Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
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.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
These consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp.("SECC"), SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SEBL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for annual financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-K and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company's functional currency is the Canadian Dollar ("C$"). In the opinion of management, all adjustments necessary for a fair presentation have been included.
2. Going Concern
The 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 December 31, 2020, the Company had a working capital deficit of $9,830,314 (2019-$8,203,742), incurred a net loss of $2,012,314 (2019-$2,895,185) for the year and had an accumulated deficit of $13,468,794 (December 31, 2019-$11,449,497) and expects to incur further losses in the development of its business.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
2. Going Concern, (continued)
On March 31, 2020, Pace Savings & Credit Union Limited ("PACE") and the Company reached an agreement for the repayment of the outstanding amounts owing to PACE. One of the credit facilities, in the amount of $34,391 (C$48,788), 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. On November 12, 2020, PACE and the Company reached a new agreement to repay the remaining credit facilities and corporate term loan on or before January 29, 2021. As part of the agreement, the Company is to bring all the amounts owing to PACE current, and prepay to January 2021, the regular monthly principal and interest payments. Subsequently, on February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management continues discussions with equity investors and a Canadian chartered bank to re-finance its remaining obligations to PACE and repay other creditors.
The Company has defaulted on the convertible promissory notes (see note 15). As a result, the advances (see note 11), the amounts owing to PACE (see note 13) and the obligations under capital lease (see note 14), are also in default.
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain necessary financing to further the development of its business and satisfy its obligations to PACE and its other creditors, and upon achieving profitable operations. There is no assurance of funding being available, or available on acceptable terms. Realization values may be substantially different from carrying values as recorded on these consolidated financial statements.
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, 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 consolidated financial statements do not include any adjustments to reflect the potential 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. Such adjustments could be material.
3. Recently Adopted Accounting Pronouncements
On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement". ASU No. 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. The adoption of ASU No. 2018-13, did not have a significant impact on the Company's consolidated financial statements.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
3. Recently Adopted Accounting Pronouncements, (continued)
On January 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The adoption of ASU No. 2017-04, did not have a significant impact on the Company's consolidated financial statements.
On January 1, 2019, the Company adopted ASU") No. 2016-02, Leases ("ASU 2016-02") which is also known as Accounting Standard Codification ("ASC") Topic 842, that requires lessees to recognize a right-of-use asset and a lease obligation for all operating leases in their balance sheets. Expenses are recognized in the consolidated statements of operations and comprehensive loss in a manner similar to previous accounting guidance. Lessor accounting under the ASU 2016-02 is substantially unchanged and is not relevant to the Company. The Company adopted ASU 2016-02 using a prospective transition approach, which applies the provisions of ASU 2016-02 at the effective date without adjusting the comparative periods presented, with certain practical expedients available to ease the burden of adoption.
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 ASU 2016-02 to long-term leases (leases greater than 1 year) for which it only had one.
Adoption of ASU 2016-02 resulted in $217,755 (C$297,074) of additional right-of-use lease asset and lease liability as of January 1, 2019. ASU 2016-02 did not have a significant impact on the consolidated statements of operations and comprehensive loss. Effective May 24, 2019, the Company acquired 1684567, the landlord relating to the additional right-of-use lease asset and as such, no longer has a right-of-use asset and lease liability on its consolidated balance sheets.
In June 2018, the Financial Accounting Standards Board (the "FASB"), issued an accounting pronouncement (FASB ASU No. 2018-07) to expand the scope of ASC Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this pronouncement on January 1, 2019 and such adoption did not have a significant impact on the Company's consolidated financial statements.
4. Significant Accounting Policies
a) Principles of consolidation
The consolidated financial statements include the accounts of SusGlobal and its wholly-owned subsidiaries, SECC, incorporated on December 14, 2015, SECIL, incorporated on December 15, 2015, SEBL, incorporated on July 27, 2017 and 1684567, acquired effective May 24, 2019. All significant inter-company balances and transactions have been eliminated on consolidation.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
b) Business combinations
The Company adopted ASU No. 2017-01, which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
A business combination is a transaction or other event in which control over one or more business is obtained. A business in an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits. A business consists of inputs and processes applied to those inputs that have the ability to create outputs that provide a return to the Company and its shareholders. A business need not include all the inputs and processes that were used by the acquiree to produce outputs if the business can be integrated with the inputs and processes of the Company to continue to produce outputs. The Company considers several factors to determine whether the set of activities and assets is a business.
Business acquisitions are accounted for using the acquisition method whereby acquired assets and liabilities are recorded at fair value as at the date of acquisition with the excess of the purchase consideration over such value being recorded as goodwill and allocated to reporting units ("RUs"). If the fair value of the net assets acquired exceeds the purchase consideration, the difference is recognized immediately as a gain in the consolidated statements of operations. Acquisition related costs are expensed in the period in which they are incurred, except for the cost of debt or equity instruments issued in relation to the acquisition which is included in the carrying amount of the related instrument. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they are adjusted retrospectively in subsequent periods. However, the measurement period will not exceed one year from the acquisition date. If the assets acquired are not a business, the transaction is accounted for as an asset acquisition.
c) Use of estimates
The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
d) Cash
Cash consist of deposits held in financial institutions.
e) Trade receivables
Trade receivables, which are recorded when billed and when services are performed, are claims against third parties that will be settled in cash. The carrying value of trade receivables, net of an allowance for doubtful accounts, represents the estimated realizable value. An estimate of allowance for doubtful accounts is based on historical trends; type of customer, such as commercial or municipal; the age of outstanding trade receivables; and existing economic conditions. If events or changes in circumstances indicate that specific trade receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due trade receivable balances are written off when internal collection efforts have been unsuccessful.
(f) Fair value of financial instruments
The Company measures the fair value of financial assets and liabilities based on ASC 820 "Fair Value Measurements and Disclosures", which determines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:
|
a.
|
Level 1 - Quoted prices in active markets for identical assets or liabilities.
|
|
b.
|
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
c.
|
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
The carrying amounts of the Company's financial instruments, such as cash, restricted cash-funds held in trust, trade receivables, other receivables, accounts payable, accrued liabilities and deferred revenue approximates fair value due to the short-term nature of these instruments. The carrying amount of the advance, long-term term debt, obligations under capital lease, convertible promissory notes, mortgage payable and loans payable to related parties also approximates fair value due to their market interest rate.
g) Inventory
Inventory, which consists of screened organic compost, is stated at the lower of cost and net realizable value. Cost is represented by production cost, which includes equipment rental, delivery, fuel and repairs and maintenance, direct wages and benefits, outside contractors, utilities and manufacturing overhead. Inventory quantities on hand are reviewed on a weekly basis and typically there is no need to record provisions for excess or obsolete inventory as the inventory has a long shelf life. The inventory is stored outdoors and accumulated in piles.
h) Intangible assets
Intangible assets included a technology license, which was stated at cost less accumulated amortization and was amortized on a straight-line basis over the useful life which was the contract term of five years plus the renewal option of five years and customer lists, which are stated at cost less accumulated amortization and are amortized on a straight-line basis over the useful lives of the customer contracts, which ranged between forty-five and sixty-six months. Intangible assets also include environmental compliance approvals and trademarks, which are stated at cost, have indefinite useful lives and are not amortized until their useful lives are determined to be no longer indefinite. The Company evaluates the intangible assets for impairment annually in the fourth quarter or when triggering events are identified and whether events and circumstances continue to support the indefinite useful life. For the year ended December 31, 2020, an impairment adjustment of $4,564 (C$6,117) was recorded and included under other income (loss) in the consolidated statements of operations and comprehensive loss. Refer also to note 18, other income.
i) Goodwill
Goodwill arising on an acquisition of a business represents the excess of the purchase price over the fair value of the net identifiable assets of the acquired business. Goodwill is carried at cost as established at the date of acquisition of the acquired business less accumulated impairment losses, if any. Management assesses goodwill impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that it might be impaired by comparing its carrying value to the fair value of the acquired business. For the year ended December 31, 2020, an impairment adjustment of $75,605 (C$101,334) was recorded and included under other income in the consolidated statements of operations and comprehensive loss. Refer also to note 18, other income.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
j) Long-lived assets
Long-lived assets are stated at cost. Equipment awaiting installation on site is not depreciated until it is commissioned. Depreciation is based on the estimated useful life of the asset and depreciated annually on a straight-line basis at the following annual rates:
Category
|
Rate
|
Computer equipment
|
30%
|
Computer software
|
50%
|
Officer trailer and vacuum trailer
|
30%
|
Signage
|
20%
|
Machinery and equipment, including under capital lease
|
30%
|
Automotive equipment
|
30%
|
Composting buildings
|
6%
|
Gore cover system
|
10%
|
Driveway and paving
|
8%
|
k) Impairment of long-lived assets
In accordance with ASC 360, "Property, Plant and Equipment", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events or circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event that such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.
l) Debt issuance costs
Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.
m) Environmental remediation costs
The Company accrues for costs associated with environmental remediation and clean-up obligations when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
n) Income taxes
The Company accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") ASC 740, "Income Taxes." Deferred tax assets and liabilities are recorded for differences between the accounting and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or receivable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.
o) Revenue recognition
The Company's revenues are from the tipping fees charged for waste delivery to the Company's organic composting facility and from the sale of organic compost. The Company recognizes revenue when it satisfies a performance obligation when transferring control over a product or service to a customer. The tipping fees charged for services are generally defined in service agreements and vary based on contract-specific terms such as frequency of service, type of waste, weight, volume and the general market factors influencing a region's rates. The Company also generates revenue from fees charged for garbage collection services and landfill management services, based on agreements with customers. Revenue is recognized as waste is accepted and collection is reasonably assured for the tipping fees charged and monthly for the other services and collection is assured. The waste collected is processed, cured and screened before being sold as organic compost. The cost of these processes is accrued at the time of revenue recognition.
p) Loss per share
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus potentially dilutive securities outstanding for each year. The computation of diluted loss per share has not been presented as its effect would be anti-dilutive.
q) Stock-based compensation
The Company records compensation costs related to stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. Where necessary, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of highly subjective assumptions including: the expected option life, the risk-free rate, the dividend yield, the volatility of the Company's stock price and an assumption for employee forfeitures. The risk-free rate is based on the U.S. Treasury bill rate at the date of the grant with maturity dates approximately equal to the expected term of the option. The Company has not historically issued any dividends and does not expect to in the near future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting stock- based compensation recognized. The Company has not issued any stock options and has no stock options outstanding at December 31, 2020.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
4. Significant Accounting Policies, (continued)
r) Comprehensive Loss
The Company accounts for comprehensive loss in accordance with ASC 220, "Comprehensive Income," which establishes standards for reporting and presentation of comprehensive loss and its components. Comprehensive loss is presented in the consolidated statements of stockholders' deficiency and consists of net loss and foreign currency translation adjustments.
s) Foreign currency translation
The functional currency of the Company is the Canadian dollar (the "C$"). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. In translating the financial statements of the Company's Canadian subsidiaries from their functional currency into the Company's reporting currency of United States dollars ("$"), balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders' deficiency. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
5. Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted.
ASU 2020-06-Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (GAAP). Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is assessing the impact that the adoption of ASU 2020-06 will have on the consolidated balance sheet and consolidated statement of operations.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
6. Financial Instruments
The carrying value of cash, funds held in trust, trade and other receivables, accounts payable, accrued liabilities and deferred revenue approximated their fair values as of December 31, 2020 and 2019 due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes, and loans payable to related parties 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 $6,327,520 (C$8,056,430) (2019-$7,199,706; C$9,351,482).
Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at December 31, 2020, the Company's credit risk is primarily attributable to cash and trade receivables. As at December 31, 2020, the Company's cash was held with reputable Canadian chartered banks, a United States bank and a credit union.
With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at December 31, 2020, the allowance for doubtful accounts was $nil (C$nil) (2019-$730; C$948).
As at December 31, 2020, the Company is exposed to concentration risk as it had five customers (2019-six customers) which represented 96% (2019-90%) of trade receivables. The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue. These customers accounted for 72% (43%, 15% and 14%) (2019-68%; 35%, 19% and 14%) of total revenue.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
6. Financial Instruments, (continued)
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. The Company is in discussions with a Canadian chartered bank to repay its obligations to PACE and to other creditors. Refer also to going concern, note 2.
The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligation and complete the refinancing of its real property and organic composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to note 2, going concern.
Currency Risk
Although the Company's functional currency is the C$, the Company incurs a portion of its expenses in United States Dollars. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at December 31, 2020, $527,847 (2019-$258,403) of the Company's net monetary liabilities were denominated in United States dollars. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.
7. Business Acquisition
Effective May 24, 2019, the Company purchased all the issued and outstanding shares of 1684567. The acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price paid in the acquisition has been allocated to record the assets acquired and liabilities assumed based on their estimated fair value.
When determining the fair values of assets acquired and liabilities assumed, management made significant estimates. The transaction closed on May 28, 2019. The purchase consideration consisted of cash from working capital of $121,845 (C$163,836) and cash from a third-party mortgage obtained in the amount of $1,258,273 (C$1,691,910), net of financing fees of $80,387 (C$108,090). The total purchase price includes the original offer of $1,314,304 (C$1,767,250) and reimbursement of vendor's expense of $65,814 (C$88,496).
The allocation of the purchase price which was finalized in 2020, is as follows:
Purchase consideration
|
|
|
|
Cash (C$1,855,746)
|
$
|
1,380,118
|
|
Assets acquired
|
|
|
|
Accounts receivable (C$7,573)
|
|
5,632
|
|
Land (C$1,898,000)
|
|
1,411,543
|
|
Automotive equipment and machinery (C$16,525)
|
|
12,290
|
|
Customer list (C$30,400)
|
|
22,608
|
|
Land option (C$80,000)
|
|
59,496
|
|
|
|
1,511,569
|
|
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
7. Business Acquisition, (continued)
Liabilities assumed
|
|
|
|
Accounts payable (C$10,977)
|
|
8,164
|
|
Deferred tax liability (C$267,109)
|
|
198,649
|
|
|
|
206,813
|
|
Net assets acquired (C$1,974,218)
|
$
|
1,468,225
|
|
Goodwill (C$101,334)
|
$
|
75,362
|
|
Included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2019, is revenue of $137,247 (C$182,098) and expenses of $217,620 (C$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 (C$109,376) and incurred expenses of $73,685 (C$97,764).
During the year ended December 31, 2020, the Company expensed previously capitalized acquisition costs in the amount of $86,864 (C$118,472). The land option in the amount of $59,496 (C$80,000) expired six months after the business acquisition and as a result, has been expensed in the 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 consolidated statements of operations and comprehensive loss under income taxes recovery.
8. Restricted Cash-Funds Held in Trust
The funds which were held in trust were required to satisfy certain outstanding payments to PACE, including the repayment in full of one of the credit facilities in the amount of $34,391 (C$48,788) and to bring the remaining outstanding PACE amounts current. The funds which were held in trust were provided to PACE on April 3, 2020.
9. Intangible Assets
|
|
2020
|
|
|
2019
|
|
Technology license-$nil (net of accumulated amortization of $nil (2019- $1,070, net of accumulated amortization of $931))
|
$
|
-
|
|
$
|
1,070
|
|
Customer lists-limited life-C$13,763 (2019-C$8,617) (net of accumulated amortization of $9,078 (C$11,559) (2019-$1,222; C$1,588))
|
|
10,809
|
|
|
6,634
|
|
Trademarks-indefinite life-C$43,135 (2019-C$15,477)
|
|
33,878
|
|
|
11,916
|
|
Environmental compliance approvals-indefinite life- C$182,700 (2019-C$282,700)
|
|
143,493
|
|
|
217,651
|
|
|
$
|
188,180
|
|
$
|
237,271
|
|
On May 6, 2015, the Company acquired an exclusive technology 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.
During the year ended December 31, 2020, amortization of $200 (2019-$200) was recorded.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
9. Intangible Assets, (continued)
In addition, on December 31, 2020, the Company recorded an impairment loss of $775, as management was unsuccessful in renewing the technology license with the new owners of Syngas. Refer to note 18, other income.
For year ended December 31, 2020, the Company incurred fees to register various trademarks in the United States and Canada, in the amount $21,723 (C$27,658) (2019-$11,916; C$15,477). The Company received opposition to one of its trademarks and continues to respond to the opposing counsel's requests. The opposition will be heard by the trademark trial and review board.
On September 15, 2017, the Company acquired the environmental compliance approvals, having an indefinite life, on the purchase of certain assets from BDO Canada Limited ("BDO") under an asset purchase agreement (the "APA"). Effective May 24, 2019, the Company acquired customer lists of $22,608 (C$30,400) relating to certain municipal contracts. These customer lists are being amortized over terms ranging from forty-five to sixty-six months. During the year ended December 31, 2020, amortization of $7,439 (C$9,971) (2019-$1,197; C$1,588).
Further, effective May 24, 2019, the Company recorded goodwill on the business acquisition of 1684567, representing the excess of the consideration paid over and the fair value of the net assets acquired. On December 31, 2020, the Company recorded an impairment loss on the customer lists of $3,789 (C$5,079) and on goodwill in the amount of $75,605 (C$101,334), disclosed under note 18, other income in the consolidated statements of operations and comprehensive loss.
10. Long-lived Assets, net
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
Cost
|
|
|
Accumulated
|
|
|
Net book
value
|
|
|
Net book
value
|
|
|
|
|
|
|
depreciation
|
|
|
|
|
|
|
|
Land
|
$
|
1,655,623
|
|
$
|
-
|
|
$
|
1,655,623
|
|
$
|
1,425,002
|
|
Composting buildings
|
|
2,427,365
|
|
|
461,406
|
|
|
1,965,959
|
|
|
1,965,690
|
|
Gore cover system
|
|
1,109,114
|
|
|
337,492
|
|
|
771,622
|
|
|
869,864
|
|
Driveway and paving
|
|
364,033
|
|
|
95,862
|
|
|
268,171
|
|
|
291,427
|
|
Machinery and equipment
|
|
177,899
|
|
|
78,672
|
|
|
99,227
|
|
|
22,270
|
|
Equipment under capital lease
|
|
731,207
|
|
|
462,091
|
|
|
269,116
|
|
|
167,578
|
|
Office trailer
|
|
9,425
|
|
|
7,898
|
|
|
1,527
|
|
|
4,268
|
|
Vacuum trailer
|
|
5,891
|
|
|
2,651
|
|
|
3,240
|
|
|
4,908
|
|
Computer equipment
|
|
6,941
|
|
|
6,556
|
|
|
385
|
|
|
1,862
|
|
Computer software
|
|
7,226
|
|
|
7,226
|
|
|
-
|
|
|
-
|
|
Automotive equipment
|
|
9,055
|
|
|
4,301
|
|
|
4,754
|
|
|
7,863
|
|
Signage
|
|
4,198
|
|
|
1,597
|
|
|
2,601
|
|
|
1,721
|
|
|
$
|
6,507,977
|
|
$
|
1,465,752
|
|
$
|
5,042,225
|
|
$
|
4,762,453
|
|
Included above are the long-lived assets acquired on the business acquisition described under note 7.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
10. Long-lived Assets, net, (continued)
Depreciation is disclosed in cost of sales in the amount of $504,838 (C$676,636) (2019-$407,127; C$540,171) and in office and administration in the amount of $5,112 (C$6,852) (2019-$7,001; C$9,288), in the consolidated statements of operations and comprehensive loss.
In addition, under deferred assets in the consolidated balance sheets is an accrual in the amount of $215,953 for certain long-lived assets not received by December 31, 2020.
11. Related Party Transactions
During the year, the Company incurred $134,298 (C$180,000) (2019-$135,666; C$180,000) in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director, executive chairman, president and chief executive officer of the Company (the "CEO"); $nil (C$nil) (2019-$101,750; C$135,000) in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a former director and former chief executive officer of the Company (the "Former CEO"); $71,626 (C$96,000) (2019-$54,266; C$72,000) in management fees expense with the Company's chief financial officer (the "CFO"). As at December 31, 2020, unpaid remuneration and unpaid expenses in the amount of $396,160 (C$504,405) (2019-$324,303; C$421,227) is included in accounts payable and $nil (C$nil) (2019-$12,318; C$16,000) is included in accrued liabilities.
On September 25, 2019, the Former CEO resigned as a director and ceased providing his services as chief executive officer.
In addition, during the year, the Company incurred interest expense of $6,096 (C$8,171) (2019-$4,504; C$5,975) on the outstanding loans from Travellers and $nil (C$nil) (2019-$3,717; C$4,932) on the outstanding loans from the directors. As at December 31, 2020, interest of $nil (C$nil) (December 31, 2019-$nil; C$nil) on these loans is included in accrued liabilities.
During the year, the Company incurred $75,331 (C$100,967) (2019-$67,568; C$89,649) in rent paid under a rental agreement to Haute Inc. ("Haute"), an Ontario company controlled by the CEO.
For those independent directors providing their services throughout the prior year, the Company recorded stock-based compensation totaling $16,715, based on the issuance of 20,000 common shares of the Company on December 31, 2020 to each of the five independent directors. This compensation was priced based on the trading price of the shares at the close of business on December 31, 2020. The 2020 director compensation of $18,653 (C$25,000) to each independent director who held the position on December 31, 2020 (two in total), was paid through the issuance of 93,922 common shares of the Company to each, on December 31, 2020. This compensation, disclosed as stock-based compensation was priced based on the trading price of the common shares on the average of a ten-day look-back, at the close of business on December 31, 2020. In addition, the 2020 director compensation of $34,757 (C$46,585) for the two independent directors who were either not re-elected or who resigned during the year is included in accrued liabilities at December 31, 2020. In addition, also included in director compensation is the audit committee chairman's fees, in the amount of $2,862 (C$3,836) (2019 $3,015; C$4,000). As at December 31, 2020, outstanding director compensation of $2,663 (C$3,390) (2019-$3,480; C$4,520) is included in accounts payable and $37,244 (C$47,421) (2019-$3,650; C$4,647) is included in accrued liabilities.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
11. Related Party Transactions, (continued)
During the year ended December 31, 2020, the Company issued 5,000 common shares to each of three employees totaling $2,550.
On January 10, 2020, the CEO exchanged 1,000,000 restricted stock units ("RSUs") into 1,000,000 common shares of the Company, after having met certain performance objectives under his consulting agreement and the Company recognized compensation expense of $1,000,000 on the vesting of these 2019 RSUs, in the prior year. These last remaining RSUs represented the final 1,000,000 RSU tranche, granted to the CEO on May 18, 2018.
At the time, 3,000,000 RSUs were granted to the CEO, determined to be valued at $3,000,000, based on private placement pricing at the time. In the prior year, on April 8, 2019, the CEO exchanged 1,000,000 RSUs into 1,000,000 common shares of the Company, after having met certain performance objectives under his consulting agreement. In addition, in the prior year, on April 2, 2019, the Former CEO exchanged 1,000,000 RSU into 1,000,000 common shares of the Company, after having met certain performance objectives under his consulting agreement.
12. Advances
On August 4, 2020, the Company received an advance in the amount of $86,944 (C$110,700) from a private lender. The advance is repayable weekly at an amount of $4,821 (C$6,138) until repaid. Transaction related expenses in connection with this advance totaled $3,345 (C$4,483) and are included in office and administration in the consolidated statements of operations and comprehensive loss. The advance is guaranteed by the CEO. As a result of the defaults on the convertible promissory notes, this advance is also in default. The advance was repaid in full on January 26, 2021.
As a result of the defaults on the convertible promissory notes (see note 15), this advance was also in default. See also subsequent events, notes 24(d) and 24(e), subsequent events.
In the prior year, on July 29, 2019, the Company received an advance in the amount of $30,796 (C$40,000) from a private lender. The advance was repayable at an amount of $376 (C$488) every business day until repaid in full on January 15, 2020. Transaction related expenses in connection with this advance totaled $4,221 (C$5,600) and included as interest expense in the consolidated statements of operations and comprehensive loss. The advance was guaranteed by the CEO.
For the year ended December 31, 2020, interest expense of $30,222 (C$40,507) (2019-$11,636; C$15,438) was paid on these advances.
13. Long-Term Debt
|
|
Credit
|
|
|
Credit
|
|
|
Credit
|
|
|
Corporate
|
|
|
Mortgage
|
|
|
Canada
Emergency
|
|
|
|
|
|
|
|
|
|
Facility
|
|
|
Facility
|
|
|
Facility
|
|
|
Term
Loan
|
|
|
Payable
|
|
|
Business
Account
|
|
|
2020
Total
|
|
|
2019
Total
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
|
|
|
|
|
Long-Term Debt
|
$
|
765,137
|
|
$
|
427,869
|
|
$
|
-
|
|
$
|
2,592,947
|
|
$
|
2,541,567
|
|
$
|
78,540
|
|
$
|
6,406,060
|
|
$
|
5,793,677
|
|
Current portion
|
|
(765,137
|
)
|
|
(427,869
|
)
|
|
-
|
|
|
(2,592,947
|
)
|
|
(2,541,567
|
)
|
|
-
|
|
|
(6,327,520
|
)
|
|
(5,793,677
|
)
|
Long-term portion
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
78,540
|
|
$
|
78,540
|
|
$
|
-
|
|
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
13. Long-Term Debt, (continued)
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 (d) above). One of the credit facilities, in the amount of $34,391 (C$48,788), was repaid in full on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan are now due on or before July 30, 2021. On April 3, 2020, the Company provided PACE with funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to September 30, 2020 and will remain in effect to September 30, 2021, unless terminated by PACE. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. Further, refer to note 24(i), subsequent events, describing an extension of the debt repayments with PACE to July 30, 2021. This long-term debt is considered to be in default as a result of defaults on the convertible promissory notes (see note 15). Refer also to note 2, going concern and notes 24(d) and 24(e), subsequent events.
(a) The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $6,883 (C$8,764) and matures on September 2, 2022. The first and only advance on this credit facility received on February 2, 2017, in the amount of $1,256,640 (C$1,600,000), is secured by a business loan general security agreement, a $1,256,640 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
|
|
(b) The credit facility advanced on June 15, 2017, in the amount of $471,240 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,849 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
|
|
(c) The credit facility advanced on August 4, 2017, in the amount of $38,495 (C$50,000), bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $329 ($427 CAD), and matures on September 4, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
|
|
(d) The corporate term loan advanced on September 13, 2017, in the amount of $2,924,945 (C$3,724,147), 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 $23,335 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,142,368 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the APA.
|
For the year ended December 31, 2020, $302,758 (C$405,788) (2019-$313,182; C$415,525) in interest was incurred on the PACE long-term debt. As at December 31, 2020 $18,319 (C$23,325) (2019-$124,926; C$162,263) in accrued interest is included in accrued liabilities in the consolidated balance sheets.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
13. Long-Term Debt, (continued)
(e)
|
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, received in three tranches totaling $2,591,820 (C$3,300,000) (2019-$2,001,740; C$2,600,000). The 1st. mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of December 1, 2021. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land described in note 10, long-lived assets, in the consolidated balance sheets with a carrying value of $1,655,623 (C$2,108,000), a general assignment of rents, and a fire insurance policy. Financing fees on the mortgage totaled $177,266 (C$225,702). As at December 31, 2020, $36,215 (C$46,110) (2019-$8,138; C$10,570) of accrued interest is included in accrued liabilities in the consolidated balance sheets. In addition, as at December 31, 2020, there is $50,253 (C$63,984) (2019-$67,464; C$87,627) of unamortized finance fees included in long-term debt in the consolidated balance sheets.
|
For the year ended December 31, 2020, $214,853 (C$287,968) (2019-$83,662; C$111,002) in interest was incurred on the mortgage payable and included in the consolidated statements of operations and comprehensive loss.
(f)
|
As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
|
For the year ended December 31, 2020, the Company received a total of $78,540 (C$100,000) under this program, from its Canadian chartered bank.
Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025. In addition, if 75% of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance. The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
14. Obligations under Capital Lease
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Total
|
|
|
Total
|
|
Obligations under Capital Lease
|
$
|
61,645
|
|
$
|
68,473
|
|
$
|
245,022
|
|
$
|
375,140
|
|
$
|
218,069
|
|
Less: current portion
|
|
(61,645
|
)
|
|
(68,473
|
)
|
|
(245,022
|
)
|
|
(375,140
|
)
|
|
(218,069
|
)
|
Long-term portion
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
14. Obligations under Capital Lease, (continued)
As a result of the defaults on the convertible promissory notes (see note 15), these obligations under capital lease are also in default. The lessor may demand full repayment of these obligations under capital lease. As a result, the obligations under capital lease have been presented as current liabilities. The original terms of the obligations under capital lease are noted below under paragraphs (a), (b) and (c). Refer also to note 2, going concern and notes 24(d) and 24(e), subsequent events
(a)
|
The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $225,135 (C$286,650), is payable in monthly blended installments of principal and interest of $4,587 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $22,462 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021.
|
|
|
(b)
|
The lease agreement for certain equipment for the Company's organic composting facility at a cost of $194,347 (C$247,450), is payable in monthly blended installments of principal and interest of $4,020 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,854 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,384 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.
|
|
|
(c)
|
The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $306,031 (C$389,650), is payable in monthly blended installments of principal and interest of $5,382 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,276 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $79 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due January 27, 2025.
|
The lease liabilities are secured by the equipment under capital lease as described in note 10.
Minimum lease payments are as follows:
In the year ending December 31, 2021
|
$
|
176,564
|
|
In the year ending December 31, 2022
|
|
87,986
|
|
In the year ending December 31, 2023
|
|
64,583
|
|
In the year ending December 31, 2024
|
|
64,583
|
|
In the year ending December 31, 2025
|
|
5,460
|
|
|
|
399,176
|
|
Less: imputed interest
|
|
(24,036
|
)
|
Total
|
$
|
375,140
|
|
For the year ended December 31, 2020, $18,090 (C$24,246) (2019-$16,021; C$21,257) in interest was charged.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
15. Convertible Promissory Notes
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
(a)
|
Convertible promissory notes-January 28, 2019 (net of unamortized financing costs of $nil (2019- $1,918))
|
$
|
-
|
|
$
|
176,964
|
|
(b)
|
Convertible promissory notes-March 7 and March 8, 2019 (net of unamortized financing costs of $nil (2019- $25,625))
|
|
491,500
|
|
|
724,375
|
|
(c)
|
Convertible promissory note-May 23, 2019 (net of unamortized financing costs of $nil (2019-$17,924))
|
|
242,000
|
|
|
217,076
|
|
(d)
|
Convertible promissory note-July 19, 2019 (net of unamortized financing costs of $nil (2019-$17,411))
|
|
187,000
|
|
|
152,589
|
|
(e)
|
Convertible promissory note-October 17, 2019 (net of accumulated financing costs of $1,193 (2019-$20,975)
|
|
171,600
|
|
|
135,025
|
|
|
|
$
|
1,092,100
|
|
$
|
1,406,029
|
|
(a) On January 28, 2019, the Company entered into securities purchase agreements (the "January 2019 SPAs") with three investors (the "January 2019 Investors") pursuant to which the Company issued to the January 2019 Investors 12% unsecured convertible promissory notes (the "January 2019 Investor Notes") in the aggregate principal amount of $337,500, with such principal and the interest thereon convertible into shares of the Company's common stock (the "Common Stock") at the January 2019 Investors' option. Although the January 2019 SPAs are dated January 28, 2019 (the "January 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the January 2019 Investors.
The amounts of $102,500, $100,000, and $100,000, totaling $302,500, represented the proceeds to the Company, net of transaction-related expenses, for the January 2019 Notes from the January 2019 Investors and were received in cash from February 1 through February 4, 2019.
The maturity date of each of the January 2019 Investor Notes is January 28, 2020 (the "January 2019 Maturity Dates"). The Notes bear interest at a rate of twelve percent (12%) per annum (the "January 2019 Interest Rate"), which interest shall be paid by the Company to the January 2019 Investors in Common Stock at any time the January 2019 Investors send a notice of conversion to the Company. The January 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the January 2019 Notes into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the January 2019 Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the January 2019 Effective Date; or (ii) the conversion date.
The Company has reserved a minimum of eight (8) times the number of its authorized and unissued Common Stock (the "January 2019 Reserved Amounts"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the January 2019 Notes. Upon full conversion of the January 2019 Investor Notes, any shares remaining in such reserve shall be cancelled. The Company increases the January 2019 Reserved Amount in accordance with the Company's obligations under the January 2019 Investor Notes.
Since the January 2019 Investor Notes were not repaid by their January 28, 2020 maturity date, they are in default and the outstanding balance (principal plus accrued interest) of each of the January 2019 Investor Notes was increased by 50% and increased by a further $15,000 (together the "Default Amounts") along with the interest rate increasing from 12% to 24% annually. The January 2019 Investors had 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.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
15. Convertible Promissory Notes, (continued)
During the year ended December 31, 2020, the January 2019 Investors converted a total of $61,925 (2019-$158,618) of their January 2019 Investor Notes. And, in December of 2020, the two remaining January 2019 Investors, agreed to accept payments totaling $98,000 from the Company representing payment in full of all obligations due and owing under the January 2019 Investor Notes. This resulted in a gain on forgiveness of debt of $200,151, including accrued interest of $77,753 disclosed under other income (loss) in the consolidated statements of operations and comprehensive loss.
(b) On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with two investors (the "March 2019 Investors") pursuant to which the Company issued to each March 2019 Investor two 12% unsecured convertible promissory notes comprised of the first notes (the "First Notes") being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each (the "Back-End Notes," and, together with the First Notes, the "March 2019 Investor Notes") in the aggregate principal amount of $1,100,000, with such principal and the interest thereon convertible into Common Stock at the March 2019 Investors' option. Each First Note contains a $25,000 Original Issue Discount such that the issue price of each First Note was $250,000. The proceeds on the issuance of the First Notes were received from the March 2019 Investors upon the signing of the March 2019 SPAs. The proceeds on the issuance of the Back-End Notes were initially received by the issuance of two offsetting $250,000 secured notes to the Company by the March 2019 Investors (the "Buyer Notes"), provided that prior to conversion of the Back-End Notes, the March 2019 Investors must have paid back the Back-End Notes in cash.
Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction-related expenses, for the First Notes from the March 2019 Investors.
On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors 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. 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. 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 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 preemptive 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.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
15. Convertible Promissory Notes, (continued)
During the year ended December 31, 2020, the March 2019 Investors converted a total of $91,802 (2019-$75,000) of their March 2019 Investor Notes.
In addition, on December 24, 2020, one of the two March 2019 Investors accepted a payment of $165,000 representing payment in full of all obligations due and owing under their March 2019 Investor Note. This resulted in a gain on forgiveness of debt of $119,983, including accrued interest of $68,085, disclosed under other income (loss) in the consolidated statements of operations and comprehensive loss.
Refer to note 24(d), subsequent events, for details on the arrangement to satisfy in full all of the obligations due and owing on the remaining March 2019 Investor Notes.
(c) On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750.
The maturity date of the May 2019 Investor note is May 23, 2020. The May 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "May 2019 Interest Rate"), which interest shall be paid by the Company to the May 2019 Investor in Common Stock at any time the May 2019 Investor sends a notice of conversion to the Company. The May 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the May 2019 Investor Note into
Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable May 2019 Effective Date; or (ii) the conversion date.
The Company initially reserved 10,937,000 of its authorized and unissued Common Stock (the "May 2019 Reserved Amount"), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the May 2019 Investor Note. Upon full conversion of the May 2019 Investor note, any shares remaining in such reserve shall be cancelled. The Company increases the May 2019 Reserved Amount in accordance with the Company's obligations under the May 2019 Investor note.
As a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, this default resulted in the principal balance of the May 2019 Investor Note increasing by 10% and the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually.
During the year ended December 31, 2020, the May 2019 Investor converted a total of $15,000 (2019-$15,000) of his May 2019 Note.
Refer to note 24(e), subsequent events, for details on the arrangement to satisfy in full all of the obligations due and owing to the May 2019 Investor.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
15. Convertible Promissory Notes, (continued)
(d) On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775.
The maturity date of the July 2019 Investor Note is July 19, 2020. The July 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "July 2019 Interest Rate"), which interest shall be paid by the Company to the July 2019 Investor in Common Stock at any time the July 2019 Investor sends a notice of conversion to the Company. The July 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the July 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable July 2019 Effective Date; or (ii) the conversion date.
The Company initially reserved 5,604,000 of its authorized and unissued Common Stock (the "July 2019 Reserved Amount"), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the July 2019 Investor Note. Upon full conversion of the July 2019 Investor note, any shares remaining in such reserve shall be cancelled. The Company increases the July 2019 Reserved Amount in accordance with the Company's obligations under the July 2019 Investor Note.
As a result of the January 2019 Investor Notes, the March 2019 Investor Notes and the May 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the principal balance of the July 2019 Investor Note increasing by 10% and the interest rate on the July 2019 Investor Note increasing from 12% to 24% annually.
Refer to note 24(e), subsequent events, for details on the arrangement to satisfy in full all of the obligations due and owing to the July 2019 Investor.
(e) 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. On this date, the Company received proceeds of $129,600, net of transaction related expenses of $26,400.
The maturity date of the October 2019 Investor note is October 18, 2020. The October 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "October 2019 Interest Rate"), which interest shall be paid by the Company to the October 2019 Investor in Common Stock at any time the October 2019 Investor sends a notice of conversion to the Company. The October 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the October 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable October 2019 Effective Date; or (ii) the conversion date.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
15. Convertible Promissory Notes, (continued)
The Company initially reserved 22,153,000 of its authorized and unissued Common Stock (the "October 2019 Reserved Amount"), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the October 2019 Investor Note. Upon full conversion of the October 2019 Investor note, any shares remaining in such reserve shall be cancelled. The Company increases the October 2019 Reserved Amount in accordance with the Company's obligations under the October 2019 Investor note.
As a result of the notes under paragraphs (a), (b), (c) and (d) above not having been repaid by their respective due dates, these defaults resulted in the principal balance of the October 2019 Investor Note increasing by 10% and the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually.
Refer to note 24(e), subsequent events, for details on the arrangement to satisfy in full all of the obligations due and owing to the October 2019 Investor.
On issuance, the convertible promissory notes described above, were able to be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is sixty-one (61) days following their applicable effective date, and ending on the date which is ninety (90) days following their applicable effective date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is ninety-one (91) days following their applicable effective date, and ending on the date which is one hundred eighty (180) days following their applicable effective date, then the prepayment premium shall be 145% of the face amount plus any accrued interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.
Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.
The convertible promissory notes described above contained 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.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
15. Convertible Promissory Notes, (continued)
For the year ended December 31, 2020, the Company recorded interest and Default Amounts of $562,562 (2019-$142,963). As at December 31, 2020, $316,048 (2019-$142,963) of accrued interest is included in accrued liabilities in the consolidated balance sheets. In addition, during the year ended December 31, 2020, $15,277 2019-$15,162) of accrued interest was converted.
16. Loans Payable to Related Party
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Director
|
$
|
33,772
|
|
$
|
-
|
|
Loan payable to a director, who is also the CEO is in the amount of $33,772 (C$43,000) (2019-$nil; C$nil), is due on demand and is unsecured.
During the year, Travellers loaned the company $433,147 (C$551,499) and converted a portion of the unpaid balance, $348,010 (C$443,099) of these loans and accrued interest of $6,399 (C$8,171), into 3,184,992 common shares of the Company.
For the year ended December 31, 2020, $6,096 (C$8,171) (2019-$8,220; C$10,907) in interest expense was charged on the loans payable to related party.
17. Capital Stock
As at December 31, 2020, the Company had 150,000,000 common shares authorized with a par value of $.0001 per share and 82,860,619 (2019-51,784,504) common shares issued and outstanding.
During the year ended December 31, 2020, the convertible promissory note holders converted a total of $181,058 (2019-$269,780) of their convertible notes, including accrued interest and related costs of $20,910 (2019-$21,162) for 27,118,109 (2019-9,289,973) common shares. The share conversion prices ranged from $0.0036 to $0.0176 per share (2019- $0.0176 to $0.0910 per share). On December 31, 2020, the Company issued 287,984 (2019-80,000 common shares) in the amount $60,670 (2019-$39,200) to certain independent directors for their 2019 and 2020 services. In addition, the Company issued 15,000 common shares (2019-10,000 common shares) to employees in the amount of $2,550 (2019-$400) and 3,184,992 common shares on the conversion of loans payable to related party.
The Company canceled the 529,970 shares previously held by BDO Canada Limited, whose shares were returned to the Company on April 1, 2020, in the amount of $7,036. Further, on January 10, 2020, the CEO's remaining RSUs were exchanged into 1,000,000 common shares of the company (2019-1,000,000 common shares to the CEO and 1,000,000 common shares to the Former CEO). In addition, on December 21, 2020, the Company received a notice of conversion from one of the January 2019 Investors in the amount of $7,830 plus legal fees of $750. The 400,000 common shares on this conversion were issued on January 4, 2021.
During the prior year ending December 31, 2019, the Company issued 5,000 common shares in regards to the $4,600 cash received from a private placement prior to December 31, 2019 net of share issue costs of $400. On January 21, 2019, the Company issued 100,000 common shares for professional services in the amount of $53,000, based on the closing trading price on the day immediately prior to issuance and on April 2, 2019, the Company issued 80,000 common shares to directors of the Company as compensation for their 2018 services, in the amount of $39,200, based on the closing trading price on the day immediately prior to issuance.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
17. Capital Stock, (continued)
The services provided by directors are disclosed under directors' compensation in the consolidated statements of operations and comprehensive loss.
18. Other Income
|
|
2020
|
|
|
2019
|
|
(a) Gain on forgiveness of convertible promissory notes
|
$
|
320,134
|
|
$
|
-
|
|
(b) Impairment loss on goodwill
|
|
(75,605
|
)
|
|
-
|
|
(c) Land option expired
|
|
(59,688
|
)
|
|
-
|
|
(d) Impairment loss on customer lists
|
|
(3,789
|
)
|
|
-
|
|
(e) Impairment loss on technology license
|
|
(775
|
)
|
|
-
|
|
|
$
|
180,277
|
|
$
|
-
|
|
(a) On December 16, 21 and 24 of 2020, three of the Company's convertible promissory note holders accepted payments totaling $263,000 from the Company representing payment in full of all obligations due and owing under the January 2019 Investor Notes and one of the March 2019 Investor Notes. This resulted in a gain on forgiveness of convertible promissory notes of $320,134, including accrued interest of $145,838.
(b) During the fourth quarter, the Company recorded an impairment loss for its goodwill of $75,605 (C$101,334).
(c) During the year ended December 31, 2020, the Company recorded a loss on the expiry of its land option in connection with the business acquisition of 1684567 in the amount of $59,688 (C$80,000).
(d) During the fourth quarter, the Company recorded an impairment loss for its customer lists in the amount of $3,789 (C$5,079).
(e) During the fourth quarter, the Company recorded an impairment loss for its technology license in the amount of $775 (C$1,039).
19. Income Taxes
The Company's income tax provision has been calculated as follows:
|
|
2020
|
|
|
2019
|
|
Loss before income taxes
|
$
|
(2,152,191
|
)
|
$
|
(2,895,185
|
)
|
Expected income tax recovery at the statutory rate of 21% (2019-21%)
|
|
(451,960
|
)
|
|
(607,989
|
)
|
Foreign tax rate differences
|
|
(70,382
|
)
|
|
(159,235
|
)
|
Prior year adjustments
|
|
357,108
|
|
|
-
|
|
Foreign exchange effect on deferred tax assets and other
|
|
(81,939
|
)
|
|
(162,119
|
)
|
Permanent differences
|
|
49,467
|
|
|
286,520
|
|
Change in valuation allowance
|
|
57,829
|
|
|
642,823
|
|
Provision for income taxes
|
$
|
(139,877
|
)
|
$
|
-
|
|
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
19. Income Taxes, (continued)
The Company's income tax provision is allocated as follows:
Current Tax expense (recovery)
|
|
(18,959
|
)
|
|
-
|
|
Deferred Tax expense (recovery)
|
|
(120,918
|
)
|
|
-
|
|
|
$
|
(139,877
|
)
|
$
|
-
|
|
Deferred tax assets and liabilities
The tax effects of temporary differences that give rise to significant components of the deferred income tax assets and deferred income tax liabilities are presented below:
|
|
2020
|
|
|
2019
|
|
Net operating loss carry forwards
|
$
|
2,004,869
|
|
$
|
1,818,035
|
|
Financing costs
|
|
69,632
|
|
|
194,874
|
|
Depreciable and amortizable assets
|
|
(206,230
|
)
|
|
(210,805
|
)
|
Land
|
|
(182,407
|
)
|
|
-
|
|
Reserves
|
|
35,591
|
|
|
-
|
|
Unrealized foreign exchange loss
|
|
55,977
|
|
|
-
|
|
Total gross deferred income tax assets
|
|
1,777,432
|
|
|
1,802,104
|
|
Less: valuation allowance
|
|
(1,859,933
|
)
|
|
(1,802,104
|
)
|
Total deferred income tax assets
|
$
|
(82,501
|
)
|
$
|
-
|
|
Movement in deferred income tax liabilities:
|
|
2020
|
|
|
2019
|
|
Balance at the beginning of the year
|
$
|
-
|
|
$
|
-
|
|
Recognized in profit/loss
|
|
120,918
|
|
|
-
|
|
Recognized in OCI
|
|
(4,769
|
)
|
|
-
|
|
Recognized in goodwill
|
|
(198,649
|
)
|
|
-
|
|
Balance at the end of the year
|
$
|
(82,501
|
)
|
$
|
-
|
|
As at December 31, 2020 and 2019, the valuation allowance was due to the history of losses generated. The valuation allowance is reviewed periodically and if the assessment of the more likely than not criteria changes, the valuation allowance is adjusted accordingly.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company computes tax asset benefits for net operating losses ("NOL") carried forward.
The Company has US NOL available for carryforward of $2,356,209 (2019-$1,109,013) which can be carried forward indefinitely and Canadian NOL available for carryforward of $5,698,358 (C$7,255,358) (2019-$5,751,498; C$7,470,448) which expire in the years 2036 through 2040.
In addition, the Company has capital losses carried forward totaling $109,955 (C$139,999). These losses can be carried forward indefinitely.
Also, the Company was assessed certain penalties from the internal revenue service in the amount of $30,000, for which the Company has requested relief.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
20. Commitments
(a) A renewed consulting agreement came into effect on January 1, 2021 for a period of twenty-four months, for the CEO. The monthly fee is $23,562 (C$30,000) for 2021 and $31,416 (C$40,000) for 2022. The CEO was also granted 2,000,000 common shares of the Company, 1,000,000 which were issued on January 4, 2021 and 1,000,000 to be issued January 1, 2022. In addition, a renewed consulting agreement also came into effect on January 1, 2021 for a period of twelve months, for the CFO. The monthly fee is $6,283 (C$8,000). The CFO was also granted 50,000 common shares of the Company which were issued on January 4, 2021. The future minimum commitments under these consulting agreements, are as follows:
For the year ending December 31, 2021
|
$
|
358,142
|
|
For the year ending December 31, 2022
|
|
376,992
|
|
|
$
|
735,134
|
|
(b) The Company has agreed to lease its office premises from Haute on a month-to-month basis at the monthly amount of $5,498 (C$7,000). The Company is also responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance.
(c) The Company was assigned the land lease on the purchase of certain assets of Astoria. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $2,356 (C$3,000) and is subject to adjustment based on the consumer price index as published by Statistics Canada (the "CPI"). To date, no adjustment for CPI has been charged. The Company is also responsible for any property taxes, maintenance, insurance and utilities. In addition, the Company has the right to extend the lease for five further terms of five years each and one further term of five years less one day. As the Company acquired the business of 1684567, the previous landlord, there are no future commitments for this lease. The Company was recently informed that, through a special provision of the site plan agreement with the City of Belleville (the "City"), Ontario, that it is required to fund road maintenance required by the City through to September 30, 2025 at an annual rate of $7,854 (C$10,000). The future minimum commitment is as follows:
For the year ending December 31, 2021
|
$
|
7,854
|
|
For the year ending December 31, 2022
|
|
7,854
|
|
For the year ending December 31, 2023
|
|
7,854
|
|
For the year ending December 31, 2024
|
|
7,854
|
|
For the year ending December 31, 2025
|
|
7,854
|
|
|
$
|
39,270
|
|
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 $217,423 ($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.
The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. As a result of audits conducted by the MECP in December of 2020, the Company has accrued estimated and actual costs for corrective measures as a result of the MECP's audits totaling $570,078 (C$725,844). Of this accrual, $354,125 (C$450,885) has been charged to operations and $215,953 (C$274,959) is disclosed as deferred assets. As at December 31, 2020, the MECP has not drawn on the letter of credit. The letter of credit was last renewed to September 30, 2020 and is automatically renewed for a further year unless cancelled by PACE.
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
20. Commitments, (continued)
(d) The Company has committed to purchase a truck and hauling trailer for a total cost of $171,483 (C$218,338) plus applicable harmonized sales taxes, net of a $3,927 (C$5,000) deposit made on October 16, 2020. The purchase will be financed and is expected to close subsequent to March 31, 2021.
21. Segmented Information
ASC 280-10, "Disclosure about Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in the Company's consolidated financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company uses a management approach for determining segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company's management reporting structure provides for only one segment: renewable energy and operates in one country, Canada.
22. Economic Dependence
The Company generated 72% (2019-68%) of its revenue from three customers (2019-three customers). The Company's ability to continue operations is dependent on continuing to generate a similar amount of revenue from these customers.
23. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount $51,240 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheets.
On September 24, 2020, the Company filed a statement of claim against the Former CEO and his company, LFGC, which was defended and counterclaimed. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $785,400 (C$1,000,000).
On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $403,813 (C$514,150) in special damages and $392,700 (C$500,000) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020. The plaintiffs by counterclaim filed their defense to counterclaim on November 23, 2020, denying all claims in the Company's reply and defense to counterclaim. Included in accounts payable on the Company's consolidated balance sheets is an amount for unpaid fees to the Former CEO in the amount of $310,626 (C$395,500).
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
23. Legal Proceedings, (continued)
On November 26, 2020, the Company was served with a statement of claim of claim from an individual, who is also a shareholder alleging fraud and misrepresentation in the amount of $117,810 (C$150,000) and claiming punitive damages of $39,270 (C$50,000). Also named in the claim is the CEO, 1684567 and corporations related to the CEO. The Company's defense and counterclaim was filed on December 11, 2020. The Company is seeking $196,350 (C$250,000) in special damages and $196,350 (C$250,000) in punitive and exemplary damages.
24. Subsequent Events
The Company's management has evaluated subsequent events up to the date the consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:
|
(a)
|
On January 4, 2021, the Company issued 1,000,000 common shares to the CEO and 50,000 common shares to the CFO in connection with their consulting agreements.
|
|
|
|
|
(b)
|
For the period from January 11, 2021 to January 20, 2021, Travellers provided loans to the Company totaling $204,922. Travellers converted these loans to 715,847 common shares.
|
|
|
|
|
(c)
|
On January 19, 2021, the Company signed an agreement with a company to provide corporate development and marketing consulting services for a period of five months to June 30, 2021, with an upfront payment of $100,000.
|
|
|
|
|
(d)
|
On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its convertible promissory notes by payments totaling $550,000, $50,000 on January 20, 2021, $200,000 on or before March 1, 2021 which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021.
|
|
(e)
|
On January 20, 2021, the May 2019 Investor, the July 2019 Investor and the October 2019 Investor accepted in full 2,100,000 common shares of the Company representing payment in full of all obligations due and owing under their convertible promissory notes.
|
|
|
|
|
(f)
|
On February 1, 2021, the Company signed an agreement with a company to provide certain public relations services for a period of 180 days, expiring July 31, 2021.The consultant received 60,000 common shares of the Company as compensation.
|
|
(g)
|
On February 3, 2021, the Company signed an agreement with a company to provide certain advisory and consulting services. The agreement is effective for a period to continue until the later of twelve months or when the Company is trading on the NASDAQ Capital Markets or as otherwise extended by both parties. Payments of $550,000 in total upon meeting certain milestones. The consultant will also receive 180,000 common shares of the Company at par value.
|
SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2020 and 2019
(Expressed in United States Dollars)
24. Subsequent Events, (continued)
|
(h)
|
On February 10, 2021, the Company signed an agreement of purchase and sale (the "APS") for certain assets for $3,534,300 (C$4,500,000), including a vendor take-back mortgage of $1,570,800 (C$2,000,000) at an annual interest rate of 2% maturing two years after closing. A deposit of $157,080 (C$200,000) was paid by the Company on February 10, 2021. The APS is expected to close on June 4, 2021, subject to successful completion of the due diligence process and the completion of the Phase II Environmental Site Assessment at a cost of $39,113 C$49,800), plus applicable harmonized sales taxes.
|
|
|
|
|
(i)
|
On February 10, 2021, the Company raised $157,260 (C$200,000), in a private placement on the issuance of 630,480 common shares of the Company.
|
|
|
|
|
(j)
|
On February 18, 2021, PACE and the Company reached a new agreement extending the repayment of the remaining credit facilities and corporate term loan to on or before July 30, 2021. As part of the agreement, the Company is required pay the regular monthly principal and interest instalments.
|
|
|
|
|
(k)
|
On each of March 31, 2021 and April 2, 2021, the Company entered into securities purchase agreements with an investor (the "March 2021 Investor") and another investor (the "April 2021 Investor"), in which the Company issued to each investor a 10% unsecured convertible promissory note in the aggregate principal amount of $275,000 (the "March 2021 Investor Note" and the "April 2021 Investor Note"), due September 30, 2021, convertible at any time after issuance at a per share price at $0.20. In addition, the March 2021 Investor and the April 2021 Investor each received 200,000 common shares of the Company, on issuance of the March 2021 Investor Note and the April 2021 Investor Note. On each of March 31, 2021 and April 5, 2021, the Company received $245,000, net of transaction related expenses of $30,000, respectively.
|
|
|
|
|
(l)
|
On April 7, 2021, the Company paid the final deposit of $34,709 (C$44,193) for the purchase of the truck and hauling trailer and took delivery on April 8, 2021. The balance of the purchase price $157,080 (C$200,000) was financed over forty-eight months at a monthly repayment amount of $3,614 (C$4,601).
|
25. Comparative Figures
Certain of the prior year's comparative figures have been reclassified to conform to the current year's presentation. The reclassification of the mortgage payable with long-term debt on the consolidated balance sheets and the reclassification on the consolidated statements of operations and comprehensive loss related to disclosing the foreign exchange separately under operating expenses and not grouping within office and administrative expenses.
SusGlobal Energy Corp.
Interim Condensed Consolidated Balance Sheets
As at September 30, 2021 and December 31, 2020
(Expressed in United States Dollars)
(unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
$
|
36,912
|
|
$
|
6,457
|
|
Trade receivables
|
|
65,320
|
|
|
182,871
|
|
Government remittances receivable
|
|
34,880
|
|
|
3,746
|
|
Inventory
|
|
21,506
|
|
|
24,740
|
|
Prepaid expenses and deposits (note 6)
|
|
197,525
|
|
|
94,131
|
|
Deferred assets
|
|
-
|
|
|
215,953
|
|
Total Current Assets
|
|
356,143
|
|
|
527,898
|
|
Intangible Assets (note 7)
|
|
500,295
|
|
|
188,180
|
|
Long-lived Assets, net (note 8)
|
|
8,105,699
|
|
|
5,042,225
|
|
Long-Term Assets
|
|
8,605,994
|
|
|
5,230,405
|
|
Total Assets
|
$
|
8,962,137
|
|
$
|
5,758,303
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable (note 9)
|
$
|
1,158,153
|
|
$
|
1,073,454
|
|
Government remittances payable
|
|
253,799
|
|
|
229,358
|
|
Accrued liabilities (notes 9, 11, and 13)
|
|
1,245,906
|
|
|
1,206,618
|
|
Advance (note 10)
|
|
-
|
|
|
15,460
|
|
Deferred revenue
|
|
-
|
|
|
4,790
|
|
Current portion of long-term debt (note 11)
|
|
7,745,717
|
|
|
6,327,520
|
|
Current portion of obligations under capital lease (note 12)
|
|
123,817
|
|
|
375,140
|
|
Convertible promissory notes (note 13)
|
|
1,046,708
|
|
|
1,092,100
|
|
Loans payable to related parties (note 14)
|
|
18,838
|
|
|
33,772
|
|
Total Current Liabilities
|
|
11,592,938
|
|
|
10,358,212
|
|
Long-term debt (note 11)
|
|
1,753,184
|
|
|
78,540
|
|
Obligations under capital lease (note 12)
|
|
144,327
|
|
|
-
|
|
Deferred tax liability
|
|
82,448
|
|
|
82,501
|
|
Total Long-term Liabilities
|
|
1,979,959
|
|
|
161,041
|
|
Total Liabilities
|
|
13,572,897
|
|
|
10,519,253
|
|
Stockholders' Deficiency
|
|
|
|
|
|
|
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding
Common stock, $.0001 par value, 150,000,000 authorized, 94,065,404 (2020- 82,860,619) shares issued and outstanding (note 15)
|
|
9,407
|
|
|
8,288
|
|
Additional paid-in capital
|
|
11,711,322
|
|
|
9,045,187
|
|
Shares to be issued
|
|
-
|
|
|
8,580
|
|
Accumulated deficit
|
|
(15,993,098
|
)
|
|
(13,468,794
|
)
|
Accumulated other comprehensive loss
|
|
(338,391
|
)
|
|
(354,211
|
)
|
Stockholders' deficiency
|
|
(4,610,760
|
)
|
|
(4,760,950
|
)
|
Total Liabilities and Stockholders' Deficiency
|
$
|
8,962,137
|
|
$
|
5,758,303
|
|
Going concern (note 2)
|
|
|
|
|
|
|
Commitments (note 16)
|
|
|
|
|
|
|
Subsequent events (note 20)
|
|
|
|
|
|
|
SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and nine-month periods ended September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
|
|
For the three-month periods ended
|
|
|
For the Nine-month periods ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue
|
$
|
204,796
|
|
$
|
439,507
|
|
$
|
610,088
|
|
$
|
1,172,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening inventory
|
|
35,983
|
|
|
-
|
|
|
24,740
|
|
|
5,389
|
|
Depreciation (note 8)
|
|
116,632
|
|
|
133,467
|
|
|
388,731
|
|
|
367,734
|
|
Direct wages and benefits
|
|
74,093
|
|
|
90,475
|
|
|
210,542
|
|
|
251,721
|
|
Equipment rental, delivery, fuel and repairs and maintenance
|
|
371,424
|
|
|
52,652
|
|
|
546,597
|
|
|
210,808
|
|
Utilities
|
|
16,872
|
|
|
27,185
|
|
|
24,290
|
|
|
73,425
|
|
Outside contractors
|
|
39,717
|
|
|
3,886
|
|
|
61,089
|
|
|
9,165
|
|
|
|
654,721
|
|
|
307,665
|
|
|
1,255,989
|
|
|
918,242
|
|
Less: closing inventory
|
|
(21,506
|
)
|
|
-
|
|
|
(21,506
|
)
|
|
-
|
|
Total cost of sales
|
|
633,215
|
|
|
307,665
|
|
|
1,234,483
|
|
|
918,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
(428,419
|
)
|
|
131,842
|
|
|
(624,395
|
)
|
|
254,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management compensation-stock- based
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation (notes 9 and 15)
|
|
54,259
|
|
|
-
|
|
|
162,777
|
|
|
-
|
|
Management compensation-fees (note 9)
|
|
90,471
|
|
|
51,812
|
|
|
273,395
|
|
|
152,994
|
|
Marketing
|
|
30,131
|
|
|
-
|
|
|
158,605
|
|
|
-
|
|
Professional fees
|
|
96,704
|
|
|
102,769
|
|
|
231,950
|
|
|
292,104
|
|
Interest expense and default amounts (notes 9, 10, 11, 12 and 13)
|
|
233,346
|
|
|
258,796
|
|
|
565,938
|
|
|
854,496
|
|
Office and administration (note 7 and 8)
|
|
66,329
|
|
|
50,042
|
|
|
171,164
|
|
|
182,727
|
|
Rent and occupancy (note 9)
|
|
56,148
|
|
|
32,420
|
|
|
125,067
|
|
|
89,480
|
|
Insurance
|
|
19,719
|
|
|
10,056
|
|
|
51,106
|
|
|
52,156
|
|
Filing fees
|
|
49,131
|
|
|
12,957
|
|
|
85,278
|
|
|
35,103
|
|
Amortization of financing costs
|
|
235,795
|
|
|
18,677
|
|
|
371,916
|
|
|
141,686
|
|
Directors' compensation (note 9)
|
|
14,905
|
|
|
56,637
|
|
|
38,241
|
|
|
57,070
|
|
Stock-based compensation (note 15)
|
|
31,946
|
|
|
-
|
|
|
68,228
|
|
|
-
|
|
Repairs and maintenance
|
|
3,688
|
|
|
1,186
|
|
|
11,475
|
|
|
10,097
|
|
Foreign exchange (income) loss
|
|
35,569
|
|
|
(33,473
|
)
|
|
16,130
|
|
|
31,987
|
|
Total operating expenses
|
|
1,018,141
|
|
|
561,879
|
|
|
2,331,270
|
|
|
1,899,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operating activities
|
|
(1,446,560
|
)
|
|
(430,037
|
)
|
|
(2,955,665
|
)
|
|
(1,645,799
|
)
|
Other (loss) income (note 17)
|
|
-
|
|
|
(424
|
)
|
|
404,809
|
|
|
(59,128
|
)
|
Net loss before deferred and income taxes recovery
|
|
(1,446,560
|
)
|
|
(430,461
|
)
|
|
(2,550,856
|
)
|
|
(1,704,927
|
)
|
Deferred taxes recovery
|
|
-
|
|
|
1,415
|
|
|
-
|
|
|
197,420
|
|
Income taxes recovery
|
|
26,552
|
|
|
-
|
|
|
26,552
|
|
|
-
|
|
Total deferred and income taxes recovery
|
|
26,552
|
|
|
1,415
|
|
|
26,552
|
|
|
197,420
|
|
Net loss
|
|
(1,420,008
|
)
|
|
(429,046
|
)
|
|
(2,524,304
|
)
|
|
(1,507,507
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange income (loss)
|
|
123,966
|
|
|
(80,703
|
)
|
|
15,820
|
|
|
63,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
$
|
(1,296,042
|
)
|
$
|
(509,749
|
)
|
|
(2,508,484
|
)
|
|
(1,444,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share-basic and diluted
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|
(0.03
|
)
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding- basic and diluted
|
|
92,969,542
|
|
|
69,871,179
|
|
|
89,987,732
|
|
|
62,067,449
|
|
SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency
For the three and nine-month periods ended September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
|
|
Number of
Shares
|
|
|
Common
Shares
|
|
|
Additional
Paid- in
Capital
|
|
|
Shares
to be
Issued
|
|
|
Stock
Compensation
Reserve
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Stockholders'
Deficiency
|
|
Balance-December 31, 2020
|
|
82,860,619
|
|
$
|
8,288
|
|
$
|
9,045,187
|
|
$
|
8,580
|
|
$
|
-
|
|
$
|
(13,468,794
|
)
|
$
|
(354,211
|
)
|
$
|
(4,760,950
|
)
|
Shares issued for proceeds previously received
|
|
400,000
|
|
|
40
|
|
|
8,540
|
|
|
(8,580
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued to officers
|
|
1,050,000
|
|
|
105
|
|
|
216,930
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
217,035
|
|
Shares issued on conversion of related party debt and accounts payable to equity
|
|
1,005,728
|
|
|
100
|
|
|
285,544
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
285,644
|
|
Shares issued for conversion of debt to equity
|
|
3,175,124
|
|
|
318
|
|
|
713,398
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
713,716
|
|
Shares issued for professional services
|
|
63,000
|
|
|
6
|
|
|
24,213
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24,219
|
|
Shares yet to be issued on issuance of convertible debt
|
|
-
|
|
|
-
|
|
|
-
|
|
|
66,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
66,000
|
|
Shares issued on private placement
|
|
630,480
|
|
|
63
|
|
|
157,557
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
157,620
|
|
Other comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(61,192
|
)
|
|
(61,192
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(306,335
|
)
|
|
-
|
|
|
(306,335
|
)
|
Balance-March 31, 2021
|
|
89,184,951
|
|
$
|
8,920
|
|
$
|
10,451,369
|
|
$
|
66,000
|
|
$
|
-
|
|
$
|
(13,775,129
|
)
|
$
|
(415,403
|
)
|
$
|
(3,664,243
|
)
|
Shares issued for proceeds previously received
|
|
200,000
|
|
|
20
|
|
|
65,980
|
|
|
(66,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued on conversion of related party debt
|
|
720,348
|
|
|
72
|
|
|
165,608
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
165,680
|
|
Shares issued for professional services
|
|
520,000
|
|
|
52
|
|
|
119,548
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
119,600
|
|
Shares issued on receipt of promissory notes
|
|
1,200,000
|
|
|
120
|
|
|
368,880
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
369,000
|
|
Other Comprehensive loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(46,954
|
)
|
|
(46,954
|
)
|
Net Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(797,961
|
)
|
|
-
|
|
|
(797,961
|
)
|
Balance-June 30, 2021
|
|
91,825,299
|
|
|
9,184
|
|
|
11,171,385
|
|
|
-
|
|
|
-
|
|
|
(14,573,090
|
)
|
|
(462,357
|
)
|
|
(3,854,878
|
)
|
Shares issued on receipt of promissory notes
|
|
80,000
|
|
|
8
|
|
|
21,192
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,200
|
|
Shares issued for professional services and acquisition of assets
|
|
1,003,332
|
|
|
100
|
|
|
288,560
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
288,660
|
|
Shares issued on conversion of debt
|
|
591,905
|
|
|
59
|
|
|
96,126
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
96,185
|
|
Shares issued on private placement
|
|
564,868
|
|
|
56
|
|
|
134,059
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
134,115
|
|
Other Comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
123,966
|
|
|
123,966
|
|
Net Loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,420,008
|
)
|
|
-
|
|
|
(1,420,008
|
)
|
Balance-September 30, 2021
|
|
94,065,404
|
|
|
9,407
|
|
|
11,711,322
|
|
|
-
|
|
|
-
|
|
|
(15,993,098
|
)
|
|
(338,391
|
)
|
|
(4,610,760
|
)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of debt to equity
|
|
1,762,820
|
|
|
176
|
|
|
13,574
|
|
|
(13,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
750
|
|
Conversion of debt to equity on shares yet to be issued
|
|
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
|
)
|
SusGlobal Energy Corp.
Interim Condensed Consolidated Statements of Cash Flows
For the nine-month periods ended September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
|
|
For the nine-month
period ended
September 30, 2021
|
|
|
For the six-month
period ended
September 30, 2020
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
$
|
(2,524,304
|
)
|
$
|
(1,507,507
|
)
|
Deferred taxes recovery
|
|
-
|
|
|
(197,420
|
)
|
Land option expired
|
|
-
|
|
|
59,128
|
|
Adjustments for:
|
|
|
|
|
|
|
Depreciation
|
|
391,396
|
|
|
367,734
|
|
Amortization of intangible assets
|
|
2,971
|
|
|
6,171
|
|
Non-cash professional fees on conversion of debt
|
|
550
|
|
|
4,883
|
|
Non-cash interest expense on conversion of debt
|
|
(53,354
|
)
|
|
-
|
|
Amortization of financing fees
|
|
371,916
|
|
|
141,686
|
|
Change in business combination consideration
|
|
-
|
|
|
88,107
|
|
Stock-based compensation
|
|
231,005
|
|
|
-
|
|
Gain on forgiveness of convertible promissory notes and accrued interest
|
|
(359,460
|
)
|
|
-
|
|
Gain on disposal of long-lived assets
|
|
(45,349
|
)
|
|
-
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Trade receivables
|
|
119,604
|
|
|
(114,934
|
)
|
Government remittances receivable
|
|
(31,712
|
)
|
|
29,870
|
|
Other receivables
|
|
-
|
|
|
12,712
|
|
Inventory
|
|
3,278
|
|
|
5,174
|
|
Prepaid expenses and deposits
|
|
51,090
|
|
|
8,080
|
|
Deferred assets
|
|
3,963
|
|
|
-
|
|
Accounts payable
|
|
168,258
|
|
|
250,731
|
|
Government remittances payable
|
|
25,040
|
|
|
130,995
|
|
Accrued liabilities
|
|
612,545
|
|
|
278,529
|
|
Deferred revenue
|
|
(4,876
|
)
|
|
(4,361
|
)
|
Net cash used in operating activities
|
|
(1,037,439
|
)
|
|
(440,422
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
(315,305
|
)
|
|
(14,164
|
)
|
Purchase of long-lived assets (i)
|
|
(1,622,492
|
)
|
|
(192,269
|
)
|
Proceeds on disposal of long-lived assets
|
|
47,964
|
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
(1,889,833
|
)
|
|
(206,433
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
Advance
|
|
-
|
|
|
81,818
|
|
Repayments of advance
|
|
(15,735
|
)
|
|
(24,013
|
)
|
Advance of long-term debt (i)
|
|
1,518,860
|
|
|
59,128
|
|
Repayment of long-term debt
|
|
(47,850
|
)
|
|
(105,490
|
)
|
Repayments of obligations under capital lease
|
|
(108,729
|
)
|
|
(93,467
|
)
|
Advances and penalties of convertible promissory notes (ii)
|
|
997,500
|
|
|
192,641
|
|
Repayment of convertible promissory notes
|
|
(50,000
|
)
|
|
-
|
|
Advances of loans payable to related parties (iii)
|
|
388,205
|
|
|
73,910
|
|
Repayment of loans payable to related parties
|
|
(34,374
|
)
|
|
(25,869
|
)
|
Proceeds on private placement (net of share issue costs)
|
|
303,486
|
|
|
-
|
|
Net cash provided by financing activities
|
|
2,951,363
|
|
|
158,658
|
|
Effect of exchange rate on cash
|
|
6,364
|
|
|
17,501
|
|
Increase (decrease) in cash
|
|
30,455
|
|
|
(470,696
|
)
|
Cash and cash equivalents-beginning of period
|
|
6,457
|
|
|
7,926
|
|
Restricted cash-beginning of period
|
|
-
|
|
|
467,798
|
|
Cash and cash equivalents and restricted cash-beginning of period
|
|
6,457
|
|
|
475,724
|
|
Cash and cash equivalents end of period
|
$
|
36,912
|
|
$
|
5,028
|
|
Supplemental Cash Flow Disclosure:
|
|
|
|
|
|
|
Interest paid
|
$
|
342,840
|
|
$
|
463,717
|
|
(i) Refer to notes 8, long-lived assets, net and 11, long-term debt, for the increases in long-term debt on long-lived assets, net acquisitions
(ii) Refer to note 13, convertible promissory notes, for the issuance of capital stock on the conversion of debt
(iii) Refer to note 14, loan payable to related party, for the issuance of capital stock on the conversion of debt.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
1. Nature of Business and Basis of Presentation
SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.
On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.
On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp. ("SECC"), 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 ("C$"). In the opinion of management, all adjustments necessary for a fair presentation have been included.
2. Going Concern
The interim condensed consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.
The Company incurred a net loss of $2,524,304 (2020-$1,507,507) for the nine months ended September 30, 2021 and as at that date had a working capital deficit of $11,236,795 (December 31, 2020-$9,830,314) and an accumulated deficit of $15,993,098 (December 31, 2020-$13,468,794) and expects to incur further losses in the development of its business. On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company until August 31, 2021 to bring the arrears current and continue to September 2022, the original maturity date. Management was not able to meet the August 31, 2021 deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors.
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors, and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments, instituted emergency measures as a result of 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.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
2. Going Concern, (continued)
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, 2020 and 2019 and their accompanying notes.
4. Recent Adopted Accounting Policy:
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted.
Newly Adopted
On January 1, 2021, the Company early adopted Accounting Standards Update ("ASU") No. 2020-06, -Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current US GAAP. ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted earnings per share "EPS" calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under ASU 2020-06, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early adopted ASU 2020-06 on January 1, 2021 using the modified retrospective method. As a result of Management's evaluation, the adoption of ASU 2020-06 did not have a material impact on the interim condensed consolidated financial statements.
5. Financial Instruments
The carrying value of cash, trade receivables, accounts payable, accrued liabilities and deferred revenue approximated their fair values as of September 30, 2021 and December 31, 2020, due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes and loan payable to related party approximated their fair values due to their market interest rates.
Interest, Credit and Concentration Risk
Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.
The Company is exposed to significant interest rate risk on the current portion of its long-term debt and a portion of its convertible promissory notes of $7,708,574 (C$9,821,091) (2020-$6,327,520; C$8,056,430).
Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at September 30, 2021, the Company's credit risk is primarily attributable to cash and trade receivables. As at September 30, 2021, the Company's cash was held with reputable Canadian chartered banks, a credit union and a United States of America bank.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
5. Financial Instruments, (continued)
With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at September 30, 2021, the allowance for doubtful accounts was $nil (C$nil) (December 31, 2020-$nil; C$nil).
As at September 30, 2021, the Company is exposed to concentration risk as it had four customers (December 31, 2020-five customers) representing greater than 5% of total trade receivables and four customers (December 31, 2020-five customers) represented 74% (December 31, 2020 - 96%) 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 80% (34%, 23%, 12% and 11%) (September 30, 2020-69%; 40%, 15% and 14%) of total revenue.
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. Management is in discussions with a Canadian chartered bank to refinance its obligations to PACE and repay other creditors. Refer also to going concern, note 2.
The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligations by September 2022 and complete the refinancing of its real property and organic waste processing and composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.
Currency Risk
Although the Company's functional currency is the C$, the Company realizes a portion of its expenses in United States Dollars ("$"). Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at September 30, 2021, $141,047 (December 31, 2020-$527,847) of the Company's net monetary liabilities were denominated in $. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.
6. Prepaid Expenses and Deposits
Included in prepaid expenses and deposits are costs, primarily for professional services to be expensed as stock-based compensation and stock-based compensation under management compensation after September 30, 2021, in the amount of $145,509 (C$185,385). These professional services expire at varying periods from November 30, 2021 to March 31, 2023 and expensed evenly over these periods based on the terms of the associated agreements. The stock-based compensation is included under management compensation for the three and nine-month periods ended September 30, 2021 in the amounts of $54,259 and $162,777 respectively, disclosed also under related party transactions, note 9 and under stock-based compensation for the three and nine-month periods ended September 30, 2021 in the amounts of $31,346 and $68,228 respectively, in the interim condensed consolidated statements of operations and comprehensive loss. The professional services disclosed under stock-based compensation related to general corporate consulting, marketing, branding and commercialization to market, and general investor relations services. The common shares issued for professional services are also noted under capital stock, note 15. The balance consists of costs and deposits for services expiring after September 30, 2021, including insurance, rent, a subscription and a legal retainer.
7. Intangible Assets
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Customer lists-limited life-C$10,045 (net of accumulated amortization of $11,990) (C$15,276) (2020-$10,809 (C$13,763) (net of accumulated amortization of $9,078 (C$11,559))
|
$
|
7,885
|
|
$
|
10,809
|
|
Trademarks-indefinite life-C$53,603 (2020-C$43,135)
|
|
42,073
|
|
|
33,878
|
|
Environmental compliance approvals (the "ECAs") -indefinite life- C$573,751 (2020-C$182,700)
|
|
450,337
|
|
|
143,493
|
|
|
$
|
500,295
|
|
$
|
188,180
|
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
7. Intangible Assets, (continued)
For the three and nine-month periods ended September 30, 2021, the Company incurred fees in connection with various trademarks in the United States and Canada, in the amount $3,347 (C$4,433) and $8,216 (C$10,468) (2020-$8,508; C$11,349 and $14,366; C$19,162) respectively.
On September 15, 2017, the Company acquired the ECAs, having an indefinite life, on the purchase of certain assets from BDO Canada Limited ("BDO") under an asset purchase agreement (the "APA").
Effective May 24, 2019, the Company acquired customer lists of $22,608 (C$30,400) relating to certain municipal contracts. These customer lists are being amortized over terms ranging from forty-five to sixty-six months. During the three and nine-month periods ended September 30, 2021, amortization of $983 (C$1,239) and $2,971 (C$3,717) (2020-$506; C$680), disclosed under office and administration in the statements of operations and comprehensive loss and under amortization of intangible assets in the statements of cash flows.
As described in long-lived assets net, note 8, on August 17 2021, the Company acquired certain assets in Hamilton, Ontario, Canada, (the "Hamilton Property"), consisting of land, a vacant building and ECAs. The ECAs acquired totaled $306,936 (C$391,051). The fair value of the ECAs was valued using a replacement cost valuation approach and incorporated a margin on cost and an entrepreneurial margin of approximately 11% and 20% respectively. The purchase consideration of the Hamilton Property was allocated ratable on assets acquired as detailed under Note 8 below.
8. Long-lived Assets, net
|
|
|
|
|
September 30,
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2021
|
|
|
|
|
|
2020
|
|
|
|
Cost
|
|
|
Accumulated
|
|
|
Net book value
|
|
|
Net book value
|
|
|
|
|
|
|
depreciation
|
|
|
|
|
|
|
|
Land
|
$
|
3,363,643
|
|
$
|
-
|
|
$
|
3,363,643
|
|
$
|
1,655,623
|
|
Property under construction
|
|
1,614,030
|
|
|
-
|
|
|
1,614,030
|
|
|
-
|
|
Composting buildings
|
|
2,379,910
|
|
|
568,833
|
|
|
1,811,077
|
|
|
1,965,959
|
|
Gore cover system
|
|
1,105,157
|
|
|
420,245
|
|
|
684,912
|
|
|
771,622
|
|
Driveway and paving
|
|
363,801
|
|
|
117,629
|
|
|
246,172
|
|
|
268,171
|
|
Machinery and equipment
|
|
177,839
|
|
|
105,335
|
|
|
72,504
|
|
|
99,227
|
|
Equipment under capital lease
|
|
730,743
|
|
|
573,982
|
|
|
156,761
|
|
|
269,116
|
|
Office trailer
|
|
9,419
|
|
|
9,419
|
|
|
-
|
|
|
1,527
|
|
Vacuum trailer
|
|
5,887
|
|
|
3,974
|
|
|
1,913
|
|
|
3,240
|
|
Computer equipment
|
|
6,937
|
|
|
6,937
|
|
|
-
|
|
|
385
|
|
Automotive equipment
|
|
181,852
|
|
|
31,350
|
|
|
150,502
|
|
|
4,754
|
|
Signage
|
|
6,487
|
|
|
2,302
|
|
|
4,185
|
|
|
2,601
|
|
|
$
|
9,945,705
|
|
$
|
1,840,006
|
|
$
|
8,105,699
|
|
$
|
5,042,225
|
|
On August 17 2021, the Company acquired the Hamilton Property assets, consisting of land, a vacant building and ECAs. The total purchase price including costs of acquisition of $173,996 (C$221,680) totaled $3,557,664 (C$4,532,633). The costs of acquisition, were settled through cash payments of $117,996 (C$150,333) and the issuance of 200,000 common shares valued based on the trading price on the issuance date at $56,000 (C$71,347) to a consultant who assisted on the closing of the transaction. The issuance of common shares is also noted under capital stock, note 15, common shares issued for professional services. The purchase of the Hamilton Property was funded by cash of $392,712 (C$500,333), the issuance of 300,000 common shares to the vendor on closing, having a value based on the trading price on the issuance date of $84,000 (C$107,020), the issuance noted above of 200,000 common shares to a consultant who assisted on the closing of the transaction disclosed as part of common shares issued for professional services, under capital stock, note 15, a vendor take-back 1st mortgage of $1,569,800 (C$2,000,000) and a portion of the increased existing 1st mortgage of $1,455,152 (C$1,853,933), disclosed under note 11(d), long-term debt. The cost of the purchase price was allocated ratably over the estimated fair value of each long-lived asset acquired, land of $1,709,074 (C$2,177,442), included above under land and building $1,541,654 (C$1,964,141), described above as property under construction. Refer to intangible assets, note 7, for details of the balance of the purchase price representing ECAs acquired.
Also included under property under construction, are construction costs incurred subsequent to the acquisition in the amount of $72,376 ($92,211).
Depreciation is disclosed in cost of sales for the three and nine-month periods ended September 30, 2021 in the amount of $116,632 (C$147,130) and $388,731 (C$486,278) (2020-$133,467; C$178,030 and $367,734; C$497,543) respectively, and in office and administration in the amount of $398 (C$509) and $2,665 (C$3,334) (2020-$1,350; C$1,800 and $3,845; C$5,203) respectively, in the interim condensed consolidated statements of operations and comprehensive loss.
In addition, under deferred assets in the interim condensed consolidated balance sheets is an accrual in the amount of $nil (C$nil) (December 31, 2020-$215,953; C$274,959), for certain long-lived assets previously expected to be received.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
9. Related Party Transactions
For three and nine-month periods ended September 30, 2021, the Company incurred $71,424 (C$90,000) and $215,838 (C$270,000) (2020-$33,791; C$45,000 and $99,779; C$135,000) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $19,047 (C$24,000) and $57,557 (C$72,000) (2020-$18,021; C$24,000 and $53,215; C$72,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at September 30, 2021, unpaid remuneration and unpaid expenses in the amount of $410,219 (C$522,639) (December 31, 2020-$396,160; C$504,405) is included in accounts payable in the interim condensed consolidated balance sheets. This balance includes amounts owing to the former chief executive officer in the amount of $310,428 (C$395,500).
In addition, during the three and nine-month periods ended September 30, 2021, the Company incurred interest expense of $nil (C$nil) and $nil (C$nil) (2020-$1,771; C$2,368 and $4,399; C$5,952) respectively, on outstanding loans from Travellers and $265 C$(331) and $265 (C$331) (2020-$nil; C$nil and $nil; C$nil) respectively, on the outstanding loan from the CFO.
For the three and nine-month periods ended September 30, 2021, the Company incurred $27,220 (C$34,255) and $72,672 (C$90,908) (2020-$21,198; C$28,284 and $57,618; C$77,957) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.
For those independent directors providing their services throughout 2021, the Company recorded directors' compensation for the three and nine-month periods ended September 30, 2021, in the amount of $14,905 (C$18,751) and $38,241 (C$47,837) (2020-$56,637 and $57,070) respectively. Also included in directors' compensation for the three and nine-month periods ended September 30, 2021, is the audit committee chairman's fees, in the amount of $nil (C$nil) and $nil (C$nil) (2020-$751 C$1,000 and $2,217; $C3,000). A new audit committee chairman has not yet been appointed for 2021 As at September 30, 2021, outstanding directors' compensation of $nil (C$nil) (December 31, 2020-$2,663; C$3,390) is included in accounts payable and $55,293 (C$70,446) (December 31, 2020-$37,244; C$47,421) is included in accrued liabilities, in the interim condensed consolidated balance sheets.
Furthermore, for the three and nine-month periods ended September 30, 2021, the Company recognized management stock-based compensation expense of $54,259 and $162,777 (2020 $nil and $nil) respectively, on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock respectively, on commencement of their new executive consulting agreements, effective January 1, 2021. The total stock-based compensation on the issuance of the common stock totaled $217,035. The portion to be expensed for the balance of the year, $54,258 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets.
10. Advance
On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,952 (C$6,138). The amount was paid in full on January 26, 2021. For the three and nine-month periods ended September 30, 2021, the Company incurred interest charges of $nil (C$nil) and $706 (C$883) (2020-$15,554; C$21,044) and $15,554; C$21,044) respectively.
11. Long-Term Debt
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Canada
Emergency
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility
|
|
|
Credit
Facility
|
|
|
Term
Loan
|
|
|
Mortgages
Payable
|
|
|
Business
Account
|
|
|
Corporate Term
Loan
|
|
|
September 30,
2021 Total
|
|
|
December 31,
2020 Total
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
|
|
|
|
|
Long-Term Debt
|
$
|
758,200
|
|
$
|
423,988
|
|
$
|
2,569,316
|
|
$
|
5,526,870
|
|
$
|
78,490
|
|
$
|
142,037
|
|
$
|
9,498,901
|
|
$
|
6,406,060
|
|
Current portion
|
|
(758,200
|
)
|
|
(423,988
|
)
|
|
(2,569,316
|
)
|
|
(3,957,070
|
)
|
|
-
|
|
|
(37,143
|
)
|
$
|
(7,745,717
|
)
|
|
(6,327,520
|
)
|
Long-term portion
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,569,800
|
|
$
|
78,490
|
|
$
|
104,894
|
|
$
|
1,753,184
|
|
$
|
78,540
|
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
11. Long-Term Debt, (continued)
On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company to bring the arrears current by August 31, 2021 and continue to September 2022. Management was not able to meet this new deadline. On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022. Refer to subsequent events, note 20(b) and 20(f). Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the obligations to PACE, September 2022. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.
Refer also to going concern, note 2.
The remaining PACE long-term debt was initially payable as noted below:
(a)
|
The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $6,879 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,255,840 (C$1,600,000), is secured by a business loan general security agreement, a $1,255,840 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
|
(b)
|
The credit facility advanced on June 15, 2017, in the amount of $470,940 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,847 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
|
(c)
|
The corporate term loan advanced on September 13, 2017, in the amount of $2,923,083 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,320 (C$29,711), and matures on September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,140,368 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.
|
For the three and nine-month periods ended September 30, 2021, $79,687 (C$99,683) and $236,743 (C$296,151) (2020-$70,105; C$93,162 and $225,346; C$304,893) respectively, in interest was incurred on the PACE long-term debt. As at September 30, 2021 $147,089 (C$187,399) (December 31, 2020-$18,319; C$23,325) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
(d)
|
i.) The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,081,480 (C$5,200,000) (December 31, 2020-$2,591,820; C$3,300,000). The fourth tranche was received on August 13, 2021 in the amount of $1,491,310 (C$1,900,000) and a portion of this fourth tranche, $1,455,152 (C$1,853,933), was used to fund a portion of the purchase of the Hamilton Property, described under long-lived assets, net note 8. The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage on the premises located at 704 Phillipston Road, Roslin, Ontario, Canada and a general assignment of rents. Financing fees on the 1st mortgage totaled $316,644 (C$403,419). As at September 30, 2021 $32,428 (C$41,315) (December 31, 2020-$36,215; C$46,110) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2021 there is $124,413 (C$158,508) (December 31, 2020-$50,253; C$63,984) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
11. Long-Term Debt, (continued)
|
ii.) On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $1,569,800 (C$2,000,000), on the purchase of the Hamilton Property, described under long-lived assets, net note 8. The 1st mortgage bears interest at an annual rate of 2% per annum, repayable monthly interest only with a maturity date of August 17, 2023, secured by the assets on the Hamilton Property.
|
For the three and nine-month periods ended September 30, 2021, $89,762 (C$112,814) and $206,184 (C$257,924) (2020-$48,809; C$65,000 and $144,125; C$195,000) respectively in interest was incurred on the 1st mortgages payable.
(e)
|
As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
|
|
|
|
The Company has received a total of $78,490 (C$100,000) under this program, from its Canadian chartered bank.
|
|
|
|
Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025.
|
|
In addition, on a combined basis, if $54,943 (C$70,000) of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance, $23,547 (C$30,000). The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
|
|
|
(f)
|
On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $171,373 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $156,980 (C$200,000), over a forty-eight-month term, bearing interest at 4.95% per annum with monthly blended instalments of principal and interest payments of $3,847 (C$4,901) due April 7, 2025.
|
|
|
|
For the three and nine-month periods ended September 30, 2021, $1,380 (C$1,734) and $3,173 (C$3,969) respectively, in interest was incurred.
|
12. Obligations under Capital Lease
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Total
|
|
|
Total
|
|
Obligations under Capital Lease
|
$
|
22,337
|
|
$
|
38,528
|
|
$
|
207,279
|
|
$
|
268,144
|
|
$
|
375,140
|
|
Less: current portion
|
|
(22,337
|
)
|
|
(38,528
|
)
|
|
(62,952
|
)
|
|
(123,817
|
)
|
|
(375,140
|
)
|
Long-term portion
|
$
|
-
|
|
$
|
-
|
|
$
|
144,327
|
|
$
|
144,327
|
|
$
|
-
|
|
Refer also to going concern, note 2.
(a)
|
The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $224,992 (C$286,650), is payable in monthly blended installments of principal and interest of $4,584 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. On November 3, 2021, the Company paid the final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes.
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
12. Obligations under Capital Lease, (continued)
(b)
|
The lease agreement for certain equipment for the Company's organic composting facility at a cost of $194,224 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,017 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,849 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $19,371 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.
|
|
|
(c)
|
The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $305,836 (C$389,650), is payable in monthly blended installments of principal and interest of $5,378 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,266 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $78 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.
|
The lease liabilities are secured by the equipment under capital lease as described in note 8.
Minimum lease payments as per the original terms of the obligations under capital lease are as follows:
In the three-month period ending December 31, 2021
|
$
|
60,030
|
|
In the year ending December 31, 2022
|
|
87,930
|
|
In the year ending December 31, 2023
|
|
64,542
|
|
In the year ending December 31, 2024
|
|
64,542
|
|
In the year ending December 31, 2025
|
|
5,457
|
|
|
|
282,501
|
|
Less: imputed interest
|
|
(14,357
|
)
|
Total
|
$
|
268,144
|
|
For the three and nine-month periods ended September 30, 2021, $2,147 (C$2,721) and $9,841 (C$12,311) (2020-$4,902; C$6,536 and $13,822; C$18,701) respectively, in interest was incurred.
13. Convertible Promissory Notes
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
(a)
|
Convertible promissory notes-March 7 and March 8, 2019 (net of unamortized financing costs of $nil (2020- $nil))
|
$
|
200,000
|
|
$
|
491,500
|
|
(b)
|
Convertible promissory note-May 23, 2019 (net of unamortized financing costs of $nil (2020-$nil))
|
|
-
|
|
|
242,000
|
|
(c)
|
Convertible promissory note-July 19, 2019 (net of unamortized financing costs of $nil (2020-$nil))
|
|
-
|
|
|
187,000
|
|
(d)
|
Convertible promissory note-October 17, 2019 (net of accumulated financing costs of $nil (2020-$nil)
|
|
-
|
|
|
171,600
|
|
(e)
|
Convertible promissory note-March 31, 2021 (net of unamortized financing costs of $nil (2020-$nil)
|
|
275,000
|
|
|
-
|
|
(f)
|
Convertible promissory note-April 1, 2021 (net of unamortized financing costs of $nil (2020-$nil)
|
|
275,000
|
|
|
-
|
|
(g)
|
Convertible promissory note-June 16, 2021 (net of unamortized financing costs of $260,774 (2020-$nil)
|
|
189,226
|
|
|
-
|
|
(h)
|
Convertible promissory note-August 26, 2021 (net of unamortized financing costs of $34,718 (2020-$nil)
|
|
107,482
|
|
|
-
|
|
|
|
$
|
1,046,708
|
|
$
|
1,092,100
|
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
(a)
|
On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with two investors (the "March 2019 Investors") pursuant to which the Company issued to each March 2019 Investor two 12% unsecured convertible promissory notes comprised of the first notes (the "First Notes") being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each (the "Back-End Notes," and, together with the First Notes, the "March 2019 Investor Notes") in the aggregate principal amount of $1,100,000, with such principal and the interest thereon convertible into Common Stock at the March 2019 Investors' option. Each First Note contains a $25,000 Original Issue Discount such that the issue price of each First Note was $250,000. The proceeds on the issuance of the First Notes were received from the March 2019 Investors upon the signing of the March 2019 SPAs. The proceeds on the issuance of the Back-End Notes were initially received by the issuance of two offsetting $250,000 secured notes to the Company by the March 2019 Investors (the "Buyer Notes"), provided that prior to conversion of the Back-End Notes, the March 2019 Investors must have paid back the Back-End Notes in cash.
|
Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction related expenses of $94,000, for the First Notes from the March 2019 Investors.
(a)
|
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 transaction related expense of $47,000. The maturity dates of the March 2019 Investor Notes were 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.
|
|
|
|
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 the Company's 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 initially 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 were cancelled.
|
|
|
|
Since the March 2019 Investor Notes were not repaid by their March 7, 2020 and March 8, 2020 maturity dates, they were 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.
|
|
|
|
On December 24, 2020, one of the two March 2019 Investors accepted a payment of $165,000 representing payment in full of all obligations due and owing under their March 2019 Investor Note. This resulted in a gain on forgiveness of debt of $119,983, including accrued interest of $68,085, in 2020.
|
|
|
|
On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $550,000, $50,000 paid on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. The Company and the March 2019 Investor have been in discussions to settle the balance of the remaining March 2019 Investor Notes. This March 2019 Investor converted a total of $135,000 of one of his March 2019 Investor Notes for 1,075,124 common shares as noted above, including accrued interest of $32,444 (December 31, 2020-$91,802). The balance of the convertible promissory note was forgiven by the March 2019 Investor resulting in a forgiveness of debt of $135,641, including accrued interest of $129,141, disclosed under other income (loss) in the interim condensed consolidated financial statements. On November 3, 2021, the March 2019 Investor accepted a payment of $200,000 from the Company representing all outstanding principal and accrued interest. Refer also to subsequent events, note 20(d).
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
|
During the three-month period ended September 30, 2021, the March 2019 Investor converted $75,000 of his remaining March 2019 Investor Note for 591,905 common shares of the Company, including accrued interest and related cost of $21,185. After an interest adjustment of $25,000, the remaining balance of the March 2019 Investor Note is $200,000.
|
|
|
(b)
|
On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750.
|
|
|
|
The maturity date of the May 2019 Investor Note was May 23, 2020. The May 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "May 2019 Interest Rate"), which interest shall be paid by the Company to the May 2019 Investor in Common Stock at any time the May 2019 Investor sends a notice of conversion to the Company. The May 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the May 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable May 2019 Effective Date; or (ii) the conversion date.
|
|
|
|
The Company initially reserved 10,937,000 of its authorized and unissued Common Stock (the "May 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the May 2019 Investor Note. Upon full conversion of the May 2019 Investor note, any shares remaining in such reserve were cancelled.
|
|
|
|
As a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020 and the principal balance of the May 2019 Investor Note increasing by 10% on May 23, 2020.
|
|
|
|
During the three and nine-month periods ended September 30, 2021, the May 2019 Investor converted a total of $nil and $nil (December 31, 2020-$nil and $15,000) of his May 2019 Note. And, on January 21, 2021, the May 2019 Investor converted the remaining balance of his May 2019 Investor Note for 846,154 common shares of the Company. This satisfied in full all obligations due and owing under the May 2019 Investor Note. This resulted in a gain on forgiveness of debt of $95,346, including accrued interest of $73,346, disclosed as other income (loss) in the interim condensed consolidated statements of operations and comprehensive loss.
|
(c)
|
On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775.
|
|
|
|
The maturity date of the July 2019 Investor Note was July 19, 2020. The July 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "July 2019 Interest Rate"), which interest shall be paid by the Company to the July 2019 Investor in Common Stock at any time the July 2019 Investor sends a notice of conversion to the Company. The July 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the July 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable July 2019 Effective Date; or (ii) the conversion date.
|
|
|
|
The Company initially reserved 5,604,000 of its authorized and unissued Common Stock (the "July 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the July 2019 Investor Note. Upon full conversion of the July 2019 Investor Note, any shares remaining in such reserve were cancelled.
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
|
As a result of the January 2019 Investor Notes, the March 2019 Investor Notes and the May 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020 and the principal balance of the July 2019 Investor Note increasing by 10% on July 19, 2020.
|
|
|
|
On January 21, 2021, the July 2019 Investor converted the remaining balance of his July 2019 Investor Note for 653,846 common shares of the company. This satisfied in full all obligations due and owing under the July 2019 Investor Note. This resulted in a gain on forgiveness of debt of $69,882, including accrued interest of $52,882, disclosed as other income (loss) in the interim condensed consolidated statements of operations and comprehensive loss
|
|
|
(d)
|
On October 17, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one 12% unsecured convertible promissory note (the "October 2019 Investor Note") in the principal amount of $156,000. On this date, the Company received proceeds of $129,600, net of transaction related expenses of $26,400.
|
|
|
|
The maturity date of the October 2019 Investor Note was October 17, 2020. The October 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "October 2019 Interest Rate"), which interest shall be paid by the Company to the October 2019 Investor in Common Stock at any time the October 2019 Investor sends a notice of conversion to the Company. The October 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the October 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable October 2019 Effective Date; or (ii) the conversion date.
|
|
|
|
The Company initially reserved 22,153,000 of its authorized and unissued Common Stock (the "October 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the October 2019 Investor Note. Upon full conversion of the October 2019 Investor Note, any shares remaining in such reserve were cancelled.
|
|
|
|
As a result of the January 2019 Investor Notes, the March 2019 Investor Notes, the May 2019 Investor Note and the July 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. On January 21, 2021, the October 2019 Investor converted the remaining balance of its October 2019 Investor Note for 600,000 common shares of the company. This satisfied in full all obligations due and owing under the October 2019 Investor Note. This resulted in a gain on forgiveness of debt of $58,591, including accrued interest of $42,991, disclosed as other income (loss) in the interim condensed consolidated statements of operations and comprehensive loss.
|
|
|
(e)
|
On March 31, 2021, the Company entered into a securities purchase agreement (the "March 2021 SPA") with one investor (the "March 2021 Investor") pursuant to which the Company issued to the March 2021 Investor one 10% unsecured convertible promissory note (the "March 2021 Investor Note") in the principal amount of $275,000. On this date, the Company received proceeds of $245,000, net of transaction related expenses $30,000. In addition, the March 31, 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date, determined to be valued at $66,000, based on the closing trading price at the time.
|
|
|
|
The maturity date of the March 2021 Investor Note is September 30, 2021. The March 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "March 2021 Interest Rate"), which shall be paid by the Company to the March 2021 Investor in Common Stock at any time the March 2021 Investor sends a notice of conversion to the Company. The March 2021 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the March 2021 Investor Note into Common Stock, at a conversion price of $0.20 per share. The original terms of the March 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. The Company and the March 2021 Investor are in discussions to settle the March 2021 Investor Note. The Company and the March 2021 Investor are in discussions to settle the March 2021 Investor Note.
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
|
The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "March 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2021 Investor Note.
|
|
|
(f)
|
On April 1, 2021, the Company entered into a securities purchase agreement (the "April 2021 SPA") with one investor (the "April 2021 Investor") pursuant to which the Company issued to the April 2021 Investor one 10% unsecured convertible promissory note (the "April 2021 Investor Note") in the principal amount of $275,000. On April 5, 2021, the Company received proceeds of $245,000, net of transaction related expenses of $30,000. In addition, the April 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date, determined to be valued at $69,000, based on the closing trading price at the time.
|
|
|
|
The maturity date of the April 2021 Investor Note is September 30, 2021. The April 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "April 2021 Interest Rate"), which shall be paid by the Company to the April 2021 Investor in Common Stock at any time the April 2021 Investor sends a notice of conversion to the Company. The April 2021 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the April 2021 Investor Note into Common Stock, at a conversion price of $0.20 per share. The original terms of the April 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. The Company and the April 2021 Investor are in discussions to settle the April 2021 Investor Note.
The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "April 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the April 2021 Investor Note.
|
|
|
(g)
|
On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. On June 18, 2021, the Company received proceeds of $382,500, net of transaction related expenses of $67,500. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company, determined to be valued at $300,000, based on an agreed upon price per share of $0.30.
The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "June 2021 Interest Rate"), which shall be paid by the Company to the June 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The June 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the June 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the June 2021 Investor Note) period ending on the issuance date of the June 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the June 2021 Investor Note. The June 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the June 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the June 2021 Investor Note plus (c) default interest (as defined in the June 2021 Investor note on the occurrence of a default), if any.
The Company initially reserved 7,000,000 of its authorized and unissued Common Stock (the "June 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the June 2021 Investor Note.
|
|
|
(h)
|
On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one 10% unsecured convertible promissory note (the "August 2021 Investor Note") in the principal amount of $142,200. On September 1, 2021, the Company received proceeds of $125,000, net of transaction related expenses of $17,200. In addition, the June 2021 Investor was issued 80,000 common shares of the Company, valued at $21,200, based on the closing trading price per share of $0.265.
|
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
13. Convertible Promissory Notes, (continued)
The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "August 2021 Interest Rate"). The August 2021 Investor Note will include a one-time interest charge of $14,220, which shall be at repayable by the Company in 10 equal monthly amounts of $15,642 (including principal and interest) commencing October 15, 2021.
The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 75% (representing a 25% discount) multiplied by the lowest trading price (i) during the previous five (5) trading day (as defined in the August 2021 Investor Note) period prior to conversion. The Company has the right to accelerate the monthly payments or prepay the August 2021 Investor Note at any time without penalty.
The original terms of the convertible promissory notes described in paragraphs (a) through (d) above may be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is sixty-one (61) days following their applicable effective date, and ending on the date which is ninety (90) days following their applicable effective date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is ninety-one (91) days following their applicable effective date, and ending on the date which is one hundred eighty (180) days following their applicable effective date, then the prepayment premium shall be 145% of the face amount plus any accrued interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.
Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.
The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.
For the three and nine-month periods ended September 30, 2021, the Company recorded interest of $60,693 and $104,412 (2020-$115,351 and $448,798 interest and default amounts) respectively. As at September 30, 2021, $88,474 (December 31, 2020-$316,048) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2021, $20,910 and $53,354 (2020-$8,821 and $15,276) respectively, of accrued interest was converted.
Refer also to going concern, note 2.
14. Loans Payable to Related Parties
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Director
|
$
|
-
|
|
$
|
33,772
|
|
Officer (CFO)
|
$
|
18,838
|
|
$
|
-
|
|
|
$
|
18,838
|
|
$
|
33,772
|
|
The balance owing to director, is unsecured, non-interest bearing and due on demand. The balance owing to the officer is unsecured bearing interest at the rate of 12% per annum.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
14. Loans Payable to Related Parties, (continued)
During the three and nine-month periods ended September 30, 2021, the director's company, Travellers, converted a total of $nil (C$nil) respectively and $371,001 (C$461,620), respectively (December 31, 2020-$nil; C$nil and $nil; C$nil) of loans provided during the period and $nil (C$nil) and $80,323 (C$101,700) of accounts payable owing to Travellers for 1,726,076 common shares. And, for the three and nine-month periods ended September 30, 2021 $265 (C$331) and $265 (C$331) (2020-$1,771; C$2,368 and $4,399; C$5,952) respectively, in interest was incurred on the loans payable to related parties.
15. Capital Stock
As at September 30, 2021, the Company had 150,000,000 common shares authorized with a par value of $.0001 per share and 94,065,404 (December 31, 2020-82,860,619) common shares issued and outstanding.
For the nine-month period ended September 30, 2021, the Company issued 3,767,029 common shares on the conversion of convertible promissory notes, in the amount of $756,000, including accrued interest and related costs of $53,901, for a total of $809,901. The share conversion prices ranged from $0.156 to $0.26 per share. The Company also issued 1,726,076 common shares on the conversion of loans payable and accounts payable to related party (Travellers), in the amount of $451,324 (C$563,320).
In addition, the Company raised $291,735 (C$381,073) net of share issue costs of $11,750 (C$14,670), on private placements for 1,195,348 common shares of the Company at per share issue prices ranging from $0.25 to $0.26). Further, 1,586,332 common shares of the Company were issued for professional services valued at $432,479, based on the closing trading prices on issuance, disclosed as stock-based compensation in the interim condensed consolidated statements of operations and comprehensive loss.
On March 31, 2021, the Company issued the March 2021 Investor Note to the March 2021 Investor, and issued, subsequent to March 31, 2021, 200,000 common shares, representing financing fees valued at $66,000, based on the closing trading price on issuance, disclosed under note 13(e), convertible promissory notes. On April 1, 2021, the Company issued the April 2021 Investor Note to the April 2021 Investor, and subsequently issued 200,000 common shares, representing financing fees valued at $69,000, based on the closing trading price on issuance, disclosed under note 13(f), convertible promissory notes. On June 16, 2021, the Company issued the June 2021 Investor Note to the June 2021 Investor, and subsequently issued 1,000,000 common shares, representing financing fees valued at $300,000 per the June 2021 SPA, disclosed under note 13(g), convertible promissory notes. And, on August 26, 2021, the Company issued the August 2021 Investor Note to the August 2021 Investor and subsequently issued 80,000 common shares representing financing fees valued at $21,200 per the August 2021 SPA, disclosed under note 13(i), convertible promissory notes.
On January 4, 2021, the Company issued 1,000,000 common shares to the CEO and 50,000 common shares to the CFO in connection with their executive consulting agreements, valued at $217,035, based on the closing trading price on issuance. Included under management stock-based compensation in the interim condensed consolidated statements of operations and comprehensive loss for the three and nine-month periods ended September 30, 2021, are amounts of $54,259 and $162,777 respectively, representing the stock-based compensation for the periods. Also, on January 4, 2021, the Company issued 400,000 common shares on proceeds of $8,580, previously received on a conversion of debt in December 2020.
During the year ended December 31, 2020, the convertible promissory note holders converted a total of $181,058 of their convertible notes, including accrued interest and related costs of $20,910 for 27,118,109 common shares. The share conversion prices ranged from $0.0036 to $0.0176 per share. On December 31, 2020, the Company issued 287,984 (2019-80,000 common shares) in the amount $60,670 to certain independent directors for their 2019 and 2020 services. In addition, the Company issued a total of 15,000 common shares to employees in the amount of $2,550 and 3,184,992 common shares on the conversion of loans payable to related party.
The Company canceled the 529,970 shares previously held by BDO Canada Limited, whose shares were returned to the Company on April 1, 2020, in the amount of $7,036. Further, on January 10, 2020, the CEO's remaining RSUs were exchanged into 1,000,000 common shares of the Company. In addition, on December 21, 2020, the Company received a notice of conversion from one of the January 2019 Investors in the amount of $7,830 plus legal fees of $750. The 400,000 common shares on this conversion were issued on January 4, 2021, as noted above.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
16. Commitments
a) Effective January 1, 2021, new executive consulting agreements were finalized for the services of the CEO and the CFO, for two years and one year, respectively. The CEO's monthly fee is $23,547 (C$30,000) for 2021 and 2022 $31,396 (C$40,000) for 2022 and for the CFO $6,279 (C$8,000). The future minimum commitment under these consulting agreements, is as follows:
For the three-month period ending December 31, 2021
|
$
|
89,478
|
|
For the year ending December 31, 2022
|
|
376,752
|
|
|
$
|
466,230
|
|
b) The Company has agreed to lease its office premises from Haute on a month-to-month basis, at the monthly rate of $5,494 (C$7,000). The Company is responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance.
c) Effective June 1, 2021 a new investor relations consulting agreement was finalized with a consultant to provide investor relations service provided for six months to November 30, 2021. The investor relations consulting agreement was terminated and will not extent beyond November 30, 2021.
For the three-month period ending December 31, 2022
|
$
|
13,000
|
|
d) The Company was assigned the land lease on the purchase of certain assets of Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $2,355 (C$3,000) and is subject to adjustment based on the consumer price index as published by Statistics Canada ("CPI"). To date, no adjustment for CPI has been charged. The Company is also responsible for any property taxes, maintenance, insurance and utilities. In addition, the Company has the right to extend the lease for five further terms of five years each and one further term of five years less one day. As the Company acquired the business of 1684567, the previous landlord, in 2019, there are no future commitments for this lease. The Company is responsible through a special provision of the site plan agreement with the City of Belleville (the "City"), Ontario, Canada, that it is required to fund road maintenance required by the City through to September 30, 2025 at an annual rate of $7,849 (C$10,000). The future minimum commitment is as follows:
For the three-month period ending December 31, 2021
|
$
|
-
|
|
For the year ending December 31, 2022
|
|
7,849
|
|
For the year ending December 31, 2023
|
|
7,849
|
|
For the year ending December 31, 2024
|
|
7,849
|
|
For the year ending December 31, 2025
|
|
7,849
|
|
|
|
|
|
|
$
|
31,396
|
|
PACE has provided the Company a letter of credit in favor of the MECP in the amount of $217,285 (C$276,831) 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.
The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating its financial assurance with the MECP. As a result of audits conducted by the MECP in December of 2020, the Company has accrued estimated and actual costs for corrective measures as a result of the MECP's audits totaling $654,669 (C$834,080) (2020-$570,078; C$725,844). For the three and nine-month periods ended September 30, 2021, the estimated costs for these corrective measures totaled $201,854 (C$252,816) and $270,290 (C$338,116) respectively. As at September 30, 2021, the MECP has not drawn on the letter of credit. The letter of credit was renewed by PACE to the termination of the Company's obligations to PACE, September 2022.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
17. Other Income (Loss)
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
(a) Gain on forgiveness of convertible promissory notes
|
$
|
359,460
|
|
$
|
-
|
|
(b) Gain on disposal of long-lived assets
|
|
45,349
|
|
|
-
|
|
(c) Land option expired
|
|
-
|
|
|
(59,128
|
)
|
|
$
|
404,809
|
|
$
|
(59,128
|
)
|
(a) On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under his convertible promissory notes by payments totaling $550,000, $50,000 on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. As of August 16, 2021, this amount has not been paid. This resulted in a gain on forgiveness of the remaining March 2019 Investor Notes, in the amount of $135,641, including accrued interest of $129,141. Refer to note 13(a), convertible promissory notes.
And on January 20, 2021, the May 2019 Investor, the July 2019 Investor and the October 2019 Investor accepted in full 2,100,000 common shares of the Company representing payment in full of all obligations due and owing under their convertible promissory notes. This resulted in a gain on forgiveness of convertible promissory notes of $223,819, including accrued interest of $169,219. Refer to note 13(b) (c) and (d), convertible promissory notes.
(b) On January 8, 2021, the Company disposed of certain long-lived assets for proceeds of $47,394 (C$60,000) and realized a gain on disposal of $45,349 (C$57,411). The long-lived assets were maintained at landfills the Company managed up until early January 2021. Prior to disposal, the long-lived assets were disclosed under machinery and equipment in note 8, long-lived assets, net.
(c) Expiry of land option on the 2019 business acquisition.
18. Economic Dependence
The Company generated 69% of its revenue from three customers and 80% of its revenue from four customers, during the three and nine-month periods ended September 30, 2021 (2020-81% and 69% from three customers) respectively.
19. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.
The Company has a claim against it for unpaid legal fees in the amount of $51,208 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheets.
On September 24, 2020, the Company filed a statement of claim against the former chief executive officer and his company, LFGC, which was defended and counterclaimed. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $784,900 (C$1,000,000).
On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $403,556 (C$514,150) in special damages and $4392,450 (C$500,000) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020. The plaintiffs by counterclaim filed their defense to counterclaim on November 23, 2020, denying all claims in the Company's reply and defense to counterclaim. Included in accounts payable on the Company's interim condensed consolidated balance sheets is an amount for unpaid fees to the former chief executive officer in the amount of $310,428 (C$395,500), pending the results of the litigation.
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)
20. Subsequent Events
The Company's management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:
(a) On October 18, 2021, the Company entered into a services agreement with a consultant to provide strategic advisory and digital marketing. The services commenced November 1, 2021 and will continue for six months to April 30, 2022. A payment of $10,000 was due on signing with two quarterly payments of $74,000 on each of November 1, 2021 and February 1, 2022. In addition, the consultant will receive 50,000 restricted common shares of the Company as compensation.
(b) On October 29, 2021, the Company executed two convertible promissory notes totaling $1,765,118 with net proceeds to the Company in the amount of $1,330,000, net of an original issue discount and other financing costs of $265,118. On November 3, 2021, the Company received $1,330,000 on the execution of the convertible promissory notes. The convertible promissory notes bear interest at the rate of 15% annually and are due July 29, 2022. In connection with the above, on October 27, 2021, the Company signed a consulting agreement with a consultant, related to the holder of one of the convertible promissory notes, for a term of six months to provide financial and business consulting, for a fee of $50,000 and 62,500 restricted shares of the Company's common stock. Further, on October 28, 2021, the Company signed a consulting agreement with a consultant, related to the holder of the other convertible promissory note, for a term of six months to provide financial and business consulting for a fee of 10,000 restricted shares of the Company's common stock. Under both advisory agreements, the restricted shares of the Company's common stock will survive a reverse stock split prior to up listing.
(c) On November 1, 2021, the Company entered into an agreement with a consultant for corporate consulting and advisory services for a term of three months to January 31, 2022, for a fee of $10,000 per month.
(d) On November 3, 2021, the Company repaid the remaining balance of the March 2019 Investor Notes in the amount of $200,000. Any unpaid accrued interest up to the date of repayment was forgiven by the March 2019 Investor.
(e) On November 3, 2021, the Company paid the deposit of $10,000, in connection with a letter agreement signed September 22, 2021, to its underwriter, who is also acting as the sole agent, for an offering of up to $12,000,000 on the effectiveness of a registration statement to up-list to the Nasdaq.
(f) On November 15, 2021, PACE and the Company reached an agreement whereby the Company made payment of arrears to PACE on November 15, 2021, in the amount of $238,322 (C$303,634) and allow the Company to continue monthly payments to the end of the term of the obligations, September 2022.
[_____] Units
Each Unit Consisting of One Share of Common Stock and
One Warrant to Purchase Common Stock
11,534,303 Shares of Common Stock
SUSGLOBAL ENERGY CORP.
PROSPECTUS
Book-Running Manager
|
Co Book-Running Manager
|
|
|
Spartan Capital Securities, LLC
|
Revere Securities LLC
|
_____________, 2022