8-K: Purebase Secures $100K Funding via Convertible Note

Purebase Corporation has secured $100,000 in new funding through a convertible promissory note with Vanquish Funding Group Inc., carrying a 12% interest rate and potential for significant dilution upon default.

Summary

• Purebase Corporation entered into a securities purchase agreement with Vanquish Funding Group Inc. on September 24, 2025.
• The company issued a promissory note with a principal amount of $123,050, which includes a $16,050 original issue discount.
• Purebase received $100,000 in funds, from which $2,500 was allocated for legal fees and $4,500 for a due diligence fee, resulting in net proceeds of $93,000.
• The note bears a 12% interest rate, which increases to 22% per annum if payments are not made timely.
• The note matures on July 30, 2026, with scheduled payments totaling $137,816.00.
• Upon an event of default, the note is convertible into common stock at a 35% discount to the share price, subject to a 4.99% beneficial ownership limitation.
• The company is required to maintain a reserve of common stock equal to four times the number of shares issuable upon full conversion of the note.

Sentiment

Score: 3

Explanation: The company secured much-needed working capital, which is a positive. However, the terms of the financing are highly unfavorable, including a high effective interest rate, significant original issue discount, and substantial potential for shareholder dilution upon default. This suggests the company is in a precarious financial position and had limited financing options.

Positives

• Secured $100,000 in funding, providing capital for general working capital purposes.
• The company retains the right to prepay the note in full at any time without penalty.

Negatives

• The effective cost of capital is high, with $100,000 received against a total repayment of $137,816, including a $16,050 original issue discount and $7,000 in fees.
• The note carries a 12% interest rate, which escalates to 22% upon late payment, indicating a high-risk lending scenario.
• Upon an event of default, the note converts into common stock at a significant 35% discount to the market price, potentially leading to substantial shareholder dilution.
• The company is subject to a $2,000 per day "Fail to Deliver Fee" if it does not deliver conversion shares within three business days of a conversion notice, which can be added to the principal.
• The beneficial ownership limitation of 4.99% on conversion shares may restrict the lender's ability to fully convert the note if the stock price drops significantly, potentially leaving the company with outstanding debt.

Risks

• Default Risk: Failure to make timely payments or breach of any material covenant could trigger an Event of Default, leading to immediate acceleration of the debt and potential conversion at a steep discount.
• Dilution Risk: Upon an Event of Default, the note is convertible into common stock at a 35% discount, which could significantly dilute existing shareholders.
• Liquidity Risk: The company's ability to make the scheduled payments totaling $137,816 by July 30, 2026, is crucial; failure could lead to default.
• Operational Risk: A material adverse effect on the company's business, operations, assets, financial condition, or prospects could trigger an Event of Default.
• Reporting Compliance Risk: Failure to comply with 1934 Act reporting requirements or delisting of common stock would constitute an Event of Default.
• Financial Statement Restatement Risk: A restatement of financial statements filed with the SEC that materially adversely affects the Holder's rights could trigger an Event of Default.
• Cross-Default Risk: A breach or default under any other agreement with the Holder or its affiliates could trigger a default under this note.
• Transfer Agent Risk: Failure to provide fully executed Irrevocable Transfer Agent Instructions for a successor agent or delays in share delivery could lead to penalties and default.

Future Outlook

The company intends to use the proceeds from the promissory note for general working capital purposes, indicating a focus on maintaining day-to-day operations and liquidity. The structured repayment schedule and the maturity date of July 30, 2026, outline the company's short-to-medium term financial obligations related to this debt.

Management Comments

• Purebase Corporation, a Nevada corporation (the Company), entered into a securities purchase agreement with Vanquish Funding Group Inc., a Virgina corporation (Vanquish).
• The Company shall use the proceeds for general working capital purposes.
• The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities.

Industry Context

This financing arrangement is typical for smaller public companies or those facing liquidity challenges, where traditional bank financing may be unavailable or too restrictive. Convertible notes with significant discounts and high interest rates are often utilized by companies seeking quick capital, but they come with substantial risks of dilution and high cost of capital, which is common in the micro-cap or distressed company segments of the market.

Comparison to Industry Standards

• The 12% stated interest rate (and 22% default rate) is significantly higher than typical corporate debt for established companies, reflecting the higher risk profile often associated with smaller or emerging growth companies.
• The 35% conversion discount is aggressive and indicative of a lender seeking substantial upside potential, often seen in venture debt or distressed financing rather than standard corporate lending.
• The inclusion of a substantial Original Issue Discount ($16,050 on a $123,050 principal) and additional fees ($7,000) further inflates the effective cost of capital, making this a more expensive financing option compared to industry benchmarks for healthier companies.
• The 4.99% beneficial ownership limitation is a common feature in convertible notes to avoid triggering Schedule 13D filing requirements for the investor, which is standard practice for such transactions.

Stakeholder Impact

• Shareholders: Face significant potential dilution if the convertible note is triggered by an event of default and converted at a 35% discount. The high cost of capital also impacts shareholder value.
• Creditors (Vanquish Funding Group Inc.): Benefits from a high interest rate, a substantial discount upon conversion in default, and strong protective covenants, including cross-default provisions.
• Employees, Customers, Suppliers: The capital infusion provides short-term stability for operations, which could positively impact employees, customers, and suppliers by ensuring continued business activity. However, the underlying financial stress indicated by the terms of the note could signal longer-term instability.

Next Steps

• Purebase Corporation must make scheduled payments on the promissory note, starting March 30, 2026, and concluding on the maturity date of July 30, 2026.
• The company needs to ensure compliance with all covenants in the securities purchase agreement and promissory note, including maintaining its corporate existence and 1934 Act reporting requirements.
• Purebase must reserve a sufficient number of common shares (four times the number actually issuable upon full conversion) to cover potential conversions of the note.

Key Dates

Recommendation

The terms of this financing indicate significant financial distress for Purebase Corporation. The high effective cost of capital, substantial original issue discount, and the aggressive 35% conversion discount upon default suggest the company had limited options and accepted highly unfavorable terms. The potential for severe dilution for existing shareholders upon an event of default, coupled with the high interest rate and various default triggers, presents a substantial downside risk. While the capital provides short-term liquidity, it comes at a very high price and signals underlying operational or financial weaknesses that make the stock a high-risk investment with a strong likelihood of value erosion for current shareholders.

Keywords

Purebase Corporation, Vanquish Funding Group, Promissory Note, Convertible Debt, SEC Filing, 8-K, Capital Raise, Dilution, Default Risk, Working Capital, Unregistered Securities