SusGlobal Energy Corp. - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to ________________

Commission file number 000-56024

SUSGLOBAL ENERGY CORP.
(Exact name of registrant as specified in its charter)

    416-223-8500
(Registrant's telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]      No [  ]

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]      No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [  ]      No [X]

The number of shares of the registrant's common stock outstanding as of August 14, 2020 was 69,281,378 shares.

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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1. Nature of Business and Basis of Presentation

SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.

On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.

On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.

SusGlobal is a renewable energy company focused on acquiring, developing and monetizing a global portfolio of proprietary technologies in the waste to energy and regenerative products application.

These interim condensed consolidated financial statements of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd. ("SGECI"), SusGlobal Energy Belleville Ltd. ("SGEBL") and 1684567 Ontario Inc. ("1684567") (together, the "Company"), have been prepared following generally accepted accounting principles in the United States ("US GAAP") for interim financial information and the Securities Exchange Commission ("SEC") instructions to Form 10-Q and Article 8 of SEC Regulation S-X, and are expressed in United States Dollars. The Company's functional currency is the Canadian Dollar ("CAD"). In the opinion of management, all adjustments necessary for a fair presentation have been included.

2. Going Concern

The interim condensed consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.

As at June 30, 2020, the Company had a working capital deficit of $8,909,577 (December 31, 2019-$8,203,742), incurred a net loss of $1,078,461 (2019-$1,783,495) for the six months ended June 30, 2020 and had an accumulated deficit of $12,534,941 (December 31, 2019-$11,449,497) and expects to incur further losses in the development of its business.

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2. Going Concern, (continued)

On March 31, 2020, Pace Savings & Credit Union Limited ("PACE") and the Company reached an agreement for the repayment of the outstanding amounts owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020 and the remaining credit facilities and the corporate term loan are to be repaid on or before September 30, 2020. Management continues discussions with a Canadian chartered bank to re-finance its remaining obligations to PACE and repay other creditors.

The Company has defaulted on the convertible promissory notes (see note 13). As a result, the amounts owing to PACE (see note 11) and the obligations under capital lease (see note 12), are also in default.

These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors, whose debts are also in default and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.

Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments, instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.

These interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.

3. Significant Accounting Policies

These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company for the years ended December 31, 2019 and 2018 and their accompanying notes.

4. Recent Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. 

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4.  Recent Adopted Accounting Pronouncements, (continued)

Newly Adopted

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement". ASU No. 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. The adoption of ASU No. 2018-13, did not have a significant impact on the Company's consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The adoption of ASU No. 2017-04, did not have a significant impact on the Company's consolidated financial statements.

Recently issued

ASU 2020-06—Debt—"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (GAAP). Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. The amendments in this Update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is assessing the impact that the adoption of ASU 2020-06 will have on the consolidated balance sheet and consolidated statement of operations.

5. Financial Instruments

The carrying value of cash and cash equivalents, funds held in trust, trade and other receivables, accounts payable and accrued liabilities approximated their fair values as of June 30, 2020 and December 31, 2019, due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes and loans payable to related party approximated their fair values due to their market interest rates.

Interest, Credit and Concentration Risk

Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.

In the opinion of management, the Company is exposed to significant interest rate risk on the current portion of its long-term debt and convertible promissory notes of $7,033,212 ($9,584,657 CAD) (2019-$7,199,706; $9,351,482 CAD).

Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at June 30, 2020, the Company's credit risk is primarily attributable to cash and cash equivalents and trade receivables.  As at June 30, 2020, the Company's cash and cash equivalents were held with reputable Canadian chartered banks and a credit union.

With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at June 30, 2020, the allowance for doubtful accounts was $nil ($nil CAD) (December 31, 2019-$730; $948 CAD).

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5. Financial Instruments, (continued)

As at June 30, 2020, the Company is exposed to concentration risk as it had four customers (December 31, 2019-six customers) representing greater than 5% of total trade receivables and four customers (December 31, 2019-six customers) represented 93% (December 31, 2019-90%) of trade receivables. The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue. These customers accounted for 73% (34%,14%, 14% and 11%) (June 30, 2019-74%; 37%, 23% and 14%) of total revenue.

Liquidity Risk

Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations. Management is in discussions with a Canadian chartered bank to refinance its obligations to PACE and repay other creditors. Refer also to going concern, note 2.

The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligations by September 30, 2020 and complete the refinancing of its real property and organic composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.

Currency Risk

Although the Company's functional currency is the CAD, the Company realizes a portion of its expenses in USD. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at June 30, 2020, $456,460 (December 31, 2019-$258,403) of the Company's net monetary liabilities were denominated in USD. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.

6. Business Acquisition

Effective May 24, 2019, the Company purchased all the issued and outstanding shares of 1684567. The acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price paid in the acquisition has been allocated to record the assets acquired and liabilities assumed based on their estimated fair value. When determining the fair values of assets acquired and liabilities assumed, management made significant estimates. The transaction closed on May 28, 2019. The purchase consideration consisted of cash from working capital of $121,845 ($163,836 CAD) and cash from a third-party mortgage obtained in the amount of $1,258,273 ($1,691,910 CAD, net of financing fees of $80,387 ($108,090 CAD)). The total purchase price includes the original offer of $1,314,304 ($1,767,250 CAD) and reimbursement of vendor's expense of $65,814 ($88,496 CAD).

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6. Business Acquisition, (continued)

The allocation of the purchase price is as follows:

Included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2019, is revenue of $137,247 ($182,098 CAD) and expenses of $217,620 ($288,735) since the date of acquisition. From January 1, 2019 and immediately prior to the date of acquisition 1684567 generated revenue of $82,437 ($109,376 CAD) and incurred expenses of $73,685 ($97,764 CAD). During the year ended December 31, 2018, 1684567 generated revenue of $212,473 ($275,188 CAD) and incurred expenses of $173,206 ($224,331 CAD).

During the current three-month period ended June 30, 2020, the Company expensed previously capitalized acquisition costs in the amount of $86,864 ($118,472 CAD). The land option in the amount of $59,496 ($80,000) expired six months after the business acquisition dated May 24, 2019 and as a result, has been expensed in the interim condensed consolidated statements of operations and comprehensive loss. In addition, the company determined that the deferred tax liability recognized on the business acquisition would be recovered through the application of certain tax strategies. As a result, the recovery of the deferred tax liability is recorded in the interim condensed consolidated statements of operations and comprehensive loss.

7. Restricted Cash-Funds Held in Trust

The funds which were held in trust were required to satisfy certain outstanding payments to PACE, including the repayment in full of one of the credit facilities in the amount of $34,391 ($48,788 CAD) and to bring the remaining outstanding PACE amounts current. The funds which were held in trust were provided to PACE on April 3, 2020. Refer also to going concern, note 2 and long-term debt, note 11.

8. Intangible Assets

For the three-month and six-month periods ended June 30, the Company incurred fees to register various trademarks in the United States and Canada, in the amount $3,196 ($4,355 CAD) and $5,733 ($7,813 CAD) (2019-$nil; $nil CAD and $10,948: $14,327 CAD) respectively. 

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8. Intangible Assets, (continued)

On September 15, 2017, the Company acquired the environmental compliance approvals, having an indefinite life, on the purchase of certain assets from BDO Canada Limited ("BDO") under an asset purchase agreement (the "APA").

Effective May 24, 2019, the Company acquired customer lists of $22,608 ($30,400 CAD) relating to certain municipal contracts. These customer lists are being amortized over terms ranging from forty-five to sixty-six months. During the three and six-month periods ended June 30, 2020, amortization of $4,128 ($5,641 CAD) and $4,635 ($6,321 CAD) (2019-$nil; $nil CAD and $nil; $nil CAD), respectively.

9. Long-lived Assets, net

10. Related Party Transactions

For three and six-month periods ended June 30, 2020, the Company incurred $32,494 ($45,000 CAD) and $65,988 ($90,000 CAD) (2019-$33,642; $45,000 CAD and $67,491; $90,000 CAD) 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"); $nil ($nil CAD) and $nil ($nil CAD) (2019-$33,642; $45,000 CAD and $67,491; $90,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a former director and former chief executive officer and $17,331 ($24,000 CAD) and $35,194 ($48,000 CAD) (2019-$13,456; $18,000 CAD and $26,996; $36,000 CAD)  respectively in management fees expense with the Company's chief financial officer (the "CFO").  As at June 30, 2020, unpaid remuneration and unpaid expenses in the amount of $329,985 ($431,727 CAD) (December 31, 2019-$324,303; $421,227 CAD) is included in accounts payable and $11,741 ($16,000 CAD) (December 31, 2019-$12,318; $16,000 CAD) is included in accrued liabilities in the interim condensed consolidated balance sheets. 

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10. Related Party Transactions, (continued)

In addition, during the three and six-month periods ended June 30, 2020, the Company incurred interest expense of $2,187 ($2,992 CAD) and $2,628 ($3,584 CAD) (2019-$679; $920 CAD and $4,481; $5,975 CAD) respectively, on outstanding loans from Travellers and $nil ($nil CAD) (2019-$1,678; $2,244 CAD) and $3,347; $4,463 CAD respectively, on outstanding loans from the directors. As at June 30, 2020, interest of $2,630 ($3,584 CAD) (December 31, 2019-$nil; $nil CAD) on the loans outstanding to Travellers is included in accrued liabilities in the interim condensed consolidated balance sheets.

For the three and six-month periods ended June 30, 2020, the Company incurred $18,897 ($26,130 CAD) and  $36,420 ($49,673 CAD) (2019-$15,298; $20,469 CAD and $32,296; $ $43,067 CAD) respectively, in rent expense paid under a rental agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

For those independent directors providing their services throughout 2019, the Company accrued directors' compensation totaling $1,800, based on the subsequent issuance of 20,000 common shares of the Company to each of the five directors that are expected to be issued subsequent to June 30, 2020. And, for services provided in the three and six-month periods ended June 30, 2020, $1,202 and $2,237 (2019-$9,748 and $12,700) respectively. The directors' compensation was priced based on the trading price of the shares at the close of business on June 30, 2020 and will be recorded based on the trading price of the shares, immediately prior to issuance. Also included in directors' compensation for the three and six-month periods ended June 30, 2020, are the audit committee chairman's fees, in the amount of $722 ($1,000 CAD) and $1,466 ($2,000 CAD) (2019 $756; $1,000 CAD and $1,500; $2,000 CAD) respectively. As at June 30, 2020, outstanding directors' compensation of $nil ($nil CAD) (December 31, 2019-$3,480; $4,520 CAD) is included in accounts payable and $3,987 (December 31, 2019-$3,650) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and six-month periods ended June 30, 2020, the Company recognized management compensation expense of $nil and $nil (2019-$332,500 and 665,000) respectively, on the vesting of restricted stock units ("RSUs") granted in prior years to the CEO and the former chief executive officer. On January 10, 2020, the CEO's remaining RSUs were exchanged into 1,000,000 common shares of the Company. Based on private placement pricing at the time of the granting of the RSUs, the common shares issued to the CEO on the exchange of the 1,000,000 RSUs, was determined to be valued at $1,000,000.

11. Long-Term Debt

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11. Long-Term Debt, (continued)

On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE ((a), (b) and (c) above). One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan are due on or before September 30, 2020. On April 3, 2020, the Company provided PACE with funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. The funds remaining, which were held in trust on March 31, 2020 are to be used to satisfy the principal and interest payments on the noted debt partially, through August 2020. Included in prepaid expenses and deposits in the interim condensed consolidated financial statements is $50,797 ($69,224 CAD) relating to prepaid principal and interest payments. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), will be renewed from the current expiry date of June 30, 2020 to September 30, 2020, at the appropriate time. On April 3, 2020, the shares previously pledged as security to PACE, were released. However, the personal guarantee from the CEO and charge against the Company's premises lease remain unchanged. This long-term debt is considered to be in default as a result of defaults on the convertible promissory notes (see note 13). As a result, PACE may demand repayment before September 30, 2020.

Refer also to going concern, note 2.

The remaining PACE long-term debt was initially payable as noted below:

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11. Long-Term Debt, (continued)

For the three and six-month periods ended June 30, 2020, $78,492 ($108,615 CAD) and $155,241 ($211,731 CAD) (2019-$77,903; $104,201 CAD and $155,522; $207,390 CAD) respectively, in interest was incurred on the PACE long-term debt. As at June 30, 2020 $16,522 ($22,516 CAD) (December 31, 2019-$124,926; $162,263 CAD) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.

12. Obligations under Capital Lease

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12. Obligations under Capital Lease, (continued)

As a result of the convertible promissory notes defaults, these leases are also in default (see note 13). The lessor may demand full repayment of these obligations under capital lease. As a result, the obligations under capital lease have been presented as current liabilities. The original terms of the obligations under capital lease are noted below under paragraphs (a), (b) and (c). Refer also to going concern, note 2.

The lease liabilities are secured by the equipment under capital lease as described in note 9.

Minimum lease payments as per the original terms of the obligations under capital lease are as follows:

For the three and six-month periods ended June 30, 2020, $5,831 ($8,015 CAD) and $8,920 ($12,165 CAD) (2019-$4,885; $6,529 CAD and $8,555; $11,408 CAD) respectively, in interest was incurred.

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13. Convertible Promissory Notes

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Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.

The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.

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14. Loans Payable to Related Party

15. Capital Stock

As at June 30, 2020, the Company had 150,000,000 authorized common shares with a par value of $.0001 per share and 64,329,157 (December 31, 2019-51,784,504) issued and outstanding common shares. For the six-month period ended June 30, 2020, the Company issued 12,074,623 common shares on the conversion of unsecured promissory notes, in the amount of $86,250, including accrued interest and related cost of $9,230, a total of $95,480. The share conversion prices ranged from $0.0036 to $0.0176 per share.  Further, on June 29, 2020, the Company received a notice of conversion for one of the January 2019 Investor Notes, in the amount of $13,000 plus legal fees of $750. The common shares were issued subsequent to June 30, 2020. On January 10, 2020, the Company issued 1,000,000 common shares on the exchange of the CEO's 1,000,000 2019 RSUs. In addition, the Company cancelled the 529,970 shares previously held by BDO Canada Limited, whose shares were returned to the Company on April 1, 2020.

During the year ended December 31, 2019, the Company issued 9,289,973 common shares on the conversion of unsecured convertible promissory notes in the amount of $248,618 including accrued interest and related costs of $21,162, for a total of $269,780 at conversion prices ranging from $0.0176 to $0.0910 per share. The Company also issued 100,000 common shares for professional services determined to be valued at $53,000, 80,000 common shares to directors determined to be valued at $39,200 and 5,000 common shares to each of two employees determined to be valued at $400 in total, with amounts determined based on the closing trading price on the day immediately prior to issuance. Further, 5,000 common shares were issued for proceeds received prior to December 31, 2018 of $4,600, net of share issue costs of $400. In addition, on January 8, 2019, the Company issued

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15. Capital Stock, (continued)

1,000,000 common shares on the exchange of the CEO's 2018 RSUs determined to be valued at $1,000,000, based on private placement pricing at the time of granting the RSUs and on April 2, 2019, the Company issued 1,000,000 common shares on the exchange of the former chief executive officer's 2018 RSUs determined to be valued at $330,000, based on private placement pricing at the time of granting the RSUs. 

All non-cash transactions during December 31, 2019, were valued based on the proceeds of a recent private placement

16. Commitments

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16. Commitments, (continued)

17. Economic Dependence

The Company generated 81% and 73% of its revenue from four customers, during the three and six-month periods ended June 30, 2020 respectively, (June 30, 2019-72% and 74% from three customers, respectively).

18. Subsequent Events

The Company's management has evaluated subsequent events up to the date the interim condensed consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following to be material subsequent events:

19. Comparative Figures

Certain of the prior period's comparative figures have been reclassified to conform to the current period's presentation. The reclassification on the interim condensed consolidated statements of cash flows related to disclosing the change in cash flows for government remittances receivable and government remittances payable as separate line items and not netted. And, the reclassification on the interim condensed consolidated statements of operations and comprehensive loss, to disclose foreign exchange loss (income) as a separate line item and not grouped with office and administration.

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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, 2019 filed with the Securities and Exchange Commission on April 7, 2020.

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 six-month period ended June 30, 2020 compared with the six-month period ended June 30, 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, 2019 AND 2018. 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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SusGlobal Energy Corp. ("SusGlobal") was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada. SusGlobal, a company in the start-up stages and Commandcredit Corp. ("Commandcredit"), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.

On May 23, 2017, SusGlobal filed an Application for Authorization to continue in another Jurisdiction with the Ministry of Government Services in Ontario and a certificate of corporate domestication and certificate of incorporation with the Secretary of State of the State of Delaware under which it changed its jurisdiction of incorporation from Ontario to the State of Delaware (the "Domestication"). In connection with the Domestication each of the currently issued and outstanding common shares were automatically converted on a one-for-one basis into common shares compliant with the laws of the state of Delaware (the "Shares"). As a result of the Domestication, pursuant to Section 388 of the General Corporation Law of the State of Delaware (the "DGCL"), SusGlobal continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of SusGlobal and its subsidiaries on a consolidated basis, as well as its principal location and fiscal year, were the same immediately after the Domestication as they were immediately prior to the Domestication. SusGlobal filed a Registration Statement on Form S-4 to register the Shares and this registration statement was declared effective by the Securities and Exchange Commission on May 23, 2017.

On December 11, 2018, the Company began trading on the OTCQB venture market exchange, under the ticker symbol SNRG.

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 and regenerative products application.

With the growing amount of organic wastes being produced by society as a whole, a solution for sustainable global management of these wastes must be achieved. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of four distinct types of technologies: (a) Process Source Separated Organics ("SSO") in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas. (b) Increasing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield. (c) Utilize recycled plastics to produce liquid fuels and (d) process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer.

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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 ("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 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 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. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.

The COVID-19 Outbreak May Adversely Affect Our Business Operations and Financial Condition

In December 2019, the novel coronavirus, known as COVID-19, was initially reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases and affected countries and actions by public health and governmental authorities, businesses and other organizations and individuals to address the outbreak including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing "social or physical distancing" orders, which direct individuals to remain at their places of residence (subject to limited exceptions). The COVID-19 pandemic poses the risk that we or our employees, contractors, customers, government and third party payors and others may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be requested or mandated by governmental authorities.

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The Company has continued to carry out the aggressive emergency measures set in place by the provincial government, keeping in mind, firstly, the immediate health and safety of our employees. Employees in the head office, located in Toronto, Ontario, Canada have continued to work remotely now for two months or alternating their office time, ensuring there are no other employees present. Employees at the site in Belleville, Ontario, Canada, have also been following the same procedures. The Company has prohibited face to face meetings and all previously scheduled meetings and those in the foreseeable future have and will be held by teleconference. The Company will continue following these aggressive emergency measures as long as they are in place.

The Company is fortunate that its operations have not been forced to close as we're considered an essential service. In some cases, the receipt of organic waste has increased, the likely impact of the requirement for the public to stay in their residences, unless they themselves are employed in an essential business or service. A broad, sustained outbreak of COVID-19 will negatively impact our results and financial condition for the following reasons: (i) a large percentage of our customers are municipalities and their limited operations has resulted in some delay in the collection of outstanding receivables, impacting our cash flows, including the use of cash (ii)  members of the board, management or employee team, some of whom may be particularly at-risk for the severe symptoms of COVID-19, or of our small number of other employees, may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facilities (iii) the outbreak may materially impact our operations for a sustained period of time due to the current travel bans and restrictions, quarantines, social or physical distancing orders and shutdowns.

The occurrence of any of the these noted events and potentially others, could have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations.

RECENT BUSINESS DEVELOPMENTS

SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY(R)

After having filed on March 13, 2019, trademark applications in Canada and the United States, on July 16, 2020, the Company announced it had received a Certificate of Registration from the United States Patent and Trademark Office ("USPTO") for the trademark LEADERS IN THE CIRCULAR ECONOMY (the "Mark").

The Mark was registered under Registration Number 6,098,063 on July 7, 2020 on the Supplemental Register. The registration will be in effect for an initial term of ten years, expiring on July 7, 2030, with the option of renewing the registration for successive ten-year terms for the following class:

treatment and processing of organic waste; organic waste disposal services, namely, destruction and recycling of waste; organic waste management services, namely, converting waste into energy; recycling of organic waste; technical consulting in the field of waste management, namely, consulting in the field of waste treatment; recycling of plastic; recycling, namely, transform biosolids and organic waste into a pathogen free recognized organic fertilizer and compost and regenerative products, namely, biogas, electricity, liquid fertilizer, compost.

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Now that the Mark is registered, The Company is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg. U.S. Pat. and T.M. Office").

SusGlobal to Commence Integration of The Ydro Process(R) at Its Belleville Organic Waste Processing and Composting Facility

On May 27, 2020, the Company announced it has agreed to commence The Ydro Process^® integration into the existing operations at the Organic Waste Processing and Composting Facility of its wholly owned subsidiary SusGlobal Energy Belleville Ltd. ("SusGlobal Belleville").

TradeWorks Environmental's Ydro Process^® is integrated into the existing SusGlobal Belleville operations by applying the Ydro Series^® Microorganisms product once during the preparation stage of the batches in the appropriate Gore^® system windrows.

The integration of the Ydro Process^® is expected to:

Reduce:

Increase:

Energy Retrofit Program

On January 15, 2020, the Independent Electrical System Operator (the "IESO") pre-approved the Company's Save on Energy Retrofit Program Application (the "Program"). The total cost of the Program is estimated at $87,096 ($118,692 CAD). On successful completion, the Company expects to receive a hydro grant from the IESO of approximately 50% of the total cost of the Program, or $43,904 ($59,831 CAD). The Program is designed to realize a savings of approximately 50% in hydro costs annually, with an overall return on investment estimated at 125%.

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Business Acquisition

Effective May 24, 2019, the Company purchased all the issued and outstanding shares of 1684567. The transaction closed on May 28, 2019. The purchase consideration consisted of cash from working capital of $121,845 ($163,836 CAD) and cash from a third-party mortgage obtained in the amount of $1,258,273 ($1,691,910 CAD, net of financing fees of $80,387 ($108,090 CAD)). The total purchase price includes the original offer of $1,314,304 ($1,767,250 CAD) and acquisition costs of $65,814 ($88,496 CAD). The mortgage payable has a principal amount of $1,385,820 ($1,800,000 CAD), is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% (currently 8.50%) and 10% per annum with a revised maturity date of October 19, 2020. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land held having a carrying value of $1,392,753, a general assignment of rents, and a fire insurance policy. In addition, on December 19, 2019, the Company received an additional advance of $615,920 ($800,000) from one of the same private lenders and additional private lenders. Financing fees on the additional, advance totaled $35,838 ($48,839 CAD) on the same terms and conditions as the mortgage noted above.

The principal asset of this acquired company was the land upon which the Company's organic composting facility is situated. The Company continues to operate the garbage collection and landfill management operations that it acquired under this transaction.

Financings

(a) Securities Purchase Agreements

On October 18, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one 12% unsecured convertible promissory note (the "October 2019 Investor Note") in the principal amount of $156,000, due October 18, 2020. On this date the Company received proceeds of $129,600, net of transaction related expenses of $26,400. The maturity date of the October 2019 Investor Note is October 18, 2020.

As noted below, as a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. The October 2019 Investor continues to have the option to convert its October 2019 Investor Note.

On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775. The maturity date of the July 2019 Investor note is July 19, 2020.

As noted below, as a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor note increasing from 12% to 24% annually, effective January 28, 2020. The July 2019 Investor continues to have the option to convert its July 2019 Investor Note.

On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750. The maturity date of the May 2019 Investor note is May 23, 2020.

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During the six-month period ended June 30, 2020, the May 2019 Investor converted a total of $15,000 of its May 2019 Note.

As noted below, as a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. The May 2019 Investor continues to have the option to convert its May 2019 Investor Note.

On March 7 and March 8, 2019, the Company entered into two securities purchase agreements (the "March 2019 SPAs") with two investors (the "March 2019 Investors") pursuant to which the Company issued to each March 2019 Investor two 12% unsecured convertible promissory notes comprised of the first notes (the "First Notes") being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each (the "Back-End Notes," and, together with the First Notes, the "March 2019 Investor Notes") in the aggregate principal amount of $1,100,000, with such principal and the interest thereon convertible into Common Stock at the March 2019 Investors' option. Each First Note contains a $25,000 Original Issue Discount such that the issue price of each First Note was $250,000. The proceeds on the issuance of the First Notes were received from the March 2019 Investors upon the signing of the March 2019 SPAs. The proceeds on the issuance of the Back-End Notes were initially received by the issuance of two offsetting $250,000 secured notes to the Company by the March 2019 Investors (the "Buyer Notes"), provided that prior to conversion of the Back-End Notes, the March 2019 Investors must have paid back the Back-End Notes in cash. The maturity dates of the March 2019 Investor Notes were March 7, 2020 and March 8, 2020, respectively.

Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction-related expenses, for the First Notes from the March 2019 Investors.

On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors with a face value amount of $275,000. The proceeds received by the Company was $228,000, net of $25,000 discount and financing costs.

During the six-month period ended June 30, 2020, the March 2019 Investors converted a total of $47,000 of their March 2019 Investor Notes.

As a result of these March 2019 Notes not having been repaid by their respective due dates, as with the January 2019 Investor Notes, they were also in default, with their interest rate increasing from 12% to 24% annually, effective January 28, 2020.

On January 28, 2019, the Company entered into securities purchase agreements (the "January 2019 SPAs") with three investors (the "January 2019 Investors") pursuant to which the Company issued to the January 2019 Investors 12% unsecured convertible promissory notes (the "January 2019 Investor Notes") in the aggregate principal amount of $337,500, with such principal and the interest thereon convertible into shares of the Company's common stock (the "Common Stock") at the January 2019 Investors' option. Although the January 2019 SPAs are dated January 28, 2019 (the "January 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the January 2019 Investors. The maturity date of the January 2019 Investor Notes was January 28, 2020.

During the six-month period ended June 30, 2020, the January 2019 Investors converted a total of $24,250 of their January 2019 Investor Notes.

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Since the January 2019 Investor Notes were not repaid by their January 28, 2020 maturity date, they are in default and the outstanding balance (principal plus accrued interest) of each of the January 2019 Investor Notes is subject to increase by 50% and by a further $15,000 (together the "Default Amounts") and the interest rate increased from 12% to 24% annually. The January 2019 Investors continue to have the option to require the Company to immediately issue, in lieu of the Default Amount, the number of shares of common stock of the Company equal to the Default Amount divided by the conversion price then in effect.

The convertible promissory notes described above may be prepaid until 180 days from their applicable effective date with the following penalties: (i) if any of the convertible promissory notes are prepaid within sixty (60) days following their applicable effective date, then the prepayment premium shall be 125% of the face amount plus any accrued interest; (ii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is sixty-one (61) days following their applicable effective date, and ending on the date which is ninety (90) days following their applicable effective date, then the prepayment premium shall be 135% of the face amount plus any accrued interest; (iii) if any of the convertible promissory notes are prepaid during the period beginning on the date which is ninety-one (91) days following their applicable effective date, and ending on the date which is one hundred eighty (180) days following their applicable effective date, then the prepayment premium shall be 145% of the face amount plus any accrued interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.

Pursuant to the terms of the security purchase agreements for the convertible promissory notes described above, for so long as the noted investors own any shares of Common Stock issued upon the conversion of the applicable investor notes, the Company has covenanted to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the investor notes and the security purchase agreements, including but not limited to the requirement to maintain its corporate existence and assets, require registration of or stockholder approval for the investor notes or the Common Stock upon the conversion of the applicable investor notes.

The convertible promissory notes described above contain certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the Securities and Exchange Commission which would increase the amount of the principal and interest rates under the convertible promissory notes in the event of such defaults. In the event of a default, at the option of the applicable investor and in their sole discretion, the applicable investor may consider any of their convertible promissory notes immediately due and payable.

For the three and six-month periods ended June 30, 2020, the Company recorded interest and Default Amounts of $149,965 and 333,447 (2019-$56,192 and $67,231) respectively. As at June 30, 2020, $262,385 (December 31, 2019-$130,249) of accrued interest and Default Amounts are included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the six-month period ended June 30, 2020, $6,455 (2019-$nil) of accrued interest was converted.

(b) Pace Savings & Credit Union Limited ("PACE")

On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE ((a), (b) and (c) above). One of the credit facilities, in the amount of $34,391 ($48,788 CAD) was repaid in full on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan are due on or before September 30, 2020. On April 3, 2020, the Company provided PACE with funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. The funds remaining, which were held in trust on March 31, 2020 are to be used to satisfy the principal and interest payments on the noted debt partially, through August 2020. Included in prepaid expenses and deposits in the interim condensed consolidated financial statements is $50,797 ($69,224 CAD) relating to prepaid principal and interest payments. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), will be renewed from the current expiry date of June 30, 2020 to September 30, 2020, at the appropriate time. On April 3, 2020, the shares previously pledged as security to PACE, were released. However, the personal guarantee from the CEO and charge against the Company's premises lease remain unchanged. This long-term debt is considered to be in default as a result of defaults on the convertible promissory notes. As a result, PACE may demand repayment before September 30, 2020.

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The remaining PACE long-term debt was initially payable as noted below:

For the three and six-month periods ended June 30, 2020, $78,492 ($108,615 CAD) and $155,241 ($211,731 CAD) (2019-$77,903; $108,542 CAD and $155,522; $207,390 CAD) respectively, in interest was incurred on the PACE long-term debt. As at June 30, 2020 $16,522 ($22,516 CAD) (December 31, 2019-$124,926; $162,263 CAD) in accrued interest is included in accrued liabilities.

(c) Other Financings

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(d) Financings Related to Obligations Under Capital Lease

As a result of the defaults noted above, these leases are also in default. The lessor may demand full repayment of these obligations under capital lease. The original terms of the obligations under capital lease are noted below under paragraphs (i), (ii and (iii).

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For the three and six-month periods ended June 30, 2020, $5,831 ($8,015 CAD) and $8,920 ($12,165 CAD) (2019-$4,885; $6,529 CAD and $8,555; $11,408 CAD) respectively, in interest was incurred.

Treatment of Organic Waste and Septage

On February 28, 2019, the Company announced that it had received the project completion report titled: Development Optimization and Validation of an Innovative Integrated Anaerobic Thermophilic Digester Treatment of Organic Waste and Septage. The report was written by a research team at Fleming College's Centre for Advancement of Water and Wastewater Technologies, located in Lindsay, Ontario, Canada. The collaborative project was supported by the Advancing Water Technologies Program (the "AWT Program") of Southern Ontario Water Consortium. The project focused on the development of a new and innovative technology for handling and processing organic residuals. This new technology utilizes the anaerobic mesophilic digestion process coupled with thermophilic digestion to maximize biogas yields and produce organic fertilizer through optimal operations.

Asset Purchase

On September 15, 2017, the Company entered into an asset purchase agreement (the "APA) with Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP ("Astoria"), pursuant to which the Company purchased certain assets of Astoria from the court appointed receiver of Astoria, BDO Canada Limited (the "Receiver"). The purchase price for the composting buildings, Gore cover system, driveway and paving, office trailer, certain machinery and equipment, computer equipment, computer software and intangible assets (the "Assets") consisted of cash of $3,167,250 ($4,100,000 CAD), funded by PACE  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 $22,598 ($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 $134,529 ($174,147 CAD) and a deposit with a local municipality in the amount of $38,625 ($50,000 CAD).

Other

On October 15, 2019, the Company was awarded an organic processing contract, in connection with a recently submitted bid, for a local municipality. This organic processing contract is in conjunction with the local municipality's green bin program. The tipping fee for this organic processing contract has been set at $81 per metric tonne ("MT") ($110/MT CAD).

The Company has also secured an organic processing arrangement with another local municipality, in conjunction with their green bin program, with a tipping fee set at $95/MT ($130/MT).

In addition, several other contracts have been renewed, one, a municipality and another a private composting operation to November 18, 2020 and December 31, 2020, respectively.

On July 22, 2019, the council for one of the Company's customers, a local township, approved an extension of contracts for the services provided by the Company for garbage collection and for the operation and maintenance of the township's two waste disposal sites. The new contracts expire on February 28, 2023 and amount to $131,350 ($179,000 CAD) annually.

In July 2020, the council for one of the Company’s customers, a local township, approved an extension of a contract for services provided by the Company for garbage collection. The new contract expires July 31, 2023 with annual fees ranging from $26,735 ($36,433 CAD) to $28,323 ($38,598 CAD).

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.

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On May 14, 2015, the MECP, 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 January 2017. On July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap and Trade program in Ontario.

On May 6, 2015, the Company finalized an agreement with Syngas, a company incorporated under the laws of Malaysia ("Syngas"), providing an exclusive license for the Company to use Syngas Intellectual Property within North America for a period of five years from the date of this agreement, for a consideration of $1, renewable every five years upon written request (the "Syngas License Agreement"). Syngas produces equipment that uses an innovative process to produce liquid transportation fuel from plastic waste material. The Company issued 20,000 shares of Common Stock of the Company to an introducing party, determined to be valued at $2,000. The Syngas License Agreement is being amortized on a straight-line basis, over a period of 10 years. There are no other obligations under the Syngas License Agreement.

The Company and Syngas intend to collaborate and cooperate with a view to achieving economic and financial success for their respective businesses. The Company will continue to pursue other similar intellectual property around the world as we combine this and other technologies in innovative configurations to monetize the portfolio of proprietary technologies and processes to deliver value to our customers and shareholders.

Management is in discussions with the new owner of Syngas, to re-establish the renewable clause of the agreement.

Operations

The Company owns the Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 metric tonnes of waste annually from the provinces of Ontario and Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 metric tonnes of waste annually. Once built, the location of the waste transfer station will be alongside the organic waste composting facility which is currently in operation near 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.

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Organic Composting Facility- As noted above, the Company's organic waste 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 (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic waste composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During the six-month period ended June 30, 2020, tipping fees ranged from $22 ($30 CAD) to $117 ($159 CAD) per metric tonne.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2020, the Company had a bank balance of $12,637 (December 31, 2019-$7,926) and current debt obligations and other current liabilities in the amount of $9,145,247 (December 31, 2019-$8,911,361). As at June 30, 2020, the Company had a working capital deficit of $8,909,577 (December 31, 2019-$8,203,742). The Company does not currently have sufficient funds to satisfy the current debt obligations.

On March 31, 2020, PACE and the Company reached an agreement with respect to the repayment of the outstanding balances owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full after the Company provided the funds to PACE on April 3, 2020, as noted below and the remaining credit facilities and the corporate term loan will be repaid on or before September 30, 2020. On April 3, 2020, the Company provided PACE with sufficient funds, held in trust on March 31, 2020, to bring the remaining credit facilities and the corporate term loan current. The funds remaining, which were held in trust on March 31, 2020 will be used to partially satisfy the principal and interest payments on the noted debt through August 2020. In addition, the letter of credit the Company has with PACE in favor of the MECP, was renewed to September 30, 2020. On April 3, 2020, the shares previously pledged as security to PACE, were released. However, the personal guarantee from the CEO and charge against the Company's premises lease remain unchanged.

The Company's total assets as at June 30, 2020 were $5,166,750 (December 31, 2019-$5,707,343) and total current liabilities were $9,145,247 (December 31, 2019-$8,911,361). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $12,534,941 as at June 30, 2020 (December 31, 2019 -$11,449,497). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels.

To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $9,145,247 in current debt obligations and other current liabilities, the Company estimates that approximately $3,000,000 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.

During the six-month period ended June 30, 2020, the investors of the unsecured convertible promissory notes, converted a total of $86,250 of their unsecured convertible promissory notes, along with a portion of their accrued interest and related costs of $9,230, a total of $95,480 for 12,074,623 common shares at prices ranging from $0.003575 to $0.01755 per share. Subsequent to June 30, 2020 and up to the date of this filing, the investors of the unsecured convertible promissory notes converted a total of $33,900 of their unsecured convertible promissory notes, along with a portion of their accrued interest and related costs of $4,727, a total of $38,627 for 4,952,221 common shares of the Company at a conversion rate of $0.0078 per share.

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As at June 30, 2020, the current and long-term portions of our debt obligations totaled $7,585,359 ($10,337,093 CAD) (December 31, 2019-$7,421,030; $9,638,953 CAD).

In addition, as at June 30, 2020, the Company had an outstanding letter of credit provided by PACE, in the amount of $203,139 ($276,831 CAD), in favor of the MECP. The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. As at June 30, 2020, and the date of this filing, the MECP has not drawn on this letter of credit. The Company has renewed this letter of credit to September 30, 2020.

CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2020 COMPARED TO THE THREE-MONTH PERIOD ENDED JUNE 30, 2019

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During the three-month period ended June 30, 2020, the Company generated $382,639 of revenue from its operations compared to $381,834 in the three-month period ended June 30, 2019. The Company's cost of sales in connection with this revenue totaled $316,815 in the three-month period ended June 30, 2020 compared to $304,618 in the three-month period ended June 30, 2019. These costs consisted of depreciation, direct wages and benefits, equipment rental, delivery, fuel, repairs and maintenance, utilities and outside contractors. Of the revenue generated for the three-month period ended June 30, 2020, $333,095 (2019-$358,682) related to the organic waste composting operations and $49,544 (2019-$23,152) related to the garbage collection and landfill management operations. The significant increase in revenue in the current period was primarily due to new business.

The net loss from operations for the three-month period ended June 30, 2020 was $460,472, significantly lower than the net loss from operations of $702,951 in the three-month period ended June 30, 2019, primarily due to the reduction in management compensation relating to stock-based compensation and fees, amortization of financing costs and foreign exchange gains offset by increases in interest expense and default amounts, professional fees and the absence of marketing cost.

Operating expenses were reduced by $253,871, from $780,167 in the three-month period ended June 30, 2019 to $526,296 in the three-month period ended June 30, 2020, explained further below.

Management compensation related to stock-based compensation reduced by $332,500, from $332,500 in the three-month period ended June 30, 2019 to $nil in the three-month period ended June 30, 2020. The 2019 and final RSUs fully vested during 2019, resulting in no similar expense in the current three-month period ended June 30, 2020. And, management compensation related to fees reduced by $30,915, from $80,740 in the three-month period ended June 30, 2019 to $49,825 in the three-month period ended June 30, 2020 as a result of the absence of fees for the former CEO who resigned in September of 2019.

There was no marketing program in place in 2020 and as a result no marketing costs were incurred, except for a reallocation of expenses of $2,917.

Professional fees increased  by $35,618, from $72,269 in the three-month period ended June 30, 2019 to $107,887 in the three-month period ended June 30, 2020 primarily due to the expensing of  legal fees on the acquisition of 1684567 Ontario Inc., previously expensed  offset by the absence of any additional legal expenses in connection with the claim against BDO.

Interest expense and default amounts increased by $133,002 from $150,407 in the three-month period ended June 30, 2019 to $283,409 for the three-month period ended June 30, 2020, primarily as a result of the increased interest expense and default amounts on the convertible promissory notes in the amount of $93,773 and the new mortgage interest of $34,272.

Office and administration expenses increased by $9,166, primarily due the expensing of certain expenses on the acquisition of 1684567 Ontario Inc., previously capitalized.

Rent and occupancy for the three-month period ended June 30, 2020, reduced by $6,057 from $34,820 for the three-month period ended June 30, 2019 to $28,763 for the three-month period ended June 30, 2020, primarily due to the increase in property taxes and related charges.

Insurance increased by $9,970 from $13,951 in the three-month period ended June 30, 2019 to $23,921 in the three-month period ended June 30, 2020, primarily due to an increase in premiums for coverages for new equipment and liability coverage for the business acquisition in May of 2019.

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Filing fees reduced by $8,148, from $16,414 for the three-month period ended June 30, 2019 to $8,266 for the three-month period ended June 30, 2020, primarily due to the absence of costs associated with the filing and communications cost associated with the annual general meeting which was held in the prior year and not yet scheduled for the current year.

The amortization of financing costs incurred reduced by $23,297 from $53,768 for the three-month period ended June 30, 2019 to $30,471 for the three-month period ended June 30, 2020, due primarily to the absence of the amortization of  financing costs for the  convertible promissory notes acquired Q1 of 2019 which were fully amortized by Q1 of 2020 offset by the additional amortization of the financing costs for the mortgage to finance the May 2019 acquisition.

A portion of the directors' compensation for 2020 and for 2019 is based on an accrual of fees for services payable in shares, determined using the trading price at the end of each reporting period. Since the trading price has dropped since December 31, 2019, the resulting expense in the three-month period ended June 30, 2020 is only $1,853 (2019-$9,748). In addition, the directors' compensation includes an accrual for the fee charged by the audit committee chairman, a total of $722 ($1,000 CAD) (2019-$748; $1,000 CAD).

Repairs and maintenance reduced minimally by $40.

The foreign exchange gain increased by $63,181, from a gain of $21,454 for the three-month period ended June 30, 2019 to a gain of $84,635 for the three-month period ended June 30, 2020, due primarily to the significant recovery of the Canadian dollar compared to the United Statements dollar, during the current period.

CONSOLIDATED RESULTS OF OPERATIONS - FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2020 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE 30, 2019

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During the six-month period ended June 30, 2020, the Company generated $732,836 of revenue from its operations compared to $634,972 in the six-month period ended June 30, 2019. The Company's cost of sales in connection with this revenue totaled $610,577 in the six-month period ended June 30, 2020 compared to $569,080 in the six-month period ended June 30, 2019. These costs consisted of depreciation, direct wages and benefits, equipment rental, delivery, fuel, repairs and maintenance, utilities and outside contractors. Of the revenue generated for the six-month period ended June 30, 2020, $631,865 (2019-$611,820) related to the organic waste composting operations and $100,971 (2019-$23,152) related to the garbage collection and landfill management operations. The significant increase in revenue in the current period was primarily due to a full six months of operations for the garbage collection and landfill management service and an increase in new business.

The net loss from operations for the six-month period ended June 30, 2020 was $1,215,762, significantly lower than the net loss from operations of $1,783,495 in the six-month period ended June 30, 2019, primarily due to the reduction in management compensation relating to stock-based compensation and fees, and marketing costs offset by increases in interest expense and default amounts, amortization of financing costs and foreign exchange losses.

Operating expenses were reduced by $511,366, from $1,849,387 in the six-month period ended June 30, 2019 to $1,338,021 in the six-month period ended June 30, 2020, explained further below.

Management compensation related to stock-based compensation reduced by $665,000, from $665,000 in the six-month period ended June 30, 2019 to $nil in the six-month period ended June 30, 2020. The 2019 and final RSUs fully vested during 2019, resulting in no similar expense in the current six-month period ended June 30, 2020. And, management compensation related to fees reduced by $60,796, from $161,978 in the six-month period ended June 30, 2019 to $101,182 in the six-month period ended June 30, 2020, primarily as a result of the absence of fees for the former CEO who resigned in September of 2019.

There was no marketing program in place in 2020 and as a result no marketing costs were incurred.

Professional fees reduced by $17,636, from $206,971 in the six-month period ended June 30, 2019 to $189,335 in the six-month period ended June 30, 2020 primarily due to the absence of any additional legal expenses in connection with the claim against BDO, offset by the expensing of legal fees on the acquisition of 1684567 Ontario Inc., previously expensed, in the amount of $65,545.

Interest expense and default amounts increased by $340,270 from $255,430 in the six- month period ended June 30 to $595,700 for the six-month period ended June 30, 2020, primarily as a result of the increased interest expense and default amounts on the convertible promissory notes in the amount of $255,036, the new mortgage interest of $81,633 and the new obligation under capital lease of $3,173 offset by reductions in interest expense on the various PACE debt, other obligations under capital leases and related party balances. The interest expense and default amounts include the increased interest rate to 24% as a result of the defaults and default amounts of $180,641, effective January 28, 2020.

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Office and administration expenses increased by $6,669, from $126,016 in the six-month period ended June 30, 2019 to $132,685 in the six-month period ended June 30, 2020 as a result of the expensing of certain expenses on the acquisition of 1684567 Ontario Inc., previously capitalized, offset by lower expenses in this grouping.

Rent and occupancy for the six-month reduced minimally by $2,001 in the six-month period ended June 30, 2020, compared to the six-month period ended June 30, 2019.

Insurance increased by $14,090 from $28,010 in the six-month period ended June 30, 2019 to $42,100 in the six-month period ended June 30, 2020, primarily due to an increase in premiums for coverages for new equipment and liability coverage for the business acquisition in May of 2019.

Filing fees reduced by $6,951, from $29,097 for the six-month period ended June 30, 2019 to $22,146 for the six-month period ended June 30, 2020, primarily due to the absence of costs associated with the filing and communications cost associated with the annual general meeting which was held in the prior year and not yet scheduled for the current year.

The amortization of financing costs incurred increased by $57,244 from $65,765 for the six-month period ended June 30, 2019 to $123,009 for the six-month period ended June 30, 2020, due to the additional amortization of the financing costs in connection with the convertible promissory notes in the amount of $16,887 and for the mortgage to finance the May 2019 acquisition in the amount of $40,357.

A portion of the directors' compensation for 2020 and for 2019 is based on an accrual of fees for services payable in shares, determined using the trading price at the end of each reporting period. Since the trading price has dropped since December 31, 2019, the resulting expense in the six-month period ended June 30, 2020 is only $433 (2019-$12,700). In addition, the directors' compensation includes an accrual for the fee charged by the audit committee chairman, a total of $1,466 ($2,000 CAD) (2019-$1,500; $2,000 CAD).

Repairs and maintenance expenses increased by $4,157, from $4,754 for the six-month period ended June 30, 2019 to $8,911 in the six-month period ended June 30, 2020, due to additional repairs and maintenance expenses incurred at the Company's organic composting facility.

The foreign exchange loss increased by $77,532, from a gain of $12,072 for the six-month period ended June 30, 2019 to a loss of $65,460 for the six-month period ended June 30, 2020, due primarily to the significant devaluation of the Canadian dollar compared to the United Statements dollar, during the current period.

As at June 30, 2020, the Company had a working capital deficit of $8,909,577 (December 31, 2019-$8,203,742), incurred a net loss of $1,078,461 (2019-$1,783,495) for the six months ended June 30, 2020 and had an accumulated deficit of $12,534,941 (December 31, 2019-$11,449,497) and expects to incur further losses in the development of its business.

On March 31, 2020, PACE and the Company reached an agreement for the repayment of the outstanding amounts owing to PACE. One of the credit facilities, in the amount of $34,391 ($48,788 CAD), was repaid in full on April 3, 2020 and the remaining credit facilities and the corporate term loan are due on or before September 30, 2020. Management continues to be discussions with a Canadian chartered bank to re-finance its remaining obligations to PACE.

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The Company has defaulted on the convertible promissory notes (see note 13 in the interim condensed consolidated balance sheets as at June 30, 2020 and December 31, 2019). As a result, the amounts owing to PACE (see note 11) and the obligations under capital lease (see note 12), also disclosed in the interim condensed consolidated balance sheets as at June 30, 2020 and December 31, 2019, are also in default.

These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors, whose debts are also in default and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.

Beginning in March 2020 the Governments of Canada and Ontario, as well as foreign governments instituted emergency measures as a result of the novel strain of coronavirus ("COVID-19). The virus has had a major impact on Canadian and international securities and currency markets and consumer activity which may impact the Company's financial position, its results of operations and its cash flows significantly. The situation is constantly evolving, however, so the extent to which the COVID-19 outbreak will impact businesses and the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial position, results of operations and cash flows will be affected in the future.

The interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.

CRITICAL ACCOUNTING ESTIMATES

Use of estimates

The preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.

Stock-based compensation

From time to time the Company may grant options and/or warrants to management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to paid in capital. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon exercise of stock options and/or warrants is recorded in equity as share capital.

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Long-Lived Asset Impairments

We assess our long-lived assets for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (income) expense from divestitures, asset impairments and unusual items, net in our Consolidated Statements of Operations and Comprehensive Loss.

Indefinite-Lived Intangible Assets - At least annually, and more frequently if warranted, we assess the indefinite-lived intangible assets, including the goodwill of our reporting units for impairment using Level 3 inputs.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

On January 1, 2020, the Company adopted ASU No. 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements to ASC Topic 820, Fair Value Movement. ASU No. 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. The adoption of ASU No. 2018-13, did not have a significant impact on the Company's consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The adoption of ASU No. 2017-04, did not have a significant impact on the Company's consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company's financial position, results of operations or cash flows.

EQUITY

As at June 30, 2020, the Company had 64,329,157 common shares issued and outstanding. As at the date of this filing, the Company had 69,281,378 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 June 30, 2020 and as of the date of this filing.

RELATED PARTY TRANSACTIONS

On November 6, 2019, by resolution of the Board, the consulting contracts for the president and the CFO were renewed, each for a one-year period, commencing January 1, 2020. For the president, at the same monthly amount and on the same terms and conditions, as his previous consulting contract, $11,007 ($15,000 CAD), monthly. For the CFO, at a monthly amount of $5,870 ($8,000 CAD), an increase of $1,468 ($2,000 CAD) over his previous consulting contract and on the same terms and conditions as his previous consulting contract.

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In addition, on November 6, 2019, by resolution of the Board, the president was appointed Chief Executive Officer ("CEO").

The Company transacts with related parties in the normal course of business.

For three and six-month periods ended June 30, 2020, the Company incurred $32,494 ($45,000 CAD) and $65,988 ($90,000 CAD) (2019-$33,642; $45,000 CAD and $67,491; $90,000 CAD) 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"); $nil ($nil CAD) and $nil ($nil CAD) (2019-$33,642; $45,000 CAD and $67,491; $90,000 CAD) respectively, in management fees expense with Landfill Gas Canada Ltd. ("LFGC"), an Ontario company controlled by a former director and former chief executive officer and $17,331 ($24,000 CAD) and $35,194 ($48,000 CAD) (2019-$13,456; $18,000 CAD and $26,996; $36,000 CAD)  respectively in management fees expense with the Company's chief financial officer (the "CFO").  As at June 30, 2020, unpaid remuneration and unpaid expenses in the amount of $329,985 ($431,727 CAD) (December 31, 2019-$324,303; $421,227 CAD) is included in accounts payable and $11,741 ($16,000 CAD) (December 31, 2019-$12,318; $16,000 CAD) is included in accrued liabilities in the interim condensed consolidated balance sheets.

In addition, during the three and six-month periods ended June 30, 2020, the Company incurred interest expense of $2,187 ($2,992 CAD) and $2,628 ($3,584 CAD) (2019-$679; $920 CAD and $4,481; $5,975 CAD) respectively, on outstanding loans from Travellers and $nil ($nil CAD) (2019-$1,678; $2,244 CAD and $3,347; $4,463 CAD) respectively, on outstanding loans from the directors. As at June 30, 2020, interest of $2,630 ($3,584 CAD) (December 31, 2019-$nil; $nil CAD) on the loans outstanding to Travellers is included in accrued liabilities in the interim condensed consolidated balance sheets.

For the three and six-month periods ended June 30, 2020, the Company incurred $18,897 ($26,130 CAD) and  $36,420 ($49,673 CAD) (2019-$15,298; $20,469 CAD and $32,296; $ $43,067 CAD) respectively, in rent expense paid under a rental agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

For those independent directors providing their services throughout 2019, the Company accrued directors' compensation totaling $1,800, based on the subsequent issuance of 20,000 common shares of the Company to each of the five directors that are expected to be issued subsequent to June 30, 2020. And, for services provided in the three and six-month periods ended June 30, 2020, $1,202 and $2,237 (2019-$9,748 and $12,700) respectively. The directors' compensation was priced based on the trading price of the shares at the close of business on June 30, 2020 and will be recorded based on the trading price of the shares, immediately prior to issuance. Also included in directors' compensation for the three and six-month periods ended June 30, 2020, are the audit committee chairman's fees, in the amount of $722 ($1,000 CAD) and $1,466 ($2,000 CAD) (2019 $756; $1,000 CAD and $1,500; $2,000 CAD) respectively. As at June 30, 2020, outstanding directors' compensation of $nil ($nil CAD) (December 31, 2019-$3,480; $4,520 CAD) is included in accounts payable and $3,987 (December 31, 2019-$3,650) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and six-month periods ended June 30, 2020, the Company recognized management compensation expense of $nil and $nil (2019-$332,500 and 665,000) respectively, on the vesting of restricted stock units ("RSUs") granted in prior years to the CEO and the former chief executive officer. On January 10, 2020, the CEO's remaining RSUs were exchanged into 1,000,000 common shares of the Company. Based on private placement pricing at the time of the granting of the RSUs, the common shares issued to the CEO on the exchange of the 1,000,000 RSUs, was determined to be valued at $1,000,000.

On August 4, 2020, the Company repaid $25,683 ($35,000 CAD) of the principal balance owing on the related party loans to Travellers.

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OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Quarterly Report on Form 10-Q.

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Due to inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on our evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due primarily to the small size of the Company and the lack of a segregation of duties.

Notwithstanding this material weakness, management has concluded that the unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the six-month period ended June 30, 2020 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1A. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as set forth in this Form 10-Q, we are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results. The Company has two known claims against it, one filed, for unpaid legal fees, in the amount $47,874 ($65,241 CAD) and the other for certain claimed fees to the former chief executive officer in the amount of $290,220 ($395,500 CAD). The amounts claimed have been recorded in the accounts of the Company. If the amount claimed by the former chief executive officer are not paid by August 21, 2020, additional amounts may be claimed.

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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 six-month period ended June 30, 2020, the Company issued:

The issuance of the securities set forth in this Part II, Item 2 was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") for the offer and sale of securities not involving a public offering. The Company's reliance upon Section 4(a)(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities were isolated private transactions by us which did not involve a public offering; (b) each transaction had fewer than five recipients; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual entities and the Company; and (f) the recipients of the securities are accredited investors

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

Not Applicable.

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Item 6. Exhibits.

The following exhibits are filed as part of this quarterly report on Form 10-Q:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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