered into between the parties, effective June 3, 2022 (the “Settlement Agreement”) and Agregen. The June 2021 trial datea Notice of Settlement was postponed due to Covid-related delays, but isfiled in the processDistrict Court pursuant to which, among other things, certain shares of being rescheduled.the Company’s common stock beneficially owned by the defendants will be surrendered to the Company. The lawsuit was fully settled and dismissed on August 9, 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-labellingmislabeling and denying any liability for damages therefrom. The parties are currentlymatter is set for trial in settlement negotiations. The Company believes its potential exposure to be approximately $400,000 and, as such, has accrued this amount on the unaudited condensed consolidated balance sheet at May 31, 2021.April 2023.
On April 16, 2021, LexisNexis, a division of RELX, Inc., filed a Complaint against the Company and its former attorney, Michael Kessler, Esq., in the Superior Court of the State of California, Amador County (Case No. 21-CV-12123). This is a limited jurisdiction lawsuit seeking payment of $18,211.30. The basis of the Complaint is that Mr. Kessler incurred this debt to LexisNexis, a legal research company. Mr. Kessler is alleged to have failed to pay the annual bill. After the matter was sent to collections, it is the Company’s understanding that Mr. Kessler claimed that he was employed by Purebase Corporation as its general counsel at the time and that the Company is therefore responsible for payment. The Company strongly disputes this characterization and maintains that it has no obligation to LexisNexis under the facts or the law. The Company and LexisNexis are engaged in settlement negotiations. The Company believes its potential exposure to be $0 and that this lawsuit will be dismissed.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to provide the information required by this Item.
Investors should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended November 30, 2020, as filed with SEC on March 16, 2021. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
In addition:
We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations.
Our business and operating results could be adversely impacted by the effects of epidemics, including but not limited to the current COVID-19 pandemic. We are closely monitoring the impact of the COVID-19 global outbreak, although there remains significant uncertainty related to the public health situation globally.
Our results of operations could be adversely affected to the extent that such coronavirus or any other epidemic generally harms the global economy. In addition, our customers and/or personnel may be adversely impacted as a result of a health epidemic or other outbreak. Our operation may experience disruptions, such as temporary closure of our offices, facilities and/or those of our customers, suspension of services and the shut-down of our sales efforts. These disruptions may require us to curtail our sales efforts or even force us to reduce our workforce in effort to conserve capital. Additionally, the continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital and adversely affect our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
Except as set forth below, 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.
On May 14, 2021,June 3, 2022, pursuant to the Settlement Agreement, the Company issued 80,000granted Mr. Gauer an immediately exercisable option to purchase 8,669,400 shares of common stock to a director pursuant to a directors agreement for services rendered.at an exercise price of $2.50.
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On May 27, 2021,July 7, 2022, the Company issued an aggregate of 350,00023,741,655 shares of its common stock to an investment banking firmUSMC pursuant to an investment banking agreement for services rendered to the Company.USMC’s conversion of $2,464,262 of principal amount and $108,909 of accrued interest under convertible promissory notes.
On April 8, 2021,August 26, 2022, the Company granted a director an optionimmediately exercisable options to purchase 250,000an aggregate of 2,223,788 shares of the Company’s common stock at an exercise price of $0.10$0.24 per share. These options vest one yearshare to certain directors, consultants and employees for services provided to the Company.
The above issuance did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the grant date.registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.There are no defaults upon senior securities that were not previously reported in a Current Report on Form 8-K.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
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 |
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: |