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 endedSeptember 30, 20182019

or

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

For the transition period from ______________to________________to ________________

Commission file number333-209143000-56024

SUSGLOBAL ENERGY CORP.

(Exact name of registrant as specified in its charter)

416-223-8500
(Registrant’sRegistrant'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:

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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, or a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer," "smaller reporting company" and “smaller reporting company”"emerging growth company" in Rule 12b-2 of the Exchange Act.

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’sregistrant's common stock outstanding as of November 13, 201814, 2019 was 40,247,53147,833,401 shares.

*Explanatory Note: The Company is not required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934.

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4

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

5

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

6

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

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

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

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1. Nature of Business and Basis of Presentation

SusGlobal Energy Corp. (“SusGlobal”("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”("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”"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”"Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the “DGCL”"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 Over the Counter QB venture market exchange, under the ticker symbol SNRG.

SusGlobal is a renewable energy 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”("SGECI") and, SusGlobal Energy Belleville Ltd. ("SGEBL") and 1684567 Ontario Inc. ("1684567") (together, the “Company”"Company"), have been prepared following generally accepted accounting principles in the United States (“("US GAAP”GAAP") for interim financial information and the Securities Exchange Commission (“SEC”("SEC") instructions to Form 10-Q and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company’sCompany's functional currency is the Canadian Dollar (“CAD”("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.

As at September 30, 2018,2019, the Company had a working capital deficit of $4,978,453$7,865,585 (December 31, 2017-2018-$2,238,911)4,830,948), incurred a net loss of $3,141,825 (2017-$2,211,900 (2018-$1,756,945)3,141,825) for the nine months ended September 30, 20182019 and had an accumulated deficit of $7,802,121$10,766,212 (December 31, 2017-2018-$4,660,296)8,554,312) and expects to incur further losses in the development of its business.

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2. Going Concern,(continued)

On August 28, 2019, Pace Savings & Credit Union Limited (“PACE”) informed the Company via letter that the credit facilities and corporate term loan (the “Debt”) was in default due to the Company’s going concern disclosure in the Company’s consolidated financial statements for the years ended December 31, 2018 and 2017 and as a result of the Company’s failure to respond to an e-mail request from PACE with respect to the Company’s efforts to arrange for a payout. As a result, PACE was not agreeable to continue with the Debt and had requested that the Company’s indebtedness to PACE be paid in full on or before December 31, 2019. PACE requested that their letter be fully executed by September 5, 2019. On September 3, 2019, PACE informed the Company via letter that the interest rates on the Debt be increased effective September 15, 2019, by 0.50%, and each month thereafter by a further 0.50%. On September 5, 2019, management arranged to meet with PACE to discuss their demands and to discuss the Company’s refinancing efforts. Management expressed their concerns over PACE’s actions in describing the details of the default and in increasing the interest rates as per their written communication. Management indicated to PACE that it was agreeable to a partial paydown of the Debt, as management was in discussions with obtaining a first mortgage over the Company’s property which included their organic composting facilities, from a chartered bank. PACE requested management to continue to update PACE on management’s refinancing plans. Management did not fully execute the September 5, 2019 letter from PACE nor any future letters from PACE. The Company “stopped payments” on the September and October instalments on the Debt with PACE. On September 11, 2019, PACE informed the Company that it failed to execute the new terms by September 5, 2019 and that it failed to make the required September payments on two of the three credit facilities that are part of the Debt, which were due on September 2, 2019. PACE also requested payments for the September monthly instalment payment on each of the two credit facilities, not sufficient fund fees and default and administrative fees totaling $1,978 ($2,620 CAD) and the letter of credit fee in the amount of $1,888 ($2,500 CAD). The letter of credit fee was paid and the letter of credit was extended to December 31, 2019. PACE also requested that the Company provide cash collateral to PACE for the letter of credit, in the amount of $209,035 ($276,831 CAD). PACE requested the consent of management to have PACE appoint a financial advisor to inspect and assess the assets and operations of the Company and requested that the letter be executed and returned to PACE by September 12, 2019. In a letter to PACE, management noted that the company’s financial report due by November 14, 2019, will be provided to PACE subsequent to the filing of the financial report and that no further payments will be made to PACE pending resolution of a paydown schedule to facilitate the principal reduction required by PACE on or before December 31, 2019. In a letter from PACE on September 13, 2019, they agreed to renew the letter of credit to December 31, 2019 but still consider the Debt in default. In a letter from PACE on October 9, 2019, PACE confirmed that the letter of credit was renewed to December 31, 2019 and noted further instalments payments returned stop payment, which were due on September 13, 2019 and October 2 and 4, 2019. PACE reiterated that they did not want to continue to be the Company’s banker and that it did not agree to any partial reduction of the Debt and requested that the Company provide a written repayment plan to have the credit facilities permanently retired. On November 1, 2019, the Company responded to PACE’s demands to repay all Debt by offering to repay two credit facilities totaling $460,413 ($609,738 CAD) on or before December 31, 2019, in return for a forbearance to December 31, 2020 and repayment of the remaining credit facility and corporate term loan no later than December 31, 2020 or upon the completion of the refinancing with the Canadian chartered bank. On November 12, 2019, PACE responded to the Company accepting the repayment of the two noted credit facilities, but, in addition, required that all the Debt be made current, that the Company provide written reports to PACE on its refinancing with the Canadian chartered bank on a monthly basis commencing December 15, 2019, that all remaining debt be repaid by June 30, 2020 and that PACE be permitted to appoint a financial advisor to inspect the assets and operations of the Company. In addition, the Company’s letter of credit with PACE is expected to be renewed to June 30, 2020. All terms are subject to credit approval.

As a result of the PACE default, the advance is also in default (refer to advance, note 12), the obligations under capital lease are also in default (refer to obligations under capital lease, note 14) and the convertible promissory notes are also in default (refer to convertible promissory notes, note 15).

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2. Going Concern,(continued)

Further, on September 25, 2019, the Company’s chief executive officer (the “CEO”), resigned as a member of the Board of Directors (the “Board”) and ceased providing his services as CEO. On November 6, 2019, by resolution of the Board, the president of the Company (the “President”), was appointed CEO. 

These factors cast substantial doubt as to the Company’sCompany'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 Savings & Credit Union Limited (“PACE”)and its other creditors, whose debt is 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.

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, 20172018 and 20162017 and their accompanying notes.

Recently Adopted Accounting Pronouncements:

On January 1, 2018,2019, the Company adopted accounting standards (“ASU”Accounting Standards Update ("ASU") update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The Company now includes restricted cash2016-02, Leases which is also known as part of cashAccounting Standard Codification ("ASC") Topic 842, that requires lessees to recognize for all operating leases a right-of-use asset and cash equivalents. The Company has adopted this policy on a retrospective basis. The reference to restricted cash includedlease obligation in the interim condensed consolidated balance sheets. Expenses are recognized in the interim condensed consolidated statements of cash flow foroperations and comprehensive loss in a manner similar to previous accounting guidance. Lessor accounting under the three-month period ended March 31, 2017, has been reclassifiednew standard is substantially unchanged and is not relevant to cash and cash equivalents at the end of this prior period.

On January 1 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. The updated guidance, and subsequent clarifications, collectively referred to as accounting standards codification (“ASC”) 606, require an entity to recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In addition, the guidance requires the disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.Company. The Company adopted thisthe accounting standard utilizingusing a prospective transition approach, which applies the modified retrospective approach,provisions of the new guidance at the effective date without adjusting the comparative periods presented, with certain practical expedients available to ease the cumulative effectburden of initiallyadoption.

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3. Significant Accounting Policies, (continued)

The Company elected the following practical expedients upon adoption: not to reassess whether any expired or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, not to reassess initial direct costs for any existing leases, not to separately identify lease and non-lease components (i.e. maintenance costs) except for fleet vehicles and real estate, and not to evaluate historical land easements under the new guidance. Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to long-term leases (leases greater than 1 year) for which it only has one.

Adoption of the new standard recognizedresulted in deficit. Accordingly, comparative prior period information has not been restated$217,755 ($297,074 CAD) of additional right-of-use lease asset and continues to be reported under that accounting standard. The adoption of ASC 606 had no impact on the Company’s interim condensed consolidated balance sheetslease liability as of January 1, 2018.

On January 1, 2018, the Company adopted ASU No. 2017, Compensation-Stock Compensation:Topic718:Scope of ModificationAccounting (ASU 2017-09) to provide clarity and reduce both the (1) diversity in practice and (2) cost and complexity when changing the terms or conditions of share-based payment awards. Under ASU 2017-09, modification accounting is required to be applied unless all of the following are the same immediately before and after the change:

2019. The adoption of this pronouncement had nonew standard did not have a significant impact on the Company’s interim condensed consolidated balance sheets asstatements of January 1, 2018.operations and comprehensive loss. See note 9, operating lease right-of-use asset and operating lease liability, for additional information.

4. Recent Accounting Pronouncements

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

4. Recent Accounting Pronouncements, (continued)

In February 2016,August 2018, the FASB issued an update, ASU No. 2016-02, “Leases” (Topic 842). The standard requires lessees2018-13, “Disclosure Framework-Changes to recognize the assets and liabilities that arise from leases onDisclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement. ASU No. 2018-13 modifies the balance sheet.disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. ASU 2016-02 requires the recognition on the balance sheet of a lease liability to make lease payments by lessees and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance will also require significant additional disclosure about the amount, timing and uncertainty of cash flows from leases. The new guidanceNo. 2018-13 is effective for annualinterim and interimannual reporting periods in fiscal years beginning after December 15, 2018 (January 1, 2019 for the Company). The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. In March 2018, the FASB approved a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. The Company plans to elect this transition method, and as a result, the Company will not adjust the comparative financial information or make the new required lease disclosures for periods before the effective date. The Company anticipates the adoption of this new standard will result in a significant increase in lease-related assets and liabilities in the consolidated balance sheet. As the impact of this standard is non-cash in nature, the Company does not anticipate its adoption having an impact on the Company’s consolidated statement of cash flows.2019. The Company is currently evaluating the impact of adopting ASU No. 2016-02 on the consolidated statement of income.2018-13.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill"Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for GoodwillImpairment”GoodwillImpairment". 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 standard is to be effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2017-04.

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4. Recent Accounting Pronouncements,(continued)

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. ASU 2016-13 is effective for the Company beginning January 1, 2020 and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.

5. Financial Instruments

The carrying value of cash and cash equivalents, trade receivables, certain deposits under prepaid expenses and deposits, bank indebtedness, accounts payable, and accrued liabilities approximated their fair values as of September 30, 2018 and December 31, 20172019 due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes, mortgage payable and loans payable to related parties approximated their fair values due to their market interest rates.

Interest, Credit and Concentration Risk

In the opinion of management, the Company is exposed to significant interest rate risk on its long-term debt of $3,949,053$3,785,210 ($5,112,0435,012,859 CAD) (December 31, 2017-2018-$4,161,435; $5,220,7193,727,778; $5,085,645 CAD). and on its convertible promissory notes, should the Company repay all or some of these convertible promissory notes within the stipulated time period.

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, 2018,2019, the allowance for doubtful accounts was $nil (December 31, 2018-$nil).

As at September 30, 2019, the Company is exposed to concentration risk as it had fourthree customers (December 31, 2017-four2018-five customers) each representing greater than 5% of total trade receivables that add to 88%and these three customers (December 31, 2017-91%2018-five customers) represented 73% (2018-90%) in total.of trade receivables. The Company had certain customers whose revenue individually represented 10% or more of the Company’sCompany's total revenue. These customers accounted for 67% (10%71% (37%, 21%, and 13%) (September 30, 2018-67%; 31%, 26% and 31%) (September 30, 2017-78%10%) 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.

5. Financial Instruments, (continued) The Company is in discussions with a Canadian chartered bank to refinance its obligations to PACE and to another creditor. 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’sCompany's capital programs. In order to continue operations, the Company will need to raise capital.capital, repay PACE for all or a portion of its credit facilities and complete the refinancing of its real property and organic 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.

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5. Financial Instruments,(continued)

Currency Risk

Although the Company’sCompany'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, 2018, $35,034 (2017-2019, $169,249 (December 31, 2018-$6,057)68,393) of the Company’sCompany's net monetary liabilities were denominated in USD. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.

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 preliminarily 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 $209,952 ($282,308 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 $153,922 ($206,968 CAD).

The allocation of the purchase price is as follows:

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7. Trade Receivables

On December 17, 2017, the Company filed a motion record in the Ontario Superior Court of Justice (the “Court”) against the Business Development Bank of Canada and Astoria Organic Matters Ltd. and Astoria Organic Matters Canada LP (“Astoria”), together, in the amount of $453,060 ($600,000 CAD), in connection with the Company’s purchase of certain assets from the court appointed receiver for Astoria, BDO Canada Limited. (“BDO”). The basis for the claim is for the Company’s costs to process biosolids stored onsite in an amount that was approximately ten times the amount permitted to be stored by conditions set in the Environmental Compliance Approval (the “ECA”) for the Company’s organic composting facility. The Court dismissed each of the Company’s motions, including on November 13, 2019, the Court dismissed the final motion and stayed the private prosecution. A further court date is set for November 4, 2019. As a result of this legal proceeding, BDO, through its legal representative, filed garnishment orders to collect on its outstanding fees, expenses and court costs, with three of the Company’s current customers. The garnishment orders, dated August 16, 2019, totaled $100,046 ($132,494 CAD) each. Since the garnishment orders were delivered to several customers, the payments of the Company’s accounts receivable to satisfy the garnishment orders, exceeded the amount of the garnishment orders. As at September 30, 2019, $114,284 ($151,350 CAD) had been collected, which represented an amount of $14,238 ($18,856 CAD) over and above the garnishment orders. The amounts collected as at September 30, 2019 have been applied against the outstanding accruals for legal fees, expenses and court costs, included in accrued liabilities, on this legal proceeding.

Refer also to subsequent events, note 21(c), for details on garnishment orders issued subsequent to September 30, 2019.

8. Intangible Assets

On May 6, 2015, the Company acquired an exclusive license from Syngas SDN BHD (“Syngas”("Syngas"), a Malaysian company to use Syngas intellectual property within North America for a period of five years for $1 consideration, renewable every five years upon written request. Syngas manufactures equipment that produces liquid transportation fuel from plastic waste material. The Company issued 20,000 common shares of the Company to an introducing party, determined to be valued at $2,000.

On March 14, 2019, the Company incurred fees to register various trademarks in the United States and Canada, in the amount $11,188 ($14,817 CAD).

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

7.Long-lived Assets,Effective May 24, 2019, the Company acquired an additional environmental compliance approval of $75,510 ($100,000 CAD) and a customer list $7,021 ($9,298 CAD), net of accumulated amortization of $685 ($907 CAD), relating to certain municipal contracts (forty-five-month life) on the purchase of the shares of 1684567.

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79.Long-lived Assets, net, continued

Included above are certainthe long-lived assets acquired on the business acquisition described under note 6.

10. Operating Lease Right-of-Use Asset and Operating Lease Liability

The Company had one operating lease right-of-use asset and related operating lease liability and had recognized as such, effective January 1, 2019, based on the present value of Astorialease payments over the lease term that expires on March 31, 2034, calculated to be $217,755 ($297,074 CAD). The Company used its estimated secured incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use asset was being amortized on a straight-line basis over the lease term which expires March 31, 2034 and amortization expense is included under office and administration expense in the interim condensed consolidated statements of operations and comprehensive loss. The Company does not act as a lessor nor does it have any leases classified as financing leases.

The operating lease right-of-use asset was periodically reviewed for impairment losses. The Company used the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment-Overall, to determine whether the operating lease right-of-use asset was impaired, and if so, the amount of the impairment loss to recognize.

The Company monitored for events or changes in circumstances that required a reassessment of its operating lease right-of-use asset. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding operating lease right-of-use asset.

Effective May 24, 2019, the Company acquired from BDO under the APA, which closed on September 15, 2017. The purchase price for the purchased assets, described as an organic composting facility, including composting buildings, gore cover system, driveway and paving, certain machinery and equipment, an office trailer, certain computer equipment and computer software consisted of cash of $3,026,114 ($3,917,300 CAD) and 529,970 restricted common shares of 1684567, the company that owned the land upon which the right-of-use asset was situated. As a result, the Company determined to be valued at $529,970 ($700,000 CAD), based on recent private placement pricing. In addition, legal costs in connection with acquiringis both the assets of $22,598 ($29,253 CAD), are included intenant and the cost oflandlord and as such, no longer recognizes an operating right-of-use asset and related operating lease liability.

For the composting buildings. The purchase price was allocated to the assets acquired based on their estimated relative fair value as at the date the assets were acquired.

8. Related Party Transactions

During thethree and nine-month periodperiods ended September 30, 2018,2019, the Company incurred $104,881recorded $nil ($135,000nil CAD) (2017-and $6,107 ($8,117 CAD (2018-$34,434; $45,000nil; $nil CAD and $nil; $nil CAD) in management fees expense with Travellers International Inc. (“Travellers”), an Ontario company controlled by a director and presidentrespectively, for the amortization of the Company (the “President”); $104,881 ($135,000 CAD) (2017-$34,434; $45,000 CAD) in management fees expense with Landfill Gas Canada Ltd. (“LFGC”), an Ontario company controlled by a directoroperating lease right-of-use asset.

For the three and chief executive officer of the Company (the “CEO”); $37,291 ($48,000 CAD) (2017-$27,547; $36,000 CAD) in management fees expense with the Company’s chief financial officer (the “CFO”); and $9,324 ($12,000 CAD) (2017-$27,547; $36,000 CAD) in management fees expense with the Company’s vice-president of corporate development (the “VPCD”). As at September 30, 2018, unpaid remuneration and unpaid expenses in the amount of $109,075 ($141,198 CAD) (December 31, 2017-$111,426; $139,789 CAD) is included in accounts payable and $166,860 ($216,000 CAD) (December 31, 2017-$102,935; $129,137 CAD) is included in accrued liabilities.

In addition, during the nine-month periodperiods ended September 30, 2018,2019, the Company incurred interest expense of $9,482$2,437 ($12,2053,239 CAD) (2017-(2018-$14,052; $18,363nil; $nil CAD and $nil and $nil CAD) respectively, on the outstanding loans from Travellers and $3,295 ($4,241 CAD) (2017-$nil; $nil CAD) on the outstanding loans from the directors. As at September 30, 2018, interest of $12,419 ($16,077 CAD) (December 31, 2017-$22,120; $27,750 CAD) on these loans is included in accrued liabilities.operating lease liability.

During the nine-month period ended September 30, 2018, the Company incurred $53,565 ($68,947 CAD) (2017-$50,348; $65,797 CAD) in rent paid under a rental agreement to Haute Inc. (“Haute”), an Ontario company controlled by the President.

During the nine-month period ended September 30, 2018, the Company sold $15,612 ($20,095 CAD) of compost product to LFGC.17

Furthermore, the Company granted the CEO 3,000,000 restricted stock units (“RSU”), under a consulting agreement effective January 1, 2017, determined to be valued at $990,000 based on recent private placement. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 common stock. The RSUs for the remaining two installments are to vest annually on January 1, 2019 and 2020. On May 17, 2018, the board of directors (the “Board”) approved an amendment to the President’s consulting agreement to include the granting of 3,000,000 RSUs on the same terms and conditions as those granted to the CEO. This grant was valued at $3,000,000 based on recent private placement pricing. Effective May 17, 2018, 1,000,000 RSUs vested immediately and were exchanged into 1,000,000 common stock. The cost of both RSU grants is presented as management compensation expense.

For the nine-month period ended September 30, 2018, the Company recognized management compensation expense of $997,500 (2017-$247,500) on these awards, representing one quarter of the total value of the awards of $3,990,000.

9.11. Related Party Transactions

During the three and nine-month periods ended September 30, 2019, the Company incurred $34,083 ($45,000 CAD) and $101,574 ($135,000 CAD) (2018-$34,425; $45,000 CAD and $104,881; $135,000 CAD) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the President; $34,083 ($45,000 CAD) and $101,574 ($135,000 CAD) (2018-$34,425; $45,000 CAD and $104,881; $135,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a previous director and CEO; $13,634 ($18,000 CAD) and $40,630 ($54,000 CAD) (2018-$13,769; $18,000 CAD and $37,291; $48,000 CAD) respectively, in management fees expense with the Company's chief financial officer (the "CFO"); and $nil ($nil CAD) and $nil ($nil CAD) (2018-$nil; $nil CAD and $9,324; $12,000 CAD) respectively, in management fees expense with the Company's vice-president of corporate development (the "VPCD"). As at September 30, 2019, unpaid remuneration and unpaid expenses in the amount of $72,062 ($95,434 CAD) (December 31, 2018-$48,691; $66,426 CAD) is included in accounts payable and $242,387 ($321,000 CAD) (December 31, 2018-$184,714; $251,997 CAD) is included in accrued liabilities.

On September 25, 2019, the CEO resigned from the Board and ceased providing his services as CEO.

In addition, during the three and nine-month periods ended September 30, 2019, the Company incurred interest expense of $150 ($180 CAD) and $4,631 ($6,155 CAD) (2018-$4,664; $6,049 CAD and $9,482; $12,205 CAD) respectively, on the outstanding loan from Travellers and $364 ($469 CAD) and $3,711 ($4,932 CAD) (2018-$1,751; $2,268 CAD and $3,295; $4,241 CAD) respectively, on the outstanding loans from the directors. As at September 30, 2019, interest of $nil ($nil CAD) (December 31, 2018-$17,882; $24,395 CAD) on these loans is included in accrued liabilities.

During the three and nine-month periods ended September 30, 2019, the Company incurred $23,382 ($30,934 CAD) and $55,678 ($74,001 CAD) (2018-$21,066; $27,426 CAD and $53,565; $68,947 CAD) respectively, in rent paid under a rental agreement to Haute Inc. ("Haute"), an Ontario company controlled by the President.

The Company recorded directors' compensation for its five independent directors for services provided based on the share price at the end of each period and for the three and nine-month periods ended September 30, 2019, including the audit committee chairman's fees, in the amount of ($14,648) and ($1,948) (2018-$766 and $2,331) respectively. As at September 30, 2019, $2,560 ($3,390 CAD) (December 31, 2018-$nil) of outstanding fees to the directors is included in accounts payable and $7,133 (December 31, 2018-$52,000) of outstanding fees to the directors is included in accrued liabilities.

Furthermore, the Company granted the CEO 3,000,000 restricted stock units ("RSU"), under a consulting agreement effective January 1, 2017, determined to be valued at $990,000 based on private placement pricing at the time. On each of February 25, 2018 and April 2, 2019, 1,000,000 RSUs were exchanged into 1,000,000 common stock of the Company. The RSUs for the remaining installment which were expected to vest on January 1, 2020, subject to meeting certain performance objectives, have been forfeited by the CEO on his resignation in September 2019. On May 17, 2018, at a meeting of the board of directors (the "Board"), approved an amendment to the President's consulting agreement, to include the granting of 3,000,000 RSUs to the President, determined to be valued at $3,000,000, based on private placement pricing at the time, on the same terms and conditions as those granted to the CEO. Immediately thereafter, 1,000,000 of the President's RSUs were exchanged into 1,000,000 common stock of the Company. On January 8, 2019, 1,000,000 of the President's RSUs were exchanged into 1,000,000 common stock of the Company. Based on private placement pricing at the time, the common stock issued to the President on each exchange of the RSUs, was determined to be valued at $1,000,000. The RSUs for the remaining installment are expected to vest on January 1, 2020, subject to meeting certain performance objectives. For the three and nine-month periods ended September 30, 2019, the Company recognized management compensation expense of $85,000 and $750,000 (2018-$332,500 and $1,997,500) respectively, on the awards to the President and the CEO) on the award to the President, representing one-quarter of the total value of the award of $3,000,000, based on private placement pricing at the time. In the three and nine-month periods ended September 30, 2018, the Company recognized management compensation expense of $332,500 and $1,997,500 on the awards to the President and the CEO, representing one-quarter of the total value of the awards of $3,990,000 and the award granted to the President in the amount of $1,000,000, as noted above, based on private placement pricing at the time.

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11. Related Party Transactions,(continued)

Refer also to subsequent events, note 21(g).

12. Advance

On July 29, 2019, the Company received an advance in the amount of $30,204 ($40,000 CAD) from a private lender. The advance is repayable at an amount of $368 ($488 CAD) every business day until repaid in full on January 13, 2020. Transaction related expenses in connection with this advance totaled $4,213 ($5,600 CAD) and included an interest expense in the interim condensed consolidated statements of operations and comprehensive loss. For the three and nine-month periods ended September 30, 2019, the Company incurred interest charges of $6,773 ($9,002 CAD) and $6,773 ($9,002 CAD) respectively. Total interest on the advance to January 13, 2020 is $11,737 ($15,600 CAD). The advance is guaranteed by the President. As a result of the PACE default, this advance is also in default. The lender may demand full repayment.

Refer also to going concern, note 2 and subsequent events, note 21(f).

13. Long-Term Debt

The credit facilities and corporate term loan (the “Debt”) described below in paragraphs (a) to (d) are due on demand. On August 28, 2019, PACE demanded repayment on or before December 31, 2019. Management met with PACE on September 5, 2019, to resolve the matters and offered a paydown of the Debt. Management is also in discussions with a Canadian chartered bank to refinance the PACE Debt and the mortgage payable and formulate a paydown. The Company was informed on September 3, 2019, that effective September 15, 2019, the interest rate on the credit facilities and corporate term loan increased by 0.50% to the PACE base rate of 7.00% plus 1.75% per annum. Discussions are ongoing.

Refer also to going concern, note 2 and subsequent events note 21(f).

The Debt is otherwise payable as noted below.

Repayments are as follows:

For the three and nine-month periodperiods ended September 30, 2018, $241,1532019, $78,919 ($310,403104,202 CAD) (2017-and $234,441 ($311,592 CAD) (2018-$68,997; $90,16982,720; $107,984 CAD and $241,153; $310,403 CAD) respectively, in interest was charged.incurred.

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10.14. Obligations under Capital Lease

As a result of the PACE default, these leases are also in default. The lessor may demand full repayment of these obligations under capital lease. And, 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) and (b). Also refer to going concern, note 2 and subsequent events, note 21(f).

The lease liabilities are secured by the equipment under capital lease as described in note 7.9.

Refer also to going concern, note 2 and subsequent events, note 21(f).

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

For the three and nine-month periodperiods ended September 30, 2018, $14,0282019, $3,682 ($18,0564,856 CAD) (2017-and $12,237 ($16,264 CAD) (2018-$nil; ($nil4,290; $5,615 CAD and $14,028; $18,056 CAD)) respectively, in interest was charged.incurred.

11. Loans Payable to Related Parties

Loan payable in the amount of $154,500 ($200,000 CAD) (December 31, 2017-$15,942; $20,000 CAD), owing to Travellers and bears interest at the rate of 12% per annum, is due on demand and is unsecured. As at September 30, 2018, $9,143 ($11,836 CAD) (December 31, 2017-$22,120; $27,750 CAD) in interest is included in accrued liabilities.20

11. Loans Payable to Related Parties, continued

During the nine-month period ended September 30, 2018, three directors each loaned the Company $19,313 ($25,000 CAD). The loans bear interest at the rate of 12% per annum, are due on demand and unsecured. As at September 30, 2018, $3,276 ($4,241 CAD) (December 31, 2017-$nil; $nil CAD) in interest is included in accrued liabilities.

During the nine-month period ended September 30, 2018, $12,777 ($16,446 CAD) (2017-$10,154; $13,548 CAD) in interest was charged on the loans payable to related parties.

12. Capital Stock

At September 30, 2018, the Company had 150,000,000 of common shares authorized with a par value of $.0001 per share and 40,050,031 (2017-37,393,031) common shares issued and outstanding.

During the nine-month period ended September 30, 2018, the Company raised $436,540 (December 31, 2017-$497,374) cash on a private placement, net of share issue costs of $30,460 (2017-$48,100), on the issuance of 467,000 (December 31, 2017-850,151) common shares of the Company. In addition, during the nine-month period ended September 30, 2018, the Company issued 190,000 common shares of the Company, in regard to $178,200 cash received on a private placement received prior to December 31, 2017, net of share issue costs of $11,800.

During the prior year, on January 5, 2017 and January 30, 2017, the Company issued, in total, 1,620,000 common shares of the Company, determined to be valued at $469,800, based on recent private placement pricing, to agents for their services in assisting in establishing the first credit facility with PACE. On each of January 30, 2017 and June 8, 2017, the Company issued a total of 40,000 common shares to two new directors, determined to be valued at $11,600 and $13,200 respectively, based on recent private placement pricing.For the nine-month period ended September 30, 2018, the services provided by the directors was disclosed under directors’ compensation in the interim condensed consolidated statements of operations and comprehensive loss.

On February 6, 2017, the Company issued 5,000 common shares and on August 23, 2017, the Company issued 4,000 common shares to a current employee for services and a new employee as an incentive to join the Company, respectively, determined to be valued at $1,450 and $4,000, respectively, based on recent private placement pricing and disclosed under office and administration in the interim condensed consolidated statements of operations and comprehensive loss. On May 9, 2017, the Company issued 15,000 common shares, on June 8, 2017, another 20,000 common shares and then on August 23, 2017, a further 20,000 common shares to consultants for their services, determined to be valued at $4,950, $6,600 and $20,000 respectively, based on recent private placement pricing. These services were disclosed under professional fees in the interim condensed consolidated statements of operations and comprehensive loss. On May 9, 2017, the Company issued 115,000 common shares on the exercise of the offer to acquire common shares at a price of $0.10 per common share by the VPCD. On September 5, 2017, the Company issued 5,000 common shares as compensation for a private placement, determined to be valued at $5,000. In addition, on September 11, 2017, the Company issued 529,970 common shares on the acquisition of assets, determined to be valued at $529,970 ($700,000 CAD), based on recent private placement pricing (see note 7).

All non-cash transactions were valued based on the proceeds of a recent private placement.

Furthermore, the Company granted the CEO 3,000,000 restricted stock units (“RSU”), under a consulting agreement effective January 1, 2017, determined to be valued at $990,000 based on recent private placement. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 common stock. The RSUs for the remaining two installments are to vest annually on January 1, 2019 and 2020. On May 17, 2018, the Board approved an amendment to the President’s consulting agreement to include the granting of 3,000,000 RSUs on the same terms and conditions as those granted to the CEO. This grant was valued at $3,000,000 based on recent private placement pricing. Effective May 17, 2018, 1,000,000 RSUs vested immediately and were exchanged into 1,000,000 common stock. The cost of both RSU grants is presented as management compensation expense.15. Convertible Promissory Notes

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