SusGlobal Energy Corp 10-K/A for FY2023
SusGlobal Energy Corp. (SNRG)
About this 10-K/A
SusGlobal Energy Corp filed this 10-K/A on December 19, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $610.46K
- down 15.2% from $720.06K a year earlier
- Net loss
- $8.23M
- compared with a net loss of $12.01M a year earlier
- Diluted EPS
- -$0.07
- compared with -$0.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 2)
(Mark One)
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For the fiscal year ended
OR
For the transition period from ______________to ______________
Commission file number:
(Exact name of registrant as specified in its charter)
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Registrant's telephone number, including area code:
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Yes [ ]
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ]
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.
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations 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 [ ] |
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Smaller reporting company |
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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 revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the fi ling reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [
The aggregate market value of the 97,060,703 voting common stock held by non-affiliates of the registrant as of June 30, 2023 (the last business day of the registrant's most recently completed second fiscal quarter) was $
The number of shares of Common Stock, $0.0001 par value, of the registrant outstanding as of May 15, 2024 was
DOCUMENTS INCORPORATED BY REFERENCE
None.
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EXPLANATORY NOTE
This Amendment No. 2 on Form 10-K/A (this "Amendment") amends the Amendment No. 1 of SusGlobal Energy Corp.’s (the "Company") Annual Report on Form 10-K/A for the period ended December 31, 2023, originally filed with the Securities and Exchange Commission (the "SEC") on May 15, 2024 (the "Original Form 10-K"). This Amendment is being filed for the sole purpose of filing complete dated certifications in the form of Exhibits 31.1, 31.2, 32.1 and 32.2 (the "Certifications"), respectively, with the entire report on the Original Form 10-K.
Other than filing the updated Certifications and the updated signature page, no other changes have been made to the Original Form 10-K. This Amendment speaks as of the original filing date of the Original Form 10-K, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the Original Form 10-K. Accordingly, this Amendment should be read in conjunction with the Original Form 10-K and the Company's other filings made with the SEC subsequent to the filing of the Original Form 10- K.
TABLE OF CONTENTS
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PART 1
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
Item 1. Business.
OVERVIEW
The following organization chart sets forth our wholly owned subsidiaries:
General
On February 4, 2019, the Company registered its common stock, having a par value of $.0001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is effective pursuant to General Instruction A.(d).
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, at 200 Davenport Road. Our telephone number is 416-223-8500. Our website address is www.susglobalenergy.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are all available, free of charge, on our website as soon as practicable after we file the reports with the Securities and Exchange Commission (the "SEC"). SusGlobal Energy Corp., 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.
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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 12, 2017.
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.
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., SusGlobal Energy Hamilton Ltd., and 1684567 Ontario Inc.
On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.
As the global amount of organic waste continues to grow, a solution for sustainable global management of these wastes is paramount. 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 three 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) Maximizing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield. (c) and (c) 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 products 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, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management, Composting and Liquid Fertilizers.
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 integrating our technologies with capital investment to optimize the processing of 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 produce regenerative products through the conversion of organic wastes into organic fertilizer, both dry compost and liquid.
Currently, the primary customers are municipalities in both rural and urban centers in Ontario, Canada. Where necessary, to follow provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
We are a "smaller reporting company," as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until (i) our public float exceeds $250 million on the last day of our second fiscal quarter in our prior fiscal year (if our annual revenues exceeded $100 million in such prior fiscal year); or (ii) our public float exceeds $700 million on the last day of our second fiscal quarter in our prior fiscal year (if our annual revenues were less than $100 million in such prior fiscal year).
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RECENT BUSINESS DEVELOPMENTS
On October 3, 2023, the Company announced it signed Commercial Terms for a ten (10) year Renewable Natural Gas ("RNG") Purchase and Sale Agreement (the "Agreement"). The Buyer will pay a purchase price of over US$20.00 (CA$27.00) per Metric Million British Thermal Unit ("MMbtu"), equivalent to approximately one Gigajoule ("GJ") of RNG at the delivery point, valuing the ten (10) year offtake agreement at approximately US$138,000,000 (CA$186,856,830). The Agreement is an industry standard summary of the commercial terms for the Renewable Natural Gas purchase and sale which allows the parties to maintain confidentiality while finalizing the definitive Renewable Natural Gas Purchase and Sale Agreement ("RNGPA") in the form of a GasEDI Base Contract with special provisions which were both subsequently signed and transaction confirmations of The RNGPA incorporating mutually agreeable and additional, more comprehensive terms, representations, warranties, and covenants customary to meet the local natural gas operating system standards, purchase offtake arrangements and required reporting to be agreed upon and signed.
On October 12, 2023, the Company announced that its wholly owned subsidiary SusGlobal Energy Belleville Ltd. ("SusGlobal Belleville") has generated approximately 12,500 additional Verified Emission Reductions and Removals ("VERRs") and sold a further 9,000 carbon credits as part of the Anew™ SusGlobal Belleville Composting Offset Project in Ontario (the "Project"). The Project has generated approximately 137,000 VERRS (generated from 2017 through 2022). The Project and report are listed on the GHG CleanProjects® Registry, https://www.csaregistries.ca/GHG_VR_Listing/CleanProjectDetail?ProjectId=909 a business unit of the Standards Division of the Canadian Standards Association ("CSA") for developed and marketed greenhouse gas ("GHG") offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario. The Project was developed by Anew Climate, LLC formerly known as Blue Source Canada ULC) ("Anew").
On November 2, 2023, the Company completed the purchase of additional land, consisting of a 2.03-acre site in Hamilton, Ontario, Canada for $2,292,760 (C$3,100,000). Prior to completing the purchase, the Company paid deposits of $229,276 (C$310,000) to the vendor. The balance of the purchase price was satisfied with a $1,479,200 (C$2,000,000) vendor take-back mortgage bearing interest at 7% annually, maturing in two years and the balance in cash financed by a second mortgage on the additional land bearing interest at 13% annually, maturing in one year and is secured by a third mortgage on the property in Belleville, Ontario, Canada.
On December 14, 2023, the Company announced an advisory and distribution agreement with Oak Hill Asset Management Inc., ("Oak Hill"), a prominent Toronto-based financial advisory firm with a strong track record of success and expertise in the investment sector. The non-exclusive agreement with Oak Hill to perform advisory and Exempt Market Dealer services is designed to better align the Company's balance sheet with both its growth opportunities and the perceived undervaluation of its assets by the public. The Company is actively pursuing Green Bond financing with accredited investors.
On or around November 27, 2023 and March 6, 2024, the Company experienced an outflow of contaminated water from its stormwater pond, which spilled over into the City of Belleville's roadside ditch and has continued to periodically overflow. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the Ministry of the Environment, Conservation and Parks from the Province of Ontario (the "MECP").
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take several months to complete, will require significant investment, and are dependent on the Company securing funding. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's Belleville waste processing and composting facility.
New and Renewed Consulting Contracts
The Company entered into an Executive Chairman Consulting Agreement (the "CEO's Consulting Agreement"), by and among the Company, Travellers International Inc. ("Travellers"), and the CEO, who is also a director, the Executive Chairman and President of the Company, effective January 1, 2023 (the "Effective Date"). The CEO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
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Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $30,244 (C$40,000) per month for twelve (12) months, beginning on the Effective Date, and at a rate of $37,805 (C$50,000) per month for twelve (12) months, beginning January 1, 2024. In addition, the Company agreed to grant the CEO 3,000,000 restricted shares of the Company's common stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. This common stock was issued on January 3, 2023. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
The CEO's Consulting Agreement is for a term of twenty-four (24) months. Upon a Constructive Discharge (as defined in the CEO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CEO will be entitled to a compensation of twelve (12) months' fees, as well as any bonus compensation owing.
The Company also entered into an Executive Consulting Agreement (the "CFO Consulting Agreement"), by and between the Company and the CFO of the Company, effective January 1, 2023. Pursuant to the terms of the CFO Consulting Agreement, the CFO is entitled to fees of $9,451 (C$12,500) per month for twelve (12). In addition, the Company has also agreed to grant the CFO 100,000 restricted shares of the Company's common stock, par value of $0.0001 per share on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO. This common stock was issued on January 3, 2023. The CFO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
The CFO's Consulting Agreement is for a term of twelve (12) months. Upon a Constructive Discharge (as defined in the CFO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CFO will be entitled to a compensation of two (2) months' fees, as well as any bonus compensation owing.
Financings
(a) Securities Purchase Agreements
On December 31, 2023, the Company had and currently has 5 security purchase agreements outstanding with 4 investors. The outstanding principal balance at December 31, 2023 of the convertible promissory notes was $7,442,600, including accrued interest of $1,232,440 with a fair value of $10,519,824. Please refer to the consolidated financial statements, convertible promissory notes, note 12 and fair value measurement, note 13 for details on the convertible promissory notes.
On April 15, 2024, the Company received proceeds of $100,500, net of an original issue discount of 10% and disbursements, on a new convertible promissory note in the principal amount of $120,000.
(b) PACE
On March 28, 2023, the Company and PACE finalized a full and final mutual release of all the obligations owing to PACE, including accrued interest, in exchange for an amount of $922,875 (C$1,250,000). The funds were being held in escrow by the Company's Canadian legal counsel. The funds were to be released to PACE once the letter of credit, in the amount of $204,384 (C$276,831), was released by the MECP to PACE. On November 3, 2023, immediately prior to the full and final release of the funds held in escrow, the obligations owing to PACE were $3,452,655 (C$4,668,274), included under long-term debt and accrued interest of $391,785 (C$529,725) included under accrued liabilities in the consolidated balance sheets, in total $3,844,440 (C$5,197,999).
As noted above, on November 3, 2023, the funds held in escrow, in the amount of $924,500 (C$1,250,000), were released to PACE (now Alterna Savings and Credit Union Limited "Alterna") and Alterna released all security it held to the Company.
The Company continues to be responsible in replacing the letter of credit previously held by PACE in favor of the MECP which is in the amount of $482,117 ($C637,637). The MECP is accepting an amount of $110,759 ($C146,487) until the Company provides details supporting the revised financial assurance.
For the year ended December 31, 2023, $70,615 (C$95,297) (2022-$357,038; C$464,168), in interest was incurred on the PACE long-term debt. As at December 31, 2023, $nil (C$nil) (2022-$288,407; C$390,636) in accrued interest is included in accrued liabilities in the consolidated balance sheets
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(c) Mortgages
| 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 $3,931,720 (C$5,200,000) (December 31, 2022-$3,839,160; C$5,200,000). The fourth tranche was received on August 13, 2021 in the amount of $1,402,770 (C$1,900,000) and a portion of this fourth tranche, $1,368,759 (C$1,853,933), was used to fund a portion of the purchase of the first Hamilton Property on August 17, 2021. The 1st mortgage was 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 and 10% per annum with a maturity date of December 1, 2023. The Company continued to be charged at the rate of 10% per annum. On December 1, 2023, the 1st mortgage was renewed with a new maturity date of June 1, 2024 and a fixed interest rate of 13% per annum. On renewal, the 1st mortgage was increased by $314,749 (C$416,280) to account for increased interest based on the previous variable rate, three months of prepaid interest and a financing fee. The 1st mortgage is secured by the shares held of 1684567, a 1st mortgage on the premises located at 704 Phillipston Road, Roslin (near Belleville), Ontario, Canada and a general assignment of rents. Financing fees on the 1st mortgage totaled $344,342 (C$455,419). As at December 31, 2023 $44,555 (C$58,928) (December 31, 2022-$31,555; C$42,740) of accrued interest is included in accrued liabilities in the consolidated balance sheets. In addition, as at December 31, 2022 there is $32,764 (C$43,333) (December 31, 2022-$56,409; C$76,404) of unamortized financing fees included in long-term debt in the consolidated balance sheets. |
| ii. | On March 1, 2023, the Company obtained a 2nd mortgage in the amount of $1,134,150 (C$1,500,000) bearing interest at the annual rate of 12%, repayable monthly, interest only with a maturity date of March 1, 2024, secured as noted under (c) i above. The Company incurred financing fees of $45,366 (C$60,000). As at December 31, 2023 $11,187 (C$14,795) (December 31, 2022-$nil; C$nil) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at December 31, 2023 there is $7,457 (C$9,863) of unamortized financing fees included in long-term debt in the consolidated balance sheets. |
| iii. | On November 2, 2023, the Company completed the purchase of additional land, consisting of a 2.03-acre site in Hamilton, Ontario, Canada for $2,292,760 (C$3,100,000), prior to an additional disbursement of $44,213 (C$58,475) representing land transfer tax. The Company obtained a vendor take-back mortgage in the amount of $1,479,200 (C$2,000,000) bearing interest at 7% annually, payable monthly, interest only and maturing November 2, 2025. An additional mortgage, as noted below under paragraph (c) iv, was arranged to complete the purchase. |
| iv. | In connection with the purchase of additional land noted above under paragraph (c) iii above, a 2nd mortgage was obtained in the amount of $793,905 (C$1,050,000) bearing interest at 13% annually, payable monthly interest only and secured by a 3rd mortgage on the property in Belleville, Ontario, Canada. |
| v. | On December 14, 2023, the Company made arrangements to repay the previous 1st mortgage on the first property purchased in Hamilton, Ontario, Canada on August 17, 2021, for a new 1st mortgage in the amount of $1,688,597 ($C2,233,298) with new creditors. The original 1st mortgage was a vendor take back mortgage, as noted below under paragraph (c) vi. |
| vi. | On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $1,476,600 (C$2,000,000), on the purchase of the first property in Hamilton, Ontario, Canada. The 1st mortgage bore interest at an annual rate of 2% per annum, was repayable monthly interest only and had a maturity date of August 17, 2023 and was secured by the assets on this first property in Hamilton, Ontario, Canada. As noted under paragraph (c) v above, this mortgage was repaid on the transfer to the new creditors. |
For the year ended December 31, 2023, $718,535 (C$969,683) (2022-$430,772; C$560,026) in interest was incurred on the mortgages payable.
(d) Canada Emergency Business Account (the "CEBA")
As a result of the COVID-19 virus, the Government of Canada launched 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.
On April 27, 2020, the Company received a total of $60,488 (C$80,000) and on December 17, 2020 a further $15,122 (C$20,000) under this program, from its Canadian chartered bank.
Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amounts were due on December 31, 2022 and are interest-free. If the loans were not repaid by December 31, 2022, the Company could make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 1, 2023, maturing December 31, 2025.
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The CEBA term loan agreements were amended by extending the interest free repayment date by one year to December 31, 2023. If paid by January 18, 2024 or 30% $22,683 (C$30,000), of the loans would be forgiven. Repayment terms on the extended period were unchanged. The loans were repaid subsequent to the year-end on January 9, 2024 and January 11, 2024 and the forgiven amount was as noted above.
(e) Financings Related to Obligations Under Capital Lease
The Company has one remaining lease obligation under capital lease for machinery and equipment at their waste management and composting facility, as noted below:
| (i) | The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $294,614 (C$389,650), is payable in monthly blended installments of principal and interest of $5,181 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $14,706 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $76 (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 January 27, 2025. |
| For the year ended December 31, 2023, $3,687 (C$4,976) (2022-$4,762; C$6,191) in interest was incurred. |
(f) Other
On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $165,085 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $151,220 (C$200,000), over a forty-eight-month term, bearing interest at 4.95% per annum with monthly blended instalments of principal and interest payments of $3,706 (C$4,901) due April 7, 2025.
For the year ended December 31, 2023, $3,238 (C$4,369) (2022-$5,500; C$7,150) in interest was incurred.
During the year ended December 31, 2022, the Company raised $380,971 (2022-$907,760), in a private placement on the issuance of 1,536,582 (2022-4,444,041) common shares of the Company.
During the year ended December 31, 2023, the director's company, Travellers, converted a total of $278,845 (C$372,483) (2022- $nil; C$nil) of loans provided during the year and $300,156 (C$406,800) (2022-$33,371; C$45,200) of accounts payable owing to Travellers for 2,911,852 (2022-193,778) common shares. For the year ended December 31, 2023, $nil (C$nil) (2022-$518; C$674) of interest was incurred on loans from the CFO which were repaid during the year.
On January 9, 2024, the Company received a loan in the amount of $249,263 (C$329,670) from Haute Inc., an Ontario company controlled by the CEO. The proceeds received on January 9, 2024 net of capitalized interest for six months and a financing fee amounted to $226,830 (C$300,000).
On January 15, 2024, Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and chief executive officer (the "CEO"), converted a total of $102,527 (C$135,600) of accounts payable owing for 809,044 common shares of the Company.
On April 2, 2024, the Company received funds in the amount of $148,217 (C$196,028), on a 4 th mortgage in the amount of $244,815 (C$323,786) net of unpaid interest, a financing fee and six months of capitalized interest, on the Company's waste processing and composting facility in Belleville, Ontario, Canada.
On April 15, 2024, the Company received proceeds of $100,500, net of an original issue discount of 10% and disbursements, on a new convertible promissory note in the principal amount of $120,000.
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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On September 21, 2022, the Company announced that its wholly owned subsidiary SusGlobal Energy Belleville Ltd. ("SusGlobal Belleville") has generated its first Verified Emission Reductions and Removals ("VERRs") and sold its first carbon credits as part of the Anew™ SusGlobal Belleville Composting Offset Project in Ontario (the "Project"). The Project generated approximately 137,000 VERRS from 2017 through 2022 with an approximate market value of between $3.78 (C$5.00) and $7.56 (C$10.00) per VERR. Up to the date of this filing, the Company has sold 42,302 VERRS. The Project report was submitted to the GHG CleanProjects® Registry, a business unit of the Standards Division of the Canadian Standards Association ("CSA"). The Project is part of the Offset Development and Marketing Agreement with Anew Canada ULC (formerly known as Blue Source Canada ULC) ("Anew Canada") for developed and marketed greenhouse gas ("GHG") offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario.
The Project has enabled an increase in the diversion of organic waste from landfills, thereby avoiding methane generation. Methane is a highly potent greenhouse gas which is 28 times more effective at trapping heat energy in our atmosphere than carbon dioxide. As organic waste decomposes in landfills, the methane builds up and must be released to prevent dangerous working conditions. By diverting waste that contributes to this problem, the Project benefits the community as well as the climate.
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 asset purchase agreement (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, SSO, leaf and yard, food, liquid, paper sludge and biosolids. During the year ended December 31, 2023, tipping fees ranged from $51 (C$69) to $118 (C$159) per MT.
The Company owns a 41,535 square foot facility (approximately 27% complete) on 5.29 acres in Hamilton, Ontario (the "Hamilton Facility"), which includes an Environmental Compliance Approval to process 65,884 MT per annum of organic waste, 24 hours per day 7 days a week. The facility has been designed to produce, distribute and warehouse the Company's SusGro™ organic liquid fertilizer and other products that are anticipated to be provided under private label and to be 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.
Market Opportunity
Industry Overview
Sustainable solutions to processing organic waste streams and diverting them from landfills to reduce GHG provides an opportunity for the infrastructure which SusGlobal operates with the ECA's attached to the Company's facilities. As more governments legislate and mandate that no organic wastes are to be landfilled as part of a climate change initiative SusGlobal can process these waste streams and produce regenerative products as part of the Company's Circular Economy initiative.
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Industry Trends
The organic fertilizer market is expected to grow at a compounded annual growth rate. The major drivers for this market are increasing consumption of organic food and products such as cannabis, wine and favorable government rules and regulations. SusGlobal produces a dry organic compost currently and expects to produce an organic liquid pathogen-free fertilizer at its Hamilton Facility to meet the growing demand in this market.
Operating Businesses and Revenue
The Company has five wholly owned and active subsidiaries: SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., SusGlobal Energy Hamilton Ltd. and 1684567 Ontario Inc. The Company currently has five full-time employees and two independent contractors. Of the five full-time employees, three are employed in management and administrative positions, and the balance in operations. The two independent contractors provide services in management positions. None of our employees are covered by collective bargaining agreements.
We operate the following businesses:
| • | Environmental Compliance Approvals: The Company owns the Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 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 waste processing and composting facility which has been operating in Belleville, Ontario, Canada. The Company owns the Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 65,884 MT of waste annually from the province of Ontario at the facility located in Hamilton, 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 an 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, SSO, leaf and yard, food, liquid, paper sludge and biosolids. As noted above, once operations commence, anticipated to be mid-year 2025, in the Hamilton Facility (purchased on August 17, 2021) and located in Hamilton, Ontario, Canada, will have the capacity to process 65,884 MT of waste annually to produce an organic liquid fertilizer. |
We generate revenue from the following activities:
• Tipping fees paid by municipalities and haulers from green bin programs of SSO and other non-hazardous waste,
• the sale of the regenerative products such as organic dry compost and in the future organic liquid fertilizer at our Hamilton Facility with solution-specific brands sold to consumer markets, agriculture, wine and the cannabis industry; and
• the sale of carbon credits generated by our facilities.
The direct costs of our revenue consist primarily of employee costs, utilities, various equipment and automotive-related expenses, landfilling costs and depreciation.
Our Strengths
SusGlobal has the expertise, proprietary processes, technologies, the environmental compliance approvals and permits to operate and process high volumes of organic waste streams to produce proprietary regenerative products and sell in a high demand market.
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Our Growth Strategy
SusGlobal owns two (2) processing and production properties, one of which is under renovation (approximately 27% complete), as part of a regional model and strategy which the Company expects will be exported to other municipalities in North America and globally. The processing facilities, one of which is under renovation, have production lines, warehouses, research and development and offices. The Company will continue to acquire, develop and monetize proprietary technologies and processes in the waste to regenerative products globally, focusing on implementing a robust intellectual property strategy. The Company will invest in research and development to bring more products to market and increase revenue and cash flow by increasing output, higher production speeds and overall efficiency of all segments of our business.
Sales and Marketing Strategy
The Company contacts major organic waste generators such as municipalities, commercial and industrial organic waste sources and bids for municipal and commercial contracts. The Company is expected to employ a sales team to market its products to the various agriculture, wine and cannabis industries and lawn and garden consumer market for its organic fertilizer products.
Competition
Many of our current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources and name recognition. Although some of our competitors have been in business for over 100 years, we believe that with our diverse product line, current and expected, better efficiencies resulting in lower wholesale cost of sales, we could obtain a large market share and continue to generate sales growth and compete in the industry. The principal competitive factors in all our product markets are technical features, quality, availability, price, customer support and distribution coverage. The relative importance of each of these factors varies depending on the region. We believe using our expected direct store distribution model nationwide will open significant opportunities for growth.
The markets in which we operate currently and, in the future, can be generally categorized as highly competitive. To maximize our competitive advantages, we expect to continue to expand our product portfolio to capitalize on market trends, changes in technology and new product releases.
Intellectual Property
The protection of our intellectual property is an essential aspect of our business. We own our domain names and trademarks relating to our website's design and content, including our brand name and various logos and slogans. We rely upon a combination of trademarks, trade secrets, copyrights, confidentiality procedures, contractual commitments and other legal rights to establish and protect our intellectual property. We generally enter into confidentiality agreements and invention or work product assignment agreements with our employees and consultants to control access to and clarify ownership of our processes, documentation, and other proprietary information.
As of the date of this filing, we held 4 registered trademarks in the United States. Trademarks include the terms SUSGLOBAL®, CARING FOR EARTH'S JOURNEY®, EARTH'S JOURNEY®, LEADERS IN THE CIRCULAR ECONOMY®. Our SUSGRO trademark application had been opposed but has since been withdrawn by The Scotts Miracle-Gro Company (NYSE: SMG) and is now being registered for use by the Company.
Seasonal Trends
Our operating revenues tend to be somewhat higher in summer months, primarily due to waste volumes resulting from higher construction and demolition waste volumes and the availability of leaf and yard waste along with any contracts involving the grinding of leaf and yard waste. In addition, revenue from the sale of organic compost would be higher beginning in late spring and tapering off in the fall.
Employees
As noted above, we currently have five full time employees (four on December 31, 2023), and two independent contractors. Of the five current full-time employees, three are employed in management and administrative positions, and the balance in operations. The two independent contractors provide services in management positions. None of our employees are covered by collective bargaining agreements.
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Financial Assurance and Insurance Obligations
Financial Assurance
Municipal and governmental waste service contracts generally require contracting parties to demonstrate financial responsibility for their obligations under the contract. Financial assurance is also a requirement for (i) obtaining or retaining disposal site or waste transfer station operating permits; and (ii) estimated post-closure and environmental remedial obligations at our operations. We have established financial assurance using letters of credit and/or deposits with the municipalities. The type of assurance used is based on several factors, most importantly: jurisdiction, contractual requirements, market factors and availability of credit capacity.
As required by the MECP, on a tri-annual basis, the financial assurance is reviewed and updated. The financial assurance requested by the MECP was updated to $482,117 (C$637,637) and now reduced to $110,759 (C$146,487) as the Company is in the process of resubmitting its financial assurance estimates submission to the MECP, through the assistance of an environmental consultant. The Company has not yet provided this financial assurance, which was to replace the previous financial assurance provided by PACE that expired on September 30, 2023.
Insurance
We have in the past carried a broad range of insurance coverages, which may include general liability, automobile liability, workers' compensation, real and personal property, directors' and officers' liability, environmental and pollution legal liability and other coverages we believe are customary to the industry. Our exposure to loss for insurance claims is generally limited to the per-incident deductible under the related insurance policy. The impact of any known casualty, property, environmental or other contingency may have a material impact on our financial condition, results of operations or cash flows. As a result of the lack of funding we have not been able to provide complete insurance coverage or self-insure for the current year.
Regulation
Our business is subject to extensive and evolving federal, provincial and local environmental, health, safety and transportation laws and regulations. These laws and regulations are administered by the MECP, Environment Canada, and various other federal, provincial and local environmental, zoning, transportation, land use, health and safety agencies in Canada. Many of these agencies regularly examine our operations to monitor compliance with these laws and regulations and have the power to enforce compliance, obtain injunctions or impose civil or criminal penalties in case of non-compliance. During 2020 and 2023, the MECP has carried out inspections of our waste processing and composting facility to address certain items of non-compliance with our ECAs. These inspections and orders issued by the MECP have and will result in significant expenditures to begin addressing the items of non-compliance. Some of the corrective action includes certain sampling, testing, removal of excess waste from the facility and addressing the water level in the facility's stormwater pond which far exceeds the required level as stipulated in its ECA. The Company has completed some of the corrective action and communicates regularly with the MECP and will continue with the remaining corrective action through 2024. As at December 31, 2023, the Company has accrued the estimated costs totaling $2,153,214 (C$2,847,790 (2022-$667,635 (C$904,287) in connection with the corrective action.
An offence notice for exceeding odor units was filed by the MECP on the Company in the prior year. A proceeding was held remotely on March 21, 2022, at a Provincial Offence Court and was adjourned to April 11, 2022, to address and accept a Crown resolution offer of fines assessed by the MECP, in the amount of $99,520 (C$131,255). On May 16, 2022 the Company agreed to accept the Crown resolution offer and fine in the amount of $99,620 (C$131,255). This amount is included under accounts payable on the consolidated balance sheets.
Since the primary mission of our business is to manage solid and liquid waste hauled to our organic waste processing and composting facility in an environmentally sound manner, our capital expenditures are related, either directly or indirectly, to environmental protection measures, including compliance with federal, provincial and local rules. There are costs associated with siting, design, permitting, operations, monitoring, site maintenance, corrective actions, financial assurance, and facility closure and post-closure obligations. With acquisition, development or expansion of a waste management or waste transfer station, we must often spend considerable time, effort and money to obtain or maintain required permits and approvals. There are no assurances that we will be able to obtain or maintain required governmental approvals. Once obtained, operating permits are subject to renewal, modification, suspension or revocation by the issuing agency. Compliance with current regulations and future requirements could require us to make significant capital and operating expenditures. However, most of this expenditure is made in the normal course of business and does not place us at any competitive disadvantage.
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The primary Provincial statutes affecting our business are summarized below:
Provincial and Local Regulations
Various provincial and local regulations affect our operations. The Province of Ontario has its own laws and regulations governing solid waste disposal, water and air pollution, and, in most cases, releases and cleanup of hazardous substances and liabilities for such matters. The Province of Ontario has also adopted regulations governing the design, operation, maintenance and closure of waste transfer stations. Some regions, municipalities and other local governments in Ontario have adopted similar laws and regulations. Our facilities and operations are likely to be subject to these types of requirements.
Our operations are affected by the increasing preference for alternatives to landfill disposal. Many regional and local governments in Ontario mandate recycling and waste reduction at the source and prohibit the disposal of certain types of waste, such as yard waste, food waste and electronics at landfills. The number of regional and local governments in Ontario with recycling requirements and disposal bans continues to grow, while the logistics and economics of recycling the items remain challenging. In addition, Ontario has imposed timelines for the ban of organics from landfills in the province in an effort to totally divert these wastes from landfills. This will provide opportunities for the expansion of facilities like ours. This had already occurred in the province of Quebec and in the United States of America (the "USA"), where various states have enacted, or are considering enacting, laws that restrict the disposal within the state of solid waste generated outside the state. While laws that overtly discriminate against out-of-state waste have been found to be unconstitutional, some laws that are less overtly discriminatory have been upheld in court. From time to time, the United States Congress has considered legislation authorizing states to adopt regulations, restrictions, or taxes on the importation of out-of-state or out-of-jurisdiction waste. Additionally, several state and local governments have enacted "flow control" regulations, which attempt to require that all waste generated within the state or local jurisdiction be deposited at specific sites. In 1994, the U.S. Supreme Court ruled that a flow control ordinance that gave preference to a local facility that was privately owned was unconstitutional, but in 2007, the Court ruled that an ordinance directing waste to a facility owned by the local government was constitutional. The United States Congress' adoption of legislation allowing restrictions on interstate transportation of out-of-state or out-of-jurisdiction waste or certain types of flow control, or courts' interpretations of interstate waste and flow control legislation, could adversely affect our solid and hazardous waste management services.
Federal, Provincial and Local Climate Change Initiatives
Considering regulatory and business developments related to concerns about climate change, we have identified a strategic business opportunity to provide our public and private sector customers with sustainable solutions to reduce their Greenhouse Gas ("GHG") emissions. As part of our on-going marketing evaluations, we assess customer demand for and opportunities to develop waste services offering verifiable carbon reductions, such as waste reduction, increased recycling, and conversion of biogas and discarded materials into electricity and fuel. We use carbon life cycle tools in evaluating potential new services and in establishing the value proposition that makes us attractive as an environmental service provider. We are active in support of public policies that encourage development and use of lower carbon energy and waste services that lower users' carbon footprints. We understand the importance of broad stakeholder engagement in these endeavors, and actively seek opportunities for public policy discussion on more sustainable materials management practices. In addition, we work with stakeholders at the federal and provincial level in support of legislation that encourages production and use of renewable, low-carbon fuels and electricity. Despite the past U.S. withdrawal from the Paris Climate Accords, we have seen no reduction in customer demand for services aligned with their GHG reduction goals and strategies. Ontario is part of the WCI led by the state of California and, if anything, California has doubled down on their GHG reduction goals. The states of Oregon and Washington are also considering joining the WCI that currently includes, amongst other states and provinces, California, Ontario and Quebec as members.
We continue to assess the physical risks to company operations from the effects of severe weather events and use risk mitigation planning to increase our resiliency in the face of such events. We are investing in infrastructure to withstand more severe storm events, which may afford us a competitive advantage and reinforce our reputation as a reliable service provider through continued service in the aftermath of such events.
Item 1A. Risk Factors.
To keep our stockholders and the public informed about our business, we may make "forward-looking statements." Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words, "will," "may," "should," "continue," "anticipate," "believe," "expect," "plan," "forecast," "project," "estimate," "intend" and words of a similar nature and generally include statements containing:
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• projections about accounting and finances;
• plans and objectives for the future;
• projections or estimates about assumptions relating to our performance; or
• our opinions, views or beliefs about the effects of current or future events, circumstances or performance.
You should view these statements with caution. These statements are not guarantees of future performance, circumstances or events. They are based on facts and circumstances known to us as of the date the statements are made. All aspects of our business are subject to uncertainties, risks and other influences, many of which we do not control. Any of these factors, either alone or taken together, could have a material adverse effect on us and could change whether any forward-looking statement ultimately turns out to be true. Additionally, we assume no obligation to update any forward-looking statement as a result of future events, circumstances or developments. The following discussion should be read together with the Consolidated Financial Statements and the notes thereto. Outlined below are some of the risks that we believe could affect our business and financial statements for 2023 and beyond and that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company.
Any investment in our securities involves a high degree of risk, including the risks described below. Our business, financial condition and results of operations could suffer as a result of these risks, and the trading price of our shares could decline, perhaps significantly, and you could lose all or part of your investment. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled "Information Regarding Forward-Looking Statements."
Risks Related to Our Business and Industry
We may experience claims that our products infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.
We seek to improve our business processes and develop new products and applications. Many of our competitors have a substantial amount of intellectual property that we must continually monitor to avoid infringement. We cannot guarantee that we will not experience claims that our processes and products infringe issued patents (whether present or future) or other intellectual property rights belonging to others. If we are sued for infringement and lose, we could be required to pay substantial damages or be enjoined from using or selling the infringing products or technology. Further, intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management's attention from operating our business.
Our relationship with our employees could deteriorate, and certain key employees could leave the Company, which could adversely affect our business and our results of operations.
Our business involves complex operations and therefore demands a management team and employee workforce that is knowledgeable and expert in many areas necessary for our operations. We rely on our ability to attract and retain skilled employees, including our specialized research and development and sales and service personnel, to maintain our efficient production. The departure of a significant number of our highly skilled employees or of one or more employees who hold key management positions could have an adverse impact on our operations, including as a result of customers choosing to follow a regional manager to one of our competitors.
We face intense competition, and our failure to compete successfully may have an adverse effect on our net sales, gross profit and financial condition.
Our industry is highly competitive. Many of our competitors may have greater financial, technical and marketing resources than we do and may be able to devote greater resources to promoting and selling certain products.
If we do not compete successfully by developing and deploying new cost-effective products, processes and technologies on a timely basis and by adapting to changes in our industry and the global economy, our net sales, gross profit and financial condition could be adversely affected.
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Failure to comply with the Foreign Corrupt Practices Act, or FCPA, and other similar anti-corruption laws, could subject us to penalties and damage our reputation.
We are subject to the FCPA, which generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain certain policies and procedures. Certain jurisdictions in which we conduct business may be at a heightened risk for corruption, extortion, bribery, pay-offs, theft and other fraudulent practices. Under the FCPA, U.S. companies may be held liable for actions taken by their strategic or local partners or representatives. If we, or our intermediaries, fail to comply with the requirements of the FCPA, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.
We are not insured against all potential risks.
To the extent available and where financially possible, we maintain insurance coverage that we believe is customary in our industry. Such insurance does not, however, provide coverage for all liabilities, including certain hazards incidental to our business, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable. As a result of the lack of funding we have not been able to provide complete insurance coverage for the current year.
We may not be able to consummate future acquisitions or successfully integrate acquisitions into our business, which could result in unanticipated expenses and losses.
Part of our strategy is to grow through acquisitions. Consummating acquisitions of related businesses, or our failure to integrate such businesses successfully into our existing businesses, could result in unanticipated expenses and losses. Furthermore, we may not be able to realize any of the anticipated benefits from the acquisitions.
In connection with potential future acquisitions, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with acquisitions include:
• unexpected losses of key employees or customers of the acquired company;
• conforming the acquired company's standards, processes, procedures and controls with our operations;
• coordinating new product and process development;
• hiring additional management and other critical personnel;
• negotiating with labor unions; and
• increasing the scope, geographic diversity and complexity of our operations.
In addition, we may encounter unforeseen obstacles or costs in the integration of businesses we may acquire. Also, the presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may have a material adverse effect on our financial condition or results of operations.
Business disruptions could seriously harm revenues and increase our costs and expenses.
Our operations could be subject to extraordinary events, including natural disasters, political disruptions, terrorist attacks, acts of war and other business disruptions, which could seriously harm our net sales and increase our costs and expenses. These blackouts, floods and storms could cause disruptions to our operations or the operations of our suppliers, distributors, resellers or customers. Similar losses and interruptions could also be caused by earthquakes, telecommunications failures, water shortages, tsunamis, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters for which we are predominantly self-insured.
Risks Relating to Our Common Stock
An active trading market may not result for our common stock.
On December 11, 2018, our common stock commenced quotation on the OTCQB Market, under the symbol, SNRG. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market or how liquid that market might become. An active public market for our common stock may not develop or be sustained. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.
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We have a history of net losses, and we expect to incur additional losses.
In each year since our inception, we have incurred losses and have generated in total, since inception, only $6,262,852 in revenue. For the year ended December 31, 2023, net losses attributable to common stockholders aggregated $8,225,334 (2022-$12,010,548) and at December 31, 2023, the Company's accumulated deficit was $38,570,531 (2022-$30,345,197). We expect to incur further losses in the development of our business. We cannot assure you that we can achieve profitable operations in any future period.
Our independent registered public accounting firms' report contains an explanatory paragraph that expresses substantial doubt as to our ability to continue as a going concern.
Although our consolidated financial statements have been prepared assuming we will continue as a going concern, our independent registered public accounting firm in their report accompanying our consolidated financial statements as of and for the years ended December 31, 2023 and 2022, expressed substantial doubt as to our ability to continue as a going concern as of December 31, 2023 and as of December 31, 2022, as a result of our operating losses since inception, because the Company expects to incur further losses in the development of its business and the Company's ability to settle its current liabilities owing to service providers and creditors. The inclusion of a going concern explanatory paragraph may make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain.
We have no intention of declaring dividends in the foreseeable future.
The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend income on their investment in the foreseeable future.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.
Under the certificate of incorporation of the Company, our Board of Directors are authorized to create and issue one or more additional series of preferred stock, and, with respect to each series, to determine number of shares constituting the series and the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, which may include dividend rights, conversion or exchange rights, voting rights, redemption rights and terms and liquidation preferences, without stockholder approval. If we create and issue one or more additional series of preferred stock, it could affect your rights or reduce the value of our outstanding common stock. Our Board of Directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock and which could have certain anti-takeover effects.
Special Meetings of our Stockholders may only be called by our Board of Directors or our CEO and as such, our stockholders do not have the ability to call a meeting.
Under our bylaws only our Board of Directors or CEO may call a special meeting of shareholders and as such, your ability to participate and take certain corporate actions like amending the Company's certificate of incorporation or electing directors is limited.
We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.
Pursuant to Sarbanes-Oxley Act of 2002, our management will be required to report on, and our independent registered public accounting firm may in the future be required to attest to, the effectiveness of our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.
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If our internal controls and accounting processes are insufficient, we may not detect in a timely manner misstatement that could occur in our financial statements in amounts that could be material.
As a public company, we will have to devote substantial efforts to the reporting obligations and internal controls required of a public company, which will result in substantial costs. A failure to properly meet these obligations could cause investors to lose confidence in us and have a negative impact on the market price of our shares. We expect to devote significant resources to the documentation, testing and continued improvement of our operational and financial systems for the foreseeable future. These improvements and efforts with respect to our accounting processes that we will need to continue to make may not be sufficient to ensure that we maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations in the USA or result in misstatements in our financial statements in amounts that could be material. Insufficient internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares and may expose us to litigation risk.
As a public company, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley, which requires annual management assessments of the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal control over financial reporting, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares.
Information Regarding Forward-Looking Statements
Statements in this Form 10-K may be "forward-looking statements." Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus and in other documents which we file with the SEC.
In addition, such statements could be affected by risks and uncertainties related to:
• our ability to raise funds for general corporate purposes and operations, including our clinical trials;
• our ability to recruit qualified management and technical personnel;
• our ability to complete successfully within our industry;
• fluctuations in foreign currency exchange rates;
• our ability to maintain and enhance our technological capabilities and to respond effectively to technological changes in our industry; and
• our ability to protect our intellectual property, on which our business avoiding infringing the intellectual property rights of others;
Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus.
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If we fail to implement our business strategy, our financial performance and our growth could be materially and adversely affected.
Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Implementation of our strategy will require effective management of our operational, financial and human resources and will place significant demands on those resources.
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview for more information on our business strategy.
There are risks involved in pursuing our strategy, including the following:
• Our employees, customers or investors may not embrace and support our strategy.
• We may not be able to hire or retain the personnel necessary to manage our strategy effectively.
• We may be unsuccessful in implementing improvements to operational efficiency and such efforts may not yield the intended result.
• We may not be able to maintain cost savings achieved through restructuring efforts.
• Strategic decisions with respect to our asset portfolio may result in impairments to our assets.
• Our ability to make strategic acquisitions depends on our ability to identify desirable acquisition targets, negotiate advantageous transactions despite competition for such opportunities, fund such acquisitions on favorable terms, obtain regulatory approvals and realize the benefits we expect from those transactions.
• Acquisitions, investments and/or new service offerings may not increase our earnings in the timeframe anticipated, or at all, due to difficulties operating in new markets or providing new service offerings, failure of emerging technologies to perform as expected, failure to operate within budget, integration issues, or regulatory issues, among others.
• Integration of acquisitions and/or new services offerings could increase our exposure to the risk of inadvertent noncompliance with applicable laws and regulations.
• Liabilities associated with acquisitions, including ones that may exist only because of past operations of an acquired business, may prove to be more difficult or costly to address than anticipated.
• Execution of our strategy, particularly growth through acquisitions, may cause us to incur substantial additional indebtedness, which may divert capital away from our traditional business operations and other financial plans.
• We continue to seek to divest underperforming and non-strategic assets if we cannot improve their profitability. We may not be able to successfully negotiate the divestiture of underperforming and non-strategic operations, which could result in asset impairments or the continued operation of low-margin businesses.
In addition to the risks set forth above, implementation of our business strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses and changes in industry trends. We may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully, our operating results may not improve to the extent we anticipate, or at all.
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Compliance with existing or increased future regulations and/or enforcement of such regulations may restrict or change our operations, increase our operating costs or require us to make additional capital expenditures, and a decrease in regulation may lower barriers to entry for our competitors.
Stringent government regulations at the federal, state, provincial and local level in the U.S. and Canada have a substantial impact on our business, and compliance with such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection, health, safety, land use, zoning, transportation and related matters. Among other things, governmental regulations and enforcement actions may restrict our operations and adversely affect our financial condition, results of operations and cash flows by imposing conditions such as:
• limitations on constructing a new waste transfer station, recycling or processing facilities or on expanding existing facilities;
• limitations, regulations or levies on collection and disposal prices, rates and volumes;
• limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste;
• mandates regarding the management of solid waste, including requirements to recycle, divert or otherwise process certain waste, recycling and other streams; or
• limitations or restrictions on the recycling, processing or transformation of waste, recycling and other streams.
We also have a significant financial obligation relating to closure, post-closure and environmental remediation at our existing facility. This obligation will need to be supported by a letter of credit in favor of the MECP, which the Company has not been able to satisfy as at December 31, 2023 and as at the date of this filing. Environmental regulatory changes could accelerate or increase such costs, requiring our expenditure to materially exceed our current letter of credit.
Our operations are subject to environmental, health and safety laws and regulations, as well as contractual obligations that may result in significant liabilities.
There is a risk of incurring significant environmental liabilities in the acceptance, use and storage of waste materials. Under applicable environmental laws and regulations, we could be liable if our operations cause environmental damage to our property or to the property of other landowners, particularly as a result of the contamination of air, drinking water or soil. Under current law, we could also be held liable for damage caused by conditions that existed before we acquired our current facility. This risk is of particular concern as we execute our growth strategy, partially though acquisitions, because we may be unsuccessful in identifying and assessing potential liabilities during our due diligence investigations. Further, the counterparties in such transactions may be unable to perform their indemnification obligations owed to us. Additionally, we could be liable if we arrange for the transportation and acceptance at our facility of hazardous substances that cause environmental contamination, or if a predecessor owner made such arrangements and, under applicable law, we are treated as a successor to the prior owner. Any substantial liability for environmental damage could have a material adverse effect on our financial condition, results of operations and cash flows.
The Company has recently experienced an outflow of leachate impacted water from its stormwater pond into the City of Belleville's roadside ditch. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
On or around November 27, 2023 and March 6, 2024, the Company experienced an outflow of leachate impacted water from its stormwater pond into the City of Belleville's roadside ditch and has continued to periodically overflow. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take several months to complete, will require significant investment, and are dependent on the Company securing funding. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's Belleville waste processing and composting facility.
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In the ordinary course of our business, we may in the future become involved in legal and administrative proceedings relating to land use and environmental laws and regulations. These include proceedings in which:
• agencies of federal, state, provincial or local governments seek to impose liability on us under applicable statutes, sometimes involving civil or criminal penalties for violations, or to revoke or deny renewal of a permit we need; and
• local communities, citizen groups, landowners or governmental agencies oppose the issuance of a permit or approval we need, allege violations of the permits under which we operate or laws or regulations to which we are subject, or seek to impose liability on us for environmental damage.
We generally seek to work with the authorities or other persons involved in these proceedings to resolve any issues raised. If we are not successful, the adverse outcome of one or more of these proceedings could result in, among other things, material increases in our costs or liabilities as well as material charges for asset impairments.
General economic conditions can directly and adversely affect our revenues and our income from operations margins.
Our business is directly affected by changes in national and general economic factors that are outside of our control, including consumer confidence, interest rates and access to capital markets. A weak economy generally results in decreased consumer spending and decreases in the volume of waste generated, which decreases our revenues. In addition, we have a relatively high fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels. Consumer uncertainty and the loss of consumer confidence may limit the number or number of services requested by customers. Economic conditions may also limit our ability to implement our pricing strategy. For example, many of our contracts have price adjustment provisions that are tied to an index such as the Consumer Price Index, and our costs may increase in excess of the increase, if any, in the Consumer Price Index.
Some of our customers may have suffered financial difficulties affecting their credit risk, which could negatively impact our operating results.
Many non-governmental customers have also suffered serious financial difficulties, including bankruptcy in some cases. Purchasers of our recycling commodities can be particularly vulnerable to financial difficulties in times of commodity price volatility. The inability of our customers to pay us in a timely manner or to pay increased rates, particularly significant accounts, could negatively affect our operating results.
We are increasingly dependent on technology in our operations and if our technology fails, our business could be adversely affected.
We may experience problems with the operation of our current information technology systems or the technology systems of third parties on which we rely, as well as the development and deployment of new information technology systems, which could adversely affect, or even temporarily disrupt, all or a portion of our operations until resolved. Inabilities and delays in implementing new systems can also affect our ability to realize projected or expected cost savings.
Additionally, any systems failures could impede our ability to timely collect and report financial results in accordance with applicable laws and regulations.
A cybersecurity incident could negatively impact our business and our relationships with customers and expose us to litigation risk.
We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and other online activities to connect with our employees and our customers. Such uses give rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers' personal information, private information about employees, and financial and strategic information about the Company and its business partners. Further, as the Company pursues its strategy to grow through potential acquisitions and to pursue new initiatives that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Additionally, while we have implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential litigation and liability and competitive disadvantage.
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Our business is subject to operational and safety risks, including the risk of personal injury to employees and others.
The operation of an organic waste processing and composting facility involves risks such as truck accidents, equipment defects, malfunctions and failures.
Any of these risks could potentially result in injury or death of employees and others, a need to shut down or reduce operation of the facility, increased operating expense and exposure to liability for pollution and other environmental damage, and property damage or destruction.
While we seek to minimize our exposure to such risks through comprehensive training, compliance and response and recovery programs, as well as vehicle and equipment maintenance programs, if we were to incur substantial liabilities in excess of any applicable insurance, our business, results of operations and financial condition could be adversely affected. Any such incident could also tarnish our reputation and reduce the value of our brand. Additionally, a major operational failure, even if suffered by a competitor, may bring enhanced scrutiny and regulation of our industry, with a corresponding increase in operating expenses.
We have substantial financial assurance and insurance requirements and increases in the costs of obtaining adequate financial assurance, or the inadequacy of our insurance coverage, could negatively impact our liquidity and increase our liabilities.
The amount of insurance we are required to maintain for environmental liability is governed by statutory requirements. We believe that the cost for such insurance is high relative to the coverage it would provide and therefore, our coverages, wherever possible, are generally maintained at the minimum statutorily required levels. We face the risk of incurring additional costs for environmental damage if our insurance coverage is ultimately inadequate to cover that damage. The inability of our insurers to meet their commitments in a timely manner and the effect of significant claims or litigation against insurance companies may subject us to additional risks. To the extent our insurers are unable to meet their obligations, or our own obligations for claims are more than we estimated, there could be a material adverse effect to our financial results. As a result of the lack of funding we have not been able to provide complete insurance coverage for the current year.
Our capital requirements and our business strategy could increase our expenses, cause us to change our growth and development plans, or result in an inability to maintain our desired credit profile.
If economic conditions or other risks and uncertainties cause a significant reduction in our cash flows from operations, we may reduce or suspend capital expenditures, growth and acquisition activity and implementation of our business strategy. We may choose to incur indebtedness to pay for these activities, although our access to capital markets is not assured and we may not be able to incur indebtedness at a cost that is consistent with current borrowing rates. We also may need to incur indebtedness to refinance scheduled debt maturities, and it is possible that the cost of financing could increase significantly, thereby increasing our expenses and increasing our net losses. Further, our ability to execute our financial strategy and our ability to incur indebtedness is somewhat dependent upon our ability to maintain investment grade credit ratings on our senior debt. The credit rating process is contingent upon our credit profile, as well as a number of other factors, many of which are beyond our control, including methodologies established and interpreted by third-party rating agencies. If we were unable to maintain our investment grade credit ratings in the future, our interest expense would increase.
Additionally, as of December 31, 2023, we have $nil (C$nil) (2022-$7,285,747; C$9,868,274) of debt that is exposed to changes in market interest rates within the next 12 months. The Company has not been able to obtain a letter of credit for the new financial assurance with the MECP in the amount of $482,117 (C$637,637) and currently reduced to $110,759 (C$146,487), subject to the Company re-submitting its financial assurance re-evaluation. If interest rates increase, our interest expense would also increase, increasing our net losses and decreasing our cash flow.
As at December 31, 2023, and the date of this filing, the Company did not have any revolving credit facility to support cash flow requirements. As a result of defaults on our convertible promissory notes we could be required to immediately repay such debt which we may not be able to do. Additionally, any such default may cause a default under many of our other credit agreements and debt instruments. Without waivers from lenders party to those agreements, and/or the availability of other financing, either debt or equity, any such default would have a material adverse effect on our ability to continue to operate.
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The seasonal nature of our business and severe weather events may cause our results to fluctuate, and prior performance is not necessarily indicative of our future results.
Our operating revenues tend to be somewhat higher in the summer months, primarily due to the higher organic compost sales and higher leaf and yard waste volumes. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect these seasonal trends.
Service disruptions caused by severe storms, extended periods of inclement weather or climate extremes resulting from climate change can significantly affect the operating results of the areas affected. While weather-related and other event driven special projects can boost revenues through additional work for a limited time, as a result of significant start-up costs and other factors, such revenue will generate earnings at comparatively higher margins.
For these and other reasons, operating results in any interim period are not necessarily indicative of operating results for an entire year, and operating results for any historical period are not necessarily indicative of operating results for a future period. Our stock price may be negatively or positively impacted by interim variations in our results.
We may experience adverse impacts on our reported results of our operations as a result of adopting new accounting standards or interpretations.
Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our reported financial position or operating results or cause unanticipated fluctuations in our reported operating results in future periods.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive office is in Toronto, Ontario, Canada. We lease this property from an Ontario company controlled by the CEO of the Company, who is also executive chairman, president and a director. This lease expired on December 31, 2019. The Company is currently on a month-to-month lease. Prior to the business acquisition of May 2019, we leased the land on which our waste processing and composting facility is situated, near Belleville, Ontario, Canada. This property is now owned by one of the Company's wholly owned subsidiaries, 1684567 Ontario Inc., and the Company does not expend funds to satisfy this lease, as the Company is now both the landlord and the tenant.
We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's waste processing and composting facility.
For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included within this report.
Item 3. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results, other than the following:
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The Company has a claim filed against it for unpaid legal fees, in the amount of $49,329 (C$65,241). The unpaid fees are included in accounts payable in the consolidated balance sheets.
On October 4, 2023, an action was launched by one of the October 2021 Investors, who claimed he was owed $1,300,000 plus accrued interest. The principal balance in the accounts and noted under convertible promissory notes, note 12(a) is $1,645,337, including accrued interest of $345,337, which is after conversions of $318,100 during 2022 and 2023. The Company has disclosed the fair value of this convertible promissory note as $2,404,558. The Company intends to repay the balance owed when it is financially able to do so.
On or around November 27, 2023 and March 6, 2024, the Company experienced an outflow of contaminated water from its stormwater pond into the City of Belleville's roadside ditch and has continued to periodically overflow. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take several months to complete, will require significant investment, and are dependent on the Company securing funding. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's Belleville waste processing and composting facility. The Company has recently experienced an outflow of contaminated water from its stormwater pond, which spilled over into the City of Belleville's roadside ditch. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
The Company has a claim filed against it for unpaid Hydro Bills at the Company's wholly owned Belleville, Ontario facility in the amount of $378,278 (C$500,302). The unpaid bills are included in accounts payable in the consolidated balance sheets.
In addition, as of November 17, 2023 the Company received an amended claim against it in 2023 by Tradigital Marketing Group “Tradigital”), in the sum of US$219,834.17 in owed fees plus the difference in stock price, 300,000 common shares of the Company, plus attorney fees and expenses. The case went to arbitration on March 11, 2024 and the Company defended its position. On April 4, 2024, the International Centre for Dispute Resolution indicated that no additional evidence is to be submitted and the hearings are declared closed as of April 29, 2024.The tribunal will endeavor to render the final decision within the timeframe provided for in the rules. Management agrees that outstanding fees are only in the amount of US$30,000, which was agreed to by the parties in earlier communications and through various e-mail correspondence. In addition, the management has no issue with the outstanding common shares to be provided to the claim and totaling 300,000. Management believes that the additional claim amount of US$189,834.17 is without merit. On April 26, 2024, the arbitrator for this claim awarded Tradigital the sum of $118,170 which has been accrued by the Company and the remaining 250,000 were not required to be issued by the Company.
On April 1, 2024, the Company received notice of a complaint filed against it by the March 3, 2022 Investor, seeking damages of no less than $4,545,393. The Company has thirty calendar days to respond and on April 30, 2024, the Company was able to extend the time to respond with opposing counsel a further fifteen days. The Company has been unable to retain counsel to represent it in this matter. The full amount of the complaint net of the principal and interest included under this convertible promissory note, has been included in accrued liabilities.
Item 4. Mine Safety Disclosures.
The Company has no reporting to provide relative to information concerning mine safety and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Market Price of Common Stock
Our common stock is quoted on the OTCQB marketplace run by OTC Markets Group, Inc. under the symbol "SNRG". As of the date of this filing, the number of stockholders of record was ninety-eight (98). This does not include persons whose stock is in nominee or "street name" accounts through brokers.
Securities.
The information below was derived from the audited Consolidated Financial Statements included within this report and in previous annual reports, including those we filed with the SEC. This information should be read together with those Consolidated Financial Statements and the notes thereto. These historical results are not necessarily indicative of the results to be expected in the future.
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There were no declared dividends in 2023 and since incorporation. Future decisions to pay cash dividends are at the discretion of our Board of Directors. It is our intention to retain any future profits for use in the development and expansion of our business and for general corporate purposes.
Unregistered Sales of Equity Securities and Use of Proceeds.
During the year ended December 31, 2023, the Company issued a total of 10,297,561 Common Stock for non-cash proceeds and 1,536,582 for cash proceeds, as follows:
• 500,000 common shares were issued for proceeds previously received.
• 3,100,000 common shares were issued to officers and 20,000 to an employee.
• 100,000 common shares were issued to a director.
• 2,911,852 common shares were issued on the conversion of related party debt and account payable to equity.
• 1,650,709 common shares were issued on the conversion of debt to equity.
• 2,015,000 common shares were issued for professional and other services.
• 1,536,582 common shares issued on private placement for proceeds of $380,971.
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 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This section includes a discussion of our results of operations for the years ended December 31, 2023 and 2022. This discussion may contain forward-looking statements that anticipate results based on management's plans that are subject to uncertainty. We discuss in more detail various factors that could cause actual results to differ materially from expectations in Item 1A. Risk Factors. The following discussion should be read considering those disclosures and together with the Consolidated Financial Statements and the notes thereto.
Overview
Our Company's goals are targeted at serving our customers, our employees, the environment, the communities in which we work and our stockholders. Increasingly, customers want more of their waste materials recovered, while waste streams are becoming more complex, and our aim is to address the current needs, while anticipating the expanding and evolving needs of our customers.
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CONSOLIDATED RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2023 COMPARED TO THE YEAR ENDED DECEMBER 31, 2022
| 2023 | 2022 | |||||
| Revenue | $ | 610,461 | $ | 720,055 | ||
| Cost of Sales | ||||||
| Opening inventory | 58,695 | 20,582 | ||||
| Depreciation | 383,418 | 452,402 | ||||
| Direct wages and benefits | 129,319 | 225,484 | ||||
| Equipment rental, delivery, fuel and repairs and maintenance | 1,467,501 | 459,917 | ||||
| Utilities | 115,331 | 45,575 | ||||
| Outside contractors | 14,761 | 26,216 | ||||
| 2,169,025 | 1,230,176 | |||||
| Less: closing inventory | - | (58,695 | ) | |||
| Total cost of sales | 2,169,025 | 1,171,481 | ||||
| Gross loss | (1,558,564 | ) | (451,426 | ) | ||
| Operating expenses | ||||||
| Management compensation-stock- based compensation | 230,400 | 240,450 | ||||
| Management compensation-fees | 466,830 | 461,520 | ||||
| Professional fees | 580,596 |
900,458 |
||||
| Marketing | 122,978 |
991.383 |
||||
| Interest expense | 830,797 | 799,716 | ||||
| Office and administration | 508,144 | 338,136 | ||||
| Rent and occupancy | 212,521 | 215,482 | ||||
| Insurance | 43,034 | 79,158 | ||||
| Filing fees | 42,490 | 80,926 | ||||
| Amortization of financing costs | 115,175 | 109,765 | ||||
| Repairs and maintenance | 22,771 | (5,895 | ) | |||
| Director compensation | 71,579 | 57,690 | ||||
| Stock-based compensation | 795,297 | 2,092,230 | ||||
| Foreign exchange (income) loss | (325,364 | ) | 971,641 | |||
| Total operating expenses |
3,717,248 |
7,332,660 | ||||
| Net Loss Before Other Loss | (5,275,812 | ) | (7,784,086 | ) | ||
| Other Expenses |
(2,949,522 |
) |
(4,298,550 | ) | ||
| Net Loss Before Income Taxes | (8,225,334 | ) | (12,082,636 | ) | ||
| Income Taxes Recovery | - | 72,088 | ||||
| Net Loss | (8,225,334 | ) | (12,010,548 | ) |
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
During the year, the Company generated $610,461 (2022-$720,055) of revenue from its organic composting facility and the garbage collection services, a decrease of $109,594 over the prior year. Most of the revenue from the organic composting facility relates to revenue from tipping fees charged for organic and other waste accepted at the facility and a lesser portion relating to the sale of organic compost processed at the facility. The Company also earned revenue from its garbage collection services of $nil (2022-$26,886), which it acquired effective May 24, 2019 on the purchase of 1684567. The Company ceased the garbage collection services in 2022 to focus on its waste processing and composting facility.
The reduction in revenue is primarily due to the drop in the sale of carbon credits, a drop of $70,750, from $131,020 in the year ending December 31, 2022 to $60,270 in the year ending December 31, 2023. The Company ceased providing garbage collection services in 2022.
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In the operation of the waste processing and composting facility, the Company processes the organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $2,169,025 for the current year ended December 31, 2023 compared to $1,171,481 for the prior year ended December 31, 2022, an increase of $997,544. The costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. In addition, the Company estimated the inventory on hand at the end of the year for its organic compost to be $nil (2022-$58,695). These costs also include an estimate for the clean-up of certain waste as ordered by the MECP estimated to be $1,168,924. The increase in this estimate and the significant reduction in revenue significantly increased the gross loss during the year, compared to the prior year, an increase of $1,107,138.
Operating expenses decreased significantly by $3,615,412 from $7,332,660 for the year ended December 31, 2022 to $3,717,248 for the year ended December 31, 2023. The decrease was primarily the result of decreases in marketing expenses, stock-based compensation and the foreign exchange gain, explained in greater detail below.
During the year, the Company incurred management compensation expense in the form of fees $466,830 compared to $461,520 in the prior year ended December 31, 2022, an increase of $5,310, primarily due to the increase in the CFO's compensation for the year ended December 31, 2023. The management compensation in the form of stock-based compensation totaled $230,400 (2021-$240,450) during the year-ended December 31, 2023 relating to the Common Stock issued to the CEO and the CFO who were issued 3,000,000 and 100,000, respectively, of which 1,500,000 and 100,000 respectively, were vested, pursuant to their consulting agreements.
Professional fees decreased by $319,862 from $900,458 in the year ended December 31, 2022 to $580,596 in the year ended December 31, 2023, primarily due to reduced estimated costs for the 2023 audit, reviews and tax related services along with the absence of the engagement of certain service providers in the current year. Previously, the Company had engaged the services of a chartered professional accounting firm in 2021 for services in both 2021 and 2022 to assist management with various documentation and reporting matters and the valuation of the convertible promissory notes both in 2021 and for two quarters in 2022 along with engaging the services of a corporate valuation services firm in 2022 to assist management in the valuation of the convertible promissory notes for Q3 and for the year-end. In addition, in the prior year the Company incurred additional professional fees in connection with its S-1/A registration statement.
Marketing expenses were reduced by $868,405 from $991,383 in the prior year to $122,978 in the current year primarily due to the absence of a new marketing plan.
During the year, the Company incurred interest expenses of $830,797, an increase of $31,081 over the prior year's amount of $799,716. The increase is primarily due to the interest on the new mortgages for the new property purchase in Hamilton, Ontario, Canada and a true up by the mortgagees who decided to charge the company based on the variable interest rate on their mortgages when in the past they continued to charge at 10% from inception. This was offset by a reduction of the interest on the PACE debt obligations when a full and final release was finalized on March 28, 2023 and settled on November 3, 2023.
Office and administration increased by $170,008 from $338,136 in the prior year to $508,144 in the current year. This was primarily due to penalties charged by the mortgages on the extensions and amendments to certain mortgages.
Rent and occupancy expenses remained stable with a small decrease of $2,961 from $215,482 in the prior year to $212,521 in the current year.
Insurance expenses were reduced by $36,124 from $79,158 in the prior year to $43,034 in the current year as the Company did not renew certain policies.
Filing fees decreased by $38,436 from $80,926 in the prior year to $42,490 in the current year, primarily due to the absence of investor relations activities.
During the year, the amortization of financing costs increased by $5,410 from $109,765 in the prior year to $115,175 in the current year due primarily to the amortization of an additional financing costs in connection with new mortgages on the Hamilton, Ontario, Canada property and financing costs incurred on the extension of the maturity date on the 1st mortgage on the Company's Belleville Ontario, Canada facility.
Repairs and maintenance increased by $28,666 from a credit of $5,895 in the prior year to $22,771 in the current year primarily due to the absence of a credit on roof repairs incurred in the prior year at the Company's Toronto, Ontario, Canada office.
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Director compensation increased by $13,889 from $57,690 in the prior year to $71,579 in the current year. The increase is due to the new independent director who joined the Board on February 18, 2023. Each independent director is entitled to a fee of $18,525 (C$25,000) annually. By December 31, 2023, the Company had four independent directors for whom the Company has accrued their annual fees. In addition, on March 1, 2023, the new independent director was awarded stock-based compensation consisting of 100,000 common shares of the Company, valued at $21,000, based on the trading price on the appointed date and included under stock-based compensation in the consolidted.es. This amount is disclosed as stock-based compensation in the consolidated statements of operations and comprehensive loss.
Stock-based compensation expense was reduced by $1,296,933 from a balance of $2,092,230 in the prior year to $795,297 in the year because of the absence of consulting agreements in the current year.
The foreign exchange loss reduced by $1,297,005 from a loss of $971,641 in the prior year to income of $325,364 in the current year due primarily to gains incurred on the translation and settlement of significant expenses and balances denominated in United States dollars during the year, including the convertible promissory notes, during a period in which the Canada dollar strengthened.
During the year, the Company recorded a loss on the revaluation of convertible promissory notes of in the amount of $3,059,969 compared to a loss of $4,048,550 net of the gain on extinguishment of convertible promissory notes) in the prior year. During the year the Company experienced an increase in the principal amounts for certain convertible promissory notes due to an amendment and defaults along with the impact of default interest accruing at 24% per annum for these notes. In addition, during the current year, the Company recorded a loss of $74,359 on the conversions of a convertible promissory note. Further, the Company settled outstanding debt obligations with PACE and recorded a gain on forgiveness of these debts in the amount of $2,925,467. The Company also recorded a provision for a loss of a deposit for a future acquisition in the amount of $148,200, a provision for loss on a claim by Tradigital in the amount of $58,097 and a provision for loss on a lawsuit against the Company by the investor of the March 3, 2023 Investor Note in the amount of $2,534,364.
Also, in the prior year, the Company recorded an amount of $250,000 for the accrued settlement payment for the release of services of a party for an underwriting offering dated March 23, 2022 and amended May 23, 2022. Overall, the other expenses decreased by $1,349,028.
Critical Accounting Estimates and Assumptions
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, the fair value of convertible promissory notes, 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
The Company records compensation costs related to stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. Where necessary, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of highly subjective assumptions including: the expected option life, the risk-free rate, the dividend yield, the volatility of the Company's stock price and an assumption for employee forfeitures. The risk-free rate is based on the U.S. Treasury bill rate at the date of the grant with maturity dates approximately equal to the expected term of the option. The Company has not historically issued any dividends and does not expect to in the near future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting stock- based compensation recognized. The Company has not issued any stock options and has no stock options outstanding at December 31, 2023.
|
| 28 |
Indefinite Asset Impairments
The Company evaluates the intangible assets for impairment annually in the fourth quarter or when triggering events are identified and whether events and circumstances continue to support the indefinite useful life using Level 3 inputs. As at December 31, 2023 and December 31, 2022, the Company had no indefinite assets on its consolidated balance sheets.
Long-Lived Asset Impairments
In accordance with ASC 360, "Property, Plant and Equipment", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events or circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event that such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.
At December 31, 2023, the Company tested the long-lived assets for impairment to determine whether the carrying value exceeded the fair value. The Company used quoted market values and independent appraisals of its long-lived assets and determined that no impairment loss was required to be recognized.
Liquidity and Capital Resources
As at December 31, 2023, the Company had a cash balance of $1,263 (2022-$42,900) and current liabilities in the amount of $30,823,963 (2022-$22,339,175). As at December 31, 2023, the Company had a working capital deficit of $30,390,423 (2022-$21,580,552). The Company does not currently have sufficient funds to satisfy the current debt obligations. Should the Company's creditors seek or demand payment, the Company does not have the resources to pay for or satisfy any such claims currently. The Company has been in discussions with other creditors and equity investors for new financing options to repay or re-finance certain current debt obligations.
The Company's total assets at December 31, 2023 were $11,755,903 (2022-$9,865,775) and total current liabilities were $30,823,963 (2022-$22,339,175). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $38,570,531 as of December 31, 2023 (2022-$30,345,197). Continuation as a going concern is dependent upon generating significant new revenue, raising external capital and refinancing certain current debt. whilst achieving profitable operations and maintaining current fixed expense levels.
To pay current debt obligations 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 $30,823,963 in current liabilities, the Company estimates that approximately $15,000,000 in additional funds 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.
Interest Rate Exposure - 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.
Our exposure to market risk for changes in interest rates relates primarily to our financing activities. We have $nil (C$nil) (2022-$7,285,747; C$9,868,274) of debt that is exposed to changes in market interest rates within the next 12 months. We currently estimate that a 100-basis point increase in the interest rates of our outstanding variable-rate debt obligations would increase our 2022 interest expense by approximately $nil (2022-$72,900).
Our remaining outstanding debt obligations have fixed interest rates through the scheduled maturity of the debt. The fair value of our fixed-rate debt obligations would not be expected to increase or decrease significantly if market interest rates change.
Credit Risk Exposure - is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at December 31, 2023, the Company's credit risk is primarily attributable to cash and trade receivables. As at December 31, 2023, the Company's cash was held with a Canadian chartered bank and a US bank.
|
| 29 |
Commodity Price Exposure - In the normal course of our business, we are subject to operating agreements that expose us to market risks arising from changes in the prices for commodities such as diesel fuel, propane, and electricity. We attempt to manage these risks through operational strategies that focus on capturing our costs in the prices we charge our customers for the services provided. Accordingly, as the market prices for these commodities increase or decrease, our revenues may also increase or decrease.
Currency Rate Exposure - Our operations are currently in Ontario, Canada. Where significant, we have quantified and described the impact of foreign currency translation on components of income, including operating revenue and operating expenses. However, the impact of foreign currency has not materially affected the results of operations.
Summary of Cash and Debt Obligations
The following is a summary of our cash and debt balances as of December 31:
| 2023 | 2022 | |||||
| Cash | $ | 1,263 | $ | 42,900 | ||
| Debt: | ||||||
| Current portion | $ |
20,447,318 |
$ | 16,710,639 | ||
| Long-term portion | - | 116,978 | ||||
| Total debt | $ |
20,447,318 |
$ | 16,827,617 |
We use long-term borrowings in addition to the cash we are able to generate from operations as part of our overall financial strategy to support and grow our business. The components of our borrowings as of December 31, 2023 and 2022 are described in notes 10, 11, 12 and 14 to the consolidated financial statements.
Changes in our outstanding debt balances from December 31, 2022 to December 31, 2023 were primarily attributable to (i) increase in net debt borrowings of $3,619,701 and (ii) the impacts of other non-cash changes in our debt balances due to foreign currency translation and the loss on the revaluation of convertible promissory notes.
Refer to Security Purchase Agreements, Financing Agreements with PACE and Other financings noted above for details.
Summary of Cash Flow Activity
The following is a summary of our cash flows for the years ended December 31:
| 2023 | 2022 | |||||
| Net cash used in operating activities (a) | $ |
(1,465,765 |
) | $ | (1,207,557 | ) |
| Net cash used in investing activities (b) | $ | (2,340,430 | ) | $ | (1,868,864 | ) |
| Net cash provided by financing activities (c) | $ | 3,740,808 | $ | 2,773,441 |
|
|
(a) |
Net Cash Used in Operating Activities - The most significant items affecting the comparison of our operating cash flows in 2023 as compared with 2022 are summarized below: |
|
|
|
|
| Increase in Net Loss - Our loss from operations, excluding depreciation and amortization and other expenses decreased by $2,444,700 in 2023, principally driven by reduced revenue resulting in a higher gross loss, offset by lower marketing costs, professional fees, stock-based compensation and higher foreign exchange income (reduced foreign exchange loss). | ||
| Changes in Assets and Liabilities -Our net cash used in operating activities was impacted by changes in assets and liabilities. | ||
| (b) | Net Cash Used in Investing Activities - The Company purchased long-lived assets in 2023 in the amount of $2,340,430 compared to $1,868,864 in 2022. |
|
| 30 |
| (c) | Net Cash Provided by Financing Activities - The most significant items affecting the comparison of our financing cash flows for the periods presented are summarized below: | |
| Debt Borrowings - In the current year, the Company incurred net debt borrowings $3,619,701 an increase of $1,754,020 from the prior year and a decrease of $526,789 in private placement proceeds in 2023 from the prior year. |
Refer to notes 10, 11, 12 and 14 to the consolidated financial statements for additional information related to our various borrowings.
Summary of Contractual Obligations and Commitments
The following table summarizes our contractual obligations of principal payments as of December 31, 2023 and the anticipated effect of these obligations on our liquidity in future years:
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | |||||||||||||||
| Contractual Obligations: | |||||||||||||||||||||
| Long-term debt and obligations under capital lease (a) | $ | 8,500,869 | $ | 1,512,275 | $ | - | $ | - | $ | - | $ | - | $ | 10,013,144 | |||||||
| Convertible promissory notes |
7,442,600 |
- | - | - | - | - | 7,442,600 | ||||||||||||||
| Management consulting agreements | 453,660 | - | - | - | - | - | 453,660 | ||||||||||||||
| Truck and trailer financing (b) | 39,987 | 13,774 | - | - | - | - | 53,761 | ||||||||||||||
| Various third-party consulting and other agreements | 545,000 | 125,000 | 125,000 | - | - | - | 795,000 | ||||||||||||||
| Hamilton-construction in progress commitments | 5,166,429 | - | - | - | - | - | 5,166,429 | ||||||||||||||
| Road maintenance obligation (c) | 7,561 | 7,561 | - | - | - | - | 15,122 | ||||||||||||||
| Anticipated liquidity impact as of December 31, 2023 | $ |
22,156,106 |
$ | 1,658,610 | $ | 125,000 | $ | - | $ | - | $ | - | $ |
23,939,716 |
| (a) | These amounts represent the scheduled principal payments related to the Company's long-term debt, obligations under capital lease, excluding interest. |
| Refer to notes 10, 11 and 14 to the consolidated financial statements for additional information on our long-term debt and our obligations under capital lease. | |
| (b) | Truck and trailer financing |
| (c) | The road maintenance obligation is invoiced annually by the City of Belleville, Ontario, Canada in the amount of $7,561 (C$10,000) and expires September 30, 2025. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Going Concern
The consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.
As at December 31, 2023, the Company had a working capital deficit of $30,390,423 (2021-$22,580,552), incurred a net loss of $8,225,334 (2022-$12,010,548) for the year and had an accumulated deficit of $38,570,531 (December 31, 2022-$30,345,197) and expects to incur further losses in the development of its business.
The Company incurred a net loss of $8,225,334 (2022-$12,010,548) for the year ended December 31, 2023 and as at that date had a working capital deficit of $30,390,423 (2022-$21,580,552) and an accumulated deficit of $38,570,531 (December 31, 2022-$30,345,197) and expects to incur further losses in the development of its business. On November 3, 2023, the funds previously held in escrow, which related to a full and final mutual release of all obligations owing to PACE, including accrued interest, in the amount of $924,500 (C$1,250,000), were released to PACE (now Alterna) and Alterna released all security it held to the Company. Prior to this full and final mutual release the obligations owing to PACE, including accrued interest were $3,930,207 (C$5,197,999). The Company was successful in extending the maturity date on one of its 1st mortgages, which had a maturity date of December 1, 2023, to June 1, 2024 and transferred another 1st mortgage, originally a vendor take-back mortgage with a maturity date of August 17, 2023 to new mortgages with a new maturity date of December 14, 2024. On January 10, 2024, the Company stopped receiving waste at its waste processing and composting operation in Belleville, Ontario Canada, to address several non-compliance matters addressed in orders from the MECP. On December 14, 2023, the Company announced an advisory and distribution agreement with Oak Hill, to raise funding for the Company to address its outstanding obligations to creditors and for general operational matters.
|
| 31 |
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 necessary financing to further the development of its business, satisfy its obligations to its 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 recorded on these consolidated financial statements.
These consolidated financial statements do not include any adjustments to reflect the potential 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. Such adjustments could be material.
Recently Accounting Pronouncements
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which requires enhanced disclosure of certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty while eliminating certain current recognition and measurement accounting guidance. This ASU also requires the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 became effective for the Company's annual and interim periods beginning on January 1, 2023. The Company adopted this ASU on January 1, 2023. As a result, the adoption of ASU 2022-02 did not have any impact on the opening balances in the condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU-2016-13"). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company adopted this ASU on January 1, 2023. As a result, the adoption of ASU 2016-13 did not have any impact on the opening balances in the condensed consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 8. Financial Statements and Supplementary Data.
|
| 32 |
SUSGLOBAL ENERGY CORP.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
(Expressed in United States Dollars)
CONTENTS
|
| 33 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of SusGlobal Energy Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SusGlobal Energy Corp. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related consolidated notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered a net loss from operations and used cash in operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
As discussed in Note 12, the Company borrows funds using convertible notes payable that contain a conversion price that may be fixed or fluctuates with the stock price.
Auditing management's estimates of the fair value of the convertible debt involves significant judgements and estimates given the embedded conversion features of the notes.
|
| 34 |
To evaluate the appropriateness of the fluctuation of the conversion price, the embedded conversion feature is subject to market adjustments as of each reporting period. Significant judgment is exercised by the Company in determining the fair value liability values for these convertible note agreements, including the use of a specialist engaged by management.
We evaluated management's conclusions regarding their derivative liability and reviewed support for the significant inputs used in the valuation model, as well as assessing the model for reasonableness.
/s/
We have served as the Company's auditor since 2022.
May 15, 2024
|
| 35 |
SusGlobal Energy Corp.
Consolidated Balance Sheets
As at December 31, 2023 and 2022
(Expressed in United States Dollars)
| 2023 | 2022 | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | $ | $ | ||||
| Trade receivables | ||||||
| Government remittances receivable | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits (note 7) | ||||||
| Total Current Assets | ||||||
| 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, 10, 11, 12, and 14) | ||||||
| Current portion of long-term debt (note 10) | ||||||
| Current portion of obligations under capital lease (note 11) | ||||||
| Convertible promissory notes (note 12)-in default | ||||||
| Loans payable to related parties (note 14) | ||||||
| Total Current Liabilities | ||||||
| Long-term debt (note 10) | ||||||
| Obligations under capital lease (note 11) | ||||||
| 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 23) |
The accompanying notes are an integral part of these consolidated financial statements.
36
SusGlobal Energy Corp.
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2023 and 2022
(Expressed in United States Dollars)
| 2023 | 2022 | |||||
| Revenue | $ | $ | ||||
| Cost of Sales | ||||||
| Opening inventory | ||||||
| Depreciation | ||||||
| Direct wages and benefits | ||||||
| Equipment rental, delivery, fuel and repairs and maintenance | ||||||
| Utilities | ||||||
| Outside contractors | ||||||
| Less: closing inventory | ( |
) | ||||
| Total cost of sales | ||||||
| Gross loss | ( |
) | ( |
) | ||
| Operating expenses | ||||||
| Management compensation-stock- based compensation (notes 9 and 15) | ||||||
| Management compensation-fees (note 9) | ||||||
| Professional fees | ||||||
| Marketing | ||||||
| Interest expense (notes 9, 10, 11, 12 and 14) | ||||||
| Office and administration | ||||||
| Rent and occupancy (note 10) | ||||||
| Insurance | ||||||
| Filing fees | ||||||
| Amortization of financing costs | ||||||
| Repairs and maintenance | ( |
) | ||||
| Director compensation (notes 9 and 15) | ||||||
| Stock-based compensation (noted 10 and 15) | ||||||
| Foreign exchange (income) loss | ( |
) | ||||
| Total operating expenses | ||||||
| Net Loss Before Other Loss | ( |
) | ( |
) | ||
| Other Income (Expenses) (note 17) | ( |
) |
( |
) | ||
| Net Loss Before Income Taxes | ( |
) | ( |
) | ||
| Income Taxes Recovery (note 18) | ||||||
| Net Loss | ( |
) | ( |
) | ||
| Other comprehensive loss | ||||||
| Foreign exchange (loss) income | ( |
) | ||||
| 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 consolidated financial statements.
|
|
37
SusGlobal Energy Corp.
Consolidated Statements of Changes in Stockholders' Deficiency
For the years ended December 31, 2023 and 2022
(Expressed in United States Dollars)
| Accumulated | |||||||||||||||||||||
| Additional | Shares | Other | |||||||||||||||||||
| Number | Common | Paid- | to be | Accumulated | Comprehensive | ||||||||||||||||
| of Shares | Shares | in Capital | Issued | Deficit | Loss | Total | |||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | |||||||||||||||||
| Share issued to officers | - | - | - | ||||||||||||||||||
| Shares issued to employee | - | - | - | ||||||||||||||||||
| Share issued on conversion of debt to equity | - | - | - | ||||||||||||||||||
| Share issued on issuance of debt on extinguishment of existing debt | - | - | |||||||||||||||||||
| Shares issued on extension of maturity dates on debt | - | - | - | ||||||||||||||||||
| Shares issued on conversion of related party debt to equity | - | - | - | ||||||||||||||||||
| Shares issued on private placement | - | - | - | ||||||||||||||||||
| Shares issued for professional services | - | - | - | ||||||||||||||||||
| Shares returned to treasury | ( |
) | ( |
) | - | - | |||||||||||||||
| Shares yet to be issued | - | - | - | - | |||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||
| Balance-December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
|
| 38 |
SusGlobal Energy Corp.
Consolidated Statements of Changes in Stockholders' Deficiency
For the years ended December 31, 2023 and 2022
(Expressed in United States Dollars)
| Accumulated | |||||||||||||||||||||
| Additional | Shares | Other | |||||||||||||||||||
| Number | Common | Paid- | to be | Accumulated | Comprehensive | ||||||||||||||||
| of Shares | Shares | in Capital | Issued | Deficit | Loss | Total | |||||||||||||||
| Balance-December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | |||||||||||||||||
|
Cancellation of shares to be issued |
- |
- |
- |
|
( |
) |
- |
- |
( |
) |
|||||||||||
| Share issued to officers | - | - | - | ||||||||||||||||||
| Shares issued to employee | - | - | - | ||||||||||||||||||
| Shares issued to director | - | - | - | ||||||||||||||||||
| Shares issued on conversion of related party debt | - | - | - | ||||||||||||||||||
| Shares issued on private placement | - | - | - | ||||||||||||||||||
| Shares issued on conversion of debt | - | - | - | ||||||||||||||||||
| Shares issued for professional services | - | - | - | ||||||||||||||||||
| Shares issued for other services | - | - | - | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||
| Net loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||
| Balance-December 31, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) |
The accompanying notes are an integral part of these consolidated financial statements.
|
39 |
SusGlobal Energy Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2023 and 2022
(Expressed in United States Dollars)
(unaudited)
| 2023 | 2022 | |||||
| Cash flows from operating activities | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Deferred taxes recovery | ( |
) | ||||
| Adjustments for: | ||||||
| Depreciation | ||||||
|
Provision for losses |
||||||
| Amortization of financing fees | ||||||
| Stock-based compensation | ||||||
| Loss on conversion of convertible promissory notes | ||||||
| Gain on extinguishment of long-term debt | ( |
) | ||||
| Loss on revaluation of convertible promissory notes | ||||||
| Gain on extinguishment of convertible promissory notes | ( |
) | ||||
| Non-cash additions to convertible promissory notes on amendments | ||||||
| Changes in non-cash working capital: | ||||||
| Trade receivables | ( |
) | ||||
| Government remittances receivable | ( |
) | ||||
| Inventory | ( |
) | ||||
| Prepaid expenses and deposits | ( |
) | ( |
) | ||
| Accounts payable | ||||||
| Government remittances payable | ||||||
| Accrued liabilities | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| Cash flows from investing activities | ||||||
| Purchase of long-lived assets | ( |
) | ( |
) | ||
| Net cash used in investing activities | ( |
) | ( |
) | ||
| Cash flows from financing activities | ||||||
| Advance of long-term debt (net of financing fees) | ||||||
| Repayment of long-term debt | ( |
) | ( |
) | ||
| Repayments of obligations under capital lease | ( |
) | ( |
) | ||
| Advances of convertible promissory notes | ||||||
| Repayment of convertible promissory notes | ( |
) | ||||
|
Advances of loans payable to related parties (net of financing fees) |
||||||
| Repayments of loans payable to related parties | ( |
) | ( |
) | ||
| Subscription payable proceeds (net of share issue costs) | ||||||
| Net cash provided by financing activities | ||||||
| Effect of exchange rate on cash | ||||||
| (Decrease) increase in cash | ( |
) | ||||
| Cash and cash equivalents-beginning of period | ||||||
| Cash and cash equivalents end of period | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
|
| 40 |
SusGlobal Energy Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2023 and 2022
(Expressed in United States Dollars)
(unaudited)
| 2023 | 2022 | |||||
| Supplemental Cash Flow Disclosure: | ||||||
| Interest paid | $ | $ | ||||
| Supplementary Non-Cash Disclosure: | ||||||
| Common stock issued at fair value for conversion of debt, plus accrued interest, and other fees | $ | $ | ||||
| Common stock issued at fair value on extinguishment of existing debt | $ | $ | ||||
| Common stock yet to be issued | $ | $ | ||||
| Common stock issued at fair value for conversion of related party debt and accounts payable | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
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 12, 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 consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp. ("SGECC"), SusGlobal Energy Canada I Ltd. ("SGECIL"), SusGlobal Energy Belleville Ltd. ("SGEBL"), SusGlobal Energy Hamilton Ltd. ("SGEHL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for annual financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-K and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars.
2. Going Concern
The consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.
The Company incurred a net loss of $
On November 3, 2023, the funds previously held in escrow, which related to a full and final mutual release of all obligations owing to PACE, including accrued interest, in the amount of $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
2. Going Concern, (continued)
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 its creditors, and upon achieving profitable operations through revenue growth. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
These 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.
3. Recently Adopted Accounting Pronouncements
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which requires enhanced disclosure of certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty while eliminating certain current recognition and measurement accounting guidance. This ASU also requires the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 became effective for the Company's annual and interim periods beginning on January 1, 2023. The Company adopted this ASU on January 1, 2023. As a result, the adoption of ASU 2022-02 did not have any impact on the opening balances in the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ("ASU-2016-13"). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company adopted this ASU on January 1, 2023. As a result, the adoption of ASU 2016-13 did not have any impact on the opening balances in the consolidated financial statements.
There were no new accounting pronouncements issued and not yet adopted that were expected to have a material impact on the Company's interim condensed consolidated financial position or results of operations in the current or future periods.
4. Significant Accounting Policies
a) Principles of consolidation
The consolidated financial statements include the accounts of SusGlobal and its wholly owned subsidiaries, SGECC, incorporated on December 14, 2015, SGECIL, incorporated on December 15, 2015, SGEBL, incorporated on July 27, 2017, SGEHL, incorporated on August 10, 2021 and 1684567, acquired effective May 24, 2019. All significant inter-company balances and transactions have been eliminated on consolidation.
b) Business combinations
The Company adopted ASU No. 2017-01, which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
A business combination is a transaction or other event in which control over one or more businesses is obtained. A business in an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits. A business consists of inputs and processes applied to those inputs that have the ability to create outputs that provide a return to the Company and its shareholders. A business need not include all the inputs and processes that were used by the acquiree to produce outputs if the business can be integrated with the inputs and processes of the Company to continue to produce outputs. The Company considers several factors to determine whether the set of activities and assets is a business.
Business acquisitions are accounted for using the acquisition method whereby acquired assets and liabilities are recorded at fair value as at the date of acquisition with the excess of the purchase consideration over such value being recorded as goodwill and allocated to reporting units ("RUs"). If the fair value of the net assets acquired exceeds the purchase consideration, the difference is recognized immediately as a gain in the consolidated statements of operations. Acquisition-related costs are expensed in the period in which they are incurred, except for the cost of debt or equity instruments issued in relation to the acquisition which is included in the carrying amount of the related instrument.
Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they are adjusted retrospectively in subsequent periods. However, the measurement period will not exceed one year from the acquisition date. If the assets acquired are not a business, the transaction is accounted for as an asset acquisition. The Company's recent acquisition, as described under note 9, Long-lived Assets, was accounted for as an asset acquisition whereby the total acquisition price is allocated on assets acquired based on relative fair values and acquisition related costs are considered a part of the acquisition price.
c) 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, fair value of convertible promissory notes, 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.
d) Cash
Cash consists of deposits held in financial institutions.
e) Trade receivables
Trade receivables, which are recorded when billed and when services are performed, are claims against third parties that will be settled in cash. The carrying value of trade receivables, net of an allowance for doubtful accounts, represents the estimated realizable value. An estimate of allowance for doubtful accounts is based on historical trends; type of customer, such as commercial or municipal; the age of outstanding trade receivables; and existing economic conditions. If events or changes in circumstances indicate that specific trade receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due trade receivable balances are written off when internal collection efforts have been unsuccessful.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
(f) Fair value of financial instruments
The Company measures the fair value of financial assets and liabilities based on ASC 820 "Fair Value Measurements and Disclosures", which determines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
|
|
a. |
Level 1 - Quoted prices in active markets for identical assets or liabilities. |
|
|
b. |
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
c. |
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The carrying amounts of the Company's financial instruments, such as cash, trade receivables, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amount of the advance, long-term term debt, obligations under capital lease, mortgages payable and loans payable to related parties also approximates fair value due to their market interest rate.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value. The Company had no financial assets or liabilities recorded at fair value on a recurring basis as at December 31, 2023, and December 31, 2022 except for the convertible promissory notes for which the Company elected the fair value option. The convertible promissory notes for which the fair value option has been elected are carried at fair value based on Level 3 inputs (see note 13).
g) Inventory
Inventory, which consists of screened organic compost, is stated at the lower of cost and net realizable value. Cost is represented by production cost, which includes equipment rental, delivery, fuel and repairs and maintenance, direct wages and benefits, outside contractors, utilities and manufacturing overhead. Inventory quantities on hand are reviewed on a weekly basis and typically there is no need to record provisions for excess or obsolete inventory as the inventory has a long shelf life. The inventory is stored outdoors and accumulated in piles.
h) Intangible assets
Intangible assets included a technology license, which was stated at cost less accumulated amortization and was amortized on a straight-line basis over the useful life which was the contract term of five years plus the renewal option of five years and customer lists, which were stated at cost less accumulated amortization and are amortized on a straight-line basis over the useful lives of the customer contracts, which ranged between forty-five and sixty-six months. Intangible assets also included environmental compliance approvals and trademarks, which were stated at cost, had indefinite useful lives and were not amortized until their useful lives were determined to be no longer indefinite. The Company evaluates the intangible assets for impairment annually in the fourth quarter or when triggering events are identified and whether events and circumstances continue to support the indefinite useful life.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
i) Goodwill
Goodwill arising on an acquisition of a business represents the excess of the purchase price over the fair value of the net identifiable assets of the acquired business. Goodwill is carried at cost as established at the date of acquisition of the acquired business less accumulated impairment losses, if any. Management assesses goodwill impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that it might be impaired by comparing its carrying value to the fair value of the acquired business.
j) Long-lived assets
Long-lived assets are stated at cost. Equipment awaiting installation on site is not depreciated until it is commissioned. Depreciation is based on the estimated useful life of the asset and depreciated annually on a straight-line basis at the following annual rates:
| Category | Rate |
| Computer equipment |
|
| Computer software |
|
| Officer trailer and vacuum trailer |
|
| Signage |
|
| Machinery and equipment, including under capital lease |
|
| Automotive equipment |
|
| Composting buildings |
|
| Gore cover system |
|
| Driveway and paving |
|
k) Impairment of long-lived assets
In accordance with ASC 360, "Property, Plant and Equipment", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events or circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event that such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. On December 31, 2023, the Company tested the long-lived assets for impairment to determine whether the carrying value exceeded the fair value. The Company used quoted market values and independent appraisals of its long-lived assets and determined that no impairment loss was required to be recognized.
l) Debt issuance costs
Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. Debt issuance costs related to convertible promissory notes which are valued at fair value are expensed once incurred.
m) Environmental remediation costs
The Company accrues for costs associated with environmental remediation and clean-up obligations when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
n) Income taxes
The Company accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") ASC 740, "Income Taxes." Deferred tax assets and liabilities are recorded for differences between the accounting and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or receivable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.
o) Revenue recognition
The Company's revenues are from the tipping fees charged for waste delivery to the Company's organic composting facility and from the sale of organic compost. The Company recognizes revenue when it satisfies a performance obligation when transferring control over a product or service to a customer. The tipping fees charged for services are generally defined in service agreements or arrangements and vary based on contract-specific terms such as frequency of service, type of waste, weight, volume and the general market factors influencing a region's rates. The Company also generated revenue from fees charged for garbage collection services and landfill management services, based on agreements with customers. Revenue is recognized as waste is accepted and collection is reasonably assured for the tipping fees charged and monthly for the other services and collection is assured. The waste collected is processed, cured and screened before being sold as organic compost. The cost of these processes is accrued at the time of revenue recognition. Further, the Company recognizes revenue from the sale of carbon credits which are marketed by an independent party.
p) Loss per share
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus potentially dilutive securities outstanding for each year. The computation of diluted loss per share has not been presented as its effect would be anti-dilutive.
q) Convertible promissory notes
The Company had elected the fair value option to account for its convertible promissory notes issued during 2021 and subsequently. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date with changes in fair value recorded as a component of other expenses, in the consolidated statements of operations and comprehensive loss. The Company has elected to include interest expense in the changes in fair value. Transaction costs are incurred as expensed. The Company did not elect the fair value option for the convertible promissory notes issued in 2019. The notes were measured at amortized cost.
r) Stock-based compensation
The Company records compensation costs related to stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. Where necessary, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of highly subjective assumptions including: the expected option life, the risk-free rate, the dividend yield, the volatility of the Company's stock price and an assumption for employee forfeitures. The risk-free rate is based on the U.S. Treasury bill rate at the date of the grant with maturity dates approximately equal to the expected term of the option. The Company has not historically issued any dividends and does not expect to in the near future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting stock- based compensation recognized. The Company has not issued any stock options and has no stock options outstanding at December 31, 2023.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
s) Comprehensive Loss
The Company accounts for comprehensive loss in accordance with ASC 220, "Comprehensive Income," which establishes standards for reporting and presentation of comprehensive loss and its components. Comprehensive loss is presented in the consolidated statements of stockholders' deficiency and consists of net loss and foreign currency translation adjustments.
t) Foreign currency translation
The functional currency of the Company is the Canadian dollar (the "C$") and its presentation or reporting currency is the United States dollar ("$"). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. In translating the financial statements of the Company's Canadian subsidiaries from their functional currency into the Company's reporting currency of $, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders' deficiency. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
5. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted.
There are no new accounting pronouncements issued that were expected to have a material impact on the Company's consolidated financial position or results of operations in the current or future periods.
6. Financial Instruments
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 of $
Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at December 31, 2023, the Company's credit risk is primarily attributable to cash and trade receivables. As at December 31, 2023, the Company's cash was held with a Canadian chartered bank and a United States of America bank.
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 the amounts provided for by the allowance for doubtful accounts is inherent in accounts receivable. As at December 31, 2023 and 2022, the allowance for doubtful accounts was $
|
48
SusGlobal Energy Corp. |
6. Financial Instruments, (continued)
As at December 31, 2023, the Company is exposed to concentration risk as it had
Liquidity Risk
Liquidity risk is the risk that the Company will be 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 considering all its options to refinance its obligations and repay creditors. Refer also to going concern, note 2 and subsequent events note 23.
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. To continue operations, the Company will need to raise capital, repay all of its outstanding obligations 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 and subsequent events note 23.
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 December 31, 2023, $
7. Prepaid Expenses and Deposits
Included in prepaid expenses and deposits are costs, primarily for professional services to be expensed as stock-based compensation after December 31, 2023, in the amount of $
8. Long-lived Assets, net
| 2023 | 2022 | |||||||||||
| 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 | ||||||||||||
| Signage | ||||||||||||
| Automotive equipment | ||||||||||||
| $ | $ | $ | $ |
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
8. Long-lived Assets, net, (continued)
On November 2, 2023, the Company completed the purchase of additional land, consisting of a
Included under property under construction, are construction costs incurred on the first property in Hamilton, Ontario, Canada in the amount of $
During the year ended December 31, 2023, depreciation is disclosed in cost of sales in the amount of $
9. Related Party Transactions
For the year ended December 31, 2023, the Company incurred $
In addition, during the year ended December 31, 2023, the Company incurred interest expense of $
For the year ended December 31, 2023, the Company incurred $
For those independent directors providing their services throughout 2023, the Company recorded directors' compensation in the amount of $
Furthermore, for the year ended December 31, 2023, the Company recognized management stock-based compensation expense of $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
10. Long-Term Debt
| 2023 | 2022 | ||||||
| PACE Credit Facility-Due September 2, 2022 | $ | $ | |||||
| PACE Credit Facility-Due September 2, 2022 | |||||||
| PACE Corporate Term Loan-Due September 13, 2022 | |||||||
| (a)i.) | Mortgage Payable-Due June 1, 2024 | ||||||
| (a)ii) | Mortgage Payable-Due March 1, 2024 | ||||||
| (a)iii) | Mortgage Payable-Due November 2, 2025 | ||||||
| (a)iv) | Mortgage Payable-Due November 2, 2024 | ||||||
| (a)v) | Mortgage Payable-Due December 14, 2024 | ||||||
| (a)vi.) | Mortgage Payable-Due August 17, 2023 | ||||||
| (b) | Canada Emergency Business Account-Due December 31, 2023 | ||||||
| (c) | Corporate Term Loan-Due April 7, 2025 | ||||||
| Current portion | ( |
) | ( |
) | |||
| Long-Term portion | $ | $ | |||||
On November 3, 2023, the funds previously held in escrow, which related to a full and final mutual release of all obligations owing to PACE, including accrued interest, in the amount of $
The Company continues to be responsible in replacing the letter of credit previously held by PACE in favor of the MECP which is now in the amount of $
For the year ended December 31, 2023, $
(a) 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 $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
10. Long-Term Debt, (continued)
ii. On March 1, 2023, the Company obtained a 2nd mortgage in the amount of $
iii. On November 2, 2023, the Company completed the purchase of additional land, consisting of a
iv. In connection with the purchase of additional land noted above under paragraph iii) above, a 2nd mortgage was obtained in the amount of $
v. On December 14, 2023, the Company made arrangements to repay the previous 1st mortgage on the first property purchased in Hamilton, Ontario, Canada on August 17, 2021, for a new 1st mortgage in the amount of $
vi. On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $
For the year ended December 31, 2023, $
As a result of defaults or cross defaults, all long-term debt is disclosed as current.
(b) 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 amounts were due on December 31, 2022 and were interest-free.
These loans were repaid subsequent to December 31, 2023 and January 9 and 11 of 2024, in the amount of $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
10. Long-Term Debt, (continued)
(c) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $
For the year ended December 31, 2023, $
11. Obligations under Capital Lease
| 2023 | 2022 | |||||
| Obligations under Capital Lease | $ | $ | ||||
| Less: current portion | ( |
) | ( |
) | ||
| Long-term portion | $ | $ |
Refer also to going concern, note 2.
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 year ending December 31, 2024 | $ | ||
| In the year ending December 31, 2025 | |||
| Less: imputed interest | ( |
) | |
| Total | $ |
For the year ended December 31, 2023, $
As a result of defaults or cross defaults, the obligations under capital are disclosed as current.
12. Convertible Promissory Notes
| 2023 | 2022 | ||||||
| (a) | Convertible promissory notes-October 28 and 29, 2021 | $ | $ | ||||
| (b) | Convertible promissory notes-March 3 and 7, 2022 | ||||||
| (c) | Convertible promissory note- June 23, 2022 | ||||||
| $ | $ |
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
12. Convertible Promissory Notes, (continued)
The convertible promissory notes, which are in default, are accounted for under the fair value option in the consolidated financial statements. The actual principal outstanding on the balance of the convertible promissory notes as at December 31, 2023 is $
(a) On October 28 and 29, 2021, the Company entered into two securities purchase agreement (the "October 2021 SPAs) with two investors (the "October 2021 Investors") pursuant to which the Company issued to the October 2021 Investors two
The maturity date of the October 2021 Investor Notes is the earlier of (i) July 28 and 29, 2022 and (ii) the occurrence of a Liquidity Event, as described above (the "Maturity Date"). Upon the occurrence of a Liquidity Event, the October 2021 Investors are entitled to convert all or a portion of their October 2021 Investor Notes including any accrued and unpaid interest at a conversion price (the "Conversion Price") equal to
Upon the occurrence of an event of default, the interest rate on the October 2021 Investor Notes will immediately accrue at
On May 11, 2022, the holder of the October 29, 2021, investor note, provided an amendment for an optional conversion of his investor notes. The conversion price was amended to be (i) the product of the Liquidity Event price multiplied by the discount of
On August 16, 2022, the Company was sent a notice of default from one of the October 2021 Investors, whose investor note was issued on October 29, 2021. On September 15, 2022, the Company and the investor of the October 2021 investor note entered into an amendment to the October 2021 investor note which served as a cure to the previously issued default notice.
Pursuant to the September 15, 2022 amendment, the Company and the October 29, 2021 investor, agreed that the outstanding principal amount of the October 29, 2021 investor note would increase by
As a result of the default on November 15, 2022, the Company was informed that the October 29, 2021 investor will now be accruing interest at the default rate of
Further, the October 29, 2021 investor agreed not to convert more than $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
12. Convertible Promissory Notes, (continued)
On September 21, 2022 and November 10, 2022, the October 29, 2021 investor issued conversion notices to the Company and the Company issued
On December 22, 2022, the October 28, 2021 investor, whose October 28, 2021 investor note had a previous Principal Amount of $
On June 8, 2023, the October 29, 2021, investor's counsel sent the Company a notice of default on the October 29, 2021 investor note and the March 2022 Investor Notes, described below. The default was caused by the holders of these promissory notes not being able to receive shares of the Company's common stock, par value $
During the year ended December 31, 2023, the October 29, 2021 investor provided the Company with notices of conversion to convert in total $
The Company initially reserved
(b) On March 3 and 7, 2022, the Company executed two unsecured convertible promissory notes with two investors (the "March 2022 Investors"), who purchased
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
12. Convertible Promissory Notes, (continued)
The maturity date of the Notes is the earlier of (i) June 3 and 7, 2022, and (ii) the occurrence of a Liquidity Event (as defined in the Notes) (the "Maturity Date"). The final payment of the Principal Amount (and default interest, if any) shall be paid by the Company to the Investors on the Maturity Date. On an event of default, the principal amount of the March 2020 Investor Notes will increase to
On May 11, 2022, the holder of the March 3, 2022 Investor Note and on May 13, 2022, the holder of the March 7, 2022 Investor Note, each provided an amendment for an optional conversion of their investor notes. The conversion price was amended to be (i) the product of the Liquidity Event price multiplied by the discount of 35% (previously
Further, on June 29, 2022, the March 2022 Investors revised their March 2022 Investor Notes, to extend the maturity date to August 15, 2022 and increase the principal amount of each of the March 2022 Investor Notes by twenty percent (
On August 16, 2022, the Company was sent notices of default from the March 2022 Investors. And, on September 15, 2022, the Company and the March 2022 Investors entered into an amendment to the March 2022 Investor Notes which served as a cure to the previously issued default notices.
Pursuant to the September 15, 2022 amendment, the Company and the March 2022 Investors agreed that the outstanding principal amount totaling $
Further, in the event that the October 29, 2021 investor note has been fully converted and the conversion shares sold, thereafter, the March 2022 Investor Notes may both be converted at the March 2022 Investors' discretion on a pari-passu basis, provided, however, that no conversion shall exceed $
As noted above, on June 8, 2023 the counsel for the March 2022 Investors provided the Company with a notice of default. This resulted in the principal balance of the March 2022 Investor Notes increasing in principal from $
Refer also to subsequent events, note 23(c).
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
12. Convertible Promissory Notes, (continued)
(c) On June 23, 2022, the Company executed one convertible promissory note (the "June 2022 Investor Note") with an investor (the "June 2022 Investor") in the amount of $
The June 2022 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 ('Event of Default"), as defined in the June 2022 Investor Note, with interest accruing at the default interest rate of
On December 29, 2022, the Company and the investor agreed to extend the maturity date to the earlier of June 23, 2023 or the occurrence of a Liquidity Event. In consideration for the extension of the maturity date, the Company agreed to: (i) increase the principal amount to $
On June 29, 2023, the June 2022 Investor provided a 45-day extension of the June 2022 Investor Note in exchange for an increase in the principal balance of the June 2022 Investor Note of $
The Company initially reserved
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.
During the year ended December 31, 2023 the Company issued
Refer also to going concern, note 2.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
12. Convertible Promissory Notes, (continued)
Fair value option for the convertible promissory notes
The Company is eligible to elect the fair value option under ASC 825, Financial Instruments and bypass analysis of the potential embedded derivative features described above. The Company believes that the fair value option better reflects the underlying economics of the convertible promissory notes issued after December 31, 2020. As a result, the 2021 and 2022 promissory notes were recorded at fair value upon issuance and subsequently remeasured at each reporting date until settled or converted. The Company recognized the notes initially at fair value, which exceeded the proceeds received resulting in a day one loss that has been recognized in net loss. Transaction and other issuance costs have been expensed as incurred. Subsequently, the Company recognizes the notes at fair value with changes in net loss.
Gains and losses attributable to changes in credit risk were insignificant during the years ended December 31, 2023 and 2022. The Company recognized a loss of $
13. Fair Value Measurement
The following table presents information about the Company's financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation:
| Fair Value Measurements as of December 31, 2023 and 2022 | |||||||||||||||
| Using | Total | Total | |||||||||||||
| Level 1 | Level 2 | Level 3 | 2023 | 2022 | |||||||||||
| Assets: | $ | $ | $ | ||||||||||||
| Liabilities: | |||||||||||||||
| Convertible promissory notes | |||||||||||||||
| $ | $ | $ | |||||||||||||
During the years ended December 31, 2023 and December 31, 2022, there were no transfers between Level 1, Level 2, or Level 3. There were no other financial assets or liabilities measured at fair value on a recurring basis as of December 31, 2022.
The following table summarizes the change in Level 3 financial instruments during the year ended December 31, 2023.
| 2023 | 2022 | |||||
| Fair value at December 31, 2022 | $ | $ | ||||
| Fair value at issuance | ||||||
| Amendments | ||||||
| Conversions/repayments | ( |
) | ( |
) | ||
| Mark to market adjustment | ||||||
| Settlement | ( |
) | ||||
| Fair value at December 31, 2023 | $ | $ |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value of the convertible promissory notes at issuance and subsequent financial reporting dates was estimated based on significant inputs not observable in the market, which represent level 3 measurements within the fair value hierarchy.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
13. Fair Value Measurement (continued)
The fair value of the convertible promissory notes at issuance and at each reporting period was estimated based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a scenario-based binomial model to estimate the fair value of the convertible promissory notes. The model determines the fair value from a market participant's perspective by evaluating the payouts under hold, convert, or call decisions. The most significant estimates and assumptions used as inputs are those concerning type, timing and probability of specific scenario outcomes. Specifically, the Company assigned a probability of default, which would increase the required payout as described in Note 12 and calculated the fair value under each scenario.
At the issuance dates of the convertible promissory notes, the probability of default ("PD") was assumed to be
Other significant unobservable inputs include the expected volatility and the credit spread. The expected volatility was based on the historical volatility over a look-back period that was consistent with the balance-remaining term of the instruments. A range of
14. Loans Payable to Related Parties
| 2023 | 2022 | |||||
| Directors | $ | $ | ||||
| Haute Inc. | ||||||
| Total | $ | $ |
The loan owing to directors were received by the Company on June 6, 2022 and March 16, 2023, are unsecured, bearing interest at
On December 5, 2023, the Company received a loan from Haute Inc., in the amount of $
During the year ended December 31, 2023, a director's company, Travellers, converted a total of $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
15. Capital Stock
As at December 31, 2023, the Company had
For the year ended December 31, 2023, the Company issued
In addition, the Company raised $
During the year ended December 31, 2023, Travellers converted $
On January 3, 2023, the Company issued
Furthermore, on January 3, 2023, the Company issued
As at December 31, 2023, the Company recorded a balance of $
16. Commitments
a) Effective January 1, 2023, 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 year ending December 31, 2024 | $ |
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
16. Commitments, (continued)
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 February 3, 2021, upon the successful completion of a Nasdaq listing, the Company has committed a payment of $
d) On November 5, 2021 the Company committed to the design and construction of its Hamilton, Ontario, Canada facility, including architectural and general contracting fees in the amount of $
e) Effective November 1, 2022, the Company acquired the exclusive rights to the use of a well-known athlete's name, endorsement and the like, for the purposes of advertisement, promotion and sale of the Company's products. In return, the Company issued
• $
• $
• $
There is also an arrangement to issue
f) 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 year ending December 31, 2024 | $ | ||
| For the year ending December 31, 2025 | |||
| $ |
Up until September 30, 2023, PACE had provided the Company a letter of credit in favor of the MECP in the amount of $
The current letter of credit required by the MEC is $
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 has engaged an environmental consulting firm to re-evaluate the financial assurance with the MECP which is based on the estimated environmental remediation and clean-up costs for its waste processing and composting facility. As a result of inspections carried out by the MECP during the current and prior years, some of which have resulted in MECP orders being issued, the Company has accrued estimated and actual costs for corrective measures in orders issued by the MECP $
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
17. Other Income (Expenses)
| 2023 | 2022 | |||||
| (a) Gain on settlement of outstanding debt and accrued interest with PACE | $ | $ | ||||
| (b) Loss on conversion of convertible promissory notes | ( |
) | ||||
| (c) Loss on revaluation of convertible promissory notes | ( |
) |
( |
) | ||
| (d) Provision for losses | ( |
) | ||||
| (e) Settlement payment | ( |
) | ||||
| (f) Gain on extinguishment of convertible promissory notes | ||||||
| $ | ( |
) | $ | ( |
) |
(a) During the year ended December 31, 2023, the Company settled the outstanding debt to PACE including accrued interest.
(b) As described under capital stock, note 15, the loss is on the conversions of the October 29, 2021 investor note.
(c) Loss on revaluation of convertible promissory notes.
(d) The provision for losses includes the provision for loss on a deposit for future acquisition in the amount of $
(e) During the year ended December 31, 2022, the Company accrued for a settlement payment for the release of the services of a party for an underwriting offering dated March 22, 2022 and amended May 23, 2022.
(f) During the year ended December 31, 2022, the Company recorded a gain on extinguishment of convertible promissory notes.
18. Income Taxes
The Company's income tax provision has been calculated as follows:
| 2023 | 2022 | |||||
| Loss before income taxes | $ | ( |
) | $ | ( |
) |
| Expected income tax recovery at the statutory rate of |
( |
) | ( |
) | ||
| Foreign tax rate differences | ( |
) | ( |
) | ||
| Prior year adjustments | ||||||
| Foreign exchange effect on deferred tax assets and other | ( |
) | ||||
| Permanent differences | ||||||
| Change in valuation allowance | ||||||
| Provision for income taxes | $ | $ | ( |
) |
The Company's income tax provision is allocated as follows:
| Deferred Tax (recovery) | ( |
) | ||||
| $ | $ | ( |
) |
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
Deferred tax assets and liabilities
The tax effects of temporary differences that give rise to significant components of the deferred income tax assets and deferred income tax liabilities are presented below:
| 2023 | 2022 | |||||
| Net operating loss carry forwards | $ | $ | ||||
| Financing costs | ||||||
| Depreciable and amortizable assets | ( |
) | ||||
| Land | ( |
) | ( |
) | ||
| Convertible promissory notes | ( |
) | ||||
| Other timing differences | ||||||
| Total gross deferred income tax assets | ||||||
| Less: valuation allowance | ||||||
| Total deferred income tax liabilities | $ | $ |
| Movement in deferred income tax liabilities: | 2023 | 2022 | ||||
| Balance at the beginning of the year | $ | $ | ( |
) | ||
| Recognized in profit/loss | ||||||
| Recognized in OCI | ||||||
| Balance at the end of the year | $ | $ |
As at December 31, 2023 and 2022, the valuation allowance was due to the history of losses generated. The valuation allowance is reviewed periodically and if the assessment of the more likely than not criteria changes, the valuation allowance is adjusted accordingly.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company computes tax asset benefits for net operating losses ("NOL") carried forward.
The Company has US NOL available for carry forward of $
19. Segmented Information
ASC 280-10, "Disclosure about Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in the Company's consolidated financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company uses a management approach for determining segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company's management reporting structure provides for only one segment: renewable energy and operates in one country, Canada.
20. Economic Dependence
During the year ended December 31, 2023, the Company generated
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2023 and 2022
(Expressed in United States Dollars)
21. 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, except as follows:
The Company has a claim against it for unpaid legal fees in the amount of $
On October 4, 2023, an action was launched by one of the October 2021 Investors, who claimed he was owed $
On or around November 27, 2023 and March 6, 2024, the Company experienced an outflow of contaminated water from its stormwater pond into the City of Belleville's roadside ditch and has continued to periodically overflow. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
The Company has a claim against it for unpaid Hydro Bills in the amount of $
In addition, on November 17, 2023, the Company received an amended claim filed against it from 2023 by Tradigital in the sum of US$
Refer also to subsequent events, note 23(c).
22. Comparative Figures
Certain figures in the comparative period have been reclassified to conform to the current year's presentation.
23. Subsequent Events
The Company's management has evaluated subsequent events up to the date the 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 January 15, 2024, Travellers converted outstanding accounts payable in the amount of $
(b) On March 18, 2024, the Company informed its transfer agent to cancel
(c) On April 1, 2024, the Company received notice of a complaint filed against it by the March 3, 2022 Investor, seeking damages of no less than $
(d) On April 2, 2024, the Company received funds in the amount of $
(e) On April 15, 2024, the Company received proceeds of $
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of senior management, including our chief executive officer and our chief financial officer, also our principal financial and accounting officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as of December 31, 2023 (the "Evaluation Date"). Based on this evaluation, Marc Hazout, our chief executive officer and Ike Makrimichalos, our chief financial officer and principal financial and accounting officer, concluded that our internal control over financial reporting was not effective for the year ended December 31, 2023. Such conclusions are noted below.
Report by Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The framework used by management to evaluate internal controls over financial reporting is Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations (COSO), as implemented by their subsequent publication Internal Control over Financial Reporting - Guidance for Smaller Public Companies. Based on this evaluation, Marc Hazout, our chief executive officer and Ike Makrimichalos, our chief financial officer and principal financial and accounting officer, concluded that our internal control over financial reporting was not effective for the year ended December 31, 2023. The matters involving internal controls over financial reporting that may be considered material weaknesses included the small size of the Company and the resulting lack of a segregation of duties.
Management has engaged the services of specialists to assist with certain material weaknesses noted above and increasing its internal accounting staff to improve its internal controls over financial reporting.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission which permanently exempt smaller reporting companies.
Changes in Internal Control over Financial Reporting
There were no changes to the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Our Board of Directors consisted of four independent directors and one director who is from management at December 31, 2023. For the size and scope of our business and operations, we believe a board of approximately five members is more appropriate and small enough to allow for effective communication among the members but large enough so that we get a diverse set of perspectives and experiences around our board room. Our bylaws provide that, in uncontested elections, directors will be elected by a majority of the votes cast, and in contested elections, directors will be elected by a plurality of the votes cast.
Each director on our Board of Directors will serve a one-year term or until their successor has been duly elected and qualified, subject to their earlier death, resignation, disqualification or removal. Pursuant to the DGCL and our bylaws, in general, any vacancies on our Board of Directors resulting from death, retirement, resignation, disqualification, removal or other cause may be filled only by an affirmative vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director. Our current directors and executive officers are as follows:
|
| 65 |
| Name | Age | Position |
| Marc M. Hazout | 59 | Chairman of the Board, President, Chief Executive Officer and Director |
| Ike Makrimichalos | 68 | Chief Financial Officer |
| Andrea Calla | 71 | Director |
| Gary Herman | 59 | Director |
| Susan Harte | 58 | Director |
| Bruce Rintoul | 64 | Director |
We believe that each of our directors and executive officers possesses the experience, skills and qualities to fully perform his duties as a director or executive officer and contribute to our success. Our directors were nominated because each is of high ethical character, highly accomplished in his field with superior credentials and recognition, has a reputation, both personal and professional, that is consistent with our image and reputation, has the ability to exercise sound business judgment, and is able to dedicate sufficient time to fulfilling his obligations as a director. Our directors as a group complement each other and each of their respective experiences, skills and qualities so that collectively the Board operates in an effective, collegial and responsive manner. Similarly, for the executive officers. Described below, are the directors' and executive officers' principal occupations and other pertinent information about particular experience, qualifications, attributes and skills that led the Board and management to conclude that such person should serve as a director or executive officer.
Marc M. Hazout, age 59, founded SusGlobal Energy Corp. in 2014, and currently serves as Chairman, President and CEO. Mr. Hazout brings over 25 years of experience in public markets, finance and business operations to SusGlobal Energy Corp. Over the past several years Mr. Hazout has been involved in acquiring, restructuring and providing management services, as both a Director and an Officer, to several publicly traded companies. In 1998, Mr. Hazout founded and has been President and CEO of Travellers International Inc., a private equity firm headquartered in Toronto. Travellers has been involved in a multitude of successful capital market transactions over the past two decades. Mr. Hazout attended York University in Toronto studying International Relations and Economics. Mr. Hazout speaks English, French, and Hebrew.
The determination was made that Mr. Hazout should serve on our Board of Directors because he possesses significant experience in securities and capital markets.
Ike Makrimichalos, age 68, is a Chartered Professional Accountant (Chartered Accountant), with over 25 years of experience in servicing public and private companies, including manufacturing, automotive, technology & telecommunications and insurance, for Deloitte LLP in Toronto. Mr. Makrimichalos has served as a Chief Financial Officer and Controller in the mining sector for companies with global operations and multiple filing jurisdictions and currently also serves as a Chief Financial Officer in the financial services sector, along with providing financial consulting services for several private companies. Mr. Makrimichalos graduated from the University of Toronto with a Bachelor of Arts degree.
The determination was made that Mr. Ike Makrimichalos join the executive team because he possesses significant experience in financial reporting and accounting matters.
Independent Directors
Andrea Calla, age 71, has been a member of the Board since November 14, 2018. Mr. Calla is President and CEO of the Calla Group and is an accomplished professional with over 35 years of experience in business, more recently a senior executive for ten years with The Tridel Group, one of Canada's largest community builders/developers. He was actively involved in the different company divisions and all facets of the industry. He is also Managing Partner of The Callian Capital Group, a globally active Toronto-based investment and capital management firm. Mr. Calla has held key leadership and entrepreneurial roles driving innovative, practical and effective changes to improve quality of life through various company start-ups across diverse industries, some include: Chairman, Deep Geo Inc., a global nuclear waste management company, Chairman & Co-Founder of TransAsia Investment Partners, Hong Kong, Founding Director of 350 Capital, a "cleantech" investment company, Co-Founder of Nordicon, a design-build company, Canada, US, Mid-East, Founding member of Novator, pioneer in e-commerce and AI, helped make it the 14th fastest growing company in Canada, reported by Profit 100 magazine, Board of Sumbola, an innovative internet e-publishing company, Co-Founder, Board member of Twin Hills Resources, developer of partial upgrading cavitation technology, reducing the viscosity of oil sands bitumen to flow through pipelines without having to be blended with diluent, Board of SEL Global, an innovative Mobile Shopping Solutions Software and Advertising company, software developed in Silicon Valley, Advisory Board of Magnovate, innovative Magnetic Levitation transportation systems, Co-Founder of Fusion Sailboats, designed, developed, manufactured and distributed the Fusion 15, winner of Sailing World's "International Boat of the Year" in 2003, Advisory Board of Dorsay Development Corp., currently planning a purpose-built community in the GTA with a ground-breaking model in place-making. The over 1,200-acre community will combine global best practices in creating a sustainable community that is economically, environmentally, socially healthy and resilient. Throughout his career, Andrea has been committed to City and Community building, improving the quality of life in urban regions and continually driving innovative, practical and effective change in different sectors through his leadership and entrepreneurial skills. Andréa holds a Bachelor of Architecture from the University of Toronto, a Master of Science from Columbia University, New York and an Executive MBA from Ivey School of Business, Western University.
|
| 66 |
The determination was made that Mr. Calla should serve on our Board of Directors due to his extensive technical and business experience, which will be extremely valuable as the Company continues to grow.
Gary Herman, age 59, has served on our Board since April 2021. Mr. Herman is a seasoned investor with many years of investment and business experience. From 2005 to 2020 he co-managed Strategic Turnaround Equity Partners, LP (Cayman) and its affiliates. From January 2011 to August 2013, he was a managing member of Abacoa Capital Management, LLC, which managed Abacoa Capital Master Fund, Ltd., focused on a Global-Macro investment strategy. From 2005 to 2020, Mr. Herman was affiliated with Arcadia Securities LLC, a New York-based broker-dealer. From 1997 to 2002, he was an investment banker with Burnham Securities, Inc. From 1993 to 1997, he was a managing partner of Kingshill Group, Inc., a merchant banking and financial firm with offices in New York and Tokyo. Mr. Herman has a B.S. from the University at Albany with a major in Political Science and minors in Business and Music. Mr. Herman has many years of experience serving on the boards of public and private companies. He presently sits on the boards of Siyata Mobile, Inc. (NASDAQ: SYTA), LQR House, Inc. (NASDAQ: LQR), SRM Entertainment, Inc. (NASDAQ: SRM) and XS Financial, Inc. (CSE: XS).
We believe Mr. Herman’s extensive board and investment experience makes him well qualified to serve as a member of our Board of Directors.
Susan Harte, age 58, has been a member of the Board since June 1, 2021. Ms. Harte is a nationally recognized leader in site selection, location economics and incentives. She is currently a principal of the international site selection consulting firm Hickey & Associates. For over 25 years, she has combined her expertise in commercial real estate, site selection and economic development, to assist her clients with leveraging location as a competitive advantage. Throughout her practice, Ms. Harte has led her clients to achieving better business outcomes by integrating strategic planning techniques and implementation frameworks to drive internal stakeholder consensus around location decisions. She has managed major site selection projects for many Fortune 500 companies involving complex multi-jurisdictional competitive strategies. Pursuant to this work, she has structured, negotiated and secured over US$1billion in location incentives such as real estate and personal property tax abatements, sales tax exemptions, grants and specialty bond financing for her clients' projects. Prior to her current position, Ms. Harte was a Senior Vice President at CBRE, the world's largest commercial real estate services and investment firm, in the global Location Advisory and Transactions Services group. She previously was Director of the Business Economic Incentives Practice at Jones Lang LaSalle having joined the company after seven years with the New York City boutique law firm of Stadtmauer Bailkin. She also served a term as the Director of National Incentives Practice at, Grant Thornton one of the largest accounting firms in the world and as Director of Industry Development at Empire State Development Corporation, New York State's economic development agency.
We believe that these experiences make Ms. Harte well-qualified to serve as a member of the Board.
Bruce Rintoul, age 64, has been a member of the Board since February 22, 2023. Bruce Rintoul served as Senior Vice President of Operations at Veolia North America and previously held senior executive positions with environmental and industrial corporations such as Philip Services Corporation, The Churchill Corporation, RSC Equipment Rental, CEDA International Corporation, and Strike Energy Services. Rintoul also previously served on the Board of Directors for CEDA International Corporation in addition to his CEO and President responsibilities. He left Veolia in March 2022 after more than 6 years with Veolia in Houston, Texas and Toronto, Ontario, Canada. As Senior VP of Operations at Veolia, he led the transformation of U.S. and Canadian energy generation, water/wastewater management, hazardous waste, and environmental service businesses through structural changes, business process improvements, and data management system implementations. The resulting operational and financial performance improvement subsequently facilitated the divestment of several Veolia businesses in North America. He graduated from the University of New Hampshire with a B.Sc. in Civil Engineering and is a Licensed Professional Engineer in Ontario, Alberta and British Columbia. He received his MBA from the University of Western Ontario, his ICD-DEP from the University of Toronto, Rotman School of Management, and his ICD.D from the Institute of Corporate Directors, Calgary, Alberta.
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We believe that Bruce's strong strategic, operational, and business leadership experience in energy, waste and water markets across North America makes him well-qualified to serve as a member of the Board.
Director Compensation Policy
The Company's current director compensation policy includes a fee of $19,230 (C$25,000) to all independent directors annually. The director compensation for the years ended December 31, 2023 and 2022 are as follows:
Director Compensation
Name |
Fees earned or paid in cash ($) |
Stock awards ($) |
Option awards ($) |
Non-equity incentive plan compensation ($) |
Nonqualified deferred compensation earnings ($) |
All other compensation ($) |
Total ($) |
| (a) | (b)(ii) | (c) | (d) | (e) | (f) | (g) | (h) |
| Marc Hazout | - | - | - | - | - | - | - |
| Andrea Calla | 2023-$18,525(i) (C$25,000) 2022-$19,230(i) (C$25,000) |
- | - | - | - | - | 2023-$18,525 (C$25,000) 2022-$19,230 (C$25,000) |
| Gary Herman(i) | 2023-$18,525(i) (C$25,000) 2022- $19,230(i) (C$25,000) |
-- | - | - | - | - | 2023-$18,525 (C$25,000) 2022-$19,230 (C$25,000) |
| Susan Harte Bruce Rintoul |
2023-$18,525(i) (C$25,000) 2022- $19,230(i) (C$25,000) 2023-$16,004 (i) (C$21,597) 2022-$nil (C$nil) |
- - |
- - |
- - |
- - |
- - |
2023-$18,525 (C$25,000) 2022-$19,230 (C$25,000) 2023-$16,004 (C$21,597) 2022-$nil (C$nil) |
(i) The fees earned for services are unpaid at December 31, 2023 and at the date of this filing.
We have adopted a code of ethics that applies to our Chief Executive Officer and President, and Chief Financial Officer, as well as other officers, directors and employees of the Company. The code of ethics, entitled "Code of Conduct," is posted on our website at www.susglobalenergy.com under the section "Corporate Governance" within the "Investor Relations" tab.
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Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than 10% of the Company's common stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Based solely on the Company's review of the copies of such Forms and written representations from certain reporting persons, the Company believes that all filings required to be made by the Company's Section 16(a) reporting persons during the Company's fiscal year ended December 31, 2023 were made on a timely basis, except for: (i) one late Form 3 filing on behalf of Mr. Rintoul following his appointment as director on February 18, 2023, and (ii) one late Form 4 filing on behalf of Mr. Hazout disclosing an issuance of shares of Common Stock.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth certain summary information with respect to the compensation paid to the Company's Chief Executive Officer and President (Marc Hazout) and Chief Financial Officer (Ike Makrimichalos) for services rendered in all capacities to the Company for the fiscal years ended December 31, 2023 and 2022. Messrs. Hazout and Makrimichalos constituted our named executive officers for each of 2023 and 2022:
Summary Compensation Table
| Name and | Year | Salary | Bonus | Stock | Option | Non-equity | Nonqualified | All other | Total | ||||||||||||||||
| principal | ($) | ($) | awards | awards | incentive | deferred | compensation | ($) | |||||||||||||||||
| position | ($) | ($) | plan | compensation | ($) | ||||||||||||||||||||
| Compensation | earnings | ||||||||||||||||||||||||
| ($) | ($) | ||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||
| Marc Hazout Chairman, President and Chief Executive Officer |
2023 | 355,680 (C$480,000) | - | 432,000 | - | - | - | - | 787,680 | ||||||||||||||||
| 2022 | 369,216 (C$480,000) | - | 229,000 | - | - | - | - | 598,216 | |||||||||||||||||
| Ike Makrimichalos, Chief Financial Officer |
2023 | 111,150 (C$150,000) | - | 14,400 | - | - | - | - | 125,550 | ||||||||||||||||
| 2022 | 92,304 (C$120,000) | - | 11,450 | - | - | - | - | 103,754 | |||||||||||||||||
(e) Stock Awards
The grant date fair values of the stock awards were computed in accordance ASC Topic 718, Compensation-Stock Compensation.
Consulting and Management Agreements
The Company entered into an Executive Chairman Consulting Agreement (the "CEO's Consulting Agreement"), by and among the Company, Travellers International Inc. ("Travellers"), and the CEO, who is also a director, the Executive Chairman and President of the Company, effective January 1, 2023 (the "Effective Date"). The CEO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $30,244 (C$40,000) per month for twelve (12) months, beginning on the Effective Date, January 1, 2023, and at a rate of $37,805 (C$50,000) per month for twelve (12) months, beginning January 1, 2024. In addition, the Company granted the CEO 3,000,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. These restricted shares were issued on January 3, 2023. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
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The CEO's Consulting Agreement is for a term of twenty-four (24) months. Upon a Constructive Discharge (as defined in the CEO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CEO will be entitled to a compensation of twelve (12) months' fees, as well as any bonus compensation owing.
The Company entered into an Executive Consulting Agreement (the "CFO Consulting Agreement"), by and between the Company and the CFO of the Company, effective January 1, 2023. Pursuant to the terms of the CFO Consulting Agreement, the CFO is entitled to fees of $9,451 (C$12,500) per month for his services. In addition, the Company granted the CFO 100,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO. The CFO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
The CFO's Consulting Agreement is for a term of twelve (12) months. Upon a Constructive Discharge (as defined in the CFO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CFO will be entitled to a compensation of two (2) months' fees, as well as any bonus compensation owing.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding beneficial ownership of SusGlobal Energy Corp's securities as of the date of this filing:
• by each person who is known by us to beneficially own more than 5% of our securities;
• by each of our officers and directors; and
• by all of our officers and directors as a group.
| Amount And | |||
| Title of Class Name And | Nature Of | Approximate | |
| Address of Beneficial | Beneficial | Percent of | |
| Owner (1) | Ownership (2) | Class (%) | |
| Common | Marc Hazout | 24,725,742(3) | 19.73 |
| Common | Ike Makrimichalos | 750,000 | 0.60 |
| Common | Andrea Calla | 133,992(4) | 0.11 |
| Common | Susan Harte | 50,000 | 0.04 |
| Common Common |
Gary Herman Bruce Rintoul |
750,000(5) 410,888(6) |
0.60 0.30 |
| All officers and directors as a group | |||
| Common | (6 persons) | 26,820,622 | 21.38% |
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(1) |
Except as noted above, the address for the above identified officers and directors of the Company is c/o 200 Davenport Road, Toronto, ON, Canada M5R 1J2. |
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(2) |
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the shares shown. Except where indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them. Percentages are based upon the assumption that each shareholder has exercised all of the currently exercisable options he or she owns which are currently exercisable or exercisable within 60 days and that no other shareholder has exercised any options he or she owns. |
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| (3) | The shares are in the name of Travellers International Inc., a company controlled by Marc Hazout the president and chief executive officer. |
| (4) | The shares are in the name of the Calla Group, a company for whom the director is the president and chief executive officer. |
| (5) | The shares are in the names of 720 Advisors, LLC and GH Ventures, LLC, companies for whom the director is a shareholder. |
| (6) | The shares are in the name of Allorian Group Ltd., a company controlled by Bruce Rintoul. |
The above-referenced table is based on 125,332,019 issued and outstanding shares of common stock on the date of this filing.
EQUITY
As of December 31, 2023, the Company had 125,272,975 common shares issued and outstanding. At the date of this filing, the Company had 125,332,019 common shares issued and outstanding.
STOCK OPTIONS AND WARRANTS
As at December 31, 2023, and the date of this filing, the Company has no stock options or warrants outstanding.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
For the year ended December 31, 2023, the Company incurred $355,680 (C$480,000) (2022-$369,216; C$480,000) 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 $111,150 (C$150,000) (2022-$92,304; C$120,000) in management fees expense with the Company's chief financial officer (the "CFO"). As at December 31, 2023, unpaid remuneration and unpaid expenses in the amount of $171,733 (C$227,130) (December 31, 2022-$161,790; C$219,138) is included in accounts payable and $138,963 (C$183,789) (2022-$22,705; C$30,753) in accrued liabilities in the consolidated balance sheets.
In addition, during the year ended December 31, 2023, the Company incurred interest expense of $nil C$nil (2022-$518; C$674) on the outstanding loan from the CFO.
For the year ended December 31, 2023, the Company incurred $103,496 (C$139,670) (2022-$107,216; C$139,386) in rent expense paid under a lease agreement, currently under a month-to-month lease with Haute Inc. ("Haute"), an Ontario company controlled by the CEO. In addition, during the year ended December 31, 2023, a director's company, Travellers, converted a total of $278,845 (C$372,483) (2022-$nil; C$nil) of loans provided during the year and $300,156 (C$406,800) (2022-$33,371; C$45,200) of accounts payable owing to Travellers for 2,911,852 (2022-193,778) common shares.
For those independent directors providing their services throughout 2023, the Company recorded directors' compensation in the amount of $71,579 (C$96,597) (2022-$57,690; $75,000). As of December 31, 2023, outstanding directors' compensation of $197,186 (C$260,793) (2022-$121,226; C$164,196) is included in accrued liabilities, in the consolidated balance sheets. In addition, during the year, the new independent director was awarded stock-based compensation consisting of 100,000 common shares of the Company, valued at $21,000 based on the trading price on his appointment. In the prior year, one of the independent directors was awarded stock-based compensation consisting of 750,000 common shares of the Company, valued at $105,750, based on the trading price on commencement of the consulting agreement, for services provided in developing certain contacts to further the Company's business opportunities. This amount is disclosed as stock-based compensation in the consolidated statements of operations and comprehensive loss.
Furthermore, for the year ended December 31, 2023, the Company recognized management stock-based compensation expense of $230,400 (2022-$240,450), on the common stock issued to the CEO and the CFO, 3,000,000 (2022-1,000,000) and 100,000 (2022-50,000) common stock respectively, on their executive consulting agreements and $2,880 (2022-$1,990) on 20,000 (2022-10,000) common stock issued to an employee. Of the 3,000,000 common shares issued to the CEO, 1,500,000 were fully vested at year-end.
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Item 14. Principal Accounting Fees and Services.
The aggregate fees billed by the Company's external auditors in each of the last two fiscal years are as follows:
| 2023 | 2022 | |
| Audit fees(1) | $47,000 | $91,488 |
| Audit-related fees(2) | $36,000 | $107,164 |
| Tax fees | $ - | $33,292 |
| All other fees(3) | $250 | $37,747 |
| Total | $83,250 | $269,691 |
|
(1) |
Audit fees consisted of the audit work on annual financial statements. |
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(2) |
Audit-related fees consist principally of reviews of quarterly financial statements. |
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(3) |
All other fees relate to tax filings other than income tax (2022-reviews of registration statements). |
The Audit Committee Charter provides that the Audit Committee is responsible for the pre-approval of all audit and non-audit services to be provided to the Company by the independent public accountants. The Audit Committee has not, however, adopted any specific policies and procedures for the engagement of non-audit services.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) (1) Consolidated Financial Statements:
The financial statements filed as part of this report are listed separately in the Index to Financial Statements.
(a) (2) Consolidated Financial Statement Schedules:
None
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Description |
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Filed herewith. |
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Management contract or compensatory plan or arrangement. |
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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. |
|
December 19, 2024 |
By: | /s/ Marc Hazout |
| Marc Hazout | ||
| Executive Chairman, President and Chief Executive Officer | ||
|
December 19, 2024 |
By: | /s/ Ike Makrimichalos |
| Ike Makrimichalos | ||
| Chief Financial Officer (Principal | ||
| Financial and Accounting Officer) |
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Marc Hazout, certify that:
1. I have reviewed this Amendment No. 2 to the annual report on Form 10-K/A of SusGlobal Energy Corp.;
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 registrant as of, and for, the periods presented in this report;
4. The registrant'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 registrant 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 registrant, 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 registrant'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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant'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 registrant's internal controls over financial reporting.
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Date: December 19, 2024 |
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By: |
/s/ Marc Hazout |
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Marc Hazout |
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Executive Chairman, President and Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Ike Makrimichalos, certify that:
1. I have reviewed this Amendment No. 2 to the annual report on Form 10-K/A of SusGlobal Energy Corp.;
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 registrant as of, and for, the periods presented in this report;
4. The registrant'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 registrant 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 registrant, 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 registrant'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 registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant'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 registrant's internal controls over financial reporting.
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Date: December 19, 2024 |
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Ike Makrimichalos |
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Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc Hazout, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Amendment No. 2 to the annual report of SusGlobal Energy Corp. on Form 10-K/A for the fiscal year ended December 31, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of SusGlobal Energy Corp.
| Date: December 19, 2024 | By: | /s/ Marc Hazout |
| Marc Hazout | ||
| Executive Chairman, President and Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ike Makrimichalos, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Amendment No. 2 to the annual report of SusGlobal Energy Corp. on Form 10-K/A for the fiscal year ended December 31, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of SusGlobal Energy Corp.
| Date: December 19, 2024 | By: | /s/ Ike Makrimichalos |
| Ike Makrimichalos | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |