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, 2023 filed with the Securities and Exchange Commission on May 15, 2024.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three and nine-month periods ended September 30, 2024 compared with the three and nine-month periods ended September 30, 2023 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 AUDITORS ISSUED OPINIONS 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, 2023 AND 2022. 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:
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On February 4, 2019, the Company registered its common stock, having a par value of $.0001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is effective pursuant to General Instruction A.(d).
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, at 200 Davenport Road. Our telephone number is 416-223-8500. Our website address is www.susglobalenergy.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are all available, free of charge, on our website as soon as practicable after we file the reports with the Securities and Exchange Commission (the "SEC"). SusGlobal Energy Corp., 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 12, 2017.
SusGlobal is a renewables company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.
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., SusGlobal Energy Belleville Ltd., SusGlobal Energy Hamilton Ltd., and 1684567 Ontario Inc.
On December 11, 2018, the Company began trading on the OTCQB® Venture Market, under the ticker symbol SNRG.
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| 30 |
As the global amount of organic waste continues to grow, a solution for sustainable global management of these wastes is paramount. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of three 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) Maximizing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield. (c) and (c) process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewables. These products can be converted into electricity, fuels and marketed to agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces Greenhouse Gas Emissions ("GHG") that result from landfilling organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy®.
We believe the products 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, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management, Composting and Liquid Fertilizers.
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 integrating our technologies with capital investment to optimize the processing of SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant GHG reductions from waste disposal. The processes produce regenerative products through the conversion of organic wastes into organic fertilizer, both dry compost and liquid.
Currently, the primary customers are municipalities in both rural and urban centers in Ontario, Canada. Where necessary, to follow provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.
We are a "smaller reporting company," as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until (i) our public float exceeds $250 million on the last day of our second fiscal quarter in our prior fiscal year (if our annual revenues exceeded $100 million in such prior fiscal year); or (ii) our public float exceeds $700 million on the last day of our second fiscal quarter in our prior fiscal year (if our annual revenues were less than $100 million in such prior fiscal year).
RECENT BUSINESS DEVELOPMENTS
On October 22, 2024, the Company generated revenue of $42,715 (C$57,660), from the sale of 16,000 carbon credits from its Belleville Facility.
On August 13, 2024, the lender's representative took possession of the Company's truck and hauling trailer due to outstanding monthly payments since February 7, 2024 and removed it from the Belleville Facility to be auctioned.
On July 28, 2024, the Company's real estate broker listed the Company's two properties located in Hamilton, Ontario, Canada, for sale. On the recommendation of the real estate broker, there was no selling price noted.
On July 29, 2024, the Company reached a settlement of a claim with Gillam for outstanding amounts owing on the construction of the Hamilton Facility. The Company provided Gillam with a 2nd mortgage secured by the property at 520 Nash Road North in Hamilton, Ontario, Canada in the amount of $2,222,400 (C$3,000,000), due February 1, 2025. If the mortgage is paid by November 30, 2024, the final payment will be reduced to $2,148,320 (C$2,900,000). If the payment is not made by November 30, 2024, interest will accrue commencing on December 1, 2024 based on the Bank of Nova Scotia prime rate plus 4% annually, calculated daily. In addition, together with the registration of this 2nd mortgage, Gillam will cause the motion for judgement in respect of the constructions liens scheduled for a hearing on July 30, 2024 to be adjourned until after the expiry date. On payment of the 2nd mortgage, Gillam will have the construction liens on the property noted above, discharged.
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As noted below, the Belleville Facility ceased accepting waste after January 10, 2024 and continues to seek funding or re-financing to remediate the compliance matters in an effort to begin accepting waste again before the end of the current year or early in 2025.
On May 16, 2024, the Company was informed by its Canadian legal counsel that the City of Belleville, Ontario, Canada (the "City"), issued an order against the Belleville Facility, its numbered company, 1684567 and its officers for the repayment of the cost of pumping out contaminated water from the City's roadside ditch, along with legal and other associated costs. On May 31, 2024, the companies and the officers filed notices of appeal to the Ontario Land Tribunal.
On or around November 27, 2023 and March 6, 2024, the Company experienced an outflow of contaminated water from its stormwater pond at its Belleville Facility, which spilled over into the City of Belleville's roadside ditch and has continued to periodically overflow. The Company is collaborating with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the Ministry of the Environment, Conservation and Parks from the Province of Ontario (the "MECP").
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take many months to complete, will require significant investment, and are dependent on the Company securing funding. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Belleville Facility.
Consulting Contracts
The Company entered into an Executive Chairman Consulting Agreement (the "CEO's Consulting Agreement"), by and among the Company, Travellers International Inc. ("Travellers"), and the CEO, who is also a director, the Executive Chairman and President of the Company, effective January 1, 2023 (the "Effective Date"). The CEO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation was at a rate of $29,632 (C$40,000) per month for twelve (12) months, beginning on the Effective Date, and at a rate of $37,040 (C$50,000) per month for twelve (12) months, beginning January 1, 2024. In addition, the Company agreed to grant the CEO 3,000,000 restricted shares of the Company's common stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. This common stock was issued on January 3, 2023. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
The CEO's Consulting Agreement is for a term of twenty-four (24) months. Upon a Constructive Discharge (as defined in the CEO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CEO will be entitled to compensation of twelve (12) months' fees, as well as any bonus compensation owing.
The Company also entered into an Executive Consulting Agreement (the "CFO Consulting Agreement"), by and between the Company and the CFO of the Company, effective January 1, 2023. Pursuant to the terms of the CFO Consulting Agreement, the CFO is entitled to fees of $9,260 (C$12,500) per month for twelve (12). In addition, the Company has also agreed to grant the CFO 100,000 restricted shares of the Company's common stock, par value of $0.0001 per share on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO. This common stock was issued on January 3, 2023. The CFO's Consulting Agreement replaced the consulting agreement which expired on December 31, 2022.
The CFO's Consulting Agreement is for a term of twelve (12) months. Upon a Constructive Discharge (as defined in the CFO's Consulting Agreement) and subject to certain notification requirements and the Company's opportunity to cure the Constructive Discharge, the CFO will be entitled to compensation of two (2) months' fees, as well as any bonus compensation owing.
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Financings
(a) Securities Purchase Agreements
At September 30, 2024, the Company had and currently has six security purchase agreements outstanding, all of which are currently in default. The outstanding principal balance at September 30, 2024 of the convertible promissory notes was $8,441,530, including accrued interest of $2,099,844 and with a fair value of $11,643,185.
Please refer to the interim condensed consolidated financial statements, convertible promissory notes, note 11 and fair value measurement, note 12 for details on the convertible promissory notes.
(b) Mortgages
i) On December 1, 2023, this 1st mortgage was renewed with a new maturity date of June 1, 2024 and a fixed interest rate of 13% per annum. On renewal, the 1st mortgage was increased by $308,380 (C$416,280), from $3,852,160 (C$5,200,000) to $4,160,540 (C$5,616,280), to account for increased interest based on the previous variable rate, three months of prepaid interest and a financing fee. The 1st mortgage is secured by the shares held of 1684567, a 1st mortgage on the Belleville Facility and a general assignment of rents. Financing fees on the 1st mortgage totaled $337,374 (C$455,419). As at September 30, 2024 $351,879 (C$474,999) (December 31, 2023-$44,555; C$58,928) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2024 there is $nil (C$nil) (December 31, 2023-$32,764; C$43,333) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.
ii) On March 1, 2023, the Company obtained a 2nd mortgage in the amount of $1,111,200 (C$1,500,000) bearing interest at the annual rate of 12%, repayable monthly, interest only with a maturity date of March 1, 2024, secured as noted under paragraph (a)i) above. The Company incurred financing fees of $44,448 (C$60,000). As at September 30, 2024 $77,602 (C$104,754) (December 31, 2023-$11,187; C$14,795) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2024, there is $nil (C$nil) (December 31, 2023-$7,457 (C$9,863) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.
iii) On November 2, 2023, the Company completed the purchase of additional land, consisting of a 2.03-acre site in Hamilton, Ontario, Canada for $2,296,480 (C$3,100,000), prior to an additional disbursement of $43,318 (C$58,475) representing land transfer tax. The Company obtained vendor take-back 1st mortgage in the amount of $1,481,600 (C$2,000,000) bearing interest at 7% annually, payable monthly, interest only and maturing November 2, 2025. An additional mortgage, as noted below under paragraph (a)iv), was arranged to complete the purchase. As at September 30, 2024 $7,934 (C$10,710) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.
iv) In connection with the purchase of additional land noted above under paragraph (a)iii) above, a 2nd mortgage was obtained in the amount of $777,840 (C$1,050,000) bearing interest at 13% annually, payable monthly interest only maturing November 2, 2024 and secured by a 3rd mortgage on the property in Belleville, Ontario, Canada. The Company incurred financing fees of $29,632 (C$40,000) and as at September 30, 2024, $2,672 (C$3,607) (December 31, 2023-$20,440; C$27,033) of unamortized financing fees is included in long-term debt in the interest condensed consolidated balance sheets.
v) On December 14, 2023, the Company made arrangements to repay the previous 1st mortgage on the first property purchased in Hamilton, Ontario, Canada on August 17, 2021, for a new 1st mortgage bearing interest at 13% annually, payable monthly, interest and maturing December 14, 2024, in the amount of $1,654,427 ($C2,233,298) with new creditors. The original 1st mortgage was a vendor take back mortgage. Financing fees of $74,080 (C$100,000) were incurred and as at September 30, 2024, $15,180 (C$20,492) (December 31, 2023-$72,088; C$95,342) of unamortized financing fees is included in long-term debt in the interim condensed consolidated balance sheets.
vi) On April 2, 2024, the Company received funds in the amount of $145,218 (C$196,028) for a $239,861 ($323,786) 4th mortgage secured by the Belleville Facility bearing interest at 12% annually payable monthly interest only maturing October 2, 2024, cross collateralized by a 3rd mortgage secured by the additional land in Hamilton, Ontario, Canada, net of unpaid interest, a financing fee of $20,002 (C$27,000) and six months of capitalized interest. Further sums totaling $65,349 (C$88,214) were advanced after April 2, 2024, resulting in a balance of $305,210 (C$412,000) at September 30, 2024. As at September 30, 2024 $219 (C$295) of unamortized financing fees is included in long-term-term debt in the interim condensed consolidated balance sheets.
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For the three and nine-month periods ended September 30, 2024, $269,096 (C$367,075) and $814,160 (C$1,107,551) (2023-$138,015; C$185,000 and $388,605; C$522,833) respectively, in interest was incurred on the mortgages payable.
(c) Other Financings
(i) As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
These CEBA loans were repaid on January 9, 2024 and January 11, 2024, in total $51,142 (C$70,000) and $22,242 (C$30,000) was forgiven as outlined in the CEBA term loan agreements. The forgiven amount is recorded under other expenses (income) in the interim condensed consolidated statements of operations and comprehensive loss.
(ii) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $161,745 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $148,160 (C$200,000), over a forty-eight-month term, bearing interest at 4.95% per annum with monthly blended instalments of principal and interest payments of $3,631 (C$4,901) due April 7, 2025. The last payment made was on February 7, 2024. And, as noted above under recent business developments, on August 13, 2024, the lender's representative took possession of the truck and hauling trailer and removed it from the Belleville Facility to be auctioned. Final auction details of the sale have not been finalized.
For the three and nine-month periods ended September 30, 2024, $632 (C$862) and $1,718 (C$2,337) (2023-$823; C$1,103 and $2,794; C$3,760) respectively, in interest was incurred.
(d) Financings Related to Obligations Under Capital Lease
There was no new capital leases entered into by the Company during the three and nine-month periods ended September 30, 2024. The original terms of the obligations under capital lease outstanding at September 30, 2024 are noted below.
(i) The lease agreement for certain equipment for the Belleville Facility at a cost of $288,653 (C$389,650), is payable in monthly blended installments of principal and interest of $5,076 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $14,409 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $74 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.
For the three and nine-month periods ended September 30, 2024, $459 (C$626) and $1,611 (C$2,192) (2023-$785; C$1,053 and $2,768; C$3,725) respectively, in interest was incurred.
The Company is in arrears with payments to the lessor. The last payment made was on January 27, 2024. As a result, on May 24, 2024, the lessor repossessed the equipment.
Operations
The Company owns Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 metric tonnes ("MT") of waste annually from the provinces of Ontario, Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 MT of waste annually. Once built, the location of the waste transfer station will be alongside the Organic and Non-Hazardous Waste Processing and Composting Facility which is currently operating in Belleville, Ontario, Canada.
Waste Transfer Station- Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.
Organic Composting Facility- As noted above, the Company's Belleville Facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the asset purchase agreement (the "APA"). The Company charges tipping fees for the waste accepted at the Belleville Facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, SSO, leaf and yard, food, liquid, paper sludge and biosolids. As the Company stopped receiving waste after January 10, 2024, there was no revenue to September 30, 2024. During the three-month period ended March 31, 2024, tipping fees ranged from $51 (C$69) to $117 (C$159) per MT.
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The Company owns a 41,535 square foot facility (approximately 27% complete) on 5.29 acres in Hamilton, Ontario (the "Hamilton Facility"), which includes the additional land purchased November 2, 2023 and which includes an Environmental Compliance Approval to process 65,884 MT per annum of organic waste, 24 hours per day 7 days a week. The Hamilton Facility has been designed to produce, distribute and warehouse the Company's SusGro™ organic liquid fertilizer and other products that are anticipated to be provided under private label and to be sold through big box retailers, consumer lawn and garden suppliers, and for end use to the wine, cannabis and agriculture industries. With the addition of a further 11,000 square feet of office space and R&D labs, the Hamilton Facility will also house the continued development of SusGlobal's proprietary formulations and branded liquid and dry organic fertilizers.
As noted above, under recent business developments, the Hamilton Facility was listed for sale on July 28, 2024.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2024, the Company had a bank balance of $53,518 (December 31, 2023-$1,263) and current debt obligations and other current liabilities in the amount of $33,164,982 (December 31, 2023-$30,823,963). As at September 30, 2024, the Company had a working capital deficit of $33,002,073 (December 31, 2023-$30,390,423). The Company does not currently have sufficient funds to satisfy the current debt obligations.
The Company's total assets as at September 30, 2024 were $11,026,789 (December 31, 2023-$11,755,903) and total current liabilities were $33,164,982 (December 31, 2023-$30,823,963). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $42,218,458 as at September 30, 2024 (December 31, 2023 -$38,570,531). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels.
To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $33,164,982 in current debt obligations and other current liabilities, the Company estimates that approximately $10,000,000 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.
As at September 30, 2024, the current and long-term portions of our debt obligations totaled $22,003,136 (December 31, 2023-$20,447,318). As a result of default and cross defaults, the long-term debt is presented as current debt, even where due beyond twelve months of the balance sheet date.
In addition, up until September 30, 2023, PACE had provided the Company a letter of credit in favor of the MECP in the amount of $205,076 (C$276,831) and, as security, has registered a charge of lease over the Belleville Facility.
The current letter of credit required by the MEC is $472,361 (C$637,637) and now $8518 (C$146,487), while the Company re-assesses and re-submits it financial assurance to the MECP with the assistance of its environmental consultant. The Company has not yet satisfied this requirement of the MECP.
The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Belleville Facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company has engaged an environmental consulting firm to re-evaluate the financial assurance with the MECP, which is based on the estimated environmental remediation and clean-up costs for its waste processing and composting facility. As a result of inspections carried out by the MECP during the prior years, some of which have resulted in MECP orders having been issued, the Company has accrued estimated and actual costs for certain corrective measures in orders issued by the MECP and other costs in the amount of $2,220,235 (C$2,997,077) (December 31, 2023-$2,153,214; C$2,847,790).
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| 35 |
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED September 30, 2024 COMPARED TO THE THREE-MONTH PERIOD ENDED September 30, 2023
| |
|
For the three-month periods
ended |
|
| |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
| |
|
|
|
|
|
|
| Revenue |
$ |
- |
|
$ |
186,901 |
|
| |
|
|
|
|
|
|
| Cost of Sales |
|
|
|
|
|
|
| Opening inventory |
|
- |
|
|
64,578 |
|
| Depreciation |
|
69,957 |
|
|
87,528 |
|
| Direct wages and benefits |
|
26,894 |
|
|
36,349 |
|
| Equipment rental, delivery, fuel and repairs and maintenance |
|
173,397 |
|
|
14,723 |
|
| Utilities |
|
1,448 |
|
|
32,721 |
|
| Outside contractors |
|
- |
|
|
- |
|
| |
|
271,696 |
|
|
236,009 |
|
| Less: closing inventory |
|
- |
|
|
(42,889 |
) |
| Total cost of sales |
|
271,696 |
|
|
193,120 |
|
| |
|
|
|
|
|
|
| Gross loss |
|
(271,696 |
) |
|
(6,219 |
) |
| |
|
|
|
|
|
|
| Operating expenses |
|
|
|
|
|
|
| Management compensation-stock-based compensation |
|
54,000 |
|
|
57,600 |
|
| Management compensation-fees |
|
137,456 |
|
|
117,401 |
|
| Marketing |
|
- |
|
|
923 |
|
| Professional fees |
|
164,923 |
|
|
103,930 |
|
| Interest expense |
|
291,986 |
|
|
140,161 |
|
| Office and administration |
|
57,328 |
|
|
56,567 |
|
| Rent and occupancy |
|
55,743 |
|
|
58,385 |
|
| Insurance |
|
(2,021 |
) |
|
10,974 |
|
| Filing fees |
|
6,136 |
|
|
8,562 |
|
| Amortization of financing costs |
|
42,663 |
|
|
26,901 |
|
| Directors' compensation |
|
18,328 |
|
|
18,631 |
|
| Stock-based compensation |
|
- |
|
|
254,724 |
|
| Repairs and maintenance |
|
7,335 |
|
|
1,015 |
|
| Foreign exchange (income) loss |
|
(192,999 |
) |
|
214,406 |
|
| Total operating expenses |
|
640,878 |
|
|
1,070,180 |
|
| |
|
|
|
|
|
|
| Net Loss Before Other Income (Expense) |
|
(912,574 |
) |
|
(1,076,399 |
) |
| Other Income (Expense) |
|
1,169,494 |
|
|
(116,710 |
) |
| Net Income (Loss) |
$ |
256,920 |
|
$ |
(1,193,109 |
) |
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings at its Belleville Facility, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take the balance of the year and into early 2025 to be completed and be able to reopen. This will require significant investment, and is dependent on the Company securing funding, with a focus on equity financing. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements, some of which as ordered by the MECP. This will also include replacement of certain equipment at the Belleville Facility.
|
| 36 |
During the three-month period ended September 30, 2024, the Company did not generate any revenue from its Belleville Facility compared to $186,901 in the three-month period ended September 30, 2023. The decrease in revenue is due to the result of not accepting waste after January 10, 2024.
In the typical operation of the Belleville Facility, the Company processes organic and other waste received and produces the end product, compost. The cost of sales totaled $271,696 for the three-month period ended September 30, 2024 compared to $193,120 for the three-month period ended September 30, 2023. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation and utilities. These costs include estimates for completing certain known compliance matters as ordered by the MECP.
Operating expenses decreased by $429,302 from $1,070,180 in the three-month period ended September 30, 2023 to $640,878 in the three-month period ended September 30, 2024, explained further below.
Management compensation related to stock-based compensation reduced by $3,600, in the three-month period ended September 30, 2024 compared to the three-month period ended September 30, 2023. The current stock-based compensation reflects the stock-based compensation issued to the CEO as stipulated in his executive consulting contract, effective January 1, 2023. This will be earned through the balance of the current year, in the amount of $54,000. And the management compensation relating to fees increased by $20,055 reflecting the increase in the CEO's compensation for the current year.
Marketing expenses reduced by $923, from $923 in the three-month period ended September 30, 2023 to $nil for the three-month period ended September 30, 2024, as the Company did not have a marketing campaign during the current period.
Professional fees increased by $60,993, from $103,930 in the three-month period ended September 30, 2023 to $164,923 in the three-month period ended September 30, 2024. The primary reason for the increase is due to the legal and consulting fees incurred in addressing the orders issued by the MECP.
Interest expense increased by $151,825 from $140,161 in the three-month period ended September 30, 2023 to $291,986 in the three-month period ended September 30, 2024. This increase was primarily due to the increase in mortgages in December of 2023, new mortgages on the Hamilton, Ontario, Canada property purchase in November of 2023, a new 4th mortgage on the Belleville Facility and new loans from Haute Inc., in December 2023 and January 2024. These changes along with the new fixed rates on certain mortgages at 12% and 13% annually resulted in an increased interest expense.
Office and administration expenses increased nominally by $761 from $56,567 in the three-month period ended September 30, 2023 to $57,328 in the three-month period ended September 30, 2024.
Rent and occupancy decreased nominally by $2,642 from $58,385 in the three-month period ended September 30, 2023 to $55,743 in the three-month period ended September 30, 2024, primarily due to a decrease related expenses for the Company's Toronto, Ontario, Canada office and additional property taxes on the additional land purchased in Hamilton, Ontario, Canada.
Insurance decreased by $23,911 from $10,974 in the three-month period ended September 30, 2024 to a credit of $2,021 in the three-month period ended September 30, 2024, as certain insurance coverage expired during the period. The Company continues to not have the funds to pay for current or certain past insurance premiums.
Filing fees decreased by $2,426, from $8,562 in the three-month period ended September 30, 2023 to $6,136 in the three-month period ended September 30, 2024.
The amortization of financing costs increased by $28,817, from $26,901 in the three-month period ended September 30, 2023 to $42,663 in the three-month period ended September 30, 2024, due to new financing fees incurred on the new or re-financed mortgages in the fourth quarter of 2023, the new loans from Haute Inc., in the fourth quarter of 2023 and in January of 2024, along with the new 4th mortgage on the Belleville Facility in April of 2024.
Directors' compensation decreased nominally by $303 from $18,631 in the three-month period ended September 30, 2023 to $18,328 in the three-month period ended September 30, 2024. The decrease is entirely related to the foreign exchange translation applied in the current quarter versus the prior year's quarter.
|
| 37 |
There was no stock-based compensation in the three-month period ended September 30, 2024, a reduction of $254,724 from the three-month period ended September 30, 2023 as a result of no services provided by consultants who were compensated through the issuance of the Company's common stock.
Repairs and maintenance increased by $6,320 from $1,105 in the three-month period ended September 30, 2023 to $7,335 in the three-month period ended September 30, 2024. The increase is primarily related to certain additional repair costs accrued in the Belleville Facility.
The foreign exchange loss in the three-month period ended September 30, 2023 in the amount of $214,406 reduced to an income amount of $192,999 in the three-month period ended September 30, 2024 a change of $407,405, due primarily to the translation of significant United States dollar denominated transactions and balances during the current period including the convertible promissory notes, during a period of a strengthening Canadian dollar compared to the United States dollar. In the three-month period ended September 30, 2023, the Canadian dollar had weakened compared to the United States dollar.
During the current three-month period ended September 30, 2024, the Company recorded a loss on the revaluation of the convertible promissory notes in the amount of $152,239 compared to loss of $116,710 in the three-month period ended September 30, 2023. Further, as a result of a default judgement filed by the March 2022 Investor for their March 2022 Investor Note in September 2024, certain actions were dropped which were previously accrued for and additional interest charges were added. The impact of the removal of the two causes of action totaling $2,250,000, plus the additional pre-judgement and other interest charged resulted in a reduction in the previous accrual for loss in the amount of $1,321,733. In total, other income (expense) changed by $1,286,204, from an expense of $116,710 in the three-month period ended September 30, 2023 to income of $1,169,494 in the three-month period ended September 30, 2024.
CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2024 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2023
| |
|
For the nine-month periods
ended |
|
| |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
| |
|
|
|
|
|
|
| Revenue |
$ |
38,575 |
|
$ |
505,075 |
|
| |
|
|
|
|
|
|
| Cost of Sales |
|
|
|
|
|
|
| Opening inventory |
|
- |
|
|
58,695 |
|
| Depreciation |
|
226,694 |
|
|
301,467 |
|
| Direct wages and benefits |
|
58,627 |
|
|
111,984 |
|
| Equipment rental, delivery, fuel and repairs and maintenance |
|
479,815 |
|
|
55,569 |
|
| Utilities |
|
(645 |
) |
|
89,578 |
|
| Outside contractors |
|
4,448 |
|
|
- |
|
| |
|
768,939 |
|
|
617,293 |
|
| Less: closing inventory |
|
- |
|
|
(42,889 |
) |
| Total cost of sales |
|
768,939 |
|
|
574,404 |
|
| |
|
|
|
|
|
|
| Gross loss |
|
(730,364 |
) |
|
(69,329 |
) |
| |
|
|
|
|
|
|
| Operating expenses |
|
|
|
|
|
|
| Management compensation-stock-based compensation |
|
162,000 |
|
|
172,800 |
|
| Management compensation-fees |
|
413,494 |
|
|
351,162 |
|
| Marketing |
|
501 |
|
|
122,098 |
|
| Professional fees |
|
585,601 |
|
|
286,723 |
|
| Interest expense |
|
882,305 |
|
|
499,222 |
|
| Office and administration |
|
224,849 |
|
|
176,120 |
|
| Rent and occupancy |
|
177,568 |
|
|
161,127 |
|
| Insurance |
|
45,189 |
|
|
33,167 |
|
| Filing fees |
|
27,313 |
|
|
31,852 |
|
| Amortization of financing costs |
|
155,567 |
|
|
72,296 |
|
| Directors' compensation |
|
55,133 |
|
|
53,211 |
|
| Stock-based compensation |
|
- |
|
|
785,149 |
|
| Repairs and maintenance |
|
19,073 |
|
|
22,636 |
|
| Foreign exchange loss (income) |
|
281,039 |
|
|
(33,037 |
) |
| Total operating expenses |
|
3,029,632 |
|
|
2,734,526 |
|
| |
|
|
|
|
|
|
| Net Loss Before Other Income (Expense) |
|
(3,759,996 |
) |
|
(2,803,855 |
) |
| Other Income (Expense) |
|
112,069 |
|
|
(2,371,204 |
) |
| Net Loss |
$ |
(3,647,927 |
) |
$ |
(5,175,059 |
) |
|
| 38 |
As a result of an order issued by the Ministry of Labour, Immigration, Training and Skills Development, specifically relating to high ammonia levels in one of the Company's composting buildings at its Belleville Facility, the Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company also received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take the balance of the year and into early 2025 to be completed and be able to reopen. This will require significant investment, and is dependent on the Company securing funding, with a focus on equity financing. We believe that our operating property, vehicle and equipment had been adequately maintained but will require significant investment to carry out repairs and improvements, some of which as ordered by the MECP. This will also include replacement of certain equipment at the Belleville Facility.
During the nine-month period ended September 30, 2024, the Company generated total revenue of $38,575 from its Belleville Facility compared to $505,075 in the nine-month period ended September 30, 2023. The decrease in revenue is primarily due to the result of not accepting waste after January 10, 2024. Revenue in the current period includes $16,468 from the sale of carbon credits compared to $60,449 in the prior period.
In the typical operation of the Belleville Facility, the Company processes organic and other waste received and produces the end product, compost. The cost of sales totaled $768,939 for the nine-month period ended September 30, 2024 compared to $574,404 for the nine-month period ended September 30, 2023. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. These costs include estimates for completing certain known compliance matters as ordered by the MECP.
Operating expenses increased by $295,106 from $2,734,526 in the nine-month period ended September 30, 2023 to $3,029,632 in the nine-month period ended September 30, 2024, explained further below.
Management compensation related to stock-based compensation reduced by $10,800, in the nine-month period ended September 30, 2024 compared to the nine-month period ended September 30, 2023. The current stock-based compensation reflects the stock-based compensation issued to the CEO as stipulated in his executive consulting contract, effective January 1, 2023. This will be earned throughout the current year in the amount of $54,000. And the management compensation relating to fees increased by $62,332, reflecting the increase in the CEO's compensation for the current year.
Marketing expenses reduced by $121,597, from $122,098 in the nine-month period ended September 30, 2023 to $501 for the nine-month period ended September 30, 2024, as the Company did not have a marketing campaign during the current period.
Professional fees increased by $298,878, from $286,723 in the nine-month period ended September 30, 2023 to $585,601 in the nine-month period ended September 30, 2024. The primary reason for the increase is due to additional legal and consulting fees incurred in addressing the orders issued by the MECP and the City of Belleville.
Interest expense increased by $383,083 from $499,222 in the nine-month period ended September 30, 2023 to $882,305 in the nine-month period ended September 30, 2024. This increase was primarily due to the increase in mortgages in December of 2023, new mortgages on the Hamilton, Ontario, Canada property purchase in November of 2023, a new 4th mortgage on the Belleville Facility and new loans from Haute Inc., in December 2023 and January 2024. These changes along with the new fixed rates on certain mortgages at 12% and 13% annually resulted in an increased interest expense. This was offset by the settlement of the PACE loans in November 2023, resulting in no interest incurred in the current nine-month period ending September 30, 2024 compared to the interest incurred in the previous nine-month period ended September 30, 2023 of $103,371.
|
| 39 |
Office and administration expenses increased by $48,729, from $176,120 in the nine-month period ended September 30, 2023 to $224,849 in the nine-month period ended September 30, 2024, primarily from interest and penalties charged on overdue balances.
Rent and occupancy increased by $16,441 from $161,127 in the nine-month period ended September 30, 2023 to $177,568 in the nine-month period ended September 30, 2024, primarily due to an increase in rent and related expenses for the Company's Toronto, Ontario, Canada office and additional property taxes on the additional land purchased in Hamilton, Ontario, Canada in November of 2023.
Insurance increased by $12,022 from $33,167 in the nine-month period ended September 30, 2024, to $45,189 in the nine-month period ended September 30, 2024, as the Company continues to accrue for certain coverage which it has not been able to fund.
Filing fees decreased by $4,539 from $31,852 in the nine-month period ended September 30, 2023 to $27,313 in the nine-month period ended September 30, 2024.
The amortization of financing costs increased by $83,271, from $72,296 in the nine-month period ended September 30, 2023 to $155,567 in the nine-month period ended September 30, 2024, due to new financing fees incurred on the new or re-financed mortgages in the fourth quarter of 2023, the new loans from Haute Inc., in the fourth quarter of 2023 and January of 2024, along with the new 4th mortgage on the Belleville Facility in the current quarter.
Directors' compensation increased nominally by $1,922 from $53,211 in the nine-month period ended September 30, 2023 to $55,133 in the nine-month period ended September 30, 2024. This was primarily the result of the timing of the new independent director who had not joined the board until mid-way through the first quarter of 2023.
There was no stock-based compensation in the nine-month period ended September 30, 2024, a reduction of $785,149 from the nine-month period ended September 30, 2023 as a result of no services provided by consultants who were compensated through the issuance of the Company's common stock.
Repairs and maintenance decreased nominally by $3,563 from $22,636 in the nine-month period ended September 30, 2023 to $19,073 in the nine-month period ended September 30, 2024. The decrease is primarily related to a reduction in repairs accrued in the Belleville Facility.
The foreign exchange income in the nine-month period ended September 30, 2023 in the amount of $33,037 reduced to a loss of $281,039 in the nine-month period ended September 30, 2024, a change of $314,076, due primarily to the translation of significant United States dollar denominated transactions and balances during the current period including the convertible promissory notes, compared to the prior period, during a period of a weakening Canadian dollar compared to the United States dollar. In the prior nine-month period ended September 30, 2023, the Canadian dollar had strengthened compared to the United States dollar.
During the current nine-month period ended September 30, 2024, the Company recorded a loss on the revaluation of the convertible promissory notes in the amount of $1,004,361 compared to loss of $2,296,845 in the nine-month period ended September 30, 2023. In addition, during the current nine-month period ended September 30, 2024, the Company recognized a loss of $227,545 on a provision for loss on settlement of the claim from the general contractor for the construction for the Hamilton Facility. In addition, during the current nine-month period ended September 30, 2024, the Company recognized a gain of $22,242 on the forgiveness of a portion of the CEBA loans on repayment in January of 2024. Further, as a result of a default judgement filed by the March 2022 Investor in September 2024 for their March 2022 Investor Note, certain actions were dropped which were previously accrued for and additional interest charges were added. The impact of the removal of the two causes of action totaling $2,250,000, plus the additional pre-judgement and other interest charged resulted in a reduction in the previous accrual for income in the amount of $1,321,733. And, in the prior nine-month period ended September 30, 2023 the Company incurred a loss of $74,359, on the conversions of a portion of a convertible promissory note. In total, other (expense) income decreased by $2,483,273 from an expense of $2,371,204 in the nine-month period ended September 30, 2023 to income of $112,069 in the nine-month period ended September 30, 2024.
As at September 30, 2024, the Company had a working capital deficit of $33,002,073 (December 31, 2023-$30,390,423), incurred a net loss of $3,647,927 (September 30, 2023-$5,175,059) for the nine months ended September 30, 2024 and had an accumulated deficit of $42,218,458 (December 31, 2023-$38,570,531) 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 and satisfy its outstanding obligations to its creditors and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
|
| 40 |
The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.
CRITICAL ACCOUNTING ESTIMATES
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, fair value of convertible promissory notes, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.
Stock-based compensation
The Company records compensation costs related to stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. Where necessary, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of highly subjective assumptions including: the expected option life, the risk-free rate, the dividend yield, the volatility of the Company's stock price and an assumption for employee forfeitures. The risk-free rate is based on the U.S. Treasury bill rate at the date of the grant with maturity dates approximately equal to the expected term of the option. The Company has not historically issued any dividends and does not expect to in the near future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting stock-based compensation recognized. The Company has not issued any stock options and has no stock options outstanding at September 30, 2024.
Indefinite Asset Impairments
The Company evaluates the intangible assets for impairment annually in the fourth quarter or when triggering events are identified and whether events and circumstances continue to support the indefinite useful life using Level 3 inputs.
Long-Lived Asset Impairments
In accordance with ASC 360, "Property, Plant and Equipment", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events or circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event that such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.
Convertible Promissory Notes
The Company has elected the fair value option to account for its convertible promissory notes issued after December 31, 2020. In accordance with ASC 825, the convertible promissory notes are marked-to-market at each reporting date with changes in fair value recorded as a component of other income (expense), in the interim condensed consolidated statements of operations and comprehensive loss. The Company has elected to include interest expense in the changes in fair value. Transaction costs are expenses as incurred. The Company did not elect the fair value option for the convertible promissory notes issued in 2019. These notes are measured at amortized cost.
|
| 41 |
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
There was no new accounting pronouncements issued by the Financial Accounting Standards Board and not yet adopted that were expected to have a material impact on the Company's interim condensed consolidated financial position or results of operations in the current or future periods.
EQUITY
As at September 30, 2024, and as at the date of filing, the Company had 131,332,019 common shares issued and outstanding.
STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
The Company has no stock options, warrants or restricted stock units outstanding as at September 30, 2024 and as of the date of this filing.
RELATED PARTY TRANSACTIONS
For the three and nine-month periods ended September 30, 2024, the Company incurred $109,965 (C$150,000) and $330,795 (C$450,000) (2023-$89,449; C$120,000 and $267,552; C$360,000) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $27,491 (C$37,500) and $82,699; C$112,000) (2023-$27,952; C$37,500 and $83,610; C$112,500) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at September 30, 2024, unpaid remuneration and unpaid expenses in the amount of $369,904 (C$499,330) (December 31, 2023-$171,733; C$227,130) is included in accounts payable and $221,158 (C$298,539) (December 31, 2023-$138,963; C$183,789) is included in accrued liabilities in the interim condensed consolidated balance sheets.
For the three and nine-month periods ended September 30, 2024, the Company incurred $33,315 (C$44,661) and $92,449 (C$125,764) (2023-$30,014; C$40,046 and $80,452; C$108,251) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO. The lease agreement expired, and the Company is currently on a month-to-month arrangement.
In addition, on January 11, 2024, Travellers converted $101,130 (C$135,600) of outstanding accounts payable into 809,044 common shares of the Company at the closing trading price immediately prior to the conversion. During the three and nine-month periods ended September 30, 2024, Travellers converted $nil (C$nil) and $101,130 (C$135,600) of outstanding accounts payable (2023-$233,558 (C$316,400) and $512,403 (C$688,883 of outstanding loans and outstanding accounts payable) respectively, for nil and 809,044 (2023-1,254,792 and 2,422,163) respectively, into common shares of the Company, based on closing trading prices on the day prior to each conversion. There was no gain or loss on these conversions. Further, on September 30, 2024, 6,000,000 common shares of the Company were issued to Travellers on a private placement at a price per share of $0.02.
For the independent directors, the Company recorded directors' compensation during the three and nine-month periods ended September 30, 2024 of $18,328 (C$25,000) and $55,133 (C$75,000) (2023-$18,631; C$25,000 and $53,211; C$71,597) respectively. In addition, in the prior year, on February 18, 2023, a new independent director was appointed and he was awarded 100,000 common shares of the Company on March 1, 2023 valued at $21,000 based on the closing trading price on the appointed date and included under stock-based compensation in the interim condensed consolidated statements of operations and comprehensive loss. As at September 30, 2024, outstanding directors' compensation of $248,756 (C$335,793) (December 31, 2023-$197,186; C$260,793) is included in accrued liabilities in the interim condensed consolidated balance sheets.
Pursuant to the terms of the CEO's Consulting Agreement, for his services as the CEO, the compensation is at a rate of $29,576 (C$40,000) per month for twelve (12) months, beginning on the Effective Date, January 1, 2023, and at a rate of $36,970 (C$50,000) per month for twelve (12) months, beginning January 1, 2024. In addition, the Company agreed to grant the CEO 3,000,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. The Company has also agreed to reimburse the CEO for certain out-of-pocket expenses incurred by the CEO.
Pursuant to the terms of the CFO's Consulting Agreement for his services as the CFO, the compensation is at a rate of $9,243 (C$12,500) per month for twelve (12) months, beginning on the Effective Date, January 1, 2023. In addition, the Company agreed to grant the CFO 100,000 restricted shares of the Company's Common Stock, par value of $0.0001 per share (the "Common Stock") on the Effective Date. The Company has also agreed to reimburse the CFO for certain out-of-pocket expenses incurred by the CFO. The CFO currently provides his services on a month-to-month basis.
|
| 42 |
Furthermore, for the three and nine-month periods ended September 30, 2024, the Company recognized management stock-based compensation expense of $54,000 and $162,000 (2023-$57,600 and $172,800) respectively, on the common stock issued to the CEO and the CFO, 3,000,000 and 100,000 common stock, respectively, as stipulated in their executive consulting agreements, effective January 1, 2023 valued at the trading price on the Effective Date. The total stock-based compensation on the issuance of the common stock totaled $nil (2023-$446,400). The portion to be expensed for the balance of the consulting agreements, $54,000 (2023-$273,600) is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Quarterly Report on Form 10-Q.
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective. The matters involving internal controls over financial reporting that may be considered material weaknesses included the small size of the Company and the resulting lack of a segregation of duties.
Notwithstanding these material weaknesses, management has concluded that the unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
During the nine-month period ended September 30, 2024, there were no changes made by management to its internal controls over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows, except as follows:
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The Company has a claim against it for unpaid legal fees in the amount of $48,331 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheet.
On October 4, 2023, an action was launched by one of the October 2021 Investors, who claimed he was owed $1,300,000 plus accrued interest. The principal balance in the accounts and noted under convertible promissory notes, note 11(a) in the interim condensed consolidated financial statements is $1,800,485 (December 31, 2023-$1,645,337), which is after conversions of $318,100 during 2022 and 2023 and includes accrued interest of $500,485 (December 31, 2023-$345,337). The Company has disclosed the fair value of this convertible promissory note as $2,683,862 (December 31, 2023-$2,404,558). The Company intends to repay the balance owed when it is financially able to do so.
On November 27, 2023 and March 6, 2024, the Company experienced an outflow of leachate impacted water from its stormwater pond into the City of Belleville's (the "City") roadside ditch. The Company is collaborating with its environmental consultants and its Canadian legal counsel to assess the damage caused, remediate this occurrence and report regularly to the MECP. As noted below, on August 30, 2024, the Company and the City remediated with a settlement in the amount of $96,304 (C$130,000)
The Company has a claim against it for unpaid hydro bills in the amount of $370,623 (C$500,302). The amount of this original claim and any amounts subsequently to September 30, 2024 are included in accounts payable and in accrued liabilities on the Company's interim condensed consolidated balance sheets.
In addition, on November 17, 2023, the Company received an amended claim filed against it from 2023 by Tradigital in the sum of $219,834 in owed fees plus the difference in stock price, 300,000 common shares of the Company, plus attorney fees and expenses. The case went to arbitration on March 11, 2024 and the Company defended its position. On April 4, 2024, the International Centre for Dispute Resolution indicated that no additional evidence is to be submitted, and the hearings were declared closed as of April 29, 2024. The tribunal endeavored to render the final decision within the timeframe provided for in the rules. Management agrees that outstanding fees, which are included in accounts payable in the interim condensed consolidated balance sheets, are only in the amount of $30,000, which was agreed to by the parties in earlier communications and through various e-mail correspondence. In addition, management has no issue with the outstanding common shares to be provided to the claimant totaling 300,000. Management believes that the additional claim amount of $189,834 is without merit. Of the total of 300,000 common shares, 50,000 have been issued and the remaining 250,000 were previously disclosed as shares to be issued in the consolidated statements of stockholders' deficiency. On April 26, 2024, the arbitrator for this claim awarded Tradigital the sum of $118,170 which had been accrued by the Company as at December 31, 2023 and subsequently through September 30, 2024 and the remaining 250,000 common shares were not required to be issued by the Company.
On April 1, 2024, the Company received notice of a complaint filed against it by one of the March 2022 Investors, seeking damages of no less than $4,545,393. The Company had thirty calendar days to respond and on April 30, 2024, the Company was able to extend the time to respond with opposing counsel, a further fifteen days. The Company has been unable to retain counsel to represent it in this matter. The full amount of the complaint was included in the accounts at December 31, 2023, March 31, 2024 and June 30, 2024. On May 21, 2024, the counsel for the plaintiff requested an entry for a default judgement against the Company. On September 11, 2024, the default judgement was filed in the amount of $2,848,744. In addition, pre-judgement interest was granted in the amount of $87,414 at the rate of 10% per annum on the principal balance from May 22, 2024 through September 11, 2024. On the filing of this default judgement, the March 2022 Investor removed two causes of action previously filed in their complaint which the Company received notice of on April 1, 2024 and accrued for accordingly. The impact of the removal of the two causes of action totaling $2,250,000, plus the additional pre-judgement and other interest charged resulted in a reduction in the previous accrual for loss in the amount of $1,321,733. This adjustment to the provision for loss is disclosed under other income (expense), note 16(d), in the notes to the interim condensed consolidated financial statements.
On May 16, 2024, the Company was informed by its Canadian legal counsel that the City issued an order against the Belleville Facility, its numbered company, 1684567 and its officers for the repayment of the cost of pumping out contaminated water from the City's roadside ditch, along with legal and other associated costs. On May 31, 2024, the companies and the officers filed notices of appeal to the Ontario Land Tribunal. The Company and its Canadian legal counsel were in discussions with the legal representatives from the City, to come to a resolution before any action by the Ontario Land Tribunal. On August 30, 2024, minutes of settlement were finalized between the City and the Company to settle for an amount of $96,304 (C$130,000) ten days following the sale of the Hamilton Facility. There are certain events of default, including not meeting the timeline set above and if the sale of the Hamilton Facility does not occur before January 31, 2025, it would result in the actual cost incurred by the City to be paid by the Company. The actual costs noted in the minutes of settlement totaled $142,597 (C$192,490). In addition, in connection with the minutes of settlement, the Company and its officers subsequently withdrew their appeals with the Ontario Land Tribunal on September 4, 2024, and the Ontario Land Tribunal closed their case.
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On June 10, 2024, the Company received a statement of claim from the general contractor, Gillam Construction Group Ltd. ("Gillam"), for the construction of the Hamilton Facility. Gillam also named the Company's two officers as defendants. The Company and its Canadian legal counsel were able to resolve the matter with the Plaintiff with a final settlement of $2,148,320 (C$2,900,000) if paid on or before November 30, 2024. The settlement reached was over and above the original amount included in the accounts of the Company. The Company has provided for this excess in the amount of $227,545 (C$309,122) as a loss on settlement. See also other income (expense), note 16(a), in the notes to the interim condensed consolidated financial statements.
On September 5, 2024, one of the Company's subsidiaries was served with a construction lien on the property at the Belleville Facility in the amount of $168,831 (C$227,904) representing outstanding accounts payable for environmental services provided by the contractor.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the nine-month period ended September 30, 2024, the Company issued the following shares for non-cash proceeds:
(i) 809,044 common shares were issued on the conversion of related party debt.
The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.
Item 3. Defaults upon Senior Securities.
Refer to Financings (a) Securities Purchase Agreements page 29.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
The following exhibits are filed as part of this quarterly report on Form 10-Q:
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| * |
Filed herewith |
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Management contract or compensatory plan or arrangement |
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In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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SUSGLOBAL ENERGY CORP. |
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| November 14, 2024 |
By: |
/s/ Marc Hazout |
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Marc Hazout |
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Executive Chairman, President and Chief Executive Officer |
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| November 14, 2024 |
By: |
/s/ Ike Makrimichalos |
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Ike Makrimichalos |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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