Certain statements in this Management's Discussion and Analysis ("MD&A"), other
than purely historical information, including estimates, projections, statements
relating to our business plans, objectives and expected operating results, and
the assumptions upon which those statements are based, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "would,"
"expect," "intend," "could," "estimate," "should," "anticipate," or "believe,"
and similar expressions. Forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties which
may cause actual results to differ materially from the forward-looking
statements. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Readers should carefully review the risk factors in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed
with the Securities and Exchange Commission on April 15, 2021.
The following MD&A is intended to help readers understand the results of our
operation and financial condition, and is provided as a supplement to, and
should be read in conjunction with, our Interim Unaudited Financial Statements
and the accompanying Notes to Interim Unaudited Financial Statements under Part
1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three and
six-month periods ended June 30, 2021 compared with the three and six-month
periods ended June 30, 2020 unless otherwise noted. Unless otherwise indicated
or unless the context otherwise requires, all references in this document to
"we, "us, "our," the "Company," and similar expressions refer to SusGlobal
Energy Corp., and depending on the context, its subsidiaries.
SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION
OUR AUDITOR ISSUED AN OPINION EXPRESSING SUBSTANTIAL DOUBT AS TO OUR ABILITY TO
CONTINUE IN BUSINESS AS A GOING CONCERN FOR THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019. YOU SHOULD READ THIS
QUARTERLY REPORT ON FORM 10-Q WITH THE "GOING CONCERN" ISSUES IN MIND.
This Management's Discussion and Analysis should be read in conjunction with the
unaudited interim condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q (the "Financial Statements"). The financial
statements have been prepared in accordance with generally accepted accounting
policies in the United States ("GAAP"). Except as otherwise disclosed, all
dollar figures included therein and in the following management discussion and
analysis are quoted in United States dollars.
OVERVIEW
The following organization chart sets forth our wholly-owned subsidiaries:
[[Image Removed]]
27
--------------------------------------------------------------------------------
[[Image Removed]]
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 SEC on May 23, 2017.
On December 11, 2018, the Company began trading on the OTCQB venture market
exchange, under the ticker symbol SNRG.
When the terms "the Company," "we," "us" or "our" are used in this document,
those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries,
SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., and SusGlobal
Energy Belleville Ltd.
SusGlobal is a renewables company focused on acquiring, developing and
monetizing a global portfolio of proprietary technologies in the waste to energy
and regenerative products application.
With the growing amount of organic wastes being produced by society as a whole,
a solution for sustainable global management of these wastes must be achieved.
SusGlobal through its proprietary technology and processes is equipped and
confident to deliver this objective. Management believes renewable energy is the
energy of the future. Sources of this type of energy are more evenly distributed
over the earth's surface than finite energy sources, making it an attractive
alternative to petroleum-based energy. Biomass, one of the renewable resources,
is derived from organic material such as forestry, food, plant and animal
residuals. SusGlobal can therefore help you turn what many consider waste into
precious energy and regenerative products. The portfolio will be comprised of
four distinct types of technologies: (a) Process Source Separated Organics
("SSO") in anaerobic digesters to divert from landfills and recover biogas. This
biogas can be converted to gaseous fuel for industrial processes, electricity to
the grid or cleaned for compressed renewable gas; (b) Increasing the capacity of
existing infrastructure (anaerobic digesters) to allow processing of SSO to
increase biogas yield; (c) Utilize recycled plastics to produce liquid fuels;
and (d) Process SSO and digestate to produce an organic compost or a pathogen
free organic liquid fertilizer. The convertibility of organic material into
valuable end products such as biogas, liquid biofuels, organic fertilizers and
compost shows the utility of renewables. These products can be converted into
electricity, fuels and marketed to agricultural operations that are looking for
an increase in crop yields, soil amendment and environmentally-sound practices.
This practice also diverts these materials from landfills and reduces Greenhouse
Gas Emissions ("GHG") that result from landfilling organic wastes. The Company
can provide peace of mind that the full lifecycle of organic material is
achieved, global benefits are realized and stewardship for total sustainability
is upheld. It is management's objective to grow SusGlobal into a significant
sustainable waste to energy and regenerative products provider, as Leaders in
The Circular Economy®.
[[Image Removed]]
28
--------------------------------------------------------------------------------
We believe the project and services offered can benefit both the public and
private markets. The following includes some of our work managing organic waste
streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater
Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment,
Leachate Management, Composting and Liquid Fertilizer production.
The Company can provide a full range of services for handling organic residuals
in a period where innovation and sustainability are paramount. From start to
finish we offer in-depth knowledge, a wealth of experience and cutting-edge
technology for handling organic waste.
The primary focus of the services SusGlobal provides includes identifying idle
or underutilized anaerobic digesters and integrating our technologies with
capital investment to optimizing the operation of the existing digesters to
reach their full capacity for processing SSO. Our processes not only divert
significant organic waste from landfills, but also result in methane avoidance,
with significant GHG reductions from waste disposal. The processes also produce
renewable energy through the conversion of wastewater biosolids and organic
wastes in the same equipment (co-digestion) and valuable end products such as
biogas, electricity and organic fertilizer, both dry and liquid, considered
Class AA organic fertilizer.
Currently, the primary customers are municipalities in both rural and urban
centers throughout southern and central Ontario, Canada. Where necessary, to be
in compliance with provincial and local environmental laws and regulations,
SusGlobal submits applications to the respective authorities for approval prior
to any necessary engineering being carried out.
The Coronavirus Outbreak ("COVID-19") May Adversely Affect Our Business
Operations and Financial Condition
In December 2019, COVID-19 was reported. On March 11, 2020, the World Health
Organization characterized COVID-19 as a pandemic. Developments in this area
continue daily at the local, provincial and national levels. The Company has
taken steps, consistent with directions from local, provincial and federal
authorities, to mitigate known risks with the health and safety of its employees
and customers as its first priority. The outbreak of COVID-19 was declared a
national emergency. Many provinces and municipalities in Canada, announced
aggressive actions to reduce the spread of COVID-19, including limiting
non-essential gatherings of people, ceasing all non-essential travel, ordering
certain businesses and government agencies to cease non-essential operations at
physical locations and issuing "social or physical distancing" orders, which
direct individuals to remain at their places of residence (subject to limited
exceptions). COVID-19 poses the risk that we or our employees, contractors,
customers, government and third-party payors and others may be prevented from
conducting business activities for an indefinite period of time, including due
to spread of the disease within these groups or due to shutdowns that have been
and may continue to be requested or mandated by governmental authorities.
[[Image Removed]]
29
--------------------------------------------------------------------------------
The Company has acted on the aggressive emergency measures set in place by the
provincial government and federal authorities, keeping in mind, firstly, the
immediate health and safety of our employees and customers. Employees in the
head office, located in Toronto, Ontario, Canada had been working remotely for
some time or alternating their office time, ensuring there is no more than one
employee present, ensuring they are social distancing and wearing protective
face covering within the office and elsewhere outside the office, as per the
measures set in place by provincial and local authorities. Employees at the site
in Belleville, Ontario, Canada, have also been following the same procedures.
The Company has prohibited face to face meetings and all meetings are now and
for some time, being held by teleconference.
The Company is fortunate that its operations have not been forced to close as we
are considered an essential service. In the early stages of COVID-19, the
receipt of organic waste had increased, the likely impact of the requirement for
the public to stay in their residences, unless they themselves are employed in
an essential business or service. A broad, sustained outbreak of COVID-19 will
negatively impact our results and financial condition for the following reasons;
(i) a large percentage of our customers are municipalities and their limited
operations have resulted in a delay in the collection of outstanding receivables
in the early months of COVID-19, impacting our cash flows, including the use of
cash; (ii) members of the board, management or employee team, some of whom are
particularly at-risk for the severe symptoms of COVID-19, or of our small number
of other employees, may become ill or have family members who are ill and are
absent as a result, or they may elect not to come to work due to the illness
affecting others in our office or facility; and (iii) the outbreak may
materially impact our operations for a sustained period of time due to the
current travel bans and restrictions, quarantines, social or physical distancing
orders and shutdowns.
The occurrence of any of the these noted events and potentially others, could
have a material adverse effect on our business, financial condition and results
of operations. The COVID-19 outbreak and mitigation measures have had and may
continue to have an adverse impact on global economic conditions which could
have an adverse effect on our business and financial condition. The extent to
which the COVID-19 outbreak impacts our results will depend on future
developments that are highly uncertain and cannot be predicted, including new
information that may emerge concerning the severity of COVID-19, the variants
and the actions to contain its impact.
To date, there has been no material impact on the Company's workforce,
operations, financial performance, liquidity, or supply chain as a result of
COVID-19. However, the ultimate duration and severity of COVID-19 or its
effects on the economy, the capital and credit markets, or the Company's
workforce, customers, and suppliers, as well as governmental and regulatory
responses, are uncertain.
RECENT BUSINESS DEVELOPMENTS
On February 10, 2021, the Company signed an Agreement of Purchase and Sale (the
"APS") for certain assets located in Hamilton, Ontario, Canada for $3,630,600
(C$4,500,000), including a vendor take-back mortgage of $1,613,600 (C$2,000,000)
at an annual interest rate of 2% maturing two years after closing. Deposits of
$161,360 (C$200,000) and $121,020 (C$150,000) were paid by the Company on
February 10, 2021 and June 1, 2021 respectively. The APS was amended on April 8,
2021, to revise the closing date to 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 $40,179 (C$49,800), plus applicable
harmonized sales taxes, expected on or before May 19, 2021. On May 20, 2021, the
Company and the vendor signed a waiver and amending agreement, waiving the due
diligence process and revising the closing date to June 16, 2021. On August 3,
2021, the vendor agreed to amend the APS for the purchase of certain assets in
Hamilton, Ontario, Canada, with a new closing date of August 17, 2021. The newly
amended APS will provide for a credit to the Company in the amount of $302,550
(C$375,000) for certain deficiencies. In addition, the Company will issue
300,000 common shares to the vendor on closing. To finance the closing, the
Company increased its 1st mortgage by $1,532,920 (C$1,900,000). The funds are
being held in escrow on August 16, 2021.
[[Image Removed]]
30
--------------------------------------------------------------------------------
On July 8, 2021, the Company applied to list its Common Stock on the Nasdaq
Capital Market, and submitted the initial listing fee of $5,000.
On July 2, 2021, the Company revised a letter of intent with the vendors for the
purchase of the shares of their two corporations which own proprietary
processes, manufacture liquid organic fertilizers and other products. The
transaction is set to close on August 31, 2021 with a total purchase price of
$16,136,000 (C$20,000,000), which will consist of cash of $8,068,000
(C$10,000,000) and common shares of the Company having a value of $ 8,068,000
(C$10,000,000). The purchase price will be satisfied through a payment of
$2,420,400 (C$3,000,000) in cash and the issuance of common shares having a
value of $8,068,000 (C$10,000,000) on closing and a final payment of $5,647,600
(C$7,000,000) in cash on June 1, 2022.
On June 1, 2021, the Board of Directors of the Company appointed Ms. Susan Harte
as a member of the Board of Directors, effective immediately.
On May 19, 2021, Ryan Duffy submitted his resignation from his position as a
member of the Board of Directors of the Company, effective immediately. Mr.
Duffy did not resign as a result of any dispute with the Company on any matter
relating to the Company's operations, policies or practices.
On April 28, 2021, the Company announced that it had received a (B-) score with
scorecard from Circulytics®, launched by The Ellen MacArthur Foundation ("The
Foundation"), a charity whose mission is to accelerate the transition to a
circular economy.
The Foundation has developed this new digital tool to assess the circular
economy performance of companies, which measures enablers within organizations.
This measurement assists companies in achieving circular outcomes ("Circulytics"
and the method used by Circulytics® being the "Circulytics Method"). The
scorecard gives an overview of the company's progress on the journey towards the
circular economy, by way of two overarching categories, 'Enablers' and
'Outcomes', as well as eleven themes within these categories, encouraging the
company to improve and providing theme level scores to enable the company to
prioritize certain activities.
On April 20, 2021, the Board of Directors of the Company appointed Mr. Gary
Herman as a member of the Board, effective immediately.
On April 8, 2021, the Company completed the purchase of its new truck and
hauling trailer for a total purchase price of $177,624 (C$220,159), plus the
applicable harmonized sales taxes and administrative costs. The Company paid
deposits of $39,649 (C$49,143) on this purchase and financed the balance over a
period of forty-eight months at a monthly principal and interest payment of
$3,712 (C$4,601) at an interest rate of 4.95% per annum.
On March 4, 2021, the Company announced it has signed a Capital Market Advisory
Agreement (the "Agreement") with Exchange Listing, LLC ("Exchange Listing") to
provide advisory services with respect to the Company's initiative to list its
shares of Common Stock on the Nasdaq Capital Market.
[[Image Removed]]
31
--------------------------------------------------------------------------------
Exchange Listing provides companies with cost-effective and efficient direct
access to one-stop solutions in the strategic planning and implementation of
listing on senior exchanges such as NASDAQ or NYSE. Focusing on company-specific
structuring to meet listing requirements, Exchange Listing serves as the primary
point of contact with the exchange, investment bankers and lawyers throughout
the listing process. With extensive experience in investment banking, securities
law, corporate governance and business management, Exchange Listing and its
strategic partners facilitate its clients' listing and capital markets
objectives.
Purchase of Additional Lands
On November 12, 2020, the Company acquired additional lands described in the
Company's Share Purchase Agreement (the "SPA") of 1684567 Ontario Inc.
("1684567"), in May of 2019. The additional lands include a 6.60-acre licensed
gravel pit and a 0.20 acre right of way for a purchase price of $169,428
(C$210,000) plus the applicable harmonized sales tax. The Company is now the
owner of a 49-acre land parcel at its Belleville, Ontario, Canada, organic waste
processing and composting facility. The purchase was funded through an
additional advance of $564,760 (C$700,000) on its 1st mortgage. The funds
received, $418,921 (C$519,238), were net of financing fees of $59,481 (C$73,725)
and expenses including accrued interest, property taxes and other disbursements
of $92,590 (C$114,762). The new first mortgage of $2,662,440 (C$3,300,000) was
registered on November 12, 2020. The terms of the new 1st mortgage are as noted
under long-term debt, note 11(d) to the interim condensed consolidated financial
statements, including an interest rate at the higher of the Royal Bank of
Canada's prime rate plus 7.55% (currently 10% per annum) and 10% per annum, and
the principal amount is due December 1, 2021. Management used a portion of the
additional advance to satisfy certain obligations with Pace Savings and Credit
Union Limited ("PACE").
SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY®
After having filed on March 13, 2019, trademark applications in Canada and the
United States, on July 16, 2020, the Company announced it had received a
Certificate of Registration from the United States Patent and Trademark Office
("USPTO") for the trademark LEADERS IN THE CIRCULAR ECONOMY (the "Mark").
The Mark was registered under Registration Number 6,098,063 on July 7, 2020 on
the Supplemental Register. The registration will be in effect for an initial
term of ten years, expiring on July 7, 2030, with the option of renewing the
registration for successive ten-year terms for the following class:
treatment and processing of organic waste; organic waste disposal services,
namely, destruction and recycling of waste; organic waste management services,
namely, converting waste into energy; recycling of organic waste; technical
consulting in the field of waste management, namely, consulting in the field of
waste treatment; recycling of plastic; recycling, namely, transform biosolids
and organic waste into a pathogen free recognized organic fertilizer and compost
and regenerative products, namely, biogas, electricity, liquid fertilizer,
compost.
Now that the Mark is registered, The Company is permitted to use indicia of
registration (e.g. ®, or phrases such as "Reg. U.S. Pat. and T.M. Office").
SusGlobal Receives a Certificate of Registration for the Trademark EARTH's
JOURNEY® and the Trademark CARING FOR EARTH'S JOURNEY®
On November 24, 2020, the Company received a Certificate of Registration from
the United States Patent and Trademark Office for the trademark EARTH's JOURNEY®
and trademark CARING FOR EARTH'S JOURNEY® (the "Marks"). The Marks were
registered under Registration Number 6,197,171 and Registration Number 6,195,955
on November 10, 2020 on the Supplemental Register. The registrations will be in
effect for an initial term of ten years, expiring November 10, 2030, with the
option of renewing the registrations for successive ten-year terms. Now that the
Marks are registered, it is permitted to use indicia of registration (e.g. ®, or
phrases such as "Reg U.S. Pat. And T.M. Office").
[[Image Removed]]
32
--------------------------------------------------------------------------------
SusGlobal to Commence Integration of The Ydro Process(R) at Its Belleville
Organic Waste Processing and Composting Facility
On May 27, 2020, the Company announced it has agreed to commence The Ydro
Process® integration into the existing operations at the Organic Waste
Processing and Composting Facility of its wholly owned subsidiary SusGlobal
Energy Belleville Ltd. ("SusGlobal Belleville").
TradeWorks Environmental's Ydro Process® is integrated into the existing
SusGlobal Belleville operations by applying the Ydro Series®
Microorganisms product once during the preparation stage of the batches in the
appropriate Gore® system windrows.
The integration of the Ydro Process® is expected to:
Reduce:
• Odors generated from the composting processing, its products (compost), as
well as its by-products (i.e. leachate).
• Energy requirements, and the electrical consumption for aeration-heating
purposes.
Increase:
• Degradation/decomposition rate and efficiency of the composting process.
• Composting process and reduce the compost processing time.
• Composting performance and efficiency of the system.
• System's composting capacity and composting cycles (over its design limit).
• Compost quality, compost maturity, N:P:K & C:N ratio.
• Composting temperature (naturally, through the biological activity).
Energy Retrofit Program
On January 15, 2020, the Independent Electrical System Operator (the "IESO")
pre-approved the Company's Save on Energy Retrofit Program Application (the
"Program"). The total cost of the Program was $95,761 ($C118,692). As the
Program was successfully completed, the Company, on April 15, 2021, received the
hydro grant from the IESO of $47,191 (C$58,491), plus the applicable harmonized
sales taxes. The Program was designed to realize a savings of approximately 50%
in hydro costs annually, with an overall return on investment estimated at 125%.
Financings
(a) Securities Purchase Agreements
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.
[[Image Removed]]
33
--------------------------------------------------------------------------------
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), if any.
On April 1, 2021, the Company entered into a securities purchase agreement with
an investor (the "April 2021 Investor"), in which the Company issued to the
April 2021 Investor a 10% unsecured convertible promissory note (the "April 2021
Investor Note") in the aggregate principal amount of $275,000, due September 30,
2021, convertible at any time after issuance at a per share price of $0.20. In
addition, the April 2021 Investor received 200,000 common shares of the Company,
subsequent to issuance of the April 2021 Investor Note, valued at $69,000 based
on the closing price of the common shares on issuance the day before issuance.
On April 5, 2021, the Company received $245,000, net of transaction related
expenses of $30,000.
On March 31, 2021, the Company entered into a securities purchase agreement with
an investor (the "March 2021 Investor"), in which the Company issued to the
March 2021 Investor a 10% unsecured convertible promissory note (the "March 2021
Investor Note") in the aggregate principal amount of $275,000, due September 30,
2021, convertible at any time after issuance at a per share price of $0.20. In
addition, the March 2021 Investor received 200,000 common shares of the Company,
subsequent to issuance of the March 2021 Investor Note, valued at $69,000 based
on the closing price of the common shares the day before issuance. On March 31,
2021, the Company received $245,000, net of transaction related expenses of
$30,000.
On January 20, 2021, the May 2019 Investor, the July 2019 Investor and the
October 2019 Investor reached an agreement with the Company and on January 21,
2021 converted the remaining balances of their convertible promissory notes,
totaling $546,000 for 2,100,000 common shares of the Company, at a conversion
price of $0.26 per share. This satisfies in full all obligations due and owing
on their convertible promissory notes. This resulted in a gain on forgiveness of
debt of $223,819, including accrued interest of $169,219, disclosed as other
income in the interim condensed consolidated statements of operations and
comprehensive loss.
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. As of
August 16, 2021, this amount has not been paid. As noted, the March 2019
Investor converted a total of $135,000 of one of his March 2019 Investor Notes,
including accrued interest of $32,444 and related expense of $275 into 1,075,124
common shares of the Company, a conversion price of $0.156 per share. 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 in the interim condensed
consolidated financial statements.
[[Image Removed]]
34
--------------------------------------------------------------------------------
For the three and six-month periods ended June 30, 2021, the Company recorded
interest of $28,963 and $43,719 (2020-$149,965 and $333,447 interest and default
amounts) respectively. As at June 30, 2021, $29,024 (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 six-month periods
ended June 30, 2021, $nil and $32,444 (2020-$1,444 and $6,455) respectively, of
accrued interest was converted.
(b) Pace Savings & Credit Union Limited ("PACE")
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. The amounts owing were not
repaid to PACE on July 30, 2021. 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 continues discussions
with equity investors and a Canadian chartered bank 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 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.
The remaining PACE long-term debt was initially payable as noted below:
(i) The credit facility bears interest at the PACE base rate of 7.00% plus
1.25% per annum, currently 8.25%, is payable in monthly blended
installments of principal and interest of $7,071 (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 $1,290,880 (C$1,600,000), is secured by
a business loan general security agreement, a $1,290,880 (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.
(ii) The credit facility advanced on June 15, 2017, in the amount of $484,080
(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 $3,954 (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.
(iii) The corporate term loan advanced on September 13, 2017, in the amount of
$3,004,642 (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 $23,971 (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 $3,227,989 (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 six-month periods ended June 30, 2021, $81,163 (C$99,651) and
$158,428 (C$197,467) (2020-$78,492; C$108,615 and $155,241; C$211,731)
respectively, in interest was incurred on the PACE long-term debt. As at June
30, 2021 $71,051 (C$88,065) (December 31, 2020-$18,319; C$23,325) in accrued
interest is included in accrued liabilities.
(c) Other Financings
(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, received in three tranches totaling $2,662,440
(C$3,300,000) (December 31, 2020-$2,662,440; C$3,300,000). 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 8, long-lived assets, in the interim
condensed consolidated balance sheets with a carrying value of $1,700,734
(C$2,108,000) and a general assignment of rents. Financing fees on the
mortgage totaled $182,096 (C$225,702). As at June 30, 2021 $21,153
(C$26,219) (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 June 30, 2021 there is $23,731 (C$29,414)
(December 31, 2020-$50,253; C$63,984) of unamortized finance fees included
in long-term debt in the interim condensed consolidated balance sheets.
To finance the closing, the Company increased its 1st mortgage by $1,532,920
(C$1,900,000). The funds are being held in escrow on August 16, 2021.
For the three and six-month periods ended June 30, 2021, $53,892 (C$65,948)
and $116,422 (C$145,110) (2020-$46,936; C$65,000 and $95,316; C$130,000)
respectively, in interest was incurred on the mortgage payable.
[[Image Removed]]
35
--------------------------------------------------------------------------------
(ii) As a result of COVID-19, 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 $80,680 (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 $56,476 (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, $24,204 (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.
(iii) 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 six-month periods ended June 30, 2021, the Company
incurred interest charges of $nil (C$nil) $808 (C$883) (2020-$nil; C$nil
and $nil; C$nil).
(iv) During the three and six-month periods ended June 30, 2021, Travellers
International Inc. ("Travellers"), a company controlled by the president
and chief executive officer (the "CEO") of the Company, who is also a
director, loaned the Company $405,321 (C$327,013). The loans were converted
along with of $82,052 (C$101,700) of accounts payable owing to Travellers
into 1,726,076 common shares of the Company based on the closing trading
price of the shares on conversion.
There are no written agreements evidencing the Travellers loans other than
resolutions of the Board with attached loan schedules.
(d) Financings Related to Obligations Under Capital Lease
There were no new capital leases entered into by the Company during the
three-month period ended June 30, 2021.The original terms of the obligations
under capital lease are noted below under paragraphs (i), (ii) and (iii).
(i) The lease agreement for certain equipment for the Company's organic waste
processing and composting facility at a cost of $231,269 (C$286,650), is
payable in monthly blended installments of principal and interest of $4,712
(C$5,840), plus applicable harmonized sales taxes and an option to purchase
the equipment for a final payment of $23,074 (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.
(ii) The lease agreement for certain equipment for the Company's organic
composting facility at a cost of $199,643 (C$247,450 ), is payable in
monthly blended installments of principal and interest of $4,129 (C$5,118),
plus applicable harmonized sales taxes for a period of forty-six months
plus the first two monthly blended installments of $8,068 (C$10,000) plus
applicable harmonized sales taxes and an option to purchase the equipment
for a final payment of $ 19,912 (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.
(iii) The lease agreement for certain equipment for the Company's organic waste
processing and composting facility at a cost of $314,370 (C$389,650), is
payable in monthly blended installments of principal and interest of $5,528
(C$6,852), plus applicable harmonized sales taxes for a period of
fifty-nine months plus an initial deposit of $15,692 (C$19,450) plus
applicable harmonized sales taxes and an option to purchase the equipment
for a final payment of a nominal amount of $81 (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.
[[Image Removed]]
36
--------------------------------------------------------------------------------
For the three and six-month periods ended June 30, 2021, $3,601 (C$4,409) and
$7,694 (C$9,590) (2020-$5,831; C$8,015 and $8,920; C$12,165) respectively, in
interest was incurred.
Treatment of Organic Waste and Septage
On February 28, 2019, the Company announced that it had received the project
completion report titled: Development Optimization and Validation of an
Innovative Integrated Anaerobic Thermophilic Digester Treatment of Organic Waste
and Septage. The report was written by a research team at Fleming College's
Centre for Advancement of Water and Wastewater Technologies, located in Lindsay,
Ontario, Canada. The collaborative project was supported by the Advancing Water
Technologies Program (the "AWT Program") of Southern Ontario Water Consortium.
The project focused on the development of a new and innovative technology for
handling and processing organic residuals. This new technology utilizes the
anaerobic mesophilic digestion process coupled with thermophilic digestion to
maximize biogas yields and produce organic fertilizer through optimal
operations.
Other
On May 9, 2017, the company signed a memorandum of agreement with Kentech (the
"Kentech Agreement"), a corporation existing under the laws of the province of
Ontario, Canada ("Kentech"). The Kentech Agreement provides the Company the
right to acquire and the right to use the equipment and innovative processes of
Kentech in relation to the production of liquid fertilizer from organic waste
material. The Kentech Agreement is for a period of five years, commencing on the
date of the Kentech Agreement. The Kentech Agreement may be terminated by either
party upon providing six months' notice.
The Company's activities all contribute to GHG reductions, so we will be a key
part of Ontario's initiative. The Company has also contacted counterparties in
Quebec and California to explore opportunities for relevant projects. SusGlobal
is committed to making all its commercial activities carbon neutral. New Cap and
Trade regulations became effective January 2017. On July 3, 2018, the new
premier of the Province of Ontario announced the end of the Cap-and-Trade
program in Ontario. In January 2019, a Climate Change Leadership Team (the
"CCLT") was established. The CCLT is a cross-ministry group responsible for
embedding climate change in government procurement, building understanding and
capacity within government, and creating a process to update internal directives
and guidance to help ensure climate change is considered.
Operations
The Company owns the Environmental Compliance Approvals (the "ECAs") issued by
the MECP from the Province of Ontario, in place to accept up to 70,000 metric
tonnes ("MT") of waste annually from the provinces of Ontario, Quebec and from
New York state, and to operate a waste transfer station with the capacity to
process up to an additional 50,000 MT of waste annually. Once built, the
location of the waste transfer station will be alongside the organic waste
processing and composting facility which is currently operating in Belleville,
Ontario, Canada.
Waste Transfer Station- Access to the waste transfer station is critical to
haulers who collect waste in areas not in close proximity to disposal facilities
where such disposal continues to be permitted. Tipping fees charged to third
parties at waste transfer stations are usually based on the type and volume or
weight of the waste deposited at the waste transfer station, the distance to the
disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility- As noted above, the Company's organic waste
processing and composting facility, located in Belleville, Ontario Canada, has
ECAs in place to accept up to 70,000 MT of waste annually and is currently in
operation. Certain assets of the organic waste processing and composting
facility, including the ECAs for the waste transfer station (not yet built),
were acquired by the Company on September 15, 2017, from the Receiver for
Astoria, under the APA. The Company charges tipping fees for the waste accepted
at the organic waste composting facility based on arrangements in place with the
customers and the type of waste accepted. Typical waste accepted includes, leaf
and yard, biosolids, food, liquid, paper sludge and source separated organics.
During six-month period ended June 30, 2021, tipping fees ranged from $56 (C$69)
to $128 (C$159) per MT.
[[Image Removed]]
37
--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2021, the Company had a bank balance of $21,423 (December 31,
2020-$6,457) and current debt obligations and other current liabilities in the
amount of $9,462,953 (December 31, 2020-$10,358,212). As at June 30, 2021, the
Company had a working capital deficit of $8,632,361 (December 31,
2020-$9,830,314). The Company does not currently have sufficient funds to
satisfy the current debt obligations.
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. The amounts owing were not
repaid to PACE on July 30, 2021. 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 continues discussions
with equity investors and a Canadian chartered bank 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 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.
The Company's total assets as at June 30, 2021 were $6,059,564 (December 31,
2020-$5,758,303) and total current liabilities were $9,462,953 (December 31,
2020-$10,358,212). Significant losses from operations have been incurred since
inception and there is an accumulated deficit of $14,573,090 as at June 30, 2021
(December 31, 2020 -$13,468,794). Continuation as a going concern is dependent
upon generating significant new revenue and generating external capital and
securing debt to satisfy its creditors' demands and to achieve profitable
operations while maintaining current fixed expense levels.
To pay current liabilities and to fund any future operations, the Company
requires significant new funds, which the Company may not be able to obtain. In
addition to the funds required to liquidate the $9,462,953 in current debt
obligations and other current liabilities, the Company estimates that
approximately $13,750,000 must be raised to fund capital requirements and
general corporate expenses for the next 12 months.
In the normal course of business, we are exposed to market risks, including
changes in interest rates, certain commodity prices and Canadian currency rates.
The Company does not use derivatives to manage these risks.
During the three and six-month periods ended June 30, 2021, the investors of the
unsecured convertible promissory notes, converted a total of $nil and $681,000
of their unsecured convertible promissory notes respectively, along with a
portion of their accrued interest and related costs of $nil and $32,719, a total
of $nil and $713,719 for 3,175,124 common shares of the Company at prices
ranging from $0.156 to $0.26 per share.
As at June 30, 2021, the current and long-term portions of our debt obligations
totaled $7,885,723 (December 31, 2020-$7,922,532).
In addition, as at June 30, 2021, the Company had an outstanding letter of
credit provided by PACE, in the amount of $223,347 (C$276,831), in favor of the
MECP. The letter of credit is a requirement of the MECP and is in connection
with the financial assurance provided by the Company, for it to be in compliance
with the MECPs environmental objectives. The MECP regularly evaluates the
Company's organic waste processing and composting facility to ensure compliance
is adhered to and the letter of credit is subject to change by the MECP. The
Company is currently updating its financial assurance with the MECP. The letter
of credit was renewed and will remain in effect to September 30, 2021, unless
terminated by PACE.
[[Image Removed]]
38
--------------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED JUNE 30,
2021 COMPARED TO THE THREE-MONTH PERIOD ENDED JUNE 30, 2020
For the three-month periods ended
June 30, 2021 June 30, 2020
Revenue $ 212,632 $ 382,639
Cost of Sales
Opening inventory 45,923 4,071
Depreciation 135,539 121,158
Direct wages and benefits 65,390 85,063
Equipment rental, delivery, fuel and repairs
and maintenance 69,280 96,854
Utilities (10,845 ) 7,963
Outside contractors 21,372 1,706
326,659 316,815
Less: closing inventory (35,983 ) -
Total cost of sales 290,676 316,815
Gross (loss) profit (78,044 ) 65,824
Operating expenses
Management compensation-stock-based
compensation 54,259 -
Management compensation-fees 92,875 49,825
Marketing 82,747 (2,917 )
Professional fees 70,844 107,887
Interest expense and default amounts 168,718 283,409
Office and administration 29,620 77,000
Rent and occupancy 36,580 28,763
Insurance 16,385 23,921
Filing fees 17,188 8,266
Amortization of financing costs 122,543 30,471
Directors' compensation 12,672 1,853
Stock-based compensation 28,209 -
Repairs and maintenance (5,402 ) 2,453
Foreign exchange (income) loss (7,321 ) (84,635 )
Total operating expenses 719,917 526,296
Net loss from operating activities (797,961 ) (460,472 )
Other Income - (58,704 )
Net loss before deferred taxes recovery (797,961 ) (519,176 )
Deferred taxes recovery 196,005
Net Loss $ (797,961 ) $ (323,171 )During the three-month period ended June 30, 2021, the Company generated
$212,632 of revenue from its organic waste processing and composting facility
and its garbage collection operations compared to $382,639 in the three-month
period ended June 30, 2020. The reduction in revenue is primarily due to changes
in the customer base including an expiring contract at prior year-end and
reductions in certain waste disposed of by several customers. The majority of
the revenue from the organic waste processing and composting facility relates to
revenue from tipping fees charged for organic and other waste accepted and to a
lesser portion relating to the sale of compost processed.
In the operation of the organic waste processing and composting facility, the
Company processes organic and other waste received and produces the end product,
compost. The cost of producing the compost totaled $290,676 for the three-month
period ended June 30, 2021 compared to $316,815 for the three-month period ended
June 30, 2020. These costs include equipment rental, delivery, fuel, repairs and
maintenance, direct wages and benefits, depreciation, utilities and outside
contractors. The reduction in costs relate partially to reduced overtime hours
included in direct wages and benefits, adjustments to the estimated cost for the
clean-up of certain waste as ordered by the MECP, reductions in utilities
resulting from the retrofit of the hydro usage in the composting operation along
with credits provided by the utility company for hydro usage offset by an
increase in hauling costs included in outside contractors.
[[Image Removed]]
39
--------------------------------------------------------------------------------
Operating expenses increased by $193,621, from $526,296 in the three-month
period ended June 30, 2020 to $719,917 in the three-month period ended June 30,
2021, explained further below.
Management compensation related to stock-based compensation increased by
$54,259, in the three-month period ended June 30, 2021, as a result of the
common stock issued to the officers on the commencement of their new executive
consulting contracts, effective January 1, 2021. The balance of the total
stock-based compensation valued at $217,035, based on the trading price of the
shares on issuance, will be expensed over the balance of the year. The
management compensation relating to fees increased by $43,050, from $49,825 in
the three-month period ended June 30, 2020 to $92,875 in the three-month period
ended June 30, 2021, the result of increased monthly fees for the CEO, effective
January 1, 2021.
The Company commenced a new marketing program effective February 1, 2021 for a
period of five months to June 30, 2021, at a cost of $20,000 per month, which
significantly contributed to the total marketing expense of $82,747 in the
three-month period ended June 30, 2021.
Professional fees were reduced by $37,043, from $107,887 in the three-month
period ended June 30, 2020 to $70,844 in the three-month period ended June 30,
2021, primarily due to the absence of certain legal fees in connection with
refinancing.
Interest expense and default amounts reduced by $114,691 from $283,409 in the
three-month period ended June 30, 2020 to $168,718 in the three-month period
ended June 30, 2021. This was primarily due to the payoff agreements finalized
with the convertible promissory note holders at the end of the prior year and
during the three-month period ended March 31, 2021, a reduction of approximately
$137,000. This was offset primarily by increases in the interest on the 1st
mortgage payable, whose principal balance increased by $564,760 (C$700,000),
effective November 10, 2020.
Office and administration expenses decreased by $47,380 from $77,000 in the
three-month period ended June 30, 2020 to $29,620 in the three-month period
ended June 30, 2021, primarily due to the reversal of an administrative penalty
of $30,000 levied by the Internal Revenue Service in 2019, after receiving the
Company's response to the administrative penalty.
Rent and occupancy increased by $7,817 from $28,763 in the three-month period
ended June 30, 2020 to $36,580 in the three-month period ended June 30, 2021,
primarily due to an increase in the monthly rent for the Company's Toronto,
Ontario, Canada office along with higher common area expenses.
Insurance reduced by $7,536 from $23,921 in the three-month period ended June
30, 2020 to $16,385 in the three-month period ended June 30, 2021, primarily due
to the Company self-insuring certain property at its organic waste processing
and composting facility.
Filing fees increased by $8,922 from $8,266 in the three-month period ended June
30, 2020 to $17,188 in the three-month period ended June 30, 2021, primarily due
to costs associated with increased filings.
The amortization of financing costs incurred increased by $92,072 from $30,471
in the three-month period ended June 30, 2020 to $122,543 in the three-month
period ended June 30, 2021, due primarily to the amortization of the financing
fees relating to the three new convertible promissory notes dated March 31,
2021, April 1, 2021 and June 16, 2021.
[[Image Removed]]
40
--------------------------------------------------------------------------------
Directors' compensation increased from by $10,819 from $1,853 in the three-month
period ended June 30, 2020 to $12,672 in the three-month period ended June 30,
2021. In the prior year, the majority of the directors' compensation was based
on an accrual for the issuance of stock to satisfy the amounts owed and was an
insignificant balance due to the reducing trading price of the common stock. In
the current year, the directors' compensation is recorded as an accrual of fees
owed, $20,058 (C$25,000) annually, per director.
Stock-based compensation of $28,209 relates to stock issued for professional
services provided in the current period with no comparable amount in the prior
period. The balance of the total stock-based compensation, determined to be
valued at $143,819, will be expensed over the duration of the professional
services contacts, which expire at various dates from July 31, 2021 to March 31,
2023.
Repairs and maintenance reduced by $7,855 from $2,453 in the three-month period
ended June 30, 2020 to a credit of $5,402 in the three-month period ended June
30, 2021, primarily due to a credit provided by one supplier.
The foreign exchange income reduced by $77,314, from income of $84,635 in the
three-month period ended June 30, 2020 to income of $7,321 in the three-month
period ended June 30, 2021, due primarily to gains and losses on the translation
of balances and transactions during the period.
In the prior period, the Company wrote off a land option in the amount of
$58,704, with no comparable amount in the current period.
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE SIX-MONTH PERIOD ENDED JUNE 30,
2021 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE 30, 2020
For the six-month periods ended
June 30, 2021 June 30, 2020
Revenue $ 405,292 $ 732,836
Cost of Sales
Opening inventory 24,740 5,389
Depreciation 272,099 234,267
Direct wages and benefits 136,449 161,246
Equipment rental, delivery, fuel and repairs
and maintenance 175,173 158,156
Utilities 7,418 46,240
Outside contractors 21,372 5,279
637,251 610,577
Less: closing inventory (35,983 ) -
Total cost of sales 601,268 610,577
Gross (loss) profit (195,976 ) 122,259
Operating expenses
Management compensation-stock-based
compensation 108,518 -
Management compensation-fees 182,924 101,182
Marketing 128,472 -
Professional fees 135,246 189,335
Interest expense and default amounts 332,592 595,700
Office and administration 104,835 132,685
Rent and occupancy 68,919 57,060
Insurance 31,387 42,100
Filing fees 36,147 22,146
Amortization of financing costs 136,121 123,009
Directors' compensation 23,336 433
Stock-based compensation 36,282 -
Repairs and maintenance 7,787 8,911
Foreign exchange (income) loss (19,439 ) 65,460
Total operating expenses 1,313,129 1,338,021
Net loss from operating activities (1,509,105 ) (1,215,762 )
Other Income 404,809 (58,704 )
Net loss before deferred taxes recovery (1,104,296 ) (1,274,466 )
Deferred taxes recovery - 196,005
Net Loss $ (1,104,296 ) $ (1,078,461 )
[[Image Removed]]
41
--------------------------------------------------------------------------------
During the six-month period ended June 30, 2021, the Company generated $405,292
of revenue from its organic waste processing and composting facility and its
garbage collection operations compared to $732,836 in the six-month period ended
June 30, 2020. The reduction in revenue is primarily due to changes in the
customer base including an expiring contract at prior year-end and reductions in
certain waste disposed of by several customers. The majority of the revenue from
the organic waste processing and composting facility relates to revenue from
tipping fees charged for organic and other waste accepted and to a lesser
portion relating to the sale of compost processed.
In the operation of the organic waste processing and composting facility, the
Company processes organic and other waste received and produces the end product,
compost. The cost of producing the compost totaled $601,268 for the six-month
period ended June 30, 2021 compared to $610,577 for the six-month period ended
June 30, 2020. These costs include equipment rental, delivery, fuel, repairs and
maintenance, direct wages and benefits, depreciation, utilities and outside
contractors. The reduction in costs relate partially to reduced overtime hours
included in direct wages and benefits, adjustments to the estimated cost for the
clean-up of certain waste as ordered by the MECP including higher machinery
rental costs, reductions in utilities resulting from the retrofit of the hydro
usage in the composting operation along with credits provided by the utility
company for hydro usage, offset by higher depreciation expense resulting from
additional equipment added during the period and higher hauling costs for
services performed by outside contractors.
Operating expenses reduced by $24,892, from $1,338,021 in the six-month period
ended June 30, 2020 to $1,313,129 in the six-month period ended June 30, 2021,
explained further below.
Management compensation related to stock-based compensation increased by
$108,518, in the six-month period ended June 30, 2021, as a result of the common
stock issued to the officers on the commencement of their new executive
consulting contracts, effective January 1, 2021. The balance of the total
stock-based compensation valued at $217,035, based on the trading price of the
shares on issuance, will be expensed over the balance of the year. And, the
management compensation relating to fees increased by $81,742, from $101,182 in
the six-month period ended June 30, 2020 to $182,924 in the six-month period
ended June 30, 2021, the result of increased monthly fees for the CEO, effective
January 1, 2021.
The Company commenced a new marketing program effective February 1, 2021 for a
period of five months to June 30, 2021, at a cost of $20,000 per month, which
significantly contributed to the total marketing expense of $128,472 in the
six-month period ended June 30, 2021. The Company did not have a marketing
program in the prior period.
Professional fees were reduced by $54,089, from $189,335 in the six-month period
ended June 30, 2020 to $135,246 in the six-month period ended June 30, 2021,
primarily due to the absence of the 2019 acquisition costs relating to
professional fees expensed in the prior period in the amount of $54,544, offset
by increases in other professional fees such as audit and related fees.
Interest expense and default amounts reduced by $263,108 from $595,700 in the
six-month period ended June 30, 2020 to $332,592 in the six-month period ended
June 30, 2021. In the prior period, interest and default penalties on the
convertible promissory notes was approximately $347,000 and due to the payoff
agreements finalized with several convertible promissory note holders at the end
of the prior year and during the three-month period ended March 31, 2021,
interest in the current period for interest on the convertible promissory notes
amounted to $43,719, a reduction of approximately $303,000. This was offset
primarily by increases in the interest on the 1st mortgage payable, whose
principal balance increased by $564,760 (C$700,000), effective November 10,
2020, the interest on the new truck and trailer loan and other equipment
purchased during the period.
[[Image Removed]]
42
--------------------------------------------------------------------------------
Office and administration expenses decreased by $27,850 from $132,685 in the
six-month period ended June 30, 2020 to $104,835 in the six-month period ended
June 30, 2021, primarily due to the reversal of an administrative penalty of
$30,000 levied by the Internal Revenue Service in 2019, after receiving the
Company's response to the administrative penalty.
Rent and occupancy increased by $11,859 from $57,060 in the six-month period
ended June 30, 2020 to $68,919 in the six-month period ended June 30, 2021,
primarily due to an increase in the monthly rent for the Company's Toronto,
Ontario, Canada office along with higher common area expenses.
Insurance reduced by $10,713 from $42,100 in the six-month period ended June 30,
2020 to $31,387 in the six-month period ended June 30, 2021, primarily due to
the Company self-insuring certain property at its organic waste processing and
composting facility.
Filing fees increased by $14,001 from $22,146 in the six-month period ended June
30, 2020 to $36,147 in the six-month period ended June 30, 2021, primarily due
to costs associated with increased filings.
The amortization of financing costs incurred increased by $13,112 from $123,009
in the six-month period ended June 30, 2020 to $136,121 in the six-month period
ended June 30, 2021, due primarily to the increased amortization of the
financing fees relating to the three new convertible promissory notes dated
March 31, 2021, April 1, 2021 and June 16, 2021.
Directors' compensation increased from by $22,903 from $433 in the six-month
period ended June 30, 2020 to $23,336 in the six-month period ended June 30,
2021. In the prior year, the majority of the directors' compensation was based
on an accrual for the issuance of stock to satisfy the amounts owed and was an
insignificant balance due to the reducing trading price of the common stock. In
the current year, the directors' compensation is recorded as an accrual of fees
owed, $20,058 (C$25,000) annually, per director.
Stock-based compensation of $36,282 relates to stock issued for professional
services provided in the current period with no comparable amount in the prior
period. The balance of the stock-based compensation, determined to be valued at
$143,819, will be expensed over the duration of the professional services
contacts, which expire at various dates from July 31, 2021 to March 31, 2023.
Repairs and maintenance reduced by $1,124, an insignificant change.
The foreign exchange income increased by $84,899 from a loss of $65,460 in the
six-month period ended June 30, 2020 to income of $19,439 in the six-month
period ended June 30, 2021, due primarily to the significant recovery of the
Canadian dollar compared to the United Statements dollar, during the current
period.
Other income increased by $463,513 from a loss of $58,704 in the six-month
period ended June 30, 2020 to income of $404,809 in the six-month period ended
June 30, 2021. The current period includes income on the forgiveness of the
convertible promissory notes in the amount of $61,100 and on the accrued
interest of $298,360 and a gain on the disposal of certain long-lived assets. In
the prior period, the Company wrote off a land option in the amount of $58,704,
with no comparable amount in the current period.
[[Image Removed]]
43
--------------------------------------------------------------------------------
As at June 30, 2021, the Company had a working capital deficit of $8,632,361
(December 31, 2020-$9,830,314), incurred a net loss of $1,104,296
(2020-$1,078,461) for the six-month period ended June 30, 2021 and had an
accumulated deficit of $14,573,090 (December 31, 2020-$13,468,794) and expects
to incur further losses in the development of its business.
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 COVID-19. The
virus has had a major impact on Canadian and international securities and
currency markets and consumer activity which may impact the Company's financial
position, its results of operations and its cash flows significantly. The
situation is constantly evolving, however, so the extent to which the COVID-19
outbreak will impact businesses and the economy is highly uncertain and cannot
be predicted. Accordingly, the Company cannot predict the extent to which its
financial position, results of operations and cash flows will be affected in the
future.
The interim condensed consolidated financial statements do not include any
adjustments to reflect the future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result if the Company was unable to continue as a going concern.
CRITICAL ACCOUNTING ESTIMATES
Use of estimates
The preparation of the Company's consolidated financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. These estimates
are based on management's best knowledge of current events and actions the
Company may undertake in the future. The Company regularly evaluates estimates
and assumptions. The Company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
Areas involving significant estimates and assumptions include: the allowance for
doubtful accounts, inventory valuation, useful lives of long-lived and
intangible assets, impairment of long-lived assets and intangible assets,
valuation of asset acquisition, accruals, deferred income tax assets and related
valuation allowance, environmental remediation costs, stock-based compensation
and going concern. Actual results could differ from these estimates. These
estimates are reviewed periodically and as adjustments become necessary, they
are reported in earnings in the period in which they become available.
Stock-based compensation
From time to time the Company may grant options and/or warrants to management,
directors, employees and consultants. The Company recognizes compensation
expense at fair value. Under this method, the fair value of each warrant is
estimated on the date of the grant and amortized over the vesting period, with
the resulting amortization credited to paid in capital. The fair value of each
grant is determined using the Black-Scholes option-pricing model. Consideration
paid upon exercise of stock options and/or warrants is recorded in equity as
share capital.
[[Image Removed]]
44
--------------------------------------------------------------------------------
Long-Lived Asset Impairments
We assess our long-lived assets for impairment as required under the applicable
accounting standards. If necessary, impairments are recorded in (income) expense
from divestitures, asset impairments and unusual items, net in our Interim
Condensed Consolidated Statements of Operations and Comprehensive Loss.
Indefinite-Lived Intangible Assets - At least annually, and more frequently if
warranted, we assess the indefinite-lived intangible assets, including the
goodwill of our reporting units for impairment using Level 3 inputs.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the financial
accounting standards board (the "FASB") or other standard setting bodies and
adopted by the Company as of the specified effective date or possibly early
adopted, where permitted. Unless otherwise discussed, the impact of recently
issued standards that are not yet effective are not expected to have a material
impact on the Company's financial position, results of operations or cash flows.
On January 1, 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.
EQUITY
As at June 30, 2021, the Company had 91,825,299 common shares issued and
outstanding and as at the date of this filing, the Company had 92,290,167 common
shares issued and outstanding. Subsequent to June 30, 2021, the Company received
proceeds from 4 private placements in the amount of $111,839, net of share issue
costs in the amount of $8,925 (C$11,062) plus applicable harmonized sales taxes,
on the issuance of 464,868 common shares. The pricing on the private placements
was based on the closing trading price of the shares, $0.26 per share.
STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
The Company has no stock options, warrants or restricted stock units outstanding
as at June 30, 2021 and as of the date of this filing.
[[Image Removed]]
45
--------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
For three and six-month periods ended June 30, 2021, the Company incurred
$73,323 (C$90,000) and $144,414 (C$180,000) (2020-$32,494; C$45,000 and
$65,988; C$90,000) 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 $19,552
(C$24,000) and $38,510 (C$48,000) (2020-$17,331; C$24,000 and $35,194; C$48,000)
respectively, in management fees expense with the Company's chief financial
officer (the "CFO"). As at June 30, 2021, unpaid remuneration and unpaid
expenses in the amount of $379,272 (C$470,094) (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 $319,089 (C$395,500).
In addition, during the three and six-month periods ended June 30, 2021, the
Company incurred interest expense of $nil (C$nil) and $nil (C$nil) (2020-$2,187;
C$2,992 and $2,628; C$3,584) respectively, on outstanding loans from Travellers.
For the three and six-month periods ended June 30, 2021, the Company incurred
$24,287 (C$29,858) and $45,452 (C$56,653) (2020-$18,897; C$26,130 and
$36,420; C$49,673) 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 six-month periods
ended June 30, 2021 in the amount of $12,672 (C$16,586) and $23,336 (C$29,086)
(2020-$1,202 and $2,237) respectively. Also included in directors' compensation
for the three and six-month periods ended June 30, 2021, is the audit committee
chairman's fees, in the amount of $(790) ((C$1,000)) and $nil (C$nil)
(2020-$722; C$1,000 and $1,466; $C2,000). A new audit committee chairman has not
yet been appointed for 2021 As at June 30, 2021, outstanding directors'
compensation of $nil (C$nil) (December 31, 2020-$2,663; C$3,390) is included in
accounts payable and $41,708 (C$51,696) (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 six-month periods ended June 30, 2021, the
Company recognized management stock-based compensation expense of $54,259 and
$108,518 (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, $108,517 is
included in prepaid expenses and deposits in the interim condensed consolidated
balance sheets.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.
© Edgar Online, source Glimpses
SUSGLOBAL ENERGY CORP. 
