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, 20202021 filed with the Securities and Exchange Commission on April 15, 2021.14, 2022.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three and nine-month periodsthree-month period ended September 30, 2021March 31, 2022 compared with the three and nine-month periodsthree-month period ended September 30, 2020March 31, 2021 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to "we, "us, "our," the "Company," and similar expressions refer to SusGlobal Energy Corp., and depending on the context, its subsidiaries.
SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION
OUR AUDITOR ISSUED AN OPINION EXPRESSING SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN FOR THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019. YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE "GOING CONCERN" ISSUES IN MIND.
This Management's Discussion and Analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the "Financial Statements"). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States ("GAAP"). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
OVERVIEW
The following organization chart sets forth our wholly-owned subsidiaries:
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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.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 SECSecurities and Exchange Commission on May, 23,12, 2017.
On December 11, 2018,SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.waste to energy and regenerative products application.
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When the terms "the Company," "we," "us" or "our" are used in this document, those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., and SusGlobal Energy Belleville Ltd., 1684567 Ontario Inc., and SusGlobal Energy Hamilton Ltd.
, and 1684567 Ontario Inc.
SusGlobal is a renewables company focusedOn December 11, 2018, the Company began trading on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.OTCQB venture market exchange, under the ticker symbol SNRG.
WithAs the growingglobal amount of organic wastes being produced by society as a whole,waste continues to grow, a solution for sustainable global management of these wastes must be achieved.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 fourthree 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;gas. (b) IncreasingMaximizing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield;yield. (c) Utilize recycled plastics to produce liquid fuels; and (d) Processprocess SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewables. These products can be converted into fuels, electricity 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 projectproducts and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management, Composting and Liquid Fertilizer production.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 identifying idle or underutilized anaerobic digesters and integrating our technologies with capital investment to optimizing the operationprocessing of the existing digesters to reach their full capacity for processing SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant GHG reductions from waste disposal. The processes also produce renewable energyregenerative products through the conversion of wastewater biosolids and organic wastes in the same equipment (co-digestion) and valuable end products such as biogas, electricity andinto organic fertilizer, both dry compost and liquid, considered Class AA organic fertilizer.liquid.
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Currently, the primary customers are municipalities in both rural and urban centers throughout southern and centralin Ontario, Canada. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
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The Coronavirus Outbreak ("COVID-19") May Adversely Affect Our Business Operations and Financial Condition
In December 2019, COVID-19 was reported. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Developments in this area continue daily atdeclared the local, provincial and national levels. The Company has taken steps, consistent with directions from local, provincial and federal authorities, to mitigate known risks with the health and safety of its employees and customers as its first priority. The outbreak of COVID-19 was declared a national emergency. Many provincespandemic which has resulted in substantial global economic disruption and municipalitiesuncertainty. In response to the COVID-19 pandemic, the measures implemented by various authorities have caused us to change the Company’s business practices, including those related to where employees work, the distance between employees in Canada, announced aggressive actionsthe Company’s facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to reduce the spread of COVID-19, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businessesdomestic and government agencies to cease non-essential operations at physical locations and issuing "social or physical distancing" orders, which direct individuals to remain at their places of residence (subject to limited exceptions). COVID-19 poses the risk that we or our employees, contractors, customers, government and third-party payors and others may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be requested or mandated by governmental authorities.international locations.
The Company has acted on the aggressive emergency measures set in place by the provincial government and federal authorities, keeping in mind, firstly, the immediate health and safety of our employees and customers. Employees in the head office, located in Toronto, Ontario, Canada had been working remotely for some time or alternating their office time, ensuring there is no more than one employee present, ensuring they are social distancing and wearing protective face covering within the office and elsewhere outside the office, as per the measures set in place by provincial and local authorities. Employees at the site in Belleville, Ontario, Canada, have also been following the same procedures. The Company has prohibited face to face meetings and all meetings are now and for some time, being held by teleconference.
The Company is fortunate that its operations have not been forced to close as we arewe're considered an essential service. In the early stages of COVID-19, the receipt of organic waste had increased, the likely impact of the requirement for the public to stay in their residences, unless they themselves are employed in an essential business or service. A broad, sustained outbreak of COVID-19 will negatively impact our results and financial condition for the following reasons; (i) a large percentage of our customers are municipalities and their limited operations have resulted in a delay in the collection of outstanding receivables in the early months of COVID-19, impacting our cash flows, including the use of cash; (ii) members of the board, management or employee team, some of whom are particularly at-risk for the severe symptoms of COVID-19, or of our small number of other employees, may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facility; and (iii) the outbreak may materially impact our operations for a sustained period of time due to the current travel bans and restrictions, quarantines, social or physical distancing orders and shutdowns.
The occurrence of any of the these noted events and potentially others, could have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, the variants and the actions to contain its impact.
To date, there has been no material impact on the Company's workforce, operations, financial performance, liquidity, or supply chain as a result of COVID-19. However, the ultimateextent and continued impact of the COVID-19 pandemic on our business will depend on certain developments including the duration and spread of the outbreak and new variant strains of the virus; the availability and distribution of effective vaccines; the severity of COVID-19 or its effects on the economy, the capital and credit markets, or the Company's workforce, customers, and suppliers, as well as governmental and regulatory responses, are uncertain.
RECENT BUSINESS DEVELOPMENTS
On October 29, 2021, the Company executed two convertible promissory notes totaling $1,764,710 with net proceedseconomic decline attributable to the Company in the amountpandemic and timing, nature and sustainability of $1,330,000, neteconomic recovery; and government responses, including vaccination or testing mandates, all of an original issue discountwhich are highly uncertain and other financing costs of $264,710. On November 3, 2021, the Company received $1,330,000 on the execution of the convertible promissory notes. The convertible promissory notes bear interest at the rate of 15% annually and are due July 29, 2022. In connection with the above, on October 27, 2021, the Company signed a consulting agreement with a consultant for a term of six months to provide financial and business consulting, for a fee of $50,000 and 62,500 restricted shares of the Company's common stock. Further, on October 28, 2021, the Company signed a consulting agreement with a consultant for a term of six months to provide financial and business consulting for a fee of 10,000 restricted shares of the Company's common stock. Under both advisory agreements, the restricted shares of the Company's common stock will survive a reverse stock split prior to up listing.unpredictable.
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The Company has signed an Offset Development and Marketing Agreement (the "Agreement") with Blue Source Canada ULC ("Bluesource") to develop and market greenhouse gas offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario, in order for the Company to monetize and realize benefits from its voluntary activities.
This monetization is an exciting development for the Company's mission to reduce organic wastes from wood, leaf and yard material, treated municipal sewage waste (biosolids), residential curbside green bin material or source separated organics ("SSO") and paper sludge otherwise destined for landfills and, we believe, will also allow the Company to expand this mission.
Bluesource has pioneered creative solutionsThe Company will continue to climate change for over 20 years. Today, this partnership complements Bluesource's portfolio of high-quality environmental products from over 20 different technologies in over 100 locations across the United Statesmonitor health orders issued by applicable governments to ensure compliance with evolving domestic and Canada. The partnership with SusGlobal is a core example of Bluesource's experience in identifying, creating, acquiring and marketing offsets, where there is a tangible environmental benefit.global COVID-19 guidelines.
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Financings
(a)Securities Purchase Agreements
On February 10, 2021,March 3 and 7, 2022, the Company signedexecuted two unsecured convertible promissory notes with two investors (the "March 2022 Investors"), who purchased 25% original issue discount (the "OID") unsecured convertible promissory notes (the "The March 2022 Investor Notes") in the aggregate principal amount totaling $2,000,000 (the "Principal Amount") with such Principal Amount convertible into shares of the Company's common stock (the "Common Stock") from time to time triggered by the occurrence of certain events. The March 2022 Investor Notes carried an AgreementOID totaling $500,000 which is included in the principal balance of Purchasethe Notes. The funds were received on March 7, 2022 and SaleMarch 11, 2022 in the total amount of $1,425,000, net of the OID and professional fees. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
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 "APS""Maturity Date") for certain assets located in Hamilton, Ontario, Canada for $3,532,050 (C$4,500,000), including a vendor take-back mortgage. The final payment of $1,569,800 (C$2,000,000) at an annualthe Principal Amount (and default interest, rate of 2% maturing two years after closing on August 17, 2023. Deposits of $156,980 (C$200,000) and $117,735 (C$150,000) wereif any) shall be paid by the Company to the Investors on February 10, 2021the Maturity Date. On an event of default, the principal amount of the March 2020 Investor Notes will increase to 120% of their original principal amounts. The Investors are entitled to, following an event of default, (as defined in the March 2022 Investor Notes) to convert all or any amount of the Principal Amount and June 1, 2021 respectively.any interest accruing at the default interest rate of 24% per annum into Common Stock, at a conversion price (the "Conversion Price") equal to 70% (representing a 30% discount) multiplied by the price per share of the Common Stock at any national security exchange or over-the-counter marketplace for the five (5) trading days immediately prior to the March 2022 Investors' notice of conversion.
On May 11, 2022, the holder of the March 3, 2022 investor note, provided an amendment for an optional conversion of his investor note. The APSconversion price was amended on April 8, 2021, to revisebe the lower of (1) the product of the Liquidity Event price multiplied by the discount of 35% (previously 30%) or (2) the greater of (i) the product of the closing date to June 4, 2021, subject to successful completionprice per share of the due diligence processCompany’s Common Stock as reported by the applicable trading market on the trading day immediately prior to the conversion date multiplied by the discount (35%) or (ii) $1.70 multiplied by the discount (35%), provided that in the event of a conversion, of this investor note, at a time that a Liquidity Event shall not have previously occurred and be continuing, the completionconversion price for such conversion shall be as provided in (2)(i) above.
On May 13, 2022, the holder of the Phase II Environmental Site AssessmentMarch 7, 2022 investor note, provided an amendment for an optional conversion of his investor note. The conversion price was amended to be the lower of (1) the product of the Liquidity Event price multiplied by the discount of 35% (previously 30%) or (2) the greater of (i) the product of the closing price per share of the Company’s Common Stock as reported by the applicable trading market on the trading day immediately prior to the conversion date multiplied by the discount (35%) or (ii) $1.70 multiplied by the discount (35%), provided that in the event of a conversion, of this investor note, at a cost of $39,088 (C$49,800), plus applicable harmonized sales taxes, expected on or before May 19, 2021. time that a Liquidity Event shall not have previously occurred and be continuing, the conversion price for such conversion shall be as provided in (2)(i) above.
On May 20,December 2, 2021, the Company entered into a securities purchase agreement (the "December 2021 SPA") with one investor (the "December 2021 Investor") pursuant to which the Company issued to the December 2021 Investor one 10% unsecured convertible promissory note (the "December 2021 Investor Note") in the principal amount of $350,000. The December 2021 Investor Note included an OID of $35,000. In addition, the December 2021 Investor was issued 857,143 common shares of the Company. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the vendor signedcommon shares. As a waiverresult, all of the proceeds were allocated to the convertible promissory note and amending agreement, waiving$nil to the due diligence process and revising the closing date to June 16, 2021. On August 3, 2021, the vendor agreed to amend the APS for the purchase of certain assets in Hamilton, Ontario, Canada, with a new closingcommon shares.
The maturity date of August 17, 2021.the December 2021 Investor Note is June 2, 2022. The newly amended APS provided forDecember 2021 Investor Note bears interest at a creditrate of 10% per annum (the "December 2021 Interest Rate"), which shall be paid by the Company to the CompanyDecember 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The December 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the amountDecember 2021 Investor Note), with interest accruing at the default interest rate of $294,338 (C$375,000) for certain deficiencies.
On August 17 2021,15% per annum from the Company acquiredevent of default, at a conversion price (the "Conversion Price") equal to the Hamilton Property assets, consistinglesser of land,90% (representing a vacant building and ECAs. The total purchase price including costs of acquisition of $173,996 (C$221,680) totaled $3,557,664 (C$4,532,633). The costs of acquisition, were settled through cash payments of $117,996 (C$150,333) and10% discount) multiplied by the issuance of 200,000 common shares valued based on thelowest trading price on(i) during the issuance date at $56,000 (C$71,347) to a consultant who assisted on the closing of the transaction. The issuance of common shares is also noted under capital stock, note 15, common shares issued for professional services,previous twenty (20) trading day (as defined in the interim condensed consolidated financial statements. The purchase of the Hamilton Property was funded by cash of $392,712 (C$500,333), the issuance of 300,000 common shares to the vendor on closing, having a value based on the trading priceDecember 2021 Investor Note) period ending on the issuance date of $84,000 (C$107,020), the issuance noted aboveDecember 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of 200,000 common sharesconversion of the December 2021 Investor Note. The December 2021 Investor Note may be prepaid at any time in cash equal to a consultant who assistedthe sum of (a) the then outstanding principal amount of the December 2021 Investor Note plus (b) accrued and unpaid interest on the closingunpaid principal balance of the transaction disclosed as part of common shares issued for professional services, under capital stock, note 15,December 2021 Investor Note plus (c) default interest (as defined in the interim condensed consolidated financial statements, vendor take-back 1st mortgage of $1,569,800 (C$2,000,000) and a portion of the increased existing 1st mortgage of $1,455,152 (C$1,853,933), disclosed under note 11(d), long-term debt, in the interim condensed consolidated financial statements. The cost of the purchase price was allocated ratably over the estimated fair value of each long-lived asset acquired, land of $1,709,074 (C$2,177,442), included above under land and building $1,541,654 (C$1,964,141), described above as property under construction.
Further, the fair value of the ECAs acquired in the above transaction, in the amount of $306,936 (C$391,051), was valued using a replacement cost valuation approach and incorporated a margin on cost and an entrepreneurial margin of approximately 11% and 20% respectively.
On July 8,December 2021 the Company applied to list its Common StockInvestor Note) on the Nasdaq Capital Market, and submitted the initial listing feeoccurrence of $5,000. And, on November 3, 2021, the Company paid the depositan event of $10,000, in connection with a letter agreement signed September 22, 2021, to its underwriter, who is also acting as the sole agent, for an offering of up to $12,000,000 on the effectiveness of a registration statement to up-list to the Nasdaq.
On July 2, 2021, the Company revised a letter of intent with the vendors for the purchase of the shares of their two corporations which own proprietary processes, manufacture liquid organic fertilizers and other products. The transaction is set to close upon effectiveness of a registration statement and listing on the NASDAQ with a total purchase price of $16,136,000 (C$20,000,000)default), which will consist of cash of $8,068,000 (C$10,000,000) and common shares of the Company having a value of $ 8,068,000 (C$10,000,000). The purchase price will be satisfied through a payment of $3,139,600 (C$4,000,000) in cash and the issuance of common shares having a value of $7,849,000 (C$10,000,000) on closing and a final payment of $4,709,400 (C$6,000,000) in cash on June 1, 2022.
On June 1, 2021, the Board of Directors of the Company appointed Ms. Susan Harte as a member of the Board of Directors, effective immediately.
On May 19, 2021, Ryan Duffy submitted his resignation from his position as a member of the Board of Directors of the Company, effective immediately. Mr. Duffy did not resign as a result of any dispute with the Company on any matter relating to the Company's operations, policies or practices.
On April 28, 2021, the Company announced that it had received a (B-) score with scorecard from Circulytics®, launched by The Ellen MacArthur Foundation ("The Foundation"), a charity whose mission is to accelerate the transition to a circular economy.
The Foundation has developed this new digital tool to assess the circular economy performance of companies, which measures enablers within organizations. This measurement assists companies in achieving circular outcomes ("Circulytics" and the method used by Circulytics® being the "Circulytics Method"). The scorecard gives an overview of the company's progress on the journey towards the circular economy, by way of two overarching categories, 'Enablers' and 'Outcomes', as well as eleven themes within these categories, encouraging the company to improve and providing theme level scores to enable the company to prioritize certain activities.
On April 20, 2021, the Board of Directors of the Company appointed Mr. Gary Herman as a member of the Board, effective immediately.if any.
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The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "December 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the December 2021 Investor Note.
On April 8,October 28 and 29, 2021, the Company completedentered into two securities purchase agreement (the "October 2021 SPAs) with two investors (the "October 2021 Investors") pursuant to which the purchaseCompany issued to the October 2021 Investors two 15% OID unsecured convertible promissory notes (the "October 2021 Investor Notes") in the principal amount of its new truck and hauling trailer$1,765,118. The October 2021 Investor Notes are convertible, with accrued interest, from time to time on notice of a liquidity event (a "Liquidity Event"). A Liquidity Event is defined as a public offering of the Company's common stock resulting in the listing for trading of the common stock on any one of a total purchase pricenumber of $172,803 (C$220,159), plusexchanges. The October 2021 Investor Notes can be prepaid prior to maturity for an amount of 120% of the applicable harmonized sales taxes and administrative costs.prepayment amount. The Company paid depositsused the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of $38,572 (C$49,143) on this purchasethe proceeds were allocated to the convertible promissory note and financed$nil to the balance over a period of forty-eight months at a monthly principal and interest payment of $3,611 (C$4,601) at an interest rate of 4.95% per annum.common shares.
On March 4,The maturity date of the October 2021 Investor Notes is the Company announced it has signedearlier of (i) July 28 and 29, 2022 and (ii) the occurrence of a Capital Market Advisory AgreementLiquidity Event, as described above (the "Agreement""Maturity Date"). Upon the occurrence of a Liquidity Event, the October 2021 Investors are entitled to convert all or a portion of their October 2021 Investor Notes including any accrued and unpaid interest at a conversion price (the "Conversion Price") equal to 70% (representing a 30% discount) multiplied by the price per share of the Common Stock at the public offering associated with Exchange Listing, LLC ("Exchange Listing") to provide advisory services with respectthe Liquidity Event. Upon the occurrence of an event of default, the interest rate on the October 2021 Investor Notes will immediately accrue at 24% per annum and be paid in cash monthly to the Company's initiativeOctober 2021 Investors, until the default is cured. And, the Conversion Price will be reset to list its shares85% of Common Stockthe lowest volume weighted average price for the ten consecutive trading days ending on the Nasdaq Capital Market. Exchange Listing provides companies with cost-effective and efficient direct accesstrading day that is immediately prior to one-stop solutions in the strategic planning and implementation of listing on senior exchanges such as NASDAQ or NYSE. Focusing on company-specific structuring to meet listing requirements, Exchange Listing serves as the primary point of contact with the exchange, investment bankers and lawyers throughout the listing process. With extensive experience in investment banking, securities law, corporate governance and business management, Exchange Listing and its strategic partners facilitate its clients' listing and capital markets objectives.
Purchase of Additional Landsapplicable conversion date.
On November 12, 2020, the Company acquired additional lands described in the Company's Share Purchase Agreement (the "SPA") of 1684567 Ontario Inc. ("1684567"), in May of 2019. The additional lands include a 6.60-acre licensed gravel pit and a 0.20 acre right of way for a purchase price of $164,829 (C$210,000) plus the applicable harmonized sales tax. The Company is now the ownerinitially reserved 1,585,000 of a 49-acre land parcel at its Belleville, Ontario, Canada, organic waste processingauthorized and composting facility. The purchase was funded through an additional advance of $549,430 (C$700,000) on its existing 1st mortgage. The funds received, $407,550 (C$519,238)unissued Common Stock (the "October 2021 Reserved Amount"), were net of financing fees of $57,867 (C$73,725) and expenses including accrued interest, property taxes and other disbursements of $90,077 (C$114,762). The new first mortgage of $2,590,170 (C$3,300,000) was registered on November 12, 2020. The termsfree from pre-emptive rights, to be issued upon conversion of the new 1st mortgage are as noted under long-term debt, note 11(d) to the interim condensed consolidated financial statements, including an interest rate at the higher of the Royal Bank of Canada's prime rate plus 7.55% (currently 10% per annum) and 10% per annum, and the principal amount is due December 1, 2021. Management used a portion of the additional advance to satisfy certain obligations with Pace Savings and Credit Union Limited ("PACE"). Refer to new business developments above, for details on the increase in the existing 1st mortgage to $4,081,480 (C$5,200,000), with a new maturity date of September 1, 2022.October 2021 Investor Notes.
SusGlobal Receives Trademark RegistrationOn May 11, 2022, the holder of the October 29, 2021 investor note provided an amendment for LEADERS IN THE CIRCULAR ECONOMY®an optional conversion of his investor note. The conversion price was amended to be the lower of (1) the product of the Liquidity Event price multiplied by the discount of 35% (previously 30%) or (2) the greater of (i) the product of the closing price per share of the Company’s Common Stock as reported by the applicable trading market on the trading day immediately prior to the conversion date multiplied by the discount (35%) or (ii) $1.70 multiplied by the discount (35%), provided that in the event of a conversion, of this investor note, at a time that a Liquidity Event shall not have previously occurred and be continuing, the conversion price for such conversion shall be as provided in (2)(i) above.
After having filed on March 13, 2019, trademark applications in Canada and the United States, on July 16, 2020, the Company announced it had received a Certificate of Registration from the United States Patent and Trademark Office ("USPTO") for the trademark LEADERS IN THE CIRCULAR ECONOMY (the"Mark").
The Mark was registered under Registration Number 6,098,063 on July 7, 2020 on the Supplemental Register. The registration will be in effect for an initial term of ten years, expiring on July 7, 2030, with the option of renewing the registration for successive ten-year terms for the following class:
treatment and processing of organic waste; organic waste disposal services, namely, destruction and recycling of waste; organic waste management services, namely, converting waste into energy; recycling of organic waste; technical consulting in the field of waste management, namely, consulting in the field of waste treatment; recycling of plastic; recycling, namely, transform biosolids and organic waste into a pathogen free recognized organic fertilizer and compost and regenerative products, namely, biogas, electricity, liquid fertilizer, compost.
Now that the Mark is registered, The Company is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg. U.S. Pat. and T.M. Office").
SusGlobal Receives a Certificate of Registration for the Trademark EARTH's JOURNEY® and the Trademark CARING FOR EARTH'S JOURNEY®
On November 24, 2020, the Company received a Certificate of Registration from the United States Patent and Trademark Office for the trademark EARTH's JOURNEY® and trademark CARING FOR EARTH'S JOURNEY®(the "Marks"). The Marks were registered under Registration Number 6,197,171 and Registration Number 6,195,955 on November 10, 2020 on the Supplemental Register. The registrations will be in effect for an initial term of ten years, expiring November 10, 2030, with the option of renewing the registrations for successive ten-year terms. Now that the Marks are registered, it is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg U.S. Pat. And T.M. Office").
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SusGlobal to Commence Integration of The Ydro Process(R) at Its Belleville Organic Waste Processing and Composting Facility
On May 27, 2020, the Company announced it has agreed to commence The Ydro Process® integration into the existing operations at the Organic Waste Processing and Composting Facility of its wholly owned subsidiary SusGlobal Energy Belleville Ltd. ("SusGlobal Belleville").
TradeWorks Environmental's Ydro Process® is integrated into the existing SusGlobal Belleville operations by applying the Ydro Series®
Microorganisms product once during the preparation stage of the batches in the appropriate Gore® system windrows.
The integration of the Ydro Process® is expected to:
Reduce:
• Odors generated from the composting processing, its products (compost), as well as its by-products (i.e. leachate).
• Energy requirements, and the electrical consumption for aeration-heating purposes.
Increase:
• Degradation/decomposition rate and efficiency of the composting process.
• Composting process and reduce the compost processing time.
• Composting performance and efficiency of the system.
• System's composting capacity and composting cycles (over its design limit).
• Compost quality, compost maturity, N:P:K & C:N ratio.
• Composting temperature (naturally, through the biological activity).
Energy Retrofit Program
On January 15, 2020, the Independent Electrical System Operator (the "IESO") pre-approved the Company's Save on Energy Retrofit Program Application (the "Program"). The total cost of the Program was $93,161 ($C118,692). As the Program was successfully completed, the Company, on April 15, 2021, received the hydro grant from the IESO of $45,910 (C$58,491), plus the applicable harmonized sales taxes. The Program was designed to realize a savings of approximately 50% in hydro costs annually, with an overall return on investment estimated at 125%.
Financings
(a)Securities Purchase Agreements
On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one 10% unsecured convertible promissory note (the "August 2021 Investor Note") in the principal amount of $142,200. On September 1,The August 2021 the Company received proceedsInvestor Note included an OID of $125,000, net of transaction related expenses of $17,200.$13,450. In addition, the JuneAugust 2021 Investor was issued 80,000 common shares of the Company. The Company valued at $21,200, based onused the closing trading price per sharewith-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of $0.265.the proceeds were allocated to the convertible promissory note and $nil to the common shares
The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of ten percent (10%)10% per annum (the "August 2021 Interest Rate"). The August 2021 Investor Note will include a one-time interest charge of $14,220, which shall be at repayable by the Company in 10 equal monthly amounts of $15,642 (including principal and interest) commencing October 15, 2021.
The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), with default interest accruing at the default interest rate of 22% per annum, at a conversion price (the "Conversion Price") equal to the lesser of 75% (representing a 25% discount) multiplied by the lowest trading price (i) during the previous five (5) trading day (as defined in the August 2021 Investor Note), period prior to conversion. The Company has the right to accelerate the monthly payments or prepay the August 2021 Investor Note at any time without penalty.
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The Company initially reserved 2,972,951 of its authorized and unissued Common Stock (the "August 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the August 2021 Investor Note.
The August 2021 Investor Note was converted on May 5, 2022 for 141,878 common shares of the Company.
On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. OnThe June 18, 2021 the Company received proceedsInvestor Note includes an OID of $382,500, net of transaction related expenses of $67,500.$35,000. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company. The Company determinedused the with-and-without method to be valued at $300,000, based on an agreed upon price per shareallocate the proceeds between the convertible promissory note and the common shares. As a result, all of $0.30. the proceeds were allocated to the convertible promissory note and $nil to the common shares
The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of ten percent (10%)10% per annum (the "June 2021 Interest Rate"), which shall be paid by the Company to the June 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The June 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the June 2021 Investor Note), with interest accruing at the default interest rate of 15% per annum from an event of default, at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the June 2021 Investor Note) period ending on the issuance date of the June 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the June 2021 Investor Note. The June 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the June 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the June 2021 Investor Note plus (c) default interest (as defined in the June 2021 Investor note)note on the occurrence of a default), if any.
The Company initially reserved 7,000,000 of its authorized and unissued Common Stock (the "June 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the June 2021 Investor Note.
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On April 1, 2021, the Company entered into a securities purchase agreement (the "April 2021 SPA") with anone investor (the "April 2021 Investor"), in pursuant to which the Company issued to the April 2021 Investor aone 10% unsecured convertible promissory note (the "April 2021 Investor Note") in the aggregate principal amount of $275,000, due September 30,$275,000. The April 2021 convertible at any time after issuance at a per share priceInvestor Note includes an OID of $0.20.$25,000. In addition, the April 2021 Investor receivedwas issued 200,000 common shares immediately subsequent to the issue date. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the Company, subsequentproceeds were allocated to the convertible promissory note and $nil to the common shares.
The maturity date of the April 2021 Investor Note was September 30, 2021. The April 2021 Investor Note bears interest at a rate of 10% per annum (the "April 2021 Interest Rate"). The April 2021 Investor is entitled to, at its option, at any time after issuance of the April 2021 Investor Note, valuedconvert all or any amount of the principal amount and any accrued but unpaid interest of the April 2021 Investor Note into Common Stock, at $69,000 based on the closinga conversion price of $0.20 per share. The original terms of the common shares onApril 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. Any portion of the April 2021 Investor Note which is not repaid by the maturity date will bear interest at the default interest rate of 18% per annum.
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The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "April 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the day before issuance. Onfull conversion of the April 5, 2021 the Company received $245,000, net of transaction related expenses of $30,000.Investor Note.
On December 9, 2021, the April 2021 Investor agreed to adjust the balance of the note, as it was past due, to $400,000. On January 4, 2022, the April 2021 Investor provided the Company with a request to convert April 2021 Investor Note into 2,000,000 common shares of the Company issued on January 17, 2022, at a conversion price of $0.20 per share, as stipulated in the April 2021 SPA.
On March 31, 2021, the Company entered into a securities purchase agreement (the "March 2021 SPA") with anone investor (the "March 2021 Investor"), in pursuant to which the Company issued to the March 2021 Investor aone 10% unsecured convertible promissory note (the "March 2021 Investor Note") in the aggregate principal amount of $275,000, due$275,000. The March 2021 Investor Note includes an original issue discount of (the "OID") of $25,000. In addition, the March 31, 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date. The Company used the with-and-without method to allocate the proceeds between the convertible promissory note and the common shares. As a result, all of the proceeds were allocated to the convertible promissory note and $nil to the common shares.
The maturity date of the March 2021 Investor Note was September 30, 2021. The March 2021 convertibleInvestor Note bears interest at a rate of 10% per annum (the "March 2021 Interest Rate"). The March 2021 Investor is entitled to, at its option, at any time after issuance at a per share price of $0.20. In addition, the March 2021 Investor received 200,000 common shares of the Company, subsequent to issuance of the March 2021 Investor Note, valuedconvert all or any amount of the principal amount and any accrued but unpaid interest of the March 2021 Investor Note into Common Stock, at $69,000 based on the closinga conversion price of $0.20 per share. Under the common sharesoriginal terms of the day before issuance. On March 31, 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. Any portion of the Company received $245,000, netMarch 2021 Investor Note which is not repaid by the maturity date will bear interest at the default interest rate of transaction related expenses of $30,000.18% per annum.
On January 20,November 22, 2021, the March 2021 Investor extended the maturity date to March 31, 2022 in exchange for a payment of $486,474. On April 7, 2022, the March 2021 Investor extended the maturity date of the March 2021 Investor Note to April 30, 2022. And, on May 20195, 2022, the March 2021 Investor converted a portion of the July 2019April 2021 Investor and the October 2019 Investor reached an agreement with the Company and on January 21, 2021 converted the remaining balances of their convertible promissory notes, totaling $546,000 for 2,100,000Note, $300,000, into 1,500,000 common shares of the Company at a conversion price of $0.26$0.20 per share. This satisfies in full all obligations due and owing on their convertible promissory notes. This resulted in a gain on forgiveness of debt of $223,819, including accrued interest of $169,219, disclosedshare as other incomestipulated in the interim condensed consolidated statementsMarch 2021 SPA. The April 2021 Investor forgave the balance of operations and comprehensive loss.the April 2021 Investor Note.
The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "March 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2021 Investor Note.
On January 19, 2021,For the remainingthree-month period ended March 2019 Investor and31, 2022, the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $550,000, $50,000 paid on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124issued 2,000,000 common shares on March 11, 2021 and $300,000the conversion of a convertible promissory note, having a fair value on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. As noted,conversion in the March 2019 Investor converted a totalamount of $135,000 of one of his March 2019 Investor Notes, including accrued interest of $32,444 and related expense of $275 into 1,075,124 common shares of the Company,$463,862 at a conversion price of $0.156$0.20 per share. The balance ofAnd, for the convertible promissory note was forgiven by thethree-month period ended March 2019 Investor resulting in a forgiveness of debt of $135,641, including accrued interest of $129,141, disclosed under other income in the interim condensed consolidated financial statements.
On November 3,31, 2021, the Company paidissued 3,175,124 common shares on the March 2019 Investor Noteconversion of convertible promissory notes, in the amount of $200,000, for a total settlement$713,716, including accrued interest and related costs of outstanding principal and accrued interest.$32,716. The share conversion prices ranged from $0.156 to $0.26 per share (on the 2019 convertible promissory notes).
For the three and nine-month periodsthree-month period ended September 30, 2021,March 31, 2022, the Company recordedincurred interest of $60,693 and $104,412 (2020-$nil (2021-$115,351 and $448,798 interest and default amounts) respectively. As at September 30, 2021, $88,474 (December 31, 2020-$316,048) of accrued interest is included in accrued liabilities in14,756 on the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2021, $20,910 and $53,354 (2020-$8,821 and $15,276) respectively, of accrued interest was converted.2019 convertible promissory notes)
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(b)Pace Savings & Credit Union Limited ("PACE")
On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company to bring the arrears current by August 31, 2021 and continue to September 2022. Management was not able to meet this new deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the existing letter of credit, in the Company had with PACE in favoramount of the Ministry of the Environment, Conservation and Parks (the "MECP"),$221,548 (C$276,831) was renewed by PACE to the termination of the Company’sCompany's obligations to PACE, September 2022. On April 3, 2020,The Company is in the shares previously pledged as security to PACE, were released and are currently held as securityprocess of obtaining a letter of credit for the personal guarantee fromnew financial assurance with the CEO and charge againstMECP in the Haute leased premises.amount of $510,301 (C$637,637).
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The remaining PACE long-term debt was initially payable as noted below:
(i)The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $6,879 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,255,840 (C$1,600,000), is secured by a business loan general security agreement, a $1,255,840 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
(ii)The credit facility advanced on June 15, 2017, in the amount of $470,940 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,847 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
(iii)The corporate term loan advanced on September 13, 2017, in the amount of $2,923,083 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,320 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,140,368 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.
| (i) | The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $7,014 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,280,480 (C$1,600,000), is secured by a business loan general security agreement, a $1,280,480 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. On April 3, 2020, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus. |
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| (ii) | The credit facility advanced on June 15, 2017, in the amount of $480,180 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,922 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above. |
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| (iii) | The corporate term loan advanced on September 13, 2017, in the amount of $2,980,435 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,778 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,201,983 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement. |
For the three and nine-month periodsthree-month period ended September 30, 2021, $79,687March 31, 2022, $75,525 (C$99,683) and $236,743 (C$296,151) (2020-95,625) (2021-$70,105;77,265; C$93,162 and $225,346; C$304,893) respectively,97,816) in interest was incurred on the PACE long-term debt. As at September 30, 2021 $71,051March 31, 2022 $18,139 (C$88,065)22,967) (December 31, 2020-2021-$18,319;42,686; C$23,325)53,680) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
sheets
(c)Other Financings
On April 21, 2022, the Company received proceeds from an employee of $28,000 on a private placement for 70,708 common shares of the Company, at a price of $0.396 per share.
(i)TheOn May 5 and 6, 2022, the Company obtained a 1st mortgage provided byreceived proceeds of $700,000, on two private lenders to finance the acquisitionplacements for 2,333,333 common shares of the sharesCompany, at a price of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,081,480 (C$5,200,000) (December 31, 2020-$2,591,820; C$3,300,000). The fourth tranche was received on August 13, 2021 in the amount of $1,491,310 (C$1,900,000). The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05%$0.30 per annum (currently 8.50%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage property described in note 8, long-lived assets, net in the interim condensed consolidated balance sheets with a carrying value of $1,654,569 (C$2,108,000) and a general assignment of rents. Financing fees on the 1st mortgage totaled $316,644 (C$403,419). As at September 30, 2021 $32,428 (C$41,315) (December 31, 2020-$36,215; C$46,110)share.
| (i) | The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,161,560 (C$5,200,000) (December 31, 2021-$4,101,760; C$5,200,000). The fourth tranche was received on August 13, 2021 in the amount of $1,520,570 (C$1,900,000) and a portion of this fourth tranche, $1,483,703 (C$1,853,933), was used to fund a portion of the purchase of the Hamilton Property, described under long-lived assets, net (note 6). The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage on the premises located at 704 Phillipston Road, Roslin, Ontario, Canada and a general assignment of rents. Financing fees on the 1st mortgage totaled $322,856 (C$403,419). As at March 31, 2022, $34,205 (C$42,740) (December 31, 2021-$33,713; C$42,740) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2021 there is $124,413 (C$158,508) (December 31, 2020-$50,253; C$63,984) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets. In addition, as at March 31, 2022, there is $58,140 (C$72,648) (December 31, 2021-$90,794; C$115,104) of unamortized financing fees included in long-term debt in the consolidated balance sheets. |
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(ii)On August 17, 2021, the Company obtained a vendor take backtake-back 1st mortgage in the amount of $1,569,800$1,600,600 (C$2,000,000), on the purchase of the Hamilton property described under long-lived assets, net note 8.Property. The 1st mortgage bears interest at an annual rate of 2% per annum, repayable monthly interest only with a maturity date of August 17, 2023, secured by the assets acquired inon the Hamilton Ontario, Canada.Property.
To finance the closing, the Company used a portion of its increased 1st mortgage in the amount of $1,455,152 (C$1,853,933).
For the three and nine-month periodsthree-month period ended September 30, 2021, $89,762March 31, 2022, $111,853 (C$112,814) and $206,184 (C$257,924) (2020-141,622) (2021-$48,409;62,530; C$65,000 and $144,125; C$195,000) respectively79,162) in interest was incurred on the 1st mortgages payable.
(ii)As a result of COVID-19, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
The Company has received a total of $78,490 (C$100,000) under this program, from its Canadian chartered bank.
| As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
The Company has received a total of $80,030 (C$100,000) under this program, from its Canadian chartered bank.
Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 1, 2023, maturing December 31, 2025.
The CEBA term loan agreements were amended by extending the interest free repayment date by one year to December 31, 2023. If paid by December 31, 2023, 33.33% ($26,676; C$33,333), previously 25%, of the loans would be forgiven. Repayment terms on the extended period are unchanged.
The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance. |
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33(iv) | On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $172,225 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $157,760 (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 $3,866 (C$4,901) due April 7, 2025. |
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| (v) | On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,881 (C$6,138). The amount was paid in full on January 26, 2021. For the three-month period ended March 31, 2022, the Company incurred interest charges of $nil (C$nil) (2021-$697 (C$883). |
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| (vi) | During the three-month period ended March 31, 2021, Travellers International Inc. ("Travellers"), a company controlled by the president and chief executive officer (the "CEO") of the Company, who is also a director, loaned the Company $205,321 (C$261,620). The loans were converted along with of $80,323 (C$101,700) of accounts payable owing to Travellers into 1.005,728 common shares of the Company based on the closing trading price of the shares on conversion.
There are no written agreements evidencing the Travellers loans other than resolutions of the Board with attached loan schedules. |
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Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025.
In addition, on a combined basis, if $54,943 (C$70,000) of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance, $23,547 (C$30,000). The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
(iii)On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,952 (C$6,138). The amount was paid in full on January 26, 2021. For the three and nine-month periods ended September 30, 2021, the Company incurred interest charges of $nil (C$nil) and $706 (C$883) (2020-$nil; C$nil and $nil; C$nil) respectively.
(iv)During the three and nine-month periods ended September 30, 2021, Travellers International Inc. ("Travellers"), a company controlled by the president and chief executive officer (the "CEO") of the Company, who is also a director, loaned the Company $318,136 (C$405,321). The loans were converted along with of $82,052 (C$101,700) of accounts payable owing to Travellers into 1,726,076 common shares of the Company based on the closing trading price of the shares on conversion. There are no written agreements evidencing the Travellers loans other than resolutions of the Board with attached loan schedules.
(d)Financings Related to Obligations Under Capital Lease
There were no new capital leases entered into by the Company during the three-month period ended September 30, 2021.TheMarch 31, 2022.The original terms of the obligations under capital lease are noted below under paragraphs (i), and (ii) and (iii).
(i)The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $224,992 (C$286,650), is payable in monthly blended installments of principal and interest of $4,556 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. On November 3, 2021, the Company paid the final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes.
(ii)The lease agreement for certain equipment for the Company's organic composting facility at a cost of $194,224 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,017 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,849 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,371 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.
(iii)The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $305,836 (C$389,650), is payable in monthly blended installments of principal and interest of $5,378 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,266 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $78 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.
| (i) | The lease agreement for certain equipment for the Company's organic composting facility at a cost of $198,034 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,096 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $8,003 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,761 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022. The Company is in the process of satisfying the final payment. |
| |
| (ii) | The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $311,837 (C$389,650), is payable in monthly blended installments of principal and interest of $5,484 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,566 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $80 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025. |
For the three and nine-month periodsthree-month period ended September 30, 2021, $2,147March 31, 2022, $1,760 (C$2,721) and $9,841 (C$12,311) (2020-2,229) (2021-$4,902;4,903; C$6,536 and $13,822; C$18,701) respectively,5,181) in interest was incurred.
Treatment of Organic Waste and Septage
On February 28, 2019, the Company announced that it had received the project completion report titled: Development Optimization and Validation of an Innovative Integrated Anaerobic Thermophilic Digester Treatment of Organic Waste and Septage. The report was written by a research team at Fleming College's Centre for Advancement of Water and Wastewater Technologies, located in Lindsay, Ontario, Canada. The collaborative project was supported by the Advancing Water Technologies Program (the "AWT Program") of Southern Ontario Water Consortium. The project focused on the development of a new and innovative technology for handling and processing organic residuals. This new technology utilizes the anaerobic mesophilic digestion process coupled with thermophilic digestion to maximize biogas yields and produce organic fertilizer through optimal operations.
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Other
On May 9, 2017, the company signed a memorandum of agreement with Kentech (the "Kentech Agreement"), a corporation existing under the laws of the province of Ontario, Canada ("Kentech"). The Kentech Agreement provides the Company the right to acquire and the right to use the equipment and innovative processes of Kentech in relation to the production of liquid fertilizer from organic waste material. The Kentech Agreement is for a period of five years, commencing on the date of the Kentech Agreement. The Kentech Agreement may be terminated by either party upon providing six months' notice.
The Company's activities all contribute to GHG reductions, so we will be a key part of Ontario's initiative. The Company has also contacted counterparties in Quebec and California to explore opportunities for relevant projects. SusGlobal is committed to making all its commercial activities carbon neutral. New Cap and Trade regulations became effective January 2017. On July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap-and-Trade program in Ontario. In January 2019, a Climate Change Leadership Team (the "CCLT") was established. The CCLT is a cross-ministry group responsible for embedding climate change in government procurement, building understanding and capacity within government, and creating a process to update internal directives and guidance to help ensure climate change is considered.
The Company has signed an Offset Development and Marketing Agreement (the "Agreement") with Blue Source Canada ULC ("Bluesource") to develop and market greenhouse gas offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario, in order for the Company to monetize and realize benefits from its voluntary activities.
This monetization is an exciting development for the Company's mission to reduce organic wastes from wood, leaf and yard material, treated municipal sewage waste (biosolids), residential curbside green bin material or source separated organics ("SSO") and paper sludge otherwise destined for landfills and, we believe, will also allow the Company to expand this mission.
Bluesource has pioneered creative solutions to climate change for over 20 years. Today, this partnership complements Bluesource's portfolio of high-quality environmental products from over 20 different technologies in over 100 locations across the United States and Canada. The partnership with SusGlobal is a core example of Bluesource's experience in identifying, creating, acquiring and marketing offsets, where there is a tangible environmental benefit.
Operations
The Company owns the Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 metric tonnes ("MT") of waste annually from the provinces of Ontario, Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 MT of waste annually. Once built, the location of the waste transfer station will be alongside the Organicorganic waste processing and Non-Hazardous Waste Processing and Composting Facilitycomposting facility which is currently operating in Belleville, Ontario, Canada.
Waste Transfer Station-Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility- As noted above, the Company's organic waste processing and composting facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic waste composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During nine-monththree-month period ended September 30, 2021,March 31, 2022, tipping fees ranged from $54$55 (C$69) to $125$118 (C$159)150) per MT.
The Company owns a 40,535 square foot facility on 3.26 acres in Hamilton, Ontario, which includes an Environmental Compliance Approval to process 65,884 metric tonnes per annum of organic waste, 24 hours per day 7 days a week. The facility will be designed to produce, distribute and warehouse the Company's SusGro™ organic liquid fertilizer and other products that are provided under private label and sold through big box retailers, consumer lawn and garden suppliers, and for end use to the wine, cannabis and agriculture industries. With the addition of a further 11,000 square feet of office space and R&D labs, the Hamilton facility will also house the continued development of SusGlobal's proprietary formulations and branded liquid and dry organic fertilizers.
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3543 |
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021,March 31, 2022, the Company had a bank balance of $36,912$36,058 (December 31, 2020-2021-$6,457)36,033) and current debt obligations and other current liabilities in the amount of $11,592,938$17,365,862 (December 31, 2020-2021-$10,358,212)13,944,507). As at September 30, 2021,March 31, 2022, the Company had a working capital deficit of $11,236,795$16,426,654 (December 31, 2020-2021-$9,830,314)13,651,619). The Company does not currently have sufficient funds to satisfy the current debt obligations.
On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. The amounts owing were not repaid to PACE on July 30, 2021. On August 13, 2021, PACE agreed to allow the Company until August 31, 2021 to bring the arrears current and continue to September 2022, the original maturity date. The Company was not able to meet this deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the existing letter of credit, in the Company has with PACE in favoramount of the Ministry of the Environment, Conservation and Parks (the "MECP"),$221,548 (C$276,831) was renewed by PACE to the termination of the Company’sCompany's obligations to PACE, September 2022. The Company is in the process of obtaining a letter of credit for the new financial assurance with the MECP in the amount of $510,301 (C$637,637).
On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.
The Company's total assets as at September 30, 2021March 31, 2022 were $8,962,137$9,966,872 (December 31, 2020-2021-$5,758,303)8,571,721) and total current liabilities were $11,592,938$17,365,862 (December 31, 2020-2021-$10,358,212)13,944,507). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $15,993,098$21,197,875 as at September 30, 2021March 31, 2022 (December 31, 20202021 -$13,468,794)18,334,649). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels. The Company is also anticipating a successful underwritten offering in connection with its filed registration statement although there can be no assurance that the underwritten offering will be completed.
To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $11,592,938$17,365,862 in current debt obligations and other current liabilities, the Company estimates that approximately $17,500,000$13,000,000 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.
During the three and nine-month periodsthree-month period ended September 30,March 31, 2022, the April 2021 the investors of theInvestor converted his unsecured convertible promissory notes convertedhaving a totalstated amount of $75,000$400,000 and $756,000a fair value on conversion of their unsecured convertible promissory notes respectively, along with a portion of their accrued interest and related costs of $21,185 and $53,904, a total of $96,185 and $809,904 for 3,767,029$463,862 common shares of the Company at prices ranging from $0.156 to $0.26 per share.Company.
As at September 30, 2021,March 31, 2022, the current and long-term portions of our debt obligations totaled $10,832,590$15,914,724 (December 31, 2020-2021-$7,922,532)13,537,341).
In addition, as at September 30, 2021,March 31, 2022, the Company had an outstanding letter of credit provided by PACE, in the amount of $217,285$221,548 (C$276,831), in favor of the MECP. The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating itsin the process of obtaining a letter of credit for the new financial assurance with the MECP. The letterMECP in the amount of credit was renewed by PACE to the termination of the Company's obligations to PACE.$510,301 (C$637,637).
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3644 |
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2021MARCH 31, 2022 COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2020MARCH 31, 2021
| | | For the three-month periods ended | | | For the three-month periods ended | |
| | | September 30, 2021 | | September 30, 2020 | | | March 31, 2022 | | March 31, 2021 | |
| | | |
| Revenue | $ | 204,796 | | $ | 439,507 | | $ | 144,470 | | $ | 192,660 | |
| | | | | | | | | | | | | |
| Cost of Sales | | | | | | | | | | | | |
| Opening inventory | | 35,983 | | | - | | | 20,582 | | | 24,740 | |
| Depreciation | | 116,632 | | | 133,467 | | | 116,203 | | | 136,560 | |
| Direct wages and benefits | | 74,093 | | | 90,475 | | | 52,088 | | | 71,059 | |
| Equipment rental, delivery, fuel and repairs and maintenance | | 371,424 | | | 52,652 | | | 170,188 | | | 105,893 | |
| Utilities | | 16,872 | | | 27,185 | | | 38,812 | | | 18,263 | |
| Outside contractors | | 39,717 | | | 3,886 | | | 24,568 | | | - | |
| | | 654,721 | | | 307,665 | | | 422,441 | | | 356,515 | |
| Less: closing inventory | | (21,506 | ) | | - | | | (16,806 | ) | | (45,923 | ) |
| Total cost of sales | | 633,215 | | | 307,665 | | | 405,635 | | | 310,592 | |
| | | | | | | | | | | | | |
| Gross (loss) profit | | (428,419 | ) | | 131,842 | | |
| Gross (loss) | | | (261,165 | ) | | (117.932 | ) |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Management compensation-stock-based compensation | | 54,259 | | | - | | | 60,113 | | | 54,259 | |
| Management compensation-fees | | 90,471 | | | 51,812 | | | 118,469 | | | 90,049 | |
| Marketing | | 30,131 | | | - | | | 376,488 | | | 45,727 | |
| Professional fees | | 96,704 | | | 102,769 | | | 261,652 | | | 69,402 | |
| Interest expense and default amounts | | 233,346 | | | 258,796 | | |
| Interest expense | | | 191,243 | | | 163,874 | |
| Office and administration | | 66,329 | | | 50,042 | | | 60,577 | | | 75,215 | |
| Rent and occupancy | | 56,148 | | | 32,420 | | | 50,925 | | | 32,339 | |
| Insurance | | 19,719 | | | 10,056 | | | 28,838 | | | 15,002 | |
| Filing fees | | 49,131 | | | 12,957 | | | 54,175 | | | 18,959 | |
| Amortization of financing costs | | 235,795 | | | 18,677 | | | 33,532 | | | 13,578 | |
| Directors' compensation | | 14,905 | | | 56,637 | | | 14,809 | | | 10,664 | |
| Stock-based compensation | | 31,946 | | | - | | | 130,512 | | | 8.073 | |
| Repairs and maintenance | | 3,688 | | | 1,186 | | | 2,329 | | | 13,189 | |
| Foreign exchange loss (income) | | 35,569 | | | (33,473 | ) | |
| Foreign exchange (income) loss | | | (77,749 | ) | | (12,118 | ) |
| Total operating expenses | | 1,018,141 | | | 561,879 | | | 1,305,913 | | | 598,212 | |
| | | | | | | | | | | | | |
| Net loss from operating activities | | (1,446,560 | ) | | (430,037 | ) | |
| Other Income | | - | | | (424 | ) | |
| Net loss before deferred taxes recovery | | (1,446,560 | ) | | (430,461 | ) | |
| Deferred and income taxes recovery | | 26,552 | | | 1,415 | | |
| Net Loss Before Other (Loss) Income | | | (1,567,078 | ) | | (716,114 | ) |
| Other (Expense) Income | | | (1,296,148 | ) | | 323,612 | |
| Net Loss | $ | (1,420,008 | ) | $ | (429,046 | ) | $ | (2,863,226 | ) | $ | (392,532 | ) |
During the three-month period ended September 30, 2021,March 31, 2022, the Company generated $204,796$144,470 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $439,507$192,660 in the three-month period ended September 30, 2020.March 31, 2021. The reduction in revenue is primarily due to changes in the customer base including an expiring contract from September 2021 and a reduction of garbage collection revenue as the Company substantially ceased garbage collection at prior year-end and reductions in certain waste disposedthe end of by several customers.February 2022. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.
In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $633,215 for the three-month period ended September 30, 2021 compared to $307,665 for the three-month period ended September 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The reduction in costs relate partially to reduced overtime hours included in direct wages and benefits, adjustments to the estimated cost for the clean-up of certain waste as ordered by the MECP, reductions in utilities resulting from the retrofit of the hydro usage in the composting operation offset by an increase in hauling costs included in outside contractors.
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37 |
Operating expenses increased by $456,262, from $561,879 in the three-month period ended September 30, 2020 to $1,018,141 in the three-month period ended September 30, 2021, explained further below.
Management compensation related to stock-based compensation increased by $54,259, in the three-month period ended September 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. The management compensation relating to fees increased by $38,659, from $51,812 in the three-month period ended September 30, 2020 to $90,471 in the three-month period ended September 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.
During the three-month period ended September 30, 2021, the Company contracted with several marketing service providers for news media campaigns including articles and ad placements. There was no marketing conducted in the three-month period ended September 30, 2021.
Professional fees were reduced by $6,065 from $102,769 in the three-month period ended September 30, 2020 to $96,704 in the three-month period ended September 30, 2021, an insignificant decrease.
Interest expense and default amounts reduced by $25,450 from $258,796 in the three-month period ended September 30, 2020 to $233,346 in the three-month period ended September 30, 2021. This was primarily the result of lower interest in the current three-month period on our convertible due to the payoff agreements finalized with the convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, a reduction of approximately $137,000. This was offset primarily by increases in the interest on the 1st mortgage payable, whose principal balance increased by a total of $2,040,740 (C$2,600,000), from two increases, one effective November 10, 2020, in the amount of $549,430 (C$700,000) and one effective August 13, 2021, in the amount of $1,491,310 (C$1,900,000) and the new 1st mortgage of $1,569,800 (C$2,000,000) on the Hamilton, Ontario, Canada asset acquisition, effective August 13, 2021.
Office and administration expenses increased by $16,287 from $50,042 in the three-month period ended September 30, 2020 to $66,329 in the three-month period ended September 30, 2021, primarily due to the increases in expenses with the incorporation of the Hamilton operations, including security of $6,125 and increases in other general and administrative expenses including donations, automotive, meals and entertainment and payroll amongst all operations.
Rent and occupancy increased by $23,728 from $32,420 in the three-month period ended September 30, 2020 to $56,148 in the three-month period ended September 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses and increases in property taxes on the other properties, including the new property in Hamilton, Ontario, Canada.
Insurance increased by $9,663 from $10,056 in the three-month period ended September 30, 2020 to $19,719 in the three-month period ended September 30, 2021, primarily due to the new title insurance on the Hamilton, Ontario, Canada asset acquisition and the insurance on the Company's new truck and hauling trailer.
Filing fees increased by $36,174 from $12,957 in the three-month period ended September 30, 2020 to $49,131 in the three-month period ended September 30, 2021, primarily due to costs related to media relations services which were not incurred in the prior period and the $5,000 fee for the Nasdaq application.
The amortization of financing costs incurred increased by $217,118 from $18,677 in the three-month period ended September 30, 2020 to $235,795 in the three-month period ended September 30, 2021, due primarily to the increased amortization of the financing fees relating to the five new convertible promissory notes dated March 31, 2021, April 1, 2021, June 16, 2021 and August 26, 2021, an increase of approximately $187,500 and an increase in the amortization of the mortgage financing fees of approximately $ 29,000.
Directors' compensation decreased by $41,732 from $56,637 in the three-month period ended September 30, 2020 to $14,905 in the three-month period ended September 30, 2021. In the prior year, during three-month period ended September 30, 2020, the Board approved a new compensation arrangement whereby each independent member was entitled to an annual fee of $19,985 (C$25,000), the result being an adjustment for the year's compensation for the 4 independent Board members. In the current three-month period ended September 30, 2021, the directors' compensation has been accrued for the quarter to the three independent directors.
Stock-based compensation of $31,946 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the total stock-based compensation, determined to be valued at $135,260, will be expensed over the duration of the professional services contacts, which expire at various dates from November 30, 2021 to March 31, 2023.
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38 |
Repairs and maintenance increased by an insignificant amount of $2,502 from $1,186 in the three-month period ended September 30, 2020 to $3,688 in the three-month period ended September, 2021.
The foreign exchange income reduced by $69,042, from income of $33,473 in the three-month period ended September 30, 2020 to expense of $35,569 in the three-month period ended September 30, 2021, due primarily to gains and losses on the translation of balances and transactions during the period.
|
39 |
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2021COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020
| | | For the nine-month periods ended | |
| | | September 30, 2021 | | | September 30, 2020 | |
| | | | | | | |
| Revenue | $ | 610,088 | | $ | 1,172,343 | |
| | | | | | | |
| Cost of Sales | | | | | | |
| Opening inventory | | 24,740 | | | 5,389 | |
| Depreciation | | 388,731 | | | 367,734 | |
| Direct wages and benefits | | 210,542 | | | 251,721 | |
| Equipment rental, delivery, fuel and repairs and maintenance | | 546,597 | | | 210,808 | |
| Utilities | | 24,290 | | | 73,425 | |
| Outside contractors | | 61,089 | | | 9,165 | |
| | | 1,255,989 | | | 918,242 | |
| Less: closing inventory | | (21,506 | ) | | - | |
| Total cost of sales | | 1,234,483 | | | 918,242 | |
| | | | | | | |
| Gross (loss) profit | | (624,395 | ) | | 254,101 | |
| | | | | | | |
| Operating expenses | | | | | | |
| Management compensation-stock-based compensation | | 162,777 | | | - | |
| Management compensation-fees | | 273,395 | | | 152,994 | |
| Marketing | | 158,605 | | | - | |
| Professional fees | | 231,950 | | | 292,104 | |
| Interest expense and default amounts | | 565,938 | | | 854,496 | |
| Office and administration | | 171,164 | | | 182,727 | |
| Rent and occupancy | | 125,067 | | | 89,480 | |
| Insurance | | 51,106 | | | 52,156 | |
| Filing fees | | 85,278 | | | 35,103 | |
| Amortization of financing costs | | 371,916 | | | 141,686 | |
| Directors' compensation | | 38,241 | | | 57,070 | |
| Stock-based compensation | | 68,228 | | | - | |
| Repairs and maintenance | | 11,475 | | | 10,097 | |
| Foreign exchange (income) loss | | 16,130 | | | 31,987 | |
| Total operating expenses | | 2,331,270 | | | 1,899,900 | |
| | | | | | | |
| Net loss from operating activities | | (2,955,665 | ) | | (1,645,799 | ) |
| Other Income | | 404,809 | | | (59,128 | ) |
| Net loss before deferred taxes recovery | | (2,550,856 | ) | | (1,704,927 | ) |
| Deferred taxes recovery | | 26,552 | | | 197,420 | |
| Net Loss | $ | (2,524,304 | ) | $ | (1,507,507 | ) |
During the nine-month period ended September 30, 2021, the Company generated $610,088 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $1,172,343 in the nine-month period ended September 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end, the closure of a customer plan in mid-2020 and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.
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| 45 |
In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $1,234,483$405,635 for the nine-monththree-month period ended September 30, 2021March 31, 2022 compared to $918,242$310,592 for the nine-monththree-month period ended September 30, 2020.March 31, 2021. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The increasedadditional costs relate primarily to adjustments to the estimated costsinclude an estimate for the clean-up of certain waste as ordered by the MECP including higher machinery rental costs and increased fuel charges and disposal fees, along with hauling costs for garbage collection disclosed as outside contractors, offset by reductions in utilities resulting from the retrofit of the hydro usageMECP. The significant increase in the composting operation along with credits provideddisposing of unusable waste was the result of a price increase charged by the utility company for hydro usage and reduced overtime hours by employees in the organic waste processing and composting operation.
hauler of approximately 30% due to much higher than usual fuel costs.
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40 |
Operating expenses increased by $431,370$707,701 from $1,899,900$598,212 in the nine-monththree-month period ended September 30, 2020March 31, 2021 to $2,331,270$1,305,913 in the nine-monththree-month period ended September 30, 2021,March 31, 2022, explained further below.
Management compensation related to stock-based compensation increased by $162,777,$5,854, in the nine-monththree-month period ended September 30,March 31, 2022 compared to the three-month period ended March 31, 2021, as a result of the new common stock issued to the officers on the commencement ofas stipulated in their new executive consulting contracts, effective January 1, 2021.2022. The balance of the total stock-based compensation valued at $217,035,$240,450, based on the trading price of the shares on issuance,the effective date will be expensed over the balance of the year. And, the management compensation relating to fees increased by $120,401,$28,420, from $152,994$90,049 in the nine-month period ended September 30, 2020 to $273,395 in the nine-month period ended September 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.
The Company commenced a new marketing program effective February 1, 2021 for a period of five months to June 30, 2021, at a cost of $20,000 per month, which significantly contributed to the total marketing expense of $158,605 in the nine-month period ended September 30, 2021. The Company also incurred, during the recent quarter, marketing expenses provided by service providers for articles, ad placements and a news media campaign. The Company did not have a marketing program in the prior period.
Professional fees were reduced by $60,154, from $292,104 in the nine-month period ended September 30, 2020 to $231,950 in the nine-month period ended September 30, 2021, primarily due to the absence of the 2019 acquisition costs relating to professional fees expensed in the prior period in the amount of $54,544, offset by increases in other professional fees such as audit and related fees.
Interest expense and default amounts reduced by $288,558 from $854,496 in the nine-month period ended September 30, 2020 to $565,938 in the nine-month period ended September 30, 2021. In the prior period, interest and default penalties on the convertible promissory notes was approximately $449,000 and due to the payoff agreements finalized with several convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021 interestto $118,469 in the three-month period ended March 31, 2022, the result of increased monthly fees, effective January 1, 2022.
Marketing expenses increased by $330,761, from $45,727 in the three-month period ended March 31, 2021 to $376,488 for the three-month period ended March 31, 2022, primarily the result of a new marketing campaign commencing in Q3 of 2021. This marketing campaign will be completed in Q2 of 2022.
Professional fees increased by $192,250, from $69,402 in the three-month period ended March 31, 2021 to $261,652 in the three-month period ended March 31, 2022. primarily due to increased estimated costs for the 2022 audit, review and tax related services. In addition, the Company engaged the services of a chartered professional accounting firm to assist management with various documentation and reporting matters. In addition, in 2021, the Company elected the fair value option to record its convertible promissory notes and as a result, any professional fees in connection with the issuance of convertible promissory notes were expenses, $75,000 in the current period for interest on the convertible promissory notes amounted to approximately $104,412, a reduction of approximately $345,000. This was offset primarily by increasesand $5,000 in the interest on the existing 1st mortgage payable, whose principal balance increased in total by $2,040,740 (C$2,600,000), in two tranches, effective November 10, 2020 and August 13, 2021, the interest on the new 1st mortgage on the Hamilton, Ontario, Canada asset acquisition, and the interest on the new truck and trailer loan purchased during the period, an increase of approximately $60,000.prior period.
Interest expense increased by $27,369 from $163,874 in the three-month period ended March 31, 2021 to $191,243 in the three-month period ended March 31, 2022. This increase was primarily due to the increased 1st mortgage for the Company's waste processing and organic composting facility in the amount of $1,520,570 (C$1,900,000), partially offset by lowering interest rates on the Company's interest-bearing debt obligations.
Office and administration expenses decreased insignificantlyreduced by $11,563$14,638, from $182,727$75,215 in the nine-monththree-month period ended September 30, 2020March 31, 2021 to $171,164$60,577 in the nine-monththree-month period ended September 30, 2021.March 31, 2022, primarily from the absence of subscriptions and research publications.
Rent and occupancy increased by $25,587$18,586, from $89,480$32,339 in nine-monththe three-month period ended September 30, 2020March 31, 2021 to $125,067$50,925 in the nine-monththree-month period ended September 30, 2021,March 31, 2022, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses and increases in propertyincreased realty taxes on other properties, includingfor the Company's new propertyfacility under construction in Hamilton, Ontario, Canada.
Insurance reduced insignificantlyincreased by $1,050$13,836, from $52,156$15,002 in the nine-monththree-month period ended September 30, 2020March 31, 2021 to $51,106$28,838 in the nine-monththree-month period ended September 30, 2021.March 31, 2022, primarily due to the new insurance on the Company's new facility under construction in Hamilton, Ontario, Canada.
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Filing fees increased by $50,175$35,216, from $35,103$18,959 in the nine-monththree-month period ended September 30, 2020March 31, 2021 to $85,278$54,175 in the nine-monththree-month period ended September 30, 2021,March 31, 2022, primarily due to costs related toassociated with the media relations services which were notspecial meeting of the shareholders on March 24, 2022, administrative costs incurred in the prior periodfiling of the S-1 registration statement and the $5,000 fee for the Nasdaq application.
an increase in investor relations activities.
The amortization of financing costs incurred increased by $230,230$19,954, from $141,686$13,578 in the nine-monththree-month period ended September 30, 2020March 31, 2021 to $371,916$33,532 in the nine-monththree-month period ended September 30,March 31, 2022, due to the additional filing fees incurred on the increased 1st mortgage noted above.
Directors' compensation increased nominally from $10,664 in the three-month period ended March 31, 2021 to $14,809 in the three-month period ended March 31, 2022, due to the full complement of independent directors in the current period.
Stock-based compensation increased by $122,439, from $8,073 in the three-month period ended March 31, 2021 to $130,512 in the three-month period ended March 31, 2022, as a result of significant new consulting services provided by several new service providers.
Repairs and maintenance decreased by $10,860, from $13,189 in the three-month period ended March 31, 2021 to $2,329 in the three-month period ended March 31, 2022, due to absence of necessary repairs at the Company's waste processing and organic composting facility.
The foreign exchange income increased by $65,631, from income of $12,118 in the three-month period ended March 31, 2022 to income of $77,749 in the three-month period ended March 31, 2022, due primarily to the increased amortizationtranslation of significant United States dollar denominated transactions and balances during the financing fees relating toperiod including the four new convertible promissory notes, dated March 31, 2021, April 1, 2021, June 16, 2021 and August 26, 2021, an increase of approximately $223,000 and an increase incompared to the amortizationprior period, during a period of the mortgage finance fees of approximately $7,500.strengthening Canadian dollar.
Directors' compensation decreased from by $18,829 from $57,070 inDuring the nine-monthcurrent three-month period ended September 30, 2020 to $38,241 inMarch 31, 2022, the nine-month period ended September 30, 2021. In the prior year, each of the four independent directors were entitled to compensation of $19,985 (C$25,000) annually and the audit committee chairman was entitled to a fee of $784 (C$1,000) per quarter for his services. In the current period, only one independent director servedCompany recorded an expense for the entire period and the 2 remaining independent directors joined in April and June of 2021, respectively, resulting in a lower overall expense.
Stock-based compensation of $68,228 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the stock-based compensation, determined to be valued at $135,260, will be expensed over the duration of the professional services contacts, which expire at various dates from November 30, 2021 to March 31, 2023.
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Repairs and maintenance increased by $1,378, an insignificant change.
The foreign exchange expense decreased by $15,857 from a loss of $31,987 in the nine-month period ended September 30, 2020 to income of $16,130 in the nine-month period ended September 30, 2021, due primarily to a reduction of gains and losses on the translation of balances and transactions during the period.
Other income increased by $463,937 from a loss of $59,128 in the nine-month period ended September 30, 2020 to income of $404,809 in the nine-month period ended September 30, 2021. The current period includes income on the forgivenessrevaluation of the convertible promissory notes in the amount of $61,100 and on$1,296,148 compared to $81,197 in the accrued interest of $298,360 andprior period ended March 31, 2021. In addition, during the three-month period ended March 31, 2021, the Company recorded a gain on the disposal of certain long-lived assets of $45,349. In the prior period, the Company wrote off a land option in the amount of $59128, with no comparable amount$45,349 and gains on forgiveness on convertible promissory notes in the current period.amount of $359,460.
As at September 30, 2021,March 31, 2022, the Company had a working capital deficit of $11,236,795$16,426,654 (December 31, 2020-2021-$9,830,314)13,651,619), incurred a net loss of $2,524,304 (2020-$2,863,226 (March 31, 22021-$1,507,507)392,532) for the nine-month periodthree months ended September 30,March 31, 2021 and had an accumulated deficit of $15,993,098$21,197,875 (December 31, 2020-2021-$13,468,794)18,334,649) and expects to incur further losses in the development of its business.
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments instituted emergency measures as a result of COVID-19. The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.
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The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
CRITICAL ACCOUNTING ESTIMATES
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, fair value of convertible promissory notes, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.
Stock-based compensation
From timeThe Company records compensation costs related to timestock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company maymeasures stock-based compensation cost at the grant options and/or warrantsdate 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 management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method,estimate the fair value of each warrantstock 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 estimatedbased 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 amortized overdoes not expect to in the vesting period, withnear future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting amortization credited to paid in capital.stock- based compensation recognized. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon exercise ofCompany has not issued any stock options and/and has no stock options outstanding at December 31, 2021.
Indefinite Asset Impairments
The Company evaluates the intangible assets for impairment annually in the fourth quarter or warrants is recorded in equity as share capital.when triggering events are identified and whether events and circumstances continue to support the indefinite useful life using Level 3 inputs.
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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.
We assess our long-livedThe 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 for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (income) expense from divestitures, asset impairments and unusual items, net in our Interim Condensed Consolidated Statements of Operations and Comprehensive Loss.written down to their estimated fair value.
Indefinite-Lived Intangible Assets -Convertible Promissory Notes At least annually, and more frequently if warranted, we assess the indefinite-lived intangible assets, including the goodwill of our reporting units for impairment using Level 3 inputs.
The Company has elected the fair value option to account for its convertible promissory notes issued during 2021 and 2022. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date with changes in fair value recorded as a component of other income (expense), in the interim condensed consolidated statements of operations and comprehensive loss. The Company has elected to include interest expense in the changes in fair value. Transaction costs are incurred as expensed. The Company did not elect the fair value option for the convertible promissory notes issued in 2019. These notes are measured at amortized cost.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
There were no new accounting pronouncements adopted during the three months ended March 31, 2022.
On January 1, 2021, the Company early adopted Accounting Standards Update ("ASU") No. 2020-06, -Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current US GAAP. ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted earnings per share "EPS" calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under ASU 2020-06, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early adopted ASU 2020-06 on January 1, 2021 using the modified retrospective method. As a result of Management's evaluation, the adoption of ASU 2020-06 did not have a material impact on the interim condensed consolidated financial statements.
EQUITY
As at September 30, 2021 and the date of this filing,March 31, 2022, the Company had 94,065,40497,208,547 common shares issued and outstanding. As at May 20, 2022, the Company had 101,254,466 common shares issued and outstanding.
STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
The Company has no stock options, warrants or restricted stock units outstanding as at September 30, 2021March 31, 2022 and as of the date of this filing.
RELATED PARTY TRANSACTIONS
For three and nine-month periodsthree-month period ended September 30, 2021,March 31, 2022, the Company incurred $71,424$94,776 (C$120,000) (2021-$71,091; C$90,000) and $215,838 (C$270,000) (2020-$33,791; C$45,000 and $99,779; C$135,000) respectively,, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $19,047$23,693 (C$30,000) (2021-$18,958; C$24,000) and $57,557 (C$72,000) (2020-$18,021; C$24,000 and $53,215; C$72,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at September 30, 2021,March 31, 2022, unpaid remuneration and unpaid expenses in the amount of $410,219$33,533 (C$522,639)41,901) (December 31, 2020-2021-$396,160;14,755; C$504,405)18,706) is included in accounts payable in the interim condensed consolidated balance sheets. This balance includes amounts owing to
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For the former chief executive officer in the amount of $310,428 (C$395,500).
In addition, during the three and nine-month periodsthree-month period ended September 30, 2021,March 31, 2022, the Company incurred interest expense of $nil$23,506 (C$nil) and $nil (C$nil) (2020-29,762) (2021-$1,771;21,165; C$2,368 and $4,399; C$5,952) respectively, on outstanding loans from Travellers and $265 (C$331) and $265 (C$331) (2020-$nil; C$nil and $nil; C$nil) respectively, on the outstanding loan from the CFO.
For the three and nine-month periods ended September 30, 2021, the Company incurred $27,220 (C$34,255) and $72,672 (C$90,908) (2020-$21,198; C$28,284 and $57,618; C$77,957) respectively,26,795) in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.
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For those independent directors providing their services throughout 2021,2022, the Company recordedaccrued directors' compensation for the three and nine-month periods ended September 30, 2021,to each director in the amount of $14,905$4,936 (C$18,751) and $38,2416,250), in total, $14,808 (C$47,837) (2020-18,750) (2021-$56,637 and $57,070) respectively.9,874; C$12,500). Also included in directors' compensation for the three and nine-month periodsthree-month period ended September 30, 2021,March 31, 2022, is the audit committee chairman's fees, in the amount of $nil (C$nil) and $nil (C$nil) (2020-(2021-$751790; C$1,000 and $2,217; $C3,000)1,000). A new audit committee chairman has not yet been appointed for 2021 As at September 30, 2021,March 31, 2022, outstanding directors' compensation of $nil$86,389 (C$nil)107,946) (December 31, 2020-2021-$2,663;70,358; C$3,390) is included in accounts payable and $55,293 (C$70,446) (December 31, 2020-$37,244; C$47,421)89,196) is included in accrued liabilities, in the interim condensed consolidated balance sheets.
Furthermore, for the three and nine-month periodsthree-month period ended September 30, 2021,March 31, 2022, the Company recognized management stock-based compensation expense of $54,259 and $162,777 (2020 $nil and $nil) respectively,$60,113 (2021-$54,259), on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock, respectively, on commencement ofas stipulated in their new executive consulting agreements, effective January 1, 2021.2022. The total stock-based compensation on the issuance of the common stock totaled $217,035.$240,450 (2021-$217,035). The portion to be expensed for the balance of the year, $54,258$180,337 (2021-$162,776 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheetssheets.
During the three-month period ended March 31, 2022, the director's company, Travellers, converted a total of $nil (C$nil) (December 31, 2021-$371,001 (C$461,620) of loans provided during the period and $nil (C$nil) (December 31, 2021-$80,323; C$101,700) of accounts payable owing to Travellers for nil common shares (December 31, 2021-1,726,076 common shares).
In addition, during the three-month period ended March 31, 2022, the Company paid the CFO interest of $504 (C$638) on loans totaling $29,211 (C$36,000) provided to the Company and repaid during the period.
There are no written agreements evidencing these loans from Travellers other than resolutions of the Board with attached loan schedules.
On December 17, 2020, 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, 2021 (the "Effective Date"). The CEO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2020.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $24,009 (C$30,000) per month for twelve (12) months, beginning on the Effective Date, and at a rate of $32,012 (C$40,000) per month for twelve (12) months, beginning January 1, 2022. In addition, the Company agreed to grant the CEO 1,000,000 restricted shares of the Company's common stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date, and 1,000,000 shares of Common Stock on January 1, 2022. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
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.
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On December 17, 2020, the Company entered into an Executive Consulting Agreement (the "CFO Consulting Agreement"), by and between the Company and the CFO of the Company, effective January 1, 2021. Pursuant to the terms of the CFO Consulting Agreement, the CFO is entitled to fees of $6,402 (C$8,000) per month for his services. In addition, the Company has also agreed to grant the CFO 50,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO. The CFO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2020. 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.
On January 26, 2022, SusGlobal Energy Corp. (the "Company") entered into a CFO Consulting Agreement (the "Makrimichalos Consulting Agreement"), by and between the Company and Ike Makrimichalos, Chief Financial Officer of the Company ("Makrimichalos "), effective January 1, 2022. Pursuant to the terms of the Makrimichalos Consulting Agreement, Makrimichalos will be entitled to fees of $8,003 C$10,000 per month, plus the applicable Harmonized Sales Tax, for his services as Chief Financial Officer of the Company. The Company has also agreed to reimburse Makrimichalos for certain out-of-pocket expenses incurred by Makrimichalos. In addition to the monthly fees, Makrimichalos was awarded 50,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share on the Effective Date. The Makrimichalos Consulting Agreement will replace the consulting agreement currently in effect by and between the Company and Makrimichalos.
The Makrimichalos Consulting Agreement is for a term of twelve (12) months. Upon a Constructive Discharge (as defined in the Makrimichalos Consulting Agreements) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, Makrimichalos will be entitled to a compensation of two (2) months' fees, as well as any bonus compensation owing.
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 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.
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Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due primarily toeffective. 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.duties and the inability to initiate a proper assessment of the terms and conditions of the convertible promissory notes and their initial and subsequent measurement and a proper going concern assessment.
Notwithstanding thisthese material weakness,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
There was noDuring the three-month period ended March 31, 2022, management made a change in ourto its internal controlcontrols over financial reporting duringby engaging the nine-month period ended September 30, 2021 that has materially affected or is reasonably likelyservices of specialists to materially affect our internal control over financial reporting.assist with the proper assessment of the terms and conditions of the convertible promissory notes and their initial and subsequent measurements.
PART II: OTHER INFORMATION
Item 1.1A. Legal Proceedings.
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount $51,208$52,212 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheets.
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On September 24, 2020, the Company filed a statement of claim against the former chief executive officer and his company, LFGC, which was defended and counterclaimed. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $784,900 (C$1,000,000).On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $403,556 (C$514,150) in special damages and $392,450 (C$500,000) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020. The plaintiffs by counterclaim filed their defense to counterclaim on November 23, 2020, denying all claims in the Company's reply and defense to counterclaim. Included in accounts payable on the Company's interim condensed consolidated balance sheets is an amount for unpaid fees to the former chief executive officer in the amount of $310,428 (C$395,500), pending the results of the litigation.sheets.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine-monththree-month period ended September 30, 2021,March 31, 2022, the Company issued the following shares not previously reported in Current Report on Form 8-K or a quarterly report on Form 10-Q:issued:
| (i) | 230,000 common shares for proceeds previously received. |
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| (ii) | 1,000,000 common shares issued to the CEO as stipulated in his 2021 executive consulting agreement and 50,000 common shares issued to the CFO as stipulated in his 2022 executive consulting agreement. |
1,726,076 common shares issued on the conversion of related party debt and accounts payable to equity.
(ii)1,586,332 common shares issued for professional services.
(iii)5,647,029 common shares issued to convertible promissory note holders on the issuance and conversion of convertible promissory notes.
(iv)1,195,348 common shares issued on private placements.
(iv)1,050,000 common shares issued to officers.
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| 2,000,000 common shares issued on the conversion of a convertible promissory notes to equity. |
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| (iv) | 895,000 common shares were issued for professional services. |
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| (v) | 10,000 common shares issued to an employee. |
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| (vi) | The Company raised $16,560, net of share issue costs of $1,440, on a private placement for 40,000 common shares at an issue price of $0.45 per share. |
The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
The following exhibits are filed as part of this quarterly report on Form 10-Q:
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| Exhibit No. | | Description |
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4.1 | | Mortgage increaseForm of Convertible Promissory Note issued by SusGlobal Energy Corp. on March 8, 2022 (filed as Exhibit 4.1 to the Registrant's 8-K filed with the SEC on August 20, 2021March 15, 2022 and incorporated herein by reference).
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| | | |
4.210.1 | | Mortgage, dated August 17, 2021 (filedForm of Securities Purchase Agreement, effective March 8, 2022 (Filed as Exhibit 4.110.1 to the Registrant's Form 8-K filed with the SEC on August 23, 2021 and incorporated herein by reference)March 15, 2022).
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| | |
10.110.2 | | Guarantee by and andForm of Consulting Agreement between SusGlobal Energy Canada Corp., and private lenders (filedAlchemy Advisors LLC. (Filed as Exhibit 10.110.2 to the Registrant's Form 8-K filed with the SEC on August 20, 2021 and incorporated herein by reference)March 15, 2022).
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| 31.1* | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2* | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1+ | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley Act of 2002). |
| | |
32.2+ | | Certification ofand Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley Act of 2002). |
| | | |
| 101.INS* | | Inline XBRL Instance Document-theDocument–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL documentXBRL Instance Documentdocument |
| | |
| 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| | |
| * | | Filed herewith |
| + | | In accordance with SEC Release 33-8238, ExhibitsExhibit 32.1 and 32.2 areis being furnished and not filed. |
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| 53 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | SUSGLOBAL ENERGY CORP. |
| | | |
November 15, 2021May 20, 2022 | By: | /s/ Marc Hazout |
| | | Marc Hazout |
| | | Executive Chairman, President and Chief Executive Officer |
| | | |
| | | |
November 15, 2021May 20, 2022 | By: | /s/ Ike Makrimichalos |
| | | Ike Makrimichalos |
| | | Chief Financial Officer (Principal Financial and Accounting Officer) |
|
4654 |
