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SNRG SusGlobal Energy

Filed: 16 Nov 20, 5:15pm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to ________________

Commission file number 000-56024

SUSGLOBAL ENERGY CORP.
(Exact name of registrant as specified in its charter)

Delaware

38-4039116

(State or other jurisdiction of incorporation or organization)

(I. R. S. Employer Identification No.)

 

 

200 Davenport Road

M5R 1J2

Toronto, ON

 

(Address of principal executive offices)

(Zip Code)

    416-223-8500
(Registrant's telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

  Trading Symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]      No [  ]

 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]      No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [X]

Smaller reporting company [X]

 

Emerging growth company [X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [  ]      No [X]

The number of shares of the registrant's common stock outstanding as of November 16, 2020 was 79,372,643 shares.



SusGlobal Energy Corp.

INDEX TO FORM 10-Q

For the Three and Nine-Month Periods Ended September 30, 2020 and 2019


Part IFINANCIAL INFORMATION 
Item 1Financial Statements4
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations24
Item 3Quantitative and Qualitative Disclosures About Market Risk41
Item 4Controls and Procedures41
Part IIOTHER INFORMATION42
Item 1Legal Proceedings42
Item 1ARisk Factors42
Item 2Unregistered Sales of Equity Securities and Use of Proceeds42
Item 3Defaults Upon Senior Securities42
Item 4Mine Safety Disclosures43
Item 5Other Information43
Item 6Exhibits43



SUSGLOBAL ENERGY CORP.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019

 

(Expressed in United States Dollars)

(unaudited)

 

CONTENTS


Interim Condensed Consolidated Balance Sheets

5

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

6

Interim Condensed Consolidated Statements of Stockholders' Deficit

7

Interim Condensed Consolidated Statements of Cash Flows

8

Notes to the Interim Condensed Consolidated Financial Statements

9-23




SusGlobal Energy Corp.

Interim Condensed Consolidated Balance Sheets

As at September 30, 2020 and December 31, 2019

(Expressed in United States Dollars)

(unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

$

5,028

 

$

7,926

 

Restricted cash-funds held in trust (note 7)

 

-

 

 

467,798

 

Trade receivables

 

234,677

 

 

121,276

 

Government remittances receivable

 

7,267

 

 

38,578

 

Other receivables

 

-

 

 

20,624

 

Inventory

 

-

 

 

5,389

 

Prepaid expenses and deposits

 

36,625

 

 

46,028

 

 

 

 

 

 

 

 

Total Current Assets

 

283,597

 

 

707,619

 

 

 

 

 

 

 

 

Intangible Assets (note 8)

 

255,322

 

 

237,271

 

Long-lived Assets, net (note 9)

 

4,783,055

 

 

4,762,453

 

Long-Term Assets

 

5,038,377

 

 

4,999,724

 

Total Assets

$

5,321,974

 

$

5,707,343

 

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

 

 

 

 

 

 

Current Liabilities      

Accounts payable (note 10)

$

1,187,497

 

$

958,313

 

Government remittances payable

 

167,137

 

 

35,187

 

Accrued liabilities (notes 10, 12, 13 and 14)

 

741,996

 

 

487,592

 

Advance (note 11)

 

61,805

 

 

3,255

 

Deferred revenue

 

4,573

 

 

9,239

 

Current portion of long-term debt (note 12)

 

5,594,538

 

 

5,793,677

 

Current portion of obligations under capital lease (note 13)

 

409,660

 

 

218,069

 

Convertible promissory notes (note 14)

 

1,520,433

 

 

1,406,029

 

Loans payable to related party (note 15)

 

48,731

 

 

-

 

 

 

 

 

 

 

 

Total Current Liabilities

 

9,736,370

 

 

8,911,361

 

Long-term debt (note 12)

 

59,976

 

 

-

 

Total Long-term Liabilities

 

59,976

 

 

-

 

Total Liabilities

 

9,796,346

 

 

8,911,361

 

 

 

 

 

 

 

 

Stockholders' Deficiency

 

 

 

 

 

 

Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding
Common stock, $.0001 par value, 150,000,000 authorized, 79,372,643 (2019- 51,784,504) shares issued and outstanding (note 16)

 

7,940

 

 

5,180

 

Additional paid-in capital

 

8,628,336

 

 

7,450,091

 

Stock compensation reserve

 

-

 

 

1,000,000

 

Accumulated deficit

 

(12,963,987

)

 

(11,449,497

)

Accumulated other comprehensive loss

 

(146,661

)

 

(209,792

)

 

 

 

 

 

 

 

Stockholders' deficiency

 

(4,474,372

)

 

(3,204,018

)

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficiency

$

5,321,974

 

$

5,707,343

 

Going concern (note 2)

 

 

 

 

 

 

Commitments (note 17)

 

 

 

 

 

 

Subsequent events (note 20)

 

 

 

 

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.



SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and nine-month periods ended September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)
 
  For the three-month periods ended  For the nine-month periods ended 
  September 30,  September 30,  September 30,  September 30, 
  2020  2019  2020  2019 
             
Revenue$439,507 $390,723 $1,172,343 $1,025,695 
             
Cost of Sales            
Opening inventory -  24,738  5,389  18,550 
Depreciation 133,467  105,990  367,734  302,816 
Direct wages and benefits 90,475  71,347  251,721  180,379 
Equipment rental, delivery, fuel and repairs and maintenance 52,652  24,053  210,808  228,535 
Utilities 27,185  19,309  73,425  79,535 
Outside contractors 3,886  17,824  9,165  22,526 
  307,665  263,261  918,242  832,341 
Less: closing inventory -  (27,538) -  (27,538)
Total cost of sales 307,665  235,723  918,242  804,803 
             
Gross profit 131,842  155,000  254,101  220,892 
             
Operating expenses            
Management compensation-stock- based            
compensation (note 10) -  85,000  -  750,000 
Management compensation-fees (note 10) 51,812  81,800  152,994  243,778 
Marketing -  5,785  -  252,462 
Professional fees 102,769  63,357  292,104  270,328 
Interest expense and default amounts (notes 10, 11, 12, 13, 14 and 15) 258,796  152,952  854,496  408,382 
Office and administration 50,042  53,842  182,727  179,857 
Rent and occupancy (note 10) 32,420  33,024  89,480  92,085 
Insurance                                                            10,056  17,508  52,156  45,518 
Filing fees 12,957  2,546  35,103  31,643 
Amortization of financing costs 18,677  88,956  141,686  154,721 
Directors' compensation (note 10) 56,637  (14,648) 57,070  (1,948)
Repairs and maintenance 1,186  4,219  10,097  8,973 
Foreign exchange (income) loss (33,473) 9,064  31,987  (3,007)
Total operating expenses 561,879  583,405  1,899,900  2,432,792 
             
Net loss from operating activities (430,037) (428,405) (1,645,799) (2,211,900)
Land option expired (424) -  (59,128) - 
Net loss before deferred taxes recovery (430,461) (428,405) (1,704,927) (2,211,900)
Deferred taxes recovery 1,415  -  197,420  - 
Net loss (429,046) (428,405) (1,507,507) (2,211,900)
Other comprehensive income (loss)            
Foreign exchange (loss) gain (80,703) 25,828  63,131  (51,649)
             
Comprehensive loss$(509,749)$(402,577)$(1,444,376)$(2,263,549)
             
Net loss per share-basic and diluted$(0.01)$(0.01)$(0.02)$(0.05)
             
Weighted average number of common shares outstanding- basic and diluted 69,871,179  43,082,783  62,067,449  42,285,041 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.



SusGlobal Energy Corp.

Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency

For the three and nine-month periods ended September 30, 2020 and 2019

(Expressed in United States Dollars)

(unaudited)

 


  Number of
Shares
  Common
Shares
  Additional
Paid- in
Capital
  Shares
to be
Issued
  Stock
Compensation
Reserve
  Accumulated
Deficit
  Accumulated
Other

Comprehensive
Income (Loss)
  Stockholders'
Deficiency
 
Balance-December 31, 2019 51,784,504 $5,180 $7,450,091 $- $1,000,000 $(11,449,497)$(209,792)$(3,204,018)
Shares issued on vesting of 2019 stock award 1,000,000  100  999,900  -  (1,000,000) -  -  - 
Shares issued for conversion of debt to equity 7,717,326  772  75,955  -  -  -  -  76,727 
Conversion of debt to equity on shares yet to be issued -  -  -  7,250  -  -  -  7,250 
Other comprehensive income -  -  -  -  -  -  301,639  301,639 
Net loss -  -  -  -  -  (755,290) -  (755,290)
Balance-March 31, 2020 60,501,830 $6,052 $8,525,946 $$7,250 $- $(12,204,787)$91,847 $(3,573,692)
Shares issued for proceeds
previously received
 1,600,000  160  7,840  (7,250) -  -  -  750 
Shares issued for conversion of debt to equity 2,757,297  276  10,477  -  -  -  -  10,753 
Share cancellation (529,970  (53) -  -  -  (6,983) -  (7,036)
Conversion of debt to equity on shares yet to be issued -  -  -  13,000  -  -  -  13,000 
Other comprehensive loss -  -  -  -  -  -  (157,805) (157,805)
Net loss -  -  -  -  -  (323,171) -  (323,171)
Balance-June 30, 2020 64,329,157  6,435  8,544,263  13,000     (12,534,941) (65,958) (4,037,201)
Shares issued for proceeds previously received 1,762,820  176  13,574  (13,000) -  -  -  750 
Shares issued on conversion of debt to equity 13,280,666  1,329  70,499  -  -     -  71,828 
Other comprehensive loss -                 (80,703) (80,703)
Net loss -              (429,046) -  (429,046)
Balance-September 30, 2020 79,372,643  7,940  8,628,336  -  -  (12,963,987) (146,661) (4,474,372)
Balance-December 31, 2018 40,299,531  4,031  5,754,260  4,600  1,330,000  (8,554,312) (80,827) (1,542,248)
Shares issued for proceeds previously received 5,000  1  4,599  (4,600) -  -  -  - 
Shares issued on vesting of 2018 stock award 1,000,000  100  999,900  -  (1,000,000) -  -  - 
Shares issued for professional services 100,000  10  52,990  -  -  -  -  53,000 
Stock compensation expensed on vesting of stock awards -  -  -  -  332,500  -  -  332,500 
Other comprehensive loss -  -  -  -  -  -  (27,505) (27,505)
Net loss -  -  -  -  -  (1,080,544) -  (1,080,544)
Balance-March 31, 2019 41,404,531 $4,142 $6,811,749 $- $662,500 $(9,634,856)$(108,332)$(2,264,797)
Shares issued on vesting of 2018 stock award 1,000,000  100  329,900  -  (330,000) -  -  - 
Shares issued to directors 80,000  8  39,192  -  -  -  -  39,200 
Stock compensation expensed on vesting of stock awards -  -  -  -  332,500  -  -  332,500 
Other comprehensive loss -  -  -  -  -  -  (49,972) (49,972)
Net loss -  -  -  -  -  (702,951) -  (702,951)
Balance-June 30, 2019 42,484,531 $4,250 $7,180,841 $- $665,000 $(10,337,807)$(158,304)$(2,646,020)
Shares issued on conversion of debt to equity 1,892,185  189  93,608  -  -     -  93,797 
Stock compensation expensed on vesting of stock awards -  -  -  -  85,000  -     85,000 
Other comprehensive income -  -  -  -  -  -  25,828  25,828 
Net loss -  -  -  -  -  (428,405) -  (428,405)
Balance-September 30, 2019 44,376,716  4,439  7,274,449  -  750,000  (10,766,212) (132,476) (2,869,800)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.



SusGlobal Energy Corp. 
Interim Condensed Consolidated Statements of Cash Flows 
For the nine-month periods ended September 30, 2020 and 2019 
(Expressed in United States Dollars) 
(unaudited) 
  
  For the nine-month
period ended

September 30, 2020
  For the nine-month
period ended
September 30, 2019
 
Cash flows from operating activities      
Net loss$(1,507,507)$(2,211,900)
Deferred taxes recovery (197,420) - 
Land option expired 59,128  - 
Adjustments for:      
Depreciation 367,734  308,588 
Amortization of intangible assets 6,171  832 
Amortization of operating right-of-use asset -  6,107 
Non-cash professional fees on conversion of debt 4,883  - 
Amortization of financing fees 141,686  154,721 
Stock-based compensation -  750,000 
Shares issued for professional services -  53,000 
Shares issued to directors    39,200 
Change in business combination consideration (Note 6)                                                                        88,107  - 
Changes in non-cash working capital:      
Trade receivables (114,934) (10,279)
Government remittances receivable 29,870  - 
Other receivables 12,712  - 
Inventory 5,174  (8,399)
Prepaid expenses and deposits 8,080  5,484 
Accounts payable 250,731  335,056 
Government remittances payable 130,995  (12,656)
Accrued liabilities 278,529  (62,340)
Deferred revenue (4,361) - 
Net cash used in operating activities (440,422) (652,586)
Cash flows from investing activities      
Business acquisition (Note 6) -  (1,468,226)
Purchase of intangible assets (14,164) (11,149)
Purchase of long-lived assets (i) (192,269) (199,434)
Net cash used in investing activities (206,433) (1,678,809)
Cash flows from financing activities      
Bank indebtedness -  7,323 
Advance 81,818  30,096 
Repayments of advance (24,013) (9,006)
Advances on long-term debt 59,128  1,272,993 
Repayment of long-term debt (105,490) (54,764)
Repayments of obligations under capital lease (93,467) (61,967)
Advances and penalties on convertible promissory notes (ii) 192,641  1,328,975 
Repayments of operating lease liability -  (1,864)
Advances of loans payable to related parties 73,910  - 
Repayment of loans payable to related parties (25,869) (206,910)
Net cash provided by financing activities 158,658  2,304,876 
Effect of exchange rate on cash 17,501  (16,192)
Decrease in cash (470,696) (42,711)
Cash and cash equivalents-beginning of period 7,926  42,711 
Restricted cash-beginning of period 467,798    
Cash and cash equivalents and restricted cash-beginning of period 475,724  42,711 
Cash and cash equivalents-end of period$5,028 $- 
       
Supplemental Cash Flow Disclosures:      
Interest paid$463,717 $171,675 
Income taxes paid -  - 

(i)

Refer to note 13, obligations under capital lease, for details on the non-cash purchase of certain long-lived assets.

(ii)

Refer to note 14, convertible promissory notes, for the issuance of capital stock on the conversion of debt.

The accompanying notes are an integral part of these interim condensed consolidated financial statements.



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

 

1. Nature of Business and Basis of Presentation

SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.

On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.

On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.

SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.

These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SGEBL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for interim financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-Q and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company's functional currency is the Canadian Dollar ("CAD"). In the opinion of management, all adjustments necessary for a fair presentation have been included.

2. Going Concern

The interim condensed consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.

The Company incurred a net loss of $1,507,507 (2019-$2,211,900) for the nine months ended September 30, 2020 and as at that date had a working capital deficit of $9,452,773 (December 31, 2019-$8,203,742) and an accumulated deficit of $12,963,987 (December 31, 2019-$11,449,497) and expects to incur further losses in the development of its business.

On March 31, 2020, Pace Savings & Credit Union Limited ("PACE") and the Company reached an agreement for the repayment of the outstanding amounts owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020 and the remaining credit facilities and the corporate term loan were to be repaid on or before September 30, 2020. Subsequently, on November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company is to bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments. Management continues discussions with a Canadian chartered bank to re-finance its remaining obligations to PACE and repay other creditors.

The Company has defaulted on the convertible promissory notes (see note 14). As a result, the advance (see note 11), the amounts owing to PACE (see note 12) and the obligations under capital lease (see note 13), are also in default.

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, whose debts are also in default, 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.



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

 

2. Going Concern, (continued)

Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments, instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.

These interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.

3. Significant Accounting Policies

These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company for the years ended December 31, 2019 and 2018 and their accompanying notes.

4. Recent 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.

Newly Adopted

On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement". ASU No. 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. The adoption of ASU No. 2018-13, did not have a significant impact on the Company's consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The adoption of ASU No. 2017-04, did not have a significant impact on the Company's consolidated financial statements.

Recently issued

ASU 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 Generally Accepted Accounting Principles (GAAP). Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is assessing the impact that the adoption of ASU 2020-06 will have on the consolidated balance sheet and consolidated statement of operations.



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

 

5. Financial Instruments

The carrying value of cash and cash equivalents, funds held in trust, trade and other receivables, accounts payable and accrued liabilities approximated their fair values as of September 30, 2020 and December 31, 2019, due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes and loans payable to related party approximated their fair values due to their market interest rates.

Interest, Credit and Concentration Risk

Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.

In the opinion of management, the Company is exposed to significant interest rate risk on the current portion of its long-term debt and convertible promissory notes of $7,114,971 ($9,490,424 CAD) (2019-$7,199,706; $9,351,482 CAD).

Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at September 30, 2020, the Company's credit risk is primarily attributable to cash and cash equivalents and trade receivables.  As at September 30, 2020, the Company's cash and cash equivalents were held with reputable Canadian chartered banks, a credit union and a United States of America bank.

With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at September 30, 2020, the allowance for doubtful accounts was $nil ($nil CAD) (December 31, 2019-$730; $948 CAD).

As at September 30, 2020, the Company is exposed to concentration risk as it had three customers (December 31, 2019-six customers) representing greater than 5% of total trade receivables and three customers (December 31, 2019-six customers) represented 89% (December 31, 2019-90%) of trade receivables. The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue. These customers accounted for 69% (40%,15% and 14%) (September 30, 2019-71%; 37%, 21% and 13%) of total revenue.

Liquidity Risk

Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. Management is in discussions with a Canadian chartered bank to refinance its obligations to PACE and repay other creditors. Refer also to going concern, note 2.

The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligations by January 29, 2021 and complete the refinancing of its real property and organic waste processing and composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.

Currency Risk

Although the Company's functional currency is the CAD, the Company realizes a portion of its expenses in USD. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at September 30, 2020, $597,300 (December 31, 2019-$258,403) of the Company's net monetary liabilities were denominated in USD. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.

11

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

 

6. Business Acquisition

Effective May 24, 2019, the Company purchased all the issued and outstanding shares of 1684567. The acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price paid in the acquisition has been allocated to record the assets acquired and liabilities assumed based on their estimated fair value.

When determining the fair values of assets acquired and liabilities assumed, management made significant estimates. The transaction closed on May 28, 2019. The purchase consideration consisted of cash from working capital of $121,845 ($163,836 CAD) and cash from a third-party mortgage obtained in the amount of $1,258,273 ($1,691,910 CAD, net of financing fees of $80,387 ($108,090 CAD)). The total purchase price includes the original offer of $1,314,304 ($1,767,250 CAD) and reimbursement of vendor's expense of $65,814 ($88,496 CAD).

The allocation of the purchase price is as follows:

Purchase consideration

 

 

 

Cash ($1,855,746 CAD)

$

1,380,118

 

Assets acquired

 

 

 

    Accounts receivable ($ 7,573 CAD)

 

5,632

 

    Land ($1,898,000 CAD)

 

1,411,543

 

    Automotive equipment and machinery ($16,525 CAD)

 

12,290

 

    Customer list ($30,400 CAD)

 

22,608

 

    Land option ($80,000 CAD)

 

59,496

 

 

 

1,511,569

 

 

 

 

 

Liabilities assumed

 

 

 

    Accounts payable ($10,977 CAD)

 

8,164

 

    Deferred tax liability ($267,109 CAD)

 

198,649

 

 

 

206,813

 

 

 

 

 

Net assets acquired ($1,754,412 CAD)

$

1,304,756

 

 

 

 

 

Goodwill

$

75,362

 

Included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2019, is revenue of $137,247 ($182,098 CAD) and expenses of $217,620 ($288,735) since the date of acquisition. From January 1, 2019 and immediately prior to the date of acquisition 1684567 generated revenue of $82,437 ($109,376 CAD) and incurred expenses of $73,685 ($97,764 CAD). During the year ended December 31, 2018, 1684567 generated revenue of $212,473 ($275,188 CAD) and incurred expenses of $173,206 ($224,331 CAD).

During the three-month period ended June 30, 2020, the Company expensed previously capitalized acquisition costs in the amount of $86,864 ($118,472 CAD). The land option in the amount of $59,496 ($80,000) expired six months after the business acquisition and as a result, has been expensed in the interim condensed consolidated statements of operations and comprehensive loss. In addition, the company determined that the deferred tax liability recognized on the business acquisition would be recovered through the application of certain tax strategies. As a result, the recovery of the deferred tax liability is recorded in the interim condensed consolidated statements of operations and comprehensive loss.

12

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

 

7. Restricted Cash-Funds Held in Trust

The funds which were held in trust were required to satisfy certain outstanding payments to PACE, including the repayment in full of one of the credit facilities in the amount of $34,391 ($48,788 CAD) and to bring the remaining outstanding PACE amounts current. The funds which were held in trust were provided to PACE on April 3, 2020. Refer also to going concern, note 2 and long-term debt, note 12.

8. Intangible Assets

 

 

September 30, 2020

 

 

December 31, 2019

 

Technology license (net of accumulated amortization of $1,081 (2019- $931))

$

920

 

$

1,070

 

Customer lists-limited life-$15,493 ($20,666 CAD) (net of accumulated amortization of $7,298) ($9,734 CAD) (2019-$6,634 ($8,617 CAD) (net of accumulated amortization of $1,222 ($1,588 CAD))

 

15,493

 

 

6,634

 

Trademarks-indefinite life-$34,639 CAD

 

25,969

 

 

11,916

 

Goodwill ($101,334 CAD)

 

75,970

 

 

-

 

Environmental compliance approvals-indefinite life- $182,700 CAD

 

136,970

 

 

217,651

 

 

$

255,322

 

$

237,271

 

For the three-month and nine-month periods ended September 30, the Company incurred fees to register various trademarks in the United States and Canada, in the amount $8,508 ($11,349 CAD) and $14,366 ($19,162 CAD) (2019-$nil; $nil CAD and $10,948: $14,327 CAD) respectively.

On September 15, 2017, the Company acquired the environmental compliance approvals, having an indefinite life, on the purchase of certain assets from BDO Canada Limited ("BDO") under an asset purchase agreement (the "APA").

Effective May 24, 2019, the Company acquired customer lists of $22,608 ($30,400 CAD) relating to certain municipal contracts. These customer lists are being amortized over terms ranging from forty-five to sixty-six months. During the three and nine-month periods ended September 30, 2020, amortization of $1,386 ($1,825 CAD) and $6,021 ($8,146 CAD) (2019-$682; $907 CAD and $682; $907 CAD), respectively.

9. Long-lived Assets, net

 

 

 

 

 

September 30,

 

 

 

 

 

December 31,

 

 

 

 

 

 

2020

 

 

 

 

 

2019

 

 

 

Cost

 

 

Accumulated

 

 

Net book value

 

 

Net book value

 

 

 

 

 

 

depreciation

 

 

 

 

 

 

 

Land

$

1,422,931

 

$

-

 

$

1,422,931

 

$

1,425,002

 

Composting buildings

 

2,308,799

 

 

405,737

 

 

1,903,062

 

 

1,965,690

 

Gore cover system

 

1,058,700

 

 

295,684

 

 

763,016

 

 

869,864

 

Driveway and paving

 

347,486

 

 

84,555

 

 

262,931

 

 

291,427

 

Machinery and equipment

 

169,812

 

 

62,360

 

 

107,452

 

 

22,270

 

Equipment under capital lease

 

697,971

 

 

388,740

 

 

309,231

 

 

167,578

 

Office trailer

 

8,996

 

 

6,864

 

 

2,132

 

 

4,268

 

Vacuum trailer

 

5,623

 

 

2,109

 

 

3,514

 

 

4,908

 

Computer equipment

 

6,626

 

 

5,897

 

 

729

 

 

1,862

 

Computer software

 

6,897

 

 

6,897

 

 

-

 

 

-

 

Automotive equipment

 

10,143

 

 

4,769

 

 

5,374

 

 

7,863

 

Signage

 

4,007

 

 

1,324

 

 

2,683

 

 

1,721

 

 

$

6,047,991

 

$

1,264,936

 

$

4,783,055

 

$

4,762,453

 



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

10. Related Party Transactions

For three and nine-month periods ended September 30, 2020, the Company incurred $33,791 ($45,000 CAD) and $99,779 ($135,000 CAD) (2019-$34,083; $45,000 CAD and $101,574; $135,000 CAD) 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"); $nil ($nil CAD) and $nil ($nil CAD) (2019-$34,083; $45,000 CAD and $101,574; $135,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a former director and former chief executive officer and $18,021 ($24,000 CAD) and $53,215 ($72,000 CAD) (2019-$13,634; $18,000 CAD and $40,630; $54,000 CAD) respectively in management fees expense with the Company's chief financial officer (the "CFO").  As at September 30, 2020, unpaid remuneration and unpaid expenses in the amount of $344,359 ($459,329 CAD) (December 31, 2019-$324,303; $421,227 CAD) is included in accounts payable and $11,995 ($16,000 CAD) (December 31, 2019-$12,318; $16,000 CAD) is included in accrued liabilities in the interim condensed consolidated balance sheets.

In addition, during the three and nine-month periods ended September 30, 2020, the Company incurred interest expense of $1,771 ($2,368 CAD) and $4,399 ($5,952 CAD) (2019-$150; $180 CAD and $4,631; $6,155 CAD) respectively, on outstanding loans from Travellers and $nil ($nil CAD) (2019-$364; $469 CAD) and $3,711; $4,932 CAD respectively, on outstanding loans from the directors. As at September 30, 2020, interest of $4,462 ($5,952 CAD) (December 31, 2019-$nil; $nil CAD) on the loans outstanding to Travellers is included in accrued liabilities in the interim condensed consolidated balance sheets.

For the three and nine-month periods ended September 30, 2020, the Company incurred $21,198 ($28,284 CAD) and $57,618 ($77,957 CAD) (2019-$23,382; $30,934 CAD and $55,678; $ $74,001 CAD) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

For those independent directors providing their services throughout 2019, the Company accrued directors' compensation totaling $3,000, based on the subsequent issuance of 20,000 common shares of the Company to each of the five directors that are expected to be issued subsequent to September 30, 2020. The directors' compensation was priced based on the trading price of the shares at the close of business on September 30, 2020 and will be adjusted based on the trading price of the shares, immediately prior to issuance. At a meeting of the Board of Directors (the "Board") on September 10, 2020, the Board approved the 2020 compensation to each independent board member in the amount of $18,743 ($25,000 CAD), effective January 1, 2020, to be paid in cash or shares of the Company, on or before December 31, 2020. For the services provided in the three and nine-month periods ended September 30, 2020, $56,637 and $57,070 (2019-($14,648) and ($1,948)) respectively. Also included in directors' compensation for the three and nine-month periods ended September 30, 2020, are the audit committee chairman's fees, in the amount of $751 ($1,000 CAD) and $2,217 ($3,000 CAD) (2019 $757; $1,000 CAD and $2,257; $3,000 CAD) respectively. As at September 30, 2020, outstanding directors' compensation of $1,694 ($2,260 CAD) (December 31, 2019-$3,480; $4,520 CAD) is included in accounts payable and $59,227 (December 31, 2019-$3,650) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and nine-month periods ended September 30, 2020, the Company recognized management compensation expense of $nil and $nil (2019-$85,000 and $750,000) respectively, on the vesting of restricted stock units ("RSUs") granted in prior years to the CEO and the former chief executive officer. On January 10, 2020, the CEO's remaining RSUs determined to be valued at $1,000,000 based on private placement pricing at the time of the granting of the RSUs were exchanged into 1,000,000 common shares of the Company.

11. Advance

On August 4, 2020, the Company received an advance in the amount of $82,992 ($110,700 CAD) from a private lender. The advance is repayable weekly at an amount of $4,602 ($6,138 CAD) until repaid in full on January 22, 2021. Transaction related expenses in connection with this advance totaled $3,313 ($4,483 CAD) and are included in interest expense in the interim condensed consolidated statements of operations and comprehensive loss. For the three and nine-month periods ended September 30, 2020, the Company incurred interest charges of $15,554 ($21,044 CAD) and $15,554 ($21,044 CAD) respectively. The advance is guaranteed by the CEO. As a result of the defaults on the convertible promissory notes, this advance is also in default. The lender may demand full repayment.


SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

12. Long-Term Debt

 

 

Credit

 

 

Credit

 

 

Corporate

 

 

Mortgage

 

 

Canada Emergency

 

 

September 30,

 

 

December 31,

 

 

 

Facility

 

 

Facility

 

 

Term Loan

 

 

Payable

 

 

Business Account

 

 

2020 Total

 

 

2019 Total

 

 

 

(a)

 

 

(b)

 

 

(c)

 

 

  (d)

 

 

(e)

 

 

 

 

 

 

 

Long-Term Debt

$

736,341

 

$

411,003

 

$

2,500,082

 

$

1,947,112

 

$

59,976

 

$

5,654,514

 

$

5,793,677

 

Current portion

 

(736,341

)

 

(411,003

)

 

(2,500,082

)

 

(1,947,112

)

 

-

 

$

(5,594,538

)

 

(5,793,677

)

Long-term portion

$

-

 

$

-

 

$

-

 

$

-

 

$

59,976

 

$

59,976

 

$

-

 

On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE ((a), (b) and (c) above). One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan are due on or before September 30, 2020. On April 3, 2020, the Company provided PACE with funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. The funds remaining, which were held in trust on March 31, 2020 are to be used to satisfy the principal and interest payments on the noted debt partially, through August 2020. Included in prepaid expenses and deposits in the interim condensed consolidated financial statements is $50,797 ($69,224 CAD) relating to prepaid principal and interest payments. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to September 30, 2020. 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. This long-term debt is considered to be in default as a result of defaults on the convertible promissory notes (see note 14). As a result, PACE may demand repayment before September 30, 2020.

Refer also to going concern, note 2 and subsequent events, note 20 (a).

The remaining PACE long-term debt was initially payable as noted below:

(a)

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 $6,570 ($8,764 CAD) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,199,520 ($1,600,000 CAD), is secured by a business loan general security agreement, a $1,199,520 ($1,600,000 CAD) 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.

 

 

(b)

The credit facility advanced on June 15, 2017, in the amount of $449,820 ($600,000 CAD), 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 $3,674 ($4,901 CAD), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.

 

 

(c)

The corporate term loan advanced on September 13, 2017, in the amount of $2,791,993 ($3,724,147 CAD), 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 $22,274 ($29,711 CAD), 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 $2,999,533 ($4,000,978 CAD) 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 (the "APA").

For the three and nine-month periods ended September 30, 2020, $70,105 ($93,162 CAD) and $225,346 ($304,893 CAD) (2019-$78,919; $104,202 CAD and $234,441; $311,592 CAD) respectively, in interest was incurred on the PACE long-term debt. As at September 30, 2020 $57,063 ($76,114 CAD) (December 31, 2019-$124,926; $162,263 CAD) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.

 


SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

12. Long-Term Debt, (continued)

(d)

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. The mortgage has a principal amount of $1,949,220 ($2,600,000 CAD), 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 October 19, 2020. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land described in note 9, long-lived assets, in the interim condensed consolidated balance sheets with a carrying value of $1,422,931 ($1,898,000 CAD), a general assignment of rents, and a fire insurance policy. Financing fees on the mortgage totaled $115,155 ($156,929 CAD).  As at September 30, 2020, $7,924 ($10,570 CAD) (December 31, 2019-$8,138; $10,570 CAD) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2020, there is $2,107 ($2,811 CAD) (2019-$74,219; $97,133 CAD) of unamortized finance fees.

For the three and nine-month periods ended September 30, 2020, $48,809 ($65,000 CAD) and $144,125 ($195,000 CAD) (2019-$34,162; $45,343 CAD and 47,845; $63,590 CAD) respectively, in interest was incurred on the mortgage payable.

Refer also to subsequent events, note 20 (b) for details of an additional advance on this 1st. mortgage.

 

 

(e)

As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.

On April 27, 2020, the Company received a total of $59,976 ($80,000 CAD) 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 31, 2023, maturing December 31, 2025. In addition, if 75% of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance. The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.

13. Obligations under Capital Lease

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

 

(a)

 

 

(b)

 

 

(c)

 

 

Total

 

 

Total

 

Obligations under Capital Lease

$

78,966

 

$

79,190

 

$

251,504

 

$

409,660

 

$

218,069

 

Less: current portion

 

(78,966

)

 

(79,190

)

 

(251,504

)

 

(409,660

)

 

(218,069

)

Long-term portion

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 


As a result of the convertible promissory notes defaults, these leases are also in default (see note 13). The lessor may demand full repayment of these obligations under capital lease. As a result, the obligations under capital lease have been presented as current liabilities. The original terms of the obligations under capital lease are noted below under paragraphs (a), (b) and (c). Refer also to going concern, note 2 and subsequent events, note 20 (a).

 

(a)

The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $214,902 ($286,650 CAD), is payable in monthly blended installments of principal and interest of $4,378 ($5,840 CAD), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $21,441 ($28,600 CAD), 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.



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

13. Obligations under Capital Lease, (continued)

(b)

The lease agreement for certain equipment for the Company's organic composting facility at a cost of $185,513 ($247,450 CAD), is payable in monthly blended installments of principal and interest of $3,837 ($5,118 CAD), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,497 ($10,000 CAD) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 18,503 ($24,680 CAD) 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.

 

 

(c)

The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $292,121 ($389,650 CAD), is payable in monthly blended installments of principal and interest of $5,137 ($6,852 CAD), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $14,582 ($19,450 CAD) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $75 ($100 CAD) 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.

The lease liabilities are secured by the equipment under capital lease as described in note 9.

Minimum lease payments as per the original terms of the obligations under capital lease are as follows:

In the three-month period ending December 31, 2020

$

57,789

 

In the year ending December 31, 2021

 

168,537

 

In the year ending December 31, 2022

 

83,987

 

In the year ending December 31, 2023

 

61,647

 

In the year ending December 31, 2024

 

61,647

 

In the year ending December 31, 2025

 

5,212

 

 

 

438,819

 

Less: imputed interest

 

(29,159

)

Total

$

409,660

 

For the three and nine-month periods ended September 30, 2020, $4,902 ($6,536 CAD) and $13,822 ($18,701 CAD) (2019-$3,682; $4,856 CAD and $12,237; $16,264 CAD) respectively, in interest was incurred.

14. Convertible Promissory Notes

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

(a)

Convertible promissory notes-January 28, 2019 (net of unamortized financing costs of $nil (2019- $1,918))

$

228,228

 

$

176,964

 

(b)

Convertible promissory notes-March 7 and March 8, 2019 (net of unamortized financing costs of $nil (2019- $25,625))

 

708,398

 

 

724,375

 

(c)

Convertible promissory note-May 23, 2019 (net of unamortized financing costs of $nil (2019-$17,924))

 

242,000

 

 

217,076

 

(d)

Convertible promissory note-July 19, 2019 (net of unamortized financing costs of $nil (2019-$17,411))

 

187,000

 

 

152,589

 

(e)

Convertible promissory note-October 17, 2019 (net of accumulated financing costs of $1,193 (2019-$20,975)

 

154,807

 

 

135,025

 

 

 

$

1,520,433

 

$

1,406,029

 


(a)

On January 28, 2019, the Company entered into securities purchase agreements (the "January 2019 SPAs") with three investors (the "January 2019 Investors") pursuant to which the Company issued to the January 2019 Investors 12% unsecured convertible promissory notes (the "January 2019 Investor Notes") in the aggregate principal amount of $337,500, with such principal and the interest thereon convertible into shares of the Company's common stock (the "Common Stock") at the January 2019 Investors' option. Although the January 2019 SPAs are dated January 28, 2019 (the "January 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the January 2019 Investors.



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

14. Convertible Promissory Notes, (continued)

 

The amounts of $102,500, $100,000, and $100,000, totaling $302,500, represented the proceeds to the Company, net of transaction-related expenses, for the January 2019 Notes from the January 2019 Investors and were received in cash from February 1 through February 4, 2019.

 

 

 

The maturity date of each of the January 2019 Investor Notes is January 28, 2020 (the "January 2019 Maturity Dates"). The Notes bear interest at a rate of twelve percent (12%) per annum (the "January 2019 Interest Rate"), which interest shall be paid by the Company to the January 2019 Investors in Common Stock at any time the January 2019 Investors send a notice of conversion to the Company. The January 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the January 2019 Notes into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the January 2019 Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the January 2019 Effective Date; or (ii) the conversion date.

The Company has reserved a minimum of eight (8) times the number of its authorized and unissued Common Stock (the "January 2019 Reserved Amounts"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the January 2019 Notes. Upon full conversion of the January 2019 Investor Notes, any shares remaining in such reserve shall be cancelled. The Company increases the January 2019 Reserved Amount in accordance with the Company's obligations under the January 2019 Investor Notes.

Since the January 2019 Investor Notes were not repaid by their January 28, 2020 maturity date, they are in default and the outstanding balance (principal plus accrued interest) of each of the January 2019 Investor Notes was increased by 50% and increased by a further $15,000 (together the "Default Amounts") along with the interest rate increasing from 12% to 24% annually. The January 2019 Investors continue to have the option to require the Company to immediately issue, in lieu of the Default Amount, the number of shares of common stock of the Company equal to the Default Amount divided by the conversion price then in effect.

During the nine-month period ended September 30, 2020, the January 2019 Investors converted a total of $54,095 of their January 2019 Investor Notes.

 

 

(b)

On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with two investors (the "March 2019 Investors") pursuant to which the Company issued to each March 2019 Investor two 12% unsecured convertible promissory notes comprised of the first notes (the "First Notes") being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each (the "Back-End Notes," and, together with the First Notes, the "March 2019 Investor Notes") in the aggregate principal amount of $1,100,000, with such principal and the interest thereon convertible into Common Stock at the March 2019 Investors' option. Each First Note contains a $25,000 Original Issue Discount such that the issue price of each First Note was $250,000. The proceeds on the issuance of the First Notes were received from the March 2019 Investors upon the signing of the March 2019 SPAs. The proceeds on the issuance of the Back-End Notes were initially received by the issuance of two offsetting $250,000 secured notes to the Company by the March 2019 Investors (the "Buyer Notes"), provided that prior to conversion of the Back-End Notes, the March 2019 Investors must have paid back the Back-End Notes in cash.

Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction-related expenses, for the First Notes from the March 2019 Investors.

On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors in the face value amount of $275,000. The proceeds received by the Company was $228,000, net of $25,000 discount and financing costs. The maturity dates of the March 2019 Investor Notes are March 7, 2020 and March 8, 2020. The March 2019 Investor Notes bear interest at a rate of twelve percent (12%) per annum (the "March 2019 Interest Rate"), which interest shall be paid by the Company to the March 2019 Investors in Common Stock at any time the March 2019 Investors send a notice of conversion to the Company.

 



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

14. Convertible Promissory Notes, (continued)

The March 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the March 2019 Investor Notes into Common Stock, at any time, at a conversion price for each share of SusGlobal Energy Corp.

Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable March 2019 Effective Date; or (ii) the conversion date.

The Company reserved a minimum of eight (8) times the number of its authorized and unissued Common Stock (the "March 2019 Reserved Amounts"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2019 Investor Notes. Upon full conversion of the March 2019 Investor Notes, any shares remaining in such reserve shall be cancelled. The Company increases the March 2019 Reserved Amount in accordance with the Company's obligations under the March 2019 Investor Notes.

Since the March 2019 Investor Notes were not repaid by their March 7, 2020 and March 8, 2020 maturity dates, they are also in default resulting in the outstanding balance (principal plus accrued interest) increasing by 10% and the interest rate on the 2019 March Investor Notes increasing from 12% to 24% annually, effective January 28, 2020. The March 2019 Investors continue to have the option to convert their March 2019 Investor Notes.

During the nine-month period September 30, 2020, the March 2019 Investors converted a total of $91,802 of their March 2019 Investor Notes.

(c)

On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750.

 

 

 

The maturity date of the May 2019 Investor Note is May 23, 2020. The May 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "May 2019 Interest Rate"), which interest shall be paid by the Company to the May 2019 Investor in Common Stock at any time the May 2019 Investor sends a notice of conversion to the Company. The May 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the May 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable May 2019 Effective Date; or (ii) the conversion date.

The Company initially reserved 10,937,000 of its authorized and unissued Common Stock (the "May 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the May 2019 Investor Note. Upon full conversion of the May 2019 Investor note, any shares remaining in such reserve shall be cancelled. The Company increases the May 2019 Reserved Amount in accordance with the Company's obligations under the May 2019 Investor Note.

As a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020 and the principal balance of the May 2019 Investor Note increasing by 10% on May 23, 2020. The May 2019 Investor continues to have the option to convert their May 2019 Investor Note.

During the nine-month period ended September 30, 2020, the May 2019 Investor converted a total of $15,000 of its May 2019 Note.


19

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

14. Convertible Promissory Notes, (continued)

(d)

On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775.

 

 

 

The maturity date of the July 2019 Investor Note is July 19, 2020. The July 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "July 2019 Interest Rate"), which interest shall be paid by the Company to the July 2019 Investor in Common Stock at any time the July 2019 Investor sends a notice of conversion to the Company. The July 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the July 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable July 2019 Effective Date; or (ii) the conversion date.

The Company initially reserved 5,604,000 of its authorized and unissued Common Stock (the "July 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the July 2019 Investor Note. Upon full conversion of the July 2019 Investor Note, any shares remaining in such reserve shall be cancelled. The Company increases the July 2019 Reserved Amount in accordance with the Company's obligations under the July 2019 Investor Note.

 

 

 

As a result of the January 2019 Investor Notes, the March 2019 Investor Notes and the May 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020 and the principal balance of the July 2019 Investor Note increasing by 10% on July 19, 2020. The July 2019 Investor continues to have the option to convert its July 2019 Investor Note.

  

(e)

On October 17, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one 12% unsecured convertible promissory note (the "October 2019 Investor Note") in the principal amount of $156,000. On this date, the Company received proceeds of $129,600, net of transaction related expenses of $26,400.

 

 

 

The maturity date of the October 2019 Investor Note is October 17, 2020. The October 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "October 2019 Interest Rate"), which interest shall be paid by the Company to the October 2019 Investor in Common Stock at any time the October 2019 Investor sends a notice of conversion to the Company. The October 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the October 2019

 

 

 

Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable October 2019 Effective Date; or (ii) the conversion date.

 

 

 

The Company initially reserved 22,153,000 of its authorized and unissued Common Stock (the "October 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the October 2019 Investor Note. Upon full conversion of the October 2019 Investor Note, any shares remaining in such reserve shall be cancelled. The Company increases the October 2019 Reserved Amount in accordance with the Company's obligations under the October 2019 Investor Note.

As a result of the January 2019 Investor Notes, the March 2019 Investor Notes, the May 2019 Investor Note and the July 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. The October 2019 Investor continues to have the option to convert its October 2019 Investor Note.

 

 





SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)


14. Convertible Promissory Notes, (continued)

The convertible promissory notes described above may be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is sixty-one (61) days following their applicable effective date, and ending on the date which is ninety (90) days following their applicable effective date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is ninety-one (91) days following their applicable effective date, and ending on the date which is one hundred eighty (180) days following their applicable effective date, then the prepayment premium shall be 145% of the face amount plus any accrued interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.

Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.

The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.

For the three and nine-month periods ended September 30, 2020, the Company recorded interest and Default Amounts of $115,351 and $448,798 (2019-$21,490 and $88,721) respectively. As at September 30, 2020, $276,828 (December 31, 2019-$130,249) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2020, $8,821 and $15,276 (2019-$8,027 and $8,027) respectively, of accrued interest was converted.

Refer also to going concern, note 2 and subsequent events, note 20 (a).

15. Loans Payable to Related Party

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Travellers International Inc.

$

48,731

 

$

-

 

Loans payable in the amount of $48,731 ($65,000 CAD) (December 31, 2019-$nil; $nil CAD), owing to Travellers bear interest at the rate of 12% per annum, are due on demand and unsecured.  As at September 30, 2020 $4,462 ($5,952 CAD) (December 31, 2019-$nil; $nil CAD) in interest was included in accrued liabilities in the interim condensed consolidated statements of operations and comprehensive loss.

For the three and nine-month periods ended September 30, 2020, $1,771 ($2,368 CAD) and $4,399 ($5,952 CAD) (2019-$150; $180 CAD and $4,631; $6,155 CAD) respectively, in interest expense was incurred on loans payable to Travellers. In addition, for the three and nine-month periods ended September 30, 2020 $nil ($nil CAD) and $nil ($nil CAD) (2019-$364; $469 CAD and $3,711; $4,932 CAD) respectively, in interest expense was incurred on loans payable to directors.

16. Capital Stock

As at September 30, 2020, the Company had 150,000,000 authorized common shares with a par value of $.0001 per share and 79,372,643 (December 31, 2019-51,784,504) issued and outstanding common shares. For the nine-month period ended September 30, 2020, the Company issued 27,118,109 common shares on the conversion of convertible promissory notes, in the amount of $160,897, including accrued interest and related costs of $20,160, for a total of $181,057.



SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)

16. Capital Stock, (continued)

The share conversion prices ranged from $0.0036 to $0.0176 per share.   On January 10, 2020, the CEO's remaining RSUs determined to be valued at $1,000,000 based on private placement pricing at the time of the granting of the RSUs were exchanged into 1,000,000 common shares of the Company. In addition, the Company cancelled the 529,970 shares previously held by BDO Canada Limited, whose shares were returned to the Company on April 1, 2020.

During the year ended December 31, 2019, the Company issued 9,289,973 common shares on the conversion of unsecured convertible promissory notes in the amount of $248,618 including accrued interest and related costs of $21,162, for a total of $269,780 at conversion prices ranging from $0.0176 to $0.0910 per share. The Company also issued 100,000 common shares for professional services determined to be valued at $53,000, 80,000 common shares to directors determined to be valued at $39,200 and 5,000 common shares to each of two employees determined to be valued at $400 in total, with amounts determined based on the closing trading price on the day immediately prior to issuance. Further, 5,000 common shares were issued for proceeds received prior to December 31, 2018 of $4,600, net of share issue costs of $400. In addition, on January 8, 2019, the Company issued 1,000,000 common shares on the exchange of the CEO's 2018 RSUs determined to be valued at $1,000,000, based on private placement pricing at the time of granting the RSUs and on April 2, 2019, the Company issued 1,000,000 common shares on the exchange of the former chief executive officer's 2018 RSUs determined to be valued at $330,000, based on private placement pricing at the time of granting the RSUs. 

17. Commitments

a)

Effective January 1, 2020, new consulting agreements were finalized for the services of the CEO and the CFO. The consulting agreements are each for a period of one year, commencing January 1, 2020. The CEO's monthly fee is $11,246 ($15,000 CAD) and for the CFO $5,998 ($8,000 CAD).  The future minimum commitment under these consulting agreements, is as follows:


 

For the three-month period ending December 31, 2020

$

51,732

 


b)

The Company has agreed to lease its office premises from Haute on a month-to-month basis, at the same monthly rate of $4,498 ($6,000 CAD). The Company is responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance.

  
c)The Company was assigned the land lease on the purchase of certain assets of Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $2,249 ($3,000 CAD) and is subject to adjustment based on the consumer price index as published by Statistics Canada ("CPI"). To date, no adjustment for CPI has been charged. The Company is also responsible for any property taxes, maintenance, insurance and utilities. In addition, the Company has the right to extend the lease for five further terms of five years each and one further term of five years less one day. As the Company acquired the business of 1684567, the previous landlord, there are no future commitments for this lease. The Company was recently informed that, through a special provision of the site plan agreement with the City of Belleville (the "City"), Ontario, Canada, that it is required to fund road maintenance required by the City through to September 30, 2025 at an annual rate of $7,497 ($10,000 CAD). The future minimum commitment is as follows:

 

For the three-month period ending December 31, 2020

$

-

 

For the year ending December 31, 2021

 

7,497

 

For the year ending December 31, 2022

 

7,497

 

For the year ending December 31, 2023

 

7,497

 

For the year ending December 31, 2024

 

7,497

 

Thereafter

 

7,497

 

 

$

37,485

 

PACE has provided the Company a letter of credit in favor of the Ministry of the Environment, Conservation and Parks (the "MECP") in the amount of $207,540 ($276,831 CAD) and, as security, has registered a charge of lease over the premises, located at 704 Phillipston Road, Roslin, Ontario, Canada. The Company is required to provide for environmental remediation and clean-up costs for its organic waste processing and composting facility.

 


SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited) 

17. Commitments, (continued)

 

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. Since the fair value of the environmental remediation costs cannot be determined at this time, no estimate of such costs has been recorded in the accounts. As of September 30, 2020, the MECP has not drawn on the letter of credit. Subsequently, PACE has also committed to renew the letter of credit in favour of the MECP to January 29, 2021.

18. Economic Dependence

The Company generated 81% and 69% of its revenue from three customers, during the three and nine-month periods ended September 30, 2020 respectively, (63% and 71% respectively, from three customers for the three and nine-month periods ended September 30, 2019.

19. Legal Proceeding

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.

On September 24, 2020, the Company served the former chief executive officer and his company, LFGC, with a statement of claim. 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 $749,700 ($1,000,000 CAD). See also subsequent events, note 20 (b).

20. Subsequent Events

The Company's management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:

(a)

On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company is to bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments by November 12, 2020. On November 13, 2020, the agreed amounts were paid to PACE. PACE has also committed to renew the letter of credit in favour of the MECP to January 29, 2021.


(b)

On November 12, 2020, the Company finalized an additional advance on its 1st. mortgage in the amount of $537,758 ($700,000 CAD).  The funds received, $398,892 ($519,238), were net of financing fees of $50,703 ($66,000 CAD) and expenses including accrued interest, property taxes and other disbursements of $88,163 ($114,762 CAD). The new 1st. mortgage of $2,535,146 ($3,300,000 CAD) was registered on November 12, 2020. The terms of the new 1st. mortgage are as noted under long-term debt, note 12 (b), except that the interest rate will be 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. The additional advance was used to purchase the remaining lands contained in the May 24, 2019 share purchase agreement of 1684567 Ontario Inc., in the amount of $161,322 ($210,000 CAD), plus the harmonized sales taxes. Management intends to use a portion of the additional advance to satisfy the new agreement with PACE, described under subsequent events, note 20 (a).

 

 

(c)

On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants noted above under legal proceeding, note 19, in response to the Company's statement of claim. The defendants are seeking $385,458 ($514,150 CAD) in special damages and $374,850 ($500,000 CAD) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020.

 

 

(d)   

From October 19, 2020 through November 13, 2020, the CEO provided loans totaling $55,028 ($73,400 CAD) to the Company and on October 22, 2020, the Company repaid $22,791 ($30,400 CAD) of these loans.

  

(e)   

On October 16, 2020, the Company paid a deposit in the amount of $3,749 ($5,000 CAD) for a hauling truck trailer estimated at $111,705 ($149,000 CAD).

21. Comparative Figures

Certain of the prior periods' comparative figures have been reclassified to conform to the current periods' presentation. The reclassification on the interim condensed consolidated statements of operations and comprehensive loss was made to disclose foreign exchange loss (income) as a separate line item and not grouped with office and administration.


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "would," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission on April 7, 2020.

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 nine-month period ended September 30, 2020 compared with the nine-month period ended September 30, 2019 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, 2019 AND 2018. 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:



SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.

On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.

On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.

When the terms "the Company," "we," "us" or "our" are used in this document, those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd. and SusGlobal Energy Belleville Ltd.

SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.

With the growing amount of organic wastes being produced by society as a whole, a solution for sustainable global management of these wastes must be achieved. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of four distinct types of technologies: (a) Process Source Separated Organics ("SSO") in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas. (b) Increasing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield. (c) Utilize recycled plastics to produce liquid fuels and (d) process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewables. These products can be converted into electricity, fuels and marketed to agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces Greenhouse Gas Emissions ("GHG") that result from landfilling organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy®.


We believe the project and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management and Composting.

The Company can provide a full range of services for handling organic residuals in a period where innovation and sustainability are paramount. From start to finish we offer in-depth knowledge, a wealth of experience and cutting-edge technology for handling organic waste.

The primary focus of the services SusGlobal provides includes identifying idle or underutilized anaerobic digesters and integrating our technologies with capital investment to optimizing the operation of the existing digesters to reach their full capacity for processing SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant GHG reductions from waste disposal. The processes also produce renewable energy through the conversion of wastewater biosolids and organic wastes in the same equipment (co-digestion) and valuable end products such as biogas, electricity and organic fertilizer, both dry and liquid, considered Class AA organic fertilizer.

Currently, the primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.

The COVID-19 Outbreak May Adversely Affect Our Business Operations and Financial Condition

In December 2019, the novel coronavirus, known as COVID-19, was initially reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases and affected countries and actions by public health and governmental authorities, businesses and other organizations and individuals to address the outbreak including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing "social or physical distancing" orders, which direct individuals to remain at their places of residence (subject to limited exceptions). The COVID-19 pandemic poses the risk that we or our employees, contractors, customers, government and third party payors and others may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be requested or mandated by governmental authorities.

The Company has continued to carry out the aggressive emergency measures set in place by the provincial government, keeping in mind, firstly, the immediate health and safety of our employees. Employees in the head office, located in Toronto, Ontario, Canada have continued to work remotely now for two months or alternating their office time, ensuring there are no other employees present. 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 previously scheduled meetings and those in the foreseeable future have and will be held by teleconference. The Company will continue following these aggressive emergency measures as long as they are in place.

The Company is fortunate that its operations have not been forced to close as we're considered an essential service. In some cases, the receipt of organic waste has 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 has resulted in some delay in the collection of outstanding receivables, impacting our cash flows, including the use of cash (ii)  members of the board, management or employee team, some of whom may be 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 facilities (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 with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations.


RECENT BUSINESS DEVELOPMENTS

Purchase of Additional Lands

On November 12, 2020, the Company acquired additional lands described in the Company's share purchase agreement of 1684567 Ontario Inc., 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 $161,322 ($210,000 CAD) plus the applicable harmonized sales tax. The Company is now the owner of a 49-acre land parcel at its Belleville, Ontario, Canada, organic waste processing and composting facility. The purchase was funded through an additional advance of $537,758 ($700,000 CAD) on its 1st. mortgage. The funds received, $398,892 ($519,238), were net of financing fees of $50,703 ($66,000 CAD) and expenses including accrued interest, property taxes and other disbursements of $88,163 ($114,762 CAD). The new 1st. mortgage of $2,535,146 ($3,300,000 CAD) was registered on November 12, 2020. The terms of the new 1st. mortgage are as noted under long-term debt, note 12 (b) to the interim condensed consolidated financial statements, except that the interest rate will be 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 intends to use a portion of the additional advance to satisfy the new agreement with PACE, described under subsequent events, note 20 (a) to the interim condensed consolidated financial statements for the three and nine-month period ended September 30, 2020.

SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY®

After having filed on March 13, 2019, trademark applications in Canada and the United States, on July 16, 2020, the Company announced it had received a Certificate of Registration from the United States Patent and Trademark Office ("USPTO") for the trademark LEADERS IN THE CIRCULAR ECONOMY (the "Mark").

The Mark was registered under Registration Number 6,098,063 on July 7, 2020 on the Supplemental Register. The registration will be in effect for an initial term of ten years, expiring on July 7, 2030, with the option of renewing the registration for successive ten-year terms for the following class:

treatment and processing of organic waste; organic waste disposal services, namely, destruction and recycling of waste; organic waste management services, namely, converting waste into energy; recycling of organic waste; technical consulting in the field of waste management, namely, consulting in the field of waste treatment; recycling of plastic; recycling, namely, transform biosolids and organic waste into a pathogen free recognized organic fertilizer and compost and regenerative products, namely, biogas, electricity, liquid fertilizer, compost.

Now that the Mark is registered, The Company is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg. U.S. Pat. and T.M. Office").

SusGlobal 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 is estimated at $88,983 ($118,692 CAD). On successful completion, the Company expects to receive a hydro grant from the IESO of approximately 50% of the total cost of the Program, or $44,855 ($59,831 CAD). The Program is designed to realize a savings of approximately 50% in hydro costs annually, with an overall return on investment estimated at 125%.

Business Acquisition

Effective May 24, 2019, the Company purchased all the issued and outstanding shares of 1684567. The transaction closed on May 28, 2019. The purchase consideration consisted of cash from working capital of $121,845 ($163,836 CAD) and cash from a third-party mortgage obtained in the amount of $1,258,273 ($1,691,910 CAD, net of financing fees of $80,387 ($108,090 CAD)). The total purchase price includes the original offer of $1,314,304 ($1,767,250 CAD) and acquisition costs of $65,814 ($88,496 CAD). The mortgage payable has a principal amount of $1,385,820 ($1,800,000 CAD), 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% (currently 8.50%) and 10% per annum with a revised maturity date of October 19, 2020. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land held having a carrying value of $1,392,753, a general assignment of rents, and a fire insurance policy. In addition, on December 19, 2019, the Company received an additional advance of $615,920 ($800,000) from one of the same private lenders and additional private lenders. Financing fees on the additional, advance totaled $35,838 ($48,839 CAD) on the same terms and conditions as the mortgage noted above.

The principal asset of this acquired company was the land upon which the Company's organic waste processing and composting facility is situated. The Company continues to operate the garbage collection and landfill management operations that it acquired under this transaction.

Financings

(a) Securities Purchase Agreements

On October 18, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one 12% unsecured convertible promissory note (the "October 2019 Investor Note") in the principal amount of $156,000, with a past due date of October 18, 2020. On this date the Company received proceeds of $129,600, net of transaction related expenses of $26,400.

As noted below, initially, as a result of the January 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the October 2019 Investor Note not having been repaid by its due date, the principal balance of this note increased by a default penalty of $15,600 on October 18, 2020. The October 2019 Investor continues to have the option to convert its October 2019 Investor Note.

On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000, with a past due date of July 19, 2020. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775.

As noted below, initially, as a result of the January 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the July 2019 Investor Note not having been repaid by its due date, the principal balance of this note increased by a default penalty of $17,000 on July 19, 2020. The July 2019 Investor continues to have the option to convert its July 2019 Investor Note.

On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000, with a past due date of May 23, 2020. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750.


During the nine-month period ended September 30, 2020, the May 2019 Investor converted a total of $15,000 (December 31, 2019-$nil) of its May 2019 Note.

As noted below, initially, as a result of the January 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the May 2019 Investor Note not having been repaid by its due date, the principal balance of this note increased by a default penalty of $22,000 on May 23, 2020. The May 2019 Investor continues to have the option to convert its May 2019 Investor Note.

On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with two investors (the "March 2019 Investors") pursuant to which the Company issued to each March 2019 Investor two 12% unsecured convertible promissory notes comprised of the first notes (the "First Notes") being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each (the "Back-End Notes," and, together with the First Notes, the "March 2019 Investor Notes") in the aggregate principal amount of $1,100,000, with such principal and the interest thereon convertible into Common Stock at the March 2019 Investors' option. Each First Note contains a $25,000 Original Issue Discount such that the issue price of each First Note was $250,000. The proceeds on the issuance of the First Notes were received from the March 2019 Investors upon the signing of the March 2019 SPAs. The proceeds on the issuance of the Back-End Notes were initially received by the issuance of two offsetting $250,000 secured notes to the Company by the March 2019 Investors (the "Buyer Notes"), provided that prior to conversion of the Back-End Notes, the March 2019 Investors must have paid back the Back-End Notes in cash. The maturity dates of the March 2019 Investor Notes were March 7, 2020 and March 8, 2020, respectively.

Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction-related expenses, for the First Notes from the March 2019 Investors.

On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors with a face value amount of $275,000. The proceeds received by the Company was $228,000, net of $25,000 discount and financing costs.

During the nine-month period ended September 30, 2020, the March 2019 Investors converted a total of $91,802 (December 31, 2019-$75,000) of their March 2019 Investor Notes.

As a result of these March 2019 Notes not having been repaid by their respective due dates, as with the January 2019 Investor Notes, they were also in default, with their interest rate increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the March 2019 Investor Notes not having been repaid by their respective due dates, the principal balance of these notes increased by a default penalty of $50,200 on their respective due dates of March 7 and 8 of 2020.

On January 28, 2019, the Company entered into securities purchase agreements (the "January 2019 SPAs") with three investors (the "January 2019 Investors") pursuant to which the Company issued to the January 2019 Investors 12% unsecured convertible promissory notes (the "January 2019 Investor Notes") in the aggregate principal amount of $337,500, with such principal and the interest thereon convertible into shares of the Company's common stock (the "Common Stock") at the January 2019 Investors' option, with a past due date of January 28, 2020. Although the January 2019 SPAs are dated January 28, 2019 (the "January 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the January 2019 Investors.

During the nine-month period ended September 30, 2020, the January 2019 Investors converted a total of $54,095 (December 31, 2019-$158,618) of their January 2019 Investor Notes.

Since the January 2019 Investor Notes were not repaid by their January 28, 2020 maturity date, they are in default and the outstanding balance (principal plus accrued interest) of each of the January 2019 Investor Notes was increased by 50% and by a further $15,000 (together the "Default Amounts"), a total of $108,441 and the interest rate increased from 12% to 24% annually, effective January 28, 2020.  The January 2019 Investors continue to have the option to require the Company to immediately issue, in lieu of the Default Amount, the number of shares of common stock of the Company equal to the Default Amount divided by the conversion price then in effect.

The convertible promissory notes described above may be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is sixty-one (61) days following their applicable effective date, and ending on the date which is ninety (90) days following their applicable effective date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is ninety-one (91) days following their applicable effective date, and ending on the date which is one hundred eighty (180) days following their applicable effective date, then the prepayment premium shall be 145% of the face amount plus any accrued interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.


Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.

The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.

For the three and nine-month periods ended September 30, 2020, the Company recorded interest and Default Amounts of $115,351 and $448,798 (2019-$21,490 and $88,721) respectively. As at September 30, 2020, $276,828 (December 31, 2019-$130,249) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2020, $8,821 and $15,276 (2019-$8,027 and $8,027) respectively, of accrued interest was converted.

(b) Pace Savings & Credit Union Limited ("PACE")

On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE ((a), (b) and (c) above). One of the credit facilities, in the amount of $34,391 ($48,788 CAD) was repaid in full on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan are due on or before September 30, 2020. On April 3, 2020, the Company provided PACE with funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. The funds remaining, which were held in trust on March 31, 2020 are to be used to satisfy the principal and interest payments on the noted debt partially, through August 2020. As at September 30, 2020, included in prepaid expenses and deposits in the interim condensed consolidated financial statements is $5,459 ($7,281 CAD) relating to prepaid principal and interest payments to PACE. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to September 30, 2020. 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. This long-term debt is considered to be in default as a result of defaults on the convertible promissory notes. As a result, PACE may demand repayment before September 30, 2020.

On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company will bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments. On November 13, 2020, the agreed amounts were paid to PACE. PACE has also committed to renew the letter of credit in favour of the MECP to January 29, 2021.

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 $6,570 ($8,764 CAD), and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,99,520 ($1,600,000 CAD), is secured by a business loan general security agreement, a $1,199,520 ($1,600,000 CAD) 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. 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 $449,820 ($600,000 CAD), 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 $3,674 ($4,901 CAD), 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 $2,791,993 ($3,724,147 CAD), 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 $22,274 ($29,711 CAD), 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 $2,999,533 ($4,000,978 CAD) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the APA.



For the three and nine-month periods ended September 30, 2020, $70,105 ($93,162 CAD) and $225,346 ($304,893 CAD) (2019-$78,919; $104,202 CAD and $234,441; $311,592 CAD) respectively, in interest was incurred on the PACE long-term debt. As at September 30, 2020 $57,063 ($76,114 CAD) (December 31, 2019-$124,926; $162,263 CAD) in accrued interest is included in accrued liabilities.

(c) Other Financings

(i)

The Company obtained a mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs. The mortgage had a principal amount of $1,949,220 ($2,600,000 CAD), was repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% (at the time 8.50% per annum) and 10% per annum with a maturity date of October 19, 2020. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land described in note 9, long-lived assets, in the interim condensed consolidated balance sheets, with a carrying value of $1,422,931 ($1,898,000 CAD), a general assignment of rents, and a fire insurance policy. Financing fees on the mortgage totaled $115,155 ($156,929 CAD).  As at September 30, 2020, $7,924 ($10,570 CAD) (December 31, 2019-$7,756; $10,570 CAD) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2020, there is $2,107 ($2,811 CAD) (December 31, 2019-$74,219; $97,133 CAD) of unamortized finance fees.

On November 12, 2020, the Company finalized an additional advance on its 1st. mortgage in the amount of $537,758 ($700,000 CAD). The funds received, $398,892 ($519,238), were net of financing fees of $50,703 ($66,000 CAD) and expenses including accrued interest, property taxes and other disbursements of $88,163 ($114,762 CAD). The new 1st. mortgage of $2,535,146 ($3,300,000 CAD) was registered on November 12, 2020. The terms of the new 1st. mortgage are as noted under long-term debt, note 12 (b) to the interim condensed consolidated financial statements for the three and six-month periods ended September 30, 2020, except that the interest rate will be 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. The additional advance was used to purchase the remaining lands contained in the May 24, 2019 share purchase agreement of 1684567 Ontario Inc., in the amount of $161,322 ($210,000 CAD), plus the harmonized sales taxes. Management intends to use a portion of the additional advance to satisfy the new agreement with PACE, described above and under subsequent events, note 20 (a) to the interim condensed consolidated financial statements for the three and nine-month periods ended September 30, 2020.

  

 

 

For the three and nine-month periods ended September 30, 2020, $48,809 ($65,000 CAD) and $144,125 ($195,000 CAD) (2019-$34,162; $45,343 CAD and $47,845; $63,590 CAD) respectively, in interest was incurred on the mortgage payable.

  

(ii)

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.

On April 27, 2020, the Company received a total of $59,976 ($80,000 CAD) 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 31, 2023, maturing December 31, 2025. In addition, if 75% of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance. 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 ($110,700 CAD), net of a financing fee of $3,313 ($4,483 CAD), from a private lender. The advance is repayable on a weekly basis in the amount of $4,602 ($6,138 CAD) over twenty-five weeks. The advance is guaranteed by the CEO of the Company.

  

(iii)

On March 6, 2020 and March 25, 2020, 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 $52,868 ($75,000 CAD) and $17,622 ($25,000 CAD), respectively. The loans bear interest at the rate of 12% annually, are due on demand and are unsecured.

On August 4, 2020, the Company repaid $25,683 ($35,000 CAD) of the principal balance owing on the related party loans to Travellers.

From October 19, 2020 through November 4, 2020, the CEO provided loans totaling $51,279 ($68,400 CAD) to the Company and on October 22, 2020, the Company repaid $22,791 ($30,400 CAD) of these loans.

There are no written agreements evidencing these loans other than resolutions of the Board with attached loan schedules.

For the three and nine-month periods ended September 30, 2020, $1,771 ($2,368CAD) and $4,399 ($5,952 CAD) (2019-$150; $180 CAD and $4,631; $6,155 CAD) in interest was incurred on the loans to Travellers. As at September 30, 2020, $48,731 ($65,000 CAD) (December 31, 2019-$nil; $nil CAD), remains outstanding.



(d) Financings Related to Obligations Under Capital Lease

As a result of the defaults noted above, these leases are also in default. The lessor may demand full repayment of these obligations under capital lease. The original terms of the obligations under capital lease are noted below under paragraphs (i), (ii and (iii).

(i)

The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $214,902 ($286,650 CAD), is payable in monthly blended installments of principal and interest of $4,378 ($5,840 CAD), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $21,441 ($28,600 CAD), 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.

 

 

(ii)

The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $185,513  ($247,450 CAD), is payable in monthly blended installments of principal and interest of $3,837 ($5,118 CAD), plus applicable  harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,497 ($10,000 CAD) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 18,503 ($24,680 CAD) 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 $292,121 ($389,650 CAD), is payable in monthly blended installments of principal and interest of $5,137 ($6,852 CAD), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $14,582 ($19,450 CAD) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $75 ($100 CAD) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.

For the three and nine-month periods ended September 30, 2020, $4,902 ($6,536 CAD) and $13,822 ($18,701 CAD) (2019-$3,682; $4,856 CAD and $12,237; $16,264 CAD) respectively, in interest was incurred.

Treatment of Organic Waste and Septage

On February 28, 2019, the Company announced that it had received the project completion report titled: Development Optimization and Validation of an Innovative Integrated Anaerobic Thermophilic Digester Treatment of Organic Waste and Septage. The report was written by a research team at Fleming College's Centre for Advancement of Water and Wastewater Technologies, located in Lindsay, Ontario, Canada. The collaborative project was supported by the Advancing Water Technologies Program (the "AWT Program") of Southern Ontario Water Consortium. The project focused on the development of a new and innovative technology for handling and processing organic residuals. This new technology utilizes the anaerobic mesophilic digestion process coupled with thermophilic digestion to maximize biogas yields and produce organic fertilizer through optimal operations.

Asset Purchase

On September 15, 2017, the Company entered into an asset purchase agreement (the "APA) with Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP ("Astoria"), pursuant to which the Company purchased certain assets of Astoria from the court appointed receiver of Astoria, BDO Canada Limited (the "Receiver"). The purchase price for the composting buildings, Gore cover system, driveway and paving, office trailer, certain machinery and equipment, computer equipment, computer software and intangible assets (the "Assets") consisted of cash of $3,167,250 ($4,100,000 CAD), funded by PACE  and 529,970 restricted common shares of the Company, determined to be valued at $529,970 ($700,000 CAD) based on private placement pricing at the time. In addition, legal costs of $22,598 ($29,253 CAD) in connection with acquiring the Assets are included in the cost of the organic composting facility. In addition, the Company purchased certain accounts receivable which it was required to collect, totaling $134,529 ($174,147 CAD) and a deposit with a local municipality in the amount of $38,625 ($50,000 CAD).


Other

In July 2020, the council for one of the Company's customers, a local township, approved an extension of a contract for services provided by the Company for garbage collection. The new contract expires July 31, 2023 with annual fees ranging from $27,314 ($36,433 CAD) to $28,937 ($38,598 CAD).

The Company has also secured an organic processing arrangement with another local municipality, in conjunction with their green bin program, with a tipping fee set at $97/MT ($130/MT).

In addition, several other contracts have been renewed, one, a municipality and another a private composting operation to November 18, 2020 and December 31, 2020, respectively.

On October 15, 2019, the Company was awarded an organic processing contract, in connection with a recently submitted bid, for a local municipality. This organic processing contract is in conjunction with the local municipality's green bin program. The tipping fee for this organic processing contract has been set at $82 per metric tonne ("MT") ($110/MT CAD).

On July 22, 2019, the council for one of the Company's customers, a local township, approved an extension of contracts for the services provided by the Company for garbage collection and for the operation and maintenance of the township's two waste disposal sites. The new contracts expire on February 28, 2023 and amount to $134,196 ($179,000 CAD) annually.

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.

On May 14, 2015, the MECP, formerly the Ontario Ministry of the Environment and Climate Change, announced formal targets to be met to satisfy a commitment necessary to join the Western Climate Initiative (the "WCI") along with Quebec and California, who are in the WCI with Cap and Trade commitments since 2014. The Ontario emission targets are very ambitious, with GHG emission reductions of 15% by 2020, 37% by 2030 and 80% by 2050, all from a 1990 baseline. Ontario achieved a 6% reduction in GHG emissions from 1990 levels in 2014, mainly by closing all coal-fired power plants. The targets announced will require a focused program to reduce GHG emissions.

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 (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.

On May 6, 2015, the Company finalized an agreement with Syngas, a company incorporated under the laws of Malaysia ("Syngas"), providing an exclusive license for the Company to use Syngas Intellectual Property within North America for a period of five years from the date of this agreement, for a consideration of $1, renewable every five years upon written request (the "Syngas License Agreement"). Syngas produces equipment that uses an innovative process to produce liquid transportation fuel from plastic waste material. The Company issued 20,000 shares of Common Stock of the Company to an introducing party, determined to be valued at $2,000. The Syngas License Agreement is being amortized on a straight-line basis, over a period of 10 years. There are no other obligations under the Syngas License Agreement.

The Company and Syngas intend to collaborate and cooperate with a view to achieving economic and financial success for their respective businesses. The Company will continue to pursue other similar intellectual property around the world as we combine this and other technologies in innovative configurations to monetize the portfolio of proprietary technologies and processes to deliver value to our customers and shareholders.

Management continues to re-establish the renewable clause of the agreement with the new owner of Syngas.


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 of waste annually from the provinces of Ontario and Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 metric tonnes of waste annually. Once built, the location of the waste transfer station will be alongside the organic waste processing and composting facility which is currently operating in Belleville, Ontario, Canada.

Waste Transfer Station- Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.

Organic Composting Facility- As noted above, the Company's organic waste processing and composting facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 metric tonnes 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 the nine-month period ended September 30, 2020, tipping fees ranged from $22 ($30 CAD) to $118 ($159 CAD) per metric tonne.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2020, the Company had a bank balance of $5,028 (December 31, 2019-$7,926) and current debt obligations and other current liabilities in the amount of $9,736,370 (December 31, 2019-$8,911,361). As at September 30, 2020, the Company had a working capital deficit of $9,452,773 (December 31, 2019-$8,203,742). The Company does not currently have sufficient funds to satisfy the current debt obligations.

On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full after the Company provided the funds to PACE on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan will be repaid on or before September 30, 2020. On April 3, 2020, the Company provided PACE with sufficient funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. The funds remaining, which were held in trust on March 31, 2020 will be used to partially satisfy the principal and interest payments on the noted debt through August 2020. In addition, the letter of credit the Company has with PACE in favor of the MECP, was renewed to September 30, 2020. 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.

On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company will bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments. On November 13, 2020, the agreed amounts were paid to PACE. PACE has also committed to renew the letter of credit in favour of the MECP to January 29, 2021.

The Company's total assets as at September 30, 2020 were $5,321,974 (December 31, 2019-$5,707,343) and total current liabilities were $9,736,370 (December 31, 2019-$8,911,361). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $12,963,987 as at September 30, 2020 (December 31, 2019 -$11,449,497). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels.

To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $9,736,370 in current debt obligations and other current liabilities, the Company estimates that approximately $2,200,000 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 nine-month period ended September 30, 2020, the investors of the unsecured convertible promissory notes, converted a total of $160,897 of their unsecured convertible promissory notes, along with a portion of their accrued interest and related costs of $20,160, a total of $181,057 for 27,118,109 common shares at prices ranging from $0.0036 to $0.0176 per share.

As at September 30, 2020, the current and long-term portions of our debt obligations totaled $7,695,143 ($10,264,296 CAD) (December 31, 2019-$7,421,030; $9,638,953 CAD).

In addition, as at September 30, 2020, the Company had an outstanding letter of credit provided by PACE, in the amount of $207,540 ($276,831 CAD), 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. As at September 30, 2020, and the date of this filing, the MECP has not drawn on this letter of credit. PACE has committed to renew the letter of credit in favour of the MECP to January 29, 2021.

CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2020 COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

 

 

For the three-month periods ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

 

 

 

 

 

 

Revenue

$

439,507

 

$

390,723

 

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

 

Opening inventory

 

-

 

 

24,738

 

Depreciation

 

133,467

 

 

105,990

 

Direct wages and benefits

 

90,475

 

 

71,347

 

Equipment rental, delivery, fuel and repairs and maintenance

 

52,652

 

 

24,053

 

Utilities

 

27,185

 

 

19,309

 

Outside contractors

 

3,886

 

 

17,824

 

 

 

307,665

 

 

263,261

 

Less: closing inventory

 

-

 

 

(27,538

)

Total cost of sales

 

307,665

 

 

235,723

 

 

 

 

 

 

 

 

Gross profit

 

131,842

 

 

155,000

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Management compensation-stock-based compensation

 

-

 

 

85,000

 

Management compensation-fees

 

51,812

 

 

81,800

 

Marketing

 

-

 

 

5,785

 

Professional fees

 

102,769

 

 

63,357

 

Interest expense and default amounts

 

258,796

 

 

152,952

 

Office and administration

 

50,042

 

 

53,842

 

Rent and occupancy

 

32,420

 

 

33,024

 

Insurance

 

10,056

 

 

17,508

 

Filing fees

 

12,957

 

 

2,546

 

Amortization of financing costs

 

18,677

 

 

88,956

 

Directors' compensation

 

56,637

 

 

(14,648)

 

Repairs and maintenance

 

1,186

 

 

4,219

 

Foreign exchange (income) loss

 

(33,473

)

 

9,064

 

Total operating expenses

 

561,879

 

 

583,405

 

 

 

 

 

 

 

 

Net loss from operating activities

$

(430,037

)

$

(428,405

)

During the three-month period ended September 30, 2020, the Company generated $439,507 of revenue from its operations compared to $390,723 in the three-month period ended September 30, 2019. The Company's cost of sales in connection with this revenue totaled $307,665 in the three-month period ended September 30, 2020 compared to $235,723 in the three-month period ended September 30, 2019. These costs consisted of depreciation, direct wages and benefits, equipment rental, delivery, fuel, repairs and maintenance, utilities and outside contractors. Of the revenue generated for the three-month period ended September 30, 2020, $388,152 (2019-$518,123 CAD) related to the organic waste processing and composting operations and $51,355 (2019-$68,551 CAD) related to the garbage collection and landfill management operations. The significant increase in revenue in the current period was primarily due to additional new SSO from an existing customer.


The net loss from operating activities for the three-month period ended September 30, 2020 was $430,037, not significantly different from the net loss from operating activities of $428,405 in the three-month period ended September 30, 2019. Although the net losses were not significantly different, there were significant changes in various expenses, explained below, including management compensation relating to stock-based compensation and fees, professional fees, interest expense and default amounts, amortization of financing costs, directors' compensation and foreign exchange (income) loss.

Operating expenses were reduced by $21,526, from $583,405 in the three-month period ended September 30, 2019 to $561,879 in the three-month period ended September 30, 2020, explained further below.

Management compensation related to stock-based compensation reduced by $85,000, from $85,000 in the three-month period ended September 30, 2019 to $nil in the three-month period ended September 30, 2020. The 2019 and final RSUs fully vested during 2019, resulting in no similar expense in the current three-month period ended September 30, 2020. And, management compensation related to fees reduced by $29,988, from $81,800 in the three-month period ended September 30, 2019 to $51,812 in the three-month period ended September 30, 2020 as a result of the absence of fees for the former chief executive officer who resigned in September of 2019.

There was no marketing program in place in 2020 and as a result no marketing costs were incurred.

Professional fees increased by $39,412, from $63,357 in the three-month period ended September 30, 2019 to $102,769 in the three-month period ended September 30, 2020 primarily due to an increase in non-audit and tax services provided by our new auditors.

Interest expense and default amounts increased by $105,844 from $152,952 in the three-month period ended September 30, 2019 to $258,796 for the three-month period ended September 30, 2020, primarily as a result of the increased interest expense and default amounts on the convertible promissory notes in the amount of $85,835 and the increased mortgage interest of $14,647.

Office and administration expenses decreased by an insignificant amount of $3,800 from the three-month period ended September 30, 2019 of $53,842 to $50,042 for the three-month period ended September 30, 2020.

Rent and occupancy for the three-month period ended September 30, 2020 changed insignificantly by $604.

Insurance reduced by $7,452 from $17,508 in the three-month period ended September 30, 2019 to $10,056 in the three-month period ended September 30, 2020, primarily due to the Company self-insuring certain property at its organic waste processing and composting facility offset by an increase in premiums for coverages for new equipment and liability coverage.

Filing fees increased by $10,411, from $2,546 for the three-month period ended September 30, 2019 to $12,957 for the three-month period ended September 30, 2020, primarily due to the costs associated with the annual general meeting scheduled for November 26, 2020 and for costs related to the monthly cost of the annual OTC fee.

The amortization of financing costs incurred reduced by $70,279 from $88,956 for the three-month period ended September 30, 2019 to $18,677 for the three-month period ended September 30, 2020, due primarily to the absence of the amortization of  financing costs for the  convertible promissory notes acquired Q1and Q2 of 2019 which were fully amortized by Q2 of 2020 and for the financing costs for the convertible promissory note acquired in Q3 2019, which was fully amortized by early Q3 of 2020.

As a result of a change in the directors' compensation effective January 1, 2020, agreed to by the directors at a meeting of the Board on September 10, 2020, the new annual compensation for independent directors was set at $18,478 ($25,000 CAD) annually. Previously, the directors' compensation for 2020 was based on an accrual of fees for services payable in shares, determined using the trading price at the end of each reporting period.  As a result, the directors' compensation increased by $71,285 from ($14,648) for the three-month period ended September 30, 2019 to $56,637 for the three-month period ended September 30, 2020.

Repairs and maintenance reduced insignificantly by $3,033.

The foreign exchange income increased by $42,537, from a loss of $9,064 for the three-month period ended September 30, 2019 to income of $33,473 for the three-month period ended September 30, 2020, due primarily to the significant recovery of the Canadian dollar compared to the United Statements dollar, during the current period.


CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2019

 

 

For the nine-month periods ended

 

 

 

September 30,
2020

 

 

September 30,
2019

 

 

 

 

 

 

 

 

Revenue

$

1,172,343

 

$

1,025,695

 

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

 

Opening inventory

 

5,389

 

 

18,550

 

Depreciation

 

367,734

 

 

302,816

 

Direct wages and benefits

 

251,721

 

 

180,379

 

Equipment rental, delivery, fuel and repairs and maintenance

 

210,808

 

 

228,535

 

Utilities

 

73,425

 

 

79,535

 

Outside contractors

 

9,165

 

 

22,526

 

 

 

918,242

 

 

832,341

 

Less: closing inventory

 

-

 

 

(27,538

)

Total cost of sales

 

918,242

 

 

804,803

 

 

 

 

 

 

 

 

Gross profit

 

254,101

 

 

220,892

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Management compensation-stock-based compensation

 

-

 

 

750,000

 

Management compensation-fees

 

152,994

 

 

243,778

 

Marketing

 

-

 

 

252,462

 

Professional fees

 

292,104

 

 

270,328

 

Interest expense and default amounts

 

854,496

 

 

408,382

 

Office and administration

 

182,727

 

 

179,857

 

Rent and occupancy

 

89,480

 

 

92,085

 

Insurance

 

52,156

 

 

45,518

 

Filing fees

 

35,103

 

 

31,643

 

Amortization of financing costs

 

141,686

 

 

154,721

 

Directors' compensation

 

57,070

 

 

(1,948)

 

Repairs and maintenance

 

10,097

 

 

8,973

 

Foreign exchange loss (gain)

 

31,987

 

 

(3,007

)

Total operating expenses

 

1,899,900

 

 

2,432,792

 

 

 

 

 

 

 

 

Net loss from operating activities

$

(1,645,799

)

$

(2,211,900

)

During the nine-month period ended September 30, 2020, the Company generated $1,172,343 of revenue from its operations compared to $1,025,695 in the nine-month period ended September 30, 2019. The Company's cost of sales in connection with this revenue totaled $918,242 in the nine-month period ended September 30, 2020 compared to $804,803 in the nine-month period ended September, 2019. These costs consisted of depreciation, direct wages and benefits, equipment rental, delivery, fuel, repairs and maintenance, utilities and outside contractors. Of the revenue generated for the nine-month period ended September 30, 2020, $1,019,894 (2019-$1,379,914) related to the organic waste composting operations and $152,449 (2019-$206,263) related to the garbage collection and landfill management operations. The significant increase in revenue in the current period was primarily due to a full nine months of operations for the garbage collection and landfill management service and an increase in new business in the organic waste processing and composting operations.

The net loss from operating activities for the nine-month period ended September 30, 2020 was $1,645,799 significantly lower than the net loss from operations of $2,211,900 in the nine-month period ended September 30, 2019, primarily due to the reduction in management compensation relating to stock-based compensation and fees, and marketing costs offset by increases in interest expense and default amounts, directors'' compensation and foreign exchange loss..

Operating expenses reduced by $532,892, from $2,432,792 in the nine-month period ended September 30, 2019 to $1,899,900 in the nine-month period ended September 30, 2020, explained further below.


Management compensation related to stock-based compensation reduced by $750,000, from $750,000 in the nine-month period ended September 30, 2019 to $nil in the nine-month period ended September 30, 2020. The 2019 and final RSUs fully vested during 2019, resulting in no similar expense in the current nine-month period ended September 30, 2020. And, management compensation related to fees reduced by $90,784, from $243,778 in the nine-month period ended September 30, 2019 to $152,994 in the nine-month period ended September 30, 2020, primarily as a result of the absence of fees for the former chief executive officer who resigned in September of 2019.

There was no marketing program in place in 2020 and as a result no marketing costs were incurred.

Professional fees increased by $21,776, from $270,328 in the nine-month period ended September 30, 2019 to $292,104 in the nine-month period ended September 30, 2020 primarily due to increases in non-audit and tax services provided by the new auditors and legal fees on the business acquisition of 1684567 Ontario Inc., in May 2019 offset by the absence of any additional legal expenses in connection with the claim against BDO, in the amount of $66,072.

Interest expense and default amounts increased by $446,114 from $408,382 in the nine- month period ended September 30, 2019 to $854,496 for the nine-month period ended September 30, 2020, primarily as a result of the increased interest expense and default amounts on the convertible promissory notes in the amount of $352,051, the new mortgage interest of $109,963, the new obligation under capital lease of $5,547, the interest on the new advance of $15,403 offset by reductions in interest expense on the various PACE debt, other obligations under capital leases and related party balances. The interest expense and default amounts on the convertible promissory notes include the additional interest on the interest rate increase from 12% to 24%, 12%, effective January 28, 2020 and default amounts of $197,641.

Office and administration expenses increased nominally by $2,870.

Rent and occupancy reduced nominally by $2,605

Insurance increased by $6,638 from $45,518 in the nine-month period ended September 30, 2019 to $52,156 in the nine-month period ended September 30, 2020, primarily due to an increase in premiums for coverages for new equipment and liability coverage offset by no premiums for self-insuring certain property for the organic waste processing and composting facility.

Filing fees increased by $3,460, from $31,643 for the nine-month period ended September 30, 2019 to $35,103 for the nine-month period ended September 30, 2020, primarily due to the monthly cost of the annual OTC fee, totalling $8,786 in the nine-month period ended September 30, 2020 and the absence of certain communications costs.

The amortization of financing costs incurred decreased by $13,035 from $154,721 for the nine-month period ended September 30, 2019 to $141,686 for nine-month period ended September 30, 2020, due to the absence of financing costs in connection with the convertible promissory notes, the majority of which, were fully amortized prior to Q3-2020.

As a result of a change in the directors' compensation effective January 1, 2020, agreed to by the directors at a meeting of the Board on September 10, 2020, the new annual compensation for independent directors was set at $18,478 ($25,000 CAD) annually. Previously, the directors' compensation for 2020 was based on an accrual of fees for services payable in shares (20,000 to each independent director), determined using the trading price at the end of each reporting period.  As a result, the directors' compensation increased by $59,018 from ($1,948) for the nine-month period ended September 30, 2019 to $57,070 for the nine-month period ended September 30, 2020.

Repairs and maintenance expenses increased nominally by $1,124.

The foreign exchange loss increased by $34,994, from income of $3,007 for the nine-month period ended September 30, 2019 to a loss of $31,987 for the nine-month period ended September 30, 2020, due primarily to the significant devaluation of the Canadian dollar compared to the United Statements dollar, during the current period.

As at September 30, 2020, the Company had a working capital deficit of $9,452,773 (December 31, 2019-$8,203,742), incurred a net loss of $1,507,507 (2019-$1,783,495) for the nine months ended September 30, 2020 and had an accumulated deficit of $12,963,987 (December 31, 2019-$11,449,497) and expects to incur further losses in the development of its business.

On March 31, 2020, PACE and the Company reached an agreement for the repayment of the outstanding amounts owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020 and the remaining credit facilities and the corporate term loan are due on or before September 30, 2020. Management continues to be discussions with a Canadian chartered bank to re-finance its remaining obligations to PACE.


On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company will bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments. On November 13, 2020, the agreed amounts were paid to PACE. PACE has also committed to renew the letter of credit in favour of the MECP to January 29, 2021.

The Company has defaulted on the convertible promissory notes (see note 14 in the interim condensed consolidated balance sheets as at September 30, 2020 and December 31, 2019). As a result, the amounts owing to PACE (see note 12) and the obligations under capital lease (see note 13), also disclosed in the interim condensed consolidated balance sheets as at September 30, 2020 and December 31, 2019, are also in default.

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, whose debts are also in default 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 the novel strain of coronavirus ("COVID-19). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.

The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.

CRITICAL ACCOUNTING ESTIMATES

Use of estimates

The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.

Stock-based compensation

From time to time the Company may grant options and/or warrants to management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to paid in capital. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon exercise of stock options and/or warrants is recorded in equity as share capital.

Long-Lived Asset Impairments

We assess our long-lived assets for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (income) expense from divestitures, asset impairments and unusual items, net in our Consolidated Statements of Operations and Comprehensive Loss.


Indefinite-Lived Intangible Assets - At least annually, and more frequently if warranted, we assess the indefinite-lived intangible assets, including the goodwill of our reporting units for impairment using Level 3 inputs.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

On January 1, 2020, the Company adopted ASU No. 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement. ASU No. 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. The adoption of ASU No. 2018-13, did not have a significant impact on the Company's consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The adoption of ASU No. 2017-04, did not have a significant impact on the Company's consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by 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 will not have a material impact on the Company's financial position, results of operations or cash flows.

EQUITY

As at September 30, 2020 and as of the date of this filing, the Company had 79,372,643 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, 2020 and as of the date of this filing.

RELATED PARTY TRANSACTIONS

On November 6, 2019, by resolution of the Board, the consulting contracts for the president and the CFO were renewed, each for a one-year period, commencing January 1, 2020. For the president, at the same monthly amount and on the same terms and conditions, as his previous consulting contract, $11,246 ($15,000 CAD), monthly. For the CFO, at a monthly amount of $5,998 ($8,000 CAD), an increase of $1,499 ($2,000 CAD) over his previous consulting contract and on the same terms and conditions as his previous consulting contract.

In addition, on November 6, 2019, by resolution of the Board, the president was appointed Chief Executive Officer ("CEO").

The Company transacts with related parties in the normal course of business.

For three and nine-month periods ended September 30, 2020, the Company incurred $33,791 ($45,000 CAD) and $99,779 ($135,000 CAD) (2019-$34,083; $45,000 CAD and $101,574; $135,000 CAD) 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"); $nil ($nil CAD) and $nil ($nil CAD) (2019-$34,083; $45,000 CAD and $101,574; $135,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a former director and former chief executive officer and $18,021 ($24,000 CAD) and $53,215 ($72,000 CAD) (2019-$13,634; $18,000 CAD and $40,630; $54,000 CAD) respectively in management fees expense with the Company's chief financial officer (the "CFO").  As at September 30, 2020, unpaid remuneration and unpaid expenses in the amount of $344,359 ($459,329 CAD) (December 31, 2019-$324,303; $421,227 CAD) is included in accounts payable and $11,995 ($16,000 CAD) (December 31, 2019-$12,318; $16,000 CAD) is included in accrued liabilities in the interim condensed consolidated balance sheets.


In addition, during the three and nine-month periods ended September 30, 2020, the Company incurred interest expense of $1,771 ($2,368 CAD) and $4,399 ($5,952 CAD) (2019-$150; $180 CAD and $4,631; $6,155 CAD) respectively, on outstanding loans from Travellers and $nil ($nil CAD) (2019-$364; $469 CAD) and $3,711; $4,932 CAD respectively, on outstanding loans from the directors. As at September 30, 2020, interest of $4,462 ($5,952 CAD) (December 31, 2019-$nil; $nil CAD) on the loans outstanding to Travellers is included in accrued liabilities in the interim condensed consolidated balance sheets.

For the three and nine-month periods ended September 30, 2020, the Company incurred $21,198 ($28,284 CAD) and $57,618 ($77,957 CAD) (2019-$23,382; $30,934 CAD and $55,678; $ $74,001 CAD) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

For those independent directors providing their services throughout 2019, the Company accrued directors' compensation totaling $3,000, based on the subsequent issuance of 20,000 common shares of the Company to each of the five directors that are expected to be issued subsequent to September 30, 2020. The directors' compensation was priced based on the trading price of the shares at the close of business on September 30, 2020 and will be adjusted based on the trading price of the shares, immediately prior to issuance. At a meeting of the Board of Directors (the "Board") on September 10, 2020, the Board approved the 2020 compensation to each independent board member in the amount of $18,743 ($25,000 CAD), effective January 1, 2020, to be paid in cash or shares of the Company, on or before December 31, 2020. For the services provided in the three and nine-month periods ended September 30, 2020, $56,637 and $57,070 (2019-$14,648 and $1,948) respectively. Also included in directors' compensation for the three and nine-month periods ended September 30, 2020, are the audit committee chairman's fees, in the amount of $751 ($1,000 CAD) and $2,217 ($3,000 CAD) (2019 $757; $1,000 CAD and $2,257; $3,000 CAD) respectively. As at September 30, 2020, outstanding directors' compensation of $1,694 ($2,260 CAD) (December 31, 2019-$3,480; $4,520 CAD) is included in accounts payable and $59,227 (December 31, 2019-$3,650) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and nine-month periods ended September 30, 2020, the Company recognized management compensation expense of $nil and $nil (2019-$85,000 and 750,000) respectively, on the vesting of restricted stock units ("RSUs") granted in prior years to the CEO and the former chief executive officer. On January 10, 2020, the CEO's remaining RSUs determined to be valued at $1,000,000 based on private placement pricing at the time of the granting of the RSUs were exchanged into 1,000,000 common shares of the Company.

On March 6, 2020 and March 25, 2020, 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 $52,868 ($75,000 CAD) and $17,622 ($25,000 CAD), respectively. The loans bear interest at the rate of 12% annually, are due on demand and are unsecured.

On August 4, 2020, the Company repaid $25,683 ($35,000 CAD) of the principal balance owing on the related party loans to Travellers.

From October 19, 2020 through November 13, 2020, the CEO provided loans totaling $55,028 ($73,400 CAD) to the Company and on October 22, 2020, the Company repaid $22,791 ($30,400 CAD) of these loans.

There are no written agreements evidencing these loans other than resolutions of the Board with attached loan schedules.

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.


Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due primarily to the small size of the Company and the lack of a segregation of duties.

Notwithstanding this material weakness, management has concluded that the unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the nine-month period ended September 30, 2020 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1A. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as set forth in this Form 10-Q, we are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results. The Company has two known claims against it, one filed, for unpaid legal fees, in the amount $48,911 ($65,241 CAD). On September 24, 2020, the Company served the former chief executive officer and his company, LFGC, with a statement of claim. 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 $749,700 ($1,000,000 CAD). On October 26, 2020, the Company received the statement of defense and counterclaim from the defendants noted above in response to the Company's statement of claim. The defendants are seeking $385,458 ($514,150 CAD) in special damages and $374,850 ($500,000 CAD) in punitive and exemplary damages. The Company filed its reply defense to counterclaim on November 13, 2020.

Item 1A. Risk Factors.

As a smaller reporting company, we are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the nine-month period ended September 30, 2020, the Company issued:

(i)

1,000,000 common shares on the exchange of the CEO's 1,000,000 2019 RSUs.

 

 

(ii)

27,118,109 common shares to the January 2019 Investors, the March 2019 Investors and the May 2019 Investors for the conversion of a portion of their unsecured convertible promissory notes, including accrued interest and related costs of $20,160, for a total of $181,057 at per share conversion prices ranging from $0.0036 to $0.0176 per share.

The issuance of the securities set forth in this Part II, Item 2 was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") for the offer and sale of securities not involving a public offering. The Company's reliance upon Section 4(a)(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities were isolated private transactions by us which did not involve a public offering; (b) each transaction had fewer than five recipients; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual entities and the Company; and (f) the recipients of the securities are accredited investors

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:

Exhibit No.

Description

 

 

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 of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley Act of 2002)

 

 

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Label Linkbase Document

101.PRE*

XBRL Taxonomy Presentation Linkbase Document


*

Filed herewith

+

In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SUSGLOBAL ENERGY CORP.

 

 

 

November 16, 2020

By:

/s/ Marc Hazout

 

 

Marc Hazout

 

 

Executive Chairman, President and Chief Executive Officer

 

 

 

 

 

 

November 16, 2020

By:

/s/ Ike Makrimichalos

 

 

Ike Makrimichalos

 

 

Chief Financial Officer (Principal Financial and Accounting Officer)