Annual report pursuant to Section 13 and 15(d)

Subsequent Events

v3.21.2
Subsequent Events
12 Months Ended
Aug. 31, 2021
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS
34. SUBSEQUENT EVENTS

 

Events after the reporting date not otherwise separately disclosed in these consolidated financial statements are:

 

(a) Suspension of trading on the TSXV Exchange

 

The company is under a cease trade order invoked by the TSXV on August 6, 2021.

 

The Company filed the 2021 Q3 Filings on SEDAR and with the United States Securities and Exchange Commission (the “SEC”) on August 19, 2021. In addition, on August 19, 2021, the Company’s amended financial statements and management’s discussion and analysis ‎for the eight quarters from May 31, 2019 to February 28, 2021 were filed on SEDAR and with the SEC, as contained in the Company’s amended annual reports on Form 10-K/A for the financial years ended August 31, 2019 and August 31, 2020, and in the Company’s amended quarterly reports on Form 10-Q/A for the periods ended May 31, 2019, November 30, 2019, February 29, 2020, May 31, 2020, November 30, 2020 and February 28, 2021. The Company’s amended financial statements and management discussion and analysis for the period ended February 28, 2019 were filed on SEDAR on August 23, 2021, and with the SEC on August 25, 2021, as exhibits to the Company’s current report on Form 8-K.

 

As a result of the issuance of the CTO on August 6, 2021, the Exchange suspended trading of the Company’s Common Shares. As part of the Exchange’s review of the Company’s reinstatement application, the Exchange reviewed the Company’s financial statements for the three and nine months ended May 31, 2021 and raised concerns over unapproved filings. As a result of an internal investigation the Company identified several (“Canada”) and EDGAR (“United States”) which had not been submitted for approval by Toronto Stock Exchange.

 

Based on the Company’s initial review of the Transactions, it is estimated that a total of 54,370,814 Common Shares were issued as a result of the Transactions.‎ While some of the issued Common Shares, namely, 4,336,972, are estimated to have been issued at prices above what the Exchange ‎would have otherwise approved, 50,033,842 are estimated to have been issued at share prices below what the Exchange ‎generally approves for convertible securities.‎ While the Company is now making the necessary submissions with the Exchange for the Transactions, they may not all be accepted for approval by the Exchange and as a condition of reinstatement to trading on the Exchange the Company may need to take remedial action to bring the Transactions into compliance.

 

The Transactions, described below, were all disclosed in the Company’s financial statements (all dollar amounts are expressed in U.S. currency unless otherwise indicated):

 

On May 7, 2020, the Company issued to an arm’s length lender a $64,300 convertible note (including a 10% original issue discount) for a purchase price of $58,000, bearing interest at 12% per annum, maturing on May 7, 2021, and convertible into Common Shares. The note was ultimately converted on November 12, 2020 ($25,000 at $0.0308 for 811,688 Common Shares), November 13, 2020 ($20,000 at $0.0296 for 675,676 Common Shares) and November 13, 2020 ($22,780, including $3,480 of accrued and unpaid interest, at $0.0296 for 769,595 Common Shares). There is currently no principal or interest remaining on the note.

 

On June 4, 2020, the Company issued to an arm’s length lender a $69,900 convertible note (including a 10% original ‎issue discount) for a purchase price of $63,000, bearing interest at 12% per annum, maturing ‎on June 4, 2021, and convertible into Common Shares.‎ The note was ultimately converted on December 15, 2020 ($18,000 at $0.0282 for 638,298 Common Shares), December 22, 2020 ($18,000 at $0.0338 for 532,544 Common Shares‎), December 28, 2020 ($20,000 at $0.0338 for 591,716 Common Shares), and January 4, 2021 ($17,680, including $3,780 of accrued and unpaid interest, at ‎$0.0325 for 544,000 Common Shares). There is currently no principal or interest remaining on the note.‎

 

On June 19, 2020, the Company issued to an arm’s length lender a $82,500 convertible note (including a 10% original ‎issue discount) for a purchase price of $75,000, bearing interest at 12% per annum, maturing ‎on June 19, 2021, and convertible into Common Shares.‎ The note was ultimately converted on ‎January 7, 2021 ($20,000 at $0.0326 for 613,497 common shares), January 11, 2021 ($27,000 at $0.0326 for 828,221 Common Shares), January 13, 2021 ($22,000 at $0.0326 for 674,847 Common Shares) and January 20, 2021 ($18,000, including $4,500 of accrued and unpaid interest, at ‎$0.0326 for 552,147 Common Shares). There is currently no principal or interest remaining on the note.‎

 

On July 22, 2020, the Company issued to an arm’s length lender a $150,000 convertible note (including ‎a 15% original issue discount) for a purchase price of $135,000, bearing interest at 8% per ‎annum, maturing on April 22, 2021, and convertible into Common Shares based on a discount to the market price of the Common Shares upon conversion.‎ The note was ultimately converted on January 25, 2021 ($21,805 at $0.03115 for 700,000 Common Shares), January 28, 2021 ($46,725 at $0.03115 for 1,500,000 Common Shares), February 5, 2021 ($30,957.50 at $0.0309575 for 1,000,000 Common Shares), February 22, 2021 ($33,381.25 at $0.03338125 for 1,000,000 Common Shares) and March 2, 2021 ($34,011.25 at $0.03401125 for 1,000,000 Common Shares). There is currently $3,120 in principal remaining on the note, and, as of August 31, 2021, interest and ‎penalties of $6,950.72.‎

 

On August 26, 2020, a convertible debenture (which was originally approved by the Exchange), bearing interest at 10% per annum owing to an arm’s length lender, which had matured on April 29, 2019, was acquired by another an arm’s length lender pursuant to a Debt Assignment and Purchase Agreement. On August 26, 2020, pursuant to a Securities Exchange Agreement, the convertible promissory note was exchanged for a convertible ‎redeemable note with an aggregate principal amount of $192,862, bearing interest at 10% ‎per annum, maturing on August 26, 2021, and convertible into Common Shares.‎ On October 1, 2020, the $192,862 convertible ‎redeemable note was converted into ‎‎10,285,991 Common Shares at $0.01875 per share.‎ There is currently no principal or interest remaining on the note.‎

  

On November 6, 2020, the Company issued to an arm’s length lender a $140,800 convertible note (including a 10% ‎original issue discount) for a purchase price of $128,000, bearing interest at 12% per annum, ‎maturing on November 6, 2021, and convertible into Common Shares. The note was ultimately converted on May 10, 2021 ($50,000 at $0.036 for 1,388,889 Common Shares), May 14, 2021 ($50,000 at $0.0326 for 1,533,742 Common Shares), May 19, 2021 ($48,480, including $7,680 of accrued and unpaid interest, at ‎$0.0312 for 1,553,846‎ Common Shares). There is currently no principal or interest remaining on the note.‎

 

Between August 2019 and March 2020, a director of the Company (Robert Dennewald), loaned $125,000 to the Company to assist the Company in meeting its financial obligations. Subsequently, on February 12, 2021, in exchange for the three non-convertible promissory notes issued to Mr. Dennewald, the Company issued a convertible promissory note with an aggregate principal amount of $125,000, bearing interest at 8% per annum, maturing on February 12, 2022, and convertible into Common Shares. On June 10, 2021, pursuant to an Assignment and Purchase of Debt Agreement, the $125,000 convertible promissory note was purchased and assigned by Mr. Dennewald to an arm’s length lender. On June 15, 2021, the arm’s length lender converted the $125,000 principal amount of the convertible promissory note into 3,048,780 Common Shares at $0.041 per share.

 

On January 12, 2021, the Company issued an arm’s length lender a $86,350 ‎‎convertible note (including a 10% original issue discount) for a purchase price of $78,500, ‎‎bearing interest at 12% per annum, maturing on January 12, 2022, and convertible into Common ‎‎Shares.‎ The note was ultimately converted on July 13, 2021 ($50,000 at $0.0871 for 574,053 Common Shares) and July 14, 2021 ($41,060, including $4,710 of accrued and unpaid interest, at ‎‎$0.0863 ‎for 475,782 Common Shares. There is currently no principal or interest remaining on the note.‎

 

On February 25, 2021, the Company issued an arm’s length lender a $86,350 convertible promissory note ‎‎(including a 10% original issue discount) for a purchase price of $78,500, bearing interest at ‎‎12% per annum, maturing on February 24, 2022, and convertible into Common Shares.‎ The Company has since repaid the convertible promissory note in full (including principal and interest) in ‎cash.‎

 

On March 22, 2021, the Company and an arm’s length lender entered into an amending agreement extending the maturity date of a convertible debenture originally issued on September 17, 2018 from March 31, 2021 to October 31, ‎‎2021. The original issuance of the convertible debenture, including a prior amendment to the debenture, ‎was approved by the Exchange. The ‎current unpaid purchase price of the debenture ($2,900,000) is convertible at $0.055 per ‎share.‎

 

On April 21, 2021, the Company issued an arm’s length lender a $92,125 convertible promissory note (including a ‎‎10% original issue discount) for a purchase price of $83,750, bearing interest at 12% per ‎annum, maturing on April 21, 2022, and convertible into Common Shares based on a discount to the market price of the Common Shares upon conversion.‎ No Common Shares have been issued in connection with this convertible promissory note, which remains outstanding.‎

 

On May 20, 2021, the Company issued an arm’s length lender a $141,625 convertible promissory note (including a ‎‎10% original issue discount) for a purchase price of $128,750, bearing interest at 12% per ‎annum, maturing on May 20, 2022, and convertible into Common Shares based on a discount to the market price of the Common Shares upon conversion.‎ No Common Shares have been issued in connection with this convertible promissory note, which remains outstanding.‎

 

On October 30, 2018, an arm’s length lender loaned ‎$350,000 to the Company. Subsequently, on June 16, 2021, pursuant to an Exchange ‎Agreement, the non-convertible promissory note was exchanged for a convertible redeemable note with an ‎aggregate principal amount of $191,779 bearing interest at 10% per annum, maturing on June ‎‎16, 2022, and convertible into Common Shares.‎ On June 16, 2021, pursuant to an Assignment and Purchase of Debt Agreement, the $191,779 convertible redeemable note was ‎purchased and assigned to another arm’s length lender and on the same day it was converted into 4,677,532 Common Shares at $0.04100004 per ‎share.‎

 

On June 24, 2021, a non-convertible secured debenture, bearing interest at 12% per annum owing to ‎ an arm’s length lender with an aggregate amount outstanding of CAD$962,085 (including interest and ‎penalty), which had matured, was acquired by another arm’s length lender pursuant to an Assignment and ‎Purchase of Corporate Debt Agreement. On June 30, 2021, pursuant to a Securities ‎Exchange Agreement dated June 28, 2021, the debenture ‎was exchanged for a convertible redeemable note with an aggregate principal amount of ‎$771,610, bearing interest at 8% per annum, maturing on June 30, 2022, and convertible into ‎Common Shares at $0.041 per share.‎ On July 1, 2021, the convertible redeemable note was converted into 18,819,756 ‎Common Shares at $0.041 per share.‎

 

On June 24, 2021, a non-convertible secured debenture, bearing interest at 12% per annum and owing to‎ an arm’s length lender, with an aggregate amount outstanding of CAD$38,217 (including interest and ‎penalty), which had matured, was acquired by another arm’s length lender pursuant to an Assignment and ‎Purchase of Corporate Debt Agreement. On June 30, 2021, pursuant to a Securities ‎Exchange Agreement dated June 28, 2021, the debenture ‎was exchanged for a convertible redeemable note with an aggregate principal amount of ‎$30,652, bearing interest at 8% per annum, maturing on June 30, 2022 and convertible into Common Shares at $0.041 per share.‎ On July 1, 2021, the convertible redeemable note was converted into ‎747,616 ‎Common Shares at $0.041 per share.‎

 

On July 2, 2021, the Company issued to an arm’s length lender a $114,125 convertible promissory note (including a ‎‎10% original issue discount) for a purchase price of $103,750, bearing interest at 12% per ‎annum, maturing on July 2, 2022 and principal and interest convertible into Common Shares based on a discount to the market price of the Common Shares upon conversion.‎ No Common Shares have been issued in connection with this convertible promissory note.‎

 

The net proceeds of the Transactions that resulted in new funds to the Company were used for expansion of the Company’s extraction plant and working capital.‎

 

The Company continues to work with the Exchange on a reinstatement of trading and will update the market as things progress. However, the Exchange has indicated that these matters and their review of the Transactions may take some time to resolve and that a reinstatement to trading is not expected in the near term.

 

(b) Exchange of mineral leases

 

In October 2021, TMC Capital and POR, Petroteq’s operating subsidiaries, and Valkor entered into an “Agreement Governing Reciprocal Assignment of Mineral Leases” dated October 15, 2021 (the “Exchange Agreement”), under which (a) TMC/POR agreed to assign to Valkor all of their respective rights and interests in the TMC Mineral Lease, the Short-Term Mining Lease, and the Temple Mountain SITLA Leases, and (b) Valkor agreed to assign to TMC Capital all of its rights and interests in the following Utah state mineral leases located in the Asphalt Ridge Northwest area of Uintah County, Utah (the “Asphalt Ridge NW Leases”):

 

(a) Utah State Mineral Lease for Bituminous-Asphaltic Sands dated as of September 1, 2018 (Mineral Lease No. 53831), executed between the State of Utah, acting by and through the School and Institutional Trust Lands Administration (“SITLA”), as lessor, and Indago Oil and Gas, Inc., as lessee, covering approximately 640 acres;

 

(b) Utah State Mineral Lease for Bituminous-Asphaltic Sands dated as of September 1, 2018 (Mineral Lease No. 53832), executed between the State of Utah, acting by and through SITLA, as lessor, and Indago Oil and Gas, Inc., as lessee, covering approximately 898.22 acres; and

 

(c) Utah State Mineral Lease for Bituminous-Asphaltic Sands dated as of June 1, 2018 (Mineral Lease No. 53805), executed between the State of Utah, acting by and through SITLA, as lessor, and Indago Oil and Gas, Inc., as lessee, covering approximately 1,920 acres.

 

The Asphalt Ridge NW Leases encompass approximately 3,458.22 acres, lands that are located in an area referred to as “Asphalt Ridge Northwest” and in close proximity to mineral leases held by Greenfield. Valkor acquired the Asphalt Ridge NW Leases under an Assignment of Oil and Gas Leases dated June 29, 2021 executed between Indago Oil and Gas Inc., as assignor, and Valkor Energy Holdings, LLC, as assignee, which was approved by SITLA on or about September 10, 2021.

 

Following the execution of the Exchange Agreement in October 2021, TMC Capital and Valkor also entered into the following agreements:

 

(1) Under an Agreement Governing Assignment of Participation Rights in Mineral Leases, Valkor granted to TMC Capital the right to participate at up to a 50% interest in any future exploration or production operations conducted by Valkor under the Short-Term Mining Lease.

 

(2) Under an Agreement Governing Assignment of Operating Rights (SITLA Leases), TMC Capital assigned to Valkor all of the operating rights under the Asphalt Ridge NW Leases at depths of 500 feet or more below the surface, with TMC Capital reserving the right to participate at up to a 50% working interest in any exploratory or production operation conducted by Valkor at the deeper intervals. The assignment of the deeper operating rights to Valkor, subject to TMC Capital’s participation rights, is also subject to approval by SITLA.

 

The Exchange Agreement and the exchange and assignment of mineral leases between and among TMC, POSR and Valkor will not affect the ownership of the Asphalt Ridge Plant, which will continue to be owned by Petroteq through POSR.

 

The recent transactions under the Exchange Agreement, including Valkor’s assignment of lease record title and operating rights to TMC Capital in the Asphalt Ridge NW Leases, will expand Petroteq’s oil sands resources in Utah and provide Petroteq with the following additional advantages and benefits:

 

Based on data obtained to date, we estimate that the oil content or saturation rate for the oil sands deposits existing within the lands covered by the Asphalt Ridge NW Leases at approximately 12% by weight. In contract, the oil saturation rate in the oil sands resources under the TMC Mineral Lease and the Short-Term Mining Lease in the Temple Mountain area of Asphalt Ridge has an average oil content or saturation rate of approximately 6% by weight. The difference in oil content or saturation in the oil sands deposits contained within the Asphalt Ridge NW Leases is substantial and should significantly improve the economics of our mining and processing operations as we go forward;

 

The Asphalt Ridge NW Leases contain an oil sands deposit that is contiguous within a single contained area, which will allow for greater efficiencies in our mining and transport operations. In contrast, the oil deposits contained within the original TMC Mineral Lease are contained in separate blocks running along a trend of approximately eight miles and the Temple Mountain SITLA Leases are completely undeveloped with limited exploration;

 

The Asphalt Ridge NW Leases contain substantial oil sands resources in outcroppings located near the surface (with less overburden), creating new and better surface mining prospects for Petroteq and its operating subsidiaries.

 

(c) Debt assignment and conversion agreements

 

On October 15, 2021, the Company entered into a debt conversion agreement with Morison Management whereby the aggregate principal amount of convertible debt of $239,251 related to an October 2018 convertible debenture of $184,251 and a January 20, 2020 convertible debenture of $55,000 will be convertible into 2,010,521 common shares at a conversion price of $0.119 per share, subject to approval of the Board of Directors and the TSXV.

 

On October 15, 2021, the Company entered into a debt conversion agreement with Strategic IR whereby the aggregate amount due to Strategic of $299,719 in terms of unpaid professional services rendered to the Company will be settled by the issue of 2,518,645 common shares at an issue price of $0.119 per share, subject to approval of the Board of Directors and the TSXV.

 

On November 17, 2021, Morison Management entered into three debt assignment agreements with Power Up Lending Group, whereby the following convertible debentures were assigned to Morison Management:

 

    (i)

An April 21, 2021 convertible promissory note in the aggregate principal sum of $92,125, bearing interest at 12% per annum and maturing on April 21, 2022, for gross proceeds of $126,850, including accrued interest thereon and early prepayment penalties.

 

On November 17, 2021, in terms of an Amending Agreement entered into with the Company by Morison Management, the Company amended the note to comply with TSXV requirements, whereby only the aggregate principal sum of $83,750 will be convertible under the note at a conversion price of $0.048 per common share and the maximum amount due under the note in terms of interest rate, fees or other payments is restricted to a rate of 24% per annum.

       
    (ii)

A May 20, 2021 convertible promissory note in the aggregate principal sum of $141,625, bearing interest at 12% per annum and maturing on May 20,  2022, for gross proceeds of $194,705, including accrued interest thereon and early prepayment penalties.

 

On November 17, 2021, in terms of an Amending Agreement entered into with the Company by Morison Management, the Company amended the note to comply with TSXV requirements, whereby only the aggregate principal sum of $128,750 will be convertible under the note at a conversion price of $0.042 per common share and the maximum amount due under the note in terms of interest rate, fees or other payments is restricted to a rate of 24% per annum.

       
    (iii)

A July 2, 2021convertible promissory note in the aggregate principal sum of $114,125, bearing interest at 12% per annum and maturing on July 2, 2022, for gross proceeds of $134,955, including accrued interest thereon and early prepayment penalties.

 

On November 17, 2021, in terms of an Amending Agreement entered into with the Company by Morison Management, the Company amended the note to comply with TSXV requirements, whereby only the aggregate principal sum of $103,750 will be convertible under the note at a conversion price of $0.146 per common share and the maximum amount due under the note in terms of interest rate, fees or other payments is restricted to a rate of 24% per annum.

 

  (d) Unsolicited takeover bid by Viston United swiss AG

 

On October 27, 2021, 2869889 Ontario Inc., an indirect, wholly-owned subsidiary of Viston United Swiss AG commenced a conditional, unsolicited takeover bid (the “Offer”) to acquire all of the issued and outstanding Common Shares of the Company. Viston filed a Tender Offer Statement with the SEC relating to the Offer on Schedule TO under section 14(d)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on October 25, 2021, and an amendment to the Tender Offer Statement on October 27, 2021. As set forth in the Solicitation/Recommendation Statement on Schedule 14D-9 under section 14(d)(4) of the Exchange Act filed with the SEC on November 9, 2021, shareholders were advised that the Board of Directors was not yet in a position to make a recommendation to shareholders to accept or reject the Offer, and that the Company has retained Haywood Securities Inc. as financial advisor to the Company and the Board of Directors.

 

  (e) Debt conversions

 

On September 21, 2021, in terms of a conversion notice received, Bellridge Capital LP, converted the aggregate principal sum of $1,400,000 into 29,166,667 common shares at a conversion price of $0.048 per share.

 

On November 10, 2021, in terms of a conversion notice received, Bellridge Capital LP, converted the aggregate principal sum of $2,900,000 into 52,727,273 common shares at a conversion price of $0.055 per share.

 

  (f) Financing Activity

 

On November 15, 2021, The remaining PPP loan in the Company’s wholly owned subsidiary, Petroteq CA amounting to $133,890 and all accrued interest thereon was forgiven.

 

  (g) Technology license agreement

 

In October 2021, Petroteq and Big Sky Resources LLC (“Big Sky”), a company based in Rye, New York, entered into a technology license agreement under which the Company granted to Big Sky a non-exclusive, non-transferable license and right to use Petroteq's proprietary ‎technology to design, construct, operate and finance oil sands extraction plants ‎at up to two locations in the continental United States. Under the agreement, ‎Big Sky has agreed to pay the Company a one-time, non-refundable license fee of ‎$2 million, which will become payable upon commencing construction of its first ‎plant. The agreement further provides that Big Sky will pay the Company a 5% royalty on the net revenue received by Big Sky from the ‎production, sale or other disposition of licensed product from the plants for as long as the Company continues to hold enforceable and protected intellectual ‎property rights in the licensed technology in the United States.‎

 

Pursuant to the licensing agreement, Big Sky is obligated to engage Valkor LLC (or an affiliate named by Valkor) as ‎the sole and exclusive provider of engineering, planning, and construction ‎services for all oil sands plants built by Big Sky or under its direction. Big Sky has indicated it will work closely with Valkor to identify ‎plant locations in the State of Utah. ‎