UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 20192020
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to ________________
Commission file number000-56024
SUSGLOBAL ENERGY CORP.
(Exact name of registrant as specified in its charter)
Delaware | 38-4039116 |
(State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) |
200 Davenport Road | M5R 1J2 |
Toronto, ON | |
(Address of principal executive offices) | (Zip Code) |
416-223-8500
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
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 pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer [X] | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [X]
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares of the registrant's common stock outstanding as of November 14, 201916, 2020 was 47,833,40179,372,643 shares.
2
SusGlobal Energy Corp. |
INDEX TO FORM 10-Q |
For the Three and Nine-Month Periods Ended September 30, |
3
SUSGLOBAL ENERGY CORP. |
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
September 30, |
(Expressed in United States Dollars) (unaudited) |
CONTENTS |
4
SusGlobal Energy Corp. | SusGlobal Energy Corp. | |||||||||||
Interim Condensed Consolidated Balance Sheets | Interim Condensed Consolidated Balance Sheets | |||||||||||
As at September 30, 2020 and December 31, 2019 | As at September 30, 2020 and December 31, 2019 | |||||||||||
(Expressed in United States Dollars) | (Expressed in United States Dollars) | |||||||||||
(unaudited) | (unaudited) | |||||||||||
|
| |||||||||||
September 30, | December 31, |
| September 30, |
| December 31, |
| ||||||
2019 | 2018 |
| 2020 |
| 2019 |
| ||||||
ASSETS |
| |||||||||||
Current Assets |
| |||||||||||
Cash and cash equivalents | $ | - | $ | 42,711 | $ | 5,028 |
| $ | 7,926 |
| ||
Trade receivables (note 7) | 149,933 | 129,981 | ||||||||||
Restricted cash-funds held in trust (note 7) |
| - |
|
| 467,798 |
| ||||||
Trade receivables |
| 234,677 |
|
| 121,276 |
| ||||||
Government remittances receivable |
| 7,267 |
|
| 38,578 |
| ||||||
Other receivables |
| - |
|
| 20,624 |
| ||||||
Inventory | 27,538 | 18,550 |
| - |
|
| 5,389 |
| ||||
Prepaid expenses and deposits | 18,367 | 23,172 |
| 36,625 |
|
| 46,028 |
| ||||
|
|
|
|
|
| |||||||
Total Current Assets | 195,838 | 214,414 |
| 283,597 |
|
| 707,619 |
| ||||
|
|
|
|
|
| |||||||
Intangible Assets(note 8) | 232,796 | 135,189 |
| 255,322 |
|
| 237,271 |
| ||||
Long-lived Assets, net(note 9) | 4,762,989 | 3,361,110 |
| 4,783,055 |
|
| 4,762,453 |
| ||||
Long-Term Assets | 4,995,785 | 3,496,299 |
| 5,038,377 |
|
| 4,999,724 |
| ||||
Total Assets | $ | 5,191,623 | $ | 3,710,713 | $ | 5,321,974 |
| $ | 5,707,343 |
| ||
LIABILITIES AND STOCKHOLDERS' DEFICIENCY |
|
|
|
|
|
| ||||||
Current Liabilities Bank indebtedness | $ | 7,350 | $ | - | ||||||||
Accounts payable (note 11) | 708,940 | 353,728 | ||||||||||
Current Liabilities | ||||||||||||
Accounts payable (note 10) | $ | 1,187,497 |
| $ | 958,313 |
| ||||||
Government remittances payable | 23,529 | 35,169 |
| 167,137 |
|
| 35,187 |
| ||||
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 | ||||||||||
Accrued liabilities (notes 10, 12, 13 and 14) |
| 741,996 |
|
| 487,592 |
| ||||||
Advance (note 11) |
| 61,805 |
|
| 3,255 |
| ||||||
Deferred revenue |
| 4,573 |
|
| 9,239 |
| ||||||
Current portion of long-term debt (note 12) |
| 5,594,538 |
|
| 5,793,677 |
| ||||||
Current portion of obligations under capital lease (note 13) |
| 409,660 |
|
| 218,069 |
| ||||||
Convertible promissory notes (note 14) |
| 1,520,433 |
|
| 1,406,029 |
| ||||||
Loans payable to related party (note 15) |
| 48,731 |
|
| - |
| ||||||
|
|
|
|
|
| |||||||
Total Current Liabilities | 8,061,423 | 5,045,362 |
| 9,736,370 |
|
| 8,911,361 |
| ||||
Long-Term Liabilities | ||||||||||||
Obligations under capital lease (note 14) | - | 207,599 | ||||||||||
Long-term debt (note 12) |
| 59,976 |
|
| - |
| ||||||
Total Long-term Liabilities | - | 207,599 |
| 59,976 |
|
| - |
| ||||
Total Liabilities | 8,061,423 | 5,252,961 |
| 9,796,346 |
|
| 8,911,361 |
| ||||
|
|
|
|
|
|
| ||||||
Stockholders' Deficiency |
|
|
|
|
|
| ||||||
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding Common stock, $.0001 par value, 150,000,000 authorized, 44,376,716 (2018- 40,299,531) shares issued and outstanding (note 18) | 4,439 | 4,031 | ||||||||||
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding |
| 7,940 |
|
| 5,180 |
| ||||||
Additional paid-in capital | 7,274,449 | 5,754,260 |
| 8,628,336 |
|
| 7,450,091 |
| ||||
Subscriptions payable | - | 4,600 | ||||||||||
Stock compensation reserve | 750,000 | 1,330,000 |
| - |
|
| 1,000,000 |
| ||||
Accumulated deficit | (10,766,212 | ) | (8,554,312 | ) |
| (12,963,987 | ) |
| (11,449,497 | ) | ||
Accumulated other comprehensive loss | (132,476 | ) | (80,827 | ) |
| (146,661 | ) |
| (209,792 | ) | ||
|
|
|
|
|
| |||||||
Stockholders' deficiency | (2,869,800 | ) | (1,542,248 | ) |
| (4,474,372 | ) |
| (3,204,018 | ) | ||
|
|
|
|
|
| |||||||
Total Liabilities and Stockholders' Deficiency | $ | 5,191,623 | $ | 3,710,713 | $ | 5,321,974 |
| $ | 5,707,343 |
| ||
Going concern(note 2) |
|
|
|
|
|
| ||||||
Commitments(note 19) | ||||||||||||
Commitments (note 17) |
|
|
|
|
|
| ||||||
Subsequent events (note 20) |
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
SusGlobal Energy Corp. | SusGlobal Energy Corp. | |||||||||||||||||||||||
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss | Interim Condensed Consolidated Statements of Operations and Comprehensive Loss | |||||||||||||||||||||||
For the three and nine-month periods ended September 30, 2020 and 2019 | For the three and nine-month periods ended September 30, 2020 and 2019 | |||||||||||||||||||||||
(Expressed in United States Dollars) | (Expressed in United States Dollars) | |||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
For the three-month periods ended | For the nine-month periods ended | For the three-month periods ended | For the nine-month periods ended | |||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||
Revenue | $ | 390,723 | $ | 279,394 | $ | 1,025,695 | $ | 639,538 | $ | 439,507 | $ | 390,723 | $ | 1,172,343 | $ | 1,025,695 | ||||||||
Cost of Sales | ||||||||||||||||||||||||
Opening inventory | 24,738 | 115,733 | 18,550 | 53,964 | - | 24,738 | 5,389 | 18,550 | ||||||||||||||||
Depreciation | 105,990 | 98,823 | 302,816 | 291,134 | 133,467 | 105,990 | 367,734 | 302,816 | ||||||||||||||||
Direct wages and benefits | 71,347 | 41,526 | 180,379 | 125,634 | 90,475 | 71,347 | 251,721 | 180,379 | ||||||||||||||||
Equipment rental, delivery, fuel and repairs | ||||||||||||||||||||||||
and maintenance | 24,053 | 41,354 | 228,535 | 102,552 | ||||||||||||||||||||
Equipment rental, delivery, fuel and repairs and maintenance | 52,652 | 24,053 | 210,808 | 228,535 | ||||||||||||||||||||
Utilities | 19,309 | 22,755 | 79,535 | 54,643 | 27,185 | 19,309 | 73,425 | 79,535 | ||||||||||||||||
Outside contractors | 17,824 | (27 | ) | 22,526 | 16,654 | 3,886 | 17,824 | 9,165 | 22,526 | |||||||||||||||
263,261 | 320,164 | 832,341 | 644,581 | 307,665 | 263,261 | 918,242 | 832,341 | |||||||||||||||||
Less: closing inventory | (27,538 | ) | (73,795 | ) | (27,538 | ) | (73,795 | ) | - | (27,538 | ) | - | (27,538 | ) | ||||||||||
Total cost of sales | 235,723 | 246,369 | 804,803 | 570,786 | 307,665 | 235,723 | 918,242 | 804,803 | ||||||||||||||||
Gross profit | 155,000 | 33,025 | 220,892 | 68,752 | 131,842 | 155,000 | 254,101 | 220,892 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Management compensation-stock- based | ||||||||||||||||||||||||
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 | ||||||||||||||||||||
compensation (note 10) | - | 85,000 | - | 750,000 | ||||||||||||||||||||
Management compensation-fees (note 10) | 51,812 | 81,800 | 152,994 | 243,778 | ||||||||||||||||||||
Marketing | 5,785 | - | 252,462 | - | - | 5,785 | - | 252,462 | ||||||||||||||||
Professional fees | 63,357 | 246,245 | 270,328 | 383,287 | 102,769 | 63,357 | 292,104 | 270,328 | ||||||||||||||||
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 | ||||||||||||||||||||
Interest expense and default amounts (notes 10, 11, 12, 13, 14 and 15) | 258,796 | 152,952 | 854,496 | 408,382 | ||||||||||||||||||||
Office and administration | 50,042 | 53,842 | 182,727 | 179,857 | ||||||||||||||||||||
Rent and occupancy (note 10) | 32,420 | 33,024 | 89,480 | 92,085 | ||||||||||||||||||||
Insurance | 17,508 | 14,172 | 45,518 | 44,757 | 10,056 | 17,508 | 52,156 | 45,518 | ||||||||||||||||
Filing fees | 2,546 | 1,479 | 31,643 | 11,518 | 12,957 | 2,546 | 35,103 | 31,643 | ||||||||||||||||
Amortization of financing costs | 88,956 | - | 154,721 | - | 18,677 | 88,956 | 141,686 | 154,721 | ||||||||||||||||
Directors' compensation (note 11) | (14,648 | ) | 766 | (1,948 | ) | 2,331 | ||||||||||||||||||
Directors' compensation (note 10) | 56,637 | (14,648 | ) | 57,070 | (1,948 | ) | ||||||||||||||||||
Repairs and maintenance | 4,219 | 1,471 | 8,973 | 20,240 | 1,186 | 4,219 | 10,097 | 8,973 | ||||||||||||||||
Foreign exchange (income) loss | (33,473 | ) | 9,064 | 31,987 | (3,007 | ) | ||||||||||||||||||
Total operating expenses | 583,405 | 864,298 | 2,432,792 | 3,210,577 | 561,879 | 583,405 | 1,899,900 | 2,432,792 | ||||||||||||||||
Net loss from operating activities | (430,037 | ) | (428,405 | ) | (1,645,799 | ) | (2,211,900 | ) | ||||||||||||||||
Land option expired | (424 | ) | - | (59,128 | ) | - | ||||||||||||||||||
Net loss before deferred taxes recovery | (430,461 | ) | (428,405 | ) | (1,704,927 | ) | (2,211,900 | ) | ||||||||||||||||
Deferred taxes recovery | 1,415 | - | 197,420 | - | ||||||||||||||||||||
Net loss | (428,405 | ) | (831,273 | ) | (2,211,900 | ) | (3,141,825 | ) | (429,046 | ) | (428,405 | ) | (1,507,507 | ) | (2,211,900 | ) | ||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||
income | ||||||||||||||||||||||||
Foreign exchange gain (loss) | 25,828 | (27,107 | ) | (51,649 | ) | (6,093 | ) | |||||||||||||||||
Foreign exchange (loss) gain | (80,703 | ) | 25,828 | 63,131 | (51,649 | ) | ||||||||||||||||||
Comprehensive loss | $ | (402,577 | ) | $ | (858,380 | ) | $ | (2,263,549 | ) | $ | (3,147,918 | ) | $ | (509,749 | ) | $ | (402,577 | ) | $ | (1,444,376 | ) | $ | (2,263,549 | ) |
Net loss per share-basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.05 | ) |
Weighted average number of common shares outstanding- basic and diluted | 43,082,783 | 40,003,672 | 42,285,041 | 39,222,148 | 69,871,179 | 43,082,783 | 62,067,449 | 42,285,041 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
SusGlobal Energy Corp. |
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency |
For the three and nine-month periods ended September 30, |
(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 | ) |
Number of Shares | Common Shares | Additional Paid- in Capital | Shares to be Issued | Stock Compensation Reserve | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Stockholders' Deficiency | |||||||||||||||||
Balance-December 31, 2019 | 51,784,504 | $ | 5,180 | $ | 7,450,091 | $ | - | $ | 1,000,000 | $ | (11,449,497 | ) | $ | (209,792 | ) | $ | (3,204,018 | ) | ||||||
Shares issued on vesting of 2019 stock award | 1,000,000 | 100 | 999,900 | - | (1,000,000 | ) | - | - | - | |||||||||||||||
Shares issued for conversion of debt to equity | 7,717,326 | 772 | 75,955 | - | - | - | - | 76,727 | ||||||||||||||||
Conversion of debt to equity on shares yet to be issued | - | - | - | 7,250 | - | - | - | 7,250 | ||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 301,639 | 301,639 | ||||||||||||||||
Net loss | - | - | - | - | - | (755,290 | ) | - | (755,290 | ) | ||||||||||||||
Balance-March 31, 2020 | 60,501,830 | $ | 6,052 | $ | 8,525,946 | $ | $7,250 | $ | - | $ | (12,204,787 | ) | $ | 91,847 | $ | (3,573,692 | ) | |||||||
Shares issued for proceeds previously received | 1,600,000 | 160 | 7,840 | (7,250 | ) | - | - | - | 750 | |||||||||||||||
Shares issued for conversion of debt to equity | 2,757,297 | 276 | 10,477 | - | - | - | - | 10,753 | ||||||||||||||||
Share cancellation | (529,970 | (53 | ) | - | - | - | (6,983 | ) | - | (7,036 | ) | |||||||||||||
Conversion of debt to equity on shares yet to be issued | - | - | - | 13,000 | - | - | - | 13,000 | ||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (157,805 | ) | (157,805 | ) | ||||||||||||||
Net loss | - | - | - | - | - | (323,171 | ) | - | (323,171 | ) | ||||||||||||||
Balance-June 30, 2020 | 64,329,157 | 6,435 | 8,544,263 | 13,000 | (12,534,941 | ) | (65,958 | ) | (4,037,201 | ) | ||||||||||||||
Shares issued for proceeds previously received | 1,762,820 | 176 | 13,574 | (13,000 | ) | - | - | - | 750 | |||||||||||||||
Shares issued on conversion of debt to equity | 13,280,666 | 1,329 | 70,499 | - | - | - | 71,828 | |||||||||||||||||
Other comprehensive loss | - | (80,703 | ) | (80,703 | ) | |||||||||||||||||||
Net loss | - | (429,046 | ) | - | (429,046 | ) | ||||||||||||||||||
Balance-September 30, 2020 | 79,372,643 | 7,940 | 8,628,336 | - | - | (12,963,987 | ) | (146,661 | ) | (4,474,372 | ) | |||||||||||||
Balance-December 31, 2018 | 40,299,531 | 4,031 | 5,754,260 | 4,600 | 1,330,000 | (8,554,312 | ) | (80,827 | ) | (1,542,248 | ) | |||||||||||||
Shares issued for proceeds previously received | 5,000 | 1 | 4,599 | (4,600 | ) | - | - | - | - | |||||||||||||||
Shares issued on vesting of 2018 stock award | 1,000,000 | 100 | 999,900 | - | (1,000,000 | ) | - | - | - | |||||||||||||||
Shares issued for professional services | 100,000 | 10 | 52,990 | - | - | - | - | 53,000 | ||||||||||||||||
Stock compensation expensed on vesting of stock awards | - | - | - | - | 332,500 | - | - | 332,500 | ||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (27,505 | ) | (27,505 | ) | ||||||||||||||
Net loss | - | - | - | - | - | (1,080,544 | ) | - | (1,080,544 | ) | ||||||||||||||
Balance-March 31, 2019 | 41,404,531 | $ | 4,142 | $ | 6,811,749 | $ | - | $ | 662,500 | $ | (9,634,856 | ) | $ | (108,332 | ) | $ | (2,264,797 | ) | ||||||
Shares issued on vesting of 2018 stock award | 1,000,000 | 100 | 329,900 | - | (330,000 | ) | - | - | - | |||||||||||||||
Shares issued to directors | 80,000 | 8 | 39,192 | - | - | - | - | 39,200 | ||||||||||||||||
Stock compensation expensed on vesting of stock awards | - | - | - | - | 332,500 | - | - | 332,500 | ||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (49,972 | ) | (49,972 | ) | ||||||||||||||
Net loss | - | - | - | - | - | (702,951 | ) | - | (702,951 | ) | ||||||||||||||
Balance-June 30, 2019 | 42,484,531 | $ | 4,250 | $ | 7,180,841 | $ | - | $ | 665,000 | $ | (10,337,807 | ) | $ | (158,304 | ) | $ | (2,646,020 | ) | ||||||
Shares issued on conversion of debt to equity | 1,892,185 | 189 | 93,608 | - | - | - | 93,797 | |||||||||||||||||
Stock compensation expensed on vesting of stock awards | - | - | - | - | 85,000 | - | 85,000 | |||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 25,828 | 25,828 | ||||||||||||||||
Net loss | - | - | - | - | - | (428,405 | ) | - | (428,405 | ) | ||||||||||||||
Balance-September 30, 2019 | 44,376,716 | 4,439 | 7,274,449 | - | 750,000 | (10,766,212 | ) | (132,476 | ) | (2,869,800 | ) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
7
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
SusGlobal Energy Corp. | ||||||
Interim Condensed Consolidated Statements of Cash Flows | ||||||
For the nine-month periods ended September 30, 2020 and 2019 | ||||||
(Expressed in United States Dollars) | ||||||
(unaudited) | ||||||
For the nine-month period ended September 30, 2020 | For the nine-month period ended September 30, 2019 | |||||
Cash flows from operating activities | ||||||
Net loss | $ | (1,507,507 | ) | $ | (2,211,900 | ) |
Deferred taxes recovery | (197,420 | ) | - | |||
Land option expired | 59,128 | - | ||||
Adjustments for: | ||||||
Depreciation | 367,734 | 308,588 | ||||
Amortization of intangible assets | 6,171 | 832 | ||||
Amortization of operating right-of-use asset | - | 6,107 | ||||
Non-cash professional fees on conversion of debt | 4,883 | - | ||||
Amortization of financing fees | 141,686 | 154,721 | ||||
Stock-based compensation | - | 750,000 | ||||
Shares issued for professional services | - | 53,000 | ||||
Shares issued to directors | 39,200 | |||||
Change in business combination consideration (Note 6) | 88,107 | - | ||||
Changes in non-cash working capital: | ||||||
Trade receivables | (114,934 | ) | (10,279 | ) | ||
Government remittances receivable | 29,870 | - | ||||
Other receivables | 12,712 | - | ||||
Inventory | 5,174 | (8,399 | ) | |||
Prepaid expenses and deposits | 8,080 | 5,484 | ||||
Accounts payable | 250,731 | 335,056 | ||||
Government remittances payable | 130,995 | (12,656 | ) | |||
Accrued liabilities | 278,529 | (62,340 | ) | |||
Deferred revenue | (4,361 | ) | - | |||
Net cash used in operating activities | (440,422 | ) | (652,586 | ) | ||
Cash flows from investing activities | ||||||
Business acquisition (Note 6) | - | (1,468,226 | ) | |||
Purchase of intangible assets | (14,164 | ) | (11,149 | ) | ||
Purchase of long-lived assets (i) | (192,269 | ) | (199,434 | ) | ||
Net cash used in investing activities | (206,433 | ) | (1,678,809 | ) | ||
Cash flows from financing activities | ||||||
Bank indebtedness | - | 7,323 | ||||
Advance | 81,818 | 30,096 | ||||
Repayments of advance | (24,013 | ) | (9,006 | ) | ||
Advances on long-term debt | 59,128 | 1,272,993 | ||||
Repayment of long-term debt | (105,490 | ) | (54,764 | ) | ||
Repayments of obligations under capital lease | (93,467 | ) | (61,967 | ) | ||
Advances and penalties on convertible promissory notes (ii) | 192,641 | 1,328,975 | ||||
Repayments of operating lease liability | - | (1,864 | ) | |||
Advances of loans payable to related parties | 73,910 | - | ||||
Repayment of loans payable to related parties | (25,869 | ) | (206,910 | ) | ||
Net cash provided by financing activities | 158,658 | 2,304,876 | ||||
Effect of exchange rate on cash | 17,501 | (16,192 | ) | |||
Decrease in cash | (470,696 | ) | (42,711 | ) | ||
Cash and cash equivalents-beginning of period | 7,926 | 42,711 | ||||
Restricted cash-beginning of period | 467,798 | |||||
Cash and cash equivalents and restricted cash-beginning of period | 475,724 | 42,711 | ||||
Cash and cash equivalents-end of period | $ | 5,028 | $ | - | ||
Supplemental Cash Flow Disclosures: | ||||||
Interest paid | $ | 463,717 | $ | 171,675 | ||
Income taxes paid | - | - |
For the nine-month period ended | For the nine-month period ended | |||||
September 30, 2019 | September 30, 2018 | |||||
Cash flows from operating activities | ||||||
Net loss | $ | (2,211,900 | ) | $ | (3,141,825 | ) |
Adjustments for: | ||||||
Depreciation | 308,588 | 297,294 | ||||
Amortization of intangible asset | 832 | 150 | ||||
Amortization of operating right-of-use asset | 6,107 | - | ||||
Amortization of financing fees | 154,721 | - | ||||
Stock-based compensation | 750,000 | 1,997,500 | ||||
Shares issued for professional services | 53,000 | - | ||||
Shares issued to directors | 39,200 | - | ||||
Interest capitalized | - | 53,873 | ||||
Changes in non-cash working capital: | ||||||
Trade receivables | (10,279 | ) | 40,282 | |||
Government remittances receivable | - | 3,578 | ||||
Inventory | (8,399 | ) | (21,620 | ) | ||
Prepaid expenses and deposits | 5,484 | 36,829 | ||||
Accounts payable | 335,056 | 1,186 | ||||
Government remittances payable | (12,656 | ) | 22,470 | |||
Accrued liabilities | (62,340 | ) | 196,276 | |||
Net cash used in operating activities | (652,586 | ) | (514,007 | ) | ||
Cash flows from investing activities | ||||||
Business acquisition | (1,468,226 | ) | - | |||
Purchase of intangible assets | (11,149 | ) | - | |||
Purchase of long-lived assets | (199,434 | ) | (1,553 | ) | ||
Net cash used in investing activities | (1,678,809 | ) | (1,553 | ) | ||
Cash flows from financing activities | ||||||
Bank indebtedness | 7,323 | 820 | ||||
Advance | 30,096 | - | ||||
Repayments of advance | (9,006 | ) | - | |||
Repayment of long-term debt | (54,764 | ) | (138,303 | ) | ||
Repayments of obligations under capital lease | (61,967 | ) | (71,970 | ) | ||
Advances of convertible promissory notes | 1,328,975 | - | ||||
Repayments of operating lease liability | (1,864 | ) | - | |||
Advance of mortgage payable | 1,272,993 | - | ||||
Repayments of loans payable to related parties | (206,910 | ) | (15,538 | ) | ||
Advances of loans payable to related parties | - | 213,648 | ||||
Private placement proceeds (net of share issue costs) | - | 436,540 | ||||
Net cash provided by financing activities | 2,304,876 | 425,197 | ||||
Effect of exchange rate on cash | (16,192 | ) | (35,754 | ) | ||
Decrease in cash | (42,711 | ) | (126,117 | ) | ||
Cash and cash equivalents-beginning of period | 42,711 | 126,117 | ||||
Cash and cash equivalents-end of period | $ | - | $ | - | ||
Supplemental Cash Flow Disclosures: | ||||||
Interest paid | $ | 171,675 | $ | 279,320 | ||
Income taxes paid | - | - |
(i) | Refer to note |
(ii) | 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 |
September 30, |
2019 (Expressed in United States Dollars) (unaudited) |
1. Nature of Business and Basis of Presentation
SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.
On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.
On December 11, 2018, the Company began trading on the Over the Counter QBOTCQB venture market exchange, under the ticker symbol SNRG.
SusGlobal is a renewable energyrenewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SGEBL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for interim financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-Q and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company's functional currency is the Canadian Dollar ("CAD"). In the opinion of management, all adjustments necessary for a fair presentation have been included.
2. Going Concern
The interim condensed consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.
As at September 30, 2019, theThe Company had a working capital deficit of $7,865,585 (December 31, 2018-$4,830,948), incurred a net loss of $2,211,900 (2018-$1,507,507 (2019-$3,141,825)2,211,900) for the nine months ended September 30, 20192020 and as at that date had a working capital deficit of $9,452,773 (December 31, 2019-$8,203,742) and an accumulated deficit of $10,766,212$12,963,987 (December 31, 2018-2019-$8,554,312)11,449,497) and expects to incur further losses in the development of its business.
10
2. Going Concern,(continued)
On August 28, 2019,March 31, 2020, Pace Savings & Credit Union Limited (“PACE”("PACE") informedand the Company via letter thatreached an agreement for the repayment of the outstanding amounts owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020 and the remaining credit facilities and the corporate term loan were to be repaid on or before September 30, 2020. Subsequently, on November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan (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 resulton or before January 29, 2021. As part of the Company’s failureagreement, the Company is to respondbring all the amounts owing to an e-mail request from PACE current, and prepay to January 2021, the regular monthly principal and interest payments. Management continues discussions with respecta Canadian chartered bank to re-finance its remaining obligations to PACE and repay other creditors.
The Company has defaulted on the Company’s efforts to arrange for a payout.convertible promissory notes (see note 14). As a result, PACE was not agreeable to continue with the Debt and had requested thatadvance (see note 11), the Company’s indebtednessamounts owing 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,(see note 12), and the obligations under capital lease (see note 13), 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
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. default.
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors, whose debt isdebts are also in default, and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
SusGlobal Energy Corp. |
2. Going Concern, (continued)
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments, instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.
These interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
3. Significant Accounting Policies
These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company for the years ended December 31, 20182019 and 20172018 and their accompanying notes.
Recently Adopted Accounting Pronouncements:
On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases which is also known as Accounting Standard Codification ("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
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 9, operating lease right-of-use asset and operating lease liability, for additional information.
4. Recent Adopted Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed,
Newly Adopted
On January 1, 2020, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
In August 2018, the FASB issued an update, ASUCompany adopted Accounting Standards Update ("ASU") No. 2018-13, “Disclosure"Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement.Movement". ASU No. 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. The adoption of ASU No. 2018-13, is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. Thedid not have a significant impact on the Company's consolidated financial statements.
On January 1, 2020, the Company is currently evaluating the impact of adopting ASU No. 2018-13.
In January 2017, the FASB issuedadopted ASU No. 2017-04, "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 isadoption of ASU No. 2017-04, did not have a significant impact on the Company's consolidated financial statements.
Recently issued
ASU 2020-06-Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (GAAP). Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be effectivesmaller reporting companies as defined by the SEC, for interim and annual periodsfiscal years beginning after December 15, 2019 and early2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted.permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluatingassessing the impact that the adoption of adopting ASU No. 2017-04.2020-06 will have on the consolidated balance sheet and consolidated statement of operations.
13
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, |
2019 (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, funds held in trust, trade and other receivables, bank indebtedness, accounts payable and accrued liabilities approximated their fair values as of September 30, 2020 and December 31, 2019, due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes mortgage payable and loans payable to related partiesparty approximated their fair values due to their market interest rates.
Interest, Credit and Concentration Risk
Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.
In the opinion of management, the Company is exposed to significant interest rate risk on the current portion of its long-term debt of $3,785,210 ($5,012,859 CAD) (December 31, 2018-$3,727,778; $5,085,645 CAD) and on its convertible promissory notes shouldof $7,114,971 ($9,490,424 CAD) (2019-$7,199,706; $9,351,482 CAD).
Credit risk is the Company repay all or somerisk of these convertible promissory notes withinloss associated with a counterparty's inability to perform its payment obligations. As at September 30, 2020, the stipulated time period.Company's credit risk is primarily attributable to cash and cash equivalents and trade receivables. As at September 30, 2020, the Company's cash and cash equivalents were held with reputable Canadian chartered banks, a credit union and a United States of America bank.
With regards to credit risk with customers, the customers’customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at September 30, 2019,2020, the allowance for doubtful accounts was $nil ($nil CAD) (December 31, 2018-2019-$nil)730; $948 CAD).
As at September 30, 2019,2020, the Company is exposed to concentration risk as it had three customers (December 31, 2018-five2019-six customers) representing greater than 5% of total trade receivables and these three customers (December 31, 2018-five2019-six customers) represented 73% (2018-90%89% (December 31, 2019-90%) of trade receivables. The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue. These customers accounted for 71% (37%, 21%,69% (40%,15% and 13%14%) (September 30, 2018-67%2019-71%; 31%37%, 26%21% and 10%13%) of total revenue.
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. The CompanyManagement is in discussions with a Canadian chartered bank to refinance its obligations to PACE and to another creditor.repay other creditors. Refer also to going concern, note 2.
The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all or a portion of its credit facilitiesoutstanding obligations by January 29, 2021 and complete the refinancing of its real property and organic waste processing and composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.
14
5. Financial Instruments,(continued)
Currency Risk
Although the Company's functional currency is the CAD, the Company realizes a portion of its expenses in USD. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at September 30, 2019, $169,2492020, $597,300 (December 31, 2018-2019-$68,393)258,403) of the Company's net monetary liabilities were denominated in USD. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.
11 |
SusGlobal Energy Corp. |
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$121,845 ($282,308163,836 CAD) and cash from a third-party mortgage obtained in the amount of $1,258,273 ($1,691,910 CAD, net of financing fees of $80,387 ($108,090 CAD)). The total purchase price includes the original offer of $1,314,304 ($1,767,250 CAD) and acquisition costsreimbursement of $153,922vendor's expense of $65,814 ($206,96888,496 CAD).
The allocation of the purchase price is as follows:
Purchase consideration |
|
|
|
Cash ($1,855,746 CAD) | $ | 1,380,118 |
|
Assets acquired |
|
|
|
Accounts receivable ($ 7,573 CAD) |
| 5,632 |
|
Land ($1,898,000 CAD) |
| 1,411,543 |
|
Automotive equipment and machinery ($16,525 CAD) |
| 12,290 |
|
Customer list ($30,400 CAD) |
| 22,608 |
|
Land option ($80,000 CAD) |
| 59,496 |
|
|
| 1,511,569 |
|
|
|
|
|
Liabilities assumed |
|
|
|
Accounts payable ($10,977 CAD) |
| 8,164 |
|
Deferred tax liability ($267,109 CAD) |
| 198,649 |
|
|
| 206,813 |
|
|
|
|
|
Net assets acquired ($1,754,412 CAD) | $ | 1,304,756 |
|
|
|
|
|
Goodwill | $ | 75,362 |
|
Included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2019, is revenue of $137,247 ($182,098 CAD) and expenses of $217,620 ($288,735) since the date of acquisition. From January 1, 2019 and immediately prior to the date of acquisition 1684567 generated revenue of $82,437 ($109,376 CAD) and incurred expenses of $73,685 ($97,764 CAD). During the year ended December 31, 2018, 1684567 generated revenue of $212,473 ($275,188 CAD) and incurred expenses of $173,206 ($224,331 CAD).
During the three-month period ended June 30, 2020, the Company expensed previously capitalized acquisition costs in the amount of $86,864 ($118,472 CAD). The land option in the amount of $59,496 ($80,000) expired six months after the business acquisition and as a result, has been expensed in the interim condensed consolidated statements of operations and comprehensive loss. In addition, the company determined that the deferred tax liability recognized on the business acquisition would be recovered through the application of certain tax strategies. As a result, the recovery of the deferred tax liability is recorded in the interim condensed consolidated statements of operations and comprehensive loss.
12 |
15
SusGlobal Energy Corp. |
Notes to the Interim Condensed Consolidated Financial Statements |
September 30, |
2019 (Expressed in United States Dollars) (unaudited) |
7. Trade ReceivablesRestricted Cash-Funds Held in Trust
On December 17, 2017,The funds which were held in trust were required to satisfy certain outstanding payments to PACE, including the Company filed a motion recordrepayment in full of one of 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,credit facilities in the amount of $453,060$34,391 ($600,00048,788 CAD), and to bring the remaining outstanding PACE amounts current. The funds which were held 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 coststrust were provided 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, includingPACE 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.
April 3, 2020. Refer also to subsequent events,going concern, note 21(c), for details on garnishment orders issued subsequent to September 30, 2019.2 and long-term debt, note 12.
8. Intangible Assets
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 |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
Technology license (net of accumulated amortization of $1,081 (2019- $931)) | $ | 920 |
| $ | 1,070 |
|
Customer lists-limited life-$15,493 ($20,666 CAD) (net of accumulated amortization of $7,298) ($9,734 CAD) (2019-$6,634 ($8,617 CAD) (net of accumulated amortization of $1,222 ($1,588 CAD)) |
| 15,493 |
|
| 6,634 |
|
Trademarks-indefinite life-$34,639 CAD |
| 25,969 |
|
| 11,916 |
|
Goodwill ($101,334 CAD) |
| 75,970 |
|
| - |
|
Environmental compliance approvals-indefinite life- $182,700 CAD |
| 136,970 |
|
| 217,651 |
|
| $ | 255,322 |
| $ | 237,271 |
|
On May 6, 2015,For the Company acquired an exclusive license from Syngas SDN BHD ("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,three-month and nine-month periods ended September 30, the Company incurred fees to register various trademarks in the United States and Canada, in the amount $11,188$8,508 ($14,81711,349 CAD). and $14,366 ($19,162 CAD) (2019-$nil; $nil CAD and $10,948: $14,327 CAD) respectively.
On September 15, 2017, the Company acquired the environmental compliance approvals, having an indefinite life, on the purchase of certain assets of Astoria from BDO Canada Limited (“("BDO") under an asset purchase agreement (the "APA").
Effective May 24, 2019, the Company acquired an additional environmental compliance approvalcustomer lists of $75,510$22,608 ($100,00030,400 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
9.Long-lived Assets, net
September 30, | December 31, | |||||||||||
2019 | 2018 | |||||||||||
Cost | Accumulated | Net book value | Net book value | |||||||||
depreciation | ||||||||||||
Land | $ | 1,397,609 | $ | - | $ | 1,397,609 | $ | - | ||||
Composting buildings | 2,220,563 | 272,402 | 1,948,161 | 1,988,144 | ||||||||
Gore cover system | 1,071,346 | 191,043 | 880,303 | 748,112 | ||||||||
Driveway and paving | 349,989 | 57,165 | 292,824 | 304,639 | ||||||||
Machinery and equipment | 62,806 | 36,252 | 26,554 | 27,661 | ||||||||
Equipment under capital lease | 408,774 | 213,759 | 195,015 | 280,323 | ||||||||
Office trailer | 9,061 | 4,195 | 4,866 | 3,817 | ||||||||
Vacuum trailer | 5,663 | 425 | 5,238 | - | ||||||||
Computer equipment | 6,673 | 4,483 | 2,190 | 3,186 | ||||||||
Computer software | 6,947 | 6,947 | - | 2,389 | ||||||||
Automotive equipment | 10,216 | 1,739 | 8,477 | 953 | ||||||||
Signage | 2,564 | 812 | 1,752 | 1,886 | ||||||||
$ | 5,552,211 | $ | 789,222 | $ | 4,762,989 | $ | 3,361,110 |
Included abovecontracts. These customer lists are the long-lived assets acquired on the business acquisition described under note 6.
10. Operating Lease Right-of-Use Asset and Operating Lease Liability
The Company had one operating lease right-of-use asset and related operating lease liability and had recognized as such, effective January 1, 2019, based on the present value of lease payments over the lease term that expires on March 31, 2034, calculated to be $217,755 ($297,074 CAD). The Company used its estimated secured incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use asset was being amortized on a straight-line basis over the lease term which expires March 31, 2034 and amortization expense is included under office and administration expense in the interim condensed consolidated statements of operations and comprehensive loss. The Company does not act as a lessor nor does it have any leases classified as financing leases.
The operating lease right-of-use asset was periodically reviewed for impairment losses. The Company used the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment-Overall,terms ranging from forty-five to determine whether the operating lease right-of-use asset was impaired, and if so, the amount of the impairment loss to recognize.
The Company monitored for events or changes in circumstances that required a reassessment of its operating lease right-of-use asset. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding operating lease right-of-use asset.
Effective May 24, 2019, the Company acquired 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 and nine-month periods ended September 30, 2019, the Company recorded $nil ($nil 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.
For the three 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 liability.
17
11. Related Party Transactions
sixty-six months. During the three and nine-month periods ended September 30, 2020, amortization of $1,386 ($1,825 CAD) and $6,021 ($8,146 CAD) (2019-$682; $907 CAD and $682; $907 CAD), respectively.
9. Long-lived Assets, net
|
|
|
|
| September 30, |
|
|
|
|
| December 31, |
|
|
|
|
|
| 2020 |
|
|
|
|
| 2019 |
|
|
| Cost |
|
| Accumulated |
|
| Net book value |
|
| Net book value |
|
|
|
|
|
| depreciation |
|
|
|
|
|
|
|
Land | $ | 1,422,931 |
| $ | - |
| $ | 1,422,931 |
| $ | 1,425,002 |
|
Composting buildings |
| 2,308,799 |
|
| 405,737 |
|
| 1,903,062 |
|
| 1,965,690 |
|
Gore cover system |
| 1,058,700 |
|
| 295,684 |
|
| 763,016 |
|
| 869,864 |
|
Driveway and paving |
| 347,486 |
|
| 84,555 |
|
| 262,931 |
|
| 291,427 |
|
Machinery and equipment |
| 169,812 |
|
| 62,360 |
|
| 107,452 |
|
| 22,270 |
|
Equipment under capital lease |
| 697,971 |
|
| 388,740 |
|
| 309,231 |
|
| 167,578 |
|
Office trailer |
| 8,996 |
|
| 6,864 |
|
| 2,132 |
|
| 4,268 |
|
Vacuum trailer |
| 5,623 |
|
| 2,109 |
|
| 3,514 |
|
| 4,908 |
|
Computer equipment |
| 6,626 |
|
| 5,897 |
|
| 729 |
|
| 1,862 |
|
Computer software |
| 6,897 |
|
| 6,897 |
|
| - |
|
| - |
|
Automotive equipment |
| 10,143 |
|
| 4,769 |
|
| 5,374 |
|
| 7,863 |
|
Signage |
| 4,007 |
|
| 1,324 |
|
| 2,683 |
|
| 1,721 |
|
| $ | 6,047,991 |
| $ | 1,264,936 |
| $ | 4,783,055 |
| $ | 4,762,453 |
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)
10. Related Party Transactions
For three and nine-month periods ended September 30, 2020, the Company incurred $34,083$33,791 ($45,000 CAD) and $101,574$99,779 ($135,000 CAD) (2018-(2019-$34,425;34,083; $45,000 CAD and $104,881;$101,574; $135,000 CAD) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the President; $34,083president and chief executive officer (the "CEO"); $nil ($45,000nil CAD) and $101,574$nil ($135,000nil CAD) (2018-(2019-$34,425;34,083; $45,000 CAD and $104,881;$101,574; $135,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a previousformer director and CEO; $13,634former chief executive officer and $18,021 ($18,00024,000 CAD) and $40,630$53,215 ($54,00072,000 CAD) (2018-(2019-$13,769;13,634; $18,000 CAD and $37,291; $48,000$40,630; $54,000 CAD) respectively in management fees expense with the Company's chief financial officer (the "CFO"); and $nil ($nil CAD) and $nil ($nil CAD) (2018-$nil; $nil CAD and $9,324; $12,000 CAD) respectively, in management fees expense with the Company's vice-president of corporate development (the "VPCD"). As at September 30, 2019,2020, unpaid remuneration and unpaid expenses in the amount of $72,062$344,359 ($95,434459,329 CAD) (December 31, 2018-2019-$48,691; $66,426324,303; $421,227 CAD) is included in accounts payable and $242,387$11,995 ($321,00016,000 CAD) (December 31, 2018-2019-$184,714; $251,99712,318; $16,000 CAD) is included in accrued liabilities.
On September 25, 2019,liabilities in the CEO resigned from the Board and ceased providing his services as CEO.interim condensed consolidated balance sheets.
In addition, during the three and nine-month periods ended September 30, 2019,2020, the Company incurred interest expense of $150$1,771 ($1802,368 CAD) and $4,631$4,399 ($6,1555,952 CAD) (2018-(2019-$4,664; $6,049150; $180 CAD and $9,482; $12,205$4,631; $6,155 CAD) respectively, on the outstanding loanloans from Travellers and $364$nil ($469nil CAD) (2019-$364; $469 CAD) and $3,711 ($4,932 CAD) (2018-$1,751; $2,268$3,711; $4,932 CAD and $3,295; $4,241 CAD) respectively, on the outstanding loans from the directors. As at September 30, 2019,2020, interest of $nil$4,462 ($nil5,952 CAD) (December 31, 2018-2019-$17,882; $24,395nil; $nil CAD) on thesethe loans outstanding to Travellers is included in accrued liabilities.liabilities in the interim condensed consolidated balance sheets.
DuringFor the three and nine-month periods ended September 30, 2019,2020, the Company incurred $23,382$21,198 ($30,93428,284 CAD) and $55,678$57,618 ($74,00177,957 CAD) (2018-(2019-$21,066; $27,42623,382; $30,934 CAD and $53,565; $68,947$55,678; $ $74,001 CAD) respectively, in rent expense paid under a rentallease agreement towith Haute Inc. ("Haute"), an Ontario company controlled by the President.CEO.
TheFor those independent directors providing their services throughout 2019, the Company recordedaccrued directors' compensation for its five independent directors for services providedtotaling $3,000, based on the sharesubsequent issuance of 20,000 common shares of the Company to each of the five directors that are expected to be issued subsequent to September 30, 2020. The directors' compensation was priced based on the trading price of the shares at the endclose of business on September 30, 2020 and will be adjusted based on the trading price of the shares, immediately prior to issuance. At a meeting of the Board of Directors (the "Board") on September 10, 2020, the Board approved the 2020 compensation to each periodindependent board member in the amount of $18,743 ($25,000 CAD), effective January 1, 2020, to be paid in cash or shares of the Company, on or before December 31, 2020. For the services provided in the three and nine-month periods ended September 30, 2020, $56,637 and $57,070 (2019-($14,648) and ($1,948)) respectively. Also included in directors' compensation for the three and nine-month periods ended September 30, 2019, including2020, are the audit committee chairman's fees, in the amount of $751 ($14,648)1,000 CAD) and $2,217 ($1,948) (2018-$7663,000 CAD) (2019 $757; $1,000 CAD and $2,331)$2,257; $3,000 CAD) respectively. As at September 30, 2019, $2,5602020, outstanding directors' compensation of $1,694 ($3,3902,260 CAD) (December 31, 2018-2019-$nil) of outstanding fees to the directors3,480; $4,520 CAD) is included in accounts payable and $7,133$59,227 (December 31, 2018-2019-$52,000) of outstanding fees to the directors3,650) is included in accrued liabilities.liabilities, in the interim condensed consolidated balance sheets.
Furthermore, for the three and nine-month periods ended September 30, 2020, the Company grantedrecognized management compensation expense of $nil and $nil (2019-$85,000 and $750,000) respectively, on the CEO 3,000,000vesting of restricted stock units ("RSU"RSUs"), under a consulting agreement effective granted in prior years to the CEO and the former chief executive officer. On January 1, 2017,10, 2020, the CEO's remaining RSUs determined to be valued at $990,000 based on private placement pricing at the time. On each of February 25, 2018 and April 2, 2019, 1,000,000 RSUs were exchanged into 1,000,000 common stock of the Company. The RSUs for the remaining installment which were expected to vest on January 1, 2020, subject to meeting certain performance objectives, have been forfeited by the CEO on his resignation in September 2019. On May 17, 2018, at a meeting of the board of directors (the "Board"), approved an amendment to the President's consulting agreement, to include the granting of 3,000,000 RSUs to the President, determined to be valued at $3,000,000,$1,000,000 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'sgranting of the RSUs were exchanged into 1,000,000 common stockshares of the Company. On January 8, 2019, 1,000,000 of the President's RSUs were exchanged into 1,000,000 common stock of the Company. Based on private placement pricing at the time, the common stock issued to the President on each exchange of the RSUs, was determined to be valued at $1,000,000. The RSUs for the remaining installment are expected to vest on January 1, 2020, subject to meeting certain performance objectives. For the three and nine-month periods ended September 30, 2019, the Company recognized management compensation expense of $85,000 and $750,000 (2018-$332,500 and $1,997,500) respectively, on the awards to the President and the CEO) on the award to the President, representing one-quarter of the total value of the award of $3,000,000, based on private placement pricing at the time. In the three and nine-month periods ended September 30, 2018, the Company recognized management compensation expense of $332,500 and $1,997,500 on the awards to the President and the CEO, representing one-quarter of the total value of the awards of $3,990,000 and the award granted to the President in the amount of $1,000,000, as noted above, based on private placement pricing at the time.
18
11. Related Party Transactions,(continued)
Refer also to subsequent events, note 21(g).
12. Advance
On July 29, 2019,August 4, 2020, the Company received an advance in the amount of $30,204$82,992 ($40,000110,700 CAD) from a private lender. The advance is repayable weekly at an amount of $368$4,602 ($4886,138 CAD) every business day until repaid in full on January 13, 2020.22, 2021. Transaction related expenses in connection with this advance totaled $4,213$3,313 ($5,6004,483 CAD) and are included anin interest expense in the interim condensed consolidated statements of operations and comprehensive loss. For the three and nine-month periods ended September 30, 2019,2020, the Company incurred interest charges of $6,773$15,554 ($9,00221,044 CAD) and $6,773$15,554 ($9,00221,044 CAD) respectively. Total interest on the advance to January 13, 2020 is $11,737 ($15,600 CAD). The advance is guaranteed by the President.CEO. As a result of the PACE default,defaults on the convertible promissory notes, this advance is also in default. The lender may demand full repayment.
Refer alsoSusGlobal Energy Corp.
Notes to going concern, note 2the Interim Condensed Consolidated Financial Statements
September 30, 2020 and subsequent events, note 21(f).2019
(Expressed in United States Dollars)
(unaudited)
13.12. Long-Term Debt
Credit | Credit | Credit | Corporate | September 30, 2019 | December 31, 2018 |
| Credit |
| Credit |
| Corporate |
| Mortgage |
| Canada Emergency |
| September 30, |
| December 31, |
| |||||||||||||||||||
Facility | Facility | Facility | TermLoan | Total | Total |
| Facility |
| Facility |
| Term Loan |
| Payable |
| Business Account |
| 2020 Total |
| 2019 Total |
| |||||||||||||||||||
| (a) |
| (b) |
| (c) |
| (d) |
| (e) |
|
|
| |||||||||||||||||||||||||||
Long-Term Debt | $ | 757,406 | $ | 423,573 | $ | 36,840 | $ | 2,567,391 | $ | 3,785,210 | $ | 3,727,778 | $ | 736,341 |
| $ | 411,003 |
| $ | 2,500,082 |
| $ | 1,947,112 |
| $ | 59,976 |
| $ | 5,654,514 |
| $ | 5,793,677 |
| ||||||
Current portion | (757,406 | ) | (423,573 | ) | (36,840 | ) | (2,567,391 | ) | (3,785,210 | ) | (3,727,778 | ) |
| (736,341 | ) |
| (411,003 | ) |
| (2,500,082 | ) |
| (1,947,112 | ) |
| - |
| $ | (5,594,538 | ) |
| (5,793,677 | ) | ||||||
Long-term portion | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 59,976 |
| $ | 59,976 |
| $ | - |
|
TheOn March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE ((a), (b) and (c) above). One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan (the “Debt”) described below in paragraphs (a) to (d) are due on demand. On August 28, 2019, PACE demanded repayment on or before DecemberSeptember 30, 2020. On April 3, 2020, the Company provided PACE with funds, held in trust on March 31, 2019. Management met with PACE on September 5, 2019,2020, to resolvebring 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 theremaining credit facilities and the corporate term loan increased by 0.50%current. The funds remaining, which were held in trust on March 31, 2020 are to be used to satisfy the principal and interest payments on the noted debt partially, through August 2020. Included in prepaid expenses and deposits in the interim condensed consolidated financial statements is $50,797 ($69,224 CAD) relating to prepaid principal and interest payments. In addition, the letter of credit the Company has with PACE base ratein favor of 7.00% plus 1.75% per annum. Discussionsthe Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to September 30, 2020. On April 3, 2020, the shares previously pledged as security to PACE, were released and are ongoing.currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. This long-term debt is considered to be in default as a result of defaults on the convertible promissory notes (see note 14). As a result, PACE may demand repayment before September 30, 2020.
Refer also to going concern, note 2 and subsequent events, note 21(f)20 (a).
The Debt is otherwiseremaining PACE long-term debt was initially payable as noted below.below:
(a) | The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of |
|
|
(b) | The credit facility advanced on June 15, 2017, in the amount of |
|
|
(c) | The |
|
|
|
For the three and nine-month periods ended September 30, 2019, $78,9192020, $70,105 ($104,20293,162 CAD) and $234,441$225,346 ($311,592304,893 CAD) (2018-(2019-$82,720; $107,98478,919; $104,202 CAD and $241,153; $310,403$234,441; $311,592 CAD) respectively, in interest was incurred.incurred on the PACE long-term debt. As at September 30, 2020 $57,063 ($76,114 CAD) (December 31, 2019-$124,926; $162,263 CAD) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
19
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Expressed in United States Dollars)
(unaudited)
12. Long-Term Debt, (continued)
(d) | The Company obtained a 1st. mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs. The mortgage has a principal amount of $1,949,220 ($2,600,000 CAD), is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of October 19, 2020. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land described in note 9, long-lived assets, in the interim condensed consolidated balance sheets with a carrying value of $1,422,931 ($1,898,000 CAD), a general assignment of rents, and a fire insurance policy. Financing fees on the mortgage totaled $115,155 ($156,929 CAD). As at September 30, 2020, $7,924 ($10,570 CAD) (December 31, 2019-$8,138; $10,570 CAD) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2020, there is $2,107 ($2,811 CAD) (2019-$74,219; $97,133 CAD) of unamortized finance fees. For the three and nine-month periods ended September 30, 2020, $48,809 ($65,000 CAD) and $144,125 ($195,000 CAD) (2019-$34,162; $45,343 CAD and 47,845; $63,590 CAD) respectively, in interest was incurred on the mortgage payable. Refer also to subsequent events, note 20 (b) for details of an additional advance on this 1st. mortgage. |
(e) | As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the |
On April 27, 2020, the Company received a total of $59,976 ($80,000 CAD) under this program, from its Canadian chartered bank. Under the initial term date of the loans, which is detailed in | |
14.13. Obligations under Capital Lease
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 |
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
|
|
|
|
|
|
|
|
|
|
|
| 2020 |
|
| 2019 |
|
|
| (a) |
|
| (b) |
|
| (c) |
|
| Total |
|
| Total |
|
Obligations under Capital Lease | $ | 78,966 |
| $ | 79,190 |
| $ | 251,504 |
| $ | 409,660 |
| $ | 218,069 |
|
Less: current portion |
| (78,966 | ) |
| (79,190 | ) |
| (251,504 | ) |
| (409,660 | ) |
| (218,069 | ) |
Long-term portion | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
|
As a result of the convertible promissory notes defaults, these leases are also in default (see note 13). The lessor may demand full repayment of these obligations under capital lease. As
SusGlobal Energy Corp. 13. Obligations under Capital Lease, (continued)
The lease liabilities are secured by the equipment under capital lease as described in note 9.
Minimum lease payments as per the original terms of the obligations under capital lease are as follows:
For the three and nine-month periods ended September 30,
SusGlobal Energy Corp. 14. Convertible Promissory Notes, (continued)
On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors in the face value amount of $275,000. The proceeds received by the Company was $228,000, net of $25,000 discount and financing costs. The maturity dates of the March 2019 Investor Notes are March 7, 2020 and March 8, 2020. The March 2019 Investor Notes bear interest at a rate of twelve percent (12%) per annum (the "March 2019 Interest Rate"), which interest shall be paid by the Company to the March 2019 Investors in Common Stock at any time the March 2019 Investors send a notice of conversion to the Company. SusGlobal Energy Corp. 14. Convertible Promissory Notes, (continued) The March 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the March 2019 Investor Notes into Common Stock, at any time, at a conversion price for each share of SusGlobal Energy Corp. Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable March 2019 Effective Date; or (ii) the conversion date. The Company reserved a minimum of eight (8) times the number of its authorized and unissued Common Stock (the "March 2019 Reserved Amounts"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2019 Investor Notes. Upon full conversion of the March 2019 Investor Notes, any shares remaining in such reserve shall be cancelled. The Company increases the March 2019 Reserved Amount in accordance with the Company's obligations under the March 2019 Investor Notes. Since the March 2019 Investor Notes were not repaid by their March 7, 2020 and March 8, 2020 maturity dates, they are also in default resulting in the outstanding balance (principal plus accrued interest) increasing by 10% and the interest rate on the 2019 March Investor Notes increasing from 12% to 24% annually, effective January 28, 2020. The March 2019 Investors continue to have the option to convert their March 2019 Investor Notes. During the nine-month period September 30, 2020, the March 2019 Investors converted a total of $91,802 of their March 2019 Investor Notes.
SusGlobal Energy Corp. 14. Convertible Promissory Notes, (continued)
14. Convertible Promissory Notes, (continued) The convertible promissory notes described above may be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning
Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes. The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable. For the three and nine-month periods ended September 30,
Refer also to going concern, note 2 and subsequent events, note
Loans payable in the For the three and nine-month periods ended September 30,
As at September 30, SusGlobal Energy Corp. 16. Capital Stock, (continued) The share conversion prices ranged from $0.0036 to $0.0176 per share. On January 10, 2020, the CEO's remaining RSUs determined to be valued at $1,000,000 based on private placement During the year ended December 31, 2019, the Company issued
PACE has provided the Company a letter of credit in favor of the Ministry of the Environment, Conservation and Parks (the "MECP") in the amount of $207,540 ($276,831 CAD) and, as security, has registered a charge of lease over the premises, located at 704 Phillipston Road, Roslin, Ontario, Canada. The Company is required to provide for environmental remediation and clean-up costs for its organic waste processing and composting facility. SusGlobal Energy Corp. 17. Commitments, (continued)
The Company generated 19. Legal Proceeding From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows. On September 24, 2020, the Company served the former chief executive officer and his company, LFGC, with a statement of claim. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $749,700 ($1,000,000 CAD). See also subsequent events, note 20 (b).
The Company's management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 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, The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q. Growth and percentage comparisons made herein generally refer to the nine-month period ended September 30, 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, This Management's Discussion and Analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the "Financial Statements"). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States ("GAAP"). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars. OVERVIEW The following organization chart sets forth our wholly-owned subsidiaries:
SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp. On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017. On December 11, 2018, the Company began trading on the When the terms "the Company," "we," "us" or "our" are used in this document, those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd. and SusGlobal Energy Belleville Ltd. SusGlobal is a
With the growing amount of organic wastes being produced by society as a whole, a solution for sustainable global management of these wastes must be achieved. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of four distinct types of technologies: (a) Process Source Separated Organics ("SSO") in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas. (b) Increasing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield. (c) Utilize recycled plastics to produce liquid fuels and (d) process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of We believe the project and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management and Composting. The Company can provide a full range of services for handling organic residuals in a period where innovation and sustainability are paramount. From start to finish we offer in-depth knowledge, a wealth of experience and cutting-edge technology for handling organic waste. The primary focus of the services SusGlobal provides includes identifying idle or underutilized anaerobic digesters and integrating our technologies with capital investment to optimizing the operation of the existing digesters to reach their full capacity for processing SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant Currently, the primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
The Company has continued to carry out the aggressive emergency measures set in place by the provincial government, keeping in mind, firstly, the immediate health and safety of our employees. Employees in the head office, located in Toronto, Ontario, Canada have continued to work remotely now for two months or alternating their office time, ensuring there are no other employees present. Employees at the site in Belleville, Ontario, Canada, have also been following the same procedures. The Company has prohibited face to face meetings and all previously scheduled meetings and those in the foreseeable future have and will be held by teleconference. The Company will continue following these aggressive emergency measures as long as they are in place. The Company is fortunate that its operations have not been forced to close as we're considered an essential service. In some cases, the receipt of organic waste has increased, the likely impact of the requirement for the public to stay in their residences, unless they themselves are employed in an essential business or service. A broad, sustained outbreak of COVID-19 will negatively impact our results and financial condition for the following reasons: (i) a large percentage of our customers are municipalities and their limited operations has resulted in some delay in the collection of outstanding receivables, impacting our cash flows, including the use of cash (ii) members of the board, management or employee team, some of whom may be particularly at-risk for the severe symptoms of COVID-19, or of our small number of other employees, may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facilities (iii) the outbreak may materially impact our operations for a sustained period of time due to the current travel bans and restrictions, quarantines, social or physical distancing orders and shutdowns. The occurrence of any of the these noted events and potentially others, could have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. RECENT BUSINESS DEVELOPMENTS
SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY® After having filed on March 13, 2019, trademark applications in Canada and the United States, on July 16, 2020, the Company announced it had received a Certificate of Registration from the The Mark was registered under Registration Number 6,098,063 on July 7, 2020 on the Supplemental Register. The registration will be in effect for an initial term of treatment and processing of organic waste; organic waste disposal services, namely, destruction and recycling of waste; organic waste management services, namely, converting waste into energy; recycling of organic waste; technical consulting in the field of waste management, namely, consulting in the field of waste treatment; recycling of plastic; recycling, namely, transform biosolids and organic waste into a pathogen free recognized organic fertilizer and compost and regenerative products, namely, biogas, electricity, liquid fertilizer, compost. Now that the Mark is registered, The SusGlobal to Commence Integration of The Ydro Process(R) at Its Belleville Organic Waste Processing and Composting Facility On May 27, 2020, the TradeWorks Environmental's Ydro Process® is integrated into the existing SusGlobal Belleville operations by applying the Ydro Series® Microorganisms product once during the preparation stage of the batches in the appropriate Gore® system windrows. The integration of the Ydro Process® is expected to: Reduce: • Odors generated from the • Energy requirements, and the electrical consumption for aeration-heating purposes. Increase: • Degradation/decomposition rate and efficiency of • Composting process and reduce the compost processing time. • Composting performance and efficiency of the system. • System's composting capacity and composting cycles (over its design limit). • Compost quality, compost maturity, N:P:K & C:N ratio. • Composting temperature (naturally, through the biological activity). Energy Retrofit Program On January 15, 2020, the Independent Electrical System Operator (the "IESO") pre-approved the Company's Save on Energy Retrofit Program Application (the "Program"). The total cost of the Program is Business Acquisition Effective May 24, 2019, the Company purchased all the issued and outstanding shares of 1684567. The transaction closed on May 28, 2019. The purchase consideration consisted of cash from working capital of The principal asset of this acquired company was the land upon which the Company's organic waste processing and composting facility is situated. The Company continues to operate the garbage collection and landfill management operations that it acquired under this transaction. Financings
On October 18, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one 12% unsecured convertible promissory note (the "October 2019 Investor Note") in the principal amount of $156,000, with a past due date of October 18, 2020. On this date the Company received proceeds of $129,600, net of transaction related expenses of $26,400. As noted below, initially, as a result of the January 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the October 2019 Investor Note not having been repaid by its due date, the principal balance of this note increased by a default penalty of $15,600 on October 18, 2020. The October 2019 Investor continues to have the option to convert its October 2019 Investor Note. On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000, with a past due date of July 19, 2020. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775. As noted below, initially, as a result of the January 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the July 2019 Investor Note not having been repaid by its due date, the principal balance of this note increased by a default penalty of $17,000 on July 19, 2020. The July 2019 Investor continues to have the option to convert its July 2019 Investor Note. On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000, with a past due date of May 23, 2020. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750. During the nine-month period ended September 30, 2020, the May 2019 Investor converted a total of $15,000 (December 31, 2019-$nil) of its May 2019 Note. As noted below, initially, as a result of the January 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. And, as a result of the May 2019 Investor Note not having been repaid by its due date, the principal balance of this note increased by a default penalty of $22,000 on May 23, 2020. The May 2019 Investor continues to have the option to convert its May 2019 Investor Note. On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with two investors (the "March 2019 Investors") pursuant to which the Company issued to each March 2019 Investor two 12% unsecured convertible promissory notes comprised of the first notes (the "First Notes") being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each (the "Back-End Notes," and, together with the First Notes, the "March 2019 Investor Notes") in the aggregate principal amount of $1,100,000, with such principal and the interest thereon convertible into Common Stock at the March 2019 Investors' option. Each First Note contains a $25,000 Original Issue Discount such that the issue price of each First Note was $250,000. The proceeds on the issuance of the First Notes were received from the March 2019 Investors upon the signing of the March 2019 SPAs. The proceeds on the issuance of the Back-End Notes were initially received by the issuance of two offsetting $250,000 secured notes to the Company by the March 2019 Investors (the "Buyer Notes"), provided that prior to conversion of the Back-End Notes, the March 2019 Investors must have paid back the Back-End Notes in cash. The maturity dates of the March 2019 Investor Notes were March 7, 2020 and March 8, 2020, respectively. Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction-related expenses, for the First Notes from the March 2019 Investors. On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors with a face value amount of $275,000. The proceeds received by the Company was $228,000, net of $25,000 discount and financing costs. During the nine-month period ended September 30, 2020, the March 2019 Investors converted a total of $91,802 (December 31, 2019-$75,000) of their March 2019 Investor Notes. As a result of these March 2019 Notes not having been repaid by their respective due dates, as with the On During the nine-month period ended September 30, 2020, the January 2019 Investors converted a total of $54,095 (December 31, 2019-$158,618) of their January 2019 Investor Notes. Since the January 2019 Investor Notes were not repaid by their January 28, 2020 maturity date, they are in default and the outstanding balance (principal plus accrued interest) of each of the January 2019 Investor Notes was increased by 50% and by a further $15,000 (together the "Default Amounts"), a total of $108,441 and the interest rate increased from 12% to 24% annually, effective January 28, 2020. The January 2019 Investors continue to have the option to require the Company to immediately issue, in lieu of the Default Amount, the number of shares of common stock of the Company equal to the Default Amount divided by the conversion price then in effect. The convertible promissory notes described above may be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning onthe date which is sixty-one (61) days following their applicable effective date, and ending on the date which is ninety (90) days following their applicable effective date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is ninety-one (91) days following their applicable effective date, and ending on the date which is one hundred eighty (180) days following their applicable effective date, then the prepayment premium shall be 145% of the face amount plus any accrued interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited. Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes. The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of For the three and nine-month periods ended September 30, (b)Pace Savings & Credit Union Limited ("PACE") On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE ((a), (b) and (c) above). One of the credit facilities, in the amount of $34,391 ($ On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company will bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments. On November 13, 2020, the agreed amounts were paid to PACE. PACE has also committed to renew the letter of credit in favour of the MECP to January 29, 2021. The remaining PACE long-term debt was initially payable as noted below:
For the three and nine-month periods ended September 30, 2020, $70,105 ($93,162 CAD) and (c)Other Financings
(d)Financings Related to As a result of the
For the
Treatment of Organic Waste and Septage On February 28, 2019, the Company announced that it had received the project completion report titled: Development Optimization and Validation of an Innovative Integrated Anaerobic Thermophilic Digester Treatment of Organic Waste and Septage. The report was written by a research team at Fleming College's Centre for Advancement of Water and Wastewater Technologies, located in Lindsay, Ontario, Canada. The collaborative project was supported by the Advancing Water Technologies Program (the "AWT Program") of Southern Ontario Water Consortium. The project focused on the development of a new and innovative technology for handling and processing organic residuals. This new technology utilizes the anaerobic mesophilic digestion process coupled with thermophilic digestion to maximize biogas yields and produce organic fertilizer through optimal operations. Asset Purchase On September 15, 2017, the Company entered into an asset purchase agreement (the "APA) with Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP ("Astoria"), pursuant to which the Company purchased certain assets of Astoria from the court appointed receiver of Astoria, BDO Canada Limited (the "Receiver"). The purchase price for the composting buildings, Gore cover system, driveway and paving, office trailer, certain machinery and equipment, computer equipment, computer software and intangible assets (the "Assets") consisted of cash of $3,167,250 ($4,100,000 CAD), funded by PACE Other In July 2020, the council for one of the Company's customers, a local township, approved an extension of a contract for services provided by the Company for garbage collection. The new contract expires July 31, 2023 with annual fees ranging from $27,314 ($36,433 CAD) to $28,937 ($38,598 CAD). The Company has also secured an organic processing arrangement with another local municipality, in conjunction with their green bin program, with a tipping fee set at $97/MT ($130/MT). In addition, several other contracts have been renewed, one, a municipality and another a private composting operation to November 18, 2020 and December 31, 2020, respectively. On October
On July 22, 2019, the council for one of the Company's On May 9, 2017, the company signed a memorandum of agreement with Kentech (the "Kentech Agreement"), a corporation existing under the laws of the province of Ontario, Canada ("Kentech"). The Kentech Agreement provides the Company the right to acquire and the right to use the equipment and innovative processes of Kentech in relation to the production of liquid fertilizer from organic waste material. The Kentech Agreement is for a period of five years, commencing on the date of the Kentech Agreement. The Kentech Agreement may be terminated by either party upon providing six months' notice.
On May 14, 2015, the The Company's activities all contribute to GHG reductions, so we will be a key part of Ontario's initiative. The Company has also contacted counterparties in Quebec and California to explore opportunities for relevant projects. SusGlobal is committed to making all its commercial activities carbon neutral. New Cap and Trade regulations became effective January 2017. On July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap and Trade program in Ontario. In January 2019, a Climate Change Leadership Team (CCLT) was established. The CCLT is a cross-ministry group responsible for embedding climate change in government procurement, building understanding and capacity within government, and creating a process to update internal directives and guidance to help ensure climate change is considered. On May 6, 2015, the Company finalized an agreement with Syngas, a company incorporated under the laws of Malaysia ("Syngas"), providing an exclusive license for the Company to use Syngas Intellectual Property within North America for a period of five years from the date of this agreement, for a consideration of $1, renewable every five years upon written request (the "Syngas License Agreement"). Syngas produces equipment that uses an innovative process to produce liquid transportation fuel from plastic waste material. The Company issued 20,000 shares of Common Stock of the Company to an introducing party, determined to be valued at $2,000. The Syngas License Agreement is being amortized on a straight-line basis, over a period of 10 years. There are no other obligations under the Syngas License Agreement.
The Company and Syngas intend to collaborate and cooperate with a view to achieving economic and financial success for their respective businesses. The Company will continue to pursue other similar intellectual property around the world as we combine this and other technologies in innovative configurations to monetize the portfolio of proprietary technologies and processes to deliver value to our customers and shareholders. Management continues to re-establish the renewable clause of the agreement with the new owner of Syngas. Operations The Company owns the Environmental Compliance Approvals (the "ECAs") issued by the Waste Transfer Organic Composting
LIQUIDITY AND CAPITAL RESOURCES As of September 30, On On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before
The Company's total assets as at September 30, To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the 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,
As at September 30, In addition, as at September 30,
CONSOLIDATED RESULTS OF OPERATIONS -FOR THE THREE-MONTH PERIOD
During the three-month period ended September 30, The net loss from operating activities for the three-month period ended September 30,
Operating expenses were reduced by Management compensation related to stock-based compensation reduced by
There was no marketing Professional fees increased by $39,412, from $63,357 in the three-month period ended September 30, 2019 to $102,769 in the three-month period ended September 30, 2020 primarily due to an increase in non-audit and tax services provided by our new auditors. Interest expense and default amounts increased by $105,844 from $152,952 in the three-month period ended September 30, 2019 to $258,796 for the three-month period ended September 30,
Office and administration Rent and occupancy for the three-month period ended September 30, Insurance reduced by
Filing fees increased by $10,411, from $2,546 for the three-month period ended September 30, 2019 The amortization of financing costs incurred As a result of a change in the
Repairs and maintenance reduced insignificantly by $3,033. The
CONSOLIDATED RESULTS OF OPERATIONS -FOR THE NINE-MONTH PERIOD
During the nine-month period ended September 30,
The net loss from operating activities for the nine-month period ended September 30,
Operating expenses reduced by $532,892, from $2,432,792 in the nine-month period ended September 30, 2019 to
Management compensation related to stock-based compensation reduced by $750,000, from $750,000 in the nine-month period ended September 30, 2019 to $nil in the nine-month period ended September 30, 2020. The 2019 and final RSUs fully vested during 2019, resulting in no similar expense in the current nine-month period ended September 30, 2020. And, management compensation related to fees reduced by $90,784, from $243,778 in the nine-month period ended September 30, 2019 to $152,994 in the nine-month period ended September 30, 2020, primarily as a result of the absence of fees for the former chief executive officer who resigned in September of 2019. There was no marketing program in place in 2020 and as a result no marketing costs were incurred. Professional fees increased by $21,776, from $270,328 in the nine-month period ended September 30, 2019 to $292,104 in the nine-month period ended September 30, 2020 primarily due to increases in non-audit and tax services provided by the new auditors and legal fees on the business acquisition of 1684567 Ontario Inc., in May 2019 offset by the absence of any additional legal expenses in connection with the claim against BDO, in the amount of $66,072. Interest expense and default amounts increased by $446,114 from $408,382 in the nine- month period ended September 30, 2019 to $854,496 for the nine-month period ended September 30, 2020, primarily as a result of the increased interest expense and default amounts on the convertible promissory notes in the amount of $352,051, the new mortgage interest of $109,963, the new obligation under capital lease of $5,547, the interest on the new advance of $15,403 offset by reductions in interest expense on the various PACE debt, other obligations under capital leases and related party balances. The interest expense and default amounts on the convertible promissory notes include the additional interest on the interest rate increase from 12% to 24%, 12%, effective January 28, 2020 and default amounts of $197,641. Office and administration expenses increased nominally by $2,870. Rent and occupancy reduced nominally by $2,605 Insurance increased by $6,638 from $45,518 in the nine-month period ended September 30, 2019
Filing fees increased by $3,460, from $31,643 for the nine-month period ended September 30, 2019 to $35,103 for the nine-month period ended September 30, 2020, primarily due to the monthly cost of the annual OTC fee, totalling $8,786 in the nine-month period ended September 30,
The amortization of financing costs incurred As a result of a change in the
Repairs and maintenance expenses increased nominally by $1,124. The
As at September 30, On On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan The Company has defaulted on the
December 31, 2019). As a result,
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors, whose debts are also in default and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future. The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
CRITICAL ACCOUNTING ESTIMATES Use of estimates The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making Stock-based compensation From time to time the Company may grant options and/or warrants to management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to paid in capital. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon exercise of stock options and/or warrants is recorded in equity as share capital. Long-Lived Asset Impairments We assess our long-lived assets for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (income) expense from divestitures, asset impairments and unusual items, net in our Consolidated Statements of Operations and Comprehensive Loss. Indefinite-Lived Intangible Assets - At least annually, and more frequently if warranted, we assess the indefinite-lived intangible assets, including the goodwill of our reporting units for impairment using Level 3 inputs. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows. On January 1,
On January 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for 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 RECENT ACCOUNTING PRONOUNCEMENTS From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company's financial position, results of operations or cash flows.
EQUITY As at September 30, STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
The Company has no RELATED PARTY TRANSACTIONS On November 6, 2019, by resolution of the Board, the consulting contracts for the president and the CFO were renewed, each for a one-year period, commencing January 1, 2020. For the president, at the same monthly amount and on the same terms and conditions, as his previous consulting contract, $11,246 ($15,000 CAD), monthly. For the CFO, at a monthly amount of $5,998 ($8,000 CAD), an increase of $1,499 ($2,000 CAD) over his previous consulting contract and on the same terms and conditions as his previous consulting contract. In addition, on November 6, 2019, by resolution of the Board, the president was appointed Chief Executive Officer ("CEO"). The Company transacts with related parties in the normal course of business.
In addition, during the three and nine-month periods ended September 30,
On March 6, 2020 and March 25, 2020, Travellers International Inc. ("Travellers"), a company controlled by the president and chief executive officer (the "CEO") of the Company, who is On August 4, 2020, the Company repaid $25,683 ($35,000 CAD) of the principal balance owing on the related party loans to Travellers. From October 19, 2020 through November 13, 2020, the CEO provided loans totaling $55,028 ($73,400 CAD) to the
OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Item 3. Quantitative and Qualitative Disclosures about Market Risk. As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due primarily to the small size of the Company and the lack of a segregation of duties. Notwithstanding this material weakness, management has concluded that the unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during the nine-month period ended September 30, PART II: OTHER INFORMATION Item 1A. Legal Proceedings. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as set forth in this Form 10-Q, we are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results. The Company has two known claims against it, one filed, for unpaid legal fees, in the amount $48,911 ($65,241 CAD). On
Item As a smaller reporting company, we are not required to provide the information required by this item. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. During the nine-month period ended September 30,
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 Item 3. Defaults upon Senior Securities. None.
Item 4. Mine Safety Disclosures. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits. The following exhibits are filed as part of this quarterly report on Form 10-Q:
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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