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 endedMarch 31,September 30, 2019
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)
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’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:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
1
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 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, 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” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [X] | Smaller reporting company | [X] |
(Do not check if a smaller reporting company) | 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]
Securities registered pursuant to Section 12(b) of the Act:
The number of shares of the registrant’sregistrant's common stock outstanding as of May 15,November 14, 2019 was 42,484,53147,833,401 shares.
2
INDEX TO FORM 10-Q |
For the Three and Nine-Month Periods Ended September 30, 2019 and 2018 |
SusGlobal Energy Corp.INDEX TO FORM 10-QFor the Three-Month Periods Ended March 31, 2019 and 2018
3
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
CONTENTS |
SUSGLOBAL ENERGY CORP.CONSOLIDATED FINANCIAL STATEMENTSMarch 31, 2019 and 2018
(Expressed in United States Dollars)
CONTENTS
4
Interim Condensed Consolidated Balance Sheets |
As at September 30, 2019 and December 31, 2018 |
(Expressed in United States Dollars) |
(unaudited) |
SusGlobal Energy Corp.Interim Condensed Consolidated Balance SheetsAs at March 31, 2019 and December 31, 2018(Expressed in United States Dollars)(unaudited)
March 31, 2019 | December 31, 2018 | |||||
ASSETS | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | - | $ | 42,711 | ||
Trade receivables | 101,616 | 129,981 | ||||
Inventory | 26,409 | 18,550 | ||||
Prepaid expenses and deposits | 110,763 | 23,172 | ||||
Total Current Assets | 238,788 | 214,414 | ||||
Intangible Assets(note 6) | 148,655 | 135,189 | ||||
Long-lived Assets, net(note 7) | 3,334,072 | 3,361,110 | ||||
Operating Lease Right-Of-Use Asset(note 8) | 218,657 | - | ||||
Long-Term Assets | 3,701,384 | 3,496,299 | ||||
Total Assets | $ | 3,940,172 | $ | 3,710,713 | ||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||
Current Liabilities | ||||||
Bank indebtedness | $ | 3,933 | $ | - | ||
Accounts payable (note 9) | 398,125 | 353,728 | ||||
Government remittances payable | 5,904 | 35,169 | ||||
Accrued liabilities (notes 9 and 14) | 630,322 | 646,003 | ||||
Current portion of long-term debt (note 10) | 3,784,588 | 3,727,778 | ||||
Current portion of obligations under capital lease (note 11) | 87,717 | 81,109 | ||||
Convertible promissory notes (note 12) | 770,497 | - | ||||
Current portion of operating lease liability (Note 13) | 11,430 | - | ||||
Loans payable to related parties (note 14) | 112,245 | 201,575 | ||||
Total Current Liabilities | 5,804,761 | 5,045,362 | ||||
Long-Term Liabilities | ||||||
Obligations under capital lease (note 11) | 190,438 | 207,599 | ||||
Operating lease liability (note 13) | 209,770 | - | ||||
Total Long-term Liabilities | 400,208 | 207,599 | ||||
Total Liabilities | 6,204,969 | 5,252,961 | ||||
Stockholders’ Deficiency | ||||||
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding Common stock, $.0001 par value, 150,000,000 authorized, 41,404,531 (2018- 40,299,531) shares issued and outstanding (note 15) | 4,142 | 4,031 | ||||
Additional paid-in capital | 6,811,749 | 5,754,260 | ||||
Subscriptions payable | - | 4,600 | ||||
Stock compensation reserve | 662,500 | 1,330,000 | ||||
Accumulated deficit | (9,634,856 | ) | (8,554,312 | ) | ||
Accumulated other comprehensive loss | (108,332 | ) | (80,827 | ) | ||
Stockholders’ deficiency | (2,264,797 | ) | (1,542,248 | ) | ||
Total Liabilities and Stockholders’ Deficiency | $ | 3,940,172 | $ | 3,710,713 | ||
Going concern(note 2) | ||||||
Commitments(note 16) |
September 30, | December 31, | |||||
2019 | 2018 | |||||
ASSETS | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | - | $ | 42,711 | ||
Trade receivables (note 7) | 149,933 | 129,981 | ||||
Inventory | 27,538 | 18,550 | ||||
Prepaid expenses and deposits | 18,367 | 23,172 | ||||
Total Current Assets | 195,838 | 214,414 | ||||
Intangible Assets(note 8) | 232,796 | 135,189 | ||||
Long-lived Assets, net(note 9) | 4,762,989 | 3,361,110 | ||||
Long-Term Assets | 4,995,785 | 3,496,299 | ||||
Total Assets | $ | 5,191,623 | $ | 3,710,713 | ||
LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||
Current Liabilities Bank indebtedness | $ | 7,350 | $ | - | ||
Accounts payable (note 11) | 708,940 | 353,728 | ||||
Government remittances payable | 23,529 | 35,169 | ||||
Accrued liabilities (notes 11, 15 and 17) | 602,916 | 646,003 | ||||
Advance (note 12) | 21,166 | - | ||||
Current portion of long-term debt (note 13) | 3,785,210 | 3,727,778 | ||||
Current portion of obligations under capital lease (note 14) | 235,222 | 81,109 | ||||
Convertible promissory notes (note 15) | 1,370,683 | - | ||||
Mortgage payable (note 16) | 1,306,407 | - | ||||
Loans payable to related parties (note 17) | - | 201,575 | ||||
Total Current Liabilities | 8,061,423 | 5,045,362 | ||||
Long-Term Liabilities | ||||||
Obligations under capital lease (note 14) | - | 207,599 | ||||
Total Long-term Liabilities | - | 207,599 | ||||
Total Liabilities | 8,061,423 | 5,252,961 | ||||
Stockholders' Deficiency | ||||||
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding Common stock, $.0001 par value, 150,000,000 authorized, 44,376,716 (2018- 40,299,531) shares issued and outstanding (note 18) | 4,439 | 4,031 | ||||
Additional paid-in capital | 7,274,449 | 5,754,260 | ||||
Subscriptions payable | - | 4,600 | ||||
Stock compensation reserve | 750,000 | 1,330,000 | ||||
Accumulated deficit | (10,766,212 | ) | (8,554,312 | ) | ||
Accumulated other comprehensive loss | (132,476 | ) | (80,827 | ) | ||
Stockholders' deficiency | (2,869,800 | ) | (1,542,248 | ) | ||
Total Liabilities and Stockholders' Deficiency | $ | 5,191,623 | $ | 3,710,713 | ||
Going concern(note 2) | ||||||
Commitments(note 19) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss |
For the three and nine-month periods ended September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
SusGlobal Energy Corp.Interim Condensed Consolidated Statements of Operations and Comprehensive LossFor the three-month periods ended March 31, 2019 and 2018(Expressed in United States Dollars)(unaudited)
For the three-month periods ended | For the nine-month periods ended | |||||||||||||||||
For the three-month periods ended | September 30, | September 30, | September 30, | September 30, | ||||||||||||||
March 31, 2019 | March 31, 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue | $ | 253,138 | $ | 132,721 | $ | 390,723 | $ | 279,394 | $ | 1,025,695 | $ | 639,538 | ||||||
Cost of Sales | ||||||||||||||||||
Opening inventory | 18,550 | 53,964 | 24,738 | 115,733 | 18,550 | 53,964 | ||||||||||||
Depreciation | 95,754 | 94,043 | 105,990 | 98,823 | 302,816 | 291,134 | ||||||||||||
Direct wages and benefits | 49,365 | 40,059 | 71,347 | 41,526 | 180,379 | 125,634 | ||||||||||||
Equipment rental, delivery, fuel and repairs and maintenance | 99,566 | 35,040 | ||||||||||||||||
Equipment rental, delivery, fuel and repairs | ||||||||||||||||||
and maintenance | 24,053 | 41,354 | 228,535 | 102,552 | ||||||||||||||
Utilities | 27,531 | 22,200 | 19,309 | 22,755 | 79,535 | 54,643 | ||||||||||||
Outside contractors | 105 | 3,844 | 17,824 | (27 | ) | 22,526 | 16,654 | |||||||||||
290,871 | 249,150 | 263,261 | 320,164 | 832,341 | 644,581 | |||||||||||||
Less: closing inventory | (26,409 | ) | (67,210 | ) | (27,538 | ) | (73,795 | ) | (27,538 | ) | (73,795 | ) | ||||||
Total cost of sales | 264,462 | 181,940 | 235,723 | 246,369 | 804,803 | 570,786 | ||||||||||||
Gross loss | (11,324 | ) | (49,219 | ) | ||||||||||||||
Gross profit | 155,000 | 33,025 | 220,892 | 68,752 | ||||||||||||||
Operating expenses | ||||||||||||||||||
Management compensation-stock- based | ||||||||||||||||||
compensation (note 9) | 332,500 | 82,500 | ||||||||||||||||
Management compensation-fees (note 9) | 81,238 | 90,174 | ||||||||||||||||
compensation (note 11) | 85,000 | 332,500 | 750,000 | 1,997,500 | ||||||||||||||
Management compensation-fees (note 11) | 81,800 | 82,619 | 243,778 | 256,377 | ||||||||||||||
Marketing | 280,000 | - | 5,785 | - | 252,462 | - | ||||||||||||
Professional fees | 134,702 | 60,822 | 63,357 | 246,245 | 270,328 | 383,287 | ||||||||||||
Interest expense (notes 9, 10, 11, 12, 13 and 14) | 105,023 | 85,240 | ||||||||||||||||
Office and administration | 67,564 | 51,084 | ||||||||||||||||
Rent and occupancy (note 9) | 24,241 | 34,201 | ||||||||||||||||
Interest expense (notes 10, 11, 13, 14, 15, 16 and 17) | 152,952 | 90,939 | 408,382 | 267,958 | ||||||||||||||
Office and administration (note 11) | 62,906 | 39,182 | 176,850 | 102,767 | ||||||||||||||
Rent and occupancy (note 11) | 33,024 | 54,925 | 92,085 | 123,842 | ||||||||||||||
Insurance | 14,059 | 15,119 | 17,508 | 14,172 | 45,518 | 44,757 | ||||||||||||
Filing fees | 12,683 | 6,458 | 2,546 | 1,479 | 31,643 | 11,518 | ||||||||||||
Amortization of financing costs | 11,997 | - | 88,956 | - | 154,721 | - | ||||||||||||
Directors’ compensation (note 9) | 2,952 | 791 | ||||||||||||||||
Directors' compensation (note 11) | (14,648 | ) | 766 | (1,948 | ) | 2,331 | ||||||||||||
Repairs and maintenance | 2,261 | 8,009 | 4,219 | 1,471 | 8,973 | 20,240 | ||||||||||||
Total operating expenses | 1,069,220 | 434,398 | 583,405 | 864,298 | 2,432,792 | 3,210,577 | ||||||||||||
Net loss | (1,080,544 | ) | (483,617 | ) | (428,405 | ) | (831,273 | ) | (2,211,900 | ) | (3,141,825 | ) | ||||||
Other comprehensive (loss) income | ||||||||||||||||||
Foreign exchange (loss) gain | (27,505 | ) | 28,314 | |||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||
income | ||||||||||||||||||
Foreign exchange gain (loss) | 25,828 | (27,107 | ) | (51,649 | ) | (6,093 | ) | |||||||||||
Comprehensive loss | $ | (1,108,049 | ) | $ | (455,303 | ) | $ | (402,577 | ) | $ | (858,380 | ) | $ | (2,263,549 | ) | $ | (3,147,918 | ) |
Net loss per share-basic and diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.08 | ) |
Weighted average number of common sharesoutstanding- basic and diluted | 41,291,864 | 38,556,254 | 43,082,783 | 40,003,672 | 42,285,041 | 39,222,148 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency |
For the three and nine-month periods ended September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
Number of Shares | Common Shares | Additional Paid- in Capital | Share Subscriptions Payable | Stock Compensation Reserve | Accumulated Deficit | Accumulated Other Comprehensive Loss | Stockholders' Deficiency | |||||||||||||||||
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 issuedfor proceedspreviously received | 5,000 | 1 | 4599 | (4,600 | ) | - | - | - | ||||||||||||||||
Shares issuedon vesting of 2018stock award | 1,000,000 | 100 | 999,900 | - | (1,000,000 | ) | - | - | - | |||||||||||||||
Shares issuedfor professionalservices | 100,000 | 10 | 52,990 | - | - | - | - | 53,000 | ||||||||||||||||
Stock compensationexpensed on vestingof stock awards | - | - | - | - | 332,500- | - | - | 332,500 | ||||||||||||||||
Othercomprehensive 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 onvesting of 2018stock award | 1,000,000 | 100 | 329,900 | - | (330,000 | ) | - | - | - | |||||||||||||||
Shares issuedto directors | 80,000 | 8 | 39,192 | - | - | - | - | 39,200 | ||||||||||||||||
Stock compensationexpensed on vestingof stock awards | - | - | - | - | 332,500 | - | - | 332,500 | ||||||||||||||||
Othercomprehensive 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 compensationexpensed on vestingof stock awards | - | - | - | - | 85,000 | - | - | 85,000 | ||||||||||||||||
Othercomprehensive income | - | - | - | - | - | - | 25,828 | 25,828 | ||||||||||||||||
Net loss | - | - | - | - | - | (428,405 | ) | - | (428,405 | ) | ||||||||||||||
Balance-September30, 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.
7
SusGlobal Energy Corp.Interim Condensed Consolidated Statements of Changes in Stockholders’ Deficiency
SusGlobal Energy Corp. |
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency |
For the three and nine-month periods ended September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
Additional | Accumulated | |||||||||||||||||||||||
Number of | Common | Paid- | Share | Stock | Accumulated | Other | Stockholders’ | |||||||||||||||||
Shares | Shares | in Capital | Subscriptions | Compensation | Deficit | Comprehensive | Deficiency | |||||||||||||||||
Payable | Reserve | Loss | ||||||||||||||||||||||
Balance – December31, 2017 | 37,393,031 | $ | 3,740 | $ | 3,576,111 | $ | 178,200 | $ | 330,000 | $ | (4,660,296 | ) | $ | (148,093 | ) | $ | (720,338 | ) | ||||||
Shares issued forproceeds previously received | 190,000 | 19 | 178,181 | (178,200 | ) | - | - | - | - | |||||||||||||||
Shares issued onvesting of 2017 stockaward | 2,000,000 | 200 | 1,329,800 | - | (330,000 | ) | - | - | 1,000,000 | |||||||||||||||
Shares issued forprivate placement, netof share issue costs | 696,500 | 70 | 650,170 | - | - | - | - | 650,240 | ||||||||||||||||
Shares issued todirector | 20,000 | 2 | 19,998 | - | - | - | - | 20,000 | ||||||||||||||||
Stockcompensation expensedon vesting of stockaward | - | - | - | - | 1,330,000 | - | - | 1,330,000 | ||||||||||||||||
Proceeds received forshares yet to be issued | - | -- | 4,600 | - | - | - | 4,600 | |||||||||||||||||
Other comprehensiveincome | - | - | - | - | - | - | 67,266 | 67,266 | ||||||||||||||||
Net loss | - | - | - | - | - | (3,894,016 | ) | - | (3,894,016 | ) | ||||||||||||||
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 forproceeds previouslyreceived | 5,000 | 1 | 4599 | (4,600 | ) | - | - | - | - | |||||||||||||||
Shares issued onvesting of 2018 stock award | 1,000,000 | 100 | 999,900 | - | (1,000,000 | ) | - | - | - | |||||||||||||||
Shares issued forprofessional services | 100,000 | 10 | 52,990 | - | - | - | - | 53,000 | ||||||||||||||||
Stockcompensation expensedon vesting of stockawards | - | - | - | - | 332,500 | - | - | 332,500 | ||||||||||||||||
Other comprehensiveloss | - | - | - | - | - | - | (27,505 | ) | (27,505 | ) | ||||||||||||||
Net loss March 31, 2019 | - | - | - | - | - | (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 | ) |
Number of Shares | Common Shares | Additional Paid- in Capital | Share Subscriptions Payable | Stock Compensation Reserve | Accumulated Deficit | Accumulated Other Comprehensive Loss | Stockholders' Deficiency | ||||||||||||||||
Balance – December 31, 2017 | 37,393,031 | $ | 3,740 | $ | 3,576,111 | $ | 178,200 | $ | 330,000 | $ | (4,660,296 | ) | $ | (148,093 | ) | $ | (720,338 | ) | |||||
Shares issued for proceeds previously received | 190,000 | 19 | 178,181 | (178,200 | ) | - | - | - | - | ||||||||||||||
Shares issued on vesting of stock award | 1,000,000 | 100 | 329,900 | - | (330,000 | ) | - | - | - | ||||||||||||||
Shares issued for private placement, net of share issue costs | 50,000 | 5 | 44,995 | - | - | - | - | 45,000 | |||||||||||||||
Stock compensation expensed on vesting of stock award | - | - | - | - | 82,500 | - | - | 82,500 | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 28,314 | 28,314 | |||||||||||||||
Net loss | - | - | - | - | - | (483,617 | ) | - | (483,617 | ) | |||||||||||||
Balance-March 31, 2018 | 38,633,031 | $ | 3,864 | $ | 4,129,187 | $ | - | $ | 82,500 | $ | (5,143,913 | ) | $ | (119,779 | ) | $ | (1,048,141 | ) | |||||
Shares issued on vesting of 2017 stock award | 1,000,000 | 100 | 999,900 | - | - | - | - | 1,000,000 | |||||||||||||||
Shares issued for private placement, net of share issue costs | 280,000 | 28 | 259,472 | - | - | - | - | 259,500 | |||||||||||||||
Stock compensation expensed on vesting of stock award | - | - | - | - | 582,500 | - | - | 582,500 | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (7,300 | ) | (7,300 | ) | |||||||||||||
Net loss | - | - | - | - | - | (1,826,935 | ) | - | (1,826,935 | ) | |||||||||||||
Balance-June 30, 2018 | 39,913,031 | $ | 3,992 | $ | 5,388,559 | $ | - | $ | 665,000 | $ | (6,970,848 | ) | $ | (127,079 | ) | $ | (1,040,376 | ) | |||||
Shares issued for private placement, net of share issue costs | 137,000 | 14 | 132,026 | - | - | - | - | 132,040 | |||||||||||||||
Stock compensation expensed on vesting of stock award | - | - | - | - | 332,500 | - | - | 332,500 | |||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (27,107 | ) | (27,107 | ) | |||||||||||||
Net loss | - | - | - | - | - | (831,273 | ) | - | (831,273 | ) | |||||||||||||
Balance-September 30, 2018 | 40,050,031 | $ | 4,006 | $ | 5,520,585 | $ | - | $ | 997,500 | $ | (7,802,121 | ) | $ | (154,186 | ) | $ | (1,434,216 | ) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
8
Interim Condensed Consolidated Statements of Cash Flows |
For the three and nine-month periods ended September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
SusGlobal Energy Corp.Interim Condensed Consolidated Statements of Cash FlowsFor the three-month periods ended March 31, 2019 and 2018(Expressed in United States Dollars)(unaudited)
For the three-month | For the three-month | |||||||||||
period ended | period ended | For the nine-month period ended | For the nine-month period ended | |||||||||
March 31, 2019 | March 31, 2018 | September 30, 2019 | September 30, 2018 | |||||||||
Cash flows from operating activities | ||||||||||||
Net loss | $ | (1,080,544 | ) | $ | (483,617 | ) | $ | (2,211,900 | ) | $ | (3,141,825 | ) |
Adjustments for: | ||||||||||||
Depreciation | 97,701 | 94,354 | 308,588 | 297,294 | ||||||||
Amortization of intangible asset | 50 | 50 | 832 | 150 | ||||||||
Amortization of operating right-of-use asset | 3,663 | - | 6,107 | - | ||||||||
Amortization of financing fees | 11,997 | - | 154,721 | - | ||||||||
Stock-based compensation | 332,500 | 82,500 | 750,000 | 1,997,500 | ||||||||
Shares issued for professional services | 53,000 | - | 53,000 | - | ||||||||
Shares issued to directors | 39,200 | - | ||||||||||
Interest capitalized | - | 53,873 | ||||||||||
Changes in non-cash working capital: | ||||||||||||
Trade receivables | 31,239 | 124,296 | (10,279 | ) | 40,282 | |||||||
Government remittances receivable | - | 3,578 | ||||||||||
Inventory | (7,511 | ) | (14,994 | ) | (8,399 | ) | (21,620 | ) | ||||
Prepaid expenses and deposits | (87,561 | ) | 45,156 | 5,484 | 36,829 | |||||||
Accounts payable | 37,207 | 22,968 | 335,056 | 1,186 | ||||||||
Government remittances payable | (30,156 | ) | - | (12,656 | ) | 22,470 | ||||||
Accrued liabilities | (29,316 | ) | 45,499 | (62,340 | ) | 196,276 | ||||||
Net cash used in operating activities | (667,731 | ) | (83,788 | ) | (652,586 | ) | (514,007 | ) | ||||
Cash flows from investing activities | ||||||||||||
Business acquisition | (1,468,226 | ) | - | |||||||||
Purchase of intangible assets | (10,777 | ) | - | (11,149 | ) | - | ||||||
Purchase of long-lived assets | - | - | (199,434 | ) | (1,553 | ) | ||||||
Net cash used in investing activities | (10,777 | ) | - | (1,678,809 | ) | (1,553 | ) | |||||
Cash flows from financing activities | ||||||||||||
Bank indebtedness | 4,055 | 119 | 7,323 | 820 | ||||||||
Advance | 30,096 | - | ||||||||||
Repayments of advance | (9,006 | ) | - | |||||||||
Repayment of long-term debt | (21,109 | ) | (40,441 | ) | (54,764 | ) | (138,303 | ) | ||||
Repayments of obligations under capital lease | (16,665 | ) | (32,173 | ) | (61,967 | ) | (71,970 | ) | ||||
Advances of convertible promissory notes | 758,500 | - | 1,328,975 | - | ||||||||
Repayments of operating lease liability | (1,107 | ) | - | (1,864 | ) | - | ||||||
Advance of mortgage payable | 1,272,993 | - | ||||||||||
Repayments of loans payable to related parties | (94,025 | ) | (15,820 | ) | (206,910 | ) | (15,538 | ) | ||||
Advances of loans payable to related parties | - | 213,648 | ||||||||||
Private placement proceeds (net of share issue costs) | - | 45,000 | - | 436,540 | ||||||||
Net cash provided by (used in) financingactivities | 629,649 | (43,315 | ) | |||||||||
Net cash provided by financing activities | 2,304,876 | 425,197 | ||||||||||
Effect of exchange rate on cash | 6,148 | 986 | (16,192 | ) | (35,754 | ) | ||||||
Decrease in cash | (42,711 | ) | (126,117 | ) | (42,711 | ) | (126,117 | ) | ||||
Cash and cash equivalents-beginning ofperiod | 42,711 | 126,117 | 42,711 | 126,117 | ||||||||
Cash and cash equivalents-end of period | $ | - | $ | - | $ | - | $ | - | ||||
Supplemental Cash Flow Disclosures: | ||||||||||||
Interest paid | $ | 81,394 | $ | 62,932 | $ | 171,675 | $ | 279,320 | ||||
Income taxes paid | - | - | - | - |
(i) | Refer to note |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
9
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
(Expressed in United States Dollars) |
(unaudited) |
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 March 31,September 30, 2019, the Company had a working capital deficit of $5,565,973$7,865,585 (December 31, 2018-$4,830,948), incurred a net loss of $1,080,544$2,211,900 (2018-$483,617)3,141,825) for the threenine months ended March 31,September 30, 2019 and had an accumulated deficit of $9,634,856$10,766,212 (December 31, 2018-$8,554,312) and expects to incur further losses in the development of its business.
10
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
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).
11
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
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, 2018 and 2017 and their accompanying notes.
Recently Adopted Accounting Pronouncements:
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”("ASU") No. 2016-02, Leases which is also known as Accounting Standard Codification (“ASC”("ASC") Topic 842, that requires lessees to recognize for all operating leases a right-of-use asset and a lease obligation in the interim condensed consolidated balance sheets. Expenses are recognized in the interim condensed consolidated statements of operations and comprehensive loss in a manner similar to previous accounting guidance. Lessor accounting under the new standard is substantially unchanged and is not relevant to the Company. The Company adopted the accounting standard using a prospective transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented, with certain practical expedients available to ease the burden of adoption.
12
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
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 resulted in $217,755 ($297,074 CAD) of additional right-of-use lease asset and lease liability as of January 1, 2019. The new standard did not have a significant impact on the interim condensed consolidated statements of operations and comprehensive loss. See note 8,9, 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 financial accounting standards board (the “FASB”"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’sCompany's financial position, results of operations or cash flows.
In August 2018, the FASB issued an 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. ASU No. 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting ASU No. 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.
13
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
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, bank indebtedness, accounts payable, and accrued liabilities approximated their fair values as of March 31,September 30, 2019 due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes, operating lease obligationmortgage 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 $3,784,588$3,785,210 ($5,057,5815,012,859 CAD) (December 31, 2018-$3,727,778; $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 MarchSeptember 30, 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 sixthree customers (2018-five(December 31, 2018-five customers) representing greater than 5% of total trade receivables and these sixthree customers (December 31, 2018-five customers) represented 93%73% (2018-90%) 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 90% (42%71% (37%, 21%, and 13%) (September 30, 2018-67%; 31%, 26%, 11% and 11%) (March 31, 2018-69%; 24%, 23% and 22%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. 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.
14
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
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 March 31,September 30, 2019, $63,104$169,249 (December 31, 2018-$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:
May 24, 2019 | |||
Purchase consideration | |||
Cash ($1,974,218 CAD) | $ | 1,468,225 | |
Assets acquired | |||
Accounts receivable ($ 7,573 CAD) | 5,632 | ||
Land ($1,850,892 CAD) | 1,376,508 | ||
Automotive equipment and machinery ($16,525 CAD) | 12,290 | ||
Customer list ($10,205 CAD) | 7,589 | ||
Environmental compliance approval ($100,000 CAD) | 74,370 | ||
Liabilities assumed | |||
Accounts payable ($10,977 CAD) | 8,164 | ||
Net assets acquired ($1,974,218 CAD) | $ | 1,468,225 |
15
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
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
March 31, 2019 | December 31, 2018 | |||||
Technology license (net of accumulated amortization of $781 (2018- $731)) | $ | 1,220 | $ | 1,270 | ||
Trademarks-indefinite life-$14,327 CAD | 10,721 | - | ||||
Environmental compliance approvals-indefinite life- $182,700 CAD | 136,714 | 133,919 | ||||
$ | 148,655 | $ | 135,189 |
September 30, 2019 | December 31, 2018 | |||||
Technology license (net of accumulated amortization of $881 (2018- $731)) | $ | 1,120 | $ | 1,270 | ||
Customer list-limited life-$9,298 CAD (net of accumulated amortization of $907) | 7,021 | - | ||||
Trademarks-indefinite life-$14,817 CAD | 11,188 | - | ||||
Environmental compliance approvals-indefinite life- $282,700 CAD | 213,467 | 133,919 | ||||
$ | 232,796 | $ | 135,189 |
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.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").
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.
16
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
(Expressed in United States Dollars) |
(unaudited) |
79.Long-lived Assets, net
March 31, 2019 | December 31, 2018 | September 30, | December 31, | |||||||||||||||||||||
Cost | Accumulated | Net book value | Net book value | 2019 | 2018 | |||||||||||||||||||
depreciation | Cost | Accumulated | Net book value | Net book value | ||||||||||||||||||||
depreciation | ||||||||||||||||||||||||
Land | $ | 1,397,609 | $ | - | $ | 1,397,609 | $ | - | ||||||||||||||||
Composting buildings | $ | 2,200,566 | $ | 202,956 | $ | 1,997,610 | $ | 1,988,144 | 2,220,563 | 272,402 | 1,948,161 | 1,988,144 | ||||||||||||
Gore cover system | 877,008 | 135,205 | 741,803 | 748,112 | 1,071,346 | 191,043 | 880,303 | 748,112 | ||||||||||||||||
Driveway and paving | 346,837 | 42,777 | 304,060 | 304,639 | 349,989 | 57,165 | 292,824 | 304,639 | ||||||||||||||||
Machinery and equipment | 58,502 | 26,777 | 31,725 | 27,661 | 62,806 | 36,252 | 26,554 | 27,661 | ||||||||||||||||
Equipment under capital lease | 399,667 | 151,341 | 248,326 | 280,323 | 408,774 | 213,759 | 195,015 | 280,323 | ||||||||||||||||
Office trailer | 6,361 | 2,942 | 3,419 | 3,817 | 9,061 | 4,195 | 4,866 | 3,817 | ||||||||||||||||
Vacuum trailer | 5,663 | 425 | 5,238 | - | ||||||||||||||||||||
Computer equipment | 6,614 | 3,722 | 2,892 | 3,186 | 6,673 | 4,483 | 2,190 | 3,186 | ||||||||||||||||
Computer software | 6,884 | 5,307 | 1,577 | 2,389 | 6,947 | 6,947 | - | 2,389 | ||||||||||||||||
Automotive equipment | 1,497 | 636 | 861 | 953 | 10,216 | 1,739 | 8,477 | 953 | ||||||||||||||||
Signage | 2,540 | 741 | 1,799 | 1,886 | 2,564 | 812 | 1,752 | 1,886 | ||||||||||||||||
$ | 3,906,476 | $ | 572,404 | $ | 3,334,072 | $ | 3,361,110 | $ | 5,552,211 | $ | 789,222 | $ | 4,762,989 | $ | 3,361,110 |
Included above are certain assets of Astoria 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 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 acquiring the assets of $22,598 ($29,253 CAD), are included in the cost of the composting buildings. The purchase price was allocated to thelong-lived assets acquired based on their estimated relative fair value as at the date the assets were acquired.business acquisition described under note 6.
8.10. Operating Lease Right-of-Use Asset and Operating Lease Liability
The Company hashad one operating lease right-of-use asset and related operating leasaelease liability and hashad recognized as such, effective January 1, 2019, based on the present value of lease payments over the lease term that expires on March 31, 2034, calculated to be $217,755 ($297,074 CAD) which were included in the interim condensed consolidated balance sheet.. The Company has 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 iswas 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 iswas periodically reviewed for impairment losses. The Company usesused 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 iswas impaired, and if so, the amount of the impairment loss to recognize.
The Company monitorsmonitored for events or changes in circumstances that requirerequired 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 the shares of 1684567, the company that owned the land upon which the right-of-use asset was situated. As a result, the Company is both the tenant and the landlord and as such, no longer recognizes an operating right-of-use asset and related operating lease liability.
For the three-month periodthree and nine-month periods ended March 31,September 30, 2019, the Company recorded $3,663$nil ($4,870nil CAD) and $6,107 ($8,117 CAD (2018-$nil; $nil CAD and $nil; $nil CAD) respectively, for the amortization of the operating lease right-of-use asset.
The following summarizes quantitative information aboutFor the Company’sthree and nine-month periods ended September 30, 2019, the Company incurred interest of $2,437 ($3,239 CAD) (2018-$nil; $nil CAD and $nil and $nil CAD) respectively, on the operating lease:lease liability.
17
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
(Expressed in United States Dollars) |
(unaudited) |
9.11. Related Party Transactions
During the three-month periodthree and nine-month periods ended March 31,September 30, 2019, the Company incurred $33,849$34,083 ($45,000 CAD) and $101,574 ($135,000 CAD) (2018-$35,595;34,425; $45,000 CAD and $104,881; $135,000 CAD) respectively, in management fees expense with Travellers International Inc. (“Travellers”("Travellers"), an Ontario company controlled by a director and president of the Company (the “President”); $33,849President; $34,083 ($45,000 CAD) and $101,574 ($135,000 CAD) (2018-$35,595;34,425; $45,000 CAD and $104,881; $135,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. (“LFGC”("LFGC"), an Ontario company controlled by a previous director and chief executive officer of the Company (the “CEO”); $13,540CEO; $13,634 ($18,000 CAD) and $40,630 ($54,000 CAD) (2018-$9,492; $12,00013,769; $18,000 CAD and $37,291; $48,000 CAD) respectively, in management fees expense with the Company’sCompany's chief financial officer (the “CFO”"CFO"); and $nil ($nil CAD) and $nil ($nil CAD) (2018-$9,492;nil; $nil CAD and $9,324; $12,000 CAD) respectively, in management fees expense with the Company’sCompany's vice-president of corporate development (the “VPCD”"VPCD"). As at March 31,September 30, 2019, unpaid remuneration and unpaid expenses in the amount of $80,759$72,062 ($107,92395,434 CAD) (December 31, 2018-$48,691; $66,426 CAD) is included in accounts payable and $177,347$242,387 ($237,000321,000 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-month periodthree and nine-month periods ended March 31,September 30, 2019, the Company incurred interest expense of $3,802$150 ($5,055180 CAD) and $4,631 ($6,155 CAD) (2018-$293; $3714,664; $6,049 CAD and $9,482; $12,205 CAD) respectively, on the outstanding loansloan from Travellers and $1,669$364 ($2,219469 CAD) and $3,711 ($4,932 CAD) (2018-$nil; $nil1,751; $2,268 CAD and $3,295; $4,241 CAD) respectively, on the outstanding loans from the directors. As at March 31,September 30, 2019, interest of $23,698$nil ($31,669nil CAD) (December 31, 2018-$17,882; $24,395 CAD) on these loans is included in accrued liabilities.
During the three-month periodthree and nine-month periods ended March 31,September 30, 2019, the Company incurred $16,998$23,382 ($22,59830,934 CAD) and $55,678 ($74,001 CAD) (2018-$15,500; $19,59521,066; $27,426 CAD and $53,565; $68,947 CAD) respectively, in rent paid under a rental agreement to Haute Inc. (“Haute”("Haute"), an Ontario company controlled by the President.
The Company accrued directors’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-month periodthree and nine-month periods ended March 31,September 30, 2019, including the audit committee chairman's fees, in the amount of $2,952($14,648) and ($1,948) (2018-$791).766 and $2,331) respectively. As at MarchSeptember 30, 2019, $2,560 ($3,390 CAD) (December 31, 2019, $54,2002018-$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”("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 arewhich were expected to vest annually on January 1, 2020, subject to meeting certain performance objectives.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”"Board"), approved an amendment to the President’sPresident'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’sPresident's RSUs were exchanged forinto 1,000,000 common stock of the Company. On January 9,8, 2019, 1,000,000 of the President’sPresident'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 annually on January 1, 2020, subject to meeting certain performance objectives.
For the three-month periodthree and nine-month periods ended March 31,September 30, 2019, the Company recognized management compensation expense of $332,500$85,000 and $750,000 (2018-$82,500332,500 and $1,997,500) respectively, on the awards to the President and the CEO) on the award to the CEO)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-sixthone-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.
18
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
(Expressed in United States Dollars) |
(unaudited) |
10.11. 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
March | December | |||||||||||||||||||||||||||||||||||
Credit | Credit | Credit | Corporate | 31, 2019 | 31, 2018 | |||||||||||||||||||||||||||||||
Facility | Facility | Facility | Term | Total | Total | Credit | Credit | Credit | Corporate | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||
Loan | Facility | Facility | Facility | TermLoan | Total | Total | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | |||||||||||||||||||||||||||||||||
Long-Term Debt | $ | 757,258 | $ | 423,490 | $ | 36,898 | $ | 2,566,942 | $ | 3,784,588 | $ | 3,727,778 | $ | 757,406 | $ | 423,573 | $ | 36,840 | $ | 2,567,391 | $ | 3,785,210 | $ | 3,727,778 | ||||||||||||
Current portion | (757,258 | ) | (423,490 | ) | (36,898 | ) | (2,566,942 | ) | (3,784,588 | ) | (3,727,778 | ) | (757,406 | ) | (423,573 | ) | (36,840 | ) | (2,567,391 | ) | (3,785,210 | ) | (3,727,778 | ) | ||||||||||||
Long-term Debt | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||||
Long-term portion | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
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.
(a) | The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25% |
, | |
(b) | The credit facility advanced on June 15, 2017, in the amount of $448,980 ($600,000 CAD), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25% |
(c) | The credit facility advanced on August 4, 2017, in the amount of $37,415 ($50,000 CAD), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25% |
(d) | The corporate term loan advanced on September 13, 2017, in the amount of $2,786,779 ($3,724,147 CAD), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25% |
The shares of the wholly-owned subsidiaries and those shares held by the companies and the CFO noted under (a) above, represent security for the corporate term loan. |
Repayments are as follows:
For the three-month periodthree and nine-month periods ended March 31,September 30, 2019, $77,619$78,919 ($103,189104,202 CAD) and $234,441 ($311,592 CAD) (2018-$80,775; $102,11882,720; $107,984 CAD and $241,153; $310,403 CAD) respectively, in interest was charged.incurred.
19
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
(Expressed in United States Dollars) |
(unaudited) |
11.14. Obligations under Capital Lease
March 31, | December 31, | |||||||||||
2019 | 2018 | |||||||||||
(a) | (b) | Total | Total | |||||||||
Obligations under Capital Lease | $ | 143,493 | $ | 134,662 | $ | 278,155 | $ | 288,708 | ||||
Less: current portion | (48,961 | ) | (38,756 | ) | (87,717 | ) | (81,109 | ) | ||||
Obligations under Capital Lease-Long-term | $ | 94,532 | $ | 95,906 | $ | 190,438 | $ | 207,599 |
September 30, | December 31, | ||||||||||||
2019 | 2018 | ||||||||||||
(a) | (b) | Total | Total | ||||||||||
Obligations under Capital Lease | $ | 118,591 | $ | 116,631 | $ | 235,222 | $ | 288,708 | |||||
Less: current portion | (118,591 | ) | (116,631 | ) | (235,222 | ) | (81,109 | ) | |||||
Long-term portion | $ | - | $ | - | $ | - | $ | 207,599 |
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).
(a) | The lease agreement for certain equipment for the | |
(b) | The lease agreement for certain equipment for the |
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:
In the | $ | | |
In the year ending December 31, 2020 | |||
In the year ending December 31, 2021 | |||
In the year ending December 31, 2022 | |||
Less: imputed interest | ( | ) | |
Total | $ | |
For the three-month periodthree and nine-month periods ended March 31,September 30, 2019, $3,670$3,682 ($4,8794,856 CAD) and $12,237 ($16,264 CAD) (2018-$4,172; $5,2744,290; $5,615 CAD and $14,028; $18,056 CAD) respectively, in interest was charged.incurred.
12.
20
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, 2019 and 2018 |
(Expressed in United States Dollars) |
(unaudited) |
15. Convertible Promissory Notes
March 31, | December 31, | ||||||
2019 | 2018 | ||||||
(a) | Convertible promissory notes-January 28, 2019 (net of unamortized financing costs of $29,055 (2018- $nil)) | $ | 308,445 | $ | - | ||
(b) | Convertible promissory notes-March 7 and March 8, 2019 (net of unamortized financing costs of $87,948) (2018- $nil)) | 462,052 | - | ||||
$ | 770,497 | $ | - |
(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 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”
September 30, 2019 | December 31, 2018 | ||||||
(a) | Convertible promissory notes-January 28, 2019 (net of unamortizedfinancing costs of $11,507 (2018- $nil)) | $ | 261,723 | $ | - | ||
(b) | Convertible promissory notes-March 7 and March 8, 2019 (net ofunamortized financing costs of $61,165) (2018- $nil)) | 743,835 | - | ||||
(c) | Convertible promissory note-May 23, 2019 (net of unamortizedfinancing costs of $29,455 (2018-$nil)) | 220,545 | - | ||||
(d) | Convertible promissory note-July 19, 2019 (net of unamortizedfinancing costs of $25,420 (2018-$nil)) | 144,580 | - | ||||
$ | 1,370,683 | $ | - |
(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 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.
21
22
The
23
15. Convertible Promissory Notes, Pursuant to the terms of the
The
As a result of the PACE default, these convertible promissory notes are also in default. The investors may demand full repayment with accrued interest and further penalties that they are entitled to. Refer also to going concern, note 2 and subsequent events, note 21(f). 16. Mortgage Payable The Company obtained a mortgage provided by private lenders to finance the acquisition of the shares of 1684567, as noted under note 6, business acquisition. The mortgage has a principal amount of $1,359,180 ($1,800,000 CAD), is repayable interest only on a monthly basis at an annual rate of 10% per annum and is due May 24, 2020. The mortgage payable is secured by way of shares for 1684567, a first mortgage on the premises, a general assignment of rents, a fire insurance policy and is guaranteed by the Company. Financing fees on the mortgage totaled $81,619 ($108,090 CAD).
For the three and nine-month periods ended September 30, 2019, $34,162 ($45,343 CAD) and $47,845 ($63,590 CAD) (2018-$nil; $nil CAD and $nil; $nil CAD respectively, in interest was incurred. 24
Loan payable in the amount of Loans payable to directors in the amount of $nil ($nil CAD) (December 31, 2018-$54,975; $75,000 CAD), owing to three directors bear interest at the rate of 12% per annum, is due on demand and is unsecured. The loans and related accrued interest were repaid on July 19, 2019. As at
As at
In addition, during the prior year, the Company issued 190,000 common shares of the Company, in regard to the $178,200 proceeds received from a private placement prior to December 31, 2017, net of share issue costs of $11,800 and issued 20,000 common shares of the Company to a new director, determined to be valued at $20,000, based on private placement pricing at the time. All non-cash transactions were valued based on the proceeds of a recent private placement. 25
18. Capital Stock, (continued) The Company also granted the CEO 3,000,000 RSUs under a new consulting agreement effective January 1, 2017. The RSUs are expected to vest in three equal installments annually on each of January 1, 2018, 2019 and 2020. The CEO has forfeited his 2019 RSUs, as a result of his ceasing in providing his services as a CEO in September 2019. On February 25, 2018, the Company issued 1,000,000 common shares in exchange for 1,000,000 RSUs to the CEO. In addition, on May 17, 2018, at a meeting of the Board, the Board approved an amendment to the
The CFO is currently consulting on a month to month basis at $4,531 ($6,000 CAD) per month, on the same terms and conditions as his consulting agreement, which expired March 31, 2019. Refer also to subsequent events, note 21(g).
26
The Company generated
The 27
28 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, 2018 filed with the Securities and Exchange Commission on April 1, 2019. 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 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, 2018 AND 2017. YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE This OVERVIEW The following organization chart sets forth our wholly-owned subsidiaries: 29 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 On December 11, 2018, the Company began trading on the Over the Counter QB venture market exchange, under the ticker symbol SNRG. When the terms 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. 30 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 The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewable energy. 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 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 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 Greenhouse Gas Currently, the primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. 31 RECENT BUSINESS DEVELOPMENTS Business Acquisition In connection with the Company’s business acquisition of 1684567 Ontario Inc. (“1684567”), which closed on May 28, 2019, as noted below, the Company intends to exercise the option to purchase certain additional lands described in the share purchase agreement from the previous owners of 1684567. The option to purchase the additional lands from the previous owner of 1684567, is in the amount of $158,571 ($210,000 CAD). This option closes on November 28, 2019. 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 $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 principal asset of this acquired company was the land upon which the Company's organic composting facility is situated. The Company continues to operate the garbage collection and landfill management operations that it acquired under this transaction. Financings On November 12, 2019, Pace Savings & Credit Union Limited (“PACE”) responded to the Company and accepted the payment of the two noted credit facilities, but, in addition, 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. 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, due October 18, 2020. On this date the Company received proceeds of $129,600, net of transaction related expenses of $26,400. As a result of the PACE default, this convertible promissory note is also in default. The investor may demand full repayment with accrued interest and further penalties that the October 2019 Investor is entitled to. 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 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. Trademark Applications On March 13, 2019, the Company filed trademark applications with the Canadian and US trademark offices to register the SusGlobal logo, New and Renewed Contracts On November 6, 2019, by resolution of the Board, the contracts for the President and the CFO were renewed 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 contract. And for the CFO, at a monthly amount of $6,141 ($8,000 CAD), an increase of $1,510 ($2,000 CAD) over his previous contract and on the same terms and conditions as his previous contract. 32 In addition, on November 6, 2019, by resolution of the Board, the President was appointed CEO. 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 $83 per metric tonne (“MT”) ($110/MT 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 $98/MT ($130/MT). In addition, several other contracts have been renewed, one, a municipality and another a private composting operation to December 31, 2020 and November 18, 2020, respectively. 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 $135,163 ($179,000 CAD) annually. 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
Asset Purchase On September 15, 2017, the Company entered into an asset purchase agreement (the Other On October 31, 2019, the Company received a proposal to acquire certain equipment to be used in its organic composting operation. The cost of the equipment is $547,842 with a 50% deposit ($273,921), on acceptance. 33 As a result of the PACE default, various indebtedness held by a private lender, a lessor and convertible note holders are also in default. Any or all of these parties may demand full repayment with accrued interest and further penalties that they may be entitled to. Refer to going concern, note 2 and subsequent events note 21(f) in the interim condensed consolidated financial statements. On February 16, 2018, the Company finalized a lease agreement for certain equipment for its organic composting facility, which was previously on monthly rental, in the amount of On October 30, 2017, the Company finalized a lease agreement for certain equipment for its organic composting facility, which commenced on October 30, 2017, in the amount of On September 21, 2017, the company finalized a lease agreement for the lease of certain equipment for its organic composting facility, in the amount of On May 11, 2017, the Company signed a posting agreement with CrowdVest, a Tennessee limited liability company On May 9, 2017, the company signed a memorandum of agreement with Kentech (the Effective January 1, 2017, new consulting agreements were finalized for the services of the President and the CEO (the 34 On December 7, 2016, the Company was awarded funding for the AWT Program, a program for business led collaborations in the water sector. The AWT Program is administered by the Southern Ontario Water Consortium to assist small and medium sized businesses in the Province of Ontario, Canada, leverage world-class research facilities and academic expertise to develop and demonstrate water technologies for successful introduction to market. In addition, the AWT Program is designed to enhance the Ontario water cluster and continue to build The Company had already completed and provided its commitment for the first year of the AWT Program which ended March 31, 2017, consisting of professional fees of $7,217 ($9,432 CAD) and a contribution to the capital requirements of the AWT Program, totaling $71,017 ($94,000 CAD), for equipment to be used in the AWT Program and to be retained by CAWT. On
On August 19, 2016, Travellers provided an unsecured loan bearing interest at an annual rate of 12% in the amount of On May 14, 2015, the Ontario Ministry of the Environment, Conservation and Parks (the The On May 6, 2015, the Company finalized an agreement with Syngas, a company incorporated under the laws of Malaysia 35 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. Operations The Company owns the Environmental Compliance Approvals (the Waste Transfer Station:Access to the waste transfer stations 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.The Compost Sales.The Company also sells organic compost (screened and unscreened) to local customers. During the LIQUIDITY AND CAPITAL RESOURCES As of On August 28, 2019, the Company’s 36 The To pay current 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, 2019 and up to the date of this filing, the investors of the unsecured convertible promissory notes, converted a total of $142,944 of their unsecured convertible promissory notes, including a portion of their accrued interest for 4,567,233 common shares at prices ranging from $0.02015 to $0.091 per share. 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 preemptive 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. 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. 37 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 preemptive 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. On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the Although the March 2019 SPAs are dated March 7, 2019 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
38 The Company reserved a minimum of eight (8) times the number of its authorized and unissued Common Stock (the
On January 28, 2019, the Company entered into securities purchase agreements (the 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 Notes is January 28, 2020 (the The
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 39 The During the For the nine-month period Subsequent to September 30, 2019 to the date of this filing, the January 2019 Investors and the March 2019 Investors converted a portion of their unsecured convertible promissory notes, including a portion of the accrued interest, in total $95,397, for 3,456,685 common shares at per share conversion prices ranging from $0.02015 to $0.0371. On April 11, 2018, three directors each loaned the Company On April 3, 2018, a new loan was provided by Travellers International Inc. As In addition, at As noted above, on August 28, 2019, the Company’s current creditor, PACE, demanded repayment of all the credit facilities and corporate term loan on or before December 31, 2019. Management has been in discussions with a Canadian chartered bank to obtain the necessary funding to satisfy PACE’s demands. In addition, on November 1, 2019, the Company communicated with PACE and offered to paydown two of the credit facilities, totaling $460,413 ($609,738 CAD) on or before December 31, 2019 and has requested a forbearance to December 31, 2020, in return for the payment of the remaining credit facility and the corporate term loan no later than December 31, 2020, or upon obtaining the financing from 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, 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 subject to credit approval. 40 Below are details of the Company’s indebtedness to PACE, based on the original terms. Effective January 1, 2017, the Company obtained a Line of Credit of up to The funds advanced on the PACE Line of Credit of On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. On June 15, 2017, PACE loaned the Company On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. On August 4, 2017, PACE loaned the Company 41 On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. On September 13, 2017, PACE loaned the Company On July 26, 2018, the Company refinanced the PACE Corporate Term Loan. The first and only blended installment of principal and interest of Refer to notes 42 CONSOLIDATED RESULTS OF OPERATIONS
During the three-month period ended The net loss for the three-month period ended 43 Operating expenses were reduced by $280,893, from $864,298 in the three-month period ended September 30, 2018 to $583,405 in the three-month period ended September 30, 2019, explained further below. Management compensation related to stock-based compensation reduced by $247,500, from $332,500 in the three-month period ended September 30, 2018 to $85,000 in the three-month period ended September 30, 2019. The reduction was due to the adjustment to the vesting of the former CEO’s 2019 RSUs, as a result of his ceasing to provide CEO services in September 2019. On September 25, 2019, the former CEO resigned from the Board. Marketing costs increased by $5,785 during the three-month period ended September 30, 2019, compared to $nil in the three-month period ended September 30, 2018, as no marketing plan was in place in the prior year’s comparable quarter. Professional fees for the three-month period ended September 30, 2019 in the amount of $63,357, were significantly lower than the professional fees in the three-month period ended September 30, 2018, primarily as a result of the absence of legal services on the Company's claim against a third party represented by BDO. Interest expense increased by $62,013 from $90,939 in the three-month period ended September 30, 2018 to $152,952 for the three-month period ended September 30, 2019, primarily as a result of the interest expense on the advance in the amount of $6,773, on the convertible promissory notes in the amount of $29,516 and the new mortgage interest of $34,162 on the business acquisition, offset by reductions in interest expense on the various term loans and capital leases. Office and administration increased by $23,724, from $39,182 in the three-month period ended September 30, 2018 to $62,906 for the three-month period ended September 30, 2019, as a result of an increase in various expenses including laboratory testing, automotive expenses, letter of credit renewal and various other administrative costs. Rent and occupancy for the three-month period ended September 30, 2019 reduced by $21,901 compared to the three-month period ended September 30, 2018, primarily due to the elimination of any rental costs relating to the Company’s composting premises, as it is now also the landlord. Insurance increased by $3,336 from $14,172 in the three-month period ended September 30, 2018 to $17,508 in the three-month period ended September 30, 2019, primarily due to an increase in premiums for the Company’s composting operations. Filing fees for the three-month period ended September 30, 2019 in the amount of $2,546 were comparable to those for the three-month period ended September 30, 2018 in the amount of $1,479. The amortization of financing costs incurred during the three-month period ended September 30, 2019, resulted from the financing costs incurred on the SPAs in the amount of $68,406 and the amortization of the financing fees in connection with the mortgage payable on the business acquisition of $20,550. The financing costs are being amortized over the terms of the SPAs and the mortgage payable which are both one year in duration. There were no comparable amounts in the prior year's period. A portion of the directors' compensation for 2019 is based on an accrual of fees for services payable in shares, determined using the trading price at the end of each reporting period. Since the trading price has dropped during the year, the resulting expense is a credit of $15,400 in the three-month period ended September 30, 2019 offset by the directors’ compensation for the audit committee chairman’s fees. The directors’ compensation expense for the audit committee chairman’s fees in the three-month period ended September 30, 2019 totaled $752 compared to $766 in the three-month period ended September 30, 2018. 44 Repairs and maintenance expenses increased by $2,748 in the three-month period ended September 30, 2019 compared to the three-month period ended September 30, 2018, as a result of additional repairs and maintenance at the Company’s organic composting facility. CONSOLIDATED RESULTS OF OPERATIONS -FOR THE NINE-MONTH PERIOD ENDEDSEPTEMBER 30, 2019COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2018
During the nine-month period ended September 30, 2019, the Company generated $1,025,695 of revenue from its organic composting facility compared to $639,538 for the nine-month period ended September 30, 2018. The Company's cost of sales in connection with this revenue totaled $804,803 in the nine-month period ended September 30, 2019 compared to $570,786 for the nine-month period ended September 30, 2018. These costs consisted of depreciation, direct wages and benefits, equipment rental, delivery, fuel, repairs and maintenance, utilities and outside contractors. The significant increase in both the revenue and the cost of sales in the current period was primarily due to new business, 45 The net loss for the Operating expenses Management compensation related to stock-based compensation During the Professional fees Interest expense increased by
Office and administration increased by Rent and occupancy Insurance Filing fees 46 The amortization of
A portion of the directors' compensation for 2019 is based on an accrual of fees for services payable in shares, determined using the trading price at the end of each reporting period. Since the trading price has dropped during the year, the resulting expense is a credit of $4,205 in the nine-month period ended Repairs and maintenance expenses were lower by As at 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). 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). 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 for the repayment of all Debt by offering to pay 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, demanded 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. 47 As a result of the PACE default, the advance, the obligations under capital lease and the convertible promissory notes are also in default. 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 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. 48 CRITICAL ACCOUNTING ESTIMATES Use of estimates The preparation of the 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 RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS On January 1, 2019, the Company adopted Accounting Standards Update 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. 49 Adoption of the new standard resulted in $217,755 ($297,074 CAD) of additional right-of-use lease asset and lease liability as of January 1, 2019. The new standard did not have a significant impact on the interim condensed consolidated statements of operations and comprehensive loss. See note 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 In August 2018, the FASB issued an 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. ASU No. 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting ASU No. 2018-13. In January 2017, the FASB issued ASU No. 2017-04, 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. EQUITY As at STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS Effective January 1, 2017, the Company granted the CEO 3,000,000 restricted stock units 50 The Company has no other stock options, warrants or restricted stock units outstanding as at RELATED PARTY TRANSACTIONS The Company transacts with related parties in the normal course of business. During the On September 25, 2019, the CEO resigned from the Board and ceased providing his services as CEO. In addition, during the During the The Company 51 Furthermore, the Company granted the CEO 3,000,000 restricted stock units
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 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 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 52 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 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 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. On December 15, 2017, the Company filed a motion record in the Ontario Superior Court of Justice (the 53 On July 9, 2019, the Company's legal representative filed a provincial offense summons against BDO under the Environmental Protection Act of Ontario and the court set a hearing date for December 3, 2019. BDO filed a motion to stay the environmental prosecution and the court set a hearing date for November 4, 2019. On this date, the judge stayed his ruling. On November 13, 2019, the Court dismissed the motion and stayed the private prosecution. Item 1B. 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.
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 Item 3. Defaults upon Senior Securities. None. 54 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:
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.
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