NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2017
NOTE 1. NATURE OF BUSINESS
Business Activity
Purebase Corporation (the "Company"), was incorporated in the State of Nevada on March 2, 2010. 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 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, 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.
Purebase is headquartered in Ione, California. Purebase's business is divided into wholly-owned subsidiaries which will operate as business divisions, whose sole focus is to develop sector related products and to provide for distribution of those products into primarily the agricultural and construction industry sectors.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying 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. (until March 2017), collectively referred to as the "Company". All intercompany transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary to present fairly the consolidated financial position at November 30, 2017 and November 30, 2016 and the consolidated results of operations and cash flows of the Company for the fiscal years ended November 30, 2017 and November 30, 2016.
Going Concern
The Company incurred a net loss of $1,669,271 for the fiscal year ended November 30, 2017 and generated negative cash flows from operations. In addition the Company has generated modest revenue in conjunction with its business plan. In order to support its operations, the Company will require additional infusions of cash from advances from an affiliate, 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 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 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
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
could result from the outcome of this uncertainty. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Accounts Receivable
The Company uses the specific identification method for recording the provision for doubtful accounts, which was $0 at November 30, 2017 and 2016. Accounts receivable are written off when all collection attempts have failed.
Revenue Recognition
Revenue is recognized when the product has shipped, and the title has transferred to the customer.
Basic and Diluted Net Loss Per Share
Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share includes potentially dilutive securities such as outstanding warrants 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 years ended November 30, 2017 and 2016 warrants and options to purchase 500,000 and 6,977,494, respectively, have been excluded from the computation of potential dilutive securities.
Use of Estimates and Assumptions
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
Property and equipment are carried at cost. Depreciation is computed using straight line depreciation methods over the estimated useful lives as follows:
Property and Equipment
|
5 years
|
Autos and trucks
|
5 years
|
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.
Cash and Cash Equivalents
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. The Company has not experienced any losses in such accounts. The Company's accounts are insured by the FDIC but at times may exceed federally insured limits. At November 30, 2017 no accounts exceeded FDIC limits.
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Exploration Stage
In accordance with U.S. GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred until such time 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.
Mineral Rights
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.
Fair Value of Financial Instruments
Financial assets and liabilities recorded at fair value in the Company's 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:
Level Input:
|
|
Input Definition:
|
Level I
|
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
Level II
|
|
Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
|
Level III
|
|
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
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.
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Derivative Liability
During the year ended November 30, 2016 the Company's derivative liability was eliminated upon the conversion of all the convertible debt.
We measure our conversion feature liability issued from our debt financings on a recurring basis. In accordance with current accounting rules
,
the liability for conversion feature is being marked to market each quarter-end until it is completely settled. The conversion feature is valued using the Black Scholes option pricing model, using both observable and unobservable inputs and assumptions. Significant increases (decreases) in any of these inputs could result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the expected term is accompanied by a change in the assumption used for the risk free rate and the expected stock volatility.
The following table summarizes our fair value measurements using significant Level III inputs, and changes therein, for the years ended November 30, 2016 and 2017:
Level III
|
|
Conversion feature
|
|
|
|
|
|
Balance as of November 30, 2015
|
|
$
|
57,366
|
|
Issuance convertible note payable
|
|
$
|
109,324
|
|
Conversion of Notes Payable
|
|
$
|
101,629
|
|
Reduction in fair value
|
|
$
|
(65,061
|
)
|
Balance as of November 30, 2016
|
|
$
|
0
|
|
Balance as of November 30, 2017
|
|
$
|
0
|
|
Income Taxes
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 years ended November 30, 2017 and 2016. The Company's net operating loss carryforwards are subject to IRS examination until they are fully utilized and such tax years are closed.
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Impairment of Long-lived Assets
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 years ended November 30, 2017 and 2016.
Recent Accounting Pronouncements
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 Claims Lassen County, CA
Placer Mining Claim Notices have been filed and recorded with the US Bureau of Land Management (the "BLM") relating to 50 Placer mining claims identified as "USMC 1" thru "USMC 50" covering 1,145 acres of mining property located in Lassen County, California and known as the "Long Valley Pozzolan Deposit". The Long Valley Pozzolan Deposit is a placer claims resource in which the Company holds non-patented mining rights to 1,145acres of contiguous placer claims within the boundaries of a known and qualified Pozzolan deposit. These claims were assigned to Purebase by one of its founders at his original cost basis of $0. These claims require a payment of $30,000 per year to the BLM.
Federal Preference Rights Lease in Esmeralda County NV
This Preference Rights Lease was granted by the BLM to US Mine Corp. 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
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
operation which is situated within the 2,500 acres. 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 minimum payments of $7,503 per year to the BLM.
Snow White Mine located in San Bernardino County, CA – Deposit
On November 28, 2014 US Mining and Minerals Corporation entered into a Purchase Agreement in which 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.
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 November 30, 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.
On July 13, 2015, the Company issued a promissory note in the amount of $100,000 for general working capital needs.
Effective February 29, 2016, the $100,000 note due to Bayshore Capital, a shareholder, was assumed by A. Scott Dockter. Mr. Dockter is responsible for the debt to Bayshore Capital. This debt reassignment allowed advances to this officer be settled in full.
On September 10, 2015, Purebase issued a promissory note of $54,000 to an unaffiliated third party for general working capital needs. This note bears interest at 8% per annum with the principal and accrued interest due June 11, 2016. The note was convertible, at the option of the holder, into shares of common stock. The conversion price shall be equal to 58% of the average of the lowest 3 out of the 10 closing bid prices prior to conversion. The Company also has to reserve 6.5 times the number of shares into which the note converts. During the year ended November 30, 2016 the lender converted the balance of the note and accrued interest totaling $56,160 into 117,458 shares of the Company's common stock with conversion prices ranging from $0.319 to $0.9957 per share.
During FY 2016, Purebase Corp. received $45,000 from Crown Bridge Financing ("CBF") for working capital. The note carries an interest rate of 5% per annum with principal and accrued interest due January 2017. The note was convertible at the option of the holder into shares of common stock. The conversion price
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
shall be equal to 58% of the lowest trading price of the 20 closing bid prices prior to conversion. The Company also had to reserve 10 times the number of shares into which the note converts. During the year ended November 30, 2016 CBF converted the balance of the note and accrued interest totaling $46,408 into 316,616 shares of the Company's common stock with conversion prices ranging from $0.116 to $0.232 per share.
On January 21 2016, Inuit Artist Gallery, a shareholder, advanced $20,000 to the Company for bridge financing at 6% per annum. The note was payable June 21, 2016, or when the Company closes its bridge financing, whichever is sooner.
On 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 November 30, 2017.
On March 4, 2016, Luigi Ruffolo, a shareholder, and Joseph Panetta, a shareholder, each advanced $50,000 to the Company for bridge financing at 6% per annum. The notes were due September 4, 2016, or when the Company closes its bridge financing, whichever occurs first.
On June 28, 2016, Inuit Artists Gallery, Luigi Ruffolo and Joseph Panetta assigned their notes and accrued interest from the Company to Arthur Scott Dockter, CEO and a Director of the Company. Mr. Dockter accepted the assignment as made. 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.
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. As of January 15, 2018 this note had not been repaid and is currently in default.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Office and Rental Property Leases
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.
Mineral Properties
Our mineral rights require various annual lease payments. See Note 3.
Legal Matters
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,
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
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. 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.
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, Inc.("PNI") to develop these technologies. Purebase owned a 82% interest in this new company and Scott Dockter was a Director along with Messrs. Wharton and Ridder. In order to fund this farming technology PNI raised approximately $750,000 from investors of which $500,000 was recorded as a subscription liability on November 30, 2016. 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. Subsequent to this action, PNI obtained a Temporary Restraining Order against Mr. Ridder to prevent him from taking any further action relating to PNI's business or corporate funds. In March 2017 PNI entered into a Settlement Agreement with Mr. Ridder to resolve the dispute, terminate the legal actions against Mr. Ridder and restructure the management and ownership of PNI. Mr. Ridder's Settlement Agreement stipulates that the ownership of PNI by Purebase will be reduced to 10%. 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. It is too early to estimate the likelihood of an unfavorable outcome, however Mr. Vickers' demand for arbitration stated a claim of over $1,000,000. An evidentiary hearing is scheduled for May 23, 2018. The Company plans to vigorously defend these claims in arbitration.
Contractual Matters
On November 1, 2013, Purebase entered into an agreement with US Mine Corp, which performs services relating to product fulfillment and 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.
Snow White Mine
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.
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Concentration of Credit Risk
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 November 30, 2017 there were no accounts which exceeded FDIC insurance limits.
NOTE 6. STOCKHOLDERS' EQUITY
Authorized Shares
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 November 30, 2017 and 2016.
Warrants and Option Awarded
Warrants
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. There were no warrants outstanding at November 30, 2017.
The following table summarizes all warrant activity for the years ended November 30, 2017 and 2016:
|
|
Warrants
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2015
|
|
|
477,494
|
|
|
$
|
3.42
|
|
Granted
|
|
|
0
|
|
|
|
0
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
0
|
|
|
|
0
|
|
Outstanding at November 30, 2016
|
|
|
477,494
|
|
|
$
|
3.42
|
|
Granted
|
|
|
0
|
|
|
|
0
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
(477,494
|
)
|
|
$
|
3.42
|
|
Outstanding at November 30, 2017
|
|
|
0
|
|
|
$
|
0
|
|
Stock Options
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 November 30, 2017 no 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 during the year ended November 30, 2016.
The estimated weighted average fair values of the options granted during the year ended November 30, 2016 is $1.90 per share. There were no options granted during the year ended November 30, 2017.
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The Company estimates the fair value of each option award using the Black-Scholes option-pricing model. The Company used the following assumptions to estimate the fair value of stock options issued during the year ended November 30, 2016.
|
|
November 30, 2016
|
|
|
|
|
|
|
Expected volatility
|
|
|
150
|
%
|
Expected Term
|
6 years
|
|
Dividend Yield
|
|
|
0
|
%
|
Risk-free interest Rate
|
|
|
0.68
|
%
|
Employee stock-based options compensation expenses for the years ended November 30, 2017 and 2016 included in general and administrative expense totaled $384,907 and $415,960, 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 year ended November 30, 2017.
|
|
Number of
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate Intrinsic Value
|
|
Weighted Average
Contractual terms
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 1, 2015
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Granted
|
|
|
7,500,000
|
|
|
$
|
2.60
|
|
|
|
0
|
|
|
Exercised
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
Expired/Cancelled
|
|
|
(1,000,000
|
)
|
|
$
|
3.00
|
|
|
$
|
0
|
|
|
Outstanding 11/30/16
|
|
|
6,500,000
|
|
|
$
|
2.54
|
|
|
|
0
|
|
|
Granted
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
Exercised
|
|
|
0
|
|
|
$
|
N/A
|
|
|
|
0
|
|
|
Expired/Cancelled
|
|
|
(6,000,000
|
)
|
|
$
|
2.5
|
|
|
|
0
|
|
|
Outstanding 11/30/17
|
|
|
500,000
|
|
|
$
|
3.00
|
|
|
|
0
|
|
8.26 years
|
Exercisable 11/30/2017
|
|
|
300,000
|
|
|
$
|
3.00
|
|
|
|
0
|
|
8.24 years
|
Expected to vest 11/30/17
|
|
|
200,000
|
|
|
$
|
3.00
|
|
|
|
0
|
|
|
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.
The aggregate intrinsic value of options outstanding and exercisable was $0 for the years ended November 30, 2017 and 2016.
As of November 30, 2017 the total unrecognized fair value compensation cost related to non-vested stock options to employees was approximately $260,082 which is expected to be recognized over approximately 1.28 years.
Purebase Corporation and Subsidiaries
Notes to Consolidated Financial Statements
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 years ended November 30, 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, and OPTEC Solutions of $20,613, for consulting fees, benefits and miscellaneous expenses. 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.
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.
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 November 30, 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 Product fulfillment and various technical evaluations and mine development services to the Company. Services totaling $155,534 and $110,164 were rendered by USMC for the year ended November 30, 2017 and 2016, respectively.
During the year ended November 30, 2017, USMC paid $736,038 of expenses to the Company's vendors and creditors on behalf of the Company and also made cash advances to the Company of $432,000. The balance due to USMC is $2,497,708 and $1,007,732 at November 30, 2017 and November 30, 2016, respectively. During the year ended November 30, 2017, USMC agreed to offset a $75,000 deposit on a mining property against money owed to USMC.
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. During FY 2017 Mr. Bremer assigned the outstanding amount of $241,403 to USMC. As of November 30, 2017 and November 30, 2016, the Company owed the Bremer Family Trust a total of $0 and $241,403, respectively.
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 and Subsidiaries
Notes to Consolidated Financial Statements
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 November 30, 2016, 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. On August 10, 2017 Mr. Ridder and the Company entered into an Amended and Restated Settlement Agreement pursuant to which Teralytics, Inc. (formerly PNI) obtained 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.
NOTE 8. CONCENTRATIONS
Major Customers
The Company had three major customers that represented 55% and 77% of total sales for the years ended November 30, 2017 and 2016, respectively. Accounts receivable from two customers represented 100% and 98% of total accounts receivable at November 30, 2017 and 2016, respectively.
Major Vendors
For the years ended November 30, 2017 and 2016, purchases from one vendor comprised approximately 85% and 100% of total purchases, respectively. This one vendor was US Mine Corp, a related party to the Company.