SusGlobal Energy Corp.
Interim Condensed
Consolidated Balance Sheets
As at March 31, 2019 and December 31,
2018
(Expressed in United States Dollars)
(unaudited)
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
-
|
|
$
|
42,711
|
|
Trade receivables
|
|
101,616
|
|
|
129,981
|
|
Inventory
|
|
26,409
|
|
|
18,550
|
|
Prepaid expenses
and deposits
|
|
110,763
|
|
|
23,172
|
|
|
|
|
|
|
|
|
Total Current
Assets
|
|
238,788
|
|
|
214,414
|
|
|
|
|
|
|
|
|
Intangible Assets
(note 6)
|
|
148,655
|
|
|
135,189
|
|
Long-lived Assets, net
(note 7)
|
|
3,334,072
|
|
|
3,361,110
|
|
Operating Lease
Right-Of-Use Asset
(note 8)
|
|
218,657
|
|
|
-
|
|
Long-Term Assets
|
|
3,701,384
|
|
|
3,496,299
|
|
Total Assets
|
$
|
3,940,172
|
|
$
|
3,710,713
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Bank indebtedness
|
$
|
3,933
|
|
$
|
-
|
|
Accounts payable (note 9)
|
|
398,125
|
|
|
353,728
|
|
Government remittances payable
|
|
5,904
|
|
|
35,169
|
|
Accrued liabilities (notes 9 and 14)
|
|
630,322
|
|
|
646,003
|
|
Current portion of long-term debt (note 10)
|
|
3,784,588
|
|
|
3,727,778
|
|
Current portion of obligations under
capital lease (note 11)
|
|
87,717
|
|
|
81,109
|
|
Convertible promissory notes (note 12)
|
|
770,497
|
|
|
-
|
|
Current portion of operating lease
liability (Note 13)
|
|
11,430
|
|
|
-
|
|
Loans payable to
related parties (note 14)
|
|
112,245
|
|
|
201,575
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
5,804,761
|
|
|
5,045,362
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
Obligations under capital lease (note 11)
|
|
190,438
|
|
|
207,599
|
|
Operating lease liability (note 13)
|
|
209,770
|
|
|
-
|
|
Total Long-term
Liabilities
|
|
400,208
|
|
|
207,599
|
|
Total Liabilities
|
|
6,204,969
|
|
|
5,252,961
|
|
Stockholders Deficiency
|
|
|
|
|
|
|
Preferred stock, $.0001 par value,
10,000,000 authorized, none issued and outstanding
Common stock,
$.0001 par value, 150,000,000 authorized, 41,404,531 (2018- 40,299,531)
shares issued and outstanding (note 15)
|
|
4,142
|
|
|
4,031
|
|
Additional paid-in capital
|
|
6,811,749
|
|
|
5,754,260
|
|
Subscriptions payable
|
|
-
|
|
|
4,600
|
|
Stock compensation reserve
|
|
662,500
|
|
|
1,330,000
|
|
Accumulated deficit
|
|
(9,634,856
|
)
|
|
(8,554,312
|
)
|
Accumulated
other comprehensive loss
|
|
(108,332
|
)
|
|
(80,827
|
)
|
|
|
|
|
|
|
|
Stockholders
deficiency
|
|
(2,264,797
|
)
|
|
(1,542,248
|
)
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders Deficiency
|
$
|
3,940,172
|
|
$
|
3,710,713
|
|
Going concern
(note 2)
|
|
|
|
|
|
|
Commitments
(note 16)
|
|
|
|
|
|
|
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
SusGlobal Energy Corp.
Interim Condensed
Consolidated Statements of Operations and Comprehensive Loss
For the
three-month periods ended March 31, 2019 and 2018
(Expressed in
United States Dollars)
(unaudited)
|
|
For
the three-month periods ended
|
|
|
|
March 31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
253,138
|
|
$
|
132,721
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
Opening inventory
|
|
18,550
|
|
|
53,964
|
|
Depreciation
|
|
95,754
|
|
|
94,043
|
|
Direct wages and benefits
|
|
49,365
|
|
|
40,059
|
|
Equipment rental, delivery, fuel and repairs and maintenance
|
|
99,566
|
|
|
35,040
|
|
Utilities
|
|
27,531
|
|
|
22,200
|
|
Outside
contractors
|
|
105
|
|
|
3,844
|
|
|
|
290,871
|
|
|
249,150
|
|
Less: closing
inventory
|
|
(26,409
|
)
|
|
(67,210
|
)
|
Total cost of sales
|
|
264,462
|
|
|
181,940
|
|
|
|
|
|
|
|
|
Gross loss
|
|
(11,324
|
)
|
|
(49,219
|
)
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
Management compensation-stock- based
|
|
|
|
|
|
|
compensation (note 9)
|
|
332,500
|
|
|
82,500
|
|
Management compensation-fees (note 9)
|
|
81,238
|
|
|
90,174
|
|
Marketing
|
|
280,000
|
|
|
-
|
|
Professional fees
|
|
134,702
|
|
|
60,822
|
|
Interest expense (notes 9, 10, 11, 12, 13 and
14)
|
|
105,023
|
|
|
85,240
|
|
Office and administration
|
|
67,564
|
|
|
51,084
|
|
Rent and occupancy (note 9)
|
|
24,241
|
|
|
34,201
|
|
Insurance
|
|
14,059
|
|
|
15,119
|
|
Filing fees
|
|
12,683
|
|
|
6,458
|
|
Amortization of financing costs
|
|
11,997
|
|
|
-
|
|
Directors compensation (note 9)
|
|
2,952
|
|
|
791
|
|
Repairs and
maintenance
|
|
2,261
|
|
|
8,009
|
|
Total operating expenses
|
|
1,069,220
|
|
|
434,398
|
|
|
|
|
|
|
|
|
Net loss
|
|
(1,080,544
|
)
|
|
(483,617
|
)
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
Foreign exchange (loss) gain
|
|
(27,505
|
)
|
|
28,314
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
$
|
(1,108,049
|
)
|
$
|
(455,303
|
)
|
|
|
|
|
|
|
|
Net loss per share-basic and diluted
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding- basic and diluted
|
|
41,291,864
|
|
|
38,556,254
|
|
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
SusGlobal Energy Corp.
Interim Condensed
Consolidated Statements of Changes in Stockholders Deficiency
For
the three-month periods ended March 31, 2019 and year ended December 31, 2018
(Expressed in United States Dollars)
(unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number of
|
|
|
Common
|
|
|
Paid-
|
|
|
Share
|
|
|
Stock
|
|
|
Accumulated
|
|
|
Other
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Shares
|
|
|
in Capital
|
|
|
Subscriptions
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Comprehensive
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable
|
|
|
Reserve
|
|
|
|
|
|
Loss
|
|
|
|
|
Balance December
31, 2017
|
|
37,393,031
|
|
$
|
3,740
|
|
$
|
3,576,111
|
|
$
|
178,200
|
|
$
|
330,000
|
|
$
|
(4,660,296
|
)
|
$
|
(148,093
|
)
|
$
|
(720,338
|
)
|
Shares issued for
proceeds previously received
|
|
190,000
|
|
|
19
|
|
|
178,181
|
|
|
(178,200
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued on
vesting of 2017
stock
award
|
|
2,000,000
|
|
|
200
|
|
|
1,329,800
|
|
|
-
|
|
|
(330,000
|
)
|
|
-
|
|
|
-
|
|
|
1,000,000
|
|
Shares issued for
private placement, net
of share issue costs
|
|
696,500
|
|
|
70
|
|
|
650,170
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
650,240
|
|
Shares issued to
director
|
|
20,000
|
|
|
2
|
|
|
19,998
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
Stock
compensation expensed
on vesting of
stock
award
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,330,000
|
|
|
-
|
|
|
-
|
|
|
1,330,000
|
|
Proceeds received for
shares yet
to be issued
|
|
-
|
|
|
|
|
|
-
-
|
|
|
4,600
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,600
|
|
Other comprehensive
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
67,266
|
|
|
67,266
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,894,016
|
)
|
|
-
|
|
|
(3,894,016
|
)
|
Balance December 31,
2018
|
|
40,299,531
|
|
|
4,031
|
|
|
5,754,260
|
|
|
4,600
|
|
|
1,330,000
|
|
|
(8,554,312
|
)
|
|
(80,827
|
)
|
|
(1,542,248
|
)
|
Shares issued for
proceeds
previously
received
|
|
5,000
|
|
|
1
|
|
|
4599
|
|
|
(4,600
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued on
vesting of 2018 stock award
|
|
1,000,000
|
|
|
100
|
|
|
999,900
|
|
|
-
|
|
|
(1,000,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued for
professional
services
|
|
100,000
|
|
|
10
|
|
|
52,990
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
53,000
|
|
Stock
compensation expensed
on vesting of
stock
awards
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
332,500
|
|
|
-
|
|
|
-
|
|
|
332,500
|
|
Other comprehensive
loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(27,505
|
)
|
|
(27,505
|
)
|
Net loss March
31, 2019
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,080,544
|
)
|
|
-
|
|
|
(1,080,544
|
)
|
Balance-March 31, 2019
|
|
41,404,531
|
|
$
|
4,142
|
|
$
|
6,811,749
|
|
$
|
-
|
|
$
|
662,500
|
|
$
|
(9,634,856
|
)
|
$
|
(108,332
|
)
|
$
|
(2,264,797
|
)
|
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
SusGlobal Energy Corp.
Interim Condensed
Consolidated Statements of Cash Flows
For the three-month periods
ended March 31, 2019 and 2018
(Expressed in United States
Dollars)
(unaudited)
|
|
For
the three-month
|
|
|
For the
three-month
|
|
|
|
period ended
|
|
|
period ended
|
|
|
|
March 31, 2019
|
|
|
March
31, 2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
$
|
(1,080,544
|
)
|
$
|
(483,617
|
)
|
Adjustments for:
|
|
|
|
|
|
|
Depreciation
|
|
97,701
|
|
|
94,354
|
|
Amortization of intangible asset
|
|
50
|
|
|
50
|
|
Amortization of operating right-of-use asset
|
|
3,663
|
|
|
-
|
|
Amortization of financing fees
|
|
11,997
|
|
|
-
|
|
Stock-based compensation
|
|
332,500
|
|
|
82,500
|
|
Shares issued for professional services
|
|
53,000
|
|
|
-
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Trade receivables
|
|
31,239
|
|
|
124,296
|
|
Inventory
|
|
(7,511
|
)
|
|
(14,994
|
)
|
Prepaid expenses and deposits
|
|
(87,561
|
)
|
|
45,156
|
|
Accounts payable
|
|
37,207
|
|
|
22,968
|
|
Government remittances payable
|
|
(30,156
|
)
|
|
-
|
|
Accrued liabilities
|
|
(29,316
|
)
|
|
45,499
|
|
Net cash used
in operating activities
|
|
(667,731
|
)
|
|
(83,788
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
(10,777
|
)
|
|
-
|
|
Purchase of
long-lived assets
|
|
-
|
|
|
-
|
|
Net cash used in investing activities
|
|
(10,777
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Bank indebtedness
|
|
4,055
|
|
|
119
|
|
Repayment of long-term debt
|
|
(21,109
|
)
|
|
(40,441
|
)
|
Repayments of obligations under capital lease
|
|
(16,665
|
)
|
|
(32,173
|
)
|
Advances of convertible promissory notes
|
|
758,500
|
|
|
-
|
|
Repayments of operating lease liability
|
|
(1,107
|
)
|
|
-
|
|
Repayments of loans payable to related
parties
|
|
(94,025
|
)
|
|
(15,820
|
)
|
Private placement
proceeds (net of share issue costs)
|
|
-
|
|
|
45,000
|
|
Net cash provided by (used in) financing
activities
|
|
629,649
|
|
|
(43,315
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
6,148
|
|
|
986
|
|
Decrease in cash
|
|
(42,711
|
)
|
|
(126,117
|
)
|
Cash and cash equivalents-beginning of
period
|
|
42,711
|
|
|
126,117
|
|
|
|
|
|
|
|
|
Cash and cash equivalents-end of period
|
$
|
-
|
|
$
|
-
|
|
Supplemental
Cash Flow Disclosures:
|
|
|
|
|
|
|
Interest paid
|
$
|
81,394
|
|
$
|
62,932
|
|
Income taxes
paid
|
|
-
|
|
|
-
|
|
(i)
|
Refer to note 11 for obligations under capital lease, for
details on the non-cash purchase of certain long-lived assets and note 13
for the non-cash inception of the operating lease
liability.
|
The accompanying notes are an integral part of these interim
condensed consolidated financial statements.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(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.
SusGlobal is a renewable energy company focused on acquiring,
developing and monetizing a global portfolio of proprietary technologies in the
waste to energy application.
These interim condensed consolidated financial statements of
SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp.,
SusGlobal Energy Canada I Ltd. (SGECI) and SusGlobal Energy Belleville Ltd.
(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 Companys functional currency is the Canadian Dollar (CAD). In
the opinion of management, all adjustments necessary for a fair presentation
have been included.
2. Going Concern
The interim condensed consolidated financial statements have
been prepared in accordance with US GAAP, which assumes that the Company will be
able to meet its obligations and continue its operations for the next twelve
months.
As at March 31, 2019, the Company had a working capital deficit
of $5,565,973 (December 31, 2018-$4,830,948), incurred a net loss of $1,080,544
(2018-$483,617) for the three months ended March 31, 2019 and had an accumulated
deficit of $9,634,856 (December 31, 2018-$8,554,312) and expects to incur
further losses in the development of its business. These factors cast
substantial doubt as to the Companys ability to continue as a going concern,
which is dependent upon its ability to obtain the necessary financing to further
the development of its business, satisfy its obligations to PACE Savings &
Credit Union Limited (PACE) and upon achieving profitable operations. There is
no assurance of funding being available or available on acceptable terms.
Realization values may be substantially different from carrying values as shown.
These interim condensed consolidated financial statements do
not include any adjustments to reflect the future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result if the Company was unable to continue as a going concern.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
3. Significant Accounting Policies
These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the
Company for the years ended December 31, 2018 and 2017 and their accompanying notes.
Recently Adopted Accounting Pronouncements:
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases which is also known as Accounting Standard Codification (“ASC”) Topic 842, that requires lessees to recognize for all operating
leases a right-of-use asset and a lease obligation in the interim condensed consolidated balance sheets. Expenses are recognized in the interim condensed consolidated statements of operations and comprehensive loss in a manner similar to previous
accounting guidance. Lessor accounting under the new standard is substantially unchanged and is not relevant to the Company. The Company adopted the accounting standard using a prospective transition approach, which applies the provisions of the new
guidance at the effective date without adjusting the comparative periods presented, with certain practical expedients available to ease the burden of adoption.
The Company elected the following practical expedients upon adoption: not to reassess whether any expired or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, not to reassess
initial direct costs for any existing leases, not to separately identify lease and non-lease components (i.e. maintenance costs) except for fleet vehicles and real estate, and not to evaluate historical land easements under the new guidance.
Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to long-term leases (leases greater than 1 year) for which it only has one.
Adoption of the new standard resulted in $217,755 ($297,074 CAD) of additional right-of-use lease asset and lease liability as of January 1, 2019. The new standard did not have a significant impact on the interim condensed consolidated
statements of operations and comprehensive loss. See note 8, operating lease right-of-use asset, for additional information.
4. Recent 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.
In January 2017, the FASB issued 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 standard is to be effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2017-04.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. ASU 2016-13 is effective for the Company beginning January 1, 2020 and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
5. Financial Instruments
The carrying value of cash and cash equivalents, trade
receivables, bank indebtedness, accounts payable, and accrued liabilities approximated their fair values as of March 31, 2019 due
to their short-term nature. The carrying value of the long-term debt,
obligations under capital lease, convertible promissory notes, operating lease
obligation and loans payable to related parties approximated their fair values
due to their market interest rates.
Interest, Credit and Concentration Risk
In the opinion of management, the Company is exposed to
significant interest rate risk on its long-term debt of $3,784,588 ($5,057,581
CAD) (December 31, 2018-$3,727,778; $5,085,645 CAD). As at March 31, 2019, the Company is
exposed to concentration risk as it had six customers (2018-five customers)
representing greater than 5% of total trade receivables and these six customers
(December 31, 2018-five customers) represented 93% (2018-90%) of trade receivables. The
Company had certain customers whose revenue individually represented 10% or more
of the Companys total revenue. These customers accounted for 90% (42%, 26%, 11%
and 11%) (March 31, 2018-69%; 24%, 23% and 22%) of total revenue.
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet
its obligations as they fall due. The Company takes steps to ensure it has
sufficient working capital and available sources of financing to meet future
cash requirements for capital programs and operations.
The Company actively monitors its liquidity to ensure that its
cash flows and working capital are adequate to support its financial obligations
and the Companys capital programs. In order to continue operations, the Company
will need to raise capital. There is no assurance of funding being available or
available on acceptable terms. Realization values may be substantially different
from carrying values as shown.
Currency Risk
Although the Companys functional currency is the CAD, the
Company realizes a portion of its expenses in USD. Consequently, certain assets
and liabilities are exposed to foreign currency fluctuations. As at March 31,
2019, $63,104 (December 31, 2018-$68,393) of the Companys net monetary liabilities were
denominated in USD. The Company has not entered into any hedging transactions to
reduce the exposure to currency risk.
6. Intangible Assets
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Technology license (net of accumulated
amortization of $781 (2018- $731))
|
$
|
1,220
|
|
$
|
1,270
|
|
Trademarks-indefinite life-$14,327 CAD
|
|
10,721
|
|
|
-
|
|
Environmental compliance
approvals-indefinite life- $182,700 CAD
|
|
136,714
|
|
|
133,919
|
|
|
$
|
148,655
|
|
$
|
135,189
|
|
On May 6, 2015, the Company acquired an exclusive license from
Syngas SDN BHD (Syngas), a Malaysian company to use Syngas intellectual
property within North America for a period of five years for $1 consideration,
renewable every five years upon written request. Syngas manufactures equipment
that produces liquid transportation fuel from plastic waste material. The
Company issued 20,000 common shares of the Company to an introducing party,
determined to be valued at $2,000.
On March 14, 2019, the Company incurred fees to register various trademarks in the United States and Canada.
On September 15, 2017, the Company acquired the environmental
approvals on the purchase of certain assets of Astoria from BDO Canada Limited
(BDO) under an asset purchase agreement (the APA).
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
7
.
Long-lived Assets, net
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Cost
|
|
|
Accumulated
|
|
|
Net book value
|
|
|
Net book value
|
|
|
|
|
|
|
depreciation
|
|
|
|
|
|
|
|
Composting buildings
|
$
|
2,200,566
|
|
$
|
202,956
|
|
$
|
1,997,610
|
|
$
|
1,988,144
|
|
Gore cover system
|
|
877,008
|
|
|
135,205
|
|
|
741,803
|
|
|
748,112
|
|
Driveway and paving
|
|
346,837
|
|
|
42,777
|
|
|
304,060
|
|
|
304,639
|
|
Machinery and equipment
|
|
58,502
|
|
|
26,777
|
|
|
31,725
|
|
|
27,661
|
|
Equipment under capital lease
|
|
399,667
|
|
|
151,341
|
|
|
248,326
|
|
|
280,323
|
|
Office trailer
|
|
6,361
|
|
|
2,942
|
|
|
3,419
|
|
|
3,817
|
|
Computer equipment
|
|
6,614
|
|
|
3,722
|
|
|
2,892
|
|
|
3,186
|
|
Computer software
|
|
6,884
|
|
|
5,307
|
|
|
1,577
|
|
|
2,389
|
|
Automotive equipment
|
|
1,497
|
|
|
636
|
|
|
861
|
|
|
953
|
|
Signage
|
|
2,540
|
|
|
741
|
|
|
1,799
|
|
|
1,886
|
|
|
$
|
3,906,476
|
|
$
|
572,404
|
|
$
|
3,334,072
|
|
$
|
3,361,110
|
|
Included above are certain assets of Astoria acquired from BDO
under the APA, which closed on September 15, 2017. The purchase price for the
purchased assets, described as an organic composting facility, including
composting buildings, gore cover system, driveway and paving, certain machinery
and equipment, an office trailer, certain computer equipment and computer
software consisted of cash of $3,026,114 ($3,917,300 CAD) and 529,970 restricted
common shares of the Company, determined to be valued at $529,970 ($700,000
CAD), based on recent private placement pricing. In addition, legal costs in
connection with acquiring the assets of $22,598 ($29,253 CAD), are included in
the cost of the composting buildings. The purchase price was allocated to the
assets acquired based on their estimated relative fair value as at the date the
assets were acquired.
8. Operating Lease Right-of-Use Asset
The Company has one operating lease right-of-use asset and related
operating leasae liability and has recognized as such, effective January 1, 2019, based on the present value of lease payments over the lease term that expires on March 31, 2034, calculated to be $217,755 ($297,074 CAD) which were included in the interim condensed consolidated balance sheet. The Company has used its estimated secured incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use asset is being amortized on a straight-line basis over the lease term which expires March 31, 2034 and amortization expense is included under office and administration expense in the interim condensed consolidated statements of operations and comprehensive loss. The Company does not act as a lessor nor does it have any leases classified as financing leases.
The operating lease right-of-use asset is periodically reviewed
for impairment losses. The Company uses the long-lived assets impairment
guidance in ASC Subtopic 360-10, Property, Plant and Equipment-Overall, to
determine whether the operating lease right-of-use asset is impaired, and if so,
the amount of the impairment loss to recognize.
The Company monitors for events or changes in circumstances
that require a reassessment of its operating lease right-of-use asset. When a
reassessment results in the remeasurement of a lease liability, a corresponding
adjustment is made to the carrying amount of the corresponding operating lease
right-of-use asset.
For the three-month period ended March 31, 2019, the Company recorded $3,663 ($4,870 CAD (2018-$nil; $nil CAD) for the amortization of the operating lease right-of-use asset.
The following summarizes quantitative information about the Company’s operating lease:
Operating cash flow from operating lease
|
$6,679
|
Right-of-use asset exchanged for operating lease liability
|
$218,657
|
Weighted-average remaining lease term-operating lease
|
15 years
|
Weighted average discount rate
|
12%
|
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
9. Related Party Transactions
During the three-month period ended March 31, 2019, the Company incurred $33,849 ($45,000 CAD) (2018-$35,595; $45,000 CAD) in management fees expense with Travellers International Inc. (“Travellers”), an Ontario company
controlled by a director and president of the Company (the “President”); $33,849 ($45,000 CAD) (2018-$35,595; $45,000 CAD) in management fees expense with Landfill Gas Canada Ltd. (“LFGC”), an Ontario company
controlled by a director and chief executive officer of the Company (the “CEO”); $13,540 ($18,000 CAD) (2018-$9,492; $12,000 CAD) in management fees expense with the Company’s chief financial officer (the
“CFO”); and $nil ($nil CAD) (2018-$9,492; $12,000 CAD) in management fees expense with the Company’s vice-president of corporate development (the “VPCD”). As at March 31, 2019, unpaid remuneration and
unpaid expenses in the amount of $80,759 ($107,923 CAD) (December 31, 2018-$48,691; $66,426 CAD) is included in accounts payable and $177,347 ($237,000 CAD) (December 31, 2018-$184,714; $251,997 CAD) is included in
accrued liabilities.
In addition, during the three-month period ended March 31, 2019, the Company incurred interest expense of $3,802 ($5,055 CAD) (2018-$293; $371 CAD) on the outstanding loans from Travellers and $1,669 ($2,219 CAD)
(2018-$nil; $nil CAD) on the outstanding loans from the directors. As at March 31, 2019, interest of $23,698 ($31,669 CAD) (December 31, 2018-$17,882; $24,395 CAD) on these loans is included in accrued liabilities.
During the three-month period ended March 31, 2019, the Company incurred $16,998 ($22,598 CAD) (2018-$15,500; $19,595 CAD) in rent paid under a rental agreement to Haute Inc. (“Haute”), an Ontario company controlled by
the President.
The Company accrued directors’ compensation for its five independent directors for services provided for the three-month period ended March 31, 2019 in the amount of $2,952 (2018-$791). As at March 31, 2019, $54,200 (December 31,
2018-$52,000) of outstanding fees to the directors is included in accrued liabilities.
Furthermore, the Company granted the CEO 3,000,000 restricted stock units (“RSU”), under a consulting agreement effective January 1, 2017, determined to be valued at $990,000 based on private placement pricing at the time. On each of
February 25, 2018 and April 2, 2019, 1,000,000 RSUs were exchanged into 1,000,000 common stock of the Company. The RSUs for the remaining installment are expected to vest annually on January 1, 2020, subject to meeting certain performance
objectives. On May 17, 2018, at a meeting of the board of directors (the “Board”), approved an amendment to the President’s consulting agreement, to include the granting of 3,000,000 RSUs to the President, determined to be valued
at $3,000,000, based on private placement pricing at the time, on the same terms and conditions as those granted to the CEO. Immediately thereafter, 1,000,000 of the President’s RSUs were exchanged for 1,000,000 common stock of the
Company. On January 9, 2019, 1,000,000 of the President’s RSUs were exchanged into 1,000,000 common stock of the Company. Based on private placement pricing at the time, the common stock issued to the President on each exchange of the RSUs,
was determined to be valued at $1,000,000. The RSUs for the remaining installment are expected to vest annually on January 1, 2020, subject to meeting certain performance objectives.
For the three-month period ended March 31, 2019, the Company recognized management compensation expense of $332,500 (2018-$82,500 on the award to the CEO) on the awards to the President and the CEO, representing one-sixth of the total value
of the awards of $3,990,000, based on private placement pricing at the time.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
10. Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
|
|
|
December
|
|
|
|
Credit
|
|
|
Credit
|
|
|
Credit
|
|
|
Corporate
|
|
|
31, 2019
|
|
|
31, 2018
|
|
|
|
Facility
|
|
|
Facility
|
|
|
Facility
|
|
|
Term
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
|
|
|
|
|
Long-Term Debt
|
$
|
757,258
|
|
$
|
423,490
|
|
$
|
36,898
|
|
$
|
2,566,942
|
|
$
|
3,784,588
|
|
$
|
3,727,778
|
|
Current portion
|
|
(757,258
|
)
|
|
(423,490
|
)
|
|
(36,898
|
)
|
|
(2,566,942
|
)
|
|
(3,784,588
|
)
|
|
(3,727,778
|
)
|
Long-term Debt
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
(a)
|
The credit facility bears interest at the PACE base rate
of 7.00% plus 1.25% per annum, currently 8.25%. The credit facility due on
demand, but until a demand is made, is payable in monthly blended
installments of principal and interest of $6,558 ($8,764 CAD), and matures
on September 2, 2022. The first and only advance on the credit facility on
February 2, 2017, in the amount of $1,197,280 ($1,600,000 CAD), is secured
by a business loan general security agreement, a $1,197,280 ($1,600,000
CAD) personal guarantee from the President and a charge against the
Companys premises lease. Also pledged as security are the shares of the
wholly-owned subsidiaries, a pledge of 3,300,000 of the Companys shares
held by LFGC, 500,000 of the Companys shares held by the CFO, 2,000,000
of the Companys shares held by a directors company and a limited
recourse guarantee each of these parties. 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 $448,980 ($600,000 CAD), bears interest at the PACE base 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 $3,667 ($4,901 CAD), 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 $37,415 ($50,000 CAD), bears interest at the PACE base 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 $320 ($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 $2,786,779 ($3,724,147 CAD), bears interest at PACE base
rate of 7.00% plus 1.25% per annum, currently 8.25%. The corporate term
loan is due on demand, but until a demand is made, is payable in monthly
blended installments of principal and interest of $22,233 ($29,711 CAD),
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 $2,993,932 ($4,000,978 CAD) against
the assets including inventory, accounts receivable and equipment. The
corporate term loan also included an assignment of existing contracts
included in APA.
|
|
|
|
The shares of the wholly-owned subsidiaries and those
shares held by the companies and the CFO noted under (a) above, represent
security for the corporate term loan.
|
Repayments are as follows:
In the nine-month period ending December
31, 2019
|
$ 61,424
|
In the year ending December 31, 2020
|
88,637
|
In the year ending December 31, 2021
|
97,124
|
In the year ending December 31, 2022
|
3,537,403
|
Total
|
$ 3,784,588
|
For the three-month period ended March 31, 2019, $77,619
($103,189 CAD) (2018-$80,775; $102,118 CAD) in interest was charged.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
11. Obligations under Capital Lease
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Total
|
|
|
Total
|
|
Obligations under Capital Lease
|
$
|
143,493
|
|
$
|
134,662
|
|
$
|
278,155
|
|
$
|
288,708
|
|
Less: current portion
|
|
(48,961
|
)
|
|
(38,756
|
)
|
|
(87,717
|
)
|
|
(81,109
|
)
|
Obligations under Capital Lease-Long-term
|
$
|
94,532
|
|
$
|
95,906
|
|
$
|
190,438
|
|
$
|
207,599
|
|
(a)
|
The lease agreement for certain equipment for the
Companys organic composting facility at a cost of $214,500 ($286,650
CAD), is payable in monthly blended installments of principal and interest
of $4,370 ($5,840 CAD), plus applicable harmonized sales taxes and an
option to purchase the equipment for a final payment of $21,401 ($28,600
CAD), 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 for certain equipment for the Companys organic
composting facility at a cost of $185,167 ($247,450 CAD), is payable in
monthly blended installments of principal and interest of $3,830 ($5,118
CAD), plus applicable harmonized sales taxes for a period of forty-six
months plus the first two monthly blended installments of $7,483 ($10,000
CAD) plus applicable harmonized sales taxes and an option to purchase the
equipment for a final payment of $ 18,468 ($24,680 CAD) 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.
|
The lease liabilities are secured by the equipment under
capital lease as described in note 7.
Minimum lease payments are as follows:
In the nine-month period ending December 31,
2019
|
$
|
78,171
|
|
In the year ending December 31, 2020
|
|
98,400
|
|
In the year ending December 31, 2021
|
|
106,691
|
|
In the year ending December 31, 2022
|
|
22,298
|
|
|
|
305,560
|
|
Less: imputed interest
|
|
(27,405
|
)
|
Total
|
$
|
278,155
|
|
For the three-month period ended March 31, 2019, $3,670 ($4,879
CAD) (2018-$4,172; $5,274 CAD) in interest was charged.
12. Convertible Promissory Notes
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
(a)
|
Convertible promissory
notes-January 28, 2019 (net of unamortized financing
costs of $29,055 (2018- $nil))
|
$
|
308,445
|
|
$
|
-
|
|
(b)
|
Convertible promissory notes-March 7 and March 8,
2019 (net of unamortized financing costs of $87,948)
(2018- $nil))
|
|
462,052
|
|
|
-
|
|
|
|
$
|
770,497
|
|
$
|
-
|
|
(a) On January 28, 2019, the
Company entered into securities purchase agreements (the January 2019 SPAs)
with three investors (the January 2019 Investors) pursuant to which the
Company issued to the January 2019 Investors 12% unsecured convertible
promissory notes (the January 2019 Notes) in the aggregate principal amount of
$337,500, with such principal and the interest thereon convertible into shares of the
Companys 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.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
12. Convertible Promissory Notes
, (continued)
The amounts of $102,500, $100,000, and $100,000, totaling $302,500, represented the proceeds to the Company, net of transaction-related expenses, for the January 2019 Notes from the January 2019 Investors and were received in cash from February 1 through February 4, 2019.
The maturity date of each of the January 2019 Notes is January
28, 2020 (the 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 Companys 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 January 2019 Notes may be prepaid until 180 days from the
January 2019 Effective Date with the following penalties: (i) if the January
2019 Notes are prepaid within sixty (60) days following the January 2019
Effective Date, then the prepayment premium shall be 125% of the face amount
plus any accrued interest; (ii) if the January 2019 Notes are prepaid during the
period beginning on the date which is sixty-one (61) days following the January
2019 Effective Date, and ending on the date which is ninety (90) days following
the January 2019 Effective Date, then the prepayment premium shall be 135% of
the face amount plus any accrued interest; (iii) if the January 2019 Notes are
prepaid during the period beginning on the date which is ninety-one (91) days
following the January 2019 Effective Date, and ending on the date which is one
hundred eighty (180) days following the January 2019 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.
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 preemptive 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 Notes, any shares remaining in such reserve shall be
cancelled. The Company increases the January 2019 Reserved Amount in accordance
with the Companys obligations under the January 2019 Notes.
Pursuant to the terms of the January 2019 SPAs, for so long as
the Investors own any shares of Common Stock issued upon the conversion of the
January 2019 Notes (the January 2019 Conversion Shares), 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
January 2019 Notes and the January 2019 SPAs, including but not limited to the
requirement to maintain its corporate existence and assets, subject to certain
exceptions, and not to make any offers or sales of any security under
circumstances that would require registration of or stockholder approval for the
January 2019 Notes or the January 2019 Conversion Shares.
The January 2019 Notes also 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 and increases in the amount of the principal and interest rates under
the January 2019 Notes in the event of such defaults. In the event of default,
at the option of the January 2019 Investors and in the January 2019 Investors
sole discretion, the January 2019 Investors may consider the January 2019 Notes
immediately due and payable.
(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 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.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
12. Convertible Promissory Notes
, (continued)
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 or 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.
The maturity dates of the March 2019 Investor Notes are March 7, 2020 or 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 March 2019 Investor Notes may be prepaid until 180 days from the applicable March 2019 Effective Date with the following penalties: (i) if the March 2019 Investor Notes are prepaid within sixty (60) days following the applicable March 2019
Effective Date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if the March 2019 Investor Notes are prepaid during the period beginning on the date which is sixty-one (61) days following the applicable
March 2019 Effective Date, and ending on the date which is ninety (90) days following the applicable March 2019 Effective Date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if the March 2019 Investor
Notes are prepaid during the period beginning on the date which is ninety-one (91) days following the applicable March 2019 Effective Date, and ending on the date which is one hundred eighty (180) days following the applicable March 2019 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.
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.
Pursuant to the terms of the March 2019 SPAs, for so long as the March 2019 Investors own any shares of Common Stock issued upon the conversion of the March 2019 Investor Notes (the “March 2019 Conversion Shares”), 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 March 2019 Investor Notes and the March 2019 SPAs, including but not limited to the
requirement to maintain its corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the March 2019 Investor
Notes or the March 2019 Conversion Shares.
The March 2019 Investor Notes 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 Notes in the event of such defaults. In the event of default, at the option of the March 2019 Investors and in the March 2019 Investors’ sole discretion, the March 2019 Investors may consider the
March 2019 Investor Notes immediately due and payable.
During the three-month period ending March 31, 2019, the Company accrued interest of $11,039 (2018-$nil) on the outstanding promissory notes.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
13. Operating lease liability
As noted under note 8, Operating lease right-of-use asset, the
Company has recognized an operating lease right-of-use asset and a related
operating lease liability, effective January 1, 2019, based on the present value
of lease payments over the lease term that expires on March 31, 2034, calculated
to be $217,755 ($297,074 CAD) which were included in the interim condensed
consolidated balance sheet.
As at March 31, 2019, the minimum lease payments, as calculated
under the new lease guidance and reconciled to the operating lease liability are
as follows:
In the nine-month period ending December 31,
2019
|
$
|
27,687
|
|
In the year ending December 31, 2020
|
|
34,422
|
|
In the year ending December 31, 2021
|
|
34,422
|
|
In the year ending December 31, 2022
|
|
34,422
|
|
In the year ending December 31, 2023
|
|
34,422
|
|
Thereafter
|
|
291,089
|
|
|
|
456,464
|
|
Less: imputed interest
|
|
(235,264
|
)
|
Present value of minimum lease
payments
|
|
221,200
|
|
Less: current portion of operating lease liability
|
|
(11,430
|
)
|
Long-term portion of operating lease
liability
|
$
|
209,770
|
|
During the three-month period ending March 31, 2019, the Company incurred interest of $6,679 ($8,879 CAD) (2018-$nil; $nil CAD) on the operating lease liability.
14. Loans Payable to Related Parties
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Travellers International Inc.
|
$
|
56,123
|
|
$
|
146,500
|
|
Directors
|
|
56,122
|
|
|
54,975
|
|
|
$
|
112,245
|
|
$
|
201,575
|
|
Loan payable in the amount of $56,123 ($75,000 CAD) (December
31, 2018-$146,500; $200,000 CAD), owing to Travellers bears interest at the
rate of 12% per annum, is due on demand and is unsecured. As at March 31, 2019
$17,196 ($22,980 CAD) (December 31, 2018-$13,110; $17,885 CAD) in interest is
included in accrued liabilities.
Loans payable to directors in the amount of $56,122 ($75,000
CAD) (December 31, 2018-$54,975; $75,000 CAD), owing to three directors bears
interest at the rate of 12% per annum, is due on demand and is unsecured. As at
March 31, 2019, $6,532 ($8,729 CAD) (December 31, 2018-$4,772; $6,510 CAD) in
interest is included in accrued liabilities.
During the three-month period ended March 31, 2019, $5,472
($7,274 CAD) (2018-$293; $371 CAD) in interest was charged on the loans payable
to related parties.
15. Capital Stock
As at March 31, 2019, the Company had 150,000,000 of common shares authorized with a par value of $.0001 per share and 41,404,531 (2018-40,299,531) common shares issued and outstanding. During the three-month period ended March 31, 2019, the Company raised $nil (December 31, 2018-$650,240) cash on a private placement, net of share issue costs of $nil (2018-$46,260), on the issuance of nil (December 31, 2018-696,500) common shares of the Company. The Company issued 1,000,000 common shares on the exchange of the President’s 1,000,000 2018 RSUs; 5,000 common shares for proceeds received prior to December 31, 2018 of $4,600, net of share issue costs of $400; and 100,000 common shares for professional services in the amount of $53,000, based on the closing trading price on the day immediately before issuance.
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
15. Capital Stock
, (continued)
In addition, during the prior year, the Company issued 190,000
common shares of the Company, in regard to the $178,200 proceeds received from a
private placement prior to December 31, 2017, net of share issue costs of
$11,800 and issued 20,000 common shares of the Company to a new director,
determined to be valued at $20,000, based on private placement pricing at the
time.
All non-cash transactions were valued based on the proceeds of
a recent private placement.
The Company also granted the CEO 3,000,000 RSUs under a new
consulting agreement effective January 1, 2017. The RSUs are expected to vest in
three equal installments annually on January 1, 2018, 2019 and 2020. On February
25, 2018, the Company issued 1,000,000 common shares in exchange for 1,000,000
RSUs to the CEO. In addition, on May 17, 2018, at a meeting of the Board, the
Board approved an amendment to the Presidents consulting agreement, to include
the granting of 3,000,000 RSUs to the President, determined to be valued at
$3,000,000, based on private placement pricing at the time on the same terms and
conditions as those granted to the CEO. Effective May 17, 2018, 1,000,000 RSUs
were exchanged into 1,000,000 common stock. Based on private placement pricing
at the time, the common stock issued in exchange for the RSUs, was determined to
be valued at $1,000,000.
16
.
Commitments
a)
|
Effective January 1, 2017, new consulting agreements were
finalized for the services of the President and for the CEO. The
consulting agreements are for a period of three years, commencing January
1, 2017. For each of these two executive officers, the monthly fees are as
follows: $3,742 ($5,000 CAD) for 2017 and $11,225 ($15,000 CAD) for 2018
and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1,
2017. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000
common stock. The RSUs of the remaining two installments are to vest
annually on January 1, 2019 and 2020, respectively, upon meeting certain
performance objectives. On May 17, 2018, the Presidents consulting
agreement was amended by the Board to add the granting of 3,000,000 RSUs,
on the same terms and conditions as those of the CEO. On this date, the
President was issued 1,000,000 common stock on the exchange of 1,000,000
RSUs. The future minimum commitment under these consulting agreements, is
as follows:
|
|
For the nine-month period ending
December 31, 2019
|
$
|
202,041
|
|
b)
|
Effective January 1, 2017, the Company entered into a new
three-year premises lease agreement with Haute at a monthly amount of
$2,993 ($4,000 CAD) for 2017, $ 3,742 ($5,000 CAD) for 2018 and $4,490
($6,000 CAD) for 2019. 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. The
future minimum commitment under this premises lease agreement is as
follows:
|
|
For the nine-month period ending
December 31, 2019
|
$
|
40,408
|
|
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 $2,245 ($3,000 CAD) 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 by the
landlord. 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. Effective January 1, 2019,
this right-of-use operating lease has been reported as an operating lease
right-of-use asset and an operating lease liability on the interim
condensed consolidated balance sheets.
|
|
|
|
In addition, the Company was recently informed that,
through a special provision of the site plan agreement with the City of
Belleville (the City), Ontario, the Company is required to fund certain
road maintenance required by the City for the years 2017 through to 2025
at an annual rate of $7,483 ($10,000 CAD). The first year of the special
provision was 2016, approximately one year before the Company acquired
certain assets of Astoria. This special provision was not addressed in the
APA and as a result, the Company may be liable for both the 2016 and 2017
assessments.
|
SusGlobal Energy Corp.
|
Notes to the Interim Condensed Consolidated Financial
Statements
|
March 31, 2019 and 2018
|
(Expressed in United States Dollars)
|
(unaudited)
|
16.
|
Commitments
,
(continued)
|
|
The payments are due each September 30
th
. The
Companys estimates that its portion for the year ended September 30,
2017, would be equal to the 15 days the Company owned the organic
composting facility, after it was acquired on September 15, 2017. The
amounts for 2016 and 2017 have not been paid and unless this can be
resolved with the operator for the period prior to September 15, 2017, the
Company may be liable for both these years. Effective January 1, 2019, the
assessments due for the years 2019 through to 2025 have been included with
the operating right-of-use asset and operating lease liability on the
interim condensed consolidated balance sheets.
|
|
|
d)
|
PACE has provided the Company a letter of credit in favor
of the Ministry of the Environment, Conservation and Parks (the MOECP),
(formerly the Ministry of the Environment and Climate Change) in the
amount of $207,153 ($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 composting
facility. The letter of credit is a requirement of the MOECP and is in
connection with the financial assurance provided by the Company for it to
be in compliance with the MOECPs environmental objectives. The MOECP
regularly evaluates the Companys organic composting facility to ensure
compliance is adhered to and the letter of credit is subject to change by
the MOECP. Since the fair value of the environmental remediation costs
cannot be determined at this time, no estimate of such costs has been
recorded in the accounts. As of March 31, 2019, the MOECC has not drawn on
the letter of credit.
|
17. Economic Dependence
The Company generated 90% of its revenue from four customers.
18. Subsequent Events
The Companys 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)
|
Subsequent to March 31, 2019, the Company issued
1,000,000 common shares to the CEO in exchange for his 2018 RSUs
determined to be valued at $330,000, based on private placement pricing at
the time and expensed during the year ended December 31, 2018 and 80,000
common shares to four directors for their 2018 services, based on the
closing trading price of the Companys common shares immediately before
issuance, a total of $39,200.
|
|
|
|
|
(b)
|
On April 24 ,2019, the Company received one of the
Back-End Notes from the March 2019 Investors in the principal amount of
$275,000. The proceeds received by the Company was $228,000, net of
financing costs.
|
|
|
|
|
(c)
|
On May 2, 2019, the Company received a commitment in the
form of a one year $1,346,940 ($1,800,000 CAD) mortgage, to finance the
Companys purchase of the shares of 1684567 Ontario Inc. The
Company anticipates closing this transaction on May 17, 2019. The assets
of 1684567 Ontario Inc. include the property that the Company leases for
its organic composting facility. Included under prepaid expenses and
deposits in the interim condensed consolidated balance sheets, is a
deposit of $14,966 ($20,000 CAD) the Company paid in connection with this
commitment.
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in this Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and
the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "would," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," and similar expressions.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed
with the Securities and Exchange Commission on April 1, 2019.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the
accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three-month period ended March 31, 2019 compared with the three-month period ended March 31, 2019 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, 2018 AND 2017. 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:
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.
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 renewable energy company focused on acquiring,
developing and monetizing a global portfolio of proprietary technologies in the
waste to energy 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 earths 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. 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 digestate to produce a
pathogen free organic fertilizer.
The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewable energy. These products can be converted into electricity, fuels and marketed to
agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces greenhouse gas emissions that result from landfilling
organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a
significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy™.
We believe the project and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater Treatment,
In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment and Composting.
The Company can provide a full range of services for handling organic residuals in a period where innovation and sustainability are paramount. From start to finish we offer in-depth knowledge, a wealth of experience and cutting-edge technology for
handling organic waste.
The primary focus of the services SusGlobal provides includes identifying idle or underutilized anaerobic digesters and integrating our technologies with capital investment to optimizing the operation of the existing digesters to reach their full
capacity for processing SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant Greenhouse Gas (“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, considered Class AA organic fertilizer.
Currently, the primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. Much of the research and development that has been carried out has been completed by our CEO through multiple
projects carried out on projects prior to the formation of SusGlobal. 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.
RECENT BUSINESS DEVELOPMENTS
Trademark Applications
On March 13, 2019, the Company filed trademark applications with the Canadian and US trademark offices to register the SusGlobal logo, Earth’s Journey, SusGro, Leaders in the Circular Economy and Caring for Earth’s Journey.
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.
Deposits on Acquisition of Shares and Assets
On March 19, 2019, the Company paid a deposit of $14,966 ($20,000 CAD) in connection with the financing commitment in the form of a one-year mortgage in the amount of $1,346,940 ($1,800,000 CAD), in connection with the offer to
purchase the shares of 168457 Ontario Inc., described below.
On February 5, 2019, the Company advanced a non-refundable deposit of $52,776 ($72,000 CAD) in connection with an executed non-binding letter of intent in the amount of $1,295,394 ($1,767,250 CAD) to acquire 100% of the shares of a
company, whose primary asset includes the 39.44 acres of property in Roslin (near Belleville), Ontario, Canada which includes the site the Company currently leases for its organic composting facility.
On January 31, 2019, the Company advanced a deposit of $36,650 ($50,000 CAD) in connection with a $1,905,800 ($2,600,000 CAD) offer to purchase certain property located in Hamilton, Ontario, Canada, from the court appointed receiver
for future operations.
Asset Purchase
On September 15, 2017, the Company entered into an asset purchase agreement (the “APA) with Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP (“Astoria”), pursuant to which the Company purchased certain assets of
Astoria from the court appointed receiver of Astoria, BDO Canada Limited (the “Receiver”). The purchase price for the composting buildings, Gore cover system, driveway and paving, office trailer, certain machinery and equipment, computer
equipment, computer software and intangible assets (the “Assets”) consisted of cash of $3,005,300 ($4,100,000 CAD), funded by PACE Savings and Credit Union Limited (“PACE”) and 529,970 restricted common shares of the
Company, determined to be valued at $529,970 ($700,000 CAD) based on private placement pricing at the time. In addition, legal costs of $21,442 ($29,253 CAD) in connection with acquiring the Assets are included in the cost of the
organic composting facility. In addition, the Company purchased certain accounts receivable which it was required to collect, totaling $127,650 ($174,147 CAD) and a deposit with a local municipality in the amount of $36,650 ($50,000
CAD).
Other
On February 16, 2018, the Company finalized a lease agreement for certain equipment for its organic composting facility, which was previously on monthly rental, in the amount of $185,167 ($247,450 CAD) (the “2018 Equipment Lease
Agreement”). The 2018 Equipment Lease Agreement is for a period of forty-eight months, with two initial monthly installments of $7,483 ($10,000 CAD) each, plus the applicable harmonized sales taxes, followed by forty-six monthly
blended installments of principal and interest of $3,830 ($5,118 CAD), plus the applicable harmonized sales taxes. The Company has the option to purchase the equipment on the forty ninth month for an amount of $18,468 ($24,680 CAD),
plus the applicable harmonized sales taxes. The 2018 Equipment Lease Agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022. During the three-month period ending March 31, 2019 $2,178 ($2,895 CAD)
(2018-$963; $1,217 CAD) of interest was charged on the 2018 Equipment Lease Agreement.
On October 30, 2017, the Company finalized a lease agreement for certain equipment for its organic composting facility, which commenced on October 30, 2017, in the amount of $214,500 ($286,650 CAD) (the “October 2017 Equipment Lease
Agreement”). The October 2017 Equipment Lease Agreement requires monthly blended installments of principal and interest of $4,370 ($5,840 CAD), plus applicable harmonized sales taxes and a final balloon payment of $21,401
($28,600 CAD), plus applicable harmonized sales taxes on October 31, 2021. The October 2017 Equipment Lease Agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. During the three-month period ending
March 31, 2019, $1,492 ($1,984 CAD) (2018-$2,994; $3,785 CCAD) of interest was charged on the October 2017 Equipment Lease Agreement.
On September 21, 2017, the company finalized a lease agreement for the lease of certain equipment for its organic composting facility, in the amount of $12,856 ($17,180 CAD) (the “September 2017 Equipment Lease Agreement”). The
September 2017 Equipment Lease Agreement requires monthly blended installments of principal and interest of $949 ($1,268 CAD) at a monthly interest rate of 5.95%, due and fully paid on November 10, 2018. During the three-month period ending
March 31, 2019, $nil ($nil CAD) (2018-$209; $264 CAD) of interest was charged under the September 2017 Equipment Lease Agreement.
On May 11, 2017, the Company signed a posting agreement with CrowdVest, a Tennessee limited liability company (“CrowdVest”), to act as the Company’s online intermediary technology platform in connection with the Company’s
offering of shares of Common Stock pursuant to Rule 506 of Regulation D under the Securities Act of 1933. As compensation, CrowdVest received 20,000 restricted shares of Common Stock of the Company, based on an issuance price of $5 per share,
once the 506(c)-general solicitation offering commenced. The offering terminated on October 27, 2017 and was not extended.
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.
Effective January 1, 2017, new consulting agreements were finalized for the services of the President and the CEO (the “Consulting Agreements”). The Consulting Agreements are for a period of three years, commencing January 1, 2017. For
each of the President and the CEO, the monthly fees are as follows: $3,742 ($5,000 CAD) for 2017 and $11,225 ($15,000 CAD) for 2018 and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1, 2017, determined to be valued
at $990,000, based on private placement pricing at the time. On each of February 25, 2018 and April 2, 2019, 1,000,000 RSUs were exchanged into 1,000,000 shares of common stock of the Company. The RSUs of the remaining installment are expected
to vest on January 1, 2020, upon meeting certain performance objectives. On May 17, 2018, the President’s Consulting Agreement was amended by the Board of Directors’ (the “Board”), to add the granting of 3,000,000 RSUs,
determined to be valued at $3,000,000 based on private placement pricing at the time on the same terms and conditions as those of the CEO. On this date, the President was issued 1,000,000 shares of common stock of the Company in exchange for
1,000,000 RSUs. On January 9, 2019, 1,000,000 RSUs were exchanged for 1,000,000 common stock of the Company. The RSUs of the remaining installment are expected to vest on January 1, 2020, upon meeting certain performance objectives.
On December 7, 2016, the Company was awarded funding for the AWT Program, a program for business led collaborations in the water sector. The AWT Program is administered by the Southern Ontario Water Consortium to assist small and medium sized
businesses in the Province of Ontario, Canada, leverage world-class research facilities and academic expertise to develop and demonstrate water technologies for successful introduction to market. In addition, the AWT Program is designed to enhance
the Ontario water cluster and continue to build Ontario’s reputation for water excellence around the world. The Company’s academic partner is the CAWT at Fleming College in Lindsay, Ontario, Canada. The original AWT Program budget was
for $586,400 ($800,000 CAD), of which the Company contributes 50% in cash and in-kind contributions and CAWT contributes 50%. CAWT revised its budget for the second and third years of the AWT Program. As a result, the cash commitments for
2017 and 2018, the second and third years of the AWT Program were cancelled.
The Company had already completed and provided its commitment for the first year of the AWT Program which ended March 31, 2017, consisting of professional fees of $7,217 ($9,432 CAD) and a contribution to the capital requirements of the AWT
Program, totaling $71,017 ($94,000 CAD), for equipment to be used in the AWT Program and to be retained by CAWT.
On October 21, 2016, the Company hired the services of a contractor to assume the role of vice-president of corporate development (“VPCD”), effective November 1, 2016, for a period of fourteen months, at the rate of $2,993
($4,000 CAD) per month, plus applicable taxes. In addition, the contractor was offered up to 115,000 shares of Common Stock of the Company, at a price of $0.10 per common share, exercisable within 180 days of the effective date of the
contract. On April 30, 2017, the contractor exercised the offer to purchase 115,000 shares of Common Stock of the Company. At the end of the fourteen-month term, the VPCD continued to provide services on a monthly basis for the first three months of
2018.
On November 4, 2016, the Company’s BioGrid Project, a project described in the expansion and operation agreement (the “BioGrid Agreement”) with the Township of Georgian Bluffs and the Township of Chatsworth (the
“Municipalities”), was terminated.
On August 19, 2016, Travellers provided an unsecured loan bearing interest at an annual rate of 12% in the amount of 157,143 ($210,000 CAD) which was required to initiate a letter of credit in the amount of $149,660 ($200,000 CAD). This
loan was repaid in full, with accrued interest on April 3, 2018. Fees for the letter of credit included $7,483 ($10,000 CAD) incurred and charged by Travellers and $2,245 ($3,000 CAD) charged by the Company’s chartered bank.
There is no written agreement evidencing this loan and the loan was approved by the Board of Directors of the Company.
On May 14, 2015, the Ontario Ministry of the Environment, Conservation and Parks (the “MOECP) formerly the Ontario Ministry of the Environment and Climate Change, announced formal targets to be met to satisfy a commitment necessary to join the Western Climate Initiative (the “WCI”) along with Quebec and California, who are in the WCI
with Cap and Trade commitments since 2014. The Ontario emission targets are very
ambitious, with GHG emission reductions of 15% by 2020, 37% by 2030 and 80% by 2050, all from a 1990 baseline. Ontario achieved a 6% reduction in GHG emissions from 1990 levels in 2014, mainly by closing all coal-fired power plants. The targets announced will require a focused program to reduce GHG emissions.
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 on January 2017. Subsequently, on July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap and Trade
program in Ontario.
On May 6, 2015, the Company finalized an agreement with Syngas, a company incorporated under the laws of Malaysia (“Syngas”), providing an exclusive license for the Company to use Syngas Intellectual Property within North America for a
period of five years from the date of this agreement, for a consideration of $1, renewable every five years upon written request (the “Syngas License Agreement”). Syngas produces equipment that uses an innovative process to produce
liquid transportation fuel from plastic waste material. The Company issued 20,000 shares of Common Stock of the Company to an introducing party, determined to be valued at $2,000. The Syngas License Agreement is being amortized on a
straight-line basis, over a period of 10 years. There are no other obligations under the Syngas License Agreement.
The Company and Syngas intend to collaborate and cooperate with a view to achieving economic and financial success for their respective businesses. The Company will continue to pursue other similar intellectual property around the world as we
combine this and other technologies in innovative configurations to monetize the portfolio of proprietary technologies and processes to deliver value to our customers and shareholders.
Operations
The Company owns the Environmental Compliance Approvals (the “ECAs”) issued by the MOECP, from the Province of Ontario, in place to accept up to 70,000 metric tonnes of waste annually from the provinces of Ontario and Quebec and from western New York state, and to operate a waste transfer station with the capacity to process up to 50,000 metric tonnes of waste annually. Once built, the location of the waste transfer station will be alongside the organic composting facility which is currently in operation near Belleville, Ontario, Canada.
Waste Transfer Station:
Access to the waste transfer stations is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third
parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility.
The Company’s organic composting facility, located near Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 metric tonnes of waste annually and is currently in operation. Certain assets of
the organic composting facility, including the ECAs for the waste transfer station, were acquired by the Company on September 15, 2017, from the court appointed receiver, BDO, for Astoria, under the APA. The Company charges tipping fees for the
waste accepted at the organic 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 the three-month period ending March 31, 2019, tipping fees ranged from $19 ($25 CAD) to $64 ($85 CAD) per metric tonne.
Compost Sales.
The Company also sells organic compost (screened and unscreened) to local customers. During the three-month period ending March 31, 2019, the average selling price of the compost per metric tonne was approximately $8
($11 CAD).
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2019, the Company had a cash balance (bank indebtedness) of $3,933 (December 31, 2018-$42,711) and current debt obligations in the amount of $5,804,761 (December 31, 2018-$5,045,362). As at March 31, 2019, the Company
had a working capital deficit of $5,565,973 (December 31, 2018-$4,830,948). The Company does not currently have sufficient funds to satisfy the current debt obligations. Should the Company’s creditors seek or demand payment, the
Company does not have the resources to pay or satisfy any such claims currently.
The Company’s total assets at March 31, 2019 were $3,940,172 (December 31, 2018-$3,710,713) and total current liabilities were $5,804,761 (December 31, 2018-$5,045,362). Significant losses from operations have been incurred
since inception and there is an accumulated deficit of $9,634,856 as of
March 31, 2019
(December 31, 2018 -$8,554,312). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to
achieve profitable operations while maintaining current fixed expense levels.
To pay current debt obligations 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 $5,804,761 in current debt
obligations, the Company estimates that approximately $13,000,000 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.
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 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.
Although the March 2019 SPAs are dated March 7, 2019 or 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.
The maturity dates of the March 2019 Investor Notes are March 7, 2020 or 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 March 2019 Investor Notes may be prepaid until 180 days from the applicable March 2019 Effective Date with the following penalties: (i) if the March 2019 Investor Notes are prepaid within sixty (60) days following the applicable March 2019
Effective Date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if the March 2019 Investor Notes are prepaid during the period beginning on the date which is sixty-one (61) days following the applicable
March 2019 Effective Date, and ending on the date which is ninety (90) days following the applicable March 2019 Effective Date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if the March 2019 Investor
Notes are prepaid during the period beginning on the date which is ninety-one (91) days following the applicable March 2019 Effective Date, and ending on the date which is one hundred eighty (180) days following the applicable March 2019 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.
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.
Pursuant to the terms of the March 2019 SPAs, for so long as the March 2019 Investors own any shares of Common Stock issued upon the conversion of the March 2019 Investor Notes (the “March 2019 Conversion Shares”), 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 March 2019 Investor Notes and the March 2019 SPAs, including but not limited to the
requirement to maintain its corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the March 2019 Investor
Notes or the March 2019 Conversion Shares.
The March 2019 Investor Notes 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 Notes in the event of such defaults. In the event of default, at the option of the March 2019 Investors and in the March 2019 Investors’ sole discretion, the March 2019 Investors may consider the
March 2019 Investor Notes immediately due and payable.
On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors in the principal amount of $275,000. The
cash proceeds received by the Company was $228,000, net of financing costs.
On January 28, 2019, the Company entered into securities purchase agreements (the “January 2019 SPAs”) with three investors (the “January 2019 Investors”) pursuant to which the Company issued to the January 2019 Investors 12%
unsecured convertible promissory notes (the “January 2019 Notes”) in the aggregate principal amount of $337,500, with such principal and the interest thereon convertible into shares of the Company’s common stock (the “Common
Stock”) at the January 2019 Investors’ option. Although the January 2019 SPAs are dated January 28, 2019 (the “January 2019 Effective Date”), they became effective upon the receipt in cash of the issue price by the January
2019 Investors.
The amounts of $102,500, $100,000, and $100,000, totaling $302,500, represented the proceeds to the Company, net of transaction-related expenses, for the January 2019 Notes from the January 2019 Investors and were received in cash from February 1 through February 4, 2019.
The maturity date of each of the January 2019 Notes is January 28, 2020 (the “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 January 2019 Notes may be prepaid until 180 days from the January 2019 Effective Date with the following penalties: (i) if the January 2019 Notes are prepaid within sixty (60) days following the January 2019 Effective Date, then the prepayment
premium shall be 125% of the face amount plus any accrued interest; (ii) if the January 2019 Notes are prepaid during the period beginning on the date which is sixty-one (61) days following the January 2019 Effective Date, and ending on the date
which is ninety (90) days following the January 2019 Effective Date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if the January 2019 Notes are prepaid during the period beginning on the date which is
ninety-one (91) days following the January 2019 Effective Date, and ending on the date which is one hundred eighty (180) days following the January 2019 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.
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 preemptive 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 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 Notes.
Pursuant to the terms of the January 2019 SPAs, for so long as the Investors own any shares of Common Stock issued upon the conversion of the January 2019 Notes (the “January 2019 Conversion Shares”), 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 January 2019 Notes and the January 2019 SPAs, including but not limited to the requirement to maintain its
corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the January 2019 Notes or the January 2019
Conversion Shares.
The January 2019 Notes also 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 and increases in the amount of
the principal and interest rates under the January 2019 Notes in the event of such defaults. In the event of default, at the option of the January 2019 Investors and in the January 2019 Investors’ sole discretion, the January 2019 Investors
may consider the January 2019 Notes immediately due and payable.
During the three-month period ending March 31, 2019, the Company accrued interest of $11,039 (2018-$nil) on the outstanding promissory notes.
On April 11, 2018, three directors each loaned the Company $19,928 ($25,000 CAD) for working capital purposes (the “Director Loans”). The Director Loans bear interest at the rate of 12% per annum, are due on demand and unsecured.
There are no written agreements evidencing the Director Loans. During the three-month period ending March 31, 2019 $1,669 ($2,219 CAD) (2018-$nil; $nil CAD) of interest was charged on the Director Loans. As at March 31, 2019, 2018,
$6,521 ($8,729 CAD) (December 31, 2018-$4,772; $6,510 CAD) in interest is included in accrued liabilities and the Director Loans remain outstanding in the amount of $56,123 ($75,000 CAD) (December 31, 2018-$54,975; $75,000 CAD).
On April 3, 2018, a new loan was provided by Travellers International Inc. (“Travellers”), an Ontario company controlled by the Executive Chairman and President, who is also a director of the Company, in the amount of $159,420
($200,000 CAD) (the “Travellers Loan”). A portion of the funds, $110,777 ($151,128 CAD), was used to pay two overdue monthly principal and interest instalments on the Company’s PACE Corporate Term Loan. This new loan is
due on demand, unsecured and bears interest at the rate of 12% per annum. There is no written agreement evidencing the Travellers Loan. During the three-month period ending March 31, 2019, $3,802 ($5,055 CAD) (2018-$293,094; $371
CAD) in interest was charged on the Travellers Loan and other loans repaid to Travellers during the year. As at March 31, 2019, $17,166 ($22,940 CAD) (December 31, 2018-$13,110; $17,885 CAD) in interest is included in accrued
liabilities and the Travellers Loan remains outstanding in the amount of $56,123 ($75,000 CAD) (December 31, 2018-$146,600; $200,000 CAD).
As of March 31, 2019, the current and long-term portions of our long-term debt balance and our obligations under capital lease were $3,784,588 ($5,057,588 CAD) and $278,155 ($371,716 CAD) respectively of $4,062,743 ($5,429,297
CAD) in total.
In addition, at March 31, 2019, the Company had an outstanding letter of credit prepared by PACE, in the amount of $207,153 ($276,831 CAD), in favor of the MOECP. The letter of credit is a requirement of the MOECP and is in connection with
the financial assurance provided by the Company, for it to be in compliance with the MOECPs environmental objectives. The MOECP regularly evaluates the Company’s organic composting facility to ensure compliance is adhered to and the letter of
credit is subject to change by the MOECP. As of March 31, 2019, and the date of this filing, the MOECP has not drawn on this letter of credit.
Effective January 1, 2017, the Company obtained a Line of Credit of up to $4,031,500 ($5,500,000 CAD) with PACE (the “PACE Line of Credit”). On February 2, 2017, the Company received the first and only advance in the amount of
$1,172,800 ($1,600,000 CAD) on the PACE Line of Credit. The PACE Line of Credit was due February 2, 2019 and is now one of multiple credit facilities with PACE, as noted below.
The funds advanced on the PACE Line of Credit of $1,172,800 ($1,600,000 CAD) bore interest at the PACE base rate of 6.75% plus 1.25% per annum, at the time 8%, and was payable on a monthly basis, interest only, until refinanced, as noted
below. The PACE Line of Credit is secured by a business loan general security agreement, a $1,172,800 ($1,600,000 CAD) personal guarantee from the president of the Company (the “President”) and a charge against the
Company’s office premises lease. Also pledged as security are the shares of the wholly-owned subsidiaries and a pledge of 3,300,000 shares of Common Stock of the Company held by Landfill Gas Canada Ltd. (“LFGC”), an Ontario company
controlled by a director and chief executive officer of the Company (the “CEO”), 500,000 shares of Common Stock of the Company held by the chief financial officer (the “CFO”) and 2,000,000 shares of Common Stock of the
Company held by a director’s company, and a limited recourse guarantee by each. The PACE Line of Credit is fully open for prepayment at any time without notice or bonus. A total commitment fee of $80,630 ($110,000 CAD) was paid to
PACE. In addition, the agents who assisted in establishing the PACE Line of Credit received 1,620,000 shares of Common Stock of the Company determined to be valued at $469,800, based on private placement pricing at the time and cash of
$300,000, on closing, for their services. Other closing costs in connection with the PACE Line of Credit included legal fees of $28,377 ($38,713 CAD). As at March 31, 2019, $757,258 ($1,011,971 CAD) (December 31,
2018-$745,897; $1,017,595 CAD) remains outstanding. During the three-month period ending March 31, 2019, the Company incurred interest charges of $15,502 ($20,609 CAD) (2018-$16,011; $20,242 CAD) on the PACE Line of Credit.
On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of
principal and interest of $6,558 ($8,764 CAD), commencing August 2, 2018, amortized over a twenty-year period and matures on September 2, 2022.
On June 15, 2017, PACE loaned the Company $439,800 ($600,000 CAD) under a variable rate business loan agreement (the “PACE Business Loan Agreement”), for its bid for the purchase of certain assets of Astoria on terms and
conditions similar to the abovementioned PACE Line of Credit. As at March 31, 2019, $423,490 ($565,936 CAD) (December 31, 2018-$417,137; $559,081 CAD) remains outstanding under the PACE Business Loan Agreement. During the three-month
period ending March 31, 2019, the Company incurred interest charges of $8,695 ($11,559 CAD) (2018-$8,780; $11,320 CAD) in connection with the PACE Business Loan Agreement.
On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of
principal and interest of $3,667 ($4,901 CAD), commencing August 2, 2018, amortized over a twenty-year period and matures on September 2, 2022.
On August 4, 2017, PACE loaned the Company $36,665 ($50,000 CAD) under a variable business loan agreement, to satisfy an outstanding liability on terms and conditions similar to the abovementioned PACE Line of Credit, except that the loan
was due February 4, 2019. As at March 31, 2019, $36,898 ($49,309 CAD) (December 31, 2018-$36,344; $49,583 CAD) remains outstanding. During the three-month period ending March 31 2019, the Company incurred interest charges of $757
($1,007 CAD) (2018-$780; $986 CAD) on this credit facility.
On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The credit facility is payable on demand, but until a demand is made, is payable in monthly blended installments of
principal and interest of $320 ($427 CAD), commencing August 4, 2018, amortized over a twenty-year period and matures on September 4, 2022.
On September 13, 2017, PACE loaned the Company $2,729,800 ($3,724,147 CAD) under a corporate term loan (the “PACE Corporate Term Loan”). The funds were used for the purpose of acquiring certain assets of Astoria from the court
appointed receiver on September 15, 2017. The PACE Corporate Term Loan bore interest at the PACE base rate of 6.75% plus 1.25% per annum, 8% at the time, payable in monthly blended installments of principal and interest of $56,545 ($75,564
CAD), and matures on September 13, 2022. The PACE 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 Securities Act in the amount of $2,993,932 ($4,000,978 CAD) against the Company’s assets, including accounts receivable, inventory and equipment. PACE has also provided the
Company with a letter of credit in the favor of the MOECP in the amount of $207,153 ($276,831 CAD) and, as security, has registered a charge of lease over the premises, located at 704 Phillipston Road, Roslin (near Belleville), Ontario,
Canada. As at March 31, 2019, and the date of this filing, the MOECC has not drawn on this letter of credit. The PACE Corporate Term Loan also includes an assignment of existing contracts included under the APA. On June 13, 2018, the unpaid and
previously deferred interest on the PACE Corporate Term Loan for the period beginning on March 13, 2018 and ending June 13, 2018, in the amount of $51,889 ($69,343 CAD), was capitalized and included in the principal balance of the PACE
Corporate Term Loan. As at March 31, 2019 $2,566,942 ($3,430,365 CAD) (December 31, 2018-$2,528,400; $3,449,387 CAD) remains outstanding under the PACE Corporate Term Loan. During the three-month period ended March 31, 2019, the
Company incurred interest charges of $52,665 ($70,014 CAD) (2018-$55,030; $69,570 CAD) under PACE Corporate Term Loan. The shares pledged as security for the Line of Credit and the other credit facilities also pertain to this
corporate term loan.
On July 26, 2018, the Company refinanced the PACE Corporate Term Loan. The first and only blended installment of principal and interest of $21,377 ($29,164 CAD) was due August 1, 2018 at the rate of 8% per annum, and amortized over a
twenty-year period. The PACE Corporate Term Loan is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $21,823 ($29,711 CAD), commencing August 13, 2018, at the PACE base rate
of 7% plus 1.25% per annum, currently 8.25%. The PACE Corporate Term Loan continues to be amortized over a twenty-year period and matures on September 13, 2022.
Refer to notes 10, 11, 12, 13 and 14 to the interim condensed consolidated financial statements for details on the long-term debt, obligations under capital lease and commitments, convertible promissory notes, operating lease liability and loans
payable to related parties, as at March 31, 2019.
CONSOLIDATED
RESULTS OF OPERATIONS FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 2019
COMPARED TO THE
THREE-MONTH PERIOD ENDED MARCH 31, 2018
|
|
For
the three-month periods ended
|
|
|
|
March 31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
253,138
|
|
$
|
132,721
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
Opening inventory
|
|
18,550
|
|
|
53,964
|
|
Depreciation
|
|
95,754
|
|
|
94,043
|
|
Direct wages and benefits
|
|
49,365
|
|
|
40,059
|
|
Equipment rental, delivery, fuel and
|
|
|
|
|
|
|
repairs and maintenance
|
|
99,566
|
|
|
35,040
|
|
Utilities
|
|
27,531
|
|
|
22,200
|
|
Outside
contractors
|
|
105
|
|
|
3,844
|
|
|
|
290,871
|
|
|
249,150
|
|
Less: closing
inventory
|
|
(26,409
|
)
|
|
(67,210
|
)
|
Total cost of sales
|
|
264,462
|
|
|
181,940
|
|
|
|
|
|
|
|
|
Gross loss
|
|
(11,324
|
)
|
|
(49,219
|
)
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
Management compensation-stock- based
|
|
|
|
|
|
|
compensation
|
|
332,500
|
|
|
82,500
|
|
Management compensation-fees
|
|
81,238
|
|
|
90,174
|
|
Marketing
|
|
280,000
|
|
|
-
|
|
Professional fees
|
|
134,702
|
|
|
60,822
|
|
Interest expense
|
|
105,023
|
|
|
85,240
|
|
Office and administration
|
|
67,564
|
|
|
51,084
|
|
Rent and occupancy
|
|
24,241
|
|
|
34,201
|
|
Insurance
|
|
14,059
|
|
|
15,119
|
|
Filing fees
|
|
12,683
|
|
|
6,458
|
|
Amortization of financing costs
|
|
11,997
|
|
|
-
|
|
Directors compensation
|
|
2,952
|
|
|
791
|
|
Repairs and
maintenance
|
|
2,261
|
|
|
8,009
|
|
Total operating expenses
|
|
1,069,220
|
|
|
434,398
|
|
|
|
|
|
|
|
|
Net loss
|
|
(1,080,544
|
)
|
|
(483,617
|
)
|
During the three-month period ended March 31, 2019, the Company
generated $253,138 of revenue from its organic composting facility compared to
$132,721for the three-month period ended March 31, 2018. The Companys cost of
sales in connection with this revenue totaled $264,462 in the three-month period
ended March 31, 2019 compared to 181,940 for the three-month period ended March
31, 2018. These costs consisted of depreciation, direct wages and benefits,
equipment rental, delivery, fuel, repairs and maintenance, utilities and outside
contractors. The significant increase in both the revenue and the cost of sales
in the current period was primarily due to new business and the related cost of
processing the waste from this new business. The opening inventory for the three
months ended March 31, 2019 in the amount of $18,550 was significantly lower
than the closing inventory of $26,409 due primarily to the production of compost
during the current period.
The net loss for the three-month period ended March 31, 2019
was $1,080,544, significantly higher than the net loss of $483,617 in the
three-month period ended March 31, 2018, primarily due to the increase in
management compensation relating to stock-based compensation, the start of the
new marketing campaign and professional fees.
Operating expenses increased by $634,822, from $434,398 in the
three-month period ended March 31, 2018 to $1,069,220 for the three-month period
ended March 31, 2019, primarily due to the increase in various expenses,
explained further below.
Management compensation related to stock-based compensation
increased by $250,000, from $82,500 in the three-month period ended March 31,
2018 to $332,500 in the three-month period ended March 31, 2019, as a result of
the vesting of the Presidents RSUs in the
amount of $250,000. The compensation relating to fee charged by management reduced by $8,936, as a result of not incurring any fees charged by the Company’s VPCD in the current period as her services terminated on March 31, 2018.
During the three-month period ended March 31, 2019, the Company incurred marketing fees for its marketing campaign in the amount of $280,000 with no comparable prior period amount.
Professional fees increased by $73,880, from $60,822 in the three-month period ended March 31, 2018 to $134,702 in the three-month period ended March 31, 2019, primarily due to the following; an increase in legal services on the
Company’s claim against a third party represented by BDO in the amount of $8,747 related to the costs awarded BDO on the Court’s dismissal of the Company’s motions, an increase in audit and review fees of $8,433, the
issuance of shares for legal services provided by the Company’s legal counsel valued at $53,000 based on the closing trading price on the day prior to issuance and other legal expenses incurred of $3,700.
Interest expense increased by $19,783 from $85,240 in the three-month period ended March 31, 2018 to $105,023 for the three-month period ended March 31, 2019, primarily as a result of the accrued interest on the new convertible
promissory notes in the amount of $11,039 and the operating lease liability in the amount of $6,679 and the increase in the borrowing rate from 8% to 8.25%.
Rent and occupancy increased by $29,755, from $25,170 in the three-month period ended September 30, 2017 to $54,925 for the three-month period ended September 30, 2018, primarily due to the new rent and occupancy costs associated with
the Company’s organic composting facility which operated for three months in the current three-month period versus only fifteen days in the prior year’s three-month period. Also included is an estimate of the additional rent for road
maintenance levied by the City of Belleville at the Company’s organic composting facility.
Office and administration increased by $16,480, from $51,084 in the three-month period ended March 31, 2018 to $67,564 for the three-month period ended March 31, 2019, as a result of an increase in foreign exchange losses of $9,335,
an increase in laboratory testing of $5,366 and various other office and administrative expenses of $1,779.
Rent and occupancy reduced by $9,960, from $34,201 for the three-month period ending March 31, 2018 to $24,241 for the three-month period ending March 31,2019, primarily due to the presentation of the operating lease liability and
related interest expense of $6,679 as opposed to rent expense of a similar amount and the absence of the apartment and trailer rentals.
Insurance decreased by $1,060 from $15,119 in the three-month period ended March 31, 2018 to $14,059 for the three-month period ended March 31, 2019, primarily due to a lower premium for directors’ and officers’ insurance.
Filing fees were higher by 9,177 in the current three-month period ended March 31, 2019 versus the prior year’s three-month period ended March 31, 2018, as a result of fees for an investor communications service in the amount of $9,995
offset by lower overall filing fees charges.
During the three-month period ended March 31, 2019, the Company amortized the financing costs incurred on the new security purchase agreements in the amount of $11,997. The financing costs are being amortized over the life of the new securities
purchase agreements which expire prior to March 31, 2020.
Directors’ compensation increased by $2,161 in the three-month period ended March 31, 2019 compared to the three-month period ended March 31, 2018 due to an estimate for directors’ compensation for the current period with no
comparative amount in the prior year’s three-month period ended March 31, 2018.
Repairs and maintenance expenses were lower by $5,748 in the current three-month period ended March 31, 2019 compared to the three-month period ended March 31, 2018 due to lower overall expenses incurred at the Company’s organic composting
facility.
As at March 31, 2019, the Company had a working capital deficit of $5,565,973 (December 31, 2018-$4,830,948), incurred a net loss of $1,080,544 (2018-$483,617) for the three-month period ended March 31, 2019 and had an accumulated
deficit of $9,634,856 (December 31, 2018-$8,554,312) 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 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.
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 judgments 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, valuation of asset acquisition, deferred income tax assets and related valuation allowance, accruals, environmental
remediation costs and stock-based compensation. 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.
Long-Lived Asset Impairments
We assess our long-lived assets for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (income) expense from divestitures, asset impairments and unusual items, net in our Consolidated
Statements of Operations and Comprehensive Loss.
Indefinite-Lived Intangible Assets —
At least annually, and more frequently if warranted, we assess the indefinite-lived intangible assets, including the goodwill of our reporting units for impairment using Level 3 inputs.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases which is also known as Accounting Standard Codification (“ASC”) Topic 842, that requires lessees to recognize for all operating
leases a right-of-use asset and a lease obligation in the interim condensed consolidated balance sheets. Expenses are recognized in the interim condensed consolidated statements of operations and comprehensive loss in a manner similar to previous
accounting guidance. Lessor accounting under the new standard is substantially unchanged and is not relevant to the Company. The Company adopted the accounting standard using a prospective transition approach, which applies the provisions of the new
guidance at the effective date without adjusting the comparative periods presented, with certain practical expedients available to ease the burden of adoption.
The Company elected the following practical expedients upon adoption: not to reassess whether any expired or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, not to reassess
initial direct costs for any existing leases, not to separately identify lease and non-lease components (i.e. maintenance costs) except for fleet vehicles and real estate, and not to evaluate historical land easements under the new guidance.
Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to long-term leases (leases greater than 1 year) for which it only has one.
Adoption of the new standard resulted in $217,755 ($297,074 CAD) of additional right-of-use lease asset and lease liability as of January 1, 2019. The new standard did not have a significant impact on the interim condensed consolidated statements of operations and comprehensive loss. See note 8, Operating lease right-of-use asset, contained in the interim condensed consolidated financial statements for additional information.
RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of
recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows.
In January 2017, the FASB issued 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 standard is to be effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2017-04.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred-loss impairment methodology and requires immediate recognition of estimated credit losses expected to occur for most financial assets, including trade receivables. Credit losses on available-for-sale debt securities with unrealized losses will be recognized as allowances for credit losses limited to the amount by which fair value is below amortized cost. ASU 2016-13 is effective for the Company beginning January 1, 2020 and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.
EQUITY
As at March 31, 2019, the Company had 41,404,531 common shares issued and outstanding. At the date of this filing, the Company had 42,484,531 common shares issued and outstanding.
STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
Effective January 1, 2017, the Company granted the CEO 3,000,000 restricted stock units (“RSU”), under a consulting agreement effective January 1, 2017, determined to be valued at $990,000 based on private placement pricing at the
time. On each of February 25, 2018, and April 2, 2019, 1,000,000 RSUs were exchanged into 1,000,000 common stock of the Company. The RSUs for the CEOs remaining installment are expected to vest on January 1, 2020, subject to meeting certain
performance objectives. On May 17, 2018, at a meeting of the board of directors (the “Board”), approved an amendment to the President’s consulting agreement, to include the granting of 3,000,000 RSUs to the President, determined to
be valued at $3,000,000, based on private placement pricing at the time, on the same terms and conditions as those granted to the CEO. On January 9, 2019 1,000,000 of the President’s RSUs were exchanged into 1,000,000 common stock of the
Company. Based on private placement pricing at the time, the common stock issued to the President in exchange for the RSUs, was determined to be valued at $1,000,000. The RSUs for the President’s remaining installment are expected to vest
on January 1, 2020, subject to meeting certain performance objectives.
The Company has no other stock options, warrants or restricted stock units outstanding as at March 31, 2019 and as of the date of this filing.
RELATED PARTY TRANSACTIONS
The Company transacts with related parties in the normal course of business.
During the three-month period ended March 31, 2019, the Company incurred $33,849 ($45,000 CAD) (2018-$35,595; $45,000 CAD) in management fees expense with Travellers International Inc. (“Travellers”), an Ontario company
controlled by a director and president of the Company (the “President”); $33,849 ($45,000 CAD) (2018-$35,595; $45,000 CAD) in management fees expense with Landfill Gas Canada Ltd. (“LFGC”), an Ontario company
controlled by a director and chief executive officer of the Company (the “CEO”); $13,540 ($18,000 CAD) (2018-$9,492; $12,000 CAD) in management fees expense with the Company’s chief financial officer (the
“CFO”); and $nil ($nil CAD) (2018-$9,492; $12,000 CAD) in management fees expense with the Company’s vice-president of corporate development (the “VPCD”). As at March 31, 2019, unpaid remuneration and
unpaid expenses in the amount of $80,759 ($107,923 CAD) (December 31, 2018-$48,691; $66,426 CAD) is included in accounts payable and $177,347 ($237,000 CAD) (December 31, 2018-$184,714; $251,997 CAD) is included in
accrued liabilities.
In addition, during the three-month period ended March 31, 2019, the Company incurred interest expense of $3,802 ($5,055 CAD) (2018-$293; $371 CAD) on the outstanding loans from Travellers and $1,669 ($2,219 CAD)
(2018-$nil; $nil CAD) on the outstanding loans from the directors. As at March 31, 2019, interest of $23,698 ($31,669 CAD) (December 31, 2018-$17,882; $24,395 CAD) on these loans is included in accrued liabilities.
During the three-month period ended March 31, 2019, the Company incurred $16,998 ($22,598 CAD) (2018-$15,500; $19,595 CAD) in rent paid under a rental agreement to Haute Inc. (“Haute”), an Ontario company controlled by
the President.
The Company accrued directors compensation for its five
independent directors for services provided for the three-month period ended
March 31, 2019 in the amount of $2,952 (2018-$791). As at March 31, 2019, $54,200
(December 31, 2018-$52,000) of outstanding fees to the directors is
included in accrued liabilities.
Furthermore, the Company granted the CEO 3,000,000 restricted
stock units (RSU), under a consulting agreement effective January 1, 2017,
determined to be valued at $990,000 based on private placement pricing at the
time. On each of February 25, 2018 and April 2, 2019, 1,000,000 RSUs were
exchanged into 1,000,000 common stock of the Company. The RSUs for the CEOs
remaining installment are expected to vest annually on January 1, 2020, subject
to meeting certain performance objectives. On May 17, 2018, at a meeting of the
board of directors (the Board), approved an amendment to the Presidents
consulting agreement, to include the granting of 3,000,000 RSUs to the
President, determined to be valued at $3,000,000, based on private placement
pricing at the time, on the same terms and conditions as those granted to the
CEO. Immediately thereafter, 1,000,000 of the Presidents RSUs were exchanged
for 1,000,000 common stock of the Company. And, on January 9, 2019, 1,000,000 of
the Presidents RSUs were exchanged into 1,000,000 common of the Company. Based
on private placement pricing at the time, the common stock issued to the
President on each exchange of the RSUs, was determined to be valued at
$1,000,000. The RSUs for the remaining installment are expected to vest annually
on January 1, 2020, subject to meeting certain performance objectives.
For the three-month period ended March 31, 2019, the Company
recognized management compensation expense of $332,500 (2018-$82,500 on the
award to the CEO) on the awards to the President and the CEO, representing
one-sixth of the total value of the awards of $3,990,000.
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.