UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29,Quarterly Period Ended November 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTIONTransition Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number Number: 000-55991
PETROTEQ ENERGY INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)
Ontario | None | |
(State or | (I.R.S. Employer Identification No.) | |
15315 W. Magnolia Blvd, Suite 120
| 91403 | |
(Address of | (Zip |
(866) 571-9613
Registrant's Telephone Number, Including Area Code(Registrant’s telephone number, including area code)
_______________________________________________________________________Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:act: None
Title of each | Trading Symbol(s) : | Name of each exchange on which | ||
N/A | N/A | N/A |
Securities registered pursuant to section 12(g) of the Act:
Common Shares, without par value |
|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
N/A
Indicate by check mark whether the registrant (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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date:
Number of shares of common stock outstanding as of May 29, 2020January 15, 2021 was 203,036,092.395,437,963.
Documents incorporated by reference: None.
PETROTEQ ENERGY INC.
Note Regarding Forward-Looking Statements
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements"“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward-looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as "may," "will," "should," "expects," "plans," "anticipates," "intends," "targets," "projects," "contemplates," "believes," "seeks," "goals," "estimates," "predicts," "potential"“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and "continue"“continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, "Petroteq“Petroteq Energy Inc" ("PQE"Inc” (“PQE”),"” Petroteq, the "Company," "we," "us"“Company,” “we,” “us” and "our"“our” refer to Petroteq Energy Inc. and if the context requires, its consolidated subsidiaries.
EXPLANATORY NOTE
On April 14, 2020 (the "Original Due Date"), Petroteq Energy Inc. (the "Company") filed a Current Report on Form 8-K, and is filing this Quarterly Report on Form 10-Q (the "Quarterly Report"), in reliance on the Order of the Securities and Exchange Commission (the "SEC"), dated March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934 modifying exemptions from the reporting and proxy delivery requirements for public companies (Release No. 34-88465)
The COVID-19 pandemic has required the Company's management to focus their attention primarily on responding to the challenges presented by the pandemic, including ensuring continuous operations, and adjusting the Company's operations to address changes in the oil and gas industry. This has, in turn, impacted the Company's ability to complete and file this Quarterly Report by the Original Due Date.
PETROTEQ ENERGY INC.
Index
FORM 10-Q
TABLE OF CONTENTS
PETROTEQ ENERGY INC.
TABLE OF CONTENTS
February 29,
November 30, 2020
F-1
PETROTEQ ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As at November 30, 2020 and August 31, 2020
Expressed in US dollars
Notes | February 29, 2020 | August 31, 2019 | |||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets | |||||||
Cash | $ | 21,403 | $ | 50,719 | |||
Trade and other receivables | 4 | 16,830 | 144,013 | ||||
Current portion of advanced royalty payments | 7 | 432,500 | 446,362 | ||||
Ore inventory | 6 | 141,792 | 176,792 | ||||
Other inventory | 39,085 | 39,038 | |||||
Current portion of notes receivable | 5 | 87,233 | 85,359 | ||||
Prepaid expenses and other current assets | 1 | 2,102,120 | 1,499,120 | ||||
Total Current Assets | 2,840,963 | 2,441,403 | |||||
Non-Current assets | |||||||
Advanced royalty payments | 7 | 331,667 | 421,667 | ||||
Notes receivable | 5 | 637,437 | 760,384 | ||||
Mineral leases | 8 | 34,911,143 | 34,911,143 | ||||
Investments | 21 | 75,000 | - | ||||
Property, plant and equipment | 9 | 35,644,292 | 33,613,650 | ||||
Intangible assets | 10 | 707,671 | 707,671 | ||||
Total Non-Current Assets | 72,307,210 | 70,414,515 | |||||
Total Assets | $ | 75,148,173 | $ | 72,855,918 | |||
LIABILITIES | |||||||
Current liabilities | |||||||
Accounts payable | 11 | $ | 2,484,327 | $ | 2,081,756 | ||
Accrued expenses | 11 | 2,508,589 | 2,048,399 | ||||
Ore Sale advances | 283,976 | 283,976 | |||||
Promissory notes | 166,868 | - | |||||
Current portion of long-term debt | 12 | 1,019,915 | 1,057,163 | ||||
Current portion of convertible debentures | 13 | 7,140,924 | 6,188,872 | ||||
Derivative liability | 14 | 1,018,738 | - | ||||
Related party payables | 20(b) | 299,622 | 50,000 | ||||
Total Current Liabilities | 14,922,959 | 11,710,166 | |||||
Non-Current liabilities | |||||||
Long-term debt | 12 | 129,654 | 215,695 | ||||
Convertible debentures | 13 | 613,050 | 140,597 | ||||
Reclamation and restoration provision | 15 | 2,970,497 | 2,970,497 | ||||
Total Non-Current Liabilities | 3,713,201 | 3,326,789 | |||||
Total Liabilities | 18,636,160 | 15,036,955 | |||||
Commitments and contingencies | 24 | ||||||
SHAREHOLDERS' EQUITY | |||||||
Share capital | 16,17,18 | 141,036,814 | 135,472,795 | ||||
Subscription receipts | 155,390 | 631,450 | |||||
Deficit | (84,680,191 | ) | (78,285,282 | ) | |||
Total Shareholders' Equity | 56,512,013 | 57,818,963 | |||||
Total Liabilities and Shareholders' Equity | $ | 75,148,173 | $ | 72,855,918 |
Notes | November 30, 2020 | August 31, 2020 | ||||||||
(Unaudited) | ||||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash | $ | 98,510 | $ | 62,404 | ||||||
Trade and other receivables | 317,303 | 12,830 | ||||||||
Ore inventory | 14,749 | 14,749 | ||||||||
Other inventory | 12,250 | 12,250 | ||||||||
Note receivable | 4 | 90,107 | 89,159 | |||||||
Prepaid expenses and other current assets | 1 | 2,041,489 | 2,043,510 | |||||||
Total Current Assets | 2,574,408 | 2,234,902 | ||||||||
Non-Current assets | ||||||||||
Mineral leases | 5 | 34,911,143 | 34,911,143 | |||||||
Property, plant and equipment | 6 | 39,744,437 | 35,582,512 | |||||||
Right of use asset | 7 | 198,977 | 209,101 | |||||||
Intangible assets | 8 | 707,671 | 707,671 | |||||||
Total Non-Current Assets | 75,562,228 | 71,410,427 | ||||||||
Total Assets | $ | 78,136,636 | $ | 73,645,329 | ||||||
LIABILITIES | ||||||||||
Current liabilities | ||||||||||
Accounts payable | $ | 2,115,041 | $ | 2,406,665 | ||||||
Accrued expenses | 1,283,728 | 1,769,749 | ||||||||
Ore Sale advances | 283,976 | 283,976 | ||||||||
Promissory notes payable | - | 8,000 | ||||||||
Debt | 9 | 576,329 | 683,547 | |||||||
Current portion of convertible debentures | 10 | 7,847,760 | 8,227,257 | |||||||
Current portion of Federal relief loans | 11 | 74,383 | 74,383 | |||||||
Current portion of finance lease liabilities | 7 | 178,200 | 172,374 | |||||||
Current portion of operating lease liabilities | 7 | 43,575 | 42,053 | |||||||
Related party payables | 18(c) | 652,336 | 680,647 | |||||||
Derivative liability | 12 | 804,922 | 841,385 | |||||||
Total Current Liabilities | 13,860,250 | 15,190,036 | ||||||||
Non-Current liabilities | ||||||||||
Convertible debentures | 10 | 747,203 | 607,067 | |||||||
Federal relief loans | 11 | 509,577 | 505,969 | |||||||
Finance lease liabilities | 7 | 28,210 | 75,058 | |||||||
Operating lease liabilities | 7 | 155,402 | 167,048 | |||||||
Reclamation and restoration provision | 13 | 2,970,497 | 2,970,497 | |||||||
Total Non-Current Liabilities | 4,410,889 | 4,325,639 | ||||||||
Total Liabilities | 18,271,139 | 19,515,675 | ||||||||
Commitments and contingencies | 23 | |||||||||
SHAREHOLDERS’ EQUITY | ||||||||||
Share capital | 14,15,16 | 150,940,360 | 144,794,003 | |||||||
Deficit | (91,074,863 | ) | (90,664,349 | ) | ||||||
Total Shareholders’ Equity | 59,865,497 | 54,129,654 | ||||||||
Total Liabilities and Shareholders’ Equity | $ | 78,136,636 | $ | 73,645,329 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-2
PETROTEQ ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
Notes | Three months ended February 29, 2020 | Three months ended February 28, 2019 | Six months ended February 29, 2020 | Six months ended February 28, 2019 | ||||||||||
Revenues from hydrocarbon sales | $ | 68,509 | $ | 21,248 | $ | 169,041 | $ | 21,248 | ||||||
Production and maintenance costs | 728,309 | - | 1,405,772 | - | ||||||||||
Advance royalty payments | 7 | 111,591 | 137,995 | 203,862 | 171,745 | |||||||||
Gross Loss | (771,391 | ) | (116,747 | ) | (1,440,593 | ) | (150,497 | ) | ||||||
Operating Expenses | ||||||||||||||
Depreciation, depletion and amortization | 9 | 11,522 | 16,343 | 85,842 | 32,516 | |||||||||
Selling, general and administrative expenses | 1,545,023 | 2,305,020 | 3,927,105 | 6,111,009 | ||||||||||
Financing costs, net | 479,548 | 1,162,769 | 988,842 | 1,640,343 | ||||||||||
Derivative liability movements | 695,432 | - | 659,885 | - | ||||||||||
Total expenses, net | 2,731,525 | 3,484,132 | 5,661,674 | 7,783,868 | ||||||||||
Net loss from operations | 3,502,916 | 3,600,879 | 7,102,267 | 7,934,365 | ||||||||||
(Gain) loss on settlement of liabilities | (265,360 | ) | (14,482 | ) | (427,907 | ) | 477,987 | |||||||
Loss (gain) on settlement of convertible debt | - | 20,137 | (231,862 | ) | 99,547 | |||||||||
Interest income | (25,318 | ) | (32,664 | ) | (47,589 | ) | (58,923 | ) | ||||||
Net loss before income tax and equity loss | 3,212,238 | 3,573,870 | 6,394,909 | 8,452,976 | ||||||||||
Income tax expense | - | - | - | - | ||||||||||
Equity loss from investment of Accord GR Energy, net of tax | - | 50,000 | - | 100,000 | ||||||||||
Net loss and comprehensive loss | $ | 3,212,238 | $ | 3,623,870 | $ | 6,394,909 | $ | 8,552,976 | ||||||
Weighted Average Number of Shares Outstanding – Basic and Diluted | 19 | 202,239,760 | 93,363,698 | 197,106,454 | 92,527,789 | |||||||||
Basic and Diluted Loss per Share | $ | 0.02 | $ | 0.04 | $ | 0.03 | $ | 0.09 |
Notes | Three months ended November 30, 2019 | Three months ended November 30, 2019 | ||||||||
(Unaudited) | (Unaudited) | |||||||||
Revenue from Licensing fees | 2,000,000 | - | ||||||||
Revenues from hydrocarbon sales | $ | - | $ | 100,532 | ||||||
Production and maintenance costs | (345,286 | ) | (677,463 | ) | ||||||
Advance royalty payments applied or expired | - | (92,271 | ) | |||||||
Gross Profit (Loss) | 1,654,714 | (669,202 | ) | |||||||
Expenses | ||||||||||
Depreciation, depletion and amortization | 6 | 11,523 | 74,320 | |||||||
Selling, general and administrative expenses | 19 | 1,044,857 | 2,382,082 | |||||||
Financing costs | 20 | 621,387 | 509,294 | |||||||
Mark to market of derivative liability | 12 | (156,998 | ) | (35,547 | ) | |||||
Other expense (income), net | 21 | 544,459 | (416,680 | ) | ||||||
Total Expenses, net | 2,065,228 | 2,513,469 | ||||||||
Net loss before income taxes | 410,514 | 3,182,671 | ||||||||
Income tax expense | - | - | ||||||||
Net loss and Comprehensive loss | 410,514 | 3,182,671 | ||||||||
Weighted Average Number of Shares Outstanding | 17 | 302,133,325 | 191,973,146 | |||||||
Basic and Diluted Loss per Share | $ | 0.00 | 0.02 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-3
PETROTEQ ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'SHAREHOLDERS’ EQUITY
For the three and six months ended February 29,November 30, 2020 and February 28, 2019
(Unaudited)
Expressed in US dollars
Number of Shares | Share | Subscription | Shareholders' | |||||||||||||
Notes | Outstanding | Capital | Receipts | Deficit | Equity | |||||||||||
Balance at August 31, 2019 | 176,241,746 | $ | 135,472,795 | $ | 631,450 | $ | (78,285,282 | ) | $ | 57,818,963 | ||||||
Settlement of acquisition obligation | 21 | 250,000 | 75,000 | - | - | 75,000 | ||||||||||
Settlement of debentures | 13(b) | 1,111,111 | 200,000 | - | - | 200,000 | ||||||||||
Settlement of liabilities | 3,243,666 | 705,687 | - | - | 705,687 | |||||||||||
Common shares subscriptions | 16,18 | 17,002,446 | 2,753,874 | (259,130 | ) | - | 2,494,744 | |||||||||
Share-based payments | 16(d) | 90,000 | 28,500 | - | - | 28,500 | ||||||||||
Share-based compensation | 17 | - | 178,157 | - | - | 178,157 | ||||||||||
Fair value of convertible debt warrants issued | 18 | - | 310,422 | - | - | 310,422 | ||||||||||
Net loss | - | - | - | (3,182,671 | ) | (3,182,671 | ) | |||||||||
Balance at November 30, 2019 | 197,938,969 | 139,724,435 | 372,320 | (81,467,953 | ) | 58,628,802 | ||||||||||
Settlement of liabilities | 4,997,123 | 891,489 | - | - | 891,489 | |||||||||||
Reallocation of subscription receipts | - | - | (216,930 | ) | - | (216,930 | ) | |||||||||
Share based payments | 16(d) | 50,000 | 6,943 | - | - | 6,943 | ||||||||||
Share based compensation | 17 | - | 229,059 | - | - | 229,059 | ||||||||||
Fair value of convertible debt warrants issued | 18 | - | 184,888 | - | - | 184,888 | ||||||||||
Net loss | - | - | - | (3,212,238 | ) | (3,212,238 | ) | |||||||||
Balance at February 29, 2020 | 202,986,092 | $ | 141,036,814 | $ | 155,390 | $ | (84,680,191 | ) | $ | 56,512,013 |
Number of Shares | Share | Subscription | Shareholders' | Number of Shares | Share | Shareholders’ | ||||||||||||||||||||||||||
Notes | Outstanding | Capital | Receipts | Deficit | Equity | Outstanding | Capital | Deficit | Equity | |||||||||||||||||||||||
Balance at August 31, 2018 | 85,163,631 | $ | 93,901,521 | $ | 996,401 | $ | (61,968,522 | ) | $ | 32,929,400 | ||||||||||||||||||||||
Settlement of debentures | 316,223 | 334,487 | - | - | 334,487 | |||||||||||||||||||||||||||
Balance at August 31, 2020 | 274,450,337 | 144,794,003 | (90,664,349 | ) | 54,129,654 | |||||||||||||||||||||||||||
Conversion of convertible debt | 38,735,555 | 1,835,726 | - | 1,835,726 | ||||||||||||||||||||||||||||
Settlement of liabilities | 681,151 | 654,167 | - | - | 654,167 | 60,023,777 | 2,849,661 | - | 2,849,661 | |||||||||||||||||||||||
Common shares subscriptions | 2,388,244 | 1,985,605 | 1,525,705 | - | 3,511,310 | 7,416,666 | 410,000 | - | 410,000 | |||||||||||||||||||||||
Share-based payments | 1,300,000 | 1,327,915 | - | - | 1,327,915 | |||||||||||||||||||||||||||
Share-based compensation | - | 229,060 | - | - | 229,060 | |||||||||||||||||||||||||||
Fair value of debt settlement warrants | - | 383,496 | - | - | 383,496 | |||||||||||||||||||||||||||
Fair value of convertible debt warrants issued | - | 514,327 | - | - | 514,327 | |||||||||||||||||||||||||||
Net loss | - | - | - | (4,929,106 | ) | (4,929,106 | ) | |||||||||||||||||||||||||
Balance at November 30, 2018 | 89,849,249 | 99,330,578 | 2,522,106 | (66,897,628 | ) | 34,955,056 | ||||||||||||||||||||||||||
Settlement of debentures | 145,788 | 90,117 | - | - | 90,117 | |||||||||||||||||||||||||||
Settlement of liabilities | 1,688,477 | 789,501 | - | - | 789,501 | |||||||||||||||||||||||||||
Common shares subscriptions | 14,476,335 | 6,050,299 | (1,470,156 | ) | - | 4,580,143 | ||||||||||||||||||||||||||
Share-based payments | 25,000 | 10,263 | - | - | 10,263 | |||||||||||||||||||||||||||
Warrants exercised | 2,268,169 | 68,045 | - | 68,045 | ||||||||||||||||||||||||||||
Share-based compensation | - | 381,766 | - | - | 381,766 | - | 199,632 | - | 199,632 | |||||||||||||||||||||||
Fair value of convertible debt warrants issued | - | 664,246 | - | - | 664,246 | - | 783,293 | - | 783,293 | |||||||||||||||||||||||
Net loss | - | - | - | (3,623,870 | ) | (3,632,870 | ) | - | (410,514 | ) | (410,514 | ) | ||||||||||||||||||||
Balance at February 28, 2019 | 106,184,849 | $ | 107,845,644 | $ | 1,051,950 | $ | (71,050,372 | ) | $ | 37,847,222 | ||||||||||||||||||||||
Balance at November 30, 2020 | 382,894,504 | 150,940,360 | (91,074,863 | ) | 59,865,497 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
Number of Shares | Share | Shareholders’ | ||||||||||||||
Outstanding | Capital | Deficit | Equity | |||||||||||||
Balance at August 31, 2019 | 176,241,746 | 136,104,245 | (78,285,282 | ) | 57,818,963 | |||||||||||
Settlement of acquisition obligation | 250,000 | 75,000 | - | 75,000 | ||||||||||||
Settlement of debentures | 1,111,111 | 200,000 | - | 200,000 | ||||||||||||
Settlement of liabilities | 3,243,666 | 705,687 | - | 705,687 | ||||||||||||
Common shares subscriptions | 17,002,446 | 2,494,744 | - | 2,494,744 | ||||||||||||
Share-based payments | 90,000 | 28,500 | - | 28,500 | ||||||||||||
Share-based compensation | - | 178,157 | - | 178,157 | ||||||||||||
Fair value of convertible debt warrants issued | - | 310,422 | - | 310,422 | ||||||||||||
Net loss | - | - | (3,182,671 | ) | (3,182,671 | ) | ||||||||||
Balance at November 30, 2019 | 197,938,969 | 139,724,435 | (81,467,953 | ) | 58,628,802 |
F-4
PETROTEQ ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in US dollars
Six months ended February 29, 2020 | Six months ended February 28, 2019 | |||||
(Unaudited) | (Unaudited) | |||||
Cash flow used for operating activities: | ||||||
Net loss | $ | (6,394,909 | ) | $ | (8,552,976 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | ||||||
Depreciation, depletion and amortization | 85,842 | 32,516 | ||||
Amortization of debt discount | 672,372 | 1,470,406 | ||||
Loss on conversion of debt | - | 99,548 | ||||
(Gain) loss on settlement of liabilities | (659,769 | ) | 18,136 | |||
Share-based compensation | 35,443 | 61,198 | ||||
Shares issued for services | 407,216 | 610,826 | ||||
Liabilities settled by issuance of share purchase warrants | - | 383,496 | ||||
Mark to market of derivative liabilities | 659,885 | - | ||||
Equity loss from investment in Accord GR Energy | - | 100,000 | ||||
Other | 153,182 | 54,352 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts payable | 2,427,654 | 2,138,284 | ||||
Accounts receivable | 127,183 | 235,000 | ||||
Accrued expenses | 34,953 | (147,758 | ) | |||
Prepaid expenses and deposits | 503,267 | (493,972 | ) | |||
Inventory | 7,000 | 181,254 | ||||
Net cash used in operating activities | (1,940,681 | ) | (3,809,690 | ) | ||
Cash flows used for investing activities: | ||||||
Purchase and construction of property and equipment | (2,116,484 | ) | (7,203,834 | ) | ||
Mineral rights deposits paid | (610,000 | ) | (1,800,000 | ) | ||
Investment in notes receivable | (697,585 | ) | (2,492,000 | ) | ||
Proceeds from notes receivable | 1,039,573 | 333,877 | ||||
Advance royalty payments | (100,000 | ) | (200,000 | ) | ||
Net cash used in investing activities | (2,484,496 | ) | (11,361,957 | ) | ||
Cash flows from financing activities: | ||||||
Advances from related parties | 249,621 | - | ||||
Repayments to related parties | - | (126,953 | ) | |||
Proceeds on private equity placements | 2,277,814 | 8,091,453 | ||||
Proceeds from promissory notes | 181,689 | - | ||||
Payments of long-term debt | (103,203 | ) | (452,183 | ) | ||
Proceeds from long-term debt | - | 517,000 | ||||
Proceeds from convertible debt | 1,894,938 | 5,618,750 | ||||
Repayments of convertible debt | (105,000 | ) | (400,000 | ) | ||
Net cash from financing activities | 4,395,859 | 13,248,097 | ||||
Decrease in cash | (29,316 | ) | (1,923,550 | ) | ||
Cash, beginning of the period | 50,719 | 2,640,001 | ||||
Cash, end of the period | $ | 21,403 | $ | 716,451 | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | 43,482 | $ | 53,030 | ||
Shares issued to settle liabilities | $ | 1,597,176 | $ | 1,868,272 | ||
Shares issued on conversion of convertible debt | $ | 200,000 | $ | - | ||
Shares issued to settle acquisition obligation | $ | 75,000 | $ | - | ||
Value of shares issued for convertible debt funding | $ | 495,310 | $ | 1,276,980 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-5
F-4
PETROTEQ ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
Three months ended November 30, 2020 | Three months ended November 30, 2019 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flow used for operating activities: | ||||||||
Net loss | $ | (410,514 | ) | $ | (3,182,671 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation, depletion and amortization | 11,523 | 74,320 | ||||||
Amortization of debt discount | 333,748 | 353,095 | ||||||
Loss on debt extinguishment | 330,256 | |||||||
Loss on conversion of debt | 134,490 | - | ||||||
Loss (Gain) on settlement of liabilities | 80,661 | (394,409 | ) | |||||
Share-based compensation | 199,632 | 178,157 | ||||||
Shares issued for services | - | 28,500 | ||||||
Mark to market of derivative liabilities | (156,998 | ) | (35,547 | ) | ||||
Other | (951 | ) | 70,849 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts payable | (22,623 | ) | 2,120,257 | |||||
Accounts receivable | (304,473 | ) | 1,147 | |||||
Accrued expenses | 102,570 | 259,846 | ||||||
Prepaid expenses and deposits | 2,021 | 4,000 | ||||||
Inventory | - | 30,948 | ||||||
Net cash used in operating activities | 299,342 | (491,508 | ) | |||||
Cash flows used for investing activities: | ||||||||
Purchase and construction of property and equipment | (1,673,448 | ) | (1,893,274 | ) | ||||
Mineral rights deposits paid | - | (560,000 | ) | |||||
Investment in notes receivable | - | (477,585 | ) | |||||
Proceeds from notes receivable | - | 10,000 | ||||||
Advance royalty payments | - | (60,000 | ) | |||||
Net cash used in investing activities | (1,673,448 | ) | (2,980,859 | ) | ||||
Cash flows from financing activities: | ||||||||
Advances from related parties | - | 134,505 | ||||||
Repayments to related parties | (28,311 | ) | - | |||||
Proceeds on private equity placements | 410,000 | 2,494,744 | ||||||
Repayment of long-term debt | (10,000 | ) | (51,019 | ) | ||||
Proceeds from promissory notes | 20,000 | |||||||
Repayment of promissory notes | (28,000 | ) | - | |||||
Repayment of finance lease liability | (41,022 | ) | - | |||||
Proceeds from warrants exercised | 68,045 | - | ||||||
Proceeds from convertible debt | 1,069,500 | 950,225 | ||||||
Repayments of convertible debt | (50,000 | ) | (75,000 | ) | ||||
Net cash from financing activities | 1,410,212 | 3,453,455 | ||||||
Increase (decrease) in cash | 36,106 | (18,912 | ) | |||||
Cash, beginning of the period | 62,404 | 50,719 | ||||||
Cash, end of the period | $ | 98,510 | $ | 31,807 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 140,481 | $ | 14,317 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-5
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 1. | GENERAL INFORMATION |
Petroteq Energy Inc. (the "Company"“Company”) is an Ontario, Canada corporation which conducts oil sands mining and oil extraction operations in the USA. It operates through its indirectly wholly owned subsidiary company, Petroteq Oil Sands Recovery, LLC ("POSR"(“POSR”), which is engaged in mining and oil extraction from tar sands.
The Company'sCompany’s registered office is located at Suite 6000, 1 First Canadian Place, 100 King Street West, Toronto, Ontario, M5X 1E2, Canada and its principal operating office is located at 15315 W. Magnolia Blvd, Suite 120, Sherman Oaks, California 91403, USA.
POSR is engaged in a tar sands mining and oil processing operation, using a closed-loop solvent based extraction system that recovers bitumen from surface mining, and has completed the construction of an oil processing plant in the Asphalt Ridge area of Utah.
In November 2017, the Company formed a wholly owned subsidiary, Petrobloq, LLC, to design and develop a blockchain-powered supply chain management platform for the oil and gas industry.
On June 1, 2018, the Company finalized the acquisition of a 100% interest in two leases for 1,312 acres of land within the Asphalt Ridge, Utah area.
On January 18, 2019, the Company paid $10,800,000 for the acquisition of 50% of the operating rights under U.S. federal oil and gas leases, administered by the U.S. Department of Interior'sInterior’s Bureau of Land Management ("BLM"(“BLM”) covering approximately 5,960 gross acres (2,980 net acres) within the State of Utah. The total consideration of $10,800,000 was settled by the payment of $1,800,000 and by the issuance of 15,000,000 shares at an issue price of $0.60 per share.
On July 22, 2019, the Company acquired the remaining 50% of the operating rights under U.S. federal oil and gas leases, administered by the BLM covering approximately 5,960 gross acres (2,980 net acres) within the State of Utah for a total consideration of $13,000,000 settled by the issuance of 30,000,000 shares at an issue price of $0.40 per share, and cash of $1,000,000, of which has not been paid to date.$100,000 is still owing.
Between March 14, 2019 and February 29,November 30, 2020, the Company made cash deposits of $1,907,000, included in prepaid expenses and other current assets on the consolidated balance sheets for the acquisition of 100% of the operating rights under U.S. federal oil and gas leases, administered by the BLM in Garfield and Wayne Counties covering approximately 8,480 gross acres in P.R. Springs and the Tar Sands Triangle within the State of Utah. The total consideration of $3,000,000 has been partially settled by a cash payment of $1,907,000, with the balance of $1,093,000 still outstanding.
F-6
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended February 29, 2020 and February 28, 2019
Expressed in US dollars
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of preparation |
The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting policies ("US GAAP") and have been prepared on a historical cost basis except for certain financial assets and financial liabilities which are measured at fair value. The Company's reporting currency and the functional currency of all of its operations is the U.S. dollar, as it is the principal currency of the primary economic environment in which the Company operates.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("(“U.S. GAAP"GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the sixthree months ended February 29,November 30, 2020 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year.
The information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the auditedunaudited condensed consolidated financial statements have been prepared on a historical cost basis except for certain financial assets and financial liabilities which are measured at fair value. The Company's reporting currency and the functional currency of Petroteq forall of its operations is the year ended August 31, 2019, includedU.S. dollar, as it is the principal currency of the primary economic environment in which the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the "SEC") on December 16, 2019.
AllCompany operates. Accordingly, all amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($)U.S. dollars unless stated otherwise.
The Company is an "SEC Issuer"“SEC Issuer” as defined under National Instrument 52-107 "“Accounting Principles and Audit Standards"Standards” as adopted by the Canadian Securities Administrators and is relying on the exemptions of Section 3.7 of NI 52-107 and of Section 1.4(8) of the Companion Policy to National Instrument 51-102 "“Continuous Disclosure Obligations"Obligations” ("(“NI 51-102CP"51-102CP”) which permits the Company to prepare its financial statements in accordance with U.S. GAAP for Canadian securities law reporting purposes.
The unaudited condensed consolidated financial statements were authorized for issue by the Board of Directors on June 3, 2020.January 19, 2021.
F-6
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(b) | Consolidation |
The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has at least a majority voting interest. All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. The entities included in these consolidated financial statements are as follows:
Entity | % of | Jurisdiction | ||||
Petroteq Energy Inc. |
| Parent | Canada | |||
Petroteq Energy CA, Inc. |
| 100 | % | USA | ||
Petroteq Oil |
| 100 | % | USA | ||
TMC Capital, LLC |
| 100 | % | USA | ||
Petrobloq, LLC |
| 100 | % | USA |
An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investment in associate is carried in the consolidated statement of financial position at cost as adjusted for changes in the Company's share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Company's interest in that associate are not recognized. Additional losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive obligations or made payment on behalf of the associate.
The Company had accounted for its investment in Accord GR Energy, Inc. ("Accord") on the equity basis since March 1, 2017. The Company had previously owned a controlling interest in Accord and the results were consolidated in the Company's financial statements. However, subsequent equity subscriptions into Accord reduced the Company's ownership to 44.7% as of March 1, 2017 and the results of Accord were deconsolidated from that date. As of August 31, 2019, the Company has impaired 100% of the remaining investment in Accord due to inactivity and a lack of adequate investment in Accord to progress to commercial production and viability.
F-7
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended February 29, 2020 and February 28, 2019
Expressed in US dollars
|
| Estimates |
|
|
|
The preparation of these unaudited condensed consolidated financial statements in accordance with U.S.US GAAP requires the Company to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates its estimates, including those related to recovery of long-lived assets. The Company bases its estimates on historical experience and on other assumptions 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 that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to the Company'sCompany’s reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the unaudited condensed consolidated financial statements. Significant estimates include the following;
the useful lives and depreciation rates for intangible assets and property, plant and equipment;
the carrying and fair value of oil and gas properties and product and equipment inventories;
All provisions;
the fair value of reporting units and the related assessment of goodwill for impairment, if applicable;
the fair value of intangibles other than goodwill;
income taxes and the recoverability of deferred tax assets
legal and environmental risks and exposures; and
general credit risks associated with receivables, if any.
● | the useful lives and depreciation rates for intangible assets and property, plant and equipment; |
| the carrying and fair value of oil and gas properties and product and equipment inventories; |
● | All provisions; |
● | the fair value of reporting units and the related assessment of goodwill for impairment, if applicable; |
● | the fair value of intangibles other than goodwill; |
● | income taxes and the recoverability of deferred tax assets |
● | legal and environmental risks and exposures; and |
● | general credit risks associated with receivables, if any. |
(d) | Foreign currency translation adjustments |
The Company'sCompany’s reporting currency and the functional currency of all its operations is the U.S. dollar. Assets and liabilities of the Canadian parent company are translated to U.S. dollars using the applicable exchange rate as of the end of a reporting period. Income, expenses and cash flows are translated using an average exchange rate during the reporting period. Since the reporting currency as well as the functional currency of all entities is the U.S. Dollar there is no translation difference recorded.
F-7
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(e) | Revenue recognition |
The Company recognizes revenue in terms of ASC 606 -– Revenue from Contracts with Customers and includes(ASC 606).
Revenue transaction are assessed using a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services. The five steps are as follows:
i. | identify the contract with a customer; |
ii. | identify the performance obligations in the contract; |
iii. | determine the transaction price; |
iv. | allocate the transaction price to performance obligations in the contract; and |
v. | recognize revenue as the performance obligation is satisfied. |
F-8
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSRevenue from License Fees
For
Revenue from license fees include the six months ended February 29, 2020 and February 28, 2019sale of rights to utilize the technology developed by the Company. The License fee is recognized immediately as there is no requirement to provide ongoing services or support to the Licensee in terms of the License Agreement.
Expressed in US dollars
|
|
|
|
Revenue from hydrocarbon sales
Revenue from hydrocarbon sales include the sale of hydrocarbon products and are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable. The Company'sCompany’s performance obligations are satisfied at a point in time. This occurs when control is transferred to the purchaser upon delivery of contract specified production volumes at a specified point. The transaction price used to recognize revenue is a function of the contract billing terms. Revenue is invoiced, if required, upon delivery based on volumes at contractually based rates with payment typically received within 30 days after invoice date. Taxes assessed by governmental authorities on hydrocarbon sales, if any, are not included in such revenues, but are presented separately in the consolidated comprehensive statements of loss and comprehensive loss.
Transaction price allocated to remaining performance obligations
The Company does not anticipate entering into long-term supply contracts, rather it expects all contracts to be short-term in nature with a contract term of one year or less. The Company intends applying the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. For contracts with terms greater than one year, the Company will apply the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if there is any variable consideration to be allocated entirely to a wholly unsatisfied performance obligation. The Company anticipates that with respect to the contracts it will enter into, each unit of product will typically represent a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
Contract balances
The Company does not anticipate that it will receive cash relating to future performance obligations. However if such cash is received, the revenue will be deferred and recognized when all revenue recognition criteria are met.
Disaggregation of revenue
The Company has limited revenues to date. Disaggregation of revenue disclosures can be found in Note 23.22.
Customers
The Company anticipates that it will have a limited number of customers which will make up the bulk of its revenues due to the nature of the oil and gas industry.
F-8
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(f) | General and administrative expenses |
General and administrative expenses will be presented net of any working interest owners, if any, of the oil and gas properties owned or leased by the Company.
F-9
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended February 29, 2020 and February 28, 2019
Expressed in US dollars
|
| Share-based payments |
|
|
|
The Company may grant stock options to directors, officers, employees and others providing similar services. The fair value of these stock options is measured at grant date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. Share-based compensation expense is recognized on a straight-line basis over the period during which the options vest, with a corresponding increase in equity.
The Company may also grant equity instruments to consultants and other parties in exchange for goods and services. Such instruments are measured at the fair value of the goods and services received on the date they are received and are recorded as share-based compensation expense with a corresponding increase in equity. If the fair value of the goods and services received are not reliably determinable, their fair value is measured by reference to the fair value of the equity instruments granted.
(h) | Income taxes |
The Company utilizes ASC 740, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, "Income Taxes"“Income Taxes”. Accounting guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements, under which a company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly, the Company would report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company elects to recognize any interest and penalties, if any, related to unrecognized tax benefits in tax expense.
(i) | Net income (loss) per share |
Basic net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed on the basis of the weighted average number of common shares and common share equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution is computed by applying the treasury stock method for stock options and share purchase warrants. Under this method, "in-the-money"“in-the-money” stock options and share purchase warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common shares at the average market price during the period.
F-10
F-9
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(j) | Cash and cash equivalents |
The Company considers all highly liquid investments with original contractual maturities of three months or less to be cash equivalents.
(k) | Accounts receivable |
(k)
Accounts receivable
The Company had minimal sales during the period andof which all proceeds were collected therefore there are no accounts receivable balances are minimal.balances.
(l) | Oil and gas property and equipment |
The Company follows the successful efforts method of accounting for its oil and gas properties. Exploration costs, such as exploratory geological and geophysical costs, and costs associated with delay rentals and exploration overhead are charged against earnings as incurred. Costs of successful exploratory efforts along with acquisition costs and the costs of development of surface mining sites are capitalized.
Site development costs are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, site development costs remain capitalized as proved properties. Costs of unsuccessful site developments are charged to exploration expense. For site development costs that find reserves that cannot be classified as proved when development is completed, costs continue to be capitalized as suspended exploratory site development costs if there have been sufficient reserves found to justify completion as a producing site and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If management determines that future appraisal development activities are unlikely to occur, associated suspended exploratory development costs are expensed. In some instances, this determination may take longer than one year. The Company reviews the status of all suspended exploratory site development costs quarterly.
Capitalized costs of proved oil and gas properties are depleted by an equivalent unit-of-production method. Proved leasehold acquisition costs, less accumulated amortization, are depleted over total proved reserves, which includes proved undeveloped reserves. Capitalized costs of related equipment and facilities, including estimated asset retirement costs, net of estimated salvage values and less accumulated amortization are depreciated over proved developed reserves associated with those capitalized costs. Depletion is calculated by applying the DD&A rate (amortizable base divided by beginning of period proved reserves) to current period production.
Costs associated with unproved properties are excluded from the depletion calculation until it is determined whether or not proved reserves can be assigned to such properties. The Company assesses its unproved properties for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable.
Proved properties will be assessed for impairment annually, or more frequently if events or changes in circumstances dictate that the carrying value of those assets may not be recoverable. Individual assets are grouped for impairment purposes based on a common operating location. If there is an indication the carrying amount of an asset may not be recovered, the asset is assessed for potential impairment by management through an established process. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset, the carrying value is written down to estimated fair value. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or by comparable transactions. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.
F-11
F-10
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(l) | Oil and gas property and equipment (continued) |
Gains or losses are recorded for sales or dispositions of oil and gas properties which constitute an entire common operating field or which result in a significant alteration of the common operating field'sfield’s DD&A rate. These gains and losses are classified as asset dispositions in the accompanying consolidated statements of loss and comprehensive loss. Partial common operating field sales or dispositions deemed not to significantly alter the DD&A rates are generally accounted for as adjustments to capitalized costs with no gain or loss recognized.
The Company capitalizes interest costs incurred and attributable to material unproved oil and gas properties and major development projects of oil and gas properties.
(m) | Other property and equipment |
Depreciation and amortization of other property and equipment, including corporate and leasehold improvements, are provided using the straight-line method based on estimated useful lives ranging from three to ten years. Interest costs incurred and attributable to major corporate construction projects are also capitalized.
(n) | Asset retirement obligations and environmental liabilities |
The Company recognizes liabilities for retirement obligations associated with tangible long-lived assets, such as producing sites when there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the associated property and equipment on the consolidated balance sheet. When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement obligation and the asset retirement cost. The Company'sCompany’s asset retirement obligations also include estimated environmental remediation costs which arise from normal operations and are associated with the retirement of such long-lived assets. The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.
(o) | Commitments and contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Liabilities for environmental remediation or restoration claims resulting from allegations of improper operation of assets are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Expenditures related to such environmental matters are expensed or capitalized in accordance with the Company'sCompany’s accounting policy for property and equipment.
(p) | Fair value measurements |
Certain of the Company'sCompany’s assets and liabilities are measured at fair value at each reporting date. Fair value represents the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants. This price is commonly referred to as the "exit“exit price."” Fair value measurements are classified according to a hierarchy that prioritizes the inputs underlying the valuation techniques. This hierarchy consists of three broad levels:
Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, the Company measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.
● | Level 1 – Inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. When available, the Company measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value. |
Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active.
● | Level 2 – Inputs consist of quoted prices that are generally observable for the asset or liability. Common examples of Level 2 inputs include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in markets not considered to be active. |
Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model.
● | Level 3 – Inputs are not observable from objective sources and have the lowest priority. The most common Level 3 fair value measurement is an internally developed cash flow model. |
F-12
F-11
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
(q) | Comparative amounts |
(q)
Comparative amounts
The comparative amounts presented in these consolidated financial statements have been reclassified where necessary to conform to the presentation used in the current year.
(r) | Recent accounting standards |
Issued accounting standards not yet adopted
The Company will evaluate the applicability of the following issued accounting standards and intends to adopt those which are applicable to its activities.
On February 25,
In August 2020, the FASB issued ASU No. 2020-06, debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). Certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion features are removed from the guidance and for equity instruments the contracts affected are free standing instruments and embedded features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.
This ASU is effective for fiscal years and interim periods beginning after December 15, 2021.
The effects of this ASU on the Company’s condensed consolidated financial statements is currently being assessed and is expected to have an immaterial impact on the financial statements.
In June 2016, the FASB issued ASU 2016-02, LeasesNo. 2016-13, Financial Instruments-Credit Losses (Topic 842)
Effective September 1,326): “Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected credit loss methodology that is referred to as the current expected credit loss (CECL) methodology. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The amendments in this update are required to be applied using the modified retrospective method with an adjustment to accumulated deficit and are effective for the Company will adopt the Financial Accounting Standards Board's standard, Leases (Topic 842), as amended. The standard requires all leases to be recorded on the balance sheet as a right of use asset and a lease liability. The Company intends to use a transition method that applies the new lease standard at September 1, 2019 and recognizes any cumulative effect adjustments to the opening balance ofbeginning with fiscal year 2020, retained earnings.including interim periods. The Company intendsmeasurement of expected credit losses under the CECL methodology is applicable to apply a policy electionfinancial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. An entity with trade receivables will be required to exclude short-term leases from balance sheet recognitionuse historical loss information, current conditions, and also intendsreasonable and supportable forecasts to elect certain practical expedients at adoption. As permitted under these expedients the Company will not reassess whether existing contracts are or contain leases, the lease classification for any existing leases, initial direct costs for any existing lease and whether existing land easements and rightsdetermine expected lifetime credit losses. Pooling of way, that were not previously accounted for as leases, are or contain a lease.
The Company has certain capital leases that meet the requirements of this ASU. These leases have historically been treated in lineassets with the requirements of ASU 2016-02, therefore no adjustmentsimilar risk characteristics is also required.
The Company will continue assessing the
Since adopted on January 1, 2020, there has not been any material impact of the adoption of this ASU on the unaudited condensed consolidatedCompany’s financial statements.position, results of operations, and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740),
The Amendments in this update reduce the complexity in accounting for income taxes by removing certain exceptions to accounting for income taxes and deferred taxes and simplifying the accounting treatment of franchise taxes, a step up in the tax basis of goodwill as part of business combinations, the allocation of current and deferred tax to a legal entity not subject to tax in its own financial statements, reflecting changes in tax laws or rates in the annual effective rate in interim periods that include the enactment date and minor codification improvements.
This ASU is effective for fiscal years and interim periods beginning after December 15, 2020.
The effects of this ASU on the Company'sCompany’s financial statements is not considered to be material.
The
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB issued several updates during the period, none of these standards are either applicable to the Company orthat do not require adoption atuntil a future date and none are not expected to have a material impact on the consolidated financial statements upon adoption.
F-13
F-12
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 3. | GOING CONCERN |
The Company has incurred losses for several years and, at February 29,November 30, 2020, has an accumulated deficit of $84,680,191,$91,074,863, (August 31, 20192020 - $78,285,282)$90,664,349) and working capital deficiency(deficiency) of $12,081,996$11,285,842 (August 31, 20192020 - $9,268,763)$12,955,134). These unaudited condensed consolidated financial statements have been prepared on the basis that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The ability of the Company to continue as a going concern is dependent on obtaining additional financing, which it is currently in the process of obtaining. There is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company. These unaudited condensed consolidated financial statements do not reflect the adjustments or reclassifications that would be necessary if the Company were unable to continue operations in the normal course of business.
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| NOTES RECEIVABLE |
The Company's accounts receivables consist of:
February 29, 2020 | August 31, 2019 | |||||
Trade receivables | $ | 4,000 | $ | - | ||
Goods and services tax receivable | 12,830 | 59,013 | ||||
Other receivables | - | 85,000 | ||||
$ | 16,830 | $ | 144,013 |
Information about the Company's exposure to credit risks for trade and other receivables is included in Note 26(a).
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The Company'sCompany’s notes receivables consist of:
Maturity Date | Interest Rate | February 29, 2020 | August 31, 2019 | ||||||||
Manhatten Enterprises | March 15, 2020 | 5 % | $ | 76,000 | $ | 76,000 | |||||
Strategic IR | August 20, 2021 | 5 % | 617,581 | 642,581 | |||||||
Beverly Pacific Holdings | August 20, 2021 | 5 % | - | 117,000 | |||||||
Interest accrued | 31,089 | 10,162 | |||||||||
$ | 724,670 | $ | 845,743 | ||||||||
Disclosed as follows: | |||||||||||
Current portion | $ | 87,233 | $ | 85,359 | |||||||
Long-term portion | 637,437 | 760,384 | |||||||||
$ | 724,670 | $ | 845,743 |
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Principal due | Principal due | |||||||||||||
Maturity Date | Interest Rate | August 31, 2020 | August 31, 2019 | |||||||||||
Private debtor | March 16, 2020 | 5 | % | $ | 76,000 | $ | 76,000 | |||||||
Interest accrued | 14,107 | 13,159 | ||||||||||||
$ | 90,107 | $ | 89,159 | |||||||||||
Disclosed as follows: | ||||||||||||||
Current portion | $ | 90,107 | $ | 89,159 | ||||||||||
- | - | |||||||||||||
$ | 90,107 | $ | 89,159 |
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended February 29, 2020 and February 28, 2019
Expressed in US dollars
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Manhatten Enterprises
The Company advanced Manhatten Enterprises the sum of $75,000$76,000 pursuant to a promissory note on March 16, 2017. The note, which bears interest at 5% per annum, matured on March 16, 2020. The CompanyNote has reached its maturity date and is currently re-negotiating the terms of this note.on demand until a new agreement is negotiated.
Strategic IR
The Company advanced Strategic IR a total of $642,581 during the year ended August 31, 2019. This was memorialized by a promissory note that bears interest at 5% per annum and is repayable on August 20, 2021. During the six months ended February 29, 2020, the Company advanced Strategic IR a further $125,000 and received repayments totaling $150,000. The balance owing at February 29, 2020 is $617,581 plus interest thereon of $19,855.
Beverly Pacific Holdings
The company advanced Beverly Pacific Holdings a net amount of $117,000 during the year ended August 31, 2019, memorialized by a promissory note that bears interest at 5% per annum and is repayable on August 8, 2021. During the current period, the Company advanced a further $572,585, which has subsequently been settled by Beverly Pacific. As of February 29, 2020, the balance owing to the Company is $0.
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| MINERAL LEASES |
The mining and crushing of bituminous sands has been contracted to an independent third party.
TMC | SITLA | BLM | ||||||||||||||
Mineral | Mineral | Mineral | ||||||||||||||
Lease | Lease | Lease | Total | |||||||||||||
Cost | ||||||||||||||||
August 31, 2019 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 | ||||||||
Additions | - | - | - | - | ||||||||||||
August 31, 2020 | 11,091,388 | 19,755 | 23,800,000 | 34,911,143 | ||||||||||||
Additions | - | - | - | - | ||||||||||||
November 30, 2020 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 | ||||||||
Accumulated Amortization | ||||||||||||||||
August 31, 2019, August 31, 2020 and November 30, 2020 | $ | - | $ | - | $ | - | $ | - | ||||||||
Carrying Amounts | ||||||||||||||||
August 31, 2019 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 | ||||||||
August 31, 2020 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 | ||||||||
November 30, 2020 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 |
Due to the current pandemic and the impact this has had on the country and the global economy, the Company has ceased production of hydrocarbon products and will resume production once oil prices return to sustainable profitable levels.
F-13
During the six months ended February 29, 2020, the cost of mining, hauling and crushing the ore, amounting to $0 (2018 - $0), was recorded as the cost of the crushed ore inventory. The Company used approximately 5,000 yards of crushed ore during the six months ended February 29, 2020.
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Advance royalty payments to Asphalt Ridge, Inc.
During the year ended August 31, 2015, the Company acquired TMC Capital, LLC, which has a mining and mineral lease with Asphalt Ridge, Inc. (the "TMC Mineral Lease") (Note 8(a)). The mining and mineral lease with Asphalt Ridge, Inc. required the Company to make minimum advance royalty payments which can be used to offset future production royalties for a maximum of two years following the year the advance royalty payment was made.
Effective February 21, 2018, a third amendment was made to the TMC Mineral Lease. The amended advanced royalty payments required are a minimum of $100,000 per quarter from July 1, 2018 to June 30, 2020 and a minimum of $150,000 per quarter thereafter. Royalties payable on production range from 8% to 16% of adjusted revenues, dependent on hydrocarbon prices.
As at February 29, 2020, the Company has paid advance royalties of $2,350,336 (August 31, 2019 - $2,250,336) to the lease holder, of which a total of $1,586,169 have been used to pay royalties as they have come due under the terms of the TMC Mineral Lease. During the six months ended February 29, 2020, $100,000 in advance royalties were paid and $203,862 have been used to pay royalties which have come due. The royalties expensed have been recognized in cost of goods sold on the unaudited condensed consolidated statements of loss and comprehensive loss.
As at February 29, 2020, the Company expects to record minimum royalties paid of $432,500 from these advance royalties either against production royalties or for the royalties due within a twelve month period.
F-15
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 5. | MINERAL LEASES (continued) |
TMC | SITLA | BLM | ||||||||||
Mineral | Mineral | Mineral | ||||||||||
Lease | Lease | Lease | Total | |||||||||
Cost | ||||||||||||
August 31, 2018 | $ | 11,091,388 | $ | 19,755 | $ | - | $ | 11,111,143 | ||||
Additions | - | - | 23,800,000 | 23,800,000 | ||||||||
August 31, 2019 | 11,091,388 | 19,755 | 23,800,000 | 34,911,143 | ||||||||
Additions | - | - | - | - | ||||||||
February 29, 2020 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 | ||||
Accumulated Amortization | ||||||||||||
August 31, 2017, 2018 and February29, 2020 | $ | - | $ | - | $ | - | $ | - | ||||
Carrying Amounts | ||||||||||||
August 31, 2018 | $ | 11,091,388 | $ | 19,755 | $ | - | $ | 11,111,143 | ||||
August 31, 2019 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 | ||||
February 29, 2020 | $ | 11,091,388 | $ | 19,755 | $ | 23,800,000 | $ | 34,911,143 |
(a) | TMC Mineral Lease |
Effective August 10, 2020, the TMC mineral lease was terminated and a new Short-Term Mining Lease agreement between Valkor and Asphalt Ridge, Inc was entered into with a back to back Short-Term Mining and Mineral sub-lease entered into between Valkor and TMC, whereby all of the rights and obligations of the lease were sub-let to TMC.
On June 1, 2015, the Company acquired TMC Capital, LLC ("TMC"(“TMC”). TMC holds a mining and mineral lease, subleased from Asphalt Ridge, Inc., on the Asphalt Ridge property located in Uintah County, Utah (the "TMC“TMC Mineral Lease"Lease”).
The primary termsalient terms of the TMC Mineral Lease is from July 1, 2013 continuing for six years. During the primary term, the Company must meet certain requirements for oil production. After July 1, 2018, the TMC Mineral Lease will remain in effectlease are as long as certain requirements for oil production continue to be met by the Company. If the Company fails to meet these requirements, the lease will automatically terminate 90 days after the calendar year in which the requirements are not met. In addition, the Company is required to make certain advance royalty payments to the lessor (Note 7). The TMC Mineral Lease was subject to a 10% royalty for the first three years and varying percentages thereafter based on the price of oil. An additional royalty of 1.6% is payable to the previous lessees of the TMC Mineral Lease. The TMC Mineral Lease also required the Company to make minimum expenditures on the property of $1,000,000 for the first three years, increasing to $2,000,000 for the next three years.follows:
On October 1, 2015, the Company amended the TMC Mineral Lease to defer the requirements for oil extraction until July 1, 2016 and to include the oil extraction from the MCW Mineral Lease as well. The advance royalty payments required under the TMC Mineral Lease were also amended (Note 7). Production royalties were amended to 7% until June 30, 2020 and a varying percentage thereafter, based on the price of oil. Minimum expenditures were amended to $1,000,000 per year until June 30, 2020 and $2,000,000 thereafter if certain operational requirements for oil extraction are not met.
1. | The exclusive right and privilege during the term of this Sublease to explore for and mine by any methods now known or hereafter developed, extract and sell or otherwise dispose of, any and all asphalt, bitumen, maltha, tar sands, oil sands (“Tar Sands”) and any and all other minerals of whatever kind or nature which are associated with or contained in any Tar Sands deposit, whether hydrocarbon, metalliferous, non-metalliferous or otherwise, including, but not limited to, gold, silver, platinum, sand and clays on and in the Property, and whether heretofore known or hereafter discovered (collectively, “Minerals”), from the ground surface to a depth of 3,000 feet above Mean Sea level (MSL), together with the products and byproducts of the processing of the Minerals, and together with the right to use so much of the surface of the Property as may be necessary in the exercise of said rights and in furtherance of the purposes expressed herein, including ingress and egress, and together with the right to construct on the Property such improvements as may be reasonably necessary to the exploration for and the mining, extraction, removal, processing, beneficiating, sale or other disposition of the Minerals, but not including the construction of any new roads without the prior written consent of Sublessor; and |
F-16
2. | The right to use any or all of the Water Rights at any time during the term of this Sublease in conducting its activities as provided for herein; provided that approval of change applications may need to be obtained in order to allow use of the Water Rights on the Property for mining purposes. |
3. | The term of the sub-lease is for the period ending June 30, 2021 unless the Short Term Mining Lease between Valkor and Asphalt Ridge is terminated earlier. |
4. | During the Term and subject to the Lessor Reserved Rights, Sublessee shall have the right to explore, develop, mine, drill, pump, process, produce and market the Minerals in, on, or under the Property, including any existing stockpiles or dumps, whether by drilling, surface, strip, contour, quarry, bench, underground, solution, in situ or other mining methods, and in connection therewith, Sublessee shall have the right to conduct the following activities and operations (“Operations”) on the Property in accordance with the terms of this Sublease and applicable laws and regulations: |
a. | To mine, process, mill, beneficiate, treat, concentrate, extract, refine, leach, convert, upgrade, prepare for market, any and all Minerals mined or otherwise extracted from the Property; |
b. | To temporarily store or permanently dispose on the Property Minerals, water, waste or other materials resulting from Operations on the Property; |
c. | to use and develop any and all ditches, flumes, water and Water Rights and appurtenant to the Property; and |
d. | to use so much of the surface and surface resources of the Property as may be reasonably necessary in the exercise of said rights, or which Sublessee may deem desirable or convenient, including rights of ingress and egress in connection with its operations on the Property. During the term of the lease the sub-lessee has the right to use any or all of the Water Rights at any time during the term of this Sublease in conducting its activities as provided for herein; provided that approval of change applications may need to be obtained in order to allow use of the Water Rights on the Property for mining purposes. |
F-14
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 5. | MINERAL LEASES (continued) |
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On March 1, 2016, a second amendment to the TMC Mineral Lease amended the termination clause in the lease to provide for:
(a) | TMC Mineral Lease (continued) |
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6. | TMC will pay a production royalty as follows: |
a. | For “Bitumen Product” produced from Tar Sands mined or otherwise extracted from the Property shall be eight percent (8%) of the gross sales revenue received by Sublessee from the sale of such Bitumen Product at the Property. As used herein, the term “Bitumen Product” means naturally occurring oil in the Tar Sands that is sold in whatever form, including run-of-mine, screened, processed, or after the addition of any additives and/or upgrading of the Bitumen Product |
b. | The Production Royalty on all other Minerals produced from Bitumen Product mined or otherwise extracted from the Property and sold shall be eight percent (8%) of the gross sales revenue received by Sublessee. Subject to the provisions of Paragraph 1, wherein sales of products and byproducts are wholly accounted for, should sales occur to a |
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c. | The Production Royalty on oil and gas, and associated hydrocarbons produced by Sublessee using standard oil and gas drilling recovery techniques above 3000 feet MSL and sold shall be 1/6 of the gross market value. |
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e. | Minerals shall be deemed sold at the time they leave the Property or at the time the Minerals are transferred by Sublessee to an Affiliate. As used herein, “Affiliate” means any business entity which, directly or indirectly, is owned or controlled by Sublessee or owns or controls Sublessee, or any entity or firm acquiring Minerals from Sublessee otherwise than at arm’s-length. |
7. | Prior to commencing any Operations, Sublessee shall have obtained final approval of all necessary mining and reclamation plans from the Utah Division of Oil, Gas and Mining, or its successor agency (the “Division”) authorizing Sublessee’s Operations and shall have posted with and obtained approval from the Division of a surety bond or other financial guarantee (“Reclamation Surety”) in the amount and form acceptable to the Division and sufficient to guarantee Sublessee’s performance of reclamation in accordance with Utah laws and regulations. The amount of the surety bond or financial guarantee shall be periodically reviewed in accordance with Division’s regulations and, if the |
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8. | Under the |
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The term of the lease was extended by the termination clause, provided that a written commitment is obtained to fund the 3,000 barrel per day proposed plant. The Company is required to produce a minimum average daily quantity of bitumen, crude oil and/or bitumen products, for a minimum of 180 days during each lease year and 600 days in three consecutive lease years, of:
F-15
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Advance royalties required are:
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Production royalties payable are amended to 7% of the gross sales revenue, subject to certain adjustments up until June 30, 2020. After that date, royalties will be calculated on a sliding scale based on crude oil prices ranging from 7% to 15% of gross sales revenues, subject to certain adjustments.
Minimum expenditures to be incurred on the properties are $1,000,000 per year up to June 30, 2020 and $2,000,000 per year after that if a minimum daily production of 3,000 barrels per day during a 180 day period is not achieved.
On February 1, 2018, a third amendment to the TMC Mineral Lease amended the termination clause in the lease to:
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F-17
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 5. | MINERAL LEASES (continued) |
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The term of the lease was extended by the amendment, provided that a written commitment is obtained to fund the 3,000 barrel per day proposed plant. The Company is required to produce a minimum average daily quantity of bitumen, crude oil and/or bitumen products, for a minimum of 180 days during each lease year and 600 days in three consecutive lease years, of:
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Advance royalties required are:
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Production royalties payable are amended to 8% of the gross sales revenue, subject to certain adjustments up until June 30, 2020. After that date, royalties will be calculated on a sliding scale based on crude oil prices ranging from 8% to 16% of gross sales revenues, subject to certain adjustments.
Minimum expenditures to be incurred on the properties are $2,000,000 beginning July 1, 2020 if a minimum daily production of 3,000 barrels per day during a 180 day period is not achieved.
On November 21, 2018, a fourth amendment was made to the mining and mineral lease agreement whereby certain properties previously excluded from the third amendment were included in the lease agreement.
The termination clause was amended to provide for:
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The term of the lease was extended by the amendment, provided that a written commitment is obtained to fund the 3,000 barrel per day proposed plant. The Company is required to produce a minimum average daily quantity of bitumen, crude oil and/or bitumen products, for a minimum of 180 days during each lease year and 600 days in three consecutive lease years, of:
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Minimum expenditures to be incurred on the properties are $2,000,000 beginning July 1, 2021 if a minimum daily production of 3,000 barrels per day during a 180 day period is not achieved.
F-18
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended February 29, 2020 and February 28, 2019
Expressed in US dollars
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| SITLA Mineral Lease (Petroteq Oil |
On June 1, 2018, the Company acquired mineral rights under two mineral leases entered into between the State of Utah'sUtah’s School and Institutional Trust Land Administration ("SITLA"(“SITLA”), as lessor, and POSR, as lessee, covering lands in Asphalt Ridge that largely adjoin the lands held under the TMC Mineral Lease (collectively, the "SITLA“SITLA Mineral Leases"Leases”). The SITLA Mineral Leases are valid until May 30, 2028 and have rights for extensions based on reasonable production. The leases remain in effect beyond the original lease term so long as mining and sale of the tar sands are continued and sufficient to cover operating costs of the Company.
Advanced royalty of $10 per acre are due annually each year the lease remains in effect and can be applied against actual production royalties. The advanced royalty is subject to price adjustment by the lessor after the tenth year of the lease and then at the end of each period of five years thereafter.
Production royalties payable are 8% of the market price of marketable product or products produced from the tar sands and sold under arm'sarm’s length contract of sale. Production royalties have a minimum of $3 per barrel of produced substance and may be increased by the lessor after the first ten years of production at a maximum rate of 1% per year and up to 12.5%.
(c) | BLM Mineral Lease |
On January 18, 2019, the Company paid $10,800,000 for the acquisition of 50% of the operating rights under U.S. federal oil and gas leases, administered by the U.S. Department of Interior'sInterior’s Bureau of Land Management ("BLM"(“BLM”) covering approximately 5,960 gross acres (2,980 net acres) within the State of Utah. The total consideration of $10,800,000 was settled by a cash payment of $1,800,000 and by the issuance of 15,000,000 shares at an issue price of $0.60 per share, amounting to $9,000,000.
On July 22, 2019, the Company acquired the remaining 50% of the operating rights under U.S. federal oil and gas leases, administered by the BLM covering approximately 5,960 gross acres (2,980 net acres) within the State of Utah, for a total consideration of $13,000,000 settled by the issuance of 30,000,000 shares at an issue price of $0.40 per share, amounting to $12,000,000 and cash of $1,000,000, of which $100,000 has not been paid to date.
F-19
6. | PROPERTY, PLANT AND EQUIPMENT |
Oil Extraction Plant | Other Property and Equipment | Total | ||||||||||
Cost | ||||||||||||
August 31, 2019 | $ | 35,555,827 | $ | 438,168 | $ | 35,993,995 | ||||||
Additions | 2,072,058 | 692 | 2,072,750 | |||||||||
August 31, 2020 | 37,627,885 | 438,860 | 38,066,745 | |||||||||
Additions | 4,173,448 | - | 4,173,448 | |||||||||
November 30, 2020 | $ | 41,801,333 | $ | 438,860 | $ | 42,240,193 | ||||||
Accumulated Amortization | ||||||||||||
August 31, 2019 | $ | 2,148,214 | $ | 232,131 | $ | 2,380,345 | ||||||
Additions | - | 103,888 | 103,888 | |||||||||
August 31, 2020 | 2,148,214 | 336,019 | 2,484,233 | |||||||||
Additions | - | 11,523 | 11,523 | |||||||||
November 30, 2020 | $ | 2,148,214 | $ | 347,542 | $ | 2,495,756 | ||||||
Carrying Amount | ||||||||||||
August 31, 2019 | $ | 33,407,613 | $ | 206,037 | $ | 33,613,650 | ||||||
August 31, 2020 | $ | 35,479,671 | $ | 102,841 | $ | 35,582,512 | ||||||
November 30, 2020 | $ | 39,653,119 | $ | 91,318 | $ | 39,744,437 |
F-16
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 6. | PROPERTY, PLANT AND |
Oil Extraction Plant | Other Property and Equipment | Total | |||||||
Cost | |||||||||
August 31, 2018 | $ | 23,101,035 | $ | 394,555 | $ | 23,495,590 | |||
Additions | 12,454,792 | 43,613 | 12,498,405 | ||||||
August 31, 2019 | 35,555,827 | 438,168 | 35,993,995 | ||||||
Additions | 2,110,792 | 5,692 | 2,116,484 | ||||||
February 29, 2020 | $ | 37,666,619 | $ | 443,860 | $ | 38,110,479 | |||
Accumulated Amortization | |||||||||
August 31, 2018 | $ | 2,148,214 | $ | 158,481 | $ | 2,306,695 | |||
Additions | - | 73,650 | 73,650 | ||||||
August 31, 2019 | 2,148,214 | 232,131 | 2,380,345 | ||||||
Additions | - | 85,842 | 85,842 | ||||||
February 29, 2020 | $ | 2,148,214 | $ | 317,973 | $ | 2,466,187 | |||
Carrying Amount | |||||||||
August 31, 2018 | $ | 20,952,821 | $ | 236,074 | $ | 21,188,895 | |||
August 31, 2019 | $ | 33,407,613 | $ | 206,037 | $ | 33,613,650 | |||
February 29, 2020 | $ | 35,518,405 | $ | 125,887 | $ | 35,644,292 |
(a) | Oil Extraction Plant |
In June 2011, the Company commenced the development of an oil extraction facility on its mineral lease in Maeser, Utah and entered into construction and equipment fabrication contracts for this purpose. On September 1, 2015, the first phase of the plant was completed and was ready for production of hydrocarbon products for resale to third parties. During the year ended August 31, 2017 the Company began the dismantling and relocating the oil extraction facility to its TMC Mineral Lease facility to improve production and logistical efficiencies while continuing its project to increase production capacity to a minimum capacity of 1,000400-500 barrels per day. The plant has been substantially relocated to the TMC mining site and expansion of the plant to production of 1,000400-500 barrels per day has been substantially completed.
The
As a result of the relocation of the plant and the expansion that has taken place to date, the Company reassessed the reclamation and restoration provision and raised an additional liability of $2,375,159 during the fiscal year ended August 31, 2019 which is capitalized to the cost of construction includes capitalized borrowing costs for the six months ended February 29, 2020 of $0 (August 31, 2019 - $2,190,309)plant and total capitalized borrowing costs as at February 29, 2020 of $4,421,055 (August 31, 2019 - $4,421,055).will be depreciated according to our depreciation policy.
As a result of the relocation of the plant and the planned expansion of the plant'splant’s production capacity to 1,000400-500 barrels per day, and subsequently to an additional 3,000 barrels per day, the Company reevaluatedre-evaluated the depreciation policy of the oil extraction plant and the oil extraction technologies (Note 10)11) and determined that depreciation should be recorded on the basis of the expected production of the completed plant at various capacities. No amortization has been recorded during the six months ended February 29, 2020 and February 28, 2019 fiscal years as there has only been immaterialtest production during these periods.years.
F-20
7. | LEASES |
The Company entered into a real property lease for office space located at 15315 Magnolia Blvd., Sherman Oaks, California. The lease commenced on September 1, 2019 and expires on August 31, 2024, monthly rental expense is $4,941 per month with annual 3% escalations during the term of the lease.
The initial value of the right-of-use asset was $245,482 and the operating lease liability was $245,482. The Company monitors for events or changes in circumstances that require a reassessment of our lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right-of-use asset unless doing so would reduce the carrying amount of the right-of-use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right-of-use asset balance is recorded as a loss in the statement of operations and comprehensive loss.
During April 2015, the Company entered into two equipment loan agreements in the aggregate amount of $282,384, with financial institutions to acquire equipment for the oil extraction facility. The loans had a term of 60 months and bore interest at rates between 4.3% and 4.9% per annum. Principal and interest were paid in monthly installments. These loans were secured by the acquired assets.
On May 7, 2018, the Company entered into a negotiable promissory note and security agreement with Commercial Credit Group to acquire a crusher from Power Equipment Company for $660,959. An implied interest rate was calculated as 12.36% based on the timing of the initial repayment of $132,200 and subsequent 42 monthly instalments of $15,571. The terms of the note were renegotiated during June 2020, and the instalments were amended to $16,140 per month due to payments not being made during the pandemic. The promissory note is secured by the crusher.
Discount Rate
To determine the present value of minimum future lease payments for operating leases at September 1, 2019, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).
The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the 5 year ARM interest rate at the time of entering into the agreement and compared that rate to the Company’s weighted average cost of funding at the time of entering into the operating lease. The Company determined that 10.00% was an appropriate incremental borrowing rate to apply to its real-estate operating lease.
F-17
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 7. | LEASES (continued) |
Right of use assets
Right of use assets included in the consolidated Balance Sheet are as follows:
November 30, 2020 | August 31, 2020 | |||||||
Non-current assets | ||||||||
Right of use assets – operating leases, net of amortization | $ | 198,977 | $ | 209,101 | ||||
Right of use assets – finance leases, net of depreciation – included in property, plant and equipment | 708,109 | 718,193 |
Lease costs consist of the following:
Three months ended November 30, 2020 | Three months ended November 30, 2019 | |||||||
Finance lease cost: | $ | 17,483 | $ | 21,650 | ||||
Depreciation of right of use assets | 10,085 | 10,085 | ||||||
Interest expense on lease liabilities | 7,398 | 11,565 | ||||||
Operating lease expense | 15,268 | 14,823 | ||||||
Total lease cost | $ | 32,751 | $ | 36,473 |
Other lease information:
Three months ended November 30, 2020 | Three months ended November 30, 2019 | |||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from finance leases | $ | (7,398 | ) | $ | (11,565 | ) | ||
Operating cash flows from operating leases | (15,268 | ) | (14,823 | ) | ||||
Financing cash flows from finance leases | $ | (41,022 | ) | $ | (51,018 | ) | ||
Right-of -use assets obtained in exchange for new operating leases | $ | - | 245,482 | |||||
Weighted average remaining lease term – finance leases | 1.11 years | 2.50 years | ||||||
Weighted average remaining lease term – operating leases | 2.75 years | 3.75 years | ||||||
Weighted average discount rate – finance leases | 13.52 | % | 12.86 | % | ||||
Weighted average discount rate – operating leases | 10.00 | % | 10.00 | % |
F-18
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
7. | LEASES (continued) |
Maturity of Leases
The amount of future minimum lease payments under finance leases is as follows:
November 30, 2020 | August 31, 2020 | |||||||
Undiscounted minimum future lease payments | ||||||||
Total instalments due: | ||||||||
Within 1 year | $ | 193,680 | $ | 193,680 | ||||
1 to 2 years | 32,280 | 80,700 | ||||||
2 to 3 years | - | - | ||||||
225,960 | 274,380 | |||||||
Imputed interest | (19,550 | ) | (26,948 | ) | ||||
Total finance lease liability | $ | 206,410 | $ | 247,432 | ||||
Disclosed as: | ||||||||
Current portion | $ | 178,200 | $ | 172,374 | ||||
Non-current portion | 28,210 | 75,058 | ||||||
$ | 206,410 | $ | 247,432 |
The amount of future minimum lease payments under operating leases is as follows:
November 30, 2020 | August 31, 2019 | |||||||
Undiscounted minimum future lease payments | ||||||||
Total instalments due: | ||||||||
Within 1 year | $ | 61,528 | $ | 61,070 | ||||
1 to 2 years | 63,375 | 62,903 | ||||||
2 to 3 years | 65,276 | 64,790 | ||||||
3 to 4 years | 50,050 | 66,734 | ||||||
240,229 | 255,497 | |||||||
Imputed interest | (41,252 | ) | (46,396 | ) | ||||
Total operating lease liability | $ | 198,977 | $ | 209,101 | ||||
Disclosed as: | ||||||||
Current portion | $ | 43,575 | $ | 42,053 | ||||
Non-current portion | 155,402 | 167,048 | ||||||
$ | 198,977 | $ | 209,101 |
F-19
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended November 30, 2020 and 2019
Expressed in US dollars
8. | INTANGIBLE ASSETS |
Oil Extraction | |||
Technologies | |||
Cost | |||
August 31, 2018 | $ | 809,869 | |
Additions | - | ||
August 31, 2019 | 809,869 | ||
Additions | - | ||
February 29, 2020 | $ | 809,869 | |
Accumulated Amortization | |||
August 31, 2018 | $ | 102,198 | |
Additions | - | ||
August 31, 2019 | 102,198 | ||
Additions | - | ||
February 29, 2020 | $ | 102,198 | |
Carrying Amounts | |||
August 31, 2018 | $ | 707,671 | |
August 31, 2019 | $ | 707,671 | |
February 29, 2020 | $ | 707,671 |
Oil Extraction | ||||
Technologies | ||||
Cost | ||||
August 31, 2019 | $ | 809,869 | ||
Additions | - | |||
August 31, 2020 | 809,869 | |||
Additions | - | |||
November 30, 2020 | $ | 809,869 | ||
Accumulated Amortization | ||||
August 31, 2019 | $ | 102,198 | ||
Additions | - | |||
August 31, 2020 | 102,198 | |||
Additions | - | |||
November 30, 2020 | $ | 102,198 | ||
Carrying Amounts | ||||
August 31, 2019 | $ | 707,671 | ||
August 31, 2020 | $ | 707,671 | ||
November 30, 2020 | $ | 707,671 |
Oil Extraction Technologies
During the year ended August 31, 2012, the Company acquired a closed-loop solvent-basedsolvent based oil extraction technology which facilitates the extraction of oil from a wide range of bituminous sands and other hydrocarbon sediments. The Company has filed patents for this technology in the USA and Canada and has employed it in its oil extraction plant. The Company commenced partial production from its oil extraction plant on September 1, 2015 and was amortizing the cost of the technology over fifteen years, the expected life of the oil extraction plant. Since the Companycompany has increased the capacity of the plant to 1,000400 to 500 barrels daily during 2018, and expects to further expand the capacity to an additional 3,000 barrels daily, it determined that a more appropriate basis for the amortization of the technology is the units of production at the plant after commercial production begins again.
No amortization of the technology was recorded during the six months ended February 29,2021 and 2020 and February 28, 2019.
|
|
Accounts payable as at February 29, 2020 and August 31, 2019 consist primarily of amounts outstanding for construction and expansion of the oil extraction plant and other operating expenses that are due on demand.fiscal years.
Accrued expenses as at February 29, 2020 and August 31, 2019 consist primarily of other operating expenses and interest accruals on long-term debt (Note 12) and convertible debentures (Note 13).
Information about the Company's exposure to liquidity risk is included in Note 26(c).
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
|
| DEBT |
Principal due | Principal due | ||||||||||
Lender | Maturity Date | Interest Rate | February 29, 2020 | August 31, 2019 | |||||||
Private lenders | January 15, 2020 | 10.00 % | $ | 200,000 | $ | 200,000 | |||||
Private lenders | January 31, 2020 | 10.00 % | 373,885 | 567,230 | |||||||
Private lenders | September 17, 2019 | 10.00 % | 100,000 | 100,000 | |||||||
Beverly Pacific Holdings | On demand | 5.00 % | 173,259 | - | |||||||
Equipment loans | April 20, 2020 - November 7, 2021 | 4.30 - 12.36 % | 302,425 | 405,628 | |||||||
$ | 1,149,569 | $ | 1,272,858 |
Principal due | Principal due | |||||||||||||
Lender | Maturity Date | Interest Rate | November 30, 2020 | August 31, 2020 | ||||||||||
Private lenders | On demand | 10.00 | % | 105,000 | 115,000 | |||||||||
Private lenders | August 31, 2020 | 5.00 | % | 471,329 | 468,547 | |||||||||
Private lenders | On demand | 10.00 | % | - | 100,000 | |||||||||
$ | 576,329 | $ | 683,547 |
The maturity date of the long-term debt is as follows:
February 29, 2020 | August 31, 2019 | |||||
Principal classified as repayable within one year | $ | 1,019,915 | $ | 1,057,163 | ||
Principal classified as repayable later than one year | 129,654 | 215,695 | ||||
$ | 1,149,569 | $ | 1,272,858 |
November 30, 2020 | August 31, 2020 | |||||||
Principal classified as repayable within one year | $ | 576,329 | $ | 683,547 | ||||
Principal classified as repayable later than one year | - | - | ||||||
$ | 576,329 | $ | 683,547 |
(a) | Private lenders |
(i) | On July 3, 2018, the Company received a $200,000 advance from a private lender bearing interest at 10% per annum and repayable on | |
(ii) | ||
| On October 10, 2014, the Company issued two secured debentures for an aggregate principal amount of CAD $1,100,000 to two private lenders. The debentures initially bore interest at a rate of 12% per annum, were originally scheduled to mature on October 15, 2017 and are secured by all of the assets of the Company. In addition, the Company issued common share purchase warrants to acquire an aggregate of 16,667 common shares of the Company. On September 22, 2016, the two secured debentures were amended to extend the maturity date to January 31, 2017. The terms of these debentures were renegotiated with the debenture holders to allow for the conversion of the secured debentures into common shares of the Company at a rate of CAD $4.50 per common share and to increase the interest rate, starting June 1, 2016, to 15% per annum. On January 31, 2017, the two secured debentures were amended to extend the maturity date to July 31, 2017. Additional transaction costs and penalties incurred for the loan modifications amounted to $223,510. On February 9, 2018, the two secured debentures were renegotiated with the debenture holders to extend the loan to May 1, 2019. A portion of the debenture amounting to CAD $628,585 was amended to be convertible into common shares of the Company, of which, CAD $365,000 were converted on May 1, 2018. The remaining convertible portion is interest free and was to be converted from August 1, 2018 to January 1, 2019. The remaining non-convertible portion of the debenture was to be paid off in 12 equal monthly instalments beginning May 1, 2018, bearing interest at 5% per annum. On September 11, 2018, the remaining convertible portion of the debenture was converted into common shares of the Company and a portion of the non-convertible portion of the debenture was settled through the issue of 316,223 common shares of the Company. On December 13, 2019, the maturity date of the non-convertible portion of the debenture was extended to January 31, 2020 and the interest rate was increased to 10% per annum. | |
(iii) | On October 4, 2018, the Company entered into a debenture line of credit of $9,500,000 from Bay Private Equity and received an advance of $100,000. The debenture matured on September 17, 2019 and bears interest at 10% per annum. |
|
|
During April 2015, the Company entered into two equipment loan agreements in the aggregate amount of $282,384, with financial institutions to acquire equipment for the oil extraction facility. The loans had a term of 60 months and bore interest at rates between 4.3% and 4.9% per annum. Principal and interest were paid in monthly installments. These loans were secured by the acquired assets.
On May 7, 2018, the Company entered into a negotiable promissory note and security agreement with Commercial Credit Group to acquire a crusher from Power Equipment Company for $660,959. An implied interest rate was calculated as 12.36% based on the timing of the initial repayment of $132,200 and subsequent 42 monthly instalments of $15,571. The promissory note was secured by the crusher.F-21
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 10. | CONVERTIBLE DEBENTURES |
Principal due | Principal due | ||||||||||
Lender | Maturity Date | Interest Rate | February 29, 2020 | August 31, 2019 | |||||||
GS Capital Partners | January 15, 2020 | 10.00 % | $ | 143,750 | $ | 143,750 | |||||
Calvary Fund I LP | September 4, 2019 | 10.00 % | - | 250,000 | |||||||
Calvary Fund I LP | October 12, 2020 | 10.00 % | 220,000 | 250,000 | |||||||
SBI Investments LLC | October 15, 2020 | 10.00 % | 250,000 | 250,000 | |||||||
Bay Private Equity, Inc. | January 15, 2020 | 5.00 % | 2,900,000 | 2,900,000 | |||||||
Bay Private Equity, Inc. | January 15, 2020 | 5.00 % | 2,400,000 | 2,400,000 | |||||||
Cantone Asset Management LLC | October 19, 2020 | 7.00 % | 300,000 | 300,000 | |||||||
Calvary Fund I LP | August 29, 2020 | 3.30 % | 480,000 | 480,000 | |||||||
Cantone Asset Management LLC | December 17, 2020 | 7.00 % | 240,000 | - | |||||||
Cantone Asset Management LLC | January 14, 2021 | 7.00 % | 240,000 | - | |||||||
Private lender | October 29, 2020 | 10.00 % | 200,000 | - | |||||||
Petroleum Capital Funding LP | November 26, 2020 | 10.00 % | 318,000 | - | |||||||
Power Up Lending Group, Ltd. | October 11, 2020 | 12.00 % | 158,000 | - | |||||||
Power Up Lending Group, Ltd. | December 17, 2020 | 12.00 % | 81,000 | - | |||||||
Petroleum Capital Funding LP | December 4, 2023 | 10.00 % | 432,000 | - | |||||||
EMA Financial LLC | August 21, 2020 | 8.00 % | 150,000 | - | |||||||
Crown Bridge Partners, LLC | January 20, 2021 | 10.00 % | 42,500 | - | |||||||
SBI Investments LLC | January 16, 2021 | 10.00 % | 55,000 | - | |||||||
Petroleum Capital Funding LP | March 30, 2024 | 10.00 % | 471,000 | - | |||||||
9,081,250 | 6,973,750 | ||||||||||
Unamortized debt discount | (1,327,276 | ) | (644,281 | ) | |||||||
Total loans | $ | 7,753,974 | $ | 6,329,469 |
Principal due | Principal due | |||||||||||||
Lender | Maturity Date | Interest Rate | November 30, 2020 | August 31, 2020 | ||||||||||
Calvary Fund I LP | July 31, 2021 | 12.00 | % | 250,000 | 250,000 | |||||||||
July 31, 2021 | 12.00 | % | 480,000 | 480,000 | ||||||||||
August 7, 2021 | 0 | % | 150,000 | 150,000 | ||||||||||
SBI Investments LLC | December 15, 2020 | 10.00 | % | 250,000 | 250,000 | |||||||||
January 16, 2021 | 10.00 | % | 55,000 | 55,000 | ||||||||||
Bay Private Equity, Inc. | March 31, 2021 | 5.00 | % | - | 3,661,874 | |||||||||
February 20, 2021 | 5.00 | % | 2,400,000 | 2,400,000 | ||||||||||
Cantone Asset Management LLC | October 19, 2020 | 7.00 | % | 250,000 | 300,000 | |||||||||
December 17, 2020 | 7.00 | % | 240,000 | 240,000 | ||||||||||
January 14, 2021 | 7.00 | % | 240,000 | 240,000 | ||||||||||
December 30, 2021 | 7.00 | % | 300,000 | - | ||||||||||
Private lender | October 29, 2020 | 10.00 | % | 200,000 | 200,000 | |||||||||
Petroleum Capital Funding LP. | November 26, 2023 | 10.00 | % | 318,000 | 318,000 | |||||||||
December 4, 2023 | 10.00 | % | 432,000 | 432,000 | ||||||||||
March 30, 2024 | 10.00 | % | 471,000 | 471,000 | ||||||||||
Power Up Lending Group LTD | May 7, 2021 | 12.00 | % | - | 64,300 | |||||||||
June 4, 2021 | 12.00 | % | 69,900 | 69,900 | ||||||||||
June 19, 2021 | 12.00 | % | 82,500 | 82,500 | ||||||||||
November 11, 2021 | 12.00 | % | 140,800 | - | ||||||||||
EMA Financial, LLC | April 22, 2021 | 8.00 | % | 150,000 | 150,000 | |||||||||
Morison Management S.A | July 31, 2021 | 10.00 | % | - | 192,862 | |||||||||
Bellridge Capital LP. | March 31, 2021 | 15.00 | % | 2,900,000 | - | |||||||||
Stirling Bridge Resources | October 29, 2021 | 10.00 | % | 15,000 | - | |||||||||
Alpha Capital Anstalt | August 6, 2021 | 21.00 | % | 500,000 | - | |||||||||
Rijtec Enterprises Limited Pension Scheme | November 11, 2021 | 10.00 | % | 32,000 | - | |||||||||
Private lender | November 30, 2021 | 10.00 | % | 150,000 | - | |||||||||
10,076,200 | 10,007,436 | |||||||||||||
Unamortized debt discount | (1,481,237 | ) | (1,173,112 | ) | ||||||||||
Total loans | $ | 8,594,963 | $ | 8,834,324 |
The maturity date of the convertible debentures are as follows:
November 30, 2020 | August 31, 2020 | |||||||
Principal classified as repayable within one year | $ | 7,847,760 | $ | 8,227,257 | ||||
Principal classified as repayable later than one year | 747,203 | 607,067 | ||||||
$ | 8,594,963 | $ | 8,834,324 |
February 29, 2020 | August 31, 2019 | |||||
Principal classified as repayable within one year | $ | 7,140,924 | $ | 6,188,872 | ||
Principal classified as repayable later than one year | 613,050 | 140,597 | ||||
$ | 7,753,974 | $ | 6,329,469 |
F-22
F-23
PETROTEQ ENERGY INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the sixthree months ended February 29,November 30, 2020 and February 28, 2019
Expressed in US dollars
| 10. | CONVERTIBLE DEBENTURES (continued) |
(a) | Cavalry Fund I LP |
(i) |
|
During December 2019, the maturity date of the convertible debenture was amended to October 12, 2020 and the conversion price was amended to $0.18 per share. In terms of the ARA entered into on August 7, 2020, the maturity date of the convertible debenture was amended to July 31, 2021, the interest rate was amended to 12% per annum and the conversion price was amended to $0.0412 per share. |
On December 28, 2018, the Company issued a convertible debenture of $143,750 including an original issue discount of $18,750, together with warrants exercisable for 260,416 shares of common stock at an exercise price of $0.48 per share with a maturity date of April 29, 2019. The debenture has a term of four months and one day and bears interest at a rate of 10% per annum payable at maturity and at the option of the holder the purchase amount of the debenture (excluding the original issue discount of 15%) is convertible into 260,416 common shares of the Company at $0.48 per share in accordance with the terms and conditions set out in the debenture. During December 2019, the maturity date was extended to January 15, 2020. This note has not been repaid or converted as yet.
(ii) | On August 19, 2019, the Company issued a convertible debenture to Calvary for an aggregate principal amount of $480,000, including an original issue discount of $80,000, for net proceeds of $374,980 after certain legal expenses, and a warrant exercisable for 2,666,666 common shares at an exercise price of $0.15 per share. The convertible debenture bore interest at 3.3% per annum and matured on August 29, 2020. The convertible debenture may be converted into common shares of the Company at a conversion price of $0.17 per share.
|
|
|
On September 4, 2018, the Company issued units to Calvary Fund I LP for $250,000, which was originally advanced on August 9, 2018. The units consist of 250 units of $1,000 convertible debentures and 1,149,424 common share purchase warrants. The convertible debenture bears interest at 10%, matures on September 4, 2019 and is convertible into common shares of the Company at a price of $0.87 per common share. The common share purchase warrants entitle the holder to acquire additional common shares of the Company at a price of $0.87 per share and expired on September 4, 2019.
On September 9, 2019, the Company repaid $75,000 of principal and $1,096 in interest in partial settlement of the convertible debenture. On September 19, 2019, the Company entered into an agreement with Calvary Fund, whereby the remaining principal and interest of $200,000 was settled by the issue of 1,111,111 common shares and warrants exercisable over 1,111,111 common shares at an exercise price of $0.23 per share, expiring on September 20, 2021.
| (iii) | On August 7, 2020, the Company issued a convertible debenture to Calvary |
On October 12, 2018, the Company entered into an agreement with Calvary Fund I LP whereby the Company issued 250 one year units for proceeds of $250,000, each unit consisting of a $1,000 principal convertible unsecured debenture, bearing interest at 10% per annum and convertible into common shares at $0.86 per share, and a warrant exercisable for 1,162 common shares at an exercise price of $0.86 per share.
(b) | SBI Investments, LLC |
The warrants expired on October 12,
(i) | On October 15, 2018, the Company entered into an agreement with SBI Investments, LLC (“SBI”) whereby the Company issued 250 one year units for proceeds of $250,000, each debenture consisting of a $1,000 principal convertible unsecured debenture, bearing interest at 10% per annum and convertible into common shares at $0.86 per share, and a warrant exercisable for 1,162 shares of common stock at an exercise price of $0.86 per share. The warrants expired on October 15, 2019 unexercised. During December 2019, the maturity date of the convertible loan was extended to October 12, 2020 and the conversion price of the note was reset to $0.18 per share.
PETROTEQ ENERGY INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the Expressed in US dollars
|