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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 AUGUST 31, 2017

 

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):

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 August 31, 2017 was 141,347,173.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX

 

 

PART I – FINANCIAL INFORMATION

 

 

ITEM 1.  FINANCIAL STATEMENTS

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		August 31, 2017				November 30, 2016
		(Unaudited)				(Audited)
ASSETS
Current assets
Cash		$	46,851			$	555,648
Accounts Receivable, net of allowance for doubtful accounts of $0			51,846				58,897
Prepaid expenses and other assets			7,534				38,182
Total Current Assets			106,231				652,727
Property and Equipment
Property and Equipment			42,103				35,151
Autos and Trucks			25,062				25,061
Accumulated Depreciation			(49,511	)			(40,477	)
Total Property and Equipment			17,654				19,735
Mineral Rights Acquisition Costs			200,000				200,000
Deposit on Mineral Rights			75,000				75,000
			275,000				275,000
Total Assets		$	398,885			$	947,462
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable		$	17,641			$	160,467
Accrued Payroll and Related			343,482				479,021
Accrued Interest			136,619				97,993
Other Accrued Liabilities			107,004				80,040
Due to Officer			197,096				170,886
Due to Affiliated Entities			2,164,932				1,249,135
Notes Payable Current			1,025,000				1,025,000
Subscription Liability			0				500,000
Total Current Liabilities			3,991,774				3,762,542
Commitments and contingencies
Purebase Corp. Stockholders' Equity (Deficit)
Common stock $0.001 par value, 520,000,000 shares authorized, 141,347,173 shares issued and outstanding			70,943				70,943
Additional paid in capital			2,797,016				2,462,572
Accumulated deficit			(6,460,848	)			(5,321,422	)
Total Purebase Corp. Stockholders' Equity (Deficit)			(3,592,889	)			(2,787,907	)
Non-Controlling Interest			0				(27,173	)
Total Stockholders' Equity (Deficit)			(3,592,889	)			(2,815,080	)
Total Liabilities and Stockholders' Deficit		$	398,885			$	947,462

 

 

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, 2017 AND 2016

(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
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 2017 AND 2016

(UNAUDITED)

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

 

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.

On May 6, 2016, the Company and Steve Ridder and John Wharton formed Purebase Networks, Inc., ("PNI") a Delaware corporation. PNI was a joint venture to develop an agricultural technology solution comprised of sensors, proprietary wireless technology, and cloud analytics to assist farmers in monitoring and managing the health of their soils. The Company was initially intended to hold a majority interest in PNI and assist in PNI's management. However, due to certain management disagreements, the Company entered into a final settlement agreement in August, 2017, pursuant to which the Company received $250,000 and its ownership interest in PNI was reduced to zero and the Company no longer provides management assistance to PNI.

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. (fka. 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

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

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 August 31, 2017 and the consolidated results of operations of the Company for the three and nine months ended August 31, 2017 and 2016 and cash flows for the nine months ended August 31, 2017 and 2016. Operating results for the three and nine months ended August 31, 2017 are not necessarily indicative of the results that may be expected for the year ending November 30, 2017. 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, 2016 filed on Form 10-K on April 14, 2017.

The Company incurred a net loss of $1,139,426 for the nine months ended August 31, 2017 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 $0 at August 31, 2017 and November 30, 2016. 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

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

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 August 31, 2017 and August 31, 2016 warrants and options to purchase 805,494 and 7,977,494 shares of common stock respectively, have been excluded from the computation of potential dilutive securities.

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

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

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.

Acquisition costs of mineral rights are 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, as defined by the SEC under Industry Guide 7, through the completion of a "final" or "bankable" feasibility study. Expenditures relating to exploration activities are expensed as incurred and expenditures relating to pre-extraction activities are expensed as incurred until such time proven or probable reserves are established for that project, after which subsequent expenditures relating to development activities for that particular project are capitalized as incurred.

Where proven and probable reserves have been established, the project's capitalized expenditures are depleted over proven and probable reserves upon commencement of production using the units-of-production method. Where proven and probable reserves have not been established, such capitalized expenditures are depleted over the estimated production life upon commencement of extraction using the straight-line method.

 

The carrying values of the mineral rights are assessed for impairment by management on a quarterly basis or when indicators of impairment exist. Should management determine that these carrying values cannot be recovered, the unrecoverable amounts are written off against earnings.

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.

At November 30, 2016, $500,000 was recorded as a "subscription liability" on the Company's condensed consolidated balance sheets relating to PNI's lack of sufficient authorized PNI shares to

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

issue to its investors. The subscription liability was removed as the Company now owns no interest in PNI and no longer consolidates PNI's financial statements with those of the Company.

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.

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 nine months ended August 31, 2017 and August 31, 2016.  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 August 31, 2017 and August 31, 2016.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Topic 915): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which states that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). The adoption of this update did not have a material effect on our financial statements.

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 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.

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.

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

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.

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.

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 August 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 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.

 

On June 28, 2016, three stockholders assigned their notes and accrued interest from the Company to Arthur Scott Dockter, CEO and a Director of the Company. In return for accepting the assignment of the

 

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

notes, the Company issued Mr. Dockter a Note in the amount of $122,430, which amount included accumulated interest on the assumed notes.  The Note to Mr. Dockter bears interest at 6% per annum and was due September 7, 2016.   On August 31, 2017, the Company issued a new Note in the amount of $197,096 to Mr. Dockter (replacing the previous Note for $122,430) to consolidate the total amounts due to and assumed by Mr. Dockter. The new Note to Mr. Dockter bears interest at 6% per annum and is due the earlier of the Company closing of bridge financing or January 15, 2018.

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 September 11, 2014, a Motion to Dismiss was filed on behalf of all Defendants and is pending awaiting determination by the Court. 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. 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 and a trial date is set for February, 2018. The Company believes that it will prevail in this lawsuit and does not expect the outcome of this case to have a material effect on the Company's financial condition.

 

On April 30, 2016, the Purebase Board of Directors agreed to form a joint venture with John Wharton and Steve Ridder to develop certain technologies to allow farmers to optimize crop growth. In May, 2016 Messrs. Wharton and Ridder incorporated a Delaware corporation called Purebase Networks,

 

PUREBASECORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

Inc.("PNI") to develop these technologies. However, in November, 2016 Purebase became dissatisfied with the management and progress of PNI's business and on November 16, 2016 the PNI Board relieved Mr. Ridder of his officer duties. Effective March 27, 2017, PNI entered into a Settlement Agreement with Mr. Ridder to resolve the dispute pursuant to which the ownership of PNI by Purebase had been reduced to 10% and Purebase had no further involvement in PNI's management. This settlement resulted in a deconsolidation of PNI from the Purebase financial statements which is discussed in Note 7 below. Mr. Ridder's and Mr. Wharton's Settlement Agreement also includes a mutual release from any actions by PNI against Mr. Ridder and Mr. Wharton and Mr. Ridder and Mr. Wharton against PNI. An Amended and Restated Settlement Agreement was entered into on August 10, 2017 pursuant to which Teralytics Inc. (formerly PNI) repurchased Purebase's remaining interest in Teralytics, Inc. and the Company received $250,000.

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. The Company plans to vigorously defend these claims in arbitration, currently scheduled for February 2018. The range of loss could not be determined, but Mr. Vickers' demand for arbitration stated a claim of over $1,000,000.

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.  The Company will need to pay Mr. Bremer, a director of Purebase, an additional sum of $575,000 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 August 31, 2017, 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 August 31, 2017 and November 30, 2016.

 

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

 

During the course of the year ended November 30, 2015, the Company raised capital through the sale of units.  Each unit was comprised of one share of common stock and one warrant. Warrants outstanding at August 31, 2017 were as follows:

 

 

The following table summarizes all warrant activity for the nine months ended August 31, 2017:

 

To date the Company has not yet established a formal Stock Option Plan. The options that have been granted during the year ended November 30, 2016 were done pursuant to employment contracts entered into by the Company and the respective employee. The Company is planning on establishing a formal stock option plan which will be approved and managed by the Board of Directors and will obtain shareholder approval.

 

There were no stock options granted during the three and nine months ended August 31, 2017. Employee stock-based options compensation expenses for the three and nine months ended August 31, 2017 and August 31, 2016 was as follows:

 

 

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

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 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 August 31, 2017, the total unrecognized fair value compensation cost related to non-vested stock options to employees was approximately $310,545 which is expected to be recognized over approximately 1.53 years.

On June 23, 2016, the Company entered into Stock Option Agreements with John Wharton and Steve Ridder pursuant to which Mr. Ridder and Mr. Wharton were given an option to purchase up to 5,000,000 and 1,000,000 shares, respectively, of Purebase common stock at an option price of $2.50/share.  On March 27, 2017, PNI entered into Settlement Agreements with Mr. Ridder and Mr. Wharton which, among other provisions, included the cancellation of Mr. Ridder's Stock Option Agreement to purchase 5,000,000 shares and Mr. Wharton's Stock Option Agreement to purchase 1,000,000 shares.

Note 7.  Related Party Transactions

Purebase temporarily sublet office space from OPTEC Solutions, LLC, a company partly owned by the Company's former CFO, Amy Clemens, on a month-to-month basis. The Company paid rent totaling $0 and $7,500 for the three and nine months ended August 31, 2017 and 2016, respectively. That arrangement has now come to an end since the Company has relocated its corporate headquarters to Ione, California.  As of November 30, 2016, the Company had an outstanding balance owed to Amy Clemens, the former CFO, of $21,123, for consulting fees, benefits and miscellaneous expenses, and an outstanding balance of $14,478, owed to OPTEC Solutions, LLC, which is included in accounts payable on the

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

condensed consolidated balance sheets. As of August 31, 2017, the balance owed to Amy Clemens was $16,188. The previous balances due to OPTEC Solutions and Amy Clemens have been assumed by A. Scott Dockter and consolidated into the new Note issued on August 31, 2017. (See Note 4 above).

 

Effective February 29, 2016, a $100,000 note due to Bayshore Capital was assumed by A. Scott Dockter. Mr. Dockter is now responsible for the debt due Bayshore and not the Company. The balance remaining due to A. Scott Dockter on August 31, 2017 was $48,456 and has been consolidated into a new Note dated August 31, 2017 with other amounts due and assumed by Mr. Dockter. (See Note 4 above).

 

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 Company is in default on this note at August 31, 2017.

 

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 $44,575 and $0 were rendered by USMC for the three-months ended August 31, 2017 and 2016, respectively. Services totaling $119,542 and $0 were rendered by USMC for the nine months ended August 31, 2017 and 2016, respectively.

 

During the three-months ended August 31, 2017, USMC paid $98,268 of expenses to the Company's vendors and creditors on behalf of the Company and also made cash advances to the Company of $30,000. During the nine months ended August 31, 2017, USMC paid $698,797 of expenses to the Company's vendors and creditors on behalf of the Company and also made cash advances to the Company of $217,000. The balance due to USMC is $1,923,529 and $1,007,732 at August 31, 2017 and November 30, 2016, respectively.

 

During the year ended November 30, 2016, the Bremer Family Trust whose Trustee, John Bremer, is a major shareholder and Director of the Company, has advanced the Company $216,000 for corporate operating expenses.  As of August 31, 2017, and November 30, 2016, the Company owes the Bremer Family Trust a total of $241,403.

 

During the year ended November 30, 2015, the Company paid $25,000 to GroWest Corporation, a company owned by John Bremer, who is a Director and major stockholder of the Company, as a deposit on a mine.  The mine purchase subsequently was assumed by John Bremer. See Note 3.

On June 28, 2016, three stockholders assigned their notes from the Company to Arthur Scott Dockter, CEO and a Director of the Company. In return for accepting the assignment of the Notes, the Company issued Mr. Dockter a Note in the amount of $122,430 which amount included accumulated interest on the assumed notes.  The Note to Mr. Dockter bears interest at 6% and was due September 7, 2016. The Note has been consolidated into a new Note dated August 31, 2017 with other amounts due and assumed by Mr. Dockter.

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 the earlier of closing of bridge financing or January 15, 2018.

 

 

PUREBASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
AUGUST 31, 2017

 

In April, 2016, the Company entered into a joint venture in order to develop proprietary technologies for use in the agricultural markets, primarily to assist farmers in managing their crops. In furtherance of this joint venture, in May, 2016 a Delaware corporation called Purebase Networks, Inc. ("PNI") was formed in order to develop these farming technologies. The Board of Directors consisted of John Wharton, Steve Ridder and Scott Dockter with Mr. Wharton and Mr. Ridder serving as the executive officers. As of February 28, 2017, the Company owned an 82% ownership interest in PNI. In order to fund PNI's technology development, it raised investor funds of $750,000 of which $500,000 was recorded as a subscription liability on PNI's balance sheet. The Company became dissatisfied with the management and progress of PNI's business and on November 16, 2016 the PNI Board relieved Mr. Ridder of his officer duties. PNI commenced negotiating a Settlement Agreement with Mr. Ridder and Mr. Wharton and entered into Settlement Agreements dated March 27, 2017 with Mr. Ridder and Mr. Wharton to resolve their dispute, terminate the legal actions against Mr. Ridder and restructure the management and ownership of PNI. Mr. Wharton's Settlement Agreement provided for the cancellation of certain stock options granted to him to purchase 1,000,000 shares of the Company's common stock. Mr. Ridder's Settlement Agreement provided for the cancellation of certain stock options granted to him to purchase 5,000,000 shares of the Company's common stock and stipulates that the ownership of PNI by the Company will be reduced to 10%. This settlement has resulted in a deconsolidation of PNI from the Company's financial statements as of the fiscal quarter ended May 31, 2017.. As a result of this deconsolidation, the Company carried its remaining 10% interest in PNI as an investment in PNI. On August 10, 2017 Mr. Ridder and the Company entered into an Amended and Restated Settlement Agreement pursuant to which Teralytics, Inc. (formerly PNI) repurchased the Company's remaining 10% interest for $250,000.  Due to the elimination of any ownership in Teralytics, Inc. and the absence of any of the Company's officers or Directors serving in similar or any capacity with Teralytics, Inc., the Company will no longer have any ownership interest in or influence over Teralytics, Inc.

 

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. The Company plans to vigorously defend these claims in arbitration, currently scheduled in February 2018.

 

 

 

 

 

 

 

 

 

 

 

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.

On May 6, 2016, Purebase Corporation and Steve Ridder and John Wharton formed Purebase Networks, Inc., a Delaware corporation for the purpose of developing an Agricultural Technology solution comprised of sensors, proprietary wireless technology, and cloud analytics that assist farmers monitor and manage the health of their soils. Under the Shareholders' Agreement Purebase obtained a 90% dilutable interest in the Company, Messrs. Wharton and Ridder obtained a 10% non-dilutable interest.  However, due to disagreements over management of Purebase Networks, Inc. (now known as Teralytics, Inc.) and pursuant an August 10, 2017 Amended and Restated Settlement Agreement between the Company and Mr. Ridder, as of August 31, 2017, the Company has no further ownership interest in or influence over Teralytics, Inc.

Results of Operation

We have included a discussion and analysis of the Company's current consolidated operations for the three and nine-month period ending August 31, 2017 as compared to the Company's previous consolidated operations for the three and nine-month period ending August 31, 2016.

 

 Overview

During the current fiscal quarter ended August 31, 2017, the Company generated minimal revenues. Total assets decreased from $947,462 as of November 30, 2016 to $398,885 as of August 31, 2017. Total liabilities increased from $3,762,542 at November 30, 2016 to $3,991,774 at August 31, 2017 reflecting decreases of $212,775 in Accounts Payables & Accruals, increases of $26,210 in amounts Due to Officer, $915,797 in amounts Due to Affiliated Entities and a decrease of $500,000 in Subscription Liability.

Results of Operations for the fiscal quarter ended August 31, 2017 compared to the quarter ended August 31, 2016

The Company's operating results for the three months ended August 31, 2017 and 2016 are summarized as follows:

Since inception the Company, its subsidiaries U.S Agricultural Minerals, LLC, and Purebase Agricultural, Inc. have generated only minimal revenue from operations with revenues commencing during the second quarter of FY 2016. Revenues increased significantly during the current fiscal quarter to $231,899 compared to $12,681 for the comparable fiscal quarter last year. The increase is attributable to the increase in the Company's agricultural minerals and supplements in and expansion of the agricultural markets reached by the Company.

Total operating expenses for the Company for the three months ended August 31, 2017 were $529,244 compared to $877,623 of expenses incurred for the same period ended August 31, 2016. This decrease is mainly attributed to a reduction in payroll related expenses offset by an increase in general and administrative expenses attributed to the increase in costs attributable to the sale of products.

Exploration and mining expense for the three months ended August 31, 2017 were $79,012 compared to $9,231 of such expenses incurred during the same period in 2016. The increase in exploration and mining costs is the result of costs attributable to the recovery of mineral resources used in the Company's agricultural products.

General and administrative costs for the Company for the three months ended August 31, 2017 were $447,221 and the general and administrative costs for the same period in 2016 were $865,382. The decrease in general and administrative expenses is mainly attributed to a reduction in payroll related expenses and stock compensation. Included in G&A expenses are professional fees for the fiscal quarter ended August 31, 2017 which were $355,717 compared to professional fees of $212,239 for the same quarter in 2016. The increase in professional fees is attributed to the increase in legal expenses associated with the Company's ongoing legal matters.

 

 

The Company's interest expense decreased to $36,613 for the quarter ended August 31, 2017 compared to $36,841 for the same fiscal quarter of 2016.

 

The Company incurred a net loss of $83,946 for the fiscal quarter ended August 31, 2017 compared to the Company's net loss of $735,348 for the fiscal quarter ended August 31, 2016. The substantial decrease in net loss is attributable to the sale of the Company's remaining 10% interest in Teralytics, Inc. (formerly PNI) for $250,000 and decreases in payroll related expenses, coupled with an increase in revenues.

Results of Operations for the nine-month period ended August 31, 2017 compared to the nine-month period ended August 31, 2016

The Company's operating results for the nine-month period ended August 31, 2017 and 2016 are summarized as follows:

Since inception the Company and its subsidiaries have generated only minimal revenue from operations. Revenues increased significantly during the first nine months of the current fiscal year to $446,096 compared to $14,121 for the comparable nine-month period last fiscal 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 second and third fiscal quarters of 2017.

 

 

Total operating expenses for the Company for the nine months ended August 31, 2017 were $2,121,040 compared to $2,155,758 of expenses incurred for the same period ended August 31, 2016.

 

Exploration and mining expense for the nine months ended August 31, 2017 were $194,636 compared to $66,476 of such expenses incurred during the same period in 2016. The increase in exploration and mining costs is the result of costs associated with the recovery of mineral resources used in the Company's agricultural products.

 

General and administrative costs for the Company for the nine months ended August 31, 2017 were $1,917,371 and the general and administrative costs of the Company for the same period in 2016 were $2,080,251. The decrease in general and administrative expenses is attributed primarily to a reduction in payroll related expenses.

 

The Company's interest expense decreased to $66,784 for the nine months ended August 31, 2017 compared to $190,779 for the nine months August 31, 2016. The decrease was due to the conversion of notes to equity.

 

 

 

The Company incurred a net loss of $1,139,426 for the nine-month period ended August 31, 2017 compared to the Company's net loss of $2,265,016 for the nine-month period ended August 31, 2016, a decrease of over 50%. The substantial decrease in net loss is attributable to a $562,571 gain on the deconsolidation of PNI, the repurchase of the Company's remaining 10% interest in Teralytics, Inc. (formerly PNI) for $250,000 and decreases in payroll related expenses, coupled with an increase in revenues.

 

Liquidity and Capital Resources

 

At August 31, 2017, the Company's cash balance was $46,851 and it had a working capital deficit of $3,885,543.  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 just begun to generate revenues from production and sales of its products.  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 to commence generating revenues during the next three months but we do not expect revenues from this work to cover our entire current operating expenses which we expect to increase as we implement our business plan. Consequently, we will continue to 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 current fiscal quarter, we have not attained profitable operations and are dependent upon obtaining additional outside financing to pursue any extensive development or 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 third quarter our operations have been funded by equity investment and debt financing. All debt funding has come from a private placement of our securities or advances from related parties.

 

None.

None.

Tabular Disclosure of Contractual Obligations as of August 31, 2017:

Off-Balance Sheet Arrangements

 

The Company has incurred a net loss of $1,139,426 for the nine months ended August 31, 2017 and has a total accumulated stockholders' equity deficit of $3,592,889 as of August 31, 2017 compared to an accumulated stockholders' equity deficit of $2,815,080 as of its fiscal year-end of November 30, 2016.

 

During the quarter ended August 31, 2017 the Company had modest 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 sufficient 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

●

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 accounting resources and adequate segregation of duties over various accounting and reporting functions. Currently, the Company's CFO is responsible for all bookkeeping and oversight relating to the Company's financial reports and cash flow. The Company plans to re-allocate some of the CFO's current functions in order to achieve adequate segregation of duties over various accounting and reporting functions.

 

●

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, transactions with related parties will be reviewed by the Company's Board of 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 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 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 and a trial date is set for February, 2018. The Defendants plan to continue to vigorously defend the remaining claims in the amended Complaint. The Company believes that it will prevail in this lawsuit and does not expect the outcome of this case to have a material effect on the Company's financial condition.

On April 30, 2016, the Purebase Board of Directors agreed to form a joint venture with John Wharton and Steve Ridder to develop certain technologies to allow farmers to optimize crop growth. In May, 2016 Mr. Ridder incorporated a Delaware corporation called Purebase Networks, Inc. ("PNI") to develop these technologies. However, in November, 2016 Purebase became dissatisfied with the management and progress of PNI's business and on November 16, 2016 the PNI Board relieved Mr. Ridder of his officer duties and initiated legal proceedings against Mr. Ridder. PNI commenced negotiating a Settlement Agreement with Mr. Ridder and Mr. Wharton and

 

 

entered into Settlement Agreements dated March 27, 2017 with Mr. Ridder and Mr. Wharton to resolve their dispute, terminate the legal actions against Mr. Ridder and restructure the management and ownership of PNI. Mr. Wharton's Settlement Agreement provided for the cancellation of certain stock options granted to him to purchase 1,000,000 shares of the Company's common stock. Mr. Ridder's Settlement Agreement provided for the cancellation of certain stock options granted to him to purchase 5,000,000 shares of the Company's common stock and stipulates that the ownership of PNI by the Company will be reduced to 10%. This settlement has resulted in a deconsolidation of PNI from the Company's financial statements as of the fiscal quarter ended May 31, 2017. The amount of net gain recognized by the Company due to the deconsolidation of PNI was $ 312,571. As a result of this deconsolidation, the Company carried its remaining 10% interest in PNI recorded during the six months ended May 31, 2017 as an investment in PNI. On August 10, 2017 Mr. Ridder and the Company entered into an Amended and Restated Settlement Agreement pursuant to which Teralytics, Inc. (formerly PNI) repurchased the Company's remaining 10% interest for $250,000.  Due to the elimination of any ownership in Teralytics, Inc. and the absence of any of the Company's officers or Directors serving in similar or any capacity with Teralytics, Inc., the Company will no longer have any ownership interest in or influence over Teralytics, Inc.

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. The range of loss could not be determined, but Mr. Vickers' demand for arbitration stated a claim of over $1,000,000. The Company plans to vigorously defend these claims in arbitration, currently scheduled in February 2018.

ITEM 1A.  RISK FACTORS

As of the end of the fiscal quarter covered by this report, there were no changes to our risk factors from those disclosed in our annual report on Form 10-K filed with the SEC on April 12, 2017.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES

During the quarter ended August 31, 2017, 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 balance of the note was $1,000,000 at August 31, 2017. 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 Company is in default on this note at August 31, 2017.

 

 

On June 28, 2016, three stockholders assigned their notes and accrued interest from the Company to Arthur Scott Dockter, CEO and a Director of the Company. In return for accepting the assignment of the notes, the Company issued Mr. Dockter a Note in the amount of $122,430, which amount included accumulated interest on the assumed notes.  The Note to Mr. Dockter bears interest at 6% per annum and was due September 7, 2016. On August 31, 2017, the Company issued a new Note in the amount of $197,096 to Mr. Dockter (replacing the previous Note for $122,430) to consolidate the total amounts due to and assumed by Mr. Dockter. The new Note to Mr. Dockter bears interest at 6% per annum and is due the earlier of the Company closing of bridge financing or January 15, 2018.

 

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 August 15, 2017, the Company entered into a Business Development Agreement with Nuvest Ventures, LLC pursuant to which Nuvest will perform a financial analysis of the Company and prepare various financial reports for the Company.

On August 15, 2017, the Company also entered into a Selling Agreement with Rainmaker Securities, LLC, a FINRA registered broker-dealer, pursuant to which Rainmaker will assist in identifying potential accredited investors to raise capital for the Company.

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 4, 2017	/s/ A. Scott Dockter
	A. Scott Dockter
	Chief Executive Officer
Dated:  October 4, 2017	/s/ Al Calvanico
	Al Calvanico
	Chief Financial Officer