PureBase Corp - Quarter Report: 2015 August (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2015
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT FOR THE TRANSITION PERIOD FROM
_______________ to _______________
Commission File Number 333-188575
PUREBASE CORPORATION
(Exact name of registrant as specified in its charter)
|
NEVADA
|
27-2060863
|
|
|
(State of other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
|
|
1670 Sierra Avenue, Ste. 402
Yuba City, CA
|
95993
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
| Registrant's telephone number: |
(530) 676-7873
|
(Former name, address and former fiscal year if changed since last report)
Indicate by check mark whether the issuer (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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):
| Large accelerated filer | o | Accelerated filer | o | |
| Non-accelerated filer | o | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of the issuer’s common stock, as of September 30, 2015 was 141,089,517.
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PUREBASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
August 31,
2015
|
November 30,
2014
|
||||||
|
(Unaudited)
|
(Audited)
|
|||||||
|
ASSETS
|
||||||||
|
Current assets
|
||||||||
|
Cash
|
$ | 17,281 | $ | 171,720 | ||||
|
Prepaid expenses and other assets
|
- | 9,939 | ||||||
|
Due from related parties
|
65,654 | 60,499 | ||||||
|
Advances to officer
|
17,354 | 28,000 | ||||||
|
Total current assets
|
100,289 | 270,158 | ||||||
|
Property and Equipment
|
||||||||
|
Property and Equipment
|
35,152 | 35,152 | ||||||
|
Autos and Trucks
|
25,061 | 25,061 | ||||||
|
Accumulated Depreciation
|
(25,426 | ) | (16,393 | ) | ||||
|
Total Property and Equipment
|
34,787 | 43,820 | ||||||
|
Mineral Rights Acquisition Costs
|
200,000 | 200,000 | ||||||
|
Deposit on mineral rights
|
50,000 | - | ||||||
|
Total Assets
|
$ | 385,076 | $ | 513,978 | ||||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current Liabilities
|
||||||||
|
Accounts Payable
|
$ | 134,423 | $ | 58,692 | ||||
|
Accrued Liabilities
|
47,881 | 48,361 | ||||||
|
Notes Payable Current
|
1,300,000 | 200,000 | ||||||
|
Total Current Liabilities
|
1,482,304 | 307,053 | ||||||
|
Long Term Debt
|
- | 1,000,000 | ||||||
|
Total Liabilities
|
$ | 1,482,304 | $ | 1,307,053 | ||||
|
Stockholders’ Equity (Deficit)
|
||||||||
|
Common stock $0.001 par value,520,000,000 shares authorized 140,851,560 and 91,635,604 shares issued and outstanding
|
70,448 | 45,818 | ||||||
|
Additional paid in capital
|
1,216,246 | 445,166 | ||||||
|
Accumulated deficit
|
(2,383,922 | ) | (1,284,059 | ) | ||||
|
Total Stockholders’ Equity (Deficit)
|
(1,097,228 | ) | (793,075 | ) | ||||
|
Total Liabilities and Equity
|
$ | 385,076 | $ | 513,978 | ||||
The accompanying notes are an integral part of these financial statements
PUREBASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS
ENDED AUGUST 31, 2015 AND 2014
(UNAUDITED)
|
Three
Months Ended
August 31,
|
Three
Months Ended
August 31,
|
Nine
MonthsEnded
August 31,
|
Nine
Months Ended
August 31,
|
|||||||||||||
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
Cost of Sales
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Gross Profit
|
- | - | - | - | ||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
General and administrative
|
$ | 201,338 | $ | 49,076 | $ | 708,645 | $ | 208,635 | ||||||||
|
Exploration and mining expenses
|
69,794 | 3,445 | 323,464 | 4,642 | ||||||||||||
|
Depreciation and amortization
|
3,011 | 3,011 | 9,033 | 9,033 | ||||||||||||
|
Total Operating Expense
|
274,143 | 55,532 | 1,041,142 | 222,310 | ||||||||||||
|
Other Expenses
|
||||||||||||||||
|
Other Expenses
|
2,907 | - | 15,815 | - | ||||||||||||
|
Interest Expense
|
12,461 | 10,082 | 37,182 | 25,808 | ||||||||||||
|
Income Tax Expense
|
1.674 | - | 5,724 | - | ||||||||||||
|
Total Other Expenses
|
17,042 | 10,082 | 58,721 | 25,808 | ||||||||||||
|
Net Income (Loss)
|
$ | (291,185 | ) | $ | (65,614 | ) | $ | (1,099,863 | ) | $ | (248,118 | ) | ||||
|
Basic and Diluted Loss Per Share
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
|
Weighted average common shares
|
||||||||||||||||
|
outstanding - basic and diluted
|
140,851,077 | 91,344,462 | 134,416,345 | 91,325,596 | ||||||||||||
The accompanying notes are an integral part of these financial statements
PUREBASE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
Common Stock
|
Additional
Paid-in
|
Deficit
|
Total Stockholder’
|
|||||||||||||||||
|
Shares *
|
Amount
|
Capital
|
Accumulated
|
Equity
|
||||||||||||||||
|
Balance, November 30, 2014
|
91,635,604 | $ | 45,818 | $ | 445,166 | $ | (1,284,059 | ) | $ | (793,075 | ) | |||||||||
|
Recapitalization
|
48,800,000 | $ | 24,400 | $ | (27,900 | ) | $ | - | $ | (3,500 | ) | |||||||||
|
Issuance of Units for cash (172,000shares @ $1.4535)
|
172,000 | $ | 86 | $ | 249,914 | $ | - | $ | 250,000 | |||||||||||
|
Issuance of Units for cash (199,512 shares @ $2.25)
|
199,512 | 100 | 449,110 | - | 449,210 | |||||||||||||||
|
Issuance of Units for cash (44,444 shares @ $2.25)
|
44,444 | 44 | 99,956 | - | 100,000 | |||||||||||||||
|
Net loss
|
- | $ | - | $ | - | $ | (1,099,863 | ) | $ | (1,099,863 | ) | |||||||||
|
Balance, August 31, 2015
|
$ | 140,851,560 | $ | 70,448 | $ | 1,216,246 | $ | (2,383,922 | ) | $ | (1,097,228 | ) | ||||||||
| * The number of shares outstanding retroactively reflects a 2-for-1 split that occurred on June 15, 2015. | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
PUREBASE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 2015 AND 2014
(UNAUDITED)
|
|
Nine Months
Ended
August 31, 2015
|
Nine Months
Ended
August 31,2014
|
||||||
|
Operating activities:
|
||||||||
|
Net loss
|
$ | (1,099,863 | ) | $ | (248,118 | ) | ||
|
Adjustments to reconcile net income (loss) to cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
9,033 | 9,033 | ||||||
|
Effect of changes in:
|
||||||||
|
Prepaid expenses and other current assets
|
9,939 | - | ||||||
|
Accounts payable and accrued expenses
|
91,751 | 15,865 | ||||||
|
Net cash used in operating activities
|
(989,140 | ) | (223,220 | ) | ||||
|
Investing Activities:
|
||||||||
|
Purchase of property and equipment
|
- | - | ||||||
|
Deposit on mineral rights
|
(50,000 | ) | - | |||||
|
Advances to officers
|
(9,354 | ) | - | |||||
|
Advance to Related Party
|
(5,155 | ) | - | |||||
|
Net cash used in investing activities
|
(64,509 | ) | - | |||||
|
Financing activities:
|
||||||||
|
Proceeds from sale of equity units
|
799,210 | 83,600 | ||||||
|
Proceeds from notes payable
|
100,000 | 145,409 | ||||||
|
Advances to/from related parties
|
- | - | ||||||
|
Net cash provided by financing activities
|
899,210 | 229,009 | ||||||
|
Net change in cash
|
(154,439 | ) | 5,789 | |||||
|
Cash, beginning of period
|
171,720 | - | ||||||
|
Cash, end of period
|
$ | 17,281 | $ | 5,789 | ||||
|
Supplemental cash flow information:
|
||||||||
|
Interest paid in cash
|
$ | 12,344 | $ | 8,794 | ||||
|
Income taxes paid in cash
|
$ | 5,724 | $ | - | ||||
The accompanying notes are an integral part of these financial statements
PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AUGUST 31, 2015
Note 1 Nature of Business
Business Overview
PureBase Corporation (f/k/a Port of Call Online, Inc.) (the “Company”), was incorporated in the State of Nevada on March 2, 2010 to create a web-based service that would offer boaters an easy, convenient, fun, easy to use, online resource to help them plan and organize their boating trips. Pursuant to a corporate reorganization consummated on December 23, 2014 the Company changed its business focus to an exploration, mining and product marketing company which will focus on identifying and developing advanced stage natural resource projects which show potential to achieve full production. The business strategy of the Company is to identify, acquire, define, develop and operate world-class industrial and natural resource properties and to contract for mine development and operations services to its mining properties located initially in the Western United States and currently in California and Nevada. The Company intends to engage in the identification, acquisition, development, mining and full-scale exploitation of industrial and natural mineral properties in the United States. The Company plans to package and market such industrial and natural minerals to retail and wholesale industrial and agricultural market sectors. The Company will initially seek to develop deposits of pozzolan, white silica and potassium sulfate on its own properties or acquire such minerals from other sources. These minerals have a wide range of uses including construction, agriculture additives, animal feedstock, ceramics, synthetics, absorbents and electronics.
The Company is headquartered in Yuba City, California. The Company’s business is divided into wholly-owned subsidiaries which will operate as business divisions whose sole focus is to develop sector related products and to provide for distribution of those products into primarily the agricultural and construction industry sectors.
Reverse Merger and Business Combinations
On December 23, 2014 Port of Call Online, Inc. (now Purebase Corporation), an entity without any business or operating activities, entered into an agreement under which it would issue 91,635,604(post- split) shares of unregistered shares of common stock in exchange for 100% equity interest in Purebase, Inc., making Purebase, Inc. a wholly owned subsidiary of Purebase Corporation. This voluntary share exchange transaction resulted in the shareholders of Purebase, Inc. obtaining a majority voting interest in Purebase Corporation.
As of the closing of the Reorganization a majority of Purebase, Inc.'s officers and directors served as directors of the new combined entity. Additionally, Purebase, Inc.’s stockholders were issued approximately 65% of the outstanding shares of the Company after the completion of the transaction.
The share exchange transaction was accounted for as a reverse merger with a public shell (a capital transaction), with Purebase, Inc. as the accounting acquirer and the Purebase Corporation as the legal acquirer. Although from a legal perspective, Purebase Corporation acquired Purebase, Inc., from an accounting perspective, the transaction is viewed as a recapitalization of Purebase, Inc., accompanied by an issuance of stock by Purebase, Inc. for the net assets of Purebase Corporation. This is because the
PureBase Corp.
Notes to Unaudited Financial Statements
Purebase Corporation did not have operations immediately prior to the merger, and following the merger, Purebase, Inc. is the operating company. Accordingly, the condensed consolidated financial statements present the historical information of Purebase, Inc.
On November 24, 2014, Purebase, Inc. acquired 100% ownership of US Agricultural Minerals, LLC, a Nevada limited liability company (“USAM”) that was under common majority ownership. Purebase, Inc. issued 230,000 (post-split) shares of common stock for 100% of the membership interests of USAM. USAM has developed certain intellectual property applicable to making cement and other products of interest to Purebase, Inc. Specifically, USAM has done extensive research and testing of the Potassium Sulfate deposit, Lignite deposit and the Pozzolan deposits for agricultural applications and use as a high grade SCM. Given that Purebase, Inc. and USAM shared the same majority ownership during 2013 and through the acquisition by Purebase, Inc. on November 24, 2014, the results of operations of USAM are combined with Purebase, Inc. as if the acquisition had occurred in April 2013, when the business commenced operations in accordance with FASB ASC 805-50-45.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Purebase Corporation and its wholly owned subsidiaries Purebase Agricultural, Inc. (f.k.a. Purebase, Inc.) and US Agricultural Minerals, LLC (“USAM”), collectively referred to as the “Company”. All intercompany transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments), which in the opinion of management, are necessary to present fairly the consolidated financial position at August 31, 2015 and the consolidated results of operations and cash flows of the Company for the three months and nine months ended August 31, 2015 and 2014. Operating results for the three months and nine months ended August 31, 2015 are not necessarily indicative of the results that may be expected for the year ended November 30, 2015. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended November 30, 2014 filed on Form 8-K on December 24, 2014.
Net Loss Per Share
Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share includes potentially dilutive securities such as outstanding warrants. The outstanding warrants have been excluded from the calculation of the diluted loss per share due to their anti-dilutive effect.
The number of shares outstanding retroactively reflects a 2-for-1 stock split that occurred on June 15, 2015.
PureBase Corp.
Notes to Unaudited Financial Statements
Going Concern
The Company has incurred net losses generated negative cash flows from operations since inception. In addition the Company has not yet generated revenue in conjunction with its business plan. In order to support its operations, the Company will require additional infusions of cash from the sale of equity instruments or the issuance of debt instruments, or the commencement of profitable revenue generating activities. If adequate funds are not available or are not available on acceptable terms, the Company’s ability to fund its operations, take advantage of potential acquisition opportunities, develop or enhance its properties in the future or respond to competitive pressures would be significantly limited. Such limitations could require the Company to curtail, suspend or discontinue parts of its business plan.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Note 3 Properties
Placer Mining Claims Lassen County, CA
Placer Mining Claim Notices have been filed and recorded with the US Bureau of Land Management (the “BLM”) relating to 50 Placer mining claims identified as “USMC 1” thru “USMC 50” covering 1,145 acres of mining property located in Lassen County, California and known as the “Long Valley Pozzolan Deposit”. The Long Valley Pozzolan Deposit is a placer claims resource in which the Company holds non-patented mining rights to 1,145acres of contiguous placer claims within the boundaries of a known and qualified Pozzolan deposit. These claims were assigned to Purebase by one of its founders at his original cost basis of $0. These claims require a payment of $11,000 per year to the BLM.
Federal Preference Rights Lease in Esmeralda County, NV
This Preference Rights Lease is granted by the 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 Purebase. These rights are presented at their cost of $200,000.
This lease requires a payment of $3,000 per year to the BLM.
Snow White Mine located San Bernardino County, CA - Deposit
On November 28, 2014 US Mining and Minerals Corporation entered into a Purchase Agreement in which US Mining and Minerals Corp. agreed to sell its fee simple property interest and certain mining claims to US Mine Corp. In contemplation of the Plan and Agreement of Reorganization, on December 1,
2014, US Mine Corp assigned its rights and obligations under the Purchase Agreement to the Company pursuant to an Assignment of Purchase Agreement. As a result of the Assignment, the Company assumed the purchaser position under the Purchase Agreement. The Purchase Agreement involves the sale of approximately 280 acres of mining property containing 5 placer mining claims known as the Snow White
PureBase Corp.
Notes to Unaudited Financial Statements
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 US Bureau of Land Management (“BLM”). An initial deposit of $50,000 was paid to escrow, and the agreement requires the payment of an additional $600,000 at the end of the escrow period, as defined as 45 days from November 28, 2014. As of August 31, 2015 the seller has not yet received a clear title to the property and a fully permitted project, both of which are conditions to closing. In light of the foregoing, the parties have agreed to extend the closing and payment of the additional $600,000 until such time as the above referenced conditions can be satisfied. The $50,000 deposit may be forfeited to the seller in certain circumstances, if the agreement is terminated. The mining claims require a minimum royalty payment of $3,500 per year.
Note 4 Notes Payable
On April 8, 2013, USAM issued a $1,000,000 promissory note to an unaffiliated third party. This note was assumed by Purebase, Inc. on November 24, 2014 in connection with the acquisition of USAM by Purebase, Inc. The note bears simple interest at an annual rate of 5% and the principal and accrued interest are payable on May 1, 2016. Upon the occurrence of an event of default, which includes voluntary or involuntary bankruptcy, all unpaid principal, accrued interest and other amounts owing are immediately due, payable and collectible by the lender pursuant to applicable law. The balance of the note was $1,000,000 at August 31, 2015 and November 30, 2014, respectively.
On August 31, 2014, Purebase issued a promissory note in the amount of $200,000 for general working capital needs. The note bears interest of 5% per annum with the principal and accrued interest due on October 31, 2014. This note is still outstanding and the Company is negotiating new terms.
On July 13, 2015 the Company issued a promissory note to in the amount of $100,000 for general working capital needs. The note bears interest of 6% per annum with the principal and accrued interest due on January 13, 2016.
Note 5 Commitments and Contingencies
Purebase, Inc. and US Agricultural Minerals, LLC along with certain principals of those entities were named as defendants in a Complaint filed in the Second Judicial District Court in Washoe County, Nevada (Case # CV14 01348) on June 23, 2014. The Complaint was filed by Madelaine and Edwin Durand alleging various causes of action including breach of contract and misrepresentations by various defendants and certain principals of Purebase, Inc. and USAM. The substance of the Complaint involves the alleged breach and other wrongful acts pertaining to a Mineral Lease Contract and a Non-Disclosure, Confidentiality and Non-Compete Agreement entered into between the Plaintiffs and the Defendants. On September 11, 2014 a Motion to Dismiss was filed on behalf of all Defendants. A Hearing on Defendants’ Motion to Dismiss was held on April 17, 2015 at which time the Defendants’ Motion was denied. In addition, the Plaintiffs were allowed 60 days to amend their Complaint. On June 16, 2015 the Plaintiffs filed an Amended Complaint which, among other things, added the Company as a named Defendant. On June 29, 2015 the Defendants filed a Motion to Dismiss the Amended Complaint. Oral argument on the Defendants’ Motion to Dismiss is scheduled for December 17, 2015.
The Company’s different properties require the payment of certain amounts per year (see Note 3).
PureBase Corp.
Notes to Unaudited Financial Statements
Note 6 Shareholders’ Equity
During the quarter ended February 28, 2015, the Company sold 172,000 units for total proceeds of $250,000, under a private placement memorandum. Each unit is comprised of one (post-split) share of common stock and one warrant to purchase one (post-split) share at $1.4535 per share. The warrants to purchase 172,000 shares of common stock expire on February 5, 2017.
During the quarter ended May 31, 2015, the Company sold 99,756 units for a total proceeds of $449,210, under a private placement memorandum. Each unit is comprised of two shares (post-split) of common shares and one warrant to purchase two shares at $2.25 per share. The warrants to purchase 199,512 shares of common stock expire on April 20, 2017.
During the quarter ended August 31, 2015, the Company sold 44,444 units for a total proceeds of $100,000, under a private placement memorandum. Each unit is comprised of one share (post-split) of common shares and one warrant to purchase one shares at $2.25 per share. The warrants to purchase 44,444 shares of common stock expire on April 20, 2017.
Note 7 Related Party Transactions
The Company paid rent of $7,500 and $6,302 to Optec Solutions during the three months ended August 31, 2015 and 2014, respectively and $21,000 and $12,111 for the nine months ended August 31, 2015 and 2014, respectively. Amy Clemens, the CFO of the Company is part owner of Optec Solutions.
Purebase Ag paid consulting fees to Baystreet Capital Corp. to provide investor relations and other services as requested by the Company and/or Purebase Ag. Todd Gauer is a principal of Baystreet Capital and is a shareholder of the Company and former officer and director of Purebase Ag. The Company did not pay Baystreet Capital any consulting fees during the three months ended August 31, 2015 and 2014 respectively, and paid $30,000 and $-0- for the nine months ended August 31, 2015 and 2014, respectively.
Purebase Ag paid consulting fees to JAAM Capital Corp. to provide business development and marketing services as requested by the Company and/or Purebase Ag. Kevin Wright is a principal of JAAM Capital and is a shareholder of the Company and a former officer and director of Purebase Ag. The Company did not pay JAAM any consulting fees during the three months ended August 31, 2015 and 2014 respectively, and paid $10,000 and $-0- for the nine months ended August 31, 2015 and 2014, respectively.
PureBase Corp.
Notes to Unaudited Financial Statements
During the three and nine months ended August 31, 2015, the Company paid consulting fees totaling $18,000 and $62,200 to its CFO, and $36,500 and $95,500 to its CEO, respectively. During the three and nine months ended August 31, 2014, Purebase Ag paid consulting fees totaling $8,500 and $28,000 to its CFO, and $-0- and $75,000 to its CEO, respectively. Balance owed to the CFO was $12,000 and $8,000 at August 31, 2015 and November 30, 2014, respectively. The balance owed to the CEO was $19,000 and $11,975 at August 31, 2015 and November 30, 2014, respectively.
U.S. Mine Corp., an entity owned by the majority stockholders of the Company, paid expenses on behalf of the Company. The Company reimbursed U.S. Mine Corp. for these expenses. Reimbursements in excess of the expenses paid by U.S. Mine Corp. amounted to $65,654 and $60,499 at August 31, 2015 and November 30, 2014, respectively.
On July 13, 2015, Purebase issued a promissory note in the principal amount of $100,000 to Bayshore Capital. Todd Gauer is a principal of Bayshore Capital.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO. IN ADDITION, MATERIAL EVENTS DESCRIBED BELOW UNDER “OTHER INFORMATION” OCCURRING AFTER THE QUARTER ENDING AUGUST 31, 2015 WILL HAVE A MATERIAL IMPACT ON THE COMPANY’S FUTURE BUSINESS.
Cautionary Note About Forward-Looking Statements:
THIS FORM 10-Q INCLUDES “FORWARD-LOOKING” STATEMENTS ABOUT FUTURE FINANCIAL RESULTS, FUTURE BUSINESS CHANGES AND OTHER EVENTS THAT HAVE NOT YET OCCURRED. FOR EXAMPLE, STATEMENTS LIKE THE COMPANY “EXPECTS,” “ANTICIPATES” OR “BELIEVES” ARE FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD BE AWARE THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE COMPANY’S EXPRESSED EXPECTATIONS BECAUSE OF RISKS AND UNCERTAINTIES ABOUT THE FUTURE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE INFORMATION IN THIS FORM 10-Q IF ANY FORWARD-LOOKING STATEMENT LATER TURNS OUT TO BE INACCURATE. DETAILS ABOUT RISKS AFFECTING VARIOUS ASPECTS OF THE COMPANY’S BUSINESS ARE DISCUSSED THROUGHOUT THIS FORM 10-Q AND SHOULD BE CONSIDERED CAREFULLY.
Current Plan of Operations
PureBase Corp. (“the Company, “we” or “us”), is in the business of pursuing interests in the field of industrial minerals and natural resources. The Company is engaged in the identification, acquisition, exploration, development, mining and full-scale exploitation of its industrial and natural mineral properties in the United States. The Company plans to package and market such industrial and natural minerals to retail and wholesale industrial and agricultural market sectors. The Company will initially seek to develop deposits of pozzolan, white silica and potassium sulfate on its own properties or acquire such minerals from other sources. These minerals have a wide range of uses including construction, agriculture additives, animal feedstock, ceramics, synthetics, absorbents and electronics.
Results of Operation
We have included a discussion and analysis of the Company’s current operations as compared to previous operations of Purebase Agricultural, Inc. (“Purebase Ag”) which represents a substantial part of the Company’s current operations rather than the Company’s former operations as a “shell company” with minimal operations, as it is more relevant to the reader. The Company’s Reorganization transaction occurred on December 23, 2014. Due to the change in management and the Reorganization, the Company is no longer a “shell company” and its business is no longer providing web-based services to boaters but is now pursuing a business in the natural resources sector. Our financial reporting commences as of April, 2013, which is when the Company’s wholly-owned subsidiary, Purebase Ag (f.k.a. Purebase, Inc.) initiated the Company's current mineral projects acquisitions and development business. Consequently, the results of operation for the current fiscal quarter represent the consolidated operations of the Company and its subsidiary Purebase Ag while the results of operations for the same quarter in 2014 reflect the independent operations of Purebase Ag (prior to the Reorganization with the Company).
As a further result of the Reorganization transaction, the Company changed its fiscal year from ending December 31 to ending November 30 to adopt the same fiscal year end as Purebase Ag.
Overview
During the current fiscal quarter ended August 31, 2015, the Company generated no revenues. Total assets increased from $375,003 as of May 31, 2015 to $385,076 as of August 31, 2015. Total liabilities increased from $1,281,046 at May 31, 2015 to $1,482,304 at August 31, 2015 reflecting an increase in current liabilities.
Results of Operations for the fiscal quarter ended August 31, 2015 compared to the quarter ended August 31, 2014
The Company’s operating results for the quarters ended August 31, 2015 and 2014 are summarized as follows:
|
Quarter Ended
|
Quarter Ended
|
|||||||
|
8/31/15
|
8/31/14
|
|||||||
|
Revenue
|
$ | 0 | $ | 0 | ||||
|
Operating Expenses
|
$ | 274,143 | $ | 55,532 | ||||
|
Net Loss
|
$ | (291,185 | ) | $ | (65,614 | ) | ||
Revenue
Since inception neither the Company nor its subsidiary Purebase Agricultural, Inc. generated any revenue from operations.
Operating Costs and Expenses
Total operating expenses for the Company for the fiscal quarter ended August 31, 2015 were $274,143 compared to $55,532 of expenses incurred for the fiscal quarter ended August 31, 2014. This increase is attributed to the significant increase in business operations relating to the acquisition and development of mineral resource projects. Exploration and mining start-up costs for the fiscal quarter ended August 31, 2015 were $69,794 compared to $3,445 of such expenses incurred during the same quarter in 2014. The increase in exploration and mining expenses is the result of higher Phase 1 development costs at the Preference Rights Lease site in Esmeralda County, NV in 2015.The Company also incurred expenses related to product development and marketing.
General and administrative costs for the Company for the three months ended August 31, 2015 were $201,338 and the general and administrative costs of Purebase Ag (the Company’s predecessor) for the same period in 2014 were $49,076. The increase in general and administrative expenses is attributed to the significant increase in the evaluation, acquisition and development of several mineral resource projects, product development and hiring of additional staff. Included in the G&A expenses are professional fees for the fiscal quarter ended August 31, 2015 which were $92,472 compared to professional fees of $8,000 for the same quarter in 2014. The increase in professional fees is attributed to the increase in legal and accounting expenses related to operating as a publicly reporting company and additional legal, accounting and consulting costs associated with the expansion of the Company's business.
The Company’s interest expense increased to $12,461 for the quarter ended August 31, 2015 compared to $10,082 for the fiscal quarter ended August 31, 2014. The increase was due to the increase in servicing costs, including accrued interest, associated with the consolidated debt financing incurred by Purebase Ag of $1.2 million.
On December 1, 2014 the Company was assigned the right to purchase the Snow White Mine located in San Bernardino, CA. for a total purchase price of $650,000. $50,000 has been paid into escrow with the balance to be paid upon the satisfaction of certain conditions including seller’s delivery of a clear title to the property and a fully permitted project. As of August 31, 2015 the seller has not yet satisfied these conditions to closing. In light of the foregoing, the parties have agreed to extend the closing and payment of the additional $600,000 until such time as the above referenced conditions can be satisfied which is expected by the end of the 2015.
Net Loss
Purebase Ag incurred a net loss of $65,614 for the fiscal quarter ended August 31, 2014 compared to the Company’s a net loss of $291,185 for the fiscal quarter ended August 31, 2015, an increase of over$225,000. The increase in net loss is the result of expenses relating to Purebase Ag’s project development and the subsequent increases in general business expenses relating to the Company’s increased business activities, coupled with a lack of revenues to offset these expenses.
Results of Operations for the nine month period ended August 31, 2015 compared to the nine month period ended August 31, 2014
The Company’s operating results for the nine month period ended August 31, 2015 and 2014 are summarized as follows:
|
Nine Month
Ended
|
Nine Months
Ended
|
|||||||
|
8/31/15
|
8/31/14
|
|||||||
|
Revenue
|
$ | 0 | $ | 0 | ||||
|
Operating Expenses
|
$ | 1,041,142 | $ | 222,310 | ||||
|
Net Loss
|
$ | (1,099,863 | ) | $ | (248,118 | ) | ||
Revenue
Since inception neither the Company nor its subsidiary Purebase Agricultural, Inc. generated any revenue from operations.
Operating Costs and Expenses
Total operating expenses for the Company for the nine months ended August 31, 2015 were $1,041,142 compared to $222,310 of expenses incurred for the same period ended August 31, 2014. This increase is attributed to the significant increase in business operations relating to the acquisition and development of mineral resource projects and establishing the Company’s business. Exploration and mining expense for the nine months ended August 31, 2015 were $323,464 compared to $4,642 of such expenses incurred during the same period in 2014. The increase in exploration and mining costs is the result of higher Phase 1 development costs at the Preference Rights Lease site in Esmeralda County, NV in 2015 and costs due to the beginning stages of development at the Long Valley Pozzolan Project during late 2014.
General and administrative costs for the Company for the nine months ended August 31, 2015 were $708,645 and the general and administrative costs of Purebase Ag for the same period in 2014 were $208,635. The increase in general and administrative expenses is attributed to the significant increase in the evaluation, acquisition and development of several mineral resource projects, expanding the Company’s business activities and hiring of additional staff. Included in the G&A expenses are professional fees for the nine months ended August 31, 2015 which were $396,432 compared to professional fees of $10,276 for the same period in 2014. The increase in professional fees is attributed to the increase in legal and accounting expenses related to operating as a publicly reporting company and additional legal, accounting and consulting costs associated with the expansion of the Company's business. Subsequent to the fiscal quarter ended August 31, 2015, on September 25, 2015 the Company filed a Form 8-A to register its common stock under the Securities and Exchange Act of 1934. This 1934 Act registration is expected to increase the Company’s compliance costs going forward.
The Company’s interest expense increased to $37,182 for the nine months ended August 31, 2015 compared to $25,808 for the nine months ended August 31, 2014. The increase was due to the increase in servicing costs, including accrued interest, associated with the consolidated debt financing incurred by Purebase Ag of $1.2 million and an additional loan of $100,000 made to the Company.
Net Loss
Purebase Ag incurred a net loss of $248,118 for the nine months ended August 31, 2014 compared to the Company’s a net loss of $1,099,863 for the same period ended August 31, 2015, an increase of $851,745. The increase in net loss is the result of expenses relating to the Company’s project development and the subsequent increases in general business expenses relating to the Company’s increased business activity, coupled with a lack of revenues to offset these expenses.
Liquidity and Capital Resources
At August 31, 2015, the Company’s cash balance was $17,281 and it had a working capital deficit of ($1,382,015). The Company has insufficient cash on hand to pursue its current business plan and will be required to raise additional capital to fund its ongoing operations. Until the Company is able to establish a sufficient revenue stream from operations its ability to meet its current financial liabilities and commitments will be primarily dependent upon the continued issuance of equity to new or existing investors or loans from existing stockholders and management or outside capital sources. Management believes that the Company’s current cash and cash equivalents will not be sufficient to meet its working capital requirements for the next twelve month period. The Company has had negative cash flow from operating activities as it has not yet begun to generate revenues from production or product sales. The Company plans to raise the capital required to satisfy its immediate short-term needs and additional capital required to meet its estimated funding requirements for the next twelve months primarily through the private placement of Company equity securities, by way of loans, and through such other financing transactions as the Company may determine.
In this regard on September 28, 2015 the Company signed a Placement Agent and Advisory Service Agreement with Monarch Bay Securities, LLC located in Newport Beach, CA (“Monarch Bay”). Pursuant to this Agreement, Monarch Bay will serve as the Company’s exclusive agent and advisor relating to financing transactions and capital raising activities. The Agreement is for a term of one year however the Company can terminate the Agreement upon 45 days written notice.
We expect further exploration and development of our current or future mining projects to commence generating revenues during the next three months and we expect revenues from wholesale and retail sales of minerals for agricultural uses (in particular agricultural supplements) to commence by the end of the fiscal year. However we do not expect revenues from these products to cover our entire current operating expenses which we expect will increase as we implement our business plan. Consequently, we will be dependent on outside sources of capital to sustain our operations and implement our business plan until operating revenues are sufficient to cover our operating expenses. If we are unable to raise sufficient capital we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of capital 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 terms we find acceptable. Furthermore, such financing would likely take the form of bank loans, private placements of debt or equity securities or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, lines of credit or long-term debt by the Company would increase its cash flow requirements and possible loss of valuable assets if such obligations were not repaid in accordance with their terms.
Going Concern
As of the end of the quarter, we have not attained profitable operations and are dependent upon obtaining additional financing to sustain our business activities. For these reasons our auditors stated in their report on our fiscal year-end audited financial statements that they have substantial doubt we would be able to continue as a going concern.
Financings
As of the end of the quarter our operations have been funded by equity investment. All of our equity funding has come from private placements of our securities.
Debt Financing
On December 23, 2014 pursuant to the Reorganization, the Company consolidated $200,000 of notes payable and $1,000,000 in long term debt owed by its subsidiary Purebase Ag.
On July 13, 2015 the Company issued a promissory note to in the amount of $100,000 for general working capital needs. The note bears interest of 6% per annum with the principal and accrued interest due on January 13, 2016.
Issuance of Common Stock
During the first fiscal quarter the Company raised proceeds of $250,000 through the sale of 172,000 Units with each Unit consisting of one share of common stock and a warrant to purchase one additional share of common stock at $1.4535/share to raise capital.
During the second fiscal quarter the Company raised proceeds of $449,210 through the sale of 199,512 Units with each Unit consisting of one share of common stock and a warrant to purchase one additional share of common stock at $2.25/share to raise capital.
During the third fiscal quarter the Company raised proceeds of $100,000 through the sale of 44,444 Units with each Unit consisting of one share of common stock and a warrant to purchase one additional share of common stock at $2.25/share to raise capital.
Tabular Disclosure of Contractual Obligations as of August 31, 2015:
|
Contractual Obligations:
|
||||||||||||||||||||
|
Payment due by period
|
||||||||||||||||||||
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
||||||||||||||||
|
Long-Term Debt Obligations
|
$ | 1,300,000 | 1,300,000 | -0- | -0- | -0- | ||||||||||||||
|
Mineral Lease Obligations
|
951,500 | 654,500 | 163,500 | $ | 109,000 | $ | 24,500 | |||||||||||||
|
Operating Lease Obligations
|
18,900 | 2,700 | 8,100 | $ | 5,400 | $ | 2,700 | |||||||||||||
|
Total
|
$ | 2,270,400 | $ | 1,957,200 | $ | 171,600 | $ | 114,400 | $ | 27,200 | ||||||||||
Off-Balance Sheet Arrangements
As of the end of the quarter we had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Basis of Presentation and Going Concern
The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.
The Company has incurred a net loss of $291,185 for the three months ended August 31, 2015 and a total accumulated deficit as of August 31, 2015 of $2,383,922.
During the quarter ended August 31, 2015 the Company had no recurring revenue-generating operations. For the Company to continue as a going concern it will continue to be dependent on fund raising for project development, product marketing and payment of general and administration expenses until revenue-generating operations are achieved. The Company has no commitment from any party to provide additional working capital and there is no assurance that such funding will be available if needed, or if available, that its terms will be favorable or acceptable to the Company.
The Company’s consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this Report, the Company’s Chief Executive Officer, and Chief Financial Officer (the “Certifying Officers”), evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Certifying Officers concluded that, as of the date of the evaluation, the Company’s disclosure controls and procedures were currently ineffective in providing reasonable assurance that the information required to be disclosed in the Company’s periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to management to allow timely decisions regarding required disclosure.
Management has identified two material weaknesses and has taking action it believes will substantially remedy and remove the weaknesses in its internal controls over financial reporting:
|
|
●
|
The lack of an independent board of directors, including an independent financial expert has been reduced by the recent appointment of a second non-management Director. The current board of directors now consists of two of the four Board members being independent Directors. However, the Board still lacks an independent financial expert. The current board is composed of four members and may be expanded to as many as nine members under the Company’s By-Laws.
|
|
|
●
|
The lack of adequate accounting resources and adequate segregation of duties over various accounting and reporting functions due to the Company’s CFO performing all bookkeeping functions and maintains all financial records for the Company has been remedied by the recent hiring of an outside accounting firm to handle and maintain the Company’s bookkeeping functions.
|
Changes in Internal Control Over Financial Reporting.
The Certifying Officers have also indicated that there were no changes in internal controls over financial reporting during the Company’s last fiscal quarter, and no significant changes in the Company’s internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.
Our management, including the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls 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. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Purebase Ag and US Agricultural Minerals, LLC (“USAM”) along with certain principals of those entities were named as defendants in a Complaint filed in the Second Judicial District Court in Washoe County, Nevada (Case # CV14 01348) on June 23, 2014. The Complaint was filed by Madelaine and Edwin Durand alleging various causes of action including breach of contract and misrepresentations by various defendants and certain principals of Purebase Ag and USAM. The substance of the Complaint involves the alleged breach and other wrongful acts including the staking and attempted recordation of claims by Defendants pertaining to a Non-Disclosure, Confidentiality and Non-Compete Agreement entered into between the Plaintiffs and the Defendants on June 26, 2012 and a Mineral Lease contract dated July 10, 2012 relating to certain mining claims allegedly owned by Plaintiffs and known as the Sierra Lady Mining Claims. The Plaintiffs are seeking an injunction to prevent further staking and disclosure of confidential information relating to the Sierra Lady Mining Claims and monetary damages while the Defendants seek to dismiss the case alleging that the Plaintiffs did not have good title to the mineral rights they were attempting to lease to Defendants. On September 11, 2014 a Motion to Dismiss was filed on behalf of all Defendants. A hearing on the Motion to Dismiss was held on February 6, 2015 but was not fully concluded. A separate Motion by the Plaintiffs to disqualify Defendants’ Nevada attorneys was denied by Order dated March 30, 2015. The Parties reconvened the Hearing on the Motion to Dismiss on April 17, 2015. As a result of the second Hearing, by Order dated May 7, 2015 the Defendants’ Motion to Dismiss was denied. However, the Complaint was deemed deficient and the Plaintiffs were given 60 days in which to file one amended Complaint. On June 16, 2015 the Plaintiffs filed an Amended Complaint which, among other things, added the Company as a named Defendant. On June 29, 2015 the Defendants filed a Motion to Dismiss the Amended Complaint. Oral arguments on the Defendants’ Motion to Dismiss are scheduled for December 17, 2015.
ITEM 1A. RISK FACTORS
As of the end of the quarter, there were no changes to our risk factors from those disclosed in our annual report on Form 10-K filed with the SEC on March 3, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the quarter ended August 31, 2015, the Company sold 44,444 Units to one investor for total proceeds of $100,000, pursuant to a private placement memorandum. Each Unit is comprised of one share of (post-split) common stock and one warrant to purchase one share of (post-split) common stock at $2.25 per share. The warrants to purchase shares of common stock expire 24 months from the date of issue. The securities were issued in transactions pursuant to the private placement exemption provided by Section 4(2) of the Securities Act and Regulation D promulgated thereunder. The transaction was conducted in a private manner without any public solicitation. The individuals purchased the securities with investment intent. The securities are deemed to be “restricted securities” as defined in Rule 144 under the Securities Act and the stock certificates bear a legend limiting the resale thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
There are no mine safety violations or other regulatory matters required to be disclosed which occurred during the fiscal quarter covered by this report.
ITEM 5. OTHER INFORMATION
As previously reported on Form 8-K filed with the SEC on June 16, 2015, the Company filed a Certificate of Change with the Nevada Secretary of State effective as of June 15, 2015 forward splitting the Company’s outstanding common shares on a 2-for-1 basis. As a result, as of June 15, 2015 the total shares of the Company’s common stock outstanding increased from 70,425,780 to 140,851,560. The Company’s authorized shares of common stock remained unchanged at 520,000,000. All references to common shares and warrants in this Report have been adjusted to reflect this stock split.
The Company’s authorized shares of preferred stock also remained unchanged at 10,000,000.
The Company has filed a Form 8-A with the US Securities Exchange Commission which became effective on September 25, 2015. As a result of this filing, the Company’s common stock is now registered under Section 12(g) of the Securities Exchange Act of 1934 (“1934 Act”) and the Company will now be subject to the filing requirements of §13(d), §14 Proxy Rules and §16 Officer, Director and 10% Shareholder, of the 1934 Act.
As previously reported on Form 8-K filed with the SEC on October 2, 2015, the Company’s Board of Directors appointed John Gingerich as a new Director increasing the Company’s Board to four members.
ITEM 6. EXHIBITS
The following documents are filed as exhibits to this report:
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 | ||
|
Dated: October 14, 2015
|
/s/ Scott Dockter | |
| A.Scott Dockter | ||
| Chief Executive Officer | ||
| Dated: October 14, 2015 | /s/ Amy Clemens | |
| Amy Clemens | ||
|
Chief Financial Officer
|
24