10-Q: PureBase Corporation Reports Q3 2024 Results Amidst Ongoing Financial Challenges

Sentiment:

Quarterly Report 15 October 2024 11:30 AM

PureBase Corporation's Q3 2024 results show a slight revenue decrease and continued operating losses, highlighting the company's ongoing financial challenges.

Delay expectedThere was a delay in the original seller, Joseph Richard Matthewson, receiving a clear title to the property and a fully permitted project, both of which were conditions to the closing of the sale from US Mining and Minerals Corporation to the Company.Due to delays in the Company securing the necessary funding to close the purchase of the Snow White Mine property, John Bremer, a shareholder and a director of the Company, paid $575,000 to acquire the property interest and mining claims.

Capital raiseThe company is exploring options to meet its short-term cash requirements, including issuances of equity securities or equity-linked securities to USMC and other third parties.The company has previously funded and plans to continue funding losses primarily with additional infusions of cash from advances from USMC and the sale of equity and convertible notes.

Worse than expectedThe company's revenue decreased slightly, and operating expenses increased for the three months ended August 31, 2024, leading to a larger net loss compared to the same period in 2023.The company's auditors have raised substantial doubt about its ability to continue as a going concern, indicating a significant deterioration in its financial outlook.

Summary

PureBase Corporation reported a net loss of $276,838 for the three months ended August 31, 2024, and a net loss of $1,108,700 for the nine months ended August 31, 2024.
Revenue for the three months ended August 31, 2024, was $204,314, a slight decrease from $207,243 in the same period of 2023.
Revenue for the nine months ended August 31, 2024, was $310,036, a decrease from $325,875 in the same period of 2023.
The company's operating expenses increased to $410,570 for the three months ended August 31, 2024, compared to $290,487 in the same period of 2023.
Operating expenses for the nine months ended August 31, 2024, were $1,264,714, a significant decrease from $8,496,542 in the same period of 2023, primarily due to a decrease in stock-based compensation.
The company has a working capital deficit of $768,464 as of August 31, 2024, and an accumulated deficit of $63,839,678.
PureBase is relying on continued funding from USMC through lines of credit and convertible notes to sustain operations.
The company's auditors have raised substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The document presents a concerning financial picture with ongoing losses, a significant accumulated deficit, and a going concern warning. While there are some positive developments like reduced operating expenses and new funding, the overall sentiment is negative due to the company's precarious financial situation and reliance on related-party funding.

Positives

Operating expenses for the nine months ended August 31, 2024, decreased significantly due to a reduction in stock-based compensation.
The company has secured additional funding through a new line of credit with USMC.
The company has reduced its working capital deficit compared to November 30, 2023.

Negatives

The company continues to experience operating losses and negative cash flows.
Revenue decreased slightly for both the three and nine-month periods ended August 31, 2024.
The company has a significant accumulated deficit of $63,839,678.
The company's auditors have raised substantial doubt about its ability to continue as a going concern.
The company is heavily reliant on related-party funding from USMC.

Risks

The company's ability to continue as a going concern is uncertain due to ongoing losses and reliance on related-party funding.
The company's revenue is concentrated among a few customers, creating a risk of significant revenue loss if any of these customers reduce their purchases.
The company is dependent on USMC for raw materials, creating a supply chain risk.
The company's internal controls over financial reporting are deemed ineffective due to material weaknesses.
The company may need to raise additional capital in the future, which may not be available on favorable terms.

Future Outlook

The company anticipates continuing to incur operating losses and negative cash flows as it executes its development plans for 2024. Management believes that revenue generation, along with equity and debt financing, including funding from USMC, will provide the necessary funding for the company to continue as a going concern for the next twelve months.

Management Comments

Management believes that the revenue to be generated from operations together with equity and debt financing, including funding from USMC in the form of a line of credit up to $1,000,000, will provide the necessary funding for the Company to continue as a going concern for the next twelve months.
Management is implementing measures to remediate material weaknesses in internal control over financial reporting.

Industry Context

The company operates in the industrial mineral and natural resource sector, focusing on agricultural and construction materials. The development of supplementary cementitious materials (SCMs) aligns with the industry trend towards lower CO2-emitting concrete. The company's reliance on related-party funding and its going concern issues are not uncommon for early-stage companies in this sector.

Comparison to Industry Standards

PureBase's financial performance is weak compared to established companies in the industrial minerals sector, many of which have positive cash flows and profitability.
The company's reliance on related-party funding is a common practice for early-stage companies, but it also indicates a higher risk profile compared to companies with access to broader capital markets.
The development of SCMs is a growing area, but PureBase is still in the early stages of commercialization compared to companies with established SCM production and sales.
The company's negative working capital and accumulated deficit are significant concerns compared to industry benchmarks for financial health.
The material weaknesses in internal control over financial reporting are a serious issue that needs to be addressed to meet industry standards for financial transparency and reliability.

Related Party Transactions

The company has significant related-party transactions with USMC, including lines of credit, convertible notes, and material supply agreements.
A. Scott Dockter, the company's CEO, and John Bremer, a director, are also officers, directors, and owners of USMC and US Mine, LLC.

Stakeholder Impact

Shareholders face significant risk due to the company's financial instability and going concern issues.
Employees may be concerned about job security due to the company's financial challenges.
Customers and suppliers may be hesitant to engage with the company due to its financial uncertainty.
Creditors face a higher risk of non-payment due to the company's negative cash flows and reliance on related-party funding.

Next Steps

The company plans to continue promoting its products to existing and potential customers to generate sufficient revenues.
The company will continue to seek equity and debt financing, including funding from USMC.
The company will continue to implement measures to remediate material weaknesses in internal control over financial reporting.

Key Dates

Date	Description
2014-11-28	US Mining and Minerals Corporation agreed to sell its property interest and mining claims to USMC.
2014-12-01	USMC assigned its rights and obligations under the Purchase Agreement to the Company.
2015-10-15	John Bremer acquired the Snow White Mine property interest and mining claims.
2016-02-26	The Company issued a promissory note to Bayshore Capital Advisors, LLC.
2017-08-31	The Company issued a note to A. Scott Dockter.
2020-04-01	The Company entered into a purchase and sale agreement with the Bremer Family 1995 Living Trust for the Snow White Mine.
2020-04-22	The Company entered into a Material Supply Agreement with USMC.
2021-04-08	The Company entered into a director agreement with Jeffrey Guzy.
2021-05-27	The Company entered into the Materials Extraction Agreement with US Mine, LLC.
2021-08-13	The Company entered into a director agreement with Dr. Kurtis.
2022-08-30	The Company issued a convertible promissory note to USMC (Tranche #7).
2022-11-29	The Company issued a convertible promissory note to USMC (Tranche #8).
2023-02-04	Bayshore Capital agreed to cancel the $25,000 debt plus accrued interest.
2023-02-28	The Company issued a convertible promissory note to USMC (Tranche #9).
2023-03-01	Mr. Guzys monthly compensation was increased to $1,500.
2023-05-02	The Superior Soils lawsuit was dismissed by the Court.
2023-05-31	The Company issued a convertible promissory note to USMC (Tranche #10).
2023-06-09	The Company entered into an agreement with Karen Scrivener.
2023-06-30	The Company issued a convertible promissory note to USMC (Tranche #11).
2023-07-10	The Company entered into a line of credit agreement with USMC.
2023-09-11	The Company entered into a director agreement with Brady Barto.
2024-01-31	The Company converted multiple tranches of convertible notes into common stock.
2024-02-06	The Company agreed to pay $618,000 to settle the Calvanico lawsuit.
2024-02-08	The Company issued a $618,000 convertible note to USMC.
2024-02-16	The Company entered into a consulting agreement with Magmatics, Inc.
2024-03-07	The Company entered into a new line of credit agreement with USMC.
2024-03-31	The Company converted the July 10, 2023 line of credit into common stock.
2024-08-31	End of the reporting period for the Q3 2024 results.
2024-10-15	Date of the report.

Keywords

PureBase Corporation, financial results, Q3 2024, operating loss, revenue, working capital, going concern, USMC, convertible notes, line of credit, kaolin clay, SCM, supplementary cementitious materials, stock based compensation

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