PureBase Corp - Quarter Report: 2018 May (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2018

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT FOR THE TRANSITION PERIOD FROM

_______________ to _______________

 

Commission File Number   333-188575

 

(Exact name of registrant as specified in its charter)

 

 

 

________________________________________________________

(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 ☒   No☐

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 ☒   No ☐ 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	☐		Accelerated filer	☐
	Non-accelerated filer	☐		Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐   No ☒

 

Indicate the number of shares outstanding of the issuer's common stock, as of June 29, 2018 was 141,347,173.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX

PART I - FINANCIAL INFORMATION	4
ITEM 1.      FINANCIAL STATEMENTS	4
ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS  OF OPERATION	19
ITEM 4.      CONTROLS AND PROCEDURES	23
PART II - OTHER INFORMATION	25
ITEM 1.      LEGAL PROCEEDINGS	25
ITEM 1A.   RISK FACTORS	25
ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES	25
ITEM 3.      DEFAULTS UPON SENIOR SECURITIES	25
ITEM 4.      MINE SAFETY DISCLOSURES	26
ITEM 5.       OTHER INFORMATION	26
ITEM 6.      EXHIBITS	26
SIGNATURES	27

 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Condensed Consolidated Balance Sheets as of May 31, 2018 (unaudited) and November 30, 2017 (audited)	5
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended May 31, 2018 and 2017 (unaudited)	6
Condensed Consolidated Statement of Stockholders' Equity for the Six-Month period ended May 31, 2018 (unaudited)	7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended May 31, 2018 and 2017 (unaudited)	8
Notes to Financial Statements (unaudited)	9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS

ENDED MAY 31, 2018 AND 2017

(UNAUDITED)

 

 

  

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

PUREBASE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF

STOCKHOLDERS' EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

PUREBASE CORPORATION

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

Note 1.  Nature of Business

Purebase Corporation (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's activities are subject to significant risks and uncertainties including its ability to secure additional funding to pursue its operations.

 

The Company is headquartered in Ione, California. The Company's business is divided into wholly-owned and majority-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.

Note 2.  Summary of Significant Accounting Policies

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") and its majority-owned subsidiary Purebase Networks, Inc.(up to March, 2017), 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 entries), which in the opinion of management, are necessary to present fairly the consolidated financial position at May 31, 2018 and the consolidated results of operations of the Company for the three and six months ended May 31, 2018 and 2017 and cash flows for the six months ended May 31, 2018 and 2017.  Operating results for the three and six months ended May 31, 2018 are not necessarily indicative of the results that may be expected for the year ended November 30, 2018. 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, 2017 filed on Form 10-K on February 28, 2018.

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

 

The Company incurred a net loss of $758,942 for the six months ended May 31, 2018 and generated negative cash flows from operations. In addition, the Company has generated insignificant 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 condensed consolidated 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 condensed consolidated 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 condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

The Company uses the specific identification method for recording the provision for doubtful accounts, which was $11,137 and $0 at May 31, 2018 and November 30, 2017, respectively. Accounts receivable are written off when all collection attempts have failed.

Revenue is recognized when the product has shipped, and the title has transferred to the customer.

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 and stock options.  The outstanding warrants and stock options have been excluded from the calculation of the diluted loss per share due to their anti-dilutive effect. For the quarters ended May 31, 2018 and May 31, 2017 warrants and options to purchase 500,000 and 805,494 shares of common stock respectively, have been excluded from the computation of potential dilutive securities.

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of 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.

 

Property and equipment are carried at cost. Depreciation is computed using straight line depreciation methods over the estimated useful lives as follows:

Major additions and improvements are capitalized. Costs of maintenance and repairs which do not improve or extend the life of the associated assets are expensed in the period in which they are incurred. When there is a disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in net income.

 

 

The Company considers cash in banks, deposits in transit, and highly liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

In accordance with U.S. GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred until such time the Company exits the Exploration Stage by establishing proven or probable reserves. Expenditures relating to exploration activities such as drill programs to establish mineralized materials are expensed as incurred. Expenditures relating to pre-extraction activities are expensed as incurred until such time proven or probable reserves are established for that project, after which expenditures relating to mine development activities for that particular project are capitalized as incurred.

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

Financial assets and liabilities recorded at fair value in the Company's condensed consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories, as defined by the standard, are as follows:

For certain of our financial instruments, including accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short-term nature. The carrying amount of the Company's notes payable approximates fair value based on prevailing interest rates.

The Company is expected to have net operating loss carryforwards that it can use to offset a certain amount of taxable income in the future. The Company is currently analyzing the amount of loss carryforwards that will be available to reduce future taxable income. The resulting deferred tax assets will be offset by a valuation allowance due to the uncertainty of its realization. The primary difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to income before income taxes relates to the recognition of a valuation allowance for deferred income tax assets.

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

The Company has adopted FASB ASC 740-10, "Income Taxes" which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more likely than not as a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the three and six months ended May 31, 2018 and May 31, 2017.  The Company's net operating loss carryforwards are subject to IRS examination until they are fully utilized, and such tax years are closed.

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 350, "Intangibles – Goodwill and Other" and ASC 360, "Property and Equipment". Long-lived assets to be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. We measure recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If we determine that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair value and the asset's carrying amount. No impairment losses were recorded during the quarters ended May 31, 2018 and May 31, 2017.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU is designed to simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 will become effective for the Company in the quarter ending February 2018.  Early adoption is permitted in any interim or annual period.  The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

 

In April 2016, the FASB issued AS 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board's new revenue standard, ASU 201-09, Revenue from Contracts with Customers.  The standard should be adopted concurrently with the adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017.  The Company has not yet selected a transition method, nor has it determined the effect of the standard on its ongoing financial reporting.

 

 

(UNAUDITED)

MAY 31, 2018

 

Note 3.  Properties

 

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 $30,000 per year to the BLM.

 

 

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. All rights and obligations under the Preference Rights lease have been assigned to the Company by US Mine Corp. These rights are presented at their cost of $200,000.This lease requires a payment of $3,000 per year to the BLM.

 

 

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 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 required the payment of an additional $600,000 at the end of the escrow period.  There was a delay in the seller 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 another $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 Purebase, paid $575,000 to acquire the property on or about October 15, 2015. Mr. Bremer will transfer title to the Company when the Company pays Mr. Bremer $575,000 plus expenses. The mining claims require a minimum royalty payment of $3,500 per year. During the year ended November 30, 2017, US Mine Corp. agreed to offset the $75,000 deposit against money owed to US Mine Corp. Mr. Bremer has not restricted the Company from continuing its exploration on the property or access to property in any way.

 

(UNAUDITED)

MAY 31, 2018

 

Note 4.  Notes Payable

 

Purebase assumed a $1,000,000 promissory note on November 24, 2014 in connection with the acquisition of USAM by Purebase. The note bears simple interest at an annual rate of 5% and the principal and accrued interest were 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 May 31, 2017 and November 30, 2016. The Note is in default however, the Company continues to have discussions with Note Holder to extend the Note under the same terms and conditions.

 

In February 26, 2016, Bayshore Capital, a major shareholder, advanced $25,000 to Purebase Corp for working capital at 6% per annum.  The note was payable August 26, 2016, or when the Company closes its bridge financing, whichever occurs first. The Company is in default on this note at May 31, 2018.

 

On August 31, 2017, the Company issued a Note in the amount of $197,096 to Arthur Scott Dockter, President, CEO and a Director of the Company to consolidate the total amounts due to and assumed by Mr. Dockter. The Note to Mr. Dockter bears interest at 6% and is due upon demand. As of May 31, 2018, this note had not been repaid.

 

Note 5.  Commitments and Contingencies

Purebase is using office space provided by U S Mine Corporation, a company that is owned by the Company's Majority Shareholders and Directors A. Scott Dockter and John Bremer.  There is currently no lease between the two Companies for its use of the office space provided.

Our mineral rights require various annual lease payments. See Note 3.

Purebase 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 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 June 16, 2015 the Plaintiffs filed an Amended Complaint which, among other things, added the Company as a named Defendant. On March 2, 2016, the Court issued its decision regarding Defendant's Motion to Dismiss all claims. The Court dismissed nine (9) of the twelve (12) claims against the Defendants.  The Plaintiffs were ordered to further amend their Complaint and add their corporation as a named party.  On March 25, 2016, the Plaintiffs filed the Court ordered Second Amended Complaint.  On April 11, 2016 Defendants filed their Answer to the Second Amended Complaint and filed their Counter Claims against the Plaintiffs. Discovery closed in June 2017. The jury trial commenced on February 12, 2018 and following the Plaintiff's presentation of their case, on February 14, 2018 the Judge entered a Directed Verdict in favor of the Defendants.

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

 

On September 21, 2016 the Company's President, David Vickers, left the Company. Subsequent to his departure, Mr. Vickers has retained legal counsel and is now alleging claims of age discrimination, fraud in the inducement, violation of California Labor Code §970 and breach of contract against the Company. On April 14, 2017 the Company was served by Mr. Vickers' attorney with a demand for arbitration of the above referenced claims. Mr. Vickers has stated a claim of approximately $850,000. The arbitration proceeding is currently scheduled for August, 2018. The Company plans to vigorously defend these claims in arbitration.

On November 1, 2013, Purebase entered into an agreement with US Mine Corp, which performs services relating to various technical evaluations and mine development services to Purebase with regard to the various mining properties/rights owned by Purebase. Terms of services and compensation will be determined for each project undertaken by US Mine Corp.

The Company made payments totaling $75,000 towards the purchase of the Snow White Mine.  During the year ended November 30, 2017, US Mine Corp. agreed to offset the $75,000 deposit against money owed to US Mine Corp.  The Company will need to pay Mr. Bremer, a director of both US Mine Corp and Purebase, the additional sum of $650,000 plus expenses, in order to obtain title of this property.

The Company maintains cash accounts at financial institutions. The accounts are insured by the Federal Deposit Insurance Corporation ("FDIC"). The cash accounts, at times, may exceed federally insured limits. At May 31, 2018 no account exceeded FDIC insurance limits.

Note 6.  Stockholder's Equity

The Company's amended Articles of Incorporation authorize the issuance of up to 520,000,000 shares of $0.001 par value common stock and up to 10,000,000 shares of $0.001 par value preferred shares.  No preferred stock was outstanding at May 31, 2018 and November 30, 2017.

There were no warrants outstanding as of May 31, 2018.

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
MAY 31, 2018

 

On November 10, 2017 the Company's Board of Directors approved the 2017 Purebase Corporation Stock Option Plan which is intended to be a qualified stock option plan (the "Option Plan"). The Board allocated up to 10,000,000 shares of Purebase common stock to be issued pursuant to options granted under the Option Plan. The Company plans to obtain shareholder approval within one year of its establishment. As of May 31, 2018, 200,000 options had been granted under the Option Plan.

 

The Company has also granted options pursuant to employment contracts entered into by the Company and the respective employee.

 

There were no stock options granted during the six months ended May 31, 2018.

 

Employee stock-based options compensation expenses for the three-month period ended May 31, 2018 and 2017 included in general and administrative expense totaled $51,019 and $124,570, respectively. Employee stock-based options compensation expenses for the six-month period ended May 31, 2018 and 2017 included in general and administrative expense totaled $100,928 and $283,424, respectively.

 

Common stock, stock options or other equity instruments issued to non-employees (including consultants) as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). The fair value of stock options is determined using the Black-Scholes option-pricing model and is periodically re-measured as the underlying options vest.

 

The following is a schedule summarizing employee and non-employee stock option activity for the three months ended May 31, 2018:

 

The aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company's common stock for each of the respective periods.

As of May 31, 2018, the total unrecognized fair value compensation cost related to non-vested stock options to employees was approximately $159,154 which is expected to be recognized over approximately 1 year.

 

(UNAUDITED)

MAY 31, 2018

Note 7.  Related Party Transactions

 

The Company entered into a Contract Mining Agreement with USMC, a company owned by the majority stockholders of the Company, A. Scott Dockter and John Bremer, pursuant to which USMC will provide various technical evaluations and mine development services to the Company.  Services totaling $43,036 and $57,079 were rendered by USMC for the three-months ended May 31, 2018 and 2017, respectively. Services totaling $147,127 and $74,967 were rendered by USMC for the six months ended May 31, 2018 and 2017, respectively.

 

During the three-months ended May 31, 2018, USMC paid $3,010 of expenses to the Company's vendors and creditors on behalf of the Company and also made cash advances to the Company of $279,000. During the six months ended May 31, 2018, USMC paid $168,867 of expenses to the Company's vendors and creditors on behalf of the Company and also made cash advances to the Company of $604,000. The balance due to USMC is $3,417,702 and $2,497,708 at May 31, 2018 and November 30, 2017, respectively.

 

On August 31, 2017, the Company issued a Note in the amount of $197,096 to Arthur Scott Dockter, President, CEO and a Director of the Company to consolidate the total amounts due to and assumed by Mr. Dockter. The Note to Mr. Dockter bears interest at 6% and is due upon demand. As of May 31, 2018, this note had not been repaid.

 

Purebase is using office space provided by U S Mine Corp, a company that is owned by the Company's majority stockholders and Directors, A. Scott Dockter and John Bremer. There is currently no lease between the two companies for its use of the office space provided. The Company is currently using the office space rent-free.

 

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 ENDED FEBRUARY 29, 2016 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

 

 

Results of Operation

 

We have included a discussion and analysis of the Company's current consolidated operations for the quarter ending May 31, 2018 as compared to the Company's previous consolidated operations for the quarter ending May 31, 2017 and the six-month period ending May 31, 2018 and 2017.

 

Overview

 

During the current fiscal quarter ended May 31, 2018, the Company generated revenue of $180,720. Total assets increased from $286,103 as of November 30, 2017 to $303,557 as of May 31, 2018. Total liabilities increased from $4,318,665 at November 30, 2017 to $4,994,133 at May 31, 2018 reflecting an increase of $675,468.

 

 

Results of Operations for the fiscal quarter ended May 31, 2018 compared to the quarter ended May 31, 2017

 

The Company's operating results for the quarters ended May 31, 2018 and 2017 are summarized as follows:

 

 

 

Since inception the Company and its subsidiary Purebase Agricultural, Inc. have generated only minimal revenues from operations with revenues commencing during the second quarter of FY 2016. Revenues decreased slightly during the current fiscal quarter to $180,720 compared to $189,227 for the comparable fiscal quarter last year. The current fiscal quarter's revenue is attributable to the continued sales of agricultural products available for sale in the agricultural markets reached by the Company.

 

 

Total operating expenses for the Company for the fiscal quarter ended May 31, 2018 were $425,830 compared to $643,211 of expenses incurred for the fiscal quarter ended May 31, 2017. This decrease is attributed to the reduction in general and administrative costs.

 

Product fulfillment and exploration and mining expense for the three months ended May 31, 2018 were $45,956 compared to $78,738 of such expenses incurred during the same quarter in 2017. The decrease in exploration and mining costs is the result of change to lower volume but higher margin product sales mix.

 

General and administrative costs for the Company for the three months ended May 31, 2018 were $376,285 and the general and administrative costs for the same period in 2017 were $561,462. The decrease in general and administrative expenses is attributed to a reduction in payroll related expenses and professional fees. Included in G&A expenses are professional fees for the fiscal quarter ended May 31, 2018 which were $50,238 compared to professional fees of $181,777 for the same quarter in 2017. The decrease in professional fees are attributed to a significant reduction in legal expenses as the Company's ongoing legal matters were resolved and a reduction in auditor's fees.

 

The Company's interest expense increased to $15,855 for the quarter ended May 31, 2018 compared to $14,106 for the same fiscal quarter of 2017. This slight increase was due to the Company entering into agreement with Mr. Dockter for a For Value Received repayment plan in August of 2017.

 

The Company also recorded a one-time gain of $312,571 which occurred in the quarter ended May 31, 2017 resulting from the deconsolidation of Purebase Networks.

 

 

The Company incurred a net loss of $260,965 for the fiscal quarter ended May 31, 2018 compared to the Company's net loss of $155,510 for the fiscal quarter ended May 31, 2017. The increase in net loss is primarily due to the $217,381 decrease in operating expenses during the quarter ended May 31, 2018 offset by the $312,571 gain on the deconsolidation of Purebase Networks reflected in the same quarter of 2017.

 

 

Results of Operations for the six-month period ended May 31, 2018 compared to the six-month period ended May 31, 2017

 

The Company's operating results for the six-month period ended May 31, 2018 and 2017 are summarized as follows:

 

		Six Months Ended				Six Months Ended
		5/31/18				5/31/17
Revenue		$	305,211			$	214,197
Operating Expenses		$	1,026,890			$	1,591,796
Other Income (Expense)		$	(37,263	)		$	282,407
Net Loss		$	(758,942	)		$	(1,095,190	)

 

 

Since inception the Company and its subsidiary Purebase Agricultural, Inc. have generated only minimal revenue from operations. Revenues increased by 42% during the first six months of the current fiscal year to $305,211 compared to $214,197 for the comparable six-month period last year. The increase is attributable to the increase in agricultural products available for sale in and expansion of, the agricultural markets reached by the Company primarily in the first fiscal quarter of 2018.

 

 

Total operating expenses for the Company for the six months ended May 31, 2018 were $1,026,890 compared to $1,591,796 of expenses incurred for the same period ended May 31, 2017. This 35% decrease is attributed to a significant decrease in general and administrative expenses offset by a modest increase in exploration and mining expenses.

 

General and administrative costs for the Company for the six months ended May 31, 2018 were $858,439 while the general and administrative costs of the Company for the same period in 2017 were $1,470,150. The decrease in general and administrative expenses is attributed to the significant decrease in independent contractor fees, payroll reduction, a decrease in professional fees and reduced costs associated with stock based compensation. Included in the G&A expenses are professional fees for the six months ended May 31, 2018 which were $251,155 compared to professional fees of $355,717 for the same period in 2017. The decrease in professional fees are attributed to a significant reduction in legal expenses as the Company's ongoing legal matters were resolved, a reduction in SEC compliance expenses and a reduction in auditor's fees.

 

Product fulfillment and exploration and mining expense for the six months ended May 31, 2018 were $161,271compared to $115,624 of such expenses incurred during the same period in 2017. The increase in exploration and mining costs is the result of costs attributable to the increased sale of agricultural products.

 

The Company's interest expense increased to $37,273 for the six months ended May 31, 2018 compared to $30,172 for the six months May 31, 2017. The increase was due to the Company entering into agreement with Mr. Dockter for a For Value Received repayment plan in August of 2017.

 

The Company also recorded a one-time gain of $312,571 which occurred in the six months ended May 31, 2017 resulting from the deconsolidation of Purebase Networks.

 

 

 

The Company incurred a net loss of $758,942 for the six months ended May 31, 2018 compared to the Company's net loss of $1,095,190 for the same period ended May 31, 2017, a decrease of almost 31%. The decrease in net loss is primarily due to the $564,906 decrease in operating expenses offset by the $312,571 gain on the deconsolidation of Purebase Networks.

 

Liquidity and Capital Resources

 

At May 31, 2018, the Company's cash balance was $7,778 and it had a working capital deficit of $4,896,491.  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 including US Mine Corporation which is an affiliated entity. 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 sufficient and consistent revenues to cover its operating expenses.  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.

 

We expect further exploration and development of our current or future projects and the sale of our agricultural products to continue generating sales revenues, but we do not expect revenues from these activities in the near term to cover our entire current operating expenses which we expect to 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, advances from outside sources 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 current fiscal quarter, we have not attained profitable operations and are dependent upon obtaining outside financing to continue our development and production 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 and advances from outside parties. All of our equity funding has come from the private placement of our securities while loans have been obtained from related parties.

 

 

 

None.

 

 

No shares of the Company's common stock were issued during the fiscal quarter ended May 31, 2018.

 

Off-Balance Sheet Arrangements

 

As of the end of the fiscal 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 condensed consolidated 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 $260,965 and $758,942 for the three and six months ended May 31, 2018, respectively and has a total accumulated stockholders' equity deficit of $4,690,576 as of May 31, 2018 compared to an accumulated stockholders' equity deficit of $4,032,562 as of its fiscal year-end of November 30, 2017.

 

During the quarter ended May 31, 2018 the Company had modest 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 significant 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 condensed 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

 

 

As of the end of the period covered by this Report, the Company's President, and principal 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 is taking action to remedy and remove the weakness in its internal controls over financial reporting:

●

Lack of an independent financial expert on the Board. The current board of directors now includes a majority of non-employee 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.

●

Lack of adequate oversight/approval of transactions with related parties of the Company. The Company intends to adopt new procedures for disbursing funds to officers and affiliates of the Company. In addition, significant transactions with related parties will be reviewed by the Company's two disinterested Directors.

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 sought an injunction to prevent further staking and disclosure of confidential information relating to the Sierra Lady Mining Claims and monetary damages while the Defendants sought 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 June 16, 2015 the Plaintiffs filed an Amended Complaint which, among other things, added the Company as a named Defendant. On March 25, 2016, the Plaintiffs filed a Court ordered Second Amended Complaint.  On April 11, 2016 Defendants filed their Answer to the Second Amended Complaint and filed their Counter Claims against the Plaintiffs. Discovery closed in June 2017. A jury trial commenced on February 12, 2018 and following the Plaintiff's presentation of their case, on February 14, 2018, the Judge entered a Directed Verdict dismissing the claims against the Defendants. Furthermore, pursuant to a Settlement Agreement and Release executed on March 9, 2018, Plaintiffs agreed to release all claims against the Defendants and waive all rights to appeal the verdict in exchange for the Defendants waiving their cross complaint for damages.

 

On September 21, 2016 the employment agreement with the Company's President, David Vickers, was terminated by the Company. Subsequent to his departure, Mr. Vickers  retained legal counsel and is now alleging claims of age discrimination, fraud in the inducement, violation of California Labor Code §970 and breach of contract against the Company. On April 14, 2017 the Company was served by Mr. Vickers' attorney with a demand for arbitration of the above referenced claims. The arbitration proceeding is being handled by the Judicial Arbitration and Mediation Services, Inc. (JAMS) and is currently in the discovery phase. On June 5, 2018 the parties participated in a voluntary mediation however the parties were unable to reach a resolution. The arbitration proceeding is currently scheduled for August, 2018.  Mr. Vickers' has stated a claim of approximately $850,000. The Company plans to vigorously defend these claims in the arbitration proceeding.

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 for 2017 on Form 10-K filed with the SEC on February 28, 2018.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES

During the quarter ended May 31, 2018, there were no unregistered sales of the Company's securities.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Purebase assumed a $1,000,000 promissory note on November 24, 2014 in connection with the acquisition of USAM by Purebase. The note bears simple interest at an annual rate of 5% and the principal and accrued interest were 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 principal and accrued interest balance of the note was $1,166,903 at May 31, 2018. The Note is in default however, the Company continues to have discussions with the Note Holder to extend the Note under the same terms and conditions.

 

 

On February 26, 2016, Bayshore Capital, a major shareholder of the Company, advanced $25,000 to the Company for working capital at 6% per annum.  The note was payable August 26, 2016, or when the Company closes a bridge financing, whichever occurs first. The principal and accrued interest balance of the note was $27,248 at May 31, 2018. As of May 31, 2018, this note had not been repaid and is currently in default.

On August 31, 2017, the Company issued a Note in the amount of $197,096 to Arthur Scott Dockter, President, CEO and a Director of the Company to consolidate the total amounts due to and assumed by Mr. Dockter as of that date. The Note to Mr. Dockter bears interest at 6% and is due the earlier of closing of bridge financing or January 15, 2018. The principal and accrued interest balance of the note was $214,618 at May 31, 2018. As of May 31, 2018, this note had not been repaid.

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

On March 2, 2018 John Gingerich was appointed to the Board of Directors of Purebase Agricultural, Inc. ("Purebase Ag," a wholly-owned subsidiary of the Company) and was appointed CEO of Purebase Ag replacing Scott Dockter. On June 12, 2018 the Board of Directors of Purebase Ag re-appointed Scott Dockter as President/CEO of Purebase Ag in order to better integrate the business of Purebase Ag with that of the Company's business. Also, as of June 12, 2018, Mr. Gingerich resigned as a Director of Purebase Ag.

 

ITEM 6.  EXHIBITS

 

The following documents are filed as exhibits to this report:

 

	10.8	2017 Purebase Corporation Stock Option Plan
	31.1	Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).
	31.2	Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).
	32.1	Certification of Chief Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350.

 

 

 

 

 

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:  July 16, 2018	/s/ A. Scott Dockter
	A. Scott Dockter
	Chief Executive Officer
Dated:  July 16, 2018	/s/ Al Calvanico
	Al Calvanico
	Chief Financial Officer