SusGlobal Energy Corp 10-Q for FY2024 Q1
SusGlobal Energy Corp. (SNRG)
About this 10-Q
SusGlobal Energy Corp filed this 10-Q on June 7, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $38.58K
- down 76.6% from $164.69K a year earlier
- Net loss
- $1.53M
- compared with a net loss of $1.04M a year earlier
- Diluted EPS
- -$0.01
- compared with -$0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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For the quarterly period ended
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For the transition period from ________________to ________________
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Securities registered pursuant to Section 12(b) of the Act:
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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).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
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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 [ ] No [
The number of shares of the registrant's common stock outstanding as of June 7, 2024 was
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SusGlobal Energy Corp.
INDEX TO FORM 10-Q
For the Three-Month Periods Ended March 31, 2024 and 2023
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SUSGLOBAL ENERGY CORP.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
CONTENTS
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SusGlobal Energy Corp.
Interim Condensed Consolidated Balance Sheets
As at March 31, 2024 and December 31, 2023
(Expressed in United States Dollars)
(unaudited)
| March 31, 2024 | December 31, 2023 | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | $ | $ | ||||
| Trade receivables | ||||||
| Government remittances receivable | ||||||
| Prepaid expenses and deposits (note 6) | ||||||
| Total Current Assets | ||||||
| Long-lived Assets, net (note 7) | ||||||
| Long-Term Assets | ||||||
| Total Assets | $ | $ | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||
| Current Liabilities | ||||||
| Accounts payable (note 8) | $ | $ | ||||
| Government remittances payable | ||||||
| Accrued liabilities (notes 8, 9, 10 and 13) | ||||||
| Current portion of long-term debt (note 9) | ||||||
| Current portion of obligations under capital lease (note 10) | ||||||
| Convertible promissory notes (note 11)-in default | ||||||
| Loans payable to related parties (note 13) | ||||||
| Total Current Liabilities | ||||||
| Stockholders' Deficiency | ||||||
| Preferred stock, $ |
||||||
| Additional paid-in capital | ||||||
| Accumulated deficit | ( |
) | ( |
) | ||
| Accumulated other comprehensive income (loss) | ( |
) | ||||
| Stockholders' deficiency | ( |
) | ( |
) | ||
| Total Liabilities and Stockholders' Deficiency | $ | $ | ||||
| Going concern (note 2) | ||||||
| Commitments (note 15) | ||||||
| Subsequent events (note 19) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three-month periods ended March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
| For the three-month periods ended |
||||||
| March 31, 2024 | March 31, 2023 | |||||
| Revenue | $ | $ | ||||
| Cost of Sales | ||||||
| Opening inventory | ||||||
| Depreciation | ||||||
| Direct wages and benefits | ||||||
| Equipment rental, delivery, fuel and repairs and maintenance | ||||||
| Utilities | ( |
) | ||||
| Outside contractors | ||||||
| Less: closing inventory | ( |
) | ||||
| Total cost of sales | ||||||
| Gross loss | ( |
) | ( |
) | ||
| Operating expenses | ||||||
| Management compensation-stock- based | ||||||
| compensation (notes 8 and 14) | ||||||
| Management compensation-fees (note 8) | ||||||
| Marketing | ||||||
| Professional fees | ||||||
| Interest expense (notes 8, 9, 10 and 13) | ||||||
| Office and administration (note 8) | ||||||
| Rent and occupancy (note 8) | ||||||
| Insurance | ||||||
| Filing fees | ||||||
| Amortization of financing costs | ||||||
| Directors' compensation (note 8) | ||||||
| Stock-based compensation (note 14) | ||||||
| Repairs and maintenance | ||||||
| Foreign exchange loss (income) | ( |
) | ||||
| Total operating expenses | ||||||
| Net loss from operating activities | ( |
) | ( |
) | ||
| Other (expense) income (note 16) | ( |
) | ||||
| Net loss | ( |
) | ( |
) | ||
| Other comprehensive (loss) | ||||||
| Foreign exchange income (loss) | ( |
) | ||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) |
| Net loss per share-basic and diluted | $ | ( |
) | $ | ( |
) |
| Weighted average number of common shares outstanding- basic and diluted | ||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency
For the three-month periods ended March 31, 2024 and 2023
(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, 2023 | $ | $ | $ | - | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| Shares issued on conversion of related party debt | - | - | - | ||||||||||||||||||
| Cancellation of shares for professional services | ( |
) | ( |
) | - | - | - | ||||||||||||||
| Other comprehensive loss | - | - | - | - | - | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||
| Balance-March 31, 2024 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||
| Balance-December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||
| Shares issued for proceeds previously received | ( |
) | - | - | |||||||||||||||||
| Shares issued to officers | - | - | - | ||||||||||||||||||
| Shares issued to employee | - | - | - | ||||||||||||||||||
| Shares issued to director | - | - | - | ||||||||||||||||||
| Shares issued on conversion of debt to equity | - | - | - | ||||||||||||||||||
| Shares issued for professional services | - | - | - | ||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||
| Net loss | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||
| Balance-March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Cash Flows
For the three-month periods ended March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
| For the three-month period ended March 31, 2024 |
For the three-month period ended March 31, 2023 |
|||||
| Cash flows from operating activities | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
| Adjustments for: | ||||||
| Depreciation | ||||||
| Amortization of financing fees | ||||||
| Stock-based compensation | ||||||
| Loss on conversion of convertible promissory notes | ||||||
| Loss (gain) on revaluation of convertible promissory notes | ( |
) | ||||
| Gain on forgiveness of long-term debt | ( |
) | ||||
| Changes in non-cash working capital: | ||||||
| Trade receivables | ( |
) | ||||
| Government remittances receivable | ( |
) | ||||
| Inventory | ( |
) | ||||
| Prepaid expenses and deposits | ( |
) | ( |
) | ||
| Accounts payable | ||||||
| Government remittances payable | ( |
) | ||||
| Accrued liabilities | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| Cash flows from financing activities | ||||||
| Advances of long-term debt | ||||||
| Repayment of long-term debt | ( |
) | ( |
) | ||
| Financing fee on long-term debt | ( |
) | ||||
| Repayments of obligations under capital lease | ( |
) | ( |
) | ||
| Financing fee on loans payable to related parties | ( |
) | ||||
| Advances of loans payable to related parties | ||||||
| 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 and restricted cash-end of period | $ | $ | ||||
| Supplemental Cash Flow Disclosure: | ||||||
| Interest paid | $ | $ | ||||
| Supplemental Non-Cash Disclosure: | ||||||
| Common stock issued at fair value for conversion of debt | $ | $ | ||||
|
Cancellation of common stock |
$ | |||||
| Shares issued for prepaid services | $ | $ |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(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 exchange, under the ticker symbol SNRG.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp. ("SECC"), SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SGEBL"), 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 November 3, 2023, the funds previously held in escrow, which related to a full and final mutual release of all obligations owing to PACE, including accrued interest, in the amount of $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(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 its creditors, and upon achieving profitable operations through revenue growth. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
These 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 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, 2023 and 2022 and their accompanying notes.
4. Recently Issued Accounting Pronouncements
Accounting Pronouncements Recently Adopted
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
There were no new accounting pronouncements issued and not yet adopted that were expected to have a material impact on the Company's interim condensed consolidated financial position or results of operations in the current or future periods.
5. 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, convertible promissory notes and loans payable to related parties 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 not exposed to significant interest rate risk on its long-term debt as at March 31, 2024 and December 31, 2023.
Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at March 31, 2024, the Company's credit risk is primarily attributable to cash and trade receivables. As at March 31, 2024, the Company's cash was held with a reputable Canadian chartered bank and a United States of America bank.
With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at March 31, 2024 and December 31, 2023, there was no allowance for doubtful accounts.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
5. Financial Instruments, (continued)
As at March 31, 2024, the Company is exposed to concentration risk as it had
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 repay its 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. To continue operations, the Company will need to raise capital, and complete the refinancing of its real property and organic waste processing and composting facility (the "Belleville 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 March 31, 2024, $
6. Prepaid Expenses and Deposits
Included in prepaid expenses and deposits are costs, primarily for professional services to be expensed as stock-based compensation after March 31, 2024, in the amount of $
7. Long-lived Assets, net
| March 31, 2024 | December 31, 2023 | |||||||||||
| Cost | Accumulated depreciation |
Net book value | Net book value | |||||||||
| Land | $ | $ | $ | $ | ||||||||
| Property under construction | ||||||||||||
| Composting buildings | ||||||||||||
| Gore cover system | ||||||||||||
| Driveway and paving | ||||||||||||
| Signage | ||||||||||||
| Automotive equipment | ||||||||||||
| $ | $ | $ | $ |
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
7. Long-lived Assets, net, (continued)
Depreciation for the three-month period ended March 31, 2024, is disclosed in cost of sales in the amount of $
8. Related Party Transactions
For the three-month period ended March 31, 2024, the Company incurred $
For the three-month period ended March 31, 2024, the Company incurred $
In addition, on January 11, 2024, Travellers converted $
For the independent directors, the Company recorded directors' compensation during the three months ended March 31, 2024 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 $
Furthermore, for the three-month period ended March 31, 2024, the Company recognized management stock-based compensation expense of $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
9. Long-Term Debt
| March 31, 2024 | December 31, 2023 | ||||||
| (a)i) | Mortgage Payable-due June 1, 2024 | $ | $ | ||||
| (a)ii) | Mortgage Payable-due March 1, 2024 | ||||||
| (a)iii) | Mortgage Payable-due November 2, 2025 | ||||||
| (a)iv) | Mortgage Payable-due November 2, 2024 | ||||||
| (a)v) | Mortgage Payable-due December 14, 2024 | ||||||
| (b) | Canada Emergency Business Account-Due January 18, 2024 | ||||||
| (c) | Corporate Term Loan-Due April 7, 2025 | ||||||
| Current portion | ( |
) | ( |
) | |||
| Long-Term portion | $ | $ | |||||
Refer also to going concern, note 2.
(a) i) On December 1, 2023, this 1st mortgage was renewed with a new maturity date of June 1, 2024 and a fixed interest rate of
ii) On March 1, 2023, the Company obtained a 2nd mortgage in the amount of $
iii) On November 2, 2023, the Company completed the purchase of additional land, consisting of a
iv) In connection with the purchase of additional land noted above under paragraph (a) iii) above, a 2nd mortgage was obtained in the amount of $
v) On December 14, 2023, the Company made arrangements to repay the previous 1st mortgage on the first property purchased in Hamilton, Ontario, Canada on August 17, 2021, for a new 1st mortgage in the amount of $
For the three-month period ended March 31, 2024, $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
9. Long-Term Debt, (continued)
(b) As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
These CEBA loans were repaid on January 9, 2024 and January 11, 2024, in total $
(c) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $
For the three-month period ended March 31, 2024, $
10. Obligations under Capital Lease
| March 31, 2024 | December 31, 2023 | |||||
| Total | Total | |||||
| Obligations under Capital Lease | $ | $ | ||||
| Less: current portion | ( |
) | ( |
) | ||
| Long-term portion | $ | $ |
Refer also to going concern, note 2.
The lease agreement for certain equipment for the Company's Belleville Facility at a cost of $
The lease liability was secured by the equipment under capital lease as previously described under long-lived assets, net (note 7).
Minimum lease payments as per the original terms of the obligations under capital lease are as follows:
| In the nine-month period ending December 31, 2024 | $ | ||
| In the year ending December 31, 2025 | |||
| Less: imputed interest | ( |
) | |
| Total | $ |
For the three-month period ended March 31, 2024, $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
11. Convertible Promissory Notes
| March 31, 2024 | December 31, 2023 | ||||||
| (a) | Convertible promissory note-October 28 and 29, 2021 | $ | $ | ||||
| (b) | Convertible promissory note-March 3 and 7, 2022 | ||||||
| (c) | Convertible promissory note- June 23, 2022 | ||||||
| $ | $ |
The convertible promissory notes are accounted for under the fair value option in the consolidated balance sheets. The actual principal outstanding on the balance of the notes as at March 31, 2024 is $
(a) On October 28 and 29, 2021, the Company entered into two securities purchase agreement (the "October 2021 SPAs) with two investors (the "October 2021 Investors") pursuant to which the Company issued to the October 2021 Investors two
The maturity date of the October 2021 Investor Notes is the earlier of (i) July 28 and 29, 2022 and (ii) the occurrence of a Liquidity Event, as described above (the "Maturity Date"). Upon the occurrence of a Liquidity Event, the October 2021 Investors are entitled to convert all or a portion of their October 2021 Investor Notes including any accrued and unpaid interest at a conversion price (the "Conversion Price") equal to
Upon the occurrence of an event of default, the interest rate on the October 2021 Investor Notes will immediately accrue at
On May 11, 2022, the holder of the October 29, 2021, investor note, provided an amendment for an optional conversion of his investor notes. The conversion price was amended to be (i) the product of the Liquidity Event price multiplied by the discount of
On August 16, 2022, the Company was sent a notice of default from one of the October 2021 Investors, whose investor note was issued on October 29, 2021. On September 15, 2022, the Company and the investor of the October 2021 investor note entered into an amendment to the October 2021 investor note which served as a cure to the previously issued default notice.
Pursuant to the September 15, 2022 amendment, the Company and the October 29, 2021 investor, agreed that the outstanding principal amount of the October 29, 2021 investor note would increase by
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
11. Convertible Promissory Notes, (continued)
As a result of the default on November 15, 2022, the Company was informed that the October 29, 2021 investor will now be accruing interest at the default rate of
Further, the October 29, 2021 investor agreed not to convert more than $
On September 21, 2022 and November 10, 2022, the October 29, 2021 investor issued conversion notices to the Company and the Company issued
On December 22, 2022, the October 28, 2021 investor, whose October 28, 2021 investor note had a previous Principal Amount of $
Previously, the conversion price was a
On June 8, 2023, the October 29, 2021 investor's counsel sent the Company a notice of default on the October 29, 2021 investor note and the March 2022 Investor Notes, described below. The default was caused by the holders of these promissory notes not being able to receive shares of the Company's common stock, par value $
During the year ended December 31, 2023, the October 29, 2021 investor provided the Company with notices of conversion to convert in total $
The Company initially reserved
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
11. Convertible Promissory Notes, (continued)
(b) 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 35% (previously
Further, on June 29, 2022, the March 2022 Investors revised their March 2022 Investor Notes, to extend the maturity date to August 15, 2022 and increase the principal amount of each of the March 2022 Investor Notes by twenty percent (
On August 16, 2022, the Company was sent notices of default from the March 2022 Investors. And, on September 15, 2022, the Company and the March 2022 Investors entered into an amendment to the March 2022 Investor Notes which served as a cure to the previously issued default notices.
Pursuant to the September 15, 2022 amendment, the Company and the March 2022 Investors agreed that the outstanding principal amount totaling $
Further, in the event that the October 29, 2021 investor note has been fully converted and the conversion shares sold, thereafter, the March 2022 Investor Notes may both be converted at the March 2022 Investors' discretion on a pari-passu basis, provided, however, that no conversion shall exceed $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
11. Convertible Promissory Notes, (continued)
As noted above, on June 8, 2023 the counsel for the March 2022 Investors provided the Company with a notice of default. This resulted in the principal balance of the March 2022 Investor Notes increasing in principal from $
(c) On June 23, 2022, the Company executed one convertible promissory note (the "June 2022 Investor Note") with an investor (the "June 2022 Investor") in the amount of $
The June 2022 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default ('Event of Default"), as defined in the June 2022 Investor Note, with interest accruing at the default interest rate of
On December 29, 2022, the Company and the investor agreed to extend the maturity date to the earlier of June 23, 2023, or the occurrence of a Liquidity Event. In consideration for the extension of the maturity date, the Company agreed to: (i) increase the principal amount to $
On June 29, 2023, the June 2022 Investor provided a 45-day extension of the June 2022 Investor Note in exchange for an increase in the principal balance of the June 2022 Investor Note of $
The Company initially reserved
Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
11. Convertible Promissory Notes, (continued)
The convertible promissory notes described above, contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.
During the three-month period ended March 31, 2024, the Company issued
Refer also to going concern, note 2.
Fair value option for the convertible promissory notes
The Company is eligible to elect the fair value option under ASC 825, Financial Instruments and bypass analysis of the potential embedded derivative features described above. The Company believes that the fair value option better reflects the underlying economics of the convertible promissory notes issued after December 31, 2020. As a result, the 2021 and 2022 promissory notes were recorded at fair value upon issuance and subsequently remeasured at each reporting date until settled or converted. The Company recognized the notes initially at fair value, which exceeded the proceeds received resulting in a day one loss that has been recognized in net loss.
Any transaction and other issuance costs have been expensed as incurred. Subsequently, the Company recognizes the notes at fair value with changes in net loss.
Gains and losses attributable to changes in credit risk were insignificant during the three-month periods ended March 31, 2024 and 2023. The Company recognized a loss of $
12. 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 as at March 31, 2024 and December 31, 2023 Using: | |||||||||
| Level 3 | March 31, 2024 | December 31, 2023 | |||||||
| Assets: | $ | $ | $ | ||||||
| Liabilities: | |||||||||
| Convertible promissory notes | |||||||||
| $ | $ | $ | |||||||
During each of the three-month periods ended March 31, 2024 and 2023, there were no transfers between Level 1, Level 2, or Level 3. There were no financial assets or other liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.
The following table summarizes the change in Level 3 financial instruments during the three-month period ended March 31, 2024 and December 31, 2023.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
12. Fair Value Measurement, (continued)
| March 31, 2024 | December 31, 2023 | |||||
| Fair value at December 31, 2023 | $ | $ | ||||
| Amendments | ||||||
| Conversions/repayments | ( |
) | ||||
| Mark to market | ||||||
| Fair value at March 31, 2024 and December 31, 2023 | $ | $ |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value of the convertible promissory notes at issuance and subsequent financial reporting dates was estimated based on significant inputs not observable in the market, which represent level 3 measurements within the fair value hierarchy.
The fair value of the convertible promissory notes at issuance and at each reporting period was estimated based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a scenario-based binomial model to estimate the fair value of the convertible promissory notes. The model determines the fair value from a market participant's perspective by evaluating the payouts under hold, convert, or call decisions. The most significant estimates and assumptions used as inputs are those concerning type, timing and probability of specific scenario outcomes. Specifically, the Company assigned a probability of default, which would increase the required payout as described in Note 12 and calculated the fair value under each scenario.
At the issuance dates of the convertible promissory notes, the probability of default ("PD") was assumed to be
Other significant unobservable inputs include the expected volatility and the credit spread. The expected volatility was based on the historical volatility over a look-back period that was consistent with the balance-remaining term of the instruments. A value of
13. Loans Payable to Related Parties
| March 31, 2024 | December 31, 2023 | |||||
| Directors | $ | $ | ||||
| CFO | ||||||
| Haute Inc. | ||||||
| Total | $ | $ |
The loans owing to directors were received by the Company on June 6, 2022 and March 16, 2023, are unsecured, bearing interest at
The loan from the CFO was provided on March 15, 2024, is unsecured and non-interest bearing.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
13. Loans Payable to Related Parties, (continued)
On December 5, 2023, the Company received a loan from Haute Inc., in the amount of $
On January 9, 2024, the Company received a loan from Haute Inc., in the amount of $
During the three-month period ended March 31, 2024, $
In addition, on January 11, 2024, Travellers converted $
During the three-month period ended March 31, 2024, Travellers, converted a total of $
14. Capital Stock
As at March 31, 2024, the Company had
On January 11, 2024, Travellers converted $
For the three-month period ended March 31, 2024, the Company issued
For the three-month period ended March 31, 2024, the Company issued
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
14. Capital Stock, (continued)
On January 3, 2023, the Company issued
Furthermore, on January 3, 2023, the Company issued
As at March 31, 2024, the Company recorded a balance of $
15. Commitments
a) Effective January 1, 2023, new executive consulting agreements were finalized for the services of the CEO and the CFO, for two years and one year, respectively. The CEO's monthly fee was $
| For the nine-month period ending December 31, 2024 | $ |
b) The Company has agreed to lease its office premises from Haute on a month-to-month basis, at the monthly rate of $
c) Effective February 3, 2021, upon the successful completion of a Nasdaq listing, the Company has committed a payment of $
d) On November 5, 2021, the Company committed to the design and construction of its Hamilton, Ontario, Canada facility (the "Hamilton Facility"), including architectural and general contracting fees in the amount of $
e) Effective November 1, 2022, the Company acquired the exclusive rights to the use of a well-known athlete's name, endorsement and the like, for the purposes of advertisement, promotion and sale of the Company's products. In return, the Company issued
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
15. Commitments, (continued)
• $
• $
• $
There is also an arrangement to issue
f) The Company was assigned the land lease on the purchase of certain assets of Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP on September 15, 2017. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $
| For the nine-month period ending December 31, 2024 | $ | ||
| For the year ending December 31, 2025 | |||
| $ |
Up until September 30, 2023, PACE had provided the Company a letter of credit in favor of the MECP in the amount of $
The current letter of credit required by the MEC is $
The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's Belleville Facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company has engaged an environmental consulting firm to re-evaluate the financial assurance with the MECP which is based on the estimated environmental remediation and clean-up costs for its waste processing and composting facility. As a result of inspections carried out by the MECP during the prior years, some of which have resulted in MECP orders having been issued, the Company has accrued estimated and actual costs for corrective measures in orders issued by the MECP $
16. Other (Expense) Income
| March 31, 2024 | March 31, 2023 | |||||
| (a) Loss on conversion of convertible promissory note | $ | $ | ( |
) | ||
| (b) (Loss) gain on revaluation of convertible promissory notes | ( |
) | ||||
| (c) Gain on forgiveness of CEBE loans | ||||||
| $ | ( |
) | $ |
(a) As described under convertible promissory notes, note 11(a), the loss is on three conversions of the October 29, 2021 investor note during the three-month period ended March 31, 2023.
(b) (Loss) gain on revaluation of convertible promissory notes. Refer also to convertible promissory notes, note 11.
(c) The gain on forgiveness is the result of repaying the required portion of the CEBA loans within the time period to allow for a forgiven amount of $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
17. Economic Dependence
The Company generated
18. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition, or cash flows, except as follows:
The Company has a claim against it for unpaid legal fees in the amount of $
On October 4, 2023, an action was launched by one of the October 2021 Investors, who claimed he was owed $
On November 27, 2023 and March 6, 2024, the Company experienced an outflow of leachate impacted water from its stormwater pond into the City of Belleville's roadside ditch. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
The Company has a claim against it for unpaid hydro bills in the amount of $
In addition, on November 17, 2023, the Company received an amended claim filed against it from 2023 by Tradigital in the sum of $
Refer also to subsequent events, note 19(a).
19. 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 April 1, 2024, the Company received notice of a complaint filed against it by one of the March 2022 Investors, seeking damages of no less than $
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
March 31, 2024 and 2023
(Expressed in United States Dollars)
(unaudited)
19. Subsequent Events, (continued)
(b) On April 2, 2024, the Company received funds in the amount of $
(c) On April 15, 2024, the Company received proceeds of $
(d) On May 16, 2024, the Company was informed by its Canadian legal counsel that the City of Belleville, Ontario, Canada (the "City"), issued an order against the Company's Belleville Facility, its numbered company, 1684567 and its officers for the repayment of the cost of pumping out contaminated water from the City's roadside ditch, along with legal and other associated costs. On May 31, 2024, the companies and the officers filed notices of appeal to the Ontario Land Tribunal.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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, 2023 filed with the Securities and Exchange Commission on May 15, 2024.
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-month period ended March 31, 2024 compared with the three-month period ended March 31, 2023 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 AUDITORS ISSUED OPINIONS 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, 2023 AND 2022. 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:
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| 26 |
On February 4, 2019, the Company registered its common stock, having a par value of $.0001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is effective pursuant to General Instruction A.(d).
SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada, at 200 Davenport Road. Our telephone number is 416-223-8500. Our website address is www.susglobalenergy.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are all available, free of charge, on our website as soon as practicable after we file the reports with the Securities and Exchange Commission (the "SEC"). SusGlobal Energy Corp., a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.
On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 12, 2017.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
When the terms "the Company," "we," "us" or "our" are used in this document, those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., SusGlobal Energy Hamilton Ltd., and 1684567 Ontario Inc.
On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.
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As the global amount of organic waste continues to grow, a solution for sustainable global management of these wastes is paramount. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of three distinct types of technologies: (a) Process Source Separated Organics ("SSO") in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas. (b) Maximizing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield. (c) and (c) process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewables. These products can be converted into electricity, fuels and marketed to agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces Greenhouse Gas Emissions ("GHG") that result from landfilling organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy®.
We believe the products and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management, Composting and Liquid Fertilizers.
The Company can provide a full range of services for handling organic residuals in a period where innovation and sustainability are paramount. From start to finish we offer in-depth knowledge, a wealth of experience and cutting-edge technology for handling organic waste.
The primary focus of the services SusGlobal provides includes integrating our technologies with capital investment to optimize the processing of SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant GHG reductions from waste disposal. The processes produce regenerative products through the conversion of organic wastes into organic fertilizer, both dry compost and liquid.
Currently, the primary customers are municipalities in both rural and urban centers in Ontario, Canada. Where necessary, to follow provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
We are a "smaller reporting company," as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until (i) our public float exceeds $250 million on the last day of our second fiscal quarter in our prior fiscal year (if our annual revenues exceeded $100 million in such prior fiscal year); or (ii) our public float exceeds $700 million on the last day of our second fiscal quarter in our prior fiscal year (if our annual revenues were less than $100 million in such prior fiscal year).
RECENT BUSINESS DEVELOPMENTS
As noted below, the Company's composting facility, near Belleville, Ontario, Canada (the "Belleville Facility"), ceased accepting waste after January 10, 2024 and continues to seek funding or re-financing to remediate the compliance matters in an effort to begin accepting waste again before the end of the current year.
On May 16, 2024, the Company was informed by its Canadian legal counsel that the City of Belleville, Ontario, Canada (the "City"), issued an order against the Company's Belleville Facility, its numbered company, 1684567 and its officers for the repayment of the cost of pumping out contaminated water from the City's roadside ditch, along with legal and other associated costs. On May 31, 2024, the companies and the officers filed notices of appeal to the Ontario Land Tribunal.
On or around November 27, 2023 and March 6, 2024, the Company experienced an outflow of contaminated water from its stormwater pond at its Belleville Facility, which spilled over into the City of Belleville's roadside ditch and has continued to periodically overflow. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the Ministry of the Environment, Conservation and Parks from the Province of Ontario (the "MECP").
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As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take several months to complete, will require significant investment, and are dependent on the Company securing funding. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's Belleville Facility.
Consulting Contracts
The Company entered into an Executive Chairman Consulting Agreement (the "CEO's Consulting Agreement"), by and among the Company, Travellers International Inc. ("Travellers"), and the CEO, who is also a director, the Executive Chairman and President of the Company, effective January 1, 2023 (the "Effective Date"). The CEO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation was at a rate of $29,520 (C$40,000) per month for twelve (12) months, beginning on the Effective Date, and at a rate of $36,900 (C$50,000) per month for twelve (12) months, beginning January 1, 2024. In addition, the Company agreed to grant the CEO 3,000,000 restricted shares of the Company's common stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. This common stock was issued on January 3, 2023. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
The CEO's Consulting Agreement is for a term of twenty-four (24) months. Upon a Constructive Discharge (as defined in the CEO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CEO will be entitled to a compensation of twelve (12) months' fees, as well as any bonus compensation owing.
The Company also entered into an Executive Consulting Agreement (the "CFO Consulting Agreement"), by and between the Company and the CFO of the Company, effective January 1, 2023. Pursuant to the terms of the CFO Consulting Agreement, the CFO is entitled to fees of $9,225 (C$12,500) per month for twelve (12). In addition, the Company has also agreed to grant the CFO 100,000 restricted shares of the Company's common stock, par value of $0.0001 per share on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO. This common stock was issued on January 3, 2023. The CFO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
The CFO's Consulting Agreement is for a term of twelve (12) months. Upon a Constructive Discharge (as defined in the CFO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CFO will be entitled to a compensation of two (2) months' fees, as well as any bonus compensation owing.
Financings
(a) Securities Purchase Agreements
At March 31, 2024, the Company had and currently has 5 security purchase agreements outstanding with 4 investors which are currently in default. The outstanding principal balance at March 31, 2024 of the convertible promissory notes was $7,728,440, including accrued interest of $1,518,280 and with a fair value of $10,653,510.
Please refer to the interim condensed consolidated financial statements, convertible promissory notes, note 11 and fair value measurement, note 12 for details on the convertible promissory notes.
(b) Mortgages
(i) On December 1, 2023, this 1st mortgage was renewed with a new maturity date of June 1, 2024 and a fixed interest rate of 13% per annum. On renewal, the 1st mortgage was increased by $307,215 (C$416,280), from $3,837,600 (C$5,200,000) to $4,144,815 (C$5,616,280), to account for increased interest based on the previous variable rate, three months of prepaid interest and a financing fee. The 1st mortgage is secured by the shares held of 1684567, a 1st mortgage on the premises located at the Belleville Facility and a general assignment of rents. Financing fees on the 1st mortgage totaled $344,342 (C$455,419). As at March 31, 2024 $134,337 (C$182,029) (December 31, 2023-$44,555; C$58,928) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at March 31, 2024 there is $12,579 (C$17,044) (December 31, 2023-$32,764; C$43,333) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.
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(ii) On March 1, 2023, the Company obtained a 2nd mortgage in the amount of $1,107,000 (C$1,500,000) bearing interest at the annual rate of 12%, repayable monthly, interest only with a maturity date of March 1, 2024, secured as noted under paragraph (a)(i) above. The Company incurred financing fees of $44,280 (C$60,000). As at March 31, 2024 $10,919 (C$14,795) (December 31, 2023-$11,187; C$14,795) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at March 31, 2024, there is $nil (C$nil) (December 31, 2023-$7,457 (C$9,863) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.
(iii) On November 2, 2023, the Company completed the purchase of additional land, consisting of a 2.03-acre site in Hamilton, Ontario, Canada for $2,287,800 (C$3,100,000), prior to an additional disbursement of $43,155 (C$58,475) representing land transfer tax. The Company obtained vendor take-back mortgage in the amount of $1,476,000 (C$2,000,000) bearing interest at 7% annually, payable monthly, interest only and maturing November 2, 2025. An additional mortgage, as noted below under paragraph iv), was arranged to complete the purchase. As at March 31, 2024 $8,209 (C$11,123) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
(iv) In connection with the purchase of additional land noted above under paragraph (a) iii) above, a 2nd mortgage was obtained in the amount of $774,900 (C$1,050,000) bearing interest at 13% annually, payable monthly interest only and secured by a 3rd mortgage on the property in Belleville, Ontario, Canada.
(v) On December 14, 2023, the Company made arrangements to repay the previous 1st mortgage on the first property purchased in Hamilton, Ontario, Canada on August 17, 2021, for a new 1st mortgage in the amount of $1,648,174 ($C2,233,298) with new creditors. The original 1st mortgage was a vendor take back mortgage.
For the year three-month period ended March 31, 2024 $262,113 (C$353,537) (2023-$114,457; C$154,797) in interest was incurred on the mortgages payable.
(c) Other Financings
(i) 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.
These CEBA loans were repaid on January 9, 2024 and January 11, 2024, in total $51,660 (C$70,000) and $22,140 (C$30,000) was forgiven as outlined in the CEBA term loan agreements. The forgiven amount is recorded under other expenses (income) in the interim condensed consolidated statements of operations and comprehensive loss.
(ii) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $161,133 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $147,600 (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 $3,617 (C$4,901) due April 7, 2025.
For the three-month period ended March 31, 2024, $587 (C$792) (2023- $781; C$1,057) in interest was incurred.
(iii) On April 2, 2024, the Company received funds in the amount of $144,669 (C$196,028), on a 4th mortgage for the Belleville Facility and a 3rd mortgage on the additional land Hamilton, Ontario, Canada in the amount of $238,954 (C$323,786) net of unpaid interest, a financing fee and six months of capitalized interest, on the Company's Belleville Facility. A further sum of $24,354 (C$33,000) was advanced on May 27, 2024 and May 29, 2024 and added to the principal amount of this mortgage. On May 30, 2024, an additional amount was negotiated and this mortgage increased by a further $31,892 (C$43,214). This amended mortgage will now have a principal balance of $295,200 (C$400,000).
(iv) On April 15, 2024, the Company received proceeds of $100,500, net of an original issue discount of 10% and disbursements on a new convertible promissory note in the principal amount of $120,000. And, on May 31, 2024, the Company received a further $10,000 from this convertible promissory note investor. And, on May 23, 2024, the investor amended the convertible promissory note by increasing the principal by $12,223, resulting in proceeds to the Company of $10,000, net of an original issue discount of 10% and disbursements of $1,000.
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(d) Financings Related to Obligations Under Capital Lease
There were no new capital leases entered into by the Company during the three-month period ended March 31, 2024.The original terms of the obligations under capital lease outstanding at March 31, 2024 is noted below.
(i) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $287,562 (C$389,650), is payable in monthly blended installments of principal and interest of $5,057 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $14,354 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $74 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.
For the three-month period ended March 31, 2024, $558 (C$752) (2023-$1,052; C$1,423) in interest was incurred.
Operations
The Company owns Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 metric tonnes ("MT") of waste annually from the provinces of Ontario, Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 MT of waste annually. Once built, the location of the waste transfer station will be alongside the Organic and Non-Hazardous Waste Processing and Composting Facility which is currently operating in Belleville, Ontario, Canada.
Waste Transfer Station- Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility- As noted above, the Company's Belleville Facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the asset purchase agreement (the"APA"). The Company charges tipping fees for the waste accepted at the Belleville Facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, SSO, leaf and yard, food, liquid, paper sludge and biosolids. During the three-month period ended March 31, 2024, tipping fees ranged from $51 (C$69) to $118 (C$159) per MT.
The Company owns a 41,535 square foot facility (approximately 27% complete) on 5.29 acres in Hamilton, Ontario (the "Hamilton Facility"), which includes the additional land purchased November 2, 2023 and which includes an Environmental Compliance Approval to process 65,884 MT per annum of organic waste, 24 hours per day 7 days a week. The Hamilton Facility has been designed to produce, distribute and warehouse the Company's SusGro™ organic liquid fertilizer and other products that are anticipated to be provided under private label and to be sold through big box retailers, consumer lawn and garden suppliers, and for end use to the wine, cannabis and agriculture industries. With the addition of a further 11,000 square feet of office space and R&D labs, the Hamilton Facility will also house the continued development of SusGlobal's proprietary formulations and branded liquid and dry organic fertilizers.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2024, the Company had a bank balance of $222 (December 31, 2023-$1,263) and current debt obligations and other current liabilities in the amount of $31,273,370 (December 31, 2023-$30,823,963). As at March 31, 2024, the Company had a working capital deficit of $31,002,937 (December 31, 2023-$30,390,423). The Company does not currently have sufficient funds to satisfy the current debt obligations.
The Company's total assets as at March 31, 2024 were $11,242,878 (December 31, 2023-$11,755,903) and total current liabilities were $31,273,370 (December 31, 2023-$30,823,963). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $40,096,275 as at March 31, 2024 (December 31, 2023 -$38,570,531). 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.
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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 $31,273,370 in current debt obligations and other current liabilities, the Company estimates that approximately $15,000,000 must be raised to fund capital requirements and general corporate expenses for the next 12 months.
In the normal course of business, we are exposed to market risks, including changes in interest rates, certain commodity prices and Canadian currency rates. The Company does not use derivatives to manage these risks.
As at March 31, 2024, the current and long-term portions of our debt obligations totaled $20,558,527 (December 31, 2023-$20,447,318). As a result of default and cross defaults, the long-term debt is presented as current debt, even where due beyond twelve months of the balance sheet date.
In addition, up until September 30, 2023, PACE had provided the Company a letter of credit in favor of the MECP in the amount of $204,301 (C$276,831) and, as security, has registered a charge of lease over the Belleville Facility.
The current letter of credit required by the MEC is $470,576 (C$637,637) and now $108,107 (C$146,487), while the Company re-assesses and re-submits it financial assurance to the MECP with the assistance of its environmental consultant. The Company has not yet satisfied this requirement 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 has engaged an environmental consulting firm to re-evaluate the financial assurance with the MECP which is based on the estimated environmental remediation and clean-up costs for its Belleville Facility. As a result of inspections carried out by the MECP during the prior years, some of which have resulted in MECP orders being issued, the Company has accrued estimated and actual costs for corrective measures in orders issued by the MECP $2,102,786 (C$2,849,304) (December 31, 2023-$2,153,214; C$2,847,790).
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2024 COMPARED TO THE THREE-MONTH PERIOD ENDED MARCH 31, 2023
| For the three-month periods ended | ||||||
| March 31, 2024 | March 31, 2023 | |||||
| Revenue | $ | 38,575 | $ | 164,687 | ||
| Cost of Sales | ||||||
| Opening inventory | - | 58,695 | ||||
| Depreciation | 78,933 | 108,372 | ||||
| Direct wages and benefits | 18,102 | 40,852 | ||||
| Equipment rental, delivery, fuel and repairs and maintenance | 172,870 | 21,424 | ||||
| Utilities | (5,201 | ) | 12,937 | |||
| Outside contractors | 4,448 | - | ||||
| 269,152 | 242,280 | |||||
| Less: closing inventory | - | (60,959 | ) | |||
| Total cost of sales | 269,152 | 181,321 | ||||
| Gross (loss) | (230,577 | ) | (16,634 | ) | ||
| Operating expenses | ||||||
| Management compensation-stock-based compensation | 54,000 | 57,600 | ||||
| Management compensation-fees | 139,013 | 116,456 | ||||
| Marketing | 501 | 10,951 | ||||
| Professional fees | 160,387 | 116,688 | ||||
| Interest expense | 285,316 | 219,675 | ||||
| Office and administration | 57,122 | 52,890 | ||||
| Rent and occupancy | 60,330 | 50,193 | ||||
| Insurance | 14,649 | 13,543 | ||||
| Filing fees | 11,137 | 12,457 | ||||
| Amortization of financing costs | 57,516 | 18,824 | ||||
| Directors' compensation | 18,535 | 15,969 | ||||
| Stock-based compensation | - | 334,291 | ||||
| Repairs and maintenance | - | 19,687 | ||||
| Foreign exchange loss (income) | 325,217 | (7,873 | ) | |||
| Total operating expenses | 1,183,723 | 1,031,351 | ||||
| Net Loss Before Other (Expense) Income | (1,414,300 | ) | (1,047,985 | ) | ||
| Other (Expense) Income | (111,444 | ) | 12,813 | |||
| Net Loss | $ | (1,525,744 | ) | $ | (1,035,172 | ) |
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RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2024 AND 2023
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings at its Belleville Facility, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take several months to complete, will require significant investment, and are dependent on the Company securing funding. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's Belleville Facility.
During the three-month period ended March 31, 2024, the Company generated $38,575 of revenue from its Belleville Facility compared to $164,687 in the three-month period ended March 31, 2023. The decrease in revenue is due to the result of not accepting waste after January 10, 2024. The current period's revenue also included revenue from the sale of carbon credits in the amount of $16,468, an increase of $6,239 over the prior year's period.
In the operation of the Belleville Facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $269,152 for the three-month period ended March 31, 2024 compared to $181,321 for the three-month period ended March 31, 2023. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. Included are the costs for the estimate of completing certain known compliance matters as ordered by the MECP.
Operating expenses increased by $152,372 from $1,031,351 in the three-month period ended March 31, 2023 to $1,183,723 in the three-month period ended March 31, 2024, explained further below.
Management compensation related to stock-based compensation reduced by $3,600, in the three-month period ended March 31, 2024 compared to the three-month period ended March 31, 2023. The current stock-based compensation reflects the stock-based compensation issued to the CEO as stipulated in his executive consulting contract, effective January 1, 2023. This will be earned throughout the current year, in the amount of $54,000 per quarter. And the management compensation relating to fees increases $22,557 reflecting the increase in the CEO's compensation for the current year.
Marketing expenses reduced by $10,450, from $10,951 in the three-month period ended March 31, 2023 to $501 for the three-month period ended March 31, 2024, as the Company did not have a marketing campaign during the current period.
Professional fees increased by $43,699, from $116,688 in the three-month period ended March 31, 2023 to $160,387 in the three-month period ended March 31, 2024. The primary reason for the increase is due to additional legal fees incurred in addressing the orders issued by the MECP.
Interest expense increased by $65,641 from $219,675 in the three-month period ended March 31, 2023 to $285,316 in the three-month period ended March 31, 2024. This increase was primarily due to the increase in mortgages in December of 2023, new mortgages on the Hamilton, Ontario, Canada property purchase in November of 2023 and new loans from Haute Inc., in December 2023 and January 2024. These changes along with the new fixed rates on certain mortgages at 12% and 13% annually resulted in the increased interest expense. This was offset by the settlement of the PACE loans in November 2023, resulting in no interest incurred in the current period ending March 31, 204 compared to the interest incurred in the previous period ended March 31, 2023 of $102,842.
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Office and administration expenses increased nominally by $4,322, from $52,890 in the three-month period ended March 31, 2023 to $57,122 in the three-month period ended March 31, 2024.
Rent and occupancy increased by $10,137 from $50,193 in the three-month period ended March 31, 2023 to $60,330 in the three-month period ended March 31, 2024, primarily due to an increase in rent and related expenses of $6,931 for the Company's Toronto, Ontario, Canada office and additional property taxes of $3,206.
Insurance increased nominally by $1,106 from $13,543 in the three-month period ended March 31, 2023 to $14,649 in the three-month period ended March 31, 2024, as the Company continues to accrue for certain coverage which it has not been able to fund currently.
Filing fees decreased nominally by $1,320, from $12,457 in the three-month period ended March 31, 2023 to $11,137 in the three-month period ended March 31, 2024
The amortization of financing costs increased by $38,692, from $18,824 in the three-month period ended March 31, 2023 to $57,516 in the three-month period ended March 31, 2024, due to new financing fees incurred on the new or re-financed mortgages and loan from Haute Inc., in the fourth quarter of 2023 and for the new loan from Haute Inc., in January of 2024.
Directors' compensation increased by $2,566 from $15,969 in the three-month period ended March 31, 2023 to $18,535 in the three-month period ended March 31, 2024, because of the compensation for the four independent directors for the entire quarter versus not a full complement of four independent directors for the entire quarter in the prior year.
There was no stock-based compensation in the three-month period ended March 31, 2024, a reduction of $334,291 from the three-month period ended March 31, 2023.
There were no repairs and maintenance in the three-month period ended March 31, 2024, a reduction of $19,687 from the three-month period ended March 31, 2023.
The foreign exchange income in the three-month period ended March 31, 2023 in the amount of $7,873 reduced to a loss of $325,217 in the three-month period ended March 31, 2024 a change of $333,090, 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 a weaking Canadian dollar compared to the United States dollar.
During the current three-month period ended March 31, 2024, the Company recorded a loss on the revaluation of the convertible promissory notes in the amount of $133,686 compared to gain of $33,326 in the three-month period ended March 31, 2023. In addition, during the current three-month period ended March 31, 2024, the Company recognized a gain of $22,242 on the forgiveness of a portion of the CEBA loans on repayment in January of 2024. And, in the prior three-month period ended March 31, 2023 the Company incurred a loss of $20,513, on the conversion of a portion of a convertible promissory note. In total, other (expense) income changed by $124,257 in the current three-month period ended March 31, 2024 compared to the prior three-month period ended March 31, 2023.
As at March 31, 2024, the Company had a working capital deficit of $31,002,937 (December 31, 2023-$30,390,423), incurred a net loss of $1,525,744 (March 31, 2023-$1,035,172) for the three months ended March 31, 2024 and had an accumulated deficit of $40,096,275 (December 31, 2023-$38,570,531) 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 outstanding obligations to its creditors and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
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.
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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.
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 March 31, 2024.
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 after December 31, 2020. 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.
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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
EQUITY
As at March 31, 2024, the Company had 125,332,019 common shares issued and outstanding. As at the date of this filing, the Company had 125,332,019 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 March 31, 2024 and as of the date of this filing.
RELATED PARTY TRANSACTIONS
For the three-month period ended March 31, 2024, the Company incurred $111,210 (C$150,000) (2023-$88,728; C$120,000), 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 $27,803 (C$37,500) (2023-$27,728; C$37,500) in management fees expense with the Company's chief financial officer (the "CFO"). As at March 31, 2024, unpaid remuneration and unpaid expenses in the amount of $128,796 (C$174,520) (December 31, 2023-$171,733; C$227,130) is included in accounts payable and $163,865 (C$222,039) (December 31, 2023-$138,963; C$183,789) is included in accrued liabilities in the interim condensed consolidated balance sheets.
For the three-month period ended March 31, 2024, the Company incurred $31,266 (C$42,172) (2023-$24,334; C$32,911) in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO. The lease agreement had expired and the Company is currently on a month-to-month arrangement.
In addition, on January 11, 2024, Travellers converted $101,130 (C$135,600) of accounts payable into 809,044 common shares of the Company at the closing trading price immediately prior to the conversion.
For the independent directors, the Company recorded directors' compensation during the three months ended March 31, 2024 of $18,535 (C$25,000) (2023-$15,969; C$21,597). In addition, in the prior year, on February 18, 2023, a new independent director was appointed and he was awarded 100,000 common shares of the Company on March 1, 2023 valued at $21,000 based on the closing trading price on the appointed date and included under stock-based compensation in the interim condensed consolidated statements of operations and comprehensive loss. As at March 31, 2024, outstanding directors' compensation of $210,915 (C$285,793) (December 31, 2023-$197,186; C$260,793) is included in accrued liabilities, in the interim condensed consolidated balance sheets.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $29,576 (C$40,000) per month for twelve (12) months, beginning on the Effective Date, January 1, 2023, and at a rate of $36,970 (C$50,000) per month for twelve (12) months, beginning January 1, 2024. In addition, the Company agreed to grant the CEO 3,000,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. 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 $9,243 (C$12,500) per month for twelve (12) months, beginning on the Effective Date, January 1, 2023. In addition, the Company agreed to grant the CFO 100,000 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. The CFO currently provides his services on a month-to-month basis.
Furthermore, for the three-month period ended March 31, 2024, the Company recognized management stock-based compensation expense of $54,000 (2023-$57,600), on the common stock issued to the CEO and the CFO, 3,000,000 and 100,000 common stock, respectively, as stipulated in their executive consulting agreements, effective January 1, 2023 valued at the trading price on the Effective Date. The total stock-based compensation on the issuance of the common stock totaled $nil (2023-$446,400). The portion to be expensed for the balance of the consulting agreements, $162,000 (2023-$216,000) is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets.
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OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
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 the 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.
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 three-month period ended March 31, 2024, there were no changes made by management to its internal controls over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows, except as follows:
The Company has a claim against it for unpaid legal fees in the amount of $48,206 (C$65,241). The amount is included in accounts payable on the Company's interim condensed consolidated balance sheets.
On October 4, 2023, an action was launched by one of the October 2021 Investors, who claimed he was owed $1,300,000 plus accrued interest. The principal balance in the accounts and noted under convertible promissory notes, note 11(a) is $1,722,911 (December 31, 2023-$1,645,337), which is after conversions of $318,100 during 2022 and 2023 and includes accrued interest of $422,911 (December 31, 2023-$345,337). The Company has disclosed the fair value of this convertible promissory note as $2,495,508 (December 31, 2023-$2,404,558). The Company intends to repay the balance owed when it is financially able to do so.
On November 27, 2023 and March 6, 2024, the Company experienced an outflow of leachate impacted water from its stormwater pond into the City of Belleville's roadside ditch. The Company is working with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP.
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The Company has a claim against it for unpaid hydro bills in the amount of $369,223 (C$500,302). The amount is included in accounts payable on the Company's interim condensed consolidated balance sheets.
In addition, on November 17, 2023, the Company received an amended claim filed against it from 2023 by Tradigital in the sum of $219,834 in owed fees plus the difference in stock price, 300,000 common shares of the Company, plus attorney fees and expenses. The case went to arbitration on March 11, 2024 and the Company defended its position. On April 4, 2024, the International Centre for Dispute Resolution indicated that no additional evidence is to be submitted and the hearings were declared closed as of April 29, 2024.The tribunal will endeavor to render the final decision within the timeframe provided for in the rules. Management agrees that outstanding fees, which are included in accounts payable in the interim condensed consolidated balance sheets, are only in the amount of $30,000, which was agreed to by the parties in earlier communications and through various e-mail correspondence. In addition, the management has no issue with the outstanding common shares to be provided to the claimant totaling 300,000. Management believes that the additional claim amount of $189,834 is without merit. Of the total of 300,000 common shares, 50,000 have been issued and the remaining 250,000 were previously disclosed as shares to be issued in the consolidated statements of stockholders' deficiency. On April 26, 2024, the arbitrator for this claim awarded Tradigital the sum of $118,170 which has been accrued by the Company as at December 31, 2023 and March 31, 2024 and the remaining 250,000 common shares were not required to be issued by the Company.
On April 1, 2024, the Company received notice of a complaint filed against it by one of the March 2022 Investors, seeking damages of no less than $4,545,393. The Company had thirty calendar days to respond and on April 30, 2024, the Company was able to extend the time to respond with opposing counsel, a further fifteen days. The Company has been unable to retain counsel to represent it in this matter. The full amount of the complaint has been included in the accounts. On May 21, 2024, the counsel for the plaintiff requested an entry for a default judgement against the Company.
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 three-month period ended March 31, 2024, the Company issued for non-cash proceeds:
(i) 809,044 common shares were issued on the conversion of related party debt.
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.
Refer to Financings (a) Securities Purchase Agreements page 29.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
The following exhibits are filed as part of this quarterly report on Form 10-Q:
|
| 38 |
| * | Filed herewith |
| ** | Management contract or compensatory plan or arrangement |
| + | In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed. |
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. | ||
| June 7, 2024 | By: | /s/ Marc Hazout |
| Marc Hazout | ||
| Executive Chairman, President and Chief Executive Officer | ||
| June 7, 2024 | By: | /s/ Ike Makrimichalos |
| Ike Makrimichalos | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
|
| 39 |
FIRST AMENDMENT TO
PROMISSORY NOTE
This FIRST AMENDMENT TO THE PROMISSORY NOTE (this "Amendment"), is dated as of May 23, 2024, by and between SUSGLOBAL ENERGY CORP., a Delaware corporation, with headquarters located at 200 Davenport Road, Toronto, ONT M5R 1J2, Canada (the "Borrower"), and AJB CAPITAL INVESTMENTS LLC, a Delaware limited liability company, with its address at 4700 Sheridan Street, Suite J, Hollywood, FL 33021 (the "Holder").
WHEREAS:
A. The Borrower has previously issued a 10% Promissory Note to the Holder in the original principal amount of $120,000, dated as of April 12, 2024 (the "Existing Note").
B. Section 4.3 of the Existing Note provides that the Existing Note may be amended only if such amendment is in writing and signed by the Borrower and the Holder.
C. The Borrower and the Holder have agreed to amend the Existing Note to increase the Principal amount thereunder, but only to the extent, in accordance with the terms, subject to the conditions, and in reliance upon the representations and warranties set forth in this Amendment. The Existing Note, together with this Amendment shall collectively be referred to as the "Note."
NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants, representations, warranties, conditions, and agreements hereinafter expressed, the Borrower and the Holder hereby agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment and not otherwise defined shall have the meanings given to such terms in the Existing Note.
2. Additional Principal; Amendments.
a. Additional Principal. Holder hereby agrees to loan to Borrower an additional $12,223, thereby increasing the face amount of the Note to $132,223 (the "Additional Principal"); provided, however, that the Additional Principal carries an original issue discount of $1,223 to cover the Holder's monitoring costs associated with the Existing Note and the Additional Principal, which is included in the Additional Principal balance, and which such amount of original issue discount will not be disbursed to Borrower.
b. Amendments. Any reference made in the Existing Note or in any Transaction Document to the "Principal" is hereby deemed to mean "the sum of US$132,223.00."
3. Disbursements. $1,000 of the Additional Principal shall be withheld and not disbursed to the Borrower and instead paid to the Holder's legal counsel for fees and expenses incurred in connection with this Amendment. Thus, the amount actually advanced by Holder to Borrower pursuant to this Amendment following subtraction of such expense amount and the original issue discount as described in Section 2(a) shall be $10,000.
95159230.1
4. Limitation of Amendment. The amendments set forth in Section 2 are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any additional amendment, waiver or modification of any other term or condition of the Existing Note or any other Transaction Document, or (ii) otherwise prejudice any right or remedy which Holder may now have or may have in the future under or in connection with the Note or any other Transaction Document, including with respect to any Events of Default existing on the date hereof. This Amendment shall be construed in connection with and as part of the Note. All terms, conditions, representations, warranties, covenants and agreements set forth in the Existing Note and the other Transaction Documents, except as explicitly amended by this Amendment, are hereby ratified and confirmed and shall remain in full force and effect.
5. Miscellaneous.
a. Integration. This Note (as amended) together with the Transaction Documents, represent the entire agreement and understandings of the parties about this subject matter and supersede prior or contemporaneous negotiations or agreements. For purposes of clarity, nothing in this Amendment shall modify the terms of any Transaction Document except as expressly provided herein. This Note (as amended) shall constitute one of the Transaction Documents and the governing law, jury waiver and judicial reference provisions of the Transaction Documents are incorporated herein by this reference and shall apply to this Amendment as though set for the in full.
b. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
c. No Novation. Borrower agrees that this Amendment is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction of the Existing Note or any indebtedness evidenced thereby.
[signature page follows]
IN WITNESS WHEREOF, the undersigned Borrower and the Holder have caused this Amendment to be duly executed as of the date first above written.
| SUSGLOBAL ENERGY CORP. | |
| By: |  |
| Name: | Marc Hazout |
| Title: | Chief Executive Officer |
| AJB CAPITAL INVESTMENTS LLC | |
| By: | AJB Capital Managers LLC, its manager |
| By: |  |
| Name: | Ari Blaine |
| Title: | Manager |
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: June 7, 2024 | ||
| 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: June 7, 2024 | ||
| 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:
1. The Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2024, 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
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: June 7, 2024
| 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) |