SusGlobal Energy Corp 10-Q for FY2022 Q2
SusGlobal Energy Corp. (SNRG)
About this 10-Q
SusGlobal Energy Corp filed this 10-Q on August 22, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $110.14K
- down 48.2% from $212.63K a year earlier
- Net loss
- $2.23M
- compared with a net loss of $822.7K a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
[
or
For the transition period from ________________to ________________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Smaller reporting company [ |
|
| Emerging growth company [ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [ ]
The number of shares of the registrant's common stock outstanding as of August 22, 2022 was
2
SusGlobal Energy Corp.
INDEX TO FORM 10-Q
For the Three and Six-Month Periods Ended June 30, 2022 and 2021
3
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
CONTENTS
4
SusGlobal Energy Corp.
Interim Condensed Consolidated Balance Sheets
As at June 30, 2022 and December 31, 2021
(Expressed in United States Dollars)
(unaudited)
| June 30, | December 31, | |||||
| 2022 | 2021 | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | $ | $ | ||||
| Trade receivables | ||||||
| Government remittances receivable | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits | ||||||
| Total Current Assets | ||||||
| Long-lived Assets, net (note 6) | ||||||
| Long-Term Assets | ||||||
| Total Assets | $ | $ | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||
| Current Liabilities | ||||||
| Accounts payable (note 7) | $ | $ | ||||
| Government remittances payable | ||||||
| Accrued liabilities (notes 7, 8, 9, 10 and 12) | ||||||
| Current portion of long-term debt (note 8) | ||||||
| Current portion of obligations under capital lease (note 9) | ||||||
| Convertible promissory notes (note 10) | ||||||
| Due to related party (note 12) | - | |||||
| Total Current Liabilities | ||||||
| Long-term debt (note 8) | ||||||
| Obligations under capital lease (note 9) | ||||||
| Deferred tax liability | ||||||
| Total Long-term Liabilities | ||||||
| Total Liabilities | ||||||
| Stockholders' Deficiency | ||||||
| Preferred 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 14) | ||||||
| Subsequent events (note 18) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
 |
| 5 |
SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and six-month periods ended June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
| For the three-month periods ended | For the Six-month periods ended | |||||||||||
| June 30, 2022 | June 30,2021 | June 30, 2022 | June 30, 2021 | |||||||||
| (correction-see note 5) | (correction-see note 5) | |||||||||||
| Revenue | $ | $ | $ | $ | ||||||||
| Cost of Sales | ||||||||||||
| Opening inventory | ||||||||||||
| Depreciation (note 6) | ||||||||||||
| Direct wages and benefits | ||||||||||||
| Equipment rental, delivery, fuel and repairs and maintenance | ( |
) | ||||||||||
| Utilities | ( |
) | ||||||||||
| Outside contractors | ||||||||||||
| Less: closing inventory | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Total cost of sales | ||||||||||||
| Gross (loss) profit | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Operating expenses | ||||||||||||
| Management compensation-stock-based | ||||||||||||
| compensation (notes 7 and 13) | ||||||||||||
| Management compensation-fees (note 7) | ||||||||||||
| Marketing | ||||||||||||
| Professional fees | ||||||||||||
| Interest expense and default amounts (notes 7, 8, 9, 10 and 12) | ||||||||||||
| Office and administration (note 6 and 7) | ||||||||||||
| Rent and occupancy (note 7) | ||||||||||||
| Insurance | ||||||||||||
| Filing fees | ||||||||||||
| Amortization of financing costs | ||||||||||||
| Directors' compensation (note 7) | ||||||||||||
| Stock-based compensation (note 13) | ||||||||||||
| Repairs and maintenance | ( |
) | ( |
) | ( |
) | ||||||
| Foreign exchange loss (income) | ( |
) | ( |
) | ||||||||
| Total operating expenses | ||||||||||||
| Net loss from operating activities | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other (loss) income (note 15) | ( |
) | ( |
) | ( |
) | ||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other comprehensive loss | ||||||||||||
| Foreign exchange income (loss) | ( |
) | ( |
) | ||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | ( |
) | ( |
) | ||
| Net loss per share-basic and diluted | $ | ( |
) | $ | ( |
) | ( |
) | ( |
) | ||
| Weighted average number of common shares outstanding- basic and diluted | ||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
|
| 6 |
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency
For the three and six-month periods ended June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
| Number of Shares |
Common Shares |
Additional Paid- in Capital |
Shares to be Issued |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Stockholders' Deficiency |
|||||||||||||||||
| Balance-December 31, 2021 | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | - | ||||||||||||||||||
| Shares issued to officers | - | - | - | ||||||||||||||||||||
| Shares issued to employee | - | - | - | ||||||||||||||||||||
| Shares issued for professional services | - | - | |||||||||||||||||||||
| Shares issued on conversion of debt to equity | - | - | |||||||||||||||||||||
| Shares issued on private placement | - | - | |||||||||||||||||||||
| Shares yet to be issued | - | - | - | - | - | ||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||
| Shares issued on private placement | - | - | - | ||||||||||||||||||||
| Shares issued on issuance of debt on extinguishment of existing debt | - | - | - | ||||||||||||||||||||
| Shares yet to be issued | - | - | - | - | - | ||||||||||||||||||
| Shares yet to be issued on extinguishment of existing debt | - | - | - | - | - | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | ||||||||||||||||||
| Net Loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-June 30, 2022 | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| (correction-see note 5) | |||||||||||||||||||||||
| Balance-December 31, 2020 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | - | ||||||||||||||||||
| Shares issued to officers | - | - | - | ||||||||||||||||||||
| Shares issued on conversion of related party debt and accounts payable to equity | - | - | - | ||||||||||||||||||||
| Shares issued for conversion of debt to equity | - | - | - | ||||||||||||||||||||
| Shares issued for professional services | - | - | - | ||||||||||||||||||||
| Shares issued on private placement | - | - | - | ||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-March 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | - | - | |||||||||||||||||
| Shares issued on conversion of related party debt | - | - | - | ||||||||||||||||||||
| Shares issued for professional services | - | - | - | ||||||||||||||||||||
| Shares issued on receipt of promissory notes | ( |
) | - | - | - | - | |||||||||||||||||
| Other Comprehensive loss | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||
| Net Loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||
| Balance-June 30, 2021 | ( |
) | ( |
) | ( |
) | |||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
|
| 7 |
Interim Condensed Consolidated Statements of Cash Flows
For the six-month periods ended June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
| For the six-month period ended June 30, 2022 |
For the six-month period ended June 30, 2021 (correction-see note 5) |
|||||
| Cash flows from operating activities | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Adjustments for: | ||||||
| Depreciation | ||||||
| Amortization of intangible assets | ||||||
| Non-cash professional fees on conversion of debt | ||||||
| Non-cash interest expense on conversion of debt | ( |
) | ||||
| Amortization of financing fees | ||||||
| Stock-based compensation | ||||||
| Loss on revaluation of convertible promissory notes | ||||||
| Gain on forgiveness of convertible promissory notes and accrued interest | ( |
) | ||||
| Gain on extinguishment of convertible promissory notes | ( |
) | ||||
| Gain on disposal of long-lived assets | ( |
) | ||||
| Changes in non-cash working capital: | ||||||
| Trade receivables | ||||||
| Government remittances receivable | ( |
) | ( |
) | ||
| Inventory | ( |
) | ||||
| Prepaid expenses and deposits | ( |
) | ( |
) | ||
| Deferred assets | ||||||
| Accounts payable | ( |
) | ||||
| Government remittances payable | ||||||
| Accrued liabilities | ||||||
| Deferred revenue | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| Cash flows from investing activities | ||||||
| Purchase of long-lived assets | ( |
) | ||||
| Purchase of intangible assets | ( |
) | ||||
| Proceeds on disposal of long-lived assets | ||||||
| Adjustments of long-lived assets | ( |
) | ||||
| Net cash provided by (used in) investing activities | ( |
) | ( |
) | ||
| Cash flows from financing activities | ||||||
| Repayments of advance | ( |
) | ||||
| Advance of long-term debt | ||||||
| Repayment of long-term debt | ( |
) | ( |
) | ||
| Repayments of obligations under capital lease | ( |
) | ( |
) | ||
| Advances and penalties of convertible promissory notes (i) | ||||||
| Repayment of convertible promissory notes | ( |
) | ( |
) | ||
| Advances of loans payable to related parties (ii) | ||||||
| Repayment of loans payable to related parties | ( |
) | ( |
) | ||
| Proceeds on private placement | ||||||
| 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 | $ | $ | ||||
| Supplemental Cash Flow Disclosure: | ||||||
| Interest paid | $ | $ |
(i) Refer to note 10, convertible promissory notes, for the issuance of capital stock on the conversion of debt and on the extinguishment of existing debt.
(ii) Refer to note 13, for the issuance of capital stock on the conversion of debt and on the extinguishment of existing debt.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
|
| 8 |
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
1. Nature of Business and Basis of Presentation
SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.
On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 12, 2017.
On December 11, 2018, the Company began trading on the OTCQB venture market, under the ticker symbol SNRG.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp. ("SECC"), SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SGEBL"), SusGlobal Energy Hamilton Ltd. ("SEHL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for interim financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-Q and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company's functional currency is the Canadian Dollar ("C$"). In the opinion of management, all adjustments necessary for a fair presentation have been included.
2. Going Concern
The interim condensed 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 February 18, 2021, PACE Savings and Credit Union Limited ("PACE") and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company until August 31, 2021 to bring the arrears current and continue to September 2022, the original maturity date. Management was not able to meet the August 31, 2021 deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Similarly, the Company paid all arrears to PACE on March 15, 2022 and PACE has allowed the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors and with PACE to re-finance its remaining obligations to PACE, and repay other creditors and has had discussions with the appropriate party to extend the repayment date on the 1st mortgage which currently matures September 1, 2022. One of the Company's significant customer contracts expired at the end of December 31, 2020 and one customer contract was terminated by the Company in September of 2021. The Company is also anticipating a successful underwritten offering in connection with its filed registration statement although there can be no assurance that the underwritten offering will be completed.
|
| 9 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
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 PACE and its other 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.
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments, instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19"). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The full extent to which the COVID-19 pandemic and the various responses to it might impact the Company’s business, operations and financial results will depend on numerous evolving factors that are not subject to accurate prediction and that are beyond The Company’s control.
These interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
3. Significant Accounting Policies
These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company for the years ended December 31, 2021 and 2020 and their accompanying notes.
4. Financial Instruments
The carrying value 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 amounts of the long-term debt, obligations under capital lease and convertible promissory notes also approximates fair value due to their market interest rate.
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 June 30, 2022, the Company's credit risk is primarily attributable to cash and trade receivables. As at June 30, 2022, the Company's cash was held with a reputable Canadian chartered bank, a credit union 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 amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at June 30, 2022, the allowance for doubtful accounts was $
|
| 10 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
4. Financial Instruments, (continued)
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. Management is considering all its options to refinance its obligations to PACE and repay other creditors. Refer also to going concern, note 2.
The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligations by September 2022 and complete the refinancing of its real property and organic waste processing and composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.
Currency Risk
Although the Company's functional currency is the C$, the Company realizes a portion of its expenses in United States Dollars ("$"). Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at June 30, 2022, $
5. Correction for Fair Value Option Election
Subsequent to the issuance of our Quarterly Report on Form 10-Q for the period ended June 30, 2021, we identified an error in our historical financial statements related to the measurement of convertible promissory notes. The Company elected the fair value option to account for certain of its convertible promissory notes and should have recorded the convertible promissory notes subsequently at fair value instead of amortized cost.
In accordance with FASB Accounting Standards Codification 250, Accounting Changes and Error Corrections, we evaluated the materiality of the error from both a quantitative and qualitative perspective, and concluded that the error was immaterial to our prior period interim condensed consolidated financial statements. Since the error was not material, no amendments to previously filed interim reports are required. Consequently, we have adjusted for these errors by revising our historical Interim Condensed Consolidated Financial Statements presented herein.
The effects of the corrections to each of the individual affected line items were as follows:
| Interim Condensed Consolidated Balance Sheets | ||||||||||||
| June 30, | Adjustments | June 30, | Notes | |||||||||
| 2021 | 2021 | |||||||||||
| As Previously | As | |||||||||||
| Reported | Adjusted | |||||||||||
| $ | $ | $ | ||||||||||
| Convertible promissory notes | (a) | |||||||||||
| Total Current Liabilities | (a) | |||||||||||
| Total Liabilities | (a) | |||||||||||
| Additional paid-in capital | ( |
) | ||||||||||
| Accumulated deficit | ( |
) | ( |
) | ( |
) | (c) | |||||
| Stockholders' deficiency | ( |
) | ( |
) | ( |
) | (a) | |||||
| Total Liabilities and Stockholders' Deficiency | ||||||||||||
|
| 11 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
5. Correction for Fair Value Option Election, (continued)
Interim Condensed Statements of Operations and Comprehensive Loss
| Three months ended June 30, 2021 |
Adjustments | Three months ended June 30, 2021 |
Notes | |||||||||
| As Previously | As | |||||||||||
| Reported | Adjusted | |||||||||||
| $ | $ | $ | ||||||||||
| Professional fees | (c) | |||||||||||
| Interest expense and default amounts | ||||||||||||
| Amortization of financing costs | ( |
) | ||||||||||
| Total operating expenses | ( |
) | (c) | |||||||||
| Net Loss From Operating Activities | ( |
) | ( |
) | (c) | |||||||
| Other income (loss) | ( |
) | ( |
) | (c) | |||||||
| Net Loss | ( |
) | ( |
) | ( |
) | (c) | |||||
| The adjustments did not have an impact on loss per share, basic and diluted, due to rounding. | ||||||||||||
| Six months ended June 30, 2021 |
Adjustments | Six months ended June 30, 2021 |
Notes | |||||||||
| As Previously | As | |||||||||||
| Reported | Adjusted | |||||||||||
| $ | $ | $ | ||||||||||
| Professional fees | (c) | |||||||||||
| Interest expense and default amounts | (c) | |||||||||||
| Amortization of financing costs | ( |
) | (c) | |||||||||
| Total operating expenses | ( |
) | (c) | |||||||||
| Net Loss From Operating Activities | ( |
) | ( |
) | (c) | |||||||
| Other income | ( |
) | (c) | |||||||||
| Net Loss | ( |
) | ( |
) | ( |
) | (c) | |||||
| The adjustments did not have an impact on loss per share, basic and diluted, due to rounding. | ||||||||||||
Interim Condensed Consolidated Statements of Cash Flows
| Six months ended June 30, 2021 |
Adjustments | Six months ended June 30, 2021 |
Notes | |||||||||
| As Previously | As | |||||||||||
| Reported | Adjusted | |||||||||||
| $ | $ | $ | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net Loss | ( |
) | ( |
) | ( |
) | (c) | |||||
| Adjustments for: | ||||||||||||
| Amortization of financing fees | (d) | |||||||||||
| Loss on revaluation | (c) | |||||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ( |
) | (c) |
(a) The Company elected the fair value option to account for its convertible promissory notes issued in 2021. In accordance with ASC 825, the convertible promissory notes are mark-to-market at each reporting date with changes in fair value recorded as a component of other (expense) income. As a result, there was a mark-to-market adjustment of $
|
| 12 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
5. Correction for Fair Value Option Election, (continued)
(b) The Company used the with-and-without method to allocate the proceeds between the convertible promissory notes and the common shares. As a result, all the proceeds were allocated to the convertible promissory note and $nil to the common shares. The previously recognized amount of $
(c) For the three and six-month periods ended June 30, 2021, the transaction costs of $
(d) For the three and six-month periods ended June 30, 2021, amortization of financing fees in the amount of $
6. Long-lived Assets, net
| June 30, | December 31, | |||||||||||
| 2022 | 2021 | |||||||||||
| Cost | Accumulated depreciation |
Net book value | Net book value | |||||||||
| Land | $ | $ | $ | $ | ||||||||
| Property under construction | ||||||||||||
| Composting buildings | ||||||||||||
| Gore cover system | ||||||||||||
| Driveway and paving | ||||||||||||
| Machinery and equipment | ||||||||||||
| Equipment under capital lease | ||||||||||||
| Office trailer | ||||||||||||
| Vacuum trailer | ||||||||||||
| Computer equipment | ||||||||||||
| Signage | ||||||||||||
| Automotive equipment | ||||||||||||
| $ | $ | $ | $ |
On August 17 2021, the Company acquired the Hamilton Property assets, consisting of land, a vacant building and ECAs. The total purchase price including costs of acquisition of $
Also included under property under construction, are construction costs incurred subsequent to the acquisition in the amount of $
Depreciation for the three and six-month periods ended June 30, 2022, is disclosed in cost of sales in the amount of $
|
| 13 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
7. Related Party Transactions
For the three and six-month periods ended June 30, 2022, the Company incurred $
For the three and six-month periods ended June 30, 2022, the Company incurred $
During the three and six-month periods ended June 30, 2022, Travellers converted a total of $ (C$) and $ (C$) respectively, (December 31, 2021-$
In addition, during the three and six-month periods ended June 30, 2022, the Company paid the CFO interest of $ (C$) and $
For those independent directors providing their services throughout 2022, the Company accrued directors' compensation for the three and six-month periods ended June 30, 2022 in the amount of $
In addition, during the three and six-month periods ended June 30, 2022, the Company accrued interest of $
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $
Pursuant to the terms of the CFO's Consulting Agreement for his services as the CFO, the compensation is at a rate of $
Pursuant to the terms of the CFO's Consulting Agreement for his services as the CFO, the compensation is at a rate of $
Furthermore, for the three and six-month periods ended June 30, 2022, the Company recognized management stock-based compensation expense of $
|
| 14 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
| June 30, 2022 | December 31, 2021 | ||||||
| (a) | PACE Credit Facility-Due September 2, 2022 | $ | $ | ||||
| (b) | PACE Credit Facility-Due September 2, 2022 | ||||||
| (c) | PACE Corporate Term Loan-Due September 13, 2022 | ||||||
| (d)i.) | Mortgage Payable-Due September 1, 2022 | ||||||
| (d)ii.) | Mortgage Payable-Due August 17, 2023 | ||||||
| (e) | Canada Emergency Business Account-Due December 31, 2023 | ||||||
| (f) | Corporate Term Loan-Due April 7, 2025 | ||||||
| Current portion | ( |
) | ( |
) | |||
| Long-Term portion | $ | $ | |||||
On November 15, 2021 and March 15, 2022, the Company paid all arrears owing to PACE on each date and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors and with PACE to re-finance its remaining obligations to PACE and repay other creditors. In addition, the existing letter of credit, in the amount of $
Refer also to going concern, note 2. And, refer also to subsequent events
The remaining PACE long-term debt was initially payable as noted below:
(a)
(b) The credit facility advanced on June 15, 2017, in the amount of $
(c) The corporate term loan advanced on September 13, 2017, in the amount of $
For the three and six-month periods ended June 30, 2022, $
|
| 15 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
8. Long-Term Debt, (continued)
(d) i) The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of
Financing fees on the 1st mortgage totaled $
ii) On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $
For the three and six-month periods ended June 30, 2022, $
(e) As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
The Company has received a total of $
Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free.
The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
(f) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $
For the three and six-month periods ended June 30, 2022, $
|
| 16 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
9. Obligations under Capital Lease
| June 30 | December 31, | |||||||||||
| 2022 | 2021 | |||||||||||
| (a) | (b) | Total | Total | |||||||||
| Obligations under Capital Lease | $ | $ | $ | $ | ||||||||
| Less: current portion | ( |
) | ( |
) | ( |
) | ||||||
| Long-term portion | $ | $ | $ | $ |
Refer also to going concern, note 2.
(a) The lease agreement for certain equipment for the Company's organic composting facility at a cost of $
(b) 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 under long-lived assets, net (note 6).
Minimum lease payments as per the original terms of the obligations under capital lease are as follows:
| In the six-month period ending December 31, 2022 | $ | ||
| In the year ending December 31, 2023 | |||
| In the year ending December 31, 2024 | |||
| In the year ending December 31, 2025 | |||
| Less: imputed interest | ( |
) | |
| Total | $ |
For the three and six-month periods ended June 30, 2022, $
10. Convertible Promissory Notes
| June 30, 2022 | December 31, 2021 | ||||||
| (a) | Convertible promissory note-March 31, 2021 | ||||||
| (b) | Convertible promissory note-April 1, 2021 | ||||||
| (c) | Convertible promissory note-June 16, 2021 | ||||||
| (d) | Convertible promissory note-August 26, 2021 | ||||||
| (e) | Convertible promissory notes-October 28 and 29, 2021 | ||||||
| (f) | Convertible promissory notes-December 2, 2021 | ||||||
| (g) | Convertible promissory notes-March 3 and 7, 2022 | ||||||
| (h) | Convertible promissory notes- June 23, 2022 | ||||||
| $ | $ |
|
| 17 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
10. Convertible Promissory Notes, (continued)
|
a) |
On March 31, 2021, the Company entered into a securities purchase agreement (the "March 2021 SPA") with one investor (the "March 2021 Investor") pursuant to which the Company issued to the March 2021 Investor one The maturity date of the March 2021 Investor Note was September 30, 2021. The March 2021 Investor Note bears interest at a rate of The Company initially reserved
On November 22, 2021, the March 2021 Investor extended the maturity date to March 31, 2022 in exchange for a payment of $ Contemporaneously with the forgiveness of the remaining balance of the March 2021 Investor Note, the March 2021 Investor subscribed for These transactions have been accounted for as a single transaction, that together resulted in the extinguishment of the March 2021 Investor Note. The shares issued as described above have been recognized at their respective fair values. The Company recognized a revaluation loss of $ |
|
b) |
On April 1, 2021, the Company entered into a securities purchase agreement (the "April 2021 SPA") with one investor (the "April 2021 Investor") pursuant to which the Company issued to the April 2021 Investor one The maturity date of the April 2021 Investor Note was September 30, 2021. The April 2021 Investor Note bears interest at a rate of The Company initially reserved |
|
| 18 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
10. Convertible Promissory Notes, (continued)
On December 9, 2021, the April 2021 Investor agreed to adjust the balance of the note, as it was past due, to $
c) On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one
The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of
The Company initially reserved
d) On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one
The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of
|
| 19 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
10. Convertible Promissory Notes, (continued)
The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), with default interest accruing at the default interest rate of
On May 5, 2022, the August 2021 Investor settled the balance of his August 2021 Investor Note for
The Company initially reserved
e) On October 28 and 29, 2021, the Company entered into two securities purchase agreement (the "October 2021 SPAs) with
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
The Company initially reserved
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
During the six months ended June 30, 2022, the Company recognized revaluation gains of $
Refer also to subsequent events, note 18 (e).
| f) |
On December 2, 2021, the Company entered into a securities purchase agreement (the "December 2021 SPA") with one investor (the "December 2021 Investor") pursuant to which the Company issued to the December 2021 Investor one |
|
| 20 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
10. Convertible Promissory Notes, (continued)
|
The maturity date of the December 2021 Investor Note is June 2, 2022. The December 2021 Investor Note bears interest at a rate of The Company initially reserved As noted above under paragraph (c), on June 23, 2022, this December 2021 Investor Note and the June 2021 Investor Note were fully repaid with accrued interest from a portion of the proceeds on the issuance of the June 2022 Investor Note in the principal amount of $ |
|
| g) | On March 3 and 7, 2022, the Company executed two unsecured convertible promissory notes with two investors (the "March 2022 Investors"), who purchased |
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
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 (
Refer also to subsequent events, note 18 (e).
|
| 21 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
10. Convertible Promissory Notes, (continued)
| h) |
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 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.
For the three and six-month periods ended June 30, 2022, the Company issued
In addition,
For the three and six-month period ended June 30, 2022, the Company incurred interest of $
Refer also to going concern, note 2.
|
| 22 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
10. Convertible Promissory Notes, (continued)
Fair value option for the 2021 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 in 2021 and 2022. 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 in the interim condensed consolidated financial statements. 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 all periods presented. The Company recognized a loss of $ at the time of issuance of the convertible promissory notes, and an additional loss of $4,512,540 and $5,124,945 attributed to the change in fair value of the convertible promissory notes for the three and six-month periods ended June 30, 2022. The Company incurred debt issuance costs for the three and six-month periods of $
11. 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 June 30, 2022 Using: |
||||||
| Level 3 | Total | |||||
| Assets: | $ | $ | - | |||
| Liabilities: | ||||||
| Convertible promissory notes | ||||||
| $ | $ | |||||
During each of the six-month periods ended June 30, 2022 and 2021, 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 June 30, 2022.
The following table summarizes the change in Level 3 financial instruments during the six-month period ended June 30, 2022.
| Fair value at December 31, 2021 | $ | ||
| Fair value of new at issuances | |||
| Repayments | ( |
) | |
| Mark to market adjustment | |||
| Settlement | ( |
) | |
| Fair value at June 30, 2022 | $ |
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.
11. Fair Value Measurement
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 ("PD"), which would increase the required payout as described in note 10 and calculated the fair value under each scenario. The PD was assumed to be
|
| 23 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
11. Fair Value Measurement, (continued)
Other significant unobservable inputs include the expected volatility, discount for lack of marketability 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
Refer also to going concern, note 2.
12. Loan Payable to Related Party
| June 30, 2022 | December 31, 2021 | |||||
| Director | $ | $ |
The loan owing to director was received by the Company on June 6, 2022, is unsecured, bearing interest at
During the three and six-month periods ended June 30, 2022, $
13. Capital Stock
As at June 30, 2022, the Company had
For the six-month period ended June 30, 2022, the Company issued
On January 3, 2022, the Company issued
|
| 24 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
13. Capital Stock, (continued)
At June 30, 2022, the Company recorded in total, $
During the year ended December 31, 2021, the Company issued
In addition, the Company raised $
On March 31, 2021, the Company issued the March 2021 Investor Note to the March 2021 Investor, and issued, subsequent to March 31, 2021,
On April 1, 2021, the Company issued the April 2021 Investor Note to the April 2021 Investor, and subsequently issued
On January 4, 2021, the Company issued
Pursuant to the Minutes of Settlement, the former chief executive officer returned
14. Commitments
a) Effective January 1, 2022, as stipulated in each of their respective executive consulting agreements the CEO's monthly fee is $
| For the six-month period ending December 31, 2022 | $ |
b) The Company has agreed to lease its office premises from Haute on a month-to-month basis, at the monthly rate of $
|
| 25 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
14. Commitments, (continued)
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 consulting fees in the amount of $
e) 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 $
The Company is responsible through a special provision of the site plan agreement with the City of Belleville (the "City"), Ontario, Canada, that it is required to fund road maintenance required by the City through to September 30, 2025 at an annual rate of $
| For the six-month period ending December 31, 2022 | $ | ||
| For the year ending December 31, 2023 | |||
| For the year ending December 31, 2024 | |||
| For the year ending December 31, 2025 | |||
| $ |
g) PACE has provided the Company a letter of credit in favor of the MECP in the amount of $
The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. As a result of audits conducted by the MECP in December of 2020, the Company has accrued estimated and actual costs for corrective measures as a result of the MECP's audits totaling $
As at June 30, 2022, the MECP has not drawn on the letter of credit. The Company has been in discussions with its Canadian Chartered bank to obtain a new letter of credit for the new financial assurance with the MECP in the amount of $
15. Other (Loss) Income
|
June 30, 2022 |
June 30, 2021 |
|||||
| (a) Gain on forgiveness of convertible promissory notes | $ | $ | ||||
| (b) Gain on disposal of long-lived assets | ||||||
| (c) Loss on revaluation of convertible promissory notes | ( |
) | ( |
) | ||
| (d) Gain on extinguishment of convertible promissory notes | ||||||
| $ | ( |
) | $ |
(a) During the prior six-month period ended June 30, 2021, the settlement of the March 2019 Investor Notes resulted in a forgiveness of $
(b) During the prior six-month period ended June 30, 2021, the Company disposed of certain long-lived assets for proceeds of $
|
| 26 |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Expressed in United States Dollars)
(unaudited)
15. Other (Loss) Income, (continued)
(c) Loss on revaluation of convertible promissory notes. Refer to note 10, convertible promissory notes.
(d) Gain on extinguishment of convertible promissory notes. Refer to note 10, convertible promissory notes.
16. Economic Dependence
The Company generated
17. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount $
18. Subsequent Events
The Company's management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:
(a) On July 6, 2022, Alchemy Advisors LLC, provided the Company with a revised and amended consulting agreement for financial and business consulting services, extending the term of its first consulting agreement dated October 27, 2021 from April 27, 2022 to August 15, 2022 and shortening the term of its second consulting agreement dated March 3, 2022 from September 3, 2022 to August 15, 2022. In exchange Alchemy received
(b) On July 11, 2022, the Company issued
(c) On July 13, 2022, the Company signed a settlement agreement and release for the services of a party for an underwritten offering dated March 23, 2022 and amended May 23, 2022. In exchange, the Company will make a payment in cash in the amount of $
(d) On July 20, 2022, the Company signed a consulting contract with a consultant to provide general business advice and consulting for a period to December 31, 2022. As compensation, the Company issued
(e) On August 16, 2022, the Company was informed of a notice of default from the investor of the October 29, 2021 Investor Note, the March 3, 2022 Investor Note and the March 7, 2022 Investor Note. The notice of default allows for a cure period of 5 trading days. The Company is in discussions with the investor to cure the notice of default.
|
| 27 |
Certain statements in this Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "would," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on April 14, 2022.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three and six-month periods ended June 30, 2022 compared with the three and six-month periods ended June 30, 2021 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to "we, "us, "our," the "Company," and similar expressions refer to SusGlobal Energy Corp., and depending on the context, its subsidiaries.
SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION
OUR AUDITOR ISSUED AN OPINION EXPRESSING SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN FOR THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020. YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE "GOING CONCERN" ISSUES IN MIND.
This Management's Discussion and Analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the "Financial Statements"). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States ("GAAP"). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
OVERVIEW
The following organization chart sets forth our wholly-owned subsidiaries:
28
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.
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. and 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, 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) 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 fuels, electricity 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®.
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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 optimizing 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 be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
The Coronavirus Outbreak ("COVID-19") May Adversely Affect Our Business Operations and Financial Condition
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic which has resulted in substantial global economic disruption and uncertainty. In response to the COVID-19 pandemic, the measures implemented by various authorities have caused us to change the Company's business practices, including those related to where employees work, the distance between employees in the Company's facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations.
The Company is fortunate that its operations have not been forced to close as we're considered an essential service. To date, there has been no material impact on the Company's workforce, operations, financial performance, liquidity, or supply chain as a result of COVID-19. However, the extent and continued impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and spread of the outbreak and new variant strains of the virus; the availability and distribution of effective vaccines; the severity of the economic decline attributable to the pandemic and timing, nature and sustainability of economic recovery; and government responses, including vaccination or testing mandates, all of which are highly uncertain and unpredictable.
The Company will continue to monitor health orders issued by applicable governments to ensure compliance with evolving domestic and global COVID-19 guidelines.
Financings
(a) Securities Purchase Agreements
On June 23, 2022, the Company and the June 2021 Investor executed one convertible promissory note (the “June 2022 Investor Note”) in the amount of $1,200,000, bearing interest at 10% and having an OID of 10%. The maturity date of the June 2022 Investor Note is the earlier of December 23, 2022 and the date of the Company’s uplist to a national securities exchange. The proceeds from the June 2022 Investor Note were used to repay this investor’s June 2021 Investor Note and their December 2021 Investor Note which matured June 2, 2022 and June 16, 2022 respectively. The net proceeds, after repaying the December 2021 Investor Note and the June 2021 Investor Note and related disbursements totaled approximately $204,000. The net proceeds were received on June 28, 2022. In addition, the Company issued 1,333,333 common shares to the June 2022 Investor on June 29, 2022. which were included in the determination of the gain on extinguishment and recognized at fair value. The restructuring was accounted for as extinguishments as it was renegotiated after maturity. The Company recognized a revaluation loss of $2,391,570 during the six-month period ended June 30, 2022 and a related gain on extinguishment of $1,713,165, resulting in a net fair value loss of $678,405 on the interim condensed consolidated statements of operations and comprehensive loss under other (expense) income.
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 15% per annum from the Event of Default, at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the price per share of the Common Stock at the public offering associated with the Event of Default.
The Company initially reserved 8,000,000 of its authorized and unissued Common Stock (the "June 2022 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the June 2022 Investor Note.
On March 3 and 7, 2022, the Company executed two unsecured convertible promissory notes with two investors (the "March 2022 Investors"), who purchased 25% original issue discount (the "OID") unsecured convertible promissory notes (the "The March 2022 Investor Notes") in the aggregate principal amount totaling $2,000,000 (the "Principal Amount") with such Principal Amount convertible into shares of the Company's common stock (the "Common Stock") from time to time triggered by the occurrence of certain events. The March 2022 Investor Notes carried an OID totaling $500,000 which is included in the principal balance of the Notes. The funds were received on March 7, 2022 and March 11, 2022 in the total amount of $1,425,000, net of the OID and professional fees. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
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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 120% of their original principal amounts. The Investors are entitled to, following an event of default, (as defined in the March 2022 Investor Notes) to convert all or any amount of the Principal Amount and any interest accruing at the default interest rate of 24% per annum into Common Stock, at a conversion price (the "Conversion Price") equal to 70% (representing a 30% discount) multiplied by the price per share of the Common Stock at any national security exchange or over-the-counter marketplace for the five (5) trading days immediately prior to the March 2022 Investors' notice of conversion.
On May 11, 2022, the holder of the March 3, 2022 investor note, provided an amendment for an optional conversion of his investor note. The conversion price was amended to be the lower of (1) the product of the Liquidity Event price multiplied by the discount of 35% (previously 30%) or (2) the greater of (i) the product of the closing price per share of the Company's Common Stock as reported by the applicable trading market on the trading day immediately prior to the conversion date multiplied by the discount (35%) or (ii) $1.70 multiplied by the discount (35%), provided that in the event of a conversion, of this investor note, at a time that a Liquidity Event shall not have previously occurred and be continuing, the conversion price for such conversion shall be as provided in (2)(i) above.
On May 13, 2022, the holder of the March 7, 2022 investor note, provided an amendment for an optional conversion of his investor note. The conversion price was amended to be the lower of (1) the product of the Liquidity Event price multiplied by the discount of 35% (previously 30%) or (2) the greater of (i) the product of the closing price per share of the Company's Common Stock as reported by the applicable trading market on the trading day immediately prior to the conversion date multiplied by the discount (35%) or (ii) $1.70 multiplied by the discount (35%), provided that in the event of a conversion, of this investor note, at a time that a Liquidity Event shall not have previously occurred and be continuing, the conversion price for such conversion shall be as provided in (2)(i) above.
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 (20%). In addition, the Company agreed to issue 100,000 common shares to the March 2022 Investor. These restricted shares of the Company's common stock will survive a reverse stock split prior to listing. The common shares recorded as shares to be issued for the period ended June 30, 2022, and were subsequently issued on July 11, 2022. The restructurings were accounted for as extinguishments as they were renegotiated after maturity. The Company recognized revaluation losses on these notes of $2,379,273 during the six-month period ended June 30, 2022 and a related gain on extinguishment of $1,532,583, resulting in a net fair value loss of $846,690 on the interim condensed consolidated statements of operations and comprehensive loss under other (expense) income.
On August 16, 2022, the Company was informed of a notice of default from March 2022 Investors for the March 2022 Investor Notes. The notice of default allows for a cure period of 5 trading days. The Company is in discussions with the investor to cure the notice of default.
On December 2, 2021, the Company entered into a securities purchase agreement (the "December 2021 SPA") with one investor (the "December 2021 Investor") pursuant to which the Company issued to the December 2021 Investor one 10% unsecured convertible promissory note (the "December 2021 Investor Note") in the principal amount of $350,000. The December 2021 Investor Note included an OID of $35,000. In addition, the December 2021 Investor was issued 857,143 common shares of the Company. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
The maturity date of the December 2021 Investor Note is June 2, 2022. The December 2021 Investor Note bears interest at a rate of 10% per annum (the "December 2021 Interest Rate"), which shall be paid by the Company to the December 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The December 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the December 2021 Investor Note), with interest accruing at the default interest rate of 15% per annum from the event of default, at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the December 2021 Investor Note) period ending on the issuance date of the December 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the December 2021 Investor Note. The December 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the December 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the December 2021 Investor Note plus (c) default interest (as defined in the December 2021 Investor Note) on the occurrence of an event of default), if any.
As noted above under the June 2022 Investor Note, on June 23, 2022, this December 2021 Investor Note and the June 2021 Investor Note were fully repaid with accrued interest from a portion of the proceeds on the issuance of the June 2022 Investor Note in the principal amount of $1,200,000. The extinguishment is discussed above under the June 2022 Investor Note.
The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "December 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the December 2021 Investor Note.
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 15% OID unsecured convertible promissory notes (the "October 2021 Investor Notes") in the principal amount of $1,765,118. The October 2021 Investor Notes are convertible, with accrued interest, from time to time on notice of a liquidity event (a "Liquidity Event"). A Liquidity Event is defined as a public offering of the Company's common stock resulting in the listing for trading of the common stock on any one of a number of exchanges. The October 2021 Investor Notes can be prepaid prior to maturity for an amount of 120% of the prepayment amount. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
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 70% (representing a 30% discount) multiplied by the price per share of the Common Stock at the public offering associated with the Liquidity Event. Upon the occurrence of an event of default, the interest rate on the October 2021 Investor Notes will immediately accrue at 24% per annum and be paid in cash monthly to the October 2021 Investors, until the default is cured. And, the Conversion Price will be reset to 85% of the lowest volume weighted average price for the ten consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date.
During the six months ended June 30, 2022, the Company recognized revaluation gains of $135,083.
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The Company initially reserved 1,585,000 of its authorized and unissued Common Stock (the "October 2021 Reserved Amount"), free from pre-emptive rights, to be issued upon conversion of the October 2021 Investor Notes.
On May 11, 2022, the holder of the October 29, 2021 investor note provided an amendment for an optional conversion of his investor note. The conversion price was amended to be the lower of (1) the product of the Liquidity Event price multiplied by the discount of 35% (previously 30%) or (2) the greater of (i) the product of the closing price per share of the Company's Common Stock as reported by the applicable trading market on the trading day immediately prior to the conversion date multiplied by the discount (35%) or (ii) $1.70 multiplied by the discount (35%), provided that in the event of a conversion, of this investor note, at a time that a Liquidity Event shall not have previously occurred and be continuing, the conversion price for such conversion shall be as provided in (2)(i) above.
On August 16, 2022, the Company was informed of a notice of default from the investor of the October 29, 2021 Investor Note. The notice of default allows for a cure period of 5 trading days. The Company is in discussions with the investor to cure the notice of default.
On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one 10% unsecured convertible promissory note (the "August 2021 Investor Note") in the principal amount of $142,200. The August 2021 Investor Note included an OID of $13,450. In addition, the August 2021 Investor was issued 80,000 common shares of the Company. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares
The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of 10% per annum (the "August 2021 Interest Rate"). The August 2021 Investor Note will include a one-time interest charge of $14,220, which shall be at repayable by the Company in 10 equal monthly amounts of $15,642 (including principal and interest) commencing October 15, 2021.
The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), with default interest accruing at the default interest rate of 22% per annum, at a conversion price (the "Conversion Price") equal to 75% (representing a 25% discount) multiplied by the lowest trading price (i) during the previous five (5) trading day (as defined in the August 2021 Investor Note), period prior to conversion. The Company has the right to accelerate the monthly payments or prepay the August 2021 Investor Note at any time without penalty.
On May 5, 2022, the August 2021 Investor settled the balance of his August 2021 Investor Note for 141,878 common shares of the Company. The settlement was accounted for as an extinguishment because it was settled through the issuance of shares, which were recognized at their fair value in the determination of the extinguishment gain. The Company recognized a revaluation loss of $1,615 during the six-month period ended June 30, 2022 and a related gain on extinguishment of $18,311, resulting in a net fair value gain of $16,696 on the interim condensed consolidated statements of operations and comprehensive loss under other (expense) income.
The Company initially reserved 2,972,951 of its authorized and unissued Common Stock (the "August 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the August 2021 Investor Note.
On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. The June 2021 Investor Note includes an OID of $35,000. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares
The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of 10% per annum (the "June 2021 Interest Rate"), which shall be paid by the Company to the June 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The June 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the June 2021 Investor Note), with interest accruing at the default interest rate of 15% per annum from an event of default, at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the June 2021 Investor Note) period ending on the issuance date of the June 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the June 2021 Investor Note. The June 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the June 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the June 2021 Investor Note plus (c) default interest (as defined in the June 2021 Investor note on the occurrence of a default), if any.
On June 23, 2022, the Company and the June 2021 Investor executed one convertible promissory note (the “June 2022 Investor Note”) in the amount of $1,200,000, bearing interest at 10% and having an OID of 10%. The maturity date of the June 2022 Investor Note is the earlier of December 23, 2022 and the date of the Company’s uplist to a national securities exchange. The proceeds from the June 2022 Investor Note were used to repay this investor’s June 2021 Investor Note and their December 2021 Investor Note which matured June 2, 2022 and June 16, 2022 respectively. The net proceeds, after repaying the December 2021 Investor Note and the June 2021 Investor Note and related disbursements totaled approximately $204,000. The net proceeds were received on June 28, 2022. In addition, the Company issued 1,333,333 common shares to the June 2022 Investor on June 29, 2022, which were included in the determination of the gain on extinguishment and recognized at fair value. The extinguishment is discussed above under the June 2022 Investor Note.
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The Company initially reserved 7,000,000 of its authorized and unissued Common Stock (the "June 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the June 2021 Investor Note.
On April 1, 2021, the Company entered into a securities purchase agreement (the "April 2021 SPA") with one investor (the "April 2021 Investor") pursuant to which the Company issued to the April 2021 Investor one 10% unsecured convertible promissory note (the "April 2021 Investor Note") in the principal amount of $275,000. The April 2021 Investor Note includes an OID of $25,000. In addition, the April 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
The maturity date of the April 2021 Investor Note was September 30, 2021. The April 2021 Investor Note bears interest at a rate of 10% per annum (the "April 2021 Interest Rate"). The April 2021 Investor is entitled to, at its option, at any time after issuance of the April 2021 Investor Note, convert all or any amount of the principal amount and any accrued but unpaid interest of the April 2021 Investor Note into Common Stock, at a conversion price of $0.20 per share. The original terms of the April 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. Any portion of the April 2021 Investor Note which is not repaid by the maturity date will bear interest at the default interest rate of 18% per annum.
The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "April 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the April 2021 Investor Note.
On December 9, 2021, the April 2021 Investor agreed to adjust the balance of the note, as it was past due, to $400,000. On January 4, 2022, the April 2021 Investor provided the Company with a request to convert April 2021 Investor Note into 2,000,000 common shares of the Company issued on January 17, 2022, at a conversion price of $0.20 per share, as stipulated in the April 2021 SPA.
On March 31, 2021, the Company entered into a securities purchase agreement (the "March 2021 SPA") with one investor (the "March 2021 Investor") pursuant to which the Company issued to the March 2021 Investor one 10% unsecured convertible promissory note (the "March 2021 Investor Note") in the principal amount of $275,000. The March 2021 Investor Note includes an original issue discount of (the "OID") of $25,000. In addition, the March 31, 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
The maturity date of the March 2021 Investor Note was September 30, 2021. The March 2021 Investor Note bears interest at a rate of 10% per annum (the "March 2021 Interest Rate"). The March 2021 Investor is entitled to, at its option, at any time after issuance of the March 2021 Investor Note, convert all or any amount of the principal amount and any accrued but unpaid interest of the March 2021 Investor Note into Common Stock, at a conversion price of $0.20 per share. Under the original terms of the March 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. Any portion of the March 2021 Investor Note which is not repaid by the maturity date will bear interest at the default interest rate of 18% per annum.
On November 22, 2021, the March 2021 Investor extended the maturity date to March 31, 2022 in exchange for a payment of $486,474. On April 7, 2022, the March 2021 Investor extended the maturity date of the March 2021 Investor Note to April 30, 2022. And, on May 5, 2022, the March 2021 Investor converted a portion of the April 2021 Investor Note, $300,000, into 1,500,000 common shares of the Company at a conversion price of $0.20 per share as stipulated in the March 2021 SPA. The April 2021 Investor forgave the balance of the April 2021 Investor Note.
Contemporaneously with the forgiveness of the remaining balance of the March 2021 Investor Note, the March 2021 Investor subscribed for 1,000,000 common shares of the Company that have a 6-month trading restriction for cash proceeds of $300,000.
These transactions have been accounted for as a single transaction, that together resulted in the extinguishment of the March 2021 Investor Note. The shares issued as described above have been recognized at their respective fair values. The Company recognized a revaluation loss of $1,138,308 during the six-month period ended June 30, 2022 and a related gain on extinguishment of $1,010,761, resulting in a net fair value loss of $127,547 on the interim condensed consolidated statements of operations and comprehensive loss under other (expense) income.
The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "March 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2021 Investor Note.
For the three and six-month periods ended June 30, 2022, the Company issued nil and 3,975,211 common shares respectively, on the issuance of debt on extinguishment of existing debt, having a fair value of $1,591,245 and $1,591,245 respectively. And, for the three and six-month periods ended June 30, 2022, the Company issued nil and 2,000,000 common shares respectively on the conversion of a promissory note at a conversion price of $0.20 per share. For the three and six-month period ended June 30, 2021, the Company issued nil and 3,175,124 common shares respectively, on the conversion of convertible promissory notes, in the amount of $713,716, including accrued interest and related costs of $32,716. The share conversion prices ranged from $0.156 to $0.26 per share (on the 2019 convertible promissory notes).
For the three and six-month period ended June 30, 2022, the Company incurred interest of $nil and $nil (2021-$28,963 and $43,719 on the 2019 convertible promissory notes).
Refer also to going concern, note 2 to the interim condensed consolidated financial statements.
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(b) Alterna Savings and Credit Union Limited (formerly, (Pace Savings & Credit Union Limited ("PACE"))
On November 15, 2021 and March 15, 2022, the Company paid all arrears owing to PACE on each date and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors and with PACE to re-finance its remaining obligations to PACE and repay other creditors. In addition, the existing letter of credit, in the amount of $214,821 (C$276,831) was renewed by PACE to the termination of the Company's obligations to PACE, September 2022. The Company has been in discussions with its Canadian Chartered bank to obtain a new letter of credit for the new financial assurance with the Ministry of the Environment, Conservation and Parks (the "MECP") in the amount of $494,806 (C$637,637). At June 30, 2022, the Company is in arrears three payments for each of its obligations to PACE.
Refer also to going concern, note 2. And, refer also to subsequent events in the notes to the interim condensed consolidated financial statements for the three and six-month periods ended June 30, 2022.
The remaining PACE long-term debt was initially payable as noted below:
(a) The credit facility bears interest at the PACE base rate of 8.25% plus 1.25% per annum, currently 9.5%, is payable in monthly blended installments of principal and interest of $6,801 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,241,600 (C$1,600,000), is secured by a business loan general security agreement, a $1,241,600 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. On April 3, 2020, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
(b) The credit facility advanced on June 15, 2017, in the amount of $465,600 (C$600,000), bears interest at the PACE base of 8.25% plus 1.25% per annum, currently 9.5%, is payable in monthly blended installments of principal and interest of $3,803 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
(c) The corporate term loan advanced on September 13, 2017, in the amount of $2,889,938 (C$3,724,147), bears interest at PACE base rate of 8.25% plus 1.25% per annum, currently 9.5%, is payable in monthly blended installments of principal and interest of $23,056 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,104,759 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.
For the three and six-month periods ended June 30, 2022, $78,904 (C$100,699) and $154,429 (C$196,324) (2021-$81,163; C$99,651 and $158,428; C$197,457) respectively, in interest was incurred on the PACE long-term debt. As at June 30, 2022 $95,286 (C$122,791) (December 31, 2021-$95,286; C$122,791) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
(c) Other Financings
On April 21, 2022, the Company received proceeds from an employee of $28,000 on a private placement for 70,708 common shares of the Company, at a price of $0.396 per share.
On May 5 and 6, 2022, the Company received proceeds of $700,000, on two private placements for 2,333,333 common shares of the Company, at a price of $0.30 per share.
(i) The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,035,200 (C$5,200,000) (December 31, 2021-$4,101,760; C$5,200,000). The fourth tranche was received on August 13, 2021 in the amount of $1,474,400 (C$1,900,000) and a portion of this fourth tranche, $1,438,652 (C$1,853,933), was used to fund a portion of the purchase of the Hamilton Property, described under long-lived assets, net (note 6). The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 9.75%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage on the premises located at 704 Phillipston Road, Roslin, Ontario, Canada and a general assignment of rents.
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Financing fees on the 1st mortgage totaled $313,053 (C$403,419). As at June 30, 2022, $33,166 (C$42,740) (December 31, 2021-$33,713; C$42,740) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at June 30, 2022, there is $23,062 (C$29,720) (December 31, 2021-$90,794; C$115,104) of unamortized financing fees included in long-term debt and $33,166 (C$42,740) (December 31, 2021-$33,713; C$42,740) of accrued interest in accrued liabilities in the interim condensed consolidated balance sheets.
(ii) On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $1,552,000 (C$2,000,000), on the purchase of the Hamilton Property, described under long-lived assets, net (note 6). The 1st mortgage bears interest at an annual rate of 2% per annum, repayable monthly interest only with a maturity date of August 17, 2023, secured by the assets on the Hamilton Property.
For the three and six-month periods ended June 30, 2022, $111,853 (C$141,622) and $220,256 (C$280,010) (2021-$53,892; C$65,948 and $116,422; C$145,110) respectively, in interest was incurred on the 1st mortgages payable.
(iii) 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 $77,600 (C$100,000) 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 amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 1, 2023, maturing December 31, 2025.
The CEBA term loan agreements were amended by extending the interest free repayment date by one year to December 31, 2023. If paid by December 31, 2023, 33.33% ($25,866; C$33,333), previously 25%, of the loans would be forgiven. Repayment terms on the extended period are unchanged.
The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
(iv) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $169,430 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $155,200 (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 $3,803 (C$4,901) due April 7, 2025.
(d) Financings Related to Obligations Under Capital Lease
There were no new capital leases entered into by the Company during the three and six-month periods ended June 30, 2022.The original terms of the obligations under capital lease are noted below under paragraphs (i) and (ii).
(i) The lease agreement for certain equipment for the Company's organic composting facility at a cost of $192,021 (C$247,450 ), is payable in monthly blended installments of principal and interest of $3,972 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,760 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,152 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022. The final payment was made on June 7, 2022.
(ii) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $302,368 (C$389,650), is payable in monthly blended installments of principal and interest of $5,317 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,093 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $78 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.
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For the three and six-month periods ended June 30, 2022, $478 (C$617) and $2,238 (C$2,846) (2021-$3,601; C$4,409 and $7,694; C$9,590) respectively, in interest was incurred. As at June 30, 2022 $46 (C$60) (December 31, 2021- $800; C$999) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
Operations
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 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 waste processing and composting facility which is currently operating in Belleville, Ontario, Canada.
Waste Transfer Station— Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility— As noted above, the Company's organic waste processing and composting facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic waste composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During six-month period ended June 30, 2022, tipping fees ranged from $55 (C$69) to $118 (C$150) per MT.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2022, the Company had a bank balance of $278 (December 31, 2021-$36,033) and current debt obligations and other current liabilities in the amount of $17,760,069 (December 31, 2021-$13,944,507). As at June 30, 2022, the Company had a working capital deficit of $17,084,363 (December 31, 2021-$13,651,619). The Company does not currently have sufficient funds to satisfy the current debt obligations.
On November 15, 2021 and March 15, 2022, the Company paid all arrears owing to PACE on each date and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors and with PACE to re-finance its remaining obligations to PACE and repay other creditors. In addition, the existing letter of credit, in the amount of $214,821 (C$276,831) was renewed by PACE to the termination of the Company's obligations to PACE, September 2022. The Company has been in discussions with its Canadian Chartered bank to obtain a new letter of credit for the new financial assurance with the Ministry of the Environment, Conservation and Parks (the "MECP") in the amount of $494,806 (C$637,637). At June 30, 2022, the Company is in arrears three payments for each of its obligations to PACE.
On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.
The Company's total assets as at June 30, 2022 were $10,458,791 (December 31, 2021-$8,571,721) and total current liabilities were $17,760,069 (December 31, 2021-$13,944,507). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $23,426,544 as at June 30, 2022 (December 31, 2021 -$18,334,649). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels. The Company is also anticipating a successful underwritten offering in connection with its filed registration statement although there can be no assurance that the underwritten offering will be completed.
To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $18,809,404 in current debt obligations and other current liabilities, the Company estimates that approximately $13,000,000 must be raised to fund capital requirements and general corporate expenses for the next 12 months.
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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.
As at June 30, 2022, the current and long-term portions of our debt obligations totaled $19,562,763 (December 31, 2021-$13,537,341).
In addition, as at June 30, 2022, the Company had an outstanding letter of credit provided by PACE, in the amount of $214,821 (C$276,831), in favor of the MECP. The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is in the process of obtaining a new letter of credit with its Canadian Chartered bank for the new financial assurance with the MECP in the amount of $494,806 (C$637,637).
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2022 COMPARED TO THE THREE-MONTH PERIOD ENDED JUNE 30, 2021
| For the three-month periods ended | ||||||
| June 30, 2022 | June 30, 2021 | |||||
| Revenue | $ | 110,143 | $ | 212,632 | ||
| Cost of Sales | ||||||
| Opening inventory | 16,806 | 45,923 | ||||
| Depreciation | 115,262 | 135,539 | ||||
| Direct wages and benefits | 53,408 | 65,390 | ||||
| Equipment rental, delivery, fuel and repairs and maintenance | (59,035 | ) | 69,280 | |||
| Utilities | 4,358 | (10,845 | ) | |||
| Outside contractors | 915 | 21,372 | ||||
| 131,714 | 326,659 | |||||
| Less: closing inventory | (19,555 | ) | (35,983 | ) | ||
| Total cost of sales | 112,159 | 290,676 | ||||
| Gross (loss) | (2,016 | ) | (78,044 | ) | ||
| Operating expenses | ||||||
| Management compensation-stock-based compensation | 60,113 | 54,259 | ||||
| Management compensation-fees | 117,266 | 92,875 | ||||
| Marketing | 627,721 | 82,747 | ||||
| Professional fees | 360,433 | 98,344 | ||||
| Interest expense | 189,708 | 168,986 | ||||
| Office and administration | 131,239 | 29,620 | ||||
| Rent and occupancy | 65,666 | 36,580 | ||||
| Insurance | 34,599 | 16,385 | ||||
| Filing fees | 7,368 | 17,188 | ||||
| Amortization of financing costs | 33,632 | 11,753 | ||||
| Directors' compensation | 14,689 | 12,672 | ||||
| Stock-based compensation | 166,275 | 28,209 | ||||
| Repairs and maintenance | (13,488 | ) | (5,402 | ) | ||
| Foreign exchange loss (income) | 217,929 | (7,321 | ) | |||
| Total operating expenses | 2,013,150 | 636,895 | ||||
| Net Loss Before Other (Loss) Income | (2,015,166 | ) | (714,939 | ) | ||
| Other (Loss) Income | (213,503 | ) | (107,756 | ) | ||
| Net Loss | $ | (2,228,669 | ) | $ | (822,695 | ) |
During the three-month period ended June 30, 2022, the Company generated $110,143 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $212,632 in the three-month period ended June 30, 2021. The reduction in revenue is primarily due to changes in the customer base including an expiring contract from September 2021 and a reduction of garbage collection revenue as the Company substantially reduced its garbage collection services at the end of February 2022. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and a lesser portion relating to the sale of compost processed.
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In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $112,159 for the three-month period ended June 30, 2022 compared to $290,676 for the three-month period ended June 30, 2021. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The significant reduction in costs are the results of a lower estimate for the clean-up of certain waste as ordered by the MECP. For the Company's utility charges, although the usage was minimal in the current period, in the prior period, the Company was able to benefit from certain reductions provided by the utility company. In addition, the use of outside contractors reduced significantly as a result of the Company substantially reducing its garbage collection services and having no need for the services of its outside contractor, by the end of February.
Operating expenses increased by $1,376,255 from $636,895 in the three-month period ended June 30, 2021 to $2,015,166 in the three-month period ended June 30, 2022, explained further below.
Management compensation related to stock-based compensation increased by $5,854, in the three-month period ended June 30, 2022 compared to the three-month period ended June 30, 2021, as a result of the new common stock issued to the officers as stipulated in their executive consulting contracts, effective January 1, 2022. The total stock-based compensation valued at $240,450, based on the trading price of the shares on the effective date is being expensed over the year. And, the management compensation relating to fees increased by $24,391, from $92,875 in the three-month period ended June 30, 2021 to $117,266 in the three-month period ended June 30, 2022, the result of increased monthly fees, effective January 1, 2022.
Marketing expenses increased by $544,974, from $82,747 in the three-month period ended June 30, 2021 to $627,721 for the three-month period ended June 30, 2022, primarily the result of a new marketing campaign which commenced in Q3 of 2021.
Professional fees increased by $262,089, from $98,344 in the three-month period ended June 30, 2021 to $360,433 in the three-month period ended June 30, 2022. primarily due to increased estimated costs for the 2022 audit, review and tax related services. In addition, the Company engaged the services of a chartered professional accounting firm to assist management with various documentation and reporting matters. In addition, the Company incurred additional professional fees in connection with its S-1/A registration statement.
Interest expense increased by $20,722 from $168,986 in the three-month period ended June 30, 2021 to $189,708 in the three-month period ended June 30, 2022. This increase was primarily due to the increased 1st mortgage for the Company's waste processing and organic composting facility in the amount of $1,474,4000 (C$1,900,000), received in Q3 of 2021 and increases in the Company's borrowing rates which are impacted by changes in the prime rate of interest.
Office and administration expenses increased by $101,619, from $29,620 in the three-month period ended June 30, 2021 to $131,239 in the three-month period ended June 30, 2022. The increase included additional expenses incurred for the new facility under construction in Hamilton, Ontario, Canada, including security of $10,288 and other expenses including website maintenance and improvements of $16,014, increased penalties and interest of $7,727, a request for payment in the amount of $29,490 from one of the Company's past garbage collection customers resulting from contract termination and the absence of a $30,000 IRS administrative credit.
Rent and occupancy increased by $29,086, from $36,580 in the three-month period ended June 30, 2021 to $65,666 in the three-month period ended June 30, 2022, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office and increased realty taxes for the Company's new facility under construction in Hamilton, Ontario, Canada.
Insurance increased by $18,214, from $16,385 in the three-month period ended June 30, 2021 to $34,599 in the three-month period ended June 30, 2022, primarily due to the new insurance on the Company's new facility under construction in Hamilton, Ontario, Canada.
Filing fees decreased by $9,820, from $17,188 in the three-month period ended June 30, 2021 to $7,368 in the three-month period ended June 30, 2022, primarily due to the absence of investor relations activities.
The amortization of financing costs increased by $21,879, from $11,753 in the three-month period ended June 30, 2021 to $33,632 in the three-month period ended June 30, 2022, due to the additional financing fees incurred on the increased 1st mortgage, received in Q3 of 2021.
Directors' compensation increased nominally from $12,672 in the three-month period ended June 30, 2021 to $14,689 in the three-month period ended June 30, 2022, due to the current full complement of independent directors.
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Stock-based compensation increased by $122,439, from $28,209 in the three-month period ended June 30, 2021 to $166,275 in the three-month period ended June 30, 2022, as a result of significant new consulting services provided by several new service providers in the current period.
Repairs and maintenance decreased by $10,860, from a credit of $(5,402) in the three-month period ended June 30, 2021 to a credit of $13,488 in the three-month period ended June 30, 2022, due to the absence necessary repairs at the Company's waste processing and organic composting facility and a credit on certain roofing repairs for the Company's Toronto, Ontario, Canada office.
The foreign exchange loss increased by $225,250, from income of $7,321 in the three-month period ended June 30, 2021 to an expense of $217,929 in the three-month period ended June 30, 2022, due primarily to the translation of significant United States dollar denominated transactions and balances during the period including the convertible promissory notes compared to the prior period.
During the current three-month period ended June 30, 2022, the Company recorded a net expense for the revaluation and gain on extinguishment of its convertible promissory notes in the amount of $213,503 compared to $107,756 in the prior period ended June 30, 2021.
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2022 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE 30, 2021
| For the six-month periods ended | ||||||
| June 30, 2022 | June 30, 2021 | |||||
| Revenue | $ | 254,613 | $ | 405,292 | ||
| Cost of Sales | ||||||
| Opening inventory | 20,582 | 24,740 | ||||
| Depreciation | 231,465 | 272,099 | ||||
| Direct wages and benefits | 105,496 | 136,449 | ||||
| Equipment rental, delivery, fuel and repairs and maintenance | 111,153 | 175,173 | ||||
| Utilities | 43,170 | 7,418 | ||||
| Outside contractors | 25,483 | 21,372 | ||||
| 537,349 | 637,251 | |||||
| Less: closing inventory | (19,555 | ) | (35,983 | ) | ||
| Total cost of sales | 517,794 | 601,268 | ||||
| Gross (loss) | (263,181 | ) | (195,976 | ) | ||
| Operating expenses | ||||||
| Management compensation-stock-based compensation | 120,226 | 108,518 | ||||
| Management compensation-fees | 235,735 | 182,924 | ||||
| Marketing | 1,004,209 | 128,474 | ||||
| Professional fees | 622,085 | 167,746 | ||||
| Interest expense | 380,951 | 332,860 | ||||
| Office and administration | 191,816 | 104,835 | ||||
| Rent and occupancy | 116,591 | 68,919 | ||||
| Insurance | 63,437 | 31,387 | ||||
| Filing fees | 61,543 | 36,147 | ||||
| Amortization of financing costs | 67,164 | 25,331 | ||||
| Directors' compensation | 29,498 | 23,336 | ||||
| Stock-based compensation | 296,787 | 36,282 | ||||
| Repairs and maintenance | (11,159 | ) | 7,787 | |||
| Foreign exchange loss (income) | 140,180 | (19,439 | ) | |||
| Total operating expenses | 3,319,063 | 1,235,107 | ||||
| Net Loss Before Other (Loss) Income | (3,582,244 | ) | (1,431,083 | ) | ||
| Other (Loss) Income | (1,509,651 | ) | 215,856 | |||
| Net Loss | $ | (5,091,895 | ) | $ | (1,215,227 | ) |
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During the six-month period ended June 30, 2022, the Company generated $254,613 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $405,292 in the six-month period ended June 30, 2021. The reduction in revenue is primarily due to changes in the customer base including an expiring contract from September 2021 and a reduction of garbage collection revenue as the Company substantially reduced garbage collection services at the end of February 2022. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and a lesser portion relating to the sale of compost processed.
In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $517,794 for the six-month period ended June 30, 2022 compared to $601,268 for the six-month period ended June 30, 2021. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The reduction in costs of $83,475 is attributable to reduced depreciation as several of the Company's mobile equipment were fully depreciated in the current period, a reduction in direct labour and benefits from reduced overtime and one less staff member, offset by increased utilities costs as projected credits offered by the hydro utility expired. In addition, the equipment rental, delivery, fuel, repairs and maintenance include an estimate for the clean-up of certain waste as ordered by the MECP. The estimate has been reduced as the Company was able to use the services of a hauler to dispose of the excess waste to a landfill facility at a lower cost than that in the prior period. In addition, fuel costs were lower in the current period as a result of no longer operating its garbage truck and a reduction in the use of its own truck and trailer for hauling waste for the customer whose contract was terminated in September 2021.
Operating expenses increased by $2,083,956 from $1,235,107 in the six-month period ended June 30, 2021 to $3,319,063 in the six-month period ended June 30, 2022, explained further below.
Management compensation related to stock-based compensation increased by $11,708, in the six-month period ended June 30, 2022 compared to the six-month period ended June 30, 2021, as a result of the new common stock issued to the officers as stipulated in their executive consulting contracts, effective January 1, 2022. The total stock-based compensation valued at $240,450, based on the trading price of the shares on the effective date is being expensed over the year. And, the management compensation relating to fees increased by $52,811, from $182,924 in the six-month period ended June 30, 2021 to $235,735 in the six-month period ended June 30, 2022, the result of increased monthly fees, effective January 1, 2022.
Marketing expenses increased by $875,735, from $128,474 in the six-month period ended June 30, 2021 to $1,004,209 for the six-month period ended June 30, 2022, primarily the result of a new marketing campaign which commenced in Q3 of 2021.
Professional fees increased by $454,339, from $167,746 in the six-month period ended June 30, 2021 to $622,085 in the six-month period ended June 30, 2022. primarily due to increased estimated costs for the 2022 audit, review and tax related services. In addition, the Company engaged the services of a chartered professional accounting firm to assist management with various documentation and reporting matters. In addition, the Company incurred additional professional fees in connection with its S-1/A registration statement.
Interest expense increased by $48,091 from $332,860 in the six-month period ended June 30, 2021 to $380,951 in the six-month period ended June 30, 2022. This increase was primarily due to the increased 1st mortgage for the Company's waste processing and organic composting facility in the amount of $1,474,4000 (C$1,900,000), received in Q3 of 2021 and increases in the Company's borrowing rates which are impacted by changes in the prime rate of interest.
Office and administration expenses increased by $86,981, from $104,835 in the six-month period ended June 30, 2021 to $191,816 in the six-month period ended June 30, 2022. The increase included additional expenses incurred for the new facility under construction in Hamilton, Ontario, Canada, including security and other office expenses of $14,760, including website maintenance and improvements of $16,556, increased penalties and interest of 17,135, a request for payment in the amount of $29,490 from one of the Company's past garbage collection customers resulting from contract termination and the absence of a $30,000 IRS administrative credit.
Rent and occupancy increased by $47,672, from $68,919 in the six-month period ended June 30, 2021 to $116,591 in the six-month period ended June 30, 2022, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office and increased realty taxes for the Company's new facility under construction in Hamilton, Ontario, Canada.
Insurance increased by $32,050, from $31,387 in the six-month period ended June 30, 2021 to $63,437 in the six-month period ended June 30, 2022, primarily due to the new insurance on the Company's new facility under construction in Hamilton, Ontario, Canada.
Filing fees increased by $25,396, from $36,147 in the six-month period ended June 30, 2021 to $61,543 in the six-month period ended June 30, 2022, primarily due to costs associated with the special meeting of the shareholders on March 24, 2022, administrative costs incurred in the filing of the S-1 (and S-1/A) registration statement and an increase in investor relations activities.
40
The amortization of financing costs increased by $41,833, from $25,331 in the six-month period ended June 30, 2021 to $67,164 in the six-month period ended June 30, 2022, due to the additional financing fees incurred on the increased 1st mortgage, received in Q3 of 2021.
Directors' compensation increased nominally from $23,336 in the six-month period ended June 30, 2021 to $29,498 in the six-month period ended June 30, 2022, due to the full complement of independent directors in the current period.
Stock-based compensation increased by $260,505, from $36,282 in the six-month period ended June 30, 2021 to $296,787 in the six-month period ended June 30, 2022, as a result of significant new consulting services provided by several new service providers in 2022 and in the current period.
Repairs and maintenance decreased by $18,946, from $7,787 in the six-month period ended June 30, 2021 to a credit of $(11,159) in the six-month period ended June 30, 2022, due to absence of repairs at the Company's waste processing and organic composting facility and a credit on certain roofing repairs in the Company's Toronto, Ontario, Canada office.
The foreign exchange loss increased by $159,619, from income of $19,439 in the six-month period ended June 30, 2021 to an expense of $140,180 in the three-month period ended June 30, 2022, due primarily to the translation of significant United States dollar denominated transactions and balances during the period including the convertible promissory notes, compared to the prior period, during a period of the weakening of the Canadian dollar.
During the current six-month period ended June 30, 2022, the Company recorded a net expense for the revaluation and gain on extinguishment of its convertible promissory notes in the amount of $1,509,651 compared to $188,953 in the prior period ended June 30, 2021. In addition, in the prior period the Company record a gain on forgiveness of convertible promissory notes in the amount of $359,460, relating to convertible promissory notes issued in 2019 and a gain on disposal of long-lived assets in the amount of $45,349.
As at June 30, 2022, the Company had a working capital deficit of $17,084,363 (December 31, 2021-$13,651,619), incurred a net loss of $5,091,895 (March 31, 22021-$392,532) for the six months ended June 30, 2021 and had an accumulated deficit of $23,426,544 (December 31, 2021-$18,334,649) and expects to incur further losses in the development of its business.
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments instituted emergency measures as a result of COVID-19. The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.
The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
CRITICAL ACCOUNTING ESTIMATES
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, 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.
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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, 2021.
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.
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.
Convertible Promissory Notes
The Company has elected the fair value option to account for its convertible promissory notes issued during 2021 and 2022. 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 income (expense), in the interim condensed 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. These notes are measured at amortized cost.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
There were no new accounting pronouncements adopted during the six months ended June 30, 2022.
EQUITY
As at June 30, 2022, the Company had 102,587,799 common shares issued and outstanding. As at August 18, 2022, the Company had 105,737,799 common shares issued and outstanding.
STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
The Company has no stock options, warrants or restricted stock units outstanding as at June 30, 2022 and as of the date of this filing.
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RELATED PARTY TRANSACTIONS
For the three and six-month periods ended June 30, 2022, the Company incurred $94,008 (C$120,000) and $188,784 (C$240,000) (2021-$73,323; C$90,000 and $144,414; C$180,000) 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 $23,503 (C$30,000) and $47,196 (C$60,000) (2021-$19,552; C$24,000 and $38,510; C$48,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at June 30, 2022, unpaid remuneration and unpaid expenses in the amount of $125,946 (C$162,301) (December 31, 2021-$14,755; C$18,706) is included in accounts payable in the interim condensed consolidated balance sheets.
For the three and six-month periods ended June 30, 2022, the Company incurred $38,296 (C$48,806) and $61,802 (C$78,568) (2021-$24,287; C$29,858 and $45,452; C$56,653) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.
During the three and six-month periods ended June 30, 2022, Travellers converted a total of $nil (C$) and $nil (C$nil) respectively, (December 31, 2021-$371,001 (C$461,620) of loans provided during the period and $nil (C$) and $nil (C$nil) respectively, (December 31, 2021-$80,323; C$101,700) of accounts payable owing to Travellers for nil common shares (December 31, 2021-1,726,076 common shares).
In addition, during the three and six-month periods ended June 30, 2022, the Company paid the CFO interest of $nil (C$nil) and $502 (C$638) (2021-$nil; C$nil and $nil; C$nil), respectively on loans totaling $29,211 (C$36,000) provided to the Company and repaid during the three-month period ended March 31, 2022.
For those independent directors providing their services throughout 2022, the Company accrued directors' compensation for the three and six-month periods ended June 30, 2022 in the amount of $14,690 (C$18,750) and $29,498 (C$37, 500) respectively, (2021-$12,672; C$16,586 and $23,336; C$29,086) respectively. Also included in directors' compensation for the three-month and six-month periods ended June 30, 2022, is the audit committee chairman's fees, in the amount of $nil (C$) and $nil (C$nil) (2021-$(790); C$(1,000) and $nil; C$nil) respectively. As at June 30, 2022, outstanding directors' compensation of $98,316 (C$126,696) (December 31, 2021-$70,358; C$89,196) is included in accrued liabilities, in the interim condensed consolidated balance sheets.
In addition, during the three and six-month periods ended June 30, 2022, the Company accrued interest of $132 and $132 respectively, on the $40,000 loan provided by an independent director during the three-month period ended June 30, 2022. Refer also to note 12, loan payable to related party.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $23,280 (C$30,000) per month for twelve (12) months, beginning on the Effective Date, January 1, 2021, and at a rate of $31,040 (C$40,000) per month for twelve (12) months, beginning January 1, 2022. In addition, the Company agreed to grant the CEO 1,000,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date, and 1,000,000 shares of Common Stock on January 1, 2022. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
Pursuant to the terms of the CFO's Consulting Agreement for his services as the CFO, the compensation is at a rate of $6,208 (C$8,000) per month for twelve (12) months, beginning on the Effective Date, January 1, 2021. In addition, the Company agreed to grant the CFO 50,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO.
Pursuant to the terms of the CFO's Consulting Agreement for his services as the CFO, the compensation is at a rate of $7,760 (C$10,000) per month for twelve (12) months, beginning on the Effective Date, January 1, 2022. In addition, the Company agreed to grant the CFO 50,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO.
Furthermore, for the three and six-month periods ended June 30, 2022, the Company recognized management stock-based compensation expense of $60,113 and $120,226 (2021-$54,259 and $108,518) respectively, on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock, respectively, as stipulated in their executive consulting agreements, effective January 1, 2022. The total stock-based compensation on the issuance of the common stock totaled $240,450 (2021-$217,035). The portion to be expensed for the balance of the year, $120,224 (2021-$108,517 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets.
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We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Quarterly Report on Form 10-Q.
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective. 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 and the inability to initiate a proper assessment of the terms and conditions of the convertible promissory notes and their initial and subsequent measurement and a proper going concern assessment.
Notwithstanding these material weaknesses, management has concluded that the unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
During the six-month period ended June 30, 2022, management made a change to its internal controls over financial reporting by engaging the services of specialists to assist with the proper assessment of the terms and conditions of the convertible promissory notes and their initial and subsequent measurements.
PART II: OTHER INFORMATION
Item 1A. Legal Proceedings.
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount $50,627 (C$65,241). The amount is included in accounts payable on the Company's interim condensed consolidated balance sheets.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the six-month period ended June 30, 2022, the Company issued:
(i) 230,000 common shares for proceeds previously received.
(ii) 1,000,000 common shares issued to the CEO as stipulated in his 2021 executive consulting agreement and 50,000 common shares issued to the CFO as stipulated in his 2022 executive consulting agreement.
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(iv) 3,975,211 common shares on the extinguishment of existing debt.
(v) 895,000 common shares were issued for professional services.
(vi) 10,000 common shares issued to an employee.
(vii) The Company raised $450,560, net of share issue costs of $1,440, on a private placement for 1,444,041 common shares at issue prices ranging between $0.30 and $0.45 per share.
The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
On August 16, 2022, the Company was sent a notice of default from the investor regarding their October 29, 2021 promissory note, the March 3, 2022 promissory note, and the March 7, 2022 promissory note. The default was caused by the promissory notes not being repaid on or before the August 15, 2022 maturity date of the notes. The notice of default allows for a cure period of 5 trading days. The Company is in discussions with the investor to cure the notice of default.
The October 29, 2021 promissory note is in the principal amount of $1,471,000. If the default is not cured, the interest rate on the October 2021 Investor Note will immediately accrue at 24% per annum and be paid in cash monthly to the investor, until the default is cured. In addition, the note conversion price will be reset to 85% of the lowest volume weighted average price for the ten consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date.
The March 3, 2022 and March 7, 2022 promissory notes are in a total principal amount of $2,400,000. If the default is not cured, the principal amount will increase to 120% of the original principal amounts. The investors are entitled to, following an event of default, to convert all or any amount of the principal and any interest accruing at the default interest rate of 24% per annum into Common Stock, at a conversion price equal to 65% (representing a 35% discount) multiplied by the price per share of the Common Stock at any national security exchange or over-the-counter marketplace for the five (5) trading days immediately prior to the notice of conversion.
Item 6. Exhibits.
The following exhibits are filed as part of this quarterly report on Form 10-Q:
* Filed herewith
+ In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
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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. | ||
| August 22, 2022 | By: | /s/ Marc Hazout |
| Marc Hazout | ||
| Executive Chairman, President and Chief Executive Officer | ||
| August 22, 2022 | By: | /s/ Ike Makrimichalos |
| Ike Makrimichalos | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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Exhibit 31.1
CERTIFICATION
I, Marc Hazout, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SusGlobal Energy Corp. (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Company's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
| Date: August 22, 2022 | ||
| By: | /s/ Marc Hazout | |
| Marc Hazout | ||
| Executive Chairman, President and Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Ike Makrimichalos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SusGlobal Energy Corp. (the "Company");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Company's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
| Date: August 22, 2022 | ||
| By: | /s/ Ike Makrimichalos | |
| Ike Makrimichalos | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting 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
In accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Marc Hazout, the Chief Executive Officer of SusGlobal Energy Corp. (the "Registrant"), and Ike Makrimichalos, the Chief Financial Officer of the Registrant, each hereby certifies that, to the best of his knowledge:
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1. |
The Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2022, to which this Certification is attached as Exhibit 32.1 (the "Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
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|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end of the period covered by the Report and results of operations of the Registrant for the periods covered by the Report. |
Date: August 22, 2022
| By: | /s/ Marc Hazout |
| Marc Hazout | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| By: | /s/ Ike Makrimichalos |
| Ike Makrimichalos | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |