SusGlobal Energy Corp 10-Q for FY2021 Q3
SusGlobal Energy Corp. (SNRG)
About this 10-Q
SusGlobal Energy Corp filed this 10-Q on November 16, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $204.8K
- down 53.4% from $439.51K a year earlier
- Net loss
- $1.42M
- compared with a net loss of $429.05K a year earlier
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ________________to ________________
Commission File Number
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | 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.
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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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Smaller reporting company |
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| 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 to Section 7(a)(2)(B) of the Securities Act. [
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [ ]
The number of shares of the registrant's common stock outstanding as of November 15, 2021 was
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SusGlobal Energy Corp.
INDEX TO FORM 10-Q
For the Three and Nine-Month Periods Ended September 30, 2021 and 2020
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INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
CONTENTS
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| 4 |
SusGlobal Energy Corp.
Interim Condensed Consolidated Balance Sheets
As at September 30, 2021 and December 31, 2020
(Expressed in United States Dollars)
(unaudited)
| September 30, | December 31, | |||||
| 2021 | 2020 | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | $ | $ | ||||
| Trade receivables | ||||||
| Government remittances receivable | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits (note 6) | ||||||
| Deferred assets | ||||||
| Total Current Assets | ||||||
| Intangible Assets (note 7) | ||||||
| Long-lived Assets, net (note 8) | ||||||
| Long-Term Assets | ||||||
| Total Assets | $ | $ | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||
| Current Liabilities | ||||||
| Accounts payable (note 9) | $ | $ | ||||
| Government remittances payable | ||||||
| Accrued liabilities (notes 9, 11, and 13) | ||||||
| Advance (note 10) | ||||||
| Deferred revenue | ||||||
| Current portion of long-term debt (note 11) | ||||||
| Current portion of obligations under capital lease (note 12) | ||||||
| Convertible promissory notes (note 13) | ||||||
| Loans payable to related parties (note 14) | ||||||
| Total Current Liabilities | ||||||
| Long-term debt (note 11) | ||||||
| Obligations under capital lease (note 12) | ||||||
| Deferred tax liability | ||||||
| Total Long-term Liabilities | ||||||
| Total Liabilities | ||||||
| Stockholders' Deficiency | ||||||
| Preferred stock, $ Common stock, $ |
||||||
| Additional paid-in capital | ||||||
| Shares to be issued | ||||||
| Accumulated deficit | ( |
) | ( |
) | ||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||
| Stockholders' deficiency | ( |
) | ( |
) | ||
| Total Liabilities and Stockholders' Deficiency | $ | $ | ||||
| Going concern (note 2) | ||||||
| Commitments (note 16) | ||||||
| Subsequent events (note 20) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and nine-month periods ended September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
| For the three-month periods ended | For the Nine-month periods ended | |||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Revenue | $ | $ | $ | $ | ||||||||
| Cost of Sales | ||||||||||||
| Opening inventory | ||||||||||||
| Depreciation (note 8) | ||||||||||||
| Direct wages and benefits | ||||||||||||
| Equipment rental, delivery, fuel and repairs and maintenance | ||||||||||||
| Utilities | ||||||||||||
| Outside contractors | ||||||||||||
| Less: closing inventory | ( |
) | ( |
) | ||||||||
| Total cost of sales | ||||||||||||
| Gross (loss) profit | ( |
) | ( |
) | ||||||||
| Operating expenses | ||||||||||||
| Management compensation-stock- based | ||||||||||||
| compensation (notes 9 and 15) | ||||||||||||
| Management compensation-fees (note 9) | ||||||||||||
| Marketing | ||||||||||||
| Professional fees | ||||||||||||
| Interest expense and default amounts (notes 9, 10, 11, 12 and 13) | ||||||||||||
| Office and administration (note 7 and 8) | ||||||||||||
| Rent and occupancy (note 9) | ||||||||||||
| Insurance | ||||||||||||
| Filing fees | ||||||||||||
| Amortization of financing costs | ||||||||||||
| Directors' compensation (note 9) | ||||||||||||
| Stock-based compensation (note 15) | ||||||||||||
| Repairs and maintenance | ||||||||||||
| Foreign exchange (income) loss | ( |
) | ||||||||||
| Total operating expenses | ||||||||||||
| Net loss from operating activities | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other (loss) income (note 17) | ( |
) | ( |
) | ||||||||
| Net loss before deferred and income taxes recovery | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Deferred taxes recovery | ||||||||||||
| Income taxes recovery | ||||||||||||
| Total deferred and income taxes recovery | ||||||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other comprehensive loss | ||||||||||||
| Foreign exchange income (loss) | ( |
) | ||||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | ( |
) | ( |
) | ||
| Net loss per share-basic and diluted | $ | ( |
) | $ | ( |
) | ( |
) | ( |
) | ||
| Weighted average number of common shares outstanding- basic and diluted | ||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency
For the three and nine-month periods ended September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
| Number of Shares |
Common Shares |
Additional Paid- in Capital |
Shares to be Issued |
Stock Compensation Reserve |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Stockholders' Deficiency |
|||||||||||||||||
| Balance-December 31, 2020 | $ | $ | $ | $ | - | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | - | - | ||||||||||||||||||
| Shares issued to officers | - | - | - | - | ||||||||||||||||||||
| Shares issued on conversion of related party debt and accounts payable to equity | - | - | - | - | ||||||||||||||||||||
| Shares issued for conversion of debt to equity | - | - | - | - | ||||||||||||||||||||
| Shares issued for professional services | - | - | - | - | ||||||||||||||||||||
| Shares yet to be issued on issuance of convertible debt | - | - | - | - | - | - | ||||||||||||||||||
| Shares issued on private placement | - | - | - | - | ||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net loss | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-March 31, 2021 | $ | $ | $ | $ | - | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | - | - | ||||||||||||||||||
| Shares issued on conversion of related party debt | - | - | - | - | ||||||||||||||||||||
| Shares issued for professional services | - | - | - | - | ||||||||||||||||||||
| Shares issued on receipt of promissory notes | - | - | - | - | ||||||||||||||||||||
| Other Comprehensive loss | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net Loss | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-June 30, 2021 | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Shares issued on receipt of promissory notes | - | - | - | - | ||||||||||||||||||||
| Shares issued for professional services and acquisition of assets | - | - | - | - | ||||||||||||||||||||
| Shares issued on conversion of debt | - | - | - | - | ||||||||||||||||||||
| Shares issued on private placement | - | - | - | - | ||||||||||||||||||||
| Other Comprehensive income | - | - | - | - | - | - | ||||||||||||||||||
| Net Loss | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-September 30, 2021 | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Balance-December 31, 2019 | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Shares issued on vesting of 2019 stock award | - | ( |
) | - | - | - | ||||||||||||||||||
| Shares issued for conversion of debt to equity | - | - | - | - | ||||||||||||||||||||
| Conversion of debt to equity on shares yet to be issued | - | - | - | - | - | - | ||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-March 31, 2020 | $ | $ | $ | $ | - | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | - | |||||||||||||||||||
| Shares issued for conversion of debt to equity | - | - | - | - | ||||||||||||||||||||
| Share cancellation | ( |
) | ( |
) | - | - | - | ( |
) | - | ( |
) | ||||||||||||
| Conversion of debt to equity on shares yet to be issued | - | - | - | - | - | - | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net loss | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-June 30, 2020 | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Shares issued for proceeds previously received | ||||||||||||||||||||||||
| Shares issued for conversion of debt to equity | ( |
) | - | - | - | |||||||||||||||||||
| Conversion of debt to equity on shares yet to be issued | - | - | - | - | ||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net loss | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-September 30, 2020 | - | - | ( |
) | ( |
) | ( |
) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Interim Condensed Consolidated Statements of Cash Flows
For the nine-month periods ended September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
| For the nine-month period ended September 30, 2021 |
For the six-month period ended September 30, 2020 |
|||||
| Cash flows from operating activities | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Deferred taxes recovery | ( |
) | ||||
| Land option expired | ||||||
| Adjustments for: | ||||||
| Depreciation | ||||||
| Amortization of intangible assets | ||||||
| Non-cash professional fees on conversion of debt | ||||||
| Non-cash interest expense on conversion of debt | ( |
) | ||||
| Amortization of financing fees | ||||||
| Change in business combination consideration | ||||||
| Stock-based compensation | ||||||
| Gain on forgiveness of convertible promissory notes and accrued interest | ( |
) | ||||
| Gain on disposal of long-lived assets | ( |
) | ||||
| Changes in non-cash working capital: | ||||||
| Trade receivables | ( |
) | ||||
| Government remittances receivable | ( |
) | ||||
| Other receivables | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits | ||||||
| Deferred assets | ||||||
| Accounts payable | ||||||
| Government remittances payable | ||||||
| Accrued liabilities | ||||||
| Deferred revenue | ( |
) | ( |
) | ||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| Cash flows from investing activities | ||||||
| Purchase of intangible assets | ( |
) | ( |
) | ||
| Purchase of long-lived assets (i) | ( |
) | ( |
) | ||
| Proceeds on disposal of long-lived assets | ||||||
| Net cash provided by (used in) investing activities | ( |
) | ( |
) | ||
| Cash flows from financing activities | ||||||
| Advance | ||||||
| Repayments of advance | ( |
) | ( |
) | ||
| Advance of long-term debt (i) | ||||||
| Repayment of long-term debt | ( |
) | ( |
) | ||
| Repayments of obligations under capital lease | ( |
) | ( |
) | ||
| Advances and penalties of convertible promissory notes (ii) | ||||||
| Repayment of convertible promissory notes | ( |
) | ||||
| Advances of loans payable to related parties (iii) | ||||||
| Repayment of loans payable to related parties | ( |
) | ( |
) | ||
| Proceeds on private placement (net of share issue costs) | ||||||
| Net cash provided by financing activities | ||||||
| Effect of exchange rate on cash | ||||||
| Increase (decrease) in cash | ( |
) | ||||
| Cash and cash equivalents-beginning of period | ||||||
| Restricted cash-beginning of period | ||||||
| Cash and cash equivalents and restricted cash-beginning of period | ||||||
| Cash and cash equivalents end of period | $ | $ | ||||
| Supplemental Cash Flow Disclosure: | ||||||
| Interest paid | $ | $ |
(i) Refer to notes 8, long-lived assets, net and 11, long-term debt, for the increases in long-term debt on long-lived assets, net acquisitions
(ii) Refer to note 13, convertible promissory notes, for the issuance of capital stock on the conversion of debt
(iii) Refer to note 14, loan payable to related party, for the issuance of capital stock on the conversion of debt.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
1. Nature of Business and Basis of Presentation
SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.
On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.
On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp. ("SECC"), SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SGEBL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for interim financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-Q and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company's functional currency is the Canadian Dollar ("C$"). In the opinion of management, all adjustments necessary for a fair presentation have been included.
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments, instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19"). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.
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SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
3. Significant Accounting Policies
These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company for the years ended December 31, 2020 and 2019 and their accompanying notes.
5. Financial Instruments
The carrying value of cash, trade receivables, accounts payable, accrued liabilities and deferred revenue approximated their fair values as of September 30, 2021 and December 31, 2020, due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes and loan payable to related party approximated their fair values due to their market interest rates.
Interest, Credit and Concentration Risk
Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.
The Company is exposed to significant interest rate risk on the current portion of its long-term debt and a portion of its convertible promissory notes of $
Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at September 30, 2021, the Company's credit risk is primarily attributable to cash and trade receivables. As at September 30, 2021, the Company's cash was held with reputable Canadian chartered banks, a credit union and a United States of America bank.
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SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
5. Financial Instruments, (continued)
With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at September 30, 2021, the allowance for doubtful accounts was $ (C$) (December 31, 2020-$; C$).
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. Management is in discussions with a Canadian chartered bank to refinance its obligations to PACE and repay other creditors. Refer also to going concern, note 2.
The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligations by September 2022 and complete the refinancing of its real property and organic waste processing and composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.
Currency Risk
Although the Company's functional currency is the C$, the Company realizes a portion of its expenses in United States Dollars ("$"). Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at September 30, 2021, $
6. Prepaid Expenses and Deposits
Included in prepaid expenses and deposits are costs, primarily for professional services to be expensed as stock-based compensation and stock-based compensation under management compensation after September 30, 2021, in the amount of $
7. Intangible Assets
| September 30, 2021 | December 31, 2020 | |||||
| Customer lists-limited life-C$ |
$ | $ | ||||
| Trademarks-indefinite life-C$ |
||||||
| Environmental compliance approvals (the "ECAs") -indefinite life- C$ |
||||||
| $ | $ |
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| 11 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
7. Intangible Assets, (continued)
For the three and nine-month periods ended September 30, 2021, the Company incurred fees in connection with various trademarks in the United States and Canada, in the amount $
On September 15, 2017, the Company acquired the ECAs, having an indefinite life, on the purchase of certain assets from BDO Canada Limited ("BDO") under an asset purchase agreement (the "APA").
Effective May 24, 2019, the Company acquired customer lists of $
As described in long-lived assets net, note 8, on August 17 2021, the Company acquired certain assets in Hamilton, Ontario, Canada, (the "Hamilton Property"), consisting of land, a vacant building and ECAs. The ECAs acquired totaled $
8. Long-lived Assets, net
| September 30, | December 31, | |||||||||||
| 2021 | 2020 | |||||||||||
| Cost | Accumulated | Net book value | Net book value | |||||||||
| depreciation | ||||||||||||
| Land | $ | $ | $ | $ | ||||||||
| Property under construction | ||||||||||||
| Composting buildings | ||||||||||||
| Gore cover system | ||||||||||||
| Driveway and paving | ||||||||||||
| Machinery and equipment | ||||||||||||
| Equipment under capital lease | ||||||||||||
| Office trailer | ||||||||||||
| Vacuum trailer | ||||||||||||
| Computer equipment | ||||||||||||
| Automotive equipment | ||||||||||||
| Signage | ||||||||||||
| $ | $ | $ | $ |
On August 17 2021, the Company acquired the Hamilton Property assets, consisting of land, a vacant building and ECAs. The total purchase price including costs of acquisition of $
Also included under property under construction, are construction costs incurred subsequent to the acquisition in the amount of $
Depreciation is disclosed in cost of sales for the three and nine-month periods ended September 30, 2021 in the amount of $
In addition, under deferred assets in the interim condensed consolidated balance sheets is an accrual in the amount of $
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| 12 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
9. Related Party Transactions
For three and nine-month periods ended September 30, 2021, the Company incurred $
In addition, during the three and nine-month periods ended September 30, 2021, the Company incurred interest expense of $ (C$) and $ (C$) (2020-$
For the three and nine-month periods ended September 30, 2021, the Company incurred $
For those independent directors providing their services throughout 2021, the Company recorded directors' compensation for the three and nine-month periods ended September 30, 2021, in the amount of $
Furthermore, for the three and nine-month periods ended September 30, 2021, the Company recognized management stock-based compensation expense of $
10. Advance
On August 4, 2020, the Company received an advance in the amount of $
| Corporate | Canada Emergency |
|||||||||||||||||||||||
| Credit Facility |
Credit Facility |
Term Loan |
Mortgages Payable |
Business Account |
Corporate Term Loan |
September 30, 2021 Total |
December 31, 2020 Total |
|||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||||
| Long-Term Debt | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Current portion | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | $ | ( |
) | ( |
) | |||||||||
| Long-term portion | $ | $ | $ | $ | $ | $ | $ | $ |
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| 13 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
11. Long-Term Debt, (continued)
On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company to bring the arrears current by August 31, 2021 and continue to September 2022. Management was not able to meet this new deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Refer to subsequent events, note 20(b) and 20(f). Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the obligations to PACE, September 2022. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.
Refer also to going concern, note 2.
The remaining PACE long-term debt was initially payable as noted below:
| (a) |
|
| (b) |
The credit facility advanced on June 15, 2017, in the amount of $
|
| (c) |
The corporate term loan advanced on September 13, 2017, in the amount of $ |
| (d) |
i.) The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $
|
|
| 14 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
11. Long-Term Debt, (continued)
|
ii.) On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $ |
For the three and nine-month periods ended September 30, 2021, $
| (e) | As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions. |
| The Company has received a total of $ |
|
| Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free.
|
|
| In addition, on a combined basis, if $ |
|
| (f) | On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $ |
| For the three and nine-month periods ended September 30, 2021, $ |
12. Obligations under Capital Lease
| September 30, | December 31, | ||||||||||||||
| 2021 | 2020 | ||||||||||||||
| (a) | (b) | (c) | Total | Total | |||||||||||
| Obligations under Capital Lease | $ | $ | $ | $ | $ | ||||||||||
| Less: current portion | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||
| Long-term portion | $ | $ | $ | $ | $ |
Refer also to going concern, note 2.
| (a) |
The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $
|
|
| 15 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
12. Obligations under Capital Lease, (continued)
| (b) | The lease agreement for certain equipment for the Company's organic composting facility at a cost of $ |
| (c) | The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $ |
The lease liabilities are secured by the equipment under capital lease as described in note 8.
Minimum lease payments as per the original terms of the obligations under capital lease are as follows:
| In the three-month period ending December 31, 2021 | $ | ||
| In the year ending December 31, 2022 | |||
| In the year ending December 31, 2023 | |||
| In the year ending December 31, 2024 | |||
| In the year ending December 31, 2025 | |||
| Less: imputed interest | ( |
) | |
| Total | $ |
For the three and nine-month periods ended September 30, 2021, $
13. Convertible Promissory Notes
| September 30, 2021 | December 31, 2020 | |||||||
| (a) | Convertible promissory notes-March 7 and March 8, 2019 (net of unamortized financing costs of $ (2020- $)) | $ | $ | |||||
| (b) | Convertible promissory note-May 23, 2019 (net of unamortized financing costs of $ (2020-$)) | |||||||
| (c) | Convertible promissory note-July 19, 2019 (net of unamortized financing costs of $ (2020-$)) | |||||||
| (d) | Convertible promissory note-October 17, 2019 (net of accumulated financing costs of $ (2020-$) | |||||||
| (e) | Convertible promissory note-March 31, 2021 (net of unamortized financing costs of $ (2020-$) | |||||||
| (f) | Convertible promissory note-April 1, 2021 (net of unamortized financing costs of $ (2020-$) | |||||||
| (g) | Convertible promissory note-June 16, 2021 (net of unamortized financing costs of $ |
|||||||
| (h) | Convertible promissory note-August 26, 2021 (net of unamortized financing costs of $ |
|||||||
| $ | $ | |||||||
|
| 16 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
| (a) | On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with |
Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $
|
(a) |
On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors in the face value amount of $ |
|
The March 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the March 2019 Investor Notes into Common Stock, at any time, at a conversion price for each share of the Company's Common Stock equal to |
|
|
The Company initially reserved a minimum of |
|
|
Since the March 2019 Investor Notes were not repaid by their March 7, 2020 and March 8, 2020 maturity dates, they were also in default resulting in the outstanding balance (principal plus accrued interest) increasing by |
|
|
On December 24, 2020, one of the two March 2019 Investors accepted a payment of $ |
|
|
On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $
|
|
| 17 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
| During the three-month period ended September 30, 2021, the March 2019 Investor converted $ |
|
| (b) | On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one |
| The maturity date of the May 2019 Investor Note was May 23, 2020. The May 2019 Investor Note bears interest at a rate of twelve percent ( |
|
| The Company initially reserved |
|
| As a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from |
|
| During the three and nine-month periods ended September 30, 2021, the May 2019 Investor converted a total of $ and $nil (December 31, 2020-$nil and $ |
|
| (c) | On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one |
| The maturity date of the July 2019 Investor Note was July 19, 2020. The July 2019 Investor Note bears interest at a rate of twelve percent ( |
|
|
The Company initially reserved |
|
| 18 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
|
As a result of the January 2019 Investor Notes, the March 2019 Investor Notes and the May 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor Note increasing from |
|
|
|
|
|
On January 21, 2021, the July 2019 Investor converted the remaining balance of his July 2019 Investor Note for |
|
|
|
|
| (d) |
On October 17, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one |
|
|
|
|
The maturity date of the October 2019 Investor Note was October 17, 2020. The October 2019 Investor Note bears interest at a rate of twelve percent ( |
|
|
|
|
|
The Company initially reserved |
|
|
|
|
|
As a result of the January 2019 Investor Notes, the March 2019 Investor Notes, the May 2019 Investor Note and the July 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from |
|
|
|
|
| (e) |
On March 31, 2021, the Company entered into a securities purchase agreement (the "March 2021 SPA") with one investor (the "March 2021 Investor") pursuant to which the Company issued to the March 2021 Investor one |
|
|
|
|
The maturity date of the March 2021 Investor Note is September 30, 2021. The March 2021 Investor Note bears interest at a rate of ten percent (
|
|
| 19 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
|
13. Convertible Promissory Notes, (continued) |
|
The Company initially reserved |
|
| (f) | On April 1, 2021, the Company entered into a securities purchase agreement (the "April 2021 SPA") with one investor (the "April 2021 Investor") pursuant to which the Company issued to the April 2021 Investor one |
| The maturity date of the April 2021 Investor Note is September 30, 2021. The April 2021 Investor Note bears interest at a rate of ten percent ( The Company initially reserved |
|
| (g) | On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of ten percent ( The Company initially reserved |
|
(h) |
On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one
|
|
| 20 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of ten percent (
The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of
The original terms of the convertible promissory notes described in paragraphs (a) through (d) above may be prepaid until 180 days from their applicable effective date with the following penalties:
Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.
The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.
For the three and nine-month periods ended September 30, 2021, the Company recorded interest of $
Refer also to going concern, note 2.
14. Loans Payable to Related Parties
| September 30, 2021 | December 31, 2020 | |||||
| Director | $ | $ | ||||
| Officer (CFO) | $ | $ | ||||
| $ | $ |
The balance owing to director, is unsecured, non-interest bearing and due on demand. The balance owing to the officer is unsecured bearing interest at the rate of
|
| 21 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
14. Loans Payable to Related Parties, (continued)
During the three and nine-month periods ended September 30, 2021, the director's company, Travellers, converted a total of $ (C$) respectively and $
15. Capital Stock
As at September 30, 2021, the Company had
For the nine-month period ended September 30, 2021, the Company issued
In addition, the Company raised $
On March 31, 2021, the Company issued the March 2021 Investor Note to the March 2021 Investor, and issued, subsequent to March 31, 2021,
On January 4, 2021, the Company issued
During the year ended December 31, 2020, the convertible promissory note holders converted a total of $
The Company canceled the
|
| 22 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
16. Commitments
a) Effective January 1, 2021, new executive consulting agreements were finalized for the services of the CEO and the CFO, for two years and one year, respectively. The CEO's monthly fee is $
| For the three-month period ending December 31, 2021 | $ | ||
| For the year ending December 31, 2022 | |||
| $ |
b) The Company has agreed to lease its office premises from Haute on a month-to-month basis, at the monthly rate of $
c) Effective June 1, 2021 a new investor relations consulting agreement was finalized with a consultant to provide investor relations service provided for six months to November 30, 2021. The investor relations consulting agreement was terminated and will not extent beyond November 30, 2021.
| For the three-month period ending December 31, 2022 | $ |
d) The Company was assigned the land lease on the purchase of certain assets of Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $
| For the three-month period ending December 31, 2021 | $ | ||
| For the year ending December 31, 2022 | |||
| For the year ending December 31, 2023 | |||
| For the year ending December 31, 2024 | |||
| For the year ending December 31, 2025 | |||
| $ |
PACE has provided the Company a letter of credit in favor of the MECP in the amount of $
The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating its financial assurance with the MECP. As a result of audits conducted by the MECP in December of 2020, the Company has accrued estimated and actual costs for corrective measures as a result of the MECP's audits totaling $
|
| 23 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
17. Other Income (Loss)
| September 30, 2021 | September 30, 2020 | |||||
| (a) Gain on forgiveness of convertible promissory notes | $ | $ | ||||
| (b) Gain on disposal of long-lived assets | ||||||
| (c) Land option expired | ( |
) | ||||
| $ | $ | ( |
) |
(a) On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under his convertible promissory notes by payments totaling $
And on January 20, 2021, the May 2019 Investor, the July 2019 Investor and the October 2019 Investor accepted in full
(b) On January 8, 2021, the Company disposed of certain long-lived assets for proceeds of $
(c) Expiry of land option on the 2019 business acquisition.
18. Economic Dependence
The Company generated
19. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount of $
On September 24, 2020, the Company filed a statement of claim against the former chief executive officer and his company, LFGC, which was defended and counterclaimed. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $
On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $
|
| 24 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
20. Subsequent Events
The Company's management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:
(a) On October 18, 2021, the Company entered into a services agreement with a consultant to provide strategic advisory and digital marketing. The services commenced November 1, 2021 and will continue for six months to April 30, 2022. A payment of $
(b) On October 29, 2021, the Company executed two convertible promissory notes totaling $
(c) On November 1, 2021, the Company entered into an agreement with a consultant for corporate consulting and advisory services for a term of three months to January 31, 2022, for a fee of $
(d) On November 3, 2021, the Company repaid the remaining balance of the March 2019 Investor Notes in the amount of $
(e) On November 3, 2021, the Company paid the deposit of $
(f) On November 15, 2021, PACE and the Company reached an agreement whereby the Company made payment of arrears to PACE on November 15, 2021, in the amount of $
|
|
25 |
Certain statements in this Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "would," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission on April 15, 2021.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three and nine-month periods ended September 30, 2021 compared with the three and nine-month periods ended September 30, 2020 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to "we, "us, "our," the "Company," and similar expressions refer to SusGlobal Energy Corp., and depending on the context, its subsidiaries.
SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION
OUR AUDITOR ISSUED AN OPINION EXPRESSING SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN FOR THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019. YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE "GOING CONCERN" ISSUES IN MIND.
This Management's Discussion and Analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the "Financial Statements"). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States ("GAAP"). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
OVERVIEW
The following organization chart sets forth our wholly-owned subsidiaries:
|
| 26 |
On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the SEC on May 23, 2017.
On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.
When the terms "the Company," "we," "us" or "our" are used in this document, those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., 1684567 Ontario Inc., and SusGlobal Energy Hamilton Ltd.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
With the growing amount of organic wastes being produced by society as a whole, a solution for sustainable global management of these wastes must be achieved. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of four distinct types of technologies: (a) Process Source Separated Organics ("SSO") in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas; (b) Increasing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield; (c) Utilize recycled plastics to produce liquid fuels; and (d) Process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewables. These products can be converted into electricity, fuels and marketed to agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces Greenhouse Gas Emissions ("GHG") that result from landfilling organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy®.
We believe the project and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management, Composting and Liquid Fertilizer production.
The Company can provide a full range of services for handling organic residuals in a period where innovation and sustainability are paramount. From start to finish we offer in-depth knowledge, a wealth of experience and cutting-edge technology for handling organic waste.
The primary focus of the services SusGlobal provides includes identifying idle or underutilized anaerobic digesters and integrating our technologies with capital investment to optimizing the operation of the existing digesters to reach their full capacity for processing SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant GHG reductions from waste disposal. The processes also produce renewable energy through the conversion of wastewater biosolids and organic wastes in the same equipment (co-digestion) and valuable end products such as biogas, electricity and organic fertilizer, both dry and liquid, considered Class AA organic fertilizer.
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| 27 |
Currently, the primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
The Coronavirus Outbreak ("COVID-19") May Adversely Affect Our Business Operations and Financial Condition
In December 2019, COVID-19 was reported. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Developments in this area continue daily at the local, provincial and national levels. The Company has taken steps, consistent with directions from local, provincial and federal authorities, to mitigate known risks with the health and safety of its employees and customers as its first priority. The outbreak of COVID-19 was declared a national emergency. Many provinces and municipalities in Canada, announced aggressive actions to reduce the spread of COVID-19, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing "social or physical distancing" orders, which direct individuals to remain at their places of residence (subject to limited exceptions). COVID-19 poses the risk that we or our employees, contractors, customers, government and third-party payors and others may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be requested or mandated by governmental authorities.
The Company has acted on the aggressive emergency measures set in place by the provincial government and federal authorities, keeping in mind, firstly, the immediate health and safety of our employees and customers. Employees in the head office, located in Toronto, Ontario, Canada had been working remotely for some time or alternating their office time, ensuring there is no more than one employee present, ensuring they are social distancing and wearing protective face covering within the office and elsewhere outside the office, as per the measures set in place by provincial and local authorities. Employees at the site in Belleville, Ontario, Canada, have also been following the same procedures. The Company has prohibited face to face meetings and all meetings are now and for some time, being held by teleconference.
The Company is fortunate that its operations have not been forced to close as we are considered an essential service. In the early stages of COVID-19, the receipt of organic waste had increased, the likely impact of the requirement for the public to stay in their residences, unless they themselves are employed in an essential business or service. A broad, sustained outbreak of COVID-19 will negatively impact our results and financial condition for the following reasons; (i) a large percentage of our customers are municipalities and their limited operations have resulted in a delay in the collection of outstanding receivables in the early months of COVID-19, impacting our cash flows, including the use of cash; (ii) members of the board, management or employee team, some of whom are particularly at-risk for the severe symptoms of COVID-19, or of our small number of other employees, may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facility; and (iii) the outbreak may materially impact our operations for a sustained period of time due to the current travel bans and restrictions, quarantines, social or physical distancing orders and shutdowns.
The occurrence of any of the these noted events and potentially others, could have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, the variants and the actions to contain its impact.
To date, there has been no material impact on the Company's workforce, operations, financial performance, liquidity, or supply chain as a result of COVID-19. However, the ultimate duration and severity of COVID-19 or its effects on the economy, the capital and credit markets, or the Company's workforce, customers, and suppliers, as well as governmental and regulatory responses, are uncertain.
RECENT BUSINESS DEVELOPMENTS
On October 29, 2021, the Company executed two convertible promissory notes totaling $1,764,710 with net proceeds to the Company in the amount of $1,330,000, net of an original issue discount and other financing costs of $264,710. On November 3, 2021, the Company received $1,330,000 on the execution of the convertible promissory notes. The convertible promissory notes bear interest at the rate of 15% annually and are due July 29, 2022. In connection with the above, on October 27, 2021, the Company signed a consulting agreement with a consultant for a term of six months to provide financial and business consulting, for a fee of $50,000 and 62,500 restricted shares of the Company's common stock. Further, on October 28, 2021, the Company signed a consulting agreement with a consultant for a term of six months to provide financial and business consulting for a fee of 10,000 restricted shares of the Company's common stock. Under both advisory agreements, the restricted shares of the Company's common stock will survive a reverse stock split prior to up listing.
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The Company has signed an Offset Development and Marketing Agreement (the "Agreement") with Blue Source Canada ULC ("Bluesource") to develop and market greenhouse gas offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario, in order for the Company to monetize and realize benefits from its voluntary activities.
This monetization is an exciting development for the Company's mission to reduce organic wastes from wood, leaf and yard material, treated municipal sewage waste (biosolids), residential curbside green bin material or source separated organics ("SSO") and paper sludge otherwise destined for landfills and, we believe, will also allow the Company to expand this mission.
Bluesource has pioneered creative solutions to climate change for over 20 years. Today, this partnership complements Bluesource's portfolio of high-quality environmental products from over 20 different technologies in over 100 locations across the United States and Canada. The partnership with SusGlobal is a core example of Bluesource's experience in identifying, creating, acquiring and marketing offsets, where there is a tangible environmental benefit.
On February 10, 2021, the Company signed an Agreement of Purchase and Sale (the "APS") for certain assets located in Hamilton, Ontario, Canada for $3,532,050 (C$4,500,000), including a vendor take-back mortgage of $1,569,800 (C$2,000,000) at an annual interest rate of 2% maturing two years after closing on August 17, 2023. Deposits of $156,980 (C$200,000) and $117,735 (C$150,000) were paid by the Company on February 10, 2021 and June 1, 2021 respectively. The APS was amended on April 8, 2021, to revise the closing date to June 4, 2021, subject to successful completion of the due diligence process and the completion of the Phase II Environmental Site Assessment at a cost of $39,088 (C$49,800), plus applicable harmonized sales taxes, expected on or before May 19, 2021. On May 20, 2021, the Company and the vendor signed a waiver and amending agreement, waiving the due diligence process and revising the closing date to June 16, 2021. On August 3, 2021, the vendor agreed to amend the APS for the purchase of certain assets in Hamilton, Ontario, Canada, with a new closing date of August 17, 2021. The newly amended APS provided for a credit to the Company in the amount of $294,338 (C$375,000) for certain deficiencies.
On August 17 2021, the Company acquired the Hamilton Property assets, consisting of land, a vacant building and ECAs. The total purchase price including costs of acquisition of $173,996 (C$221,680) totaled $3,557,664 (C$4,532,633). The costs of acquisition, were settled through cash payments of $117,996 (C$150,333) and the issuance of 200,000 common shares valued based on the trading price on the issuance date at $56,000 (C$71,347) to a consultant who assisted on the closing of the transaction. The issuance of common shares is also noted under capital stock, note 15, common shares issued for professional services, in the interim condensed consolidated financial statements. The purchase of the Hamilton Property was funded by cash of $392,712 (C$500,333), the issuance of 300,000 common shares to the vendor on closing, having a value based on the trading price on the issuance date of $84,000 (C$107,020), the issuance noted above of 200,000 common shares to a consultant who assisted on the closing of the transaction disclosed as part of common shares issued for professional services, under capital stock, note 15, in the interim condensed consolidated financial statements, vendor take-back 1st mortgage of $1,569,800 (C$2,000,000) and a portion of the increased existing 1st mortgage of $1,455,152 (C$1,853,933), disclosed under note 11(d), long-term debt, in the interim condensed consolidated financial statements. The cost of the purchase price was allocated ratably over the estimated fair value of each long-lived asset acquired, land of $1,709,074 (C$2,177,442), included above under land and building $1,541,654 (C$1,964,141), described above as property under construction.
Further, the fair value of the ECAs acquired in the above transaction, in the amount of $306,936 (C$391,051), was valued using a replacement cost valuation approach and incorporated a margin on cost and an entrepreneurial margin of approximately 11% and 20% respectively.
On July 8, 2021, the Company applied to list its Common Stock on the Nasdaq Capital Market, and submitted the initial listing fee of $5,000. And, on November 3, 2021, the Company paid the deposit of $10,000, in connection with a letter agreement signed September 22, 2021, to its underwriter, who is also acting as the sole agent, for an offering of up to $12,000,000 on the effectiveness of a registration statement to up-list to the Nasdaq.
On July 2, 2021, the Company revised a letter of intent with the vendors for the purchase of the shares of their two corporations which own proprietary processes, manufacture liquid organic fertilizers and other products. The transaction is set to close upon effectiveness of a registration statement and listing on the NASDAQ with a total purchase price of $16,136,000 (C$20,000,000), which will consist of cash of $8,068,000 (C$10,000,000) and common shares of the Company having a value of $ 8,068,000 (C$10,000,000). The purchase price will be satisfied through a payment of $3,139,600 (C$4,000,000) in cash and the issuance of common shares having a value of $7,849,000 (C$10,000,000) on closing and a final payment of $4,709,400 (C$6,000,000) in cash on June 1, 2022.
On June 1, 2021, the Board of Directors of the Company appointed Ms. Susan Harte as a member of the Board of Directors, effective immediately.
On May 19, 2021, Ryan Duffy submitted his resignation from his position as a member of the Board of Directors of the Company, effective immediately. Mr. Duffy did not resign as a result of any dispute with the Company on any matter relating to the Company's operations, policies or practices.
On April 28, 2021, the Company announced that it had received a (B-) score with scorecard from Circulytics®, launched by The Ellen MacArthur Foundation ("The Foundation"), a charity whose mission is to accelerate the transition to a circular economy.
The Foundation has developed this new digital tool to assess the circular economy performance of companies, which measures enablers within organizations. This measurement assists companies in achieving circular outcomes ("Circulytics" and the method used by Circulytics® being the "Circulytics Method"). The scorecard gives an overview of the company's progress on the journey towards the circular economy, by way of two overarching categories, 'Enablers' and 'Outcomes', as well as eleven themes within these categories, encouraging the company to improve and providing theme level scores to enable the company to prioritize certain activities.
On April 20, 2021, the Board of Directors of the Company appointed Mr. Gary Herman as a member of the Board, effective immediately.
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On April 8, 2021, the Company completed the purchase of its new truck and hauling trailer for a total purchase price of $172,803 (C$220,159), plus the applicable harmonized sales taxes and administrative costs. The Company paid deposits of $38,572 (C$49,143) on this purchase and financed the balance over a period of forty-eight months at a monthly principal and interest payment of $3,611 (C$4,601) at an interest rate of 4.95% per annum.
On March 4, 2021, the Company announced it has signed a Capital Market Advisory Agreement (the "Agreement") with Exchange Listing, LLC ("Exchange Listing") to provide advisory services with respect to the Company's initiative to list its shares of Common Stock on the Nasdaq Capital Market. Exchange Listing provides companies with cost-effective and efficient direct access to one-stop solutions in the strategic planning and implementation of listing on senior exchanges such as NASDAQ or NYSE. Focusing on company-specific structuring to meet listing requirements, Exchange Listing serves as the primary point of contact with the exchange, investment bankers and lawyers throughout the listing process. With extensive experience in investment banking, securities law, corporate governance and business management, Exchange Listing and its strategic partners facilitate its clients' listing and capital markets objectives.
Purchase of Additional Lands
On November 12, 2020, the Company acquired additional lands described in the Company's Share Purchase Agreement (the "SPA") of 1684567 Ontario Inc. ("1684567"), in May of 2019. The additional lands include a 6.60-acre licensed gravel pit and a 0.20 acre right of way for a purchase price of $164,829 (C$210,000) plus the applicable harmonized sales tax. The Company is now the owner of a 49-acre land parcel at its Belleville, Ontario, Canada, organic waste processing and composting facility. The purchase was funded through an additional advance of $549,430 (C$700,000) on its existing 1st mortgage. The funds received, $407,550 (C$519,238), were net of financing fees of $57,867 (C$73,725) and expenses including accrued interest, property taxes and other disbursements of $90,077 (C$114,762). The new first mortgage of $2,590,170 (C$3,300,000) was registered on November 12, 2020. The terms of the new 1st mortgage are as noted under long-term debt, note 11(d) to the interim condensed consolidated financial statements, including an interest rate at the higher of the Royal Bank of Canada's prime rate plus 7.55% (currently 10% per annum) and 10% per annum, and the principal amount is due December 1, 2021. Management used a portion of the additional advance to satisfy certain obligations with Pace Savings and Credit Union Limited ("PACE"). Refer to new business developments above, for details on the increase in the existing 1st mortgage to $4,081,480 (C$5,200,000), with a new maturity date of September 1, 2022.
SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY®
After having filed on March 13, 2019, trademark applications in Canada and the United States, on July 16, 2020, the Company announced it had received a Certificate of Registration from the United States Patent and Trademark Office ("USPTO") for the trademark LEADERS IN THE CIRCULAR ECONOMY (the "Mark").
The Mark was registered under Registration Number 6,098,063 on July 7, 2020 on the Supplemental Register. The registration will be in effect for an initial term of ten years, expiring on July 7, 2030, with the option of renewing the registration for successive ten-year terms for the following class:
treatment and processing of organic waste; organic waste disposal services, namely, destruction and recycling of waste; organic waste management services, namely, converting waste into energy; recycling of organic waste; technical consulting in the field of waste management, namely, consulting in the field of waste treatment; recycling of plastic; recycling, namely, transform biosolids and organic waste into a pathogen free recognized organic fertilizer and compost and regenerative products, namely, biogas, electricity, liquid fertilizer, compost.
Now that the Mark is registered, The Company is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg. U.S. Pat. and T.M. Office").
SusGlobal Receives a Certificate of Registration for the Trademark EARTH's JOURNEY® and the Trademark CARING FOR EARTH'S JOURNEY®
On November 24, 2020, the Company received a Certificate of Registration from the United States Patent and Trademark Office for the trademark EARTH's JOURNEY® and trademark CARING FOR EARTH'S JOURNEY® (the "Marks"). The Marks were registered under Registration Number 6,197,171 and Registration Number 6,195,955 on November 10, 2020 on the Supplemental Register. The registrations will be in effect for an initial term of ten years, expiring November 10, 2030, with the option of renewing the registrations for successive ten-year terms. Now that the Marks are registered, it is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg U.S. Pat. And T.M. Office").
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SusGlobal to Commence Integration of The Ydro Process(R) at Its Belleville Organic Waste Processing and Composting Facility
On May 27, 2020, the Company announced it has agreed to commence The Ydro Process® integration into the existing operations at the Organic Waste Processing and Composting Facility of its wholly owned subsidiary SusGlobal Energy Belleville Ltd. ("SusGlobal Belleville").
TradeWorks Environmental's Ydro Process® is integrated into the existing SusGlobal Belleville operations by applying the Ydro Series®
Microorganisms product once during the preparation stage of the batches in the appropriate Gore® system windrows.
The integration of the Ydro Process® is expected to:
Reduce:
• Odors generated from the composting processing, its products (compost), as well as its by-products (i.e. leachate).
• Energy requirements, and the electrical consumption for aeration-heating purposes.
Increase:
• Degradation/decomposition rate and efficiency of the composting process.
• Composting process and reduce the compost processing time.
• Composting performance and efficiency of the system.
• System's composting capacity and composting cycles (over its design limit).
• Compost quality, compost maturity, N:P:K & C:N ratio.
• Composting temperature (naturally, through the biological activity).
Energy Retrofit Program
On January 15, 2020, the Independent Electrical System Operator (the "IESO") pre-approved the Company's Save on Energy Retrofit Program Application (the "Program"). The total cost of the Program was $93,161 ($C118,692). As the Program was successfully completed, the Company, on April 15, 2021, received the hydro grant from the IESO of $45,910 (C$58,491), plus the applicable harmonized sales taxes. The Program was designed to realize a savings of approximately 50% in hydro costs annually, with an overall return on investment estimated at 125%.
Financings
(a) Securities Purchase Agreements
On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one 10% unsecured convertible promissory note (the "August 2021 Investor Note") in the principal amount of $142,200. On September 1, 2021, the Company received proceeds of $125,000, net of transaction related expenses of $17,200. In addition, the June 2021 Investor was issued 80,000 common shares of the Company, valued at $21,200, based on the closing trading price per share of $0.265.
The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "August 2021 Interest Rate"). The August 2021 Investor Note will include a one-time interest charge of $14,220, which shall be at repayable by the Company in 10 equal monthly amounts of $15,642 (including principal and interest) commencing October 15, 2021. The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 75% (representing a 25% discount) multiplied by the lowest trading price (i) during the previous five (5) trading day (as defined in the August 2021 Investor Note) period prior to conversion. The Company has the right to accelerate the monthly payments or prepay the August 2021 Investor Note at any time without penalty.
On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. On June 18, 2021, the Company received proceeds of $382,500, net of transaction related expenses of $67,500. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company, determined to be valued at $300,000, based on an agreed upon price per share of $0.30. The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "June 2021 Interest Rate"), which shall be paid by the Company to the June 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The June 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the June 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the June 2021 Investor Note) period ending on the issuance date of the June 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the June 2021 Investor Note. The June 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the June 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the June 2021 Investor Note plus (c) default interest (as defined in the June 2021 Investor note), if any.
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On April 1, 2021, the Company entered into a securities purchase agreement with an investor (the "April 2021 Investor"), in which the Company issued to the April 2021 Investor a 10% unsecured convertible promissory note (the "April 2021 Investor Note") in the aggregate principal amount of $275,000, due September 30, 2021, convertible at any time after issuance at a per share price of $0.20. In addition, the April 2021 Investor received 200,000 common shares of the Company, subsequent to issuance of the April 2021 Investor Note, valued at $69,000 based on the closing price of the common shares on issuance the day before issuance. On April 5, 2021, the Company received $245,000, net of transaction related expenses of $30,000.
On March 31, 2021, the Company entered into a securities purchase agreement with an investor (the "March 2021 Investor"), in which the Company issued to the March 2021 Investor a 10% unsecured convertible promissory note (the "March 2021 Investor Note") in the aggregate principal amount of $275,000, due September 30, 2021, convertible at any time after issuance at a per share price of $0.20. In addition, the March 2021 Investor received 200,000 common shares of the Company, subsequent to issuance of the March 2021 Investor Note, valued at $69,000 based on the closing price of the common shares the day before issuance. On March 31, 2021, the Company received $245,000, net of transaction related expenses of $30,000.
On January 20, 2021, the May 2019 Investor, the July 2019 Investor and the October 2019 Investor reached an agreement with the Company and on January 21, 2021 converted the remaining balances of their convertible promissory notes, totaling $546,000 for 2,100,000 common shares of the Company, at a conversion price of $0.26 per share. This satisfies in full all obligations due and owing on their convertible promissory notes. This resulted in a gain on forgiveness of debt of $223,819, including accrued interest of $169,219, disclosed as other income in the interim condensed consolidated statements of operations and comprehensive loss.
On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $550,000, $50,000 paid on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. As noted, the March 2019 Investor converted a total of $135,000 of one of his March 2019 Investor Notes, including accrued interest of $32,444 and related expense of $275 into 1,075,124 common shares of the Company, a conversion price of $0.156 per share. The balance of the convertible promissory note was forgiven by the March 2019 Investor resulting in a forgiveness of debt of $135,641, including accrued interest of $129,141, disclosed under other income in the interim condensed consolidated financial statements.
On November 3, 2021, the Company paid the March 2019 Investor Note in the amount of $200,000, for a total settlement of outstanding principal and accrued interest.
For the three and nine-month periods ended September 30, 2021, the Company recorded interest of $60,693 and $104,412 (2020-$115,351 and $448,798 interest and default amounts) respectively. As at September 30, 2021, $88,474 (December 31, 2020-$316,048) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2021, $20,910 and $53,354 (2020-$8,821 and $15,276) respectively, of accrued interest was converted.
(b) Pace Savings & Credit Union Limited ("PACE")
On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company to bring the arrears current by August 31, 2021 and continue to September 2022. Management was not able to meet this new deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company had with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the Company’s obligations to PACE, September 2022. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.
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The remaining PACE long-term debt was initially payable as noted below:
(i) The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $6,879 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,255,840 (C$1,600,000), is secured by a business loan general security agreement, a $1,255,840 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
(ii) The credit facility advanced on June 15, 2017, in the amount of $470,940 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,847 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
(iii) The corporate term loan advanced on September 13, 2017, in the amount of $2,923,083 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,320 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,140,368 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.
For the three and nine-month periods ended September 30, 2021, $79,687 (C$99,683) and $236,743 (C$296,151) (2020-$70,105; C$93,162 and $225,346; C$304,893) respectively, in interest was incurred on the PACE long-term debt. As at September 30, 2021 $71,051 (C$88,065) (December 31, 2020-$18,319; C$23,325) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
(c) Other Financings
(i) The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,081,480 (C$5,200,000) (December 31, 2020-$2,591,820; C$3,300,000). The fourth tranche was received on August 13, 2021 in the amount of $1,491,310 (C$1,900,000). The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage property described in note 8, long-lived assets, net in the interim condensed consolidated balance sheets with a carrying value of $1,654,569 (C$2,108,000) and a general assignment of rents. Financing fees on the 1st mortgage totaled $316,644 (C$403,419). As at September 30, 2021 $32,428 (C$41,315) (December 31, 2020-$36,215; C$46,110) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2021 there is $124,413 (C$158,508) (December 31, 2020-$50,253; C$63,984) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.
On August 17, 2021, the Company obtained a vendor take back 1st mortgage in the amount of $1,569,800 (C$2,000,000), on the purchase of the Hamilton property described under long-lived assets, net note 8. The 1st mortgage bears interest at an annual rate of 2% per annum, repayable monthly interest only with a maturity date of August 17, 2023, secured by the assets acquired in Hamilton, Ontario, Canada.
To finance the closing, the Company used a portion of its increased 1st mortgage in the amount of $1,455,152 (C$1,853,933).
For the three and nine-month periods ended September 30, 2021, $89,762 (C$112,814) and $206,184 (C$257,924) (2020-$48,409; C$65,000 and $144,125; C$195,000) respectively in interest was incurred on the 1st mortgages payable.
(ii) As a result of COVID-19, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
The Company has received a total of $78,490 (C$100,000) under this program, from its Canadian chartered bank.
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Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025.
In addition, on a combined basis, if $54,943 (C$70,000) of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance, $23,547 (C$30,000). The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
(iii) On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,952 (C$6,138). The amount was paid in full on January 26, 2021. For the three and nine-month periods ended September 30, 2021, the Company incurred interest charges of $nil (C$nil) and $706 (C$883) (2020-$nil; C$nil and $nil; C$nil) respectively.
(iv) During the three and nine-month periods ended September 30, 2021, Travellers International Inc. ("Travellers"), a company controlled by the president and chief executive officer (the "CEO") of the Company, who is also a director, loaned the Company $318,136 (C$405,321). The loans were converted along with of $82,052 (C$101,700) of accounts payable owing to Travellers into 1,726,076 common shares of the Company based on the closing trading price of the shares on conversion. There are no written agreements evidencing the Travellers loans other than resolutions of the Board with attached loan schedules.
(d) Financings Related to Obligations Under Capital Lease
There were no new capital leases entered into by the Company during the three-month period ended September 30, 2021.The original terms of the obligations under capital lease are noted below under paragraphs (i), (ii) and (iii).
(i) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $224,992 (C$286,650), is payable in monthly blended installments of principal and interest of $4,556 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. On November 3, 2021, the Company paid the final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes.
(ii) The lease agreement for certain equipment for the Company's organic composting facility at a cost of $194,224 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,017 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,849 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,371 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.
(iii) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $305,836 (C$389,650), is payable in monthly blended installments of principal and interest of $5,378 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,266 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $78 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.
For the three and nine-month periods ended September 30, 2021, $2,147 (C$2,721) and $9,841 (C$12,311) (2020-$4,902; C$6,536 and $13,822; C$18,701) respectively, in interest was incurred.
Treatment of Organic Waste and Septage
On February 28, 2019, the Company announced that it had received the project completion report titled: Development Optimization and Validation of an Innovative Integrated Anaerobic Thermophilic Digester Treatment of Organic Waste and Septage. The report was written by a research team at Fleming College's Centre for Advancement of Water and Wastewater Technologies, located in Lindsay, Ontario, Canada. The collaborative project was supported by the Advancing Water Technologies Program (the "AWT Program") of Southern Ontario Water Consortium. The project focused on the development of a new and innovative technology for handling and processing organic residuals. This new technology utilizes the anaerobic mesophilic digestion process coupled with thermophilic digestion to maximize biogas yields and produce organic fertilizer through optimal operations.
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Other
On May 9, 2017, the company signed a memorandum of agreement with Kentech (the "Kentech Agreement"), a corporation existing under the laws of the province of Ontario, Canada ("Kentech"). The Kentech Agreement provides the Company the right to acquire and the right to use the equipment and innovative processes of Kentech in relation to the production of liquid fertilizer from organic waste material. The Kentech Agreement is for a period of five years, commencing on the date of the Kentech Agreement. The Kentech Agreement may be terminated by either party upon providing six months' notice.
The Company's activities all contribute to GHG reductions, so we will be a key part of Ontario's initiative. The Company has also contacted counterparties in Quebec and California to explore opportunities for relevant projects. SusGlobal is committed to making all its commercial activities carbon neutral. New Cap and Trade regulations became effective January 2017. On July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap-and-Trade program in Ontario. In January 2019, a Climate Change Leadership Team (the "CCLT") was established. The CCLT is a cross-ministry group responsible for embedding climate change in government procurement, building understanding and capacity within government, and creating a process to update internal directives and guidance to help ensure climate change is considered.
The Company has signed an Offset Development and Marketing Agreement (the "Agreement") with Blue Source Canada ULC ("Bluesource") to develop and market greenhouse gas offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario, in order for the Company to monetize and realize benefits from its voluntary activities.
This monetization is an exciting development for the Company's mission to reduce organic wastes from wood, leaf and yard material, treated municipal sewage waste (biosolids), residential curbside green bin material or source separated organics ("SSO") and paper sludge otherwise destined for landfills and, we believe, will also allow the Company to expand this mission.
Bluesource has pioneered creative solutions to climate change for over 20 years. Today, this partnership complements Bluesource's portfolio of high-quality environmental products from over 20 different technologies in over 100 locations across the United States and Canada. The partnership with SusGlobal is a core example of Bluesource's experience in identifying, creating, acquiring and marketing offsets, where there is a tangible environmental benefit.
Operations
The Company owns Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 metric tonnes ("MT") of waste annually from the provinces of Ontario, Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 MT of waste annually. Once built, the location of the waste transfer station will be alongside the Organic and Non-Hazardous Waste Processing and Composting Facility which is currently operating in Belleville, Ontario, Canada.
Waste Transfer Station- Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility- As noted above, the Company's organic waste processing and composting facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic waste composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During nine-month period ended September 30, 2021, tipping fees ranged from $54 (C$69) to $125 (C$159) per MT.
The Company owns a 40,535 square foot facility on 3.26 acres in Hamilton, Ontario, which includes an Environmental Compliance Approval to process 65,884 metric tonnes per annum of organic waste, 24 hours per day 7 days a week. The facility will be designed to produce, distribute and warehouse the Company's SusGro™ organic liquid fertilizer and other products that are provided under private label and sold through big box retailers, consumer lawn and garden suppliers, and for end use to the wine, cannabis and agriculture industries. With the addition of a further 11,000 square feet of office space and R&D labs, the Hamilton facility will also house the continued development of SusGlobal's proprietary formulations and branded liquid and dry organic fertilizers.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021, the Company had a bank balance of $36,912 (December 31, 2020-$6,457) and current debt obligations and other current liabilities in the amount of $11,592,938 (December 31, 2020-$10,358,212). As at September 30, 2021, the Company had a working capital deficit of $11,236,795 (December 31, 2020-$9,830,314). The Company does not currently have sufficient funds to satisfy the current debt obligations.
On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. The amounts owing were not repaid to PACE on July 30, 2021. On August 13, 2021, PACE agreed to allow the Company until August 31, 2021 to bring the arrears current and continue to September 2022, the original maturity date. The Company was not able to meet this deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the Company’s obligations to PACE, September 2022. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.
The Company's total assets as at September 30, 2021 were $8,962,137 (December 31, 2020-$5,758,303) and total current liabilities were $11,592,938 (December 31, 2020-$10,358,212). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $15,993,098 as at September 30, 2021 (December 31, 2020 -$13,468,794). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels.
To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $11,592,938 in current debt obligations and other current liabilities, the Company estimates that approximately $17,500,000 must be raised to fund capital requirements and general corporate expenses for the next 12 months.
In the normal course of business, we are exposed to market risks, including changes in interest rates, certain commodity prices and Canadian currency rates. The Company does not use derivatives to manage these risks.
During the three and nine-month periods ended September 30, 2021, the investors of the unsecured convertible promissory notes, converted a total of $75,000 and $756,000 of their unsecured convertible promissory notes respectively, along with a portion of their accrued interest and related costs of $21,185 and $53,904, a total of $96,185 and $809,904 for 3,767,029 common shares of the Company at prices ranging from $0.156 to $0.26 per share.
As at September 30, 2021, the current and long-term portions of our debt obligations totaled $10,832,590 (December 31, 2020-$7,922,532).
In addition, as at September 30, 2021, the Company had an outstanding letter of credit provided by PACE, in the amount of $217,285 (C$276,831), in favor of the MECP. The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating its financial assurance with the MECP. The letter of credit was renewed by PACE to the termination of the Company's obligations to PACE.
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CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2021 COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2020
| For the three-month periods ended | ||||||
| September 30, 2021 | September 30, 2020 | |||||
| Revenue | $ | 204,796 | $ | 439,507 | ||
| Cost of Sales | ||||||
| Opening inventory | 35,983 | - | ||||
| Depreciation | 116,632 | 133,467 | ||||
| Direct wages and benefits | 74,093 | 90,475 | ||||
| Equipment rental, delivery, fuel and repairs and maintenance | 371,424 | 52,652 | ||||
| Utilities | 16,872 | 27,185 | ||||
| Outside contractors | 39,717 | 3,886 | ||||
| 654,721 | 307,665 | |||||
| Less: closing inventory | (21,506 | ) | - | |||
| Total cost of sales | 633,215 | 307,665 | ||||
| Gross (loss) profit | (428,419 | ) | 131,842 | |||
| Operating expenses | ||||||
| Management compensation-stock-based compensation | 54,259 | - | ||||
| Management compensation-fees | 90,471 | 51,812 | ||||
| Marketing | 30,131 | - | ||||
| Professional fees | 96,704 | 102,769 | ||||
| Interest expense and default amounts | 233,346 | 258,796 | ||||
| Office and administration | 66,329 | 50,042 | ||||
| Rent and occupancy | 56,148 | 32,420 | ||||
| Insurance | 19,719 | 10,056 | ||||
| Filing fees | 49,131 | 12,957 | ||||
| Amortization of financing costs | 235,795 | 18,677 | ||||
| Directors' compensation | 14,905 | 56,637 | ||||
| Stock-based compensation | 31,946 | - | ||||
| Repairs and maintenance | 3,688 | 1,186 | ||||
| Foreign exchange loss (income) | 35,569 | (33,473 | ) | |||
| Total operating expenses | 1,018,141 | 561,879 | ||||
| Net loss from operating activities | (1,446,560 | ) | (430,037 | ) | ||
| Other Income | - | (424 | ) | |||
| Net loss before deferred taxes recovery | (1,446,560 | ) | (430,461 | ) | ||
| Deferred and income taxes recovery | 26,552 | 1,415 | ||||
| Net Loss | $ | (1,420,008 | ) | $ | (429,046 | ) |
During the three-month period ended September 30, 2021, the Company generated $204,796 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $439,507 in the three-month period ended September 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.
In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $633,215 for the three-month period ended September 30, 2021 compared to $307,665 for the three-month period ended September 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The reduction in costs relate partially to reduced overtime hours included in direct wages and benefits, adjustments to the estimated cost for the clean-up of certain waste as ordered by the MECP, reductions in utilities resulting from the retrofit of the hydro usage in the composting operation offset by an increase in hauling costs included in outside contractors.
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Operating expenses increased by $456,262, from $561,879 in the three-month period ended September 30, 2020 to $1,018,141 in the three-month period ended September 30, 2021, explained further below.
Management compensation related to stock-based compensation increased by $54,259, in the three-month period ended September 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. The management compensation relating to fees increased by $38,659, from $51,812 in the three-month period ended September 30, 2020 to $90,471 in the three-month period ended September 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.
During the three-month period ended September 30, 2021, the Company contracted with several marketing service providers for news media campaigns including articles and ad placements. There was no marketing conducted in the three-month period ended September 30, 2021.
Professional fees were reduced by $6,065 from $102,769 in the three-month period ended September 30, 2020 to $96,704 in the three-month period ended September 30, 2021, an insignificant decrease.
Interest expense and default amounts reduced by $25,450 from $258,796 in the three-month period ended September 30, 2020 to $233,346 in the three-month period ended September 30, 2021. This was primarily the result of lower interest in the current three-month period on our convertible due to the payoff agreements finalized with the convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, a reduction of approximately $137,000. This was offset primarily by increases in the interest on the 1st mortgage payable, whose principal balance increased by a total of $2,040,740 (C$2,600,000), from two increases, one effective November 10, 2020, in the amount of $549,430 (C$700,000) and one effective August 13, 2021, in the amount of $1,491,310 (C$1,900,000) and the new 1st mortgage of $1,569,800 (C$2,000,000) on the Hamilton, Ontario, Canada asset acquisition, effective August 13, 2021.
Office and administration expenses increased by $16,287 from $50,042 in the three-month period ended September 30, 2020 to $66,329 in the three-month period ended September 30, 2021, primarily due to the increases in expenses with the incorporation of the Hamilton operations, including security of $6,125 and increases in other general and administrative expenses including donations, automotive, meals and entertainment and payroll amongst all operations.
Rent and occupancy increased by $23,728 from $32,420 in the three-month period ended September 30, 2020 to $56,148 in the three-month period ended September 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses and increases in property taxes on the other properties, including the new property in Hamilton, Ontario, Canada.
Insurance increased by $9,663 from $10,056 in the three-month period ended September 30, 2020 to $19,719 in the three-month period ended September 30, 2021, primarily due to the new title insurance on the Hamilton, Ontario, Canada asset acquisition and the insurance on the Company's new truck and hauling trailer.
Filing fees increased by $36,174 from $12,957 in the three-month period ended September 30, 2020 to $49,131 in the three-month period ended September 30, 2021, primarily due to costs related to media relations services which were not incurred in the prior period and the $5,000 fee for the Nasdaq application.
The amortization of financing costs incurred increased by $217,118 from $18,677 in the three-month period ended September 30, 2020 to $235,795 in the three-month period ended September 30, 2021, due primarily to the increased amortization of the financing fees relating to the five new convertible promissory notes dated March 31, 2021, April 1, 2021, June 16, 2021 and August 26, 2021, an increase of approximately $187,500 and an increase in the amortization of the mortgage financing fees of approximately $ 29,000.
Directors' compensation decreased by $41,732 from $56,637 in the three-month period ended September 30, 2020 to $14,905 in the three-month period ended September 30, 2021. In the prior year, during three-month period ended September 30, 2020, the Board approved a new compensation arrangement whereby each independent member was entitled to an annual fee of $19,985 (C$25,000), the result being an adjustment for the year's compensation for the 4 independent Board members. In the current three-month period ended September 30, 2021, the directors' compensation has been accrued for the quarter to the three independent directors.
Stock-based compensation of $31,946 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the total stock-based compensation, determined to be valued at $135,260, will be expensed over the duration of the professional services contacts, which expire at various dates from November 30, 2021 to March 31, 2023.
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Repairs and maintenance increased by an insignificant amount of $2,502 from $1,186 in the three-month period ended September 30, 2020 to $3,688 in the three-month period ended September, 2021.
The foreign exchange income reduced by $69,042, from income of $33,473 in the three-month period ended September 30, 2020 to expense of $35,569 in the three-month period ended September 30, 2021, due primarily to gains and losses on the translation of balances and transactions during the period.
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CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2021 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020
| For the nine-month periods ended | ||||||
| September 30, 2021 | September 30, 2020 | |||||
| Revenue | $ | 610,088 | $ | 1,172,343 | ||
| Cost of Sales | ||||||
| Opening inventory | 24,740 | 5,389 | ||||
| Depreciation | 388,731 | 367,734 | ||||
| Direct wages and benefits | 210,542 | 251,721 | ||||
| Equipment rental, delivery, fuel and repairs and maintenance | 546,597 | 210,808 | ||||
| Utilities | 24,290 | 73,425 | ||||
| Outside contractors | 61,089 | 9,165 | ||||
| 1,255,989 | 918,242 | |||||
| Less: closing inventory | (21,506 | ) | - | |||
| Total cost of sales | 1,234,483 | 918,242 | ||||
| Gross (loss) profit | (624,395 | ) | 254,101 | |||
| Operating expenses | ||||||
| Management compensation-stock-based compensation | 162,777 | - | ||||
| Management compensation-fees | 273,395 | 152,994 | ||||
| Marketing | 158,605 | - | ||||
| Professional fees | 231,950 | 292,104 | ||||
| Interest expense and default amounts | 565,938 | 854,496 | ||||
| Office and administration | 171,164 | 182,727 | ||||
| Rent and occupancy | 125,067 | 89,480 | ||||
| Insurance | 51,106 | 52,156 | ||||
| Filing fees | 85,278 | 35,103 | ||||
| Amortization of financing costs | 371,916 | 141,686 | ||||
| Directors' compensation | 38,241 | 57,070 | ||||
| Stock-based compensation | 68,228 | - | ||||
| Repairs and maintenance | 11,475 | 10,097 | ||||
| Foreign exchange (income) loss | 16,130 | 31,987 | ||||
| Total operating expenses | 2,331,270 | 1,899,900 | ||||
| Net loss from operating activities | (2,955,665 | ) | (1,645,799 | ) | ||
| Other Income | 404,809 | (59,128 | ) | |||
| Net loss before deferred taxes recovery | (2,550,856 | ) | (1,704,927 | ) | ||
| Deferred taxes recovery | 26,552 | 197,420 | ||||
| Net Loss | $ | (2,524,304 | ) | $ | (1,507,507 | ) |
During the nine-month period ended September 30, 2021, the Company generated $610,088 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $1,172,343 in the nine-month period ended September 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end, the closure of a customer plan in mid-2020 and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.
In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $1,234,483 for the nine-month period ended September 30, 2021 compared to $918,242 for the nine-month period ended September 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The increased costs relate primarily to adjustments to the estimated costs for the clean-up of certain waste as ordered by the MECP including higher machinery rental costs and increased fuel charges and disposal fees, along with hauling costs for garbage collection disclosed as outside contractors, offset by reductions in utilities resulting from the retrofit of the hydro usage in the composting operation along with credits provided by the utility company for hydro usage and reduced overtime hours by employees in the organic waste processing and composting operation.
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Operating expenses increased by $431,370 from $1,899,900 in the nine-month period ended September 30, 2020 to $2,331,270 in the nine-month period ended September 30, 2021, explained further below.
Management compensation related to stock-based compensation increased by $162,777, in the nine-month period ended September 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. And, the management compensation relating to fees increased by $120,401, from $152,994 in the nine-month period ended September 30, 2020 to $273,395 in the nine-month period ended September 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.
The Company commenced a new marketing program effective February 1, 2021 for a period of five months to June 30, 2021, at a cost of $20,000 per month, which significantly contributed to the total marketing expense of $158,605 in the nine-month period ended September 30, 2021. The Company also incurred, during the recent quarter, marketing expenses provided by service providers for articles, ad placements and a news media campaign. The Company did not have a marketing program in the prior period.
Professional fees were reduced by $60,154, from $292,104 in the nine-month period ended September 30, 2020 to $231,950 in the nine-month period ended September 30, 2021, primarily due to the absence of the 2019 acquisition costs relating to professional fees expensed in the prior period in the amount of $54,544, offset by increases in other professional fees such as audit and related fees.
Interest expense and default amounts reduced by $288,558 from $854,496 in the nine-month period ended September 30, 2020 to $565,938 in the nine-month period ended September 30, 2021. In the prior period, interest and default penalties on the convertible promissory notes was approximately $449,000 and due to the payoff agreements finalized with several convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, interest in the current period for interest on the convertible promissory notes amounted to approximately $104,412, a reduction of approximately $345,000. This was offset primarily by increases in the interest on the existing 1st mortgage payable, whose principal balance increased in total by $2,040,740 (C$2,600,000), in two tranches, effective November 10, 2020 and August 13, 2021, the interest on the new 1st mortgage on the Hamilton, Ontario, Canada asset acquisition, and the interest on the new truck and trailer loan purchased during the period, an increase of approximately $60,000.
Office and administration expenses decreased insignificantly by $11,563 from $182,727 in the nine-month period ended September 30, 2020 to $171,164 in the nine-month period ended September 30, 2021.
Rent and occupancy increased by $25,587 from $89,480 in nine-month period ended September 30, 2020 to $125,067 in the nine-month period ended September 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses and increases in property taxes on other properties, including the new property in Hamilton, Ontario, Canada.
Insurance reduced insignificantly by $1,050 from $52,156 in the nine-month period ended September 30, 2020 to $51,106 in the nine-month period ended September 30, 2021.
Filing fees increased by $50,175 from $35,103 in the nine-month period ended September 30, 2020 to $85,278 in the nine-month period ended September 30, 2021, primarily due to costs related to the media relations services which were not incurred in the prior period and the $5,000 fee for the Nasdaq application.
The amortization of financing costs incurred increased by $230,230 from $141,686 in the nine-month period ended September 30, 2020 to $371,916 in the nine-month period ended September 30, 2021, due primarily to the increased amortization of the financing fees relating to the four new convertible promissory notes dated March 31, 2021, April 1, 2021, June 16, 2021 and August 26, 2021, an increase of approximately $223,000 and an increase in the amortization of the mortgage finance fees of approximately $7,500.
Directors' compensation decreased from by $18,829 from $57,070 in the nine-month period ended September 30, 2020 to $38,241 in the nine-month period ended September 30, 2021. In the prior year, each of the four independent directors were entitled to compensation of $19,985 (C$25,000) annually and the audit committee chairman was entitled to a fee of $784 (C$1,000) per quarter for his services. In the current period, only one independent director served for the entire period and the 2 remaining independent directors joined in April and June of 2021, respectively, resulting in a lower overall expense.
Stock-based compensation of $68,228 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the stock-based compensation, determined to be valued at $135,260, will be expensed over the duration of the professional services contacts, which expire at various dates from November 30, 2021 to March 31, 2023.
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Repairs and maintenance increased by $1,378, an insignificant change.
The foreign exchange expense decreased by $15,857 from a loss of $31,987 in the nine-month period ended September 30, 2020 to income of $16,130 in the nine-month period ended September 30, 2021, due primarily to a reduction of gains and losses on the translation of balances and transactions during the period.
Other income increased by $463,937 from a loss of $59,128 in the nine-month period ended September 30, 2020 to income of $404,809 in the nine-month period ended September 30, 2021. The current period includes income on the forgiveness of the convertible promissory notes in the amount of $61,100 and on the accrued interest of $298,360 and a gain on the disposal of certain long-lived assets of $45,349. In the prior period, the Company wrote off a land option in the amount of $59128, with no comparable amount in the current period.
As at September 30, 2021, the Company had a working capital deficit of $11,236,795 (December 31, 2020-$9,830,314), incurred a net loss of $2,524,304 (2020-$1,507,507) for the nine-month period ended September 30, 2021 and had an accumulated deficit of $15,993,098 (December 31, 2020-$13,468,794) and expects to incur further losses in the development of its business.
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments instituted emergency measures as a result of COVID-19. The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.
The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
CRITICAL ACCOUNTING ESTIMATES
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.
Stock-based compensation
From time to time the Company may grant options and/or warrants to management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to paid in capital. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon exercise of stock options and/or warrants is recorded in equity as share capital.
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Long-Lived Asset Impairments
We assess our long-lived assets for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (income) expense from divestitures, asset impairments and unusual items, net in our Interim Condensed Consolidated Statements of Operations and Comprehensive Loss.
Indefinite-Lived Intangible Assets - At least annually, and more frequently if warranted, we assess the indefinite-lived intangible assets, including the goodwill of our reporting units for impairment using Level 3 inputs.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
On January 1, 2021, the Company early adopted Accounting Standards Update ("ASU") No. 2020-06, -Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current US GAAP. ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted earnings per share "EPS" calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under ASU 2020-06, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early adopted ASU 2020-06 on January 1, 2021 using the modified retrospective method. As a result of Management's evaluation, the adoption of ASU 2020-06 did not have a material impact on the interim condensed consolidated financial statements.
EQUITY
As at September 30, 2021 and the date of this filing, the Company had 94,065,404 common shares issued and outstanding.
STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
The Company has no stock options, warrants or restricted stock units outstanding as at September 30, 2021 and as of the date of this filing.
RELATED PARTY TRANSACTIONS
For three and nine-month periods ended September 30, 2021, the Company incurred $71,424 (C$90,000) and $215,838 (C$270,000) (2020-$33,791; C$45,000 and $99,779; C$135,000) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $19,047 (C$24,000) and $57,557 (C$72,000) (2020-$18,021; C$24,000 and $53,215; C$72,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at September 30, 2021, unpaid remuneration and unpaid expenses in the amount of $410,219 (C$522,639) (December 31, 2020-$396,160; C$504,405) is included in accounts payable in the interim condensed consolidated balance sheets. This balance includes amounts owing to the former chief executive officer in the amount of $310,428 (C$395,500).
In addition, during the three and nine-month periods ended September 30, 2021, the Company incurred interest expense of $nil (C$nil) and $nil (C$nil) (2020-$1,771; C$2,368 and $4,399; C$5,952) respectively, on outstanding loans from Travellers and $265 (C$331) and $265 (C$331) (2020-$nil; C$nil and $nil; C$nil) respectively, on the outstanding loan from the CFO.
For the three and nine-month periods ended September 30, 2021, the Company incurred $27,220 (C$34,255) and $72,672 (C$90,908) (2020-$21,198; C$28,284 and $57,618; C$77,957) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.
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Furthermore, for the three and nine-month periods ended September 30, 2021, the Company recognized management stock-based compensation expense of $54,259 and $162,777 (2020 $nil and $nil) respectively, on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock respectively, on commencement of their new executive consulting agreements, effective January 1, 2021. The total stock-based compensation on the issuance of the common stock totaled $217,035. The portion to be expensed for the balance of the year, $54,258 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Quarterly Report on Form 10-Q.
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due primarily to the small size of the Company and the lack of a segregation of duties.
Notwithstanding this material weakness, management has concluded that the unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the nine-month period ended September 30, 2021 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount $51,208 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheets.
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On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $403,556 (C$514,150) in special damages and $392,450 (C$500,000) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020. The plaintiffs by counterclaim filed their defense to counterclaim on November 23, 2020, denying all claims in the Company's reply and defense to counterclaim. Included in accounts payable on the Company's interim condensed consolidated balance sheets is an amount for unpaid fees to the former chief executive officer in the amount of $310,428 (C$395,500), pending the results of the litigation.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine-month period ended September 30, 2021, the Company issued the following shares not previously reported in Current Report on Form 8-K or a quarterly report on Form 10-Q:
(i) 1,726,076 common shares issued on the conversion of related party debt and accounts payable to equity.
(ii) 1,586,332 common shares issued for professional services.
(iii) 5,647,029 common shares issued to convertible promissory note holders on the issuance and conversion of convertible promissory notes.
(iv) 1,195,348 common shares issued on private placements.
(iv) 1,050,000 common shares issued to officers.
The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
The following exhibits are filed as part of this quarterly report on Form 10-Q:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SUSGLOBAL ENERGY CORP. | ||
| November 15, 2021 | By: | /s/ Marc Hazout |
| Marc Hazout | ||
| Executive Chairman, President and Chief Executive Officer | ||
| November 15, 2021 | By: | /s/ Ike Makrimichalos |
| Ike Makrimichalos | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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Exhibit 31.1
CERTIFICATION
I, Marc Hazout, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SusGlobal Energy Corp. (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Company's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
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Date: November 15, 2021 |
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/s/ Marc Hazout |
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Marc Hazout |
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Executive Chairman, President and Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION
I, Ike Makrimichalos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SusGlobal Energy Corp. (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Company's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
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Date: November 15, 2021 |
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/s/ Ike Makrimichalos |
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Ike Makrimichalos |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |