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SusGlobal Energy Corp. - Quarter Report: 2021 September (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 September 30, 2021

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)

Delaware

38-4039116

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)
   

200 Davenport Road

M5R 1J2

Toronto, ON

  

(Address of principal executive offices)

(Zip Code)

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

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

Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A

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 [ ]

1

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.

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [X]
  Emerging growth company [X]

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 November 15, 2021 was 94,065,404.

2

 

SusGlobal Energy Corp.

INDEX TO FORM 10-Q

For the Three and Nine-Month Periods Ended September 30, 2021 and 2020

Part I FINANCIAL INFORMATION  
Item 1 Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3 Quantitative and Qualitative Disclosures About Market Risk 44
Item 4 Controls and Procedures 44
Part II OTHER INFORMATION 44
Item 1 Legal Proceedings 44
Item 1A Risk Factors 45
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 45
Item 3 Defaults Upon Senior Securities 45
Item 4 Mine Safety Disclosures 45
Item 5 Other Information 45
Item 6 Exhibits 45

 

3

 

SUSGLOBAL ENERGY CORP.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020

(Expressed in United States Dollars)
(unaudited)

CONTENTS

Interim Condensed Consolidated Balance Sheets5
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss6
Interim Condensed Consolidated Statements of Stockholders' Deficiency7
Interim Condensed Consolidated Statements of Cash Flows8
Notes to the Interim Condensed Consolidated Financial Statements9-25

 

4

 

SusGlobal Energy Corp.

Interim Condensed Consolidated Balance Sheets

As at September 30, 2021 and December 31, 2020

(Expressed in United States Dollars)

(unaudited)

 
    September 30,     December 31,  
    2021     2020  
ASSETS            
Current Assets            
Cash $ 36,912   $ 6,457  
Trade receivables   65,320     182,871  
Government remittances receivable   34,880     3,746  
Inventory   21,506     24,740  
Prepaid expenses and deposits (note 6)   197,525     94,131  
Deferred assets   -     215,953  
Total Current Assets   356,143     527,898  
             
Intangible Assets (note 7)   500,295     188,180  
Long-lived Assets, net (note 8)   8,105,699     5,042,225  
Long-Term Assets   8,605,994     5,230,405  
Total Assets $ 8,962,137   $ 5,758,303  
LIABILITIES AND STOCKHOLDERS' DEFICIENCY            
Current Liabilities            
Accounts payable (note 9) $ 1,158,153   $ 1,073,454  
Government remittances payable   253,799     229,358  
Accrued liabilities (notes 9, 11, and 13)   1,245,906     1,206,618  
Advance (note 10)   -     15,460  
Deferred revenue   -     4,790  
Current portion of long-term debt (note 11)   7,745,717     6,327,520  
Current portion of obligations under capital lease (note 12)   123,817     375,140  
Convertible promissory notes (note 13)   1,046,708     1,092,100  
Loans payable to related parties (note 14)   18,838     33,772  
Total Current Liabilities   11,592,938     10,358,212  
Long-term debt (note 11)   1,753,184     78,540  
Obligations under capital lease (note 12)   144,327     -  
Deferred tax liability   82,448     82,501  
Total Long-term Liabilities   1,979,959     161,041  
Total Liabilities   13,572,897     10,519,253  
             
Stockholders' Deficiency            
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding
Common stock, $.0001 par value, 150,000,000 authorized, 94,065,404 (2020- 82,860,619) shares issued and outstanding (note 15)		   9,407     8,288  
Additional paid-in capital   11,711,322     9,045,187  
Shares to be issued   -     8,580  
Accumulated deficit   (15,993,098 )   (13,468,794 )
Accumulated other comprehensive loss   (338,391 )   (354,211 )
             
Stockholders' deficiency   (4,610,760 )   (4,760,950 )
             
Total Liabilities and Stockholders' Deficiency $ 8,962,137   $ 5,758,303  
Going concern (note 2)            
Commitments (note 16)            
Subsequent events (note 20)            

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

 

5

 

SusGlobal Energy Corp.

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

For the three and nine-month periods ended September 30, 2021 and 2020

(Expressed in United States Dollars)

(unaudited)

 
    For the three-month periods ended     For the Nine-month periods ended  
    September 30,     September 30,     September 30,     September 30,  
    2021     2020     2021     2020  
Revenue $ 204,796   $ 439,507   $ 610,088   $ 1,172,343  
                         
Cost of Sales                        
Opening inventory   35,983     -     24,740     5,389  
Depreciation (note 8)   116,632     133,467     388,731     367,734  
Direct wages and benefits   74,093     90,475     210,542     251,721  
Equipment rental, delivery, fuel and repairs and maintenance   371,424     52,652     546,597     210,808  
Utilities   16,872     27,185     24,290     73,425  
Outside contractors   39,717     3,886     61,089     9,165  
    654,721     307,665     1,255,989     918,242  
Less: closing inventory   (21,506 )   -     (21,506 )   -  
Total cost of sales   633,215     307,665     1,234,483     918,242  
                         
Gross (loss) profit   (428,419 )   131,842     (624,395 )   254,101  
                         
Operating expenses                        
Management compensation-stock- based                        
compensation (notes 9 and 15)   54,259     -     162,777     -  
Management compensation-fees (note 9)   90,471     51,812     273,395     152,994  
Marketing   30,131     -     158,605     -  
Professional fees   96,704     102,769     231,950     292,104  
Interest expense and default amounts (notes 9, 10, 11, 12 and 13)   233,346     258,796     565,938     854,496  
Office and administration (note 7 and 8)   66,329     50,042     171,164     182,727  
Rent and occupancy (note 9)   56,148     32,420     125,067     89,480  
Insurance                                        19,719     10,056     51,106     52,156  
Filing fees   49,131     12,957     85,278     35,103  
Amortization of financing costs   235,795     18,677     371,916     141,686  
Directors' compensation (note 9)   14,905     56,637     38,241     57,070  
Stock-based compensation (note 15)   31,946     -     68,228     -  
Repairs and maintenance   3,688     1,186     11,475     10,097  
Foreign exchange (income) loss   35,569     (33,473 )   16,130     31,987  
Total operating expenses   1,018,141     561,879     2,331,270     1,899,900  
                         
Net loss from operating activities   (1,446,560 )   (430,037 )   (2,955,665 )   (1,645,799 )
Other (loss) income (note 17)   -     (424 )   404,809     (59,128 )
Net loss before deferred and income taxes recovery   (1,446,560 )   (430,461 )   (2,550,856 )   (1,704,927 )
Deferred taxes recovery   -     1,415     -     197,420  
Income taxes recovery   26,552     -     26,552     -  
Total deferred and income taxes recovery   26,552     1,415     26,552     197,420  
Net loss   (1,420,008 )   (429,046 )   (2,524,304 )   (1,507,507 )
Other comprehensive loss                        
Foreign exchange income (loss)   123,966     (80,703 )   15,820     63,131  
                         
Comprehensive loss $ (1,296,042 ) $ (509,749 )   (2,508,484 )   (1,444,376 )
                         
Net loss per share-basic and diluted $ (0.01 ) $ (0.01 )   (0.03 )   (0.02 )
                         
Weighted average number of common shares outstanding- basic and diluted   92,969,542     69,871,179     89,987,732     62,067,449  

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

6

 

SusGlobal Energy Corp.

Interim Condensed Consolidated Statements of Changes in Stockholders' Deficiency

For the three and nine-month periods ended September 30, 2021 and 2020

(Expressed in United States Dollars)

(unaudited)

 

    Number of
Shares 		    Common
Shares 		    Additional
Paid- in
Capital 		    Shares
to be
Issued		     Stock
Compensation
Reserve 		    Accumulated
Deficit 		    Accumulated
Other
Comprehensive
Income (Loss) 		    Stockholders'
Deficiency 		 
Balance-December 31, 2020   82,860,619   $ 8,288   $ 9,045,187   $ 8,580   $ -   $ (13,468,794 ) $ (354,211 ) $ (4,760,950 )
Shares issued for proceeds previously received   400,000     40     8,540     (8,580 )   -     -     -     -  
Shares issued to officers   1,050,000     105     216,930     -     -     -     -     217,035  
Shares issued on conversion of related party debt and accounts payable to equity   1,005,728     100     285,544     -     -     -     -     285,644  
Shares issued for conversion of debt to equity   3,175,124     318     713,398     -     -     -     -     713,716  
Shares issued for professional services   63,000     6     24,213     -     -     -     -     24,219  
Shares yet to be issued on issuance of convertible debt   -     -     -     66,000     -     -     -     66,000  
Shares issued on private placement   630,480     63     157,557     -     -     -     -     157,620  
Other comprehensive loss   -     -     -     -     -     -     (61,192 )   (61,192 )
Net loss   -     -     -     -     -     (306,335 )   -     (306,335 )
Balance-March 31, 2021   89,184,951   $ 8,920   $ 10,451,369   $ 66,000   $ -   $ (13,775,129 ) $ (415,403 ) $ (3,664,243 )
Shares issued for proceeds previously received   200,000     20     65,980     (66,000 )   -     -     -     -  
Shares issued on conversion of related party debt   720,348     72     165,608     -     -     -     -     165,680  
Shares issued for professional services   520,000     52     119,548     -     -     -     -     119,600  
Shares issued on receipt of promissory notes   1,200,000     120     368,880     -     -     -     -     369,000  
Other Comprehensive loss   -     -     -     -     -     -     (46,954 )   (46,954 )
Net Loss   -     -     -     -     -     (797,961 )   -     (797,961 )
Balance-June 30, 2021   91,825,299     9,184     11,171,385     -     -     (14,573,090 )   (462,357 )   (3,854,878 )
Shares issued on receipt of promissory notes   80,000     8     21,192     -     -     -     -     21,200  
Shares issued for professional services and acquisition of assets   1,003,332     100     288,560     -     -     -     -     288,660  
Shares issued on conversion of debt   591,905     59     96,126     -     -     -     -     96,185  
Shares issued on private placement   564,868     56     134,059     -     -     -     -     134,115  
Other Comprehensive income   -     -     -     -     -     -     123,966     123,966  
Net Loss   -     -     -     -     -     (1,420,008 )   -     (1,420,008 )
Balance-September 30, 2021   94,065,404     9,407     11,711,322     -     -     (15,993,098 )   (338,391 )   (4,610,760 )
Balance-December 31, 2019   51,784,504     5,180     7,450,091     -     1,000,000     (11,449,497 )   (209,792 )   (3,204,018 )
Shares issued on vesting of 2019 stock award   1,000,000     100     999,900     -     (1,000,000 )   -     -     -  
Shares issued for conversion of debt to equity   7,717,326     772     75,955     -     -     -     -     76,727  
Conversion of debt to equity on shares yet to be issued   -     -     -     7,250     -     -     -     7,250  
Other comprehensive income   -     -     -     -     -     -     301,639     301,639  
Net loss   -     -     -     -     -     (755,290 )   -     (755,290 )
Balance-March 31, 2020   60,501,830   $ 6,052   $ 8,525,946   $ 7,250   $ -   $ (12,204,787 ) $ 91,847   $ (3,573,692 )
Shares issued for proceeds previously received   1,600,000     160     7,840     (7,250 )   -     -     -     750  
Shares issued for conversion of debt to equity   2,757,297     276     10,477     -     -     -     -     10,753  
Share cancellation   (529,970 )   (53 )   -     -     -     (6,983 )   -     (7,036 )
Conversion of debt to equity on shares yet to be issued   -     -     -     13,000     -     -     -     13,000  
Other comprehensive loss   -     -     -     -     -     -     (157,805 )   (157,805 )
Net loss   -     -     -     -     -     (323,171 )   -     (323,171 )
Balance-June 30, 2020   64,329,157     6,435     8,544,263     13,000     -     (12,534,941 )   (65,958 )   (4,037,201 )
Shares issued for proceeds previously received                                                
Shares issued for conversion of debt to equity   1,762,820     176     13,574     (13,000 )   -     -     -     750  
Conversion of debt to equity on shares yet to be issued   13,280,666     1,329     70,499     -     -     -     -     71,828  
Other comprehensive loss   -     -     -     -     -     -     (80,703 )   (80,703 )
Net loss   -     -     -     -     -     (429,046 )   -     (429,046 )
Balance-September 30, 2020   79,372,643     7,940     8,628,336     -     -     (12,963,987 )   (146,661 )   (4,474,372 )

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

 

7

 

SusGlobal Energy Corp.

Interim Condensed Consolidated Statements of Cash Flows

For the nine-month periods ended September 30, 2021 and 2020

(Expressed in United States Dollars)

(unaudited)

 

    For the nine-month
period ended
September 30, 2021		     For the six-month
period ended
September 30, 2020		  
Cash flows from operating activities            
Net loss $ (2,524,304 ) $ (1,507,507 )
Deferred taxes recovery   -     (197,420 )
Land option expired   -     59,128  
Adjustments for:            
Depreciation   391,396     367,734  
Amortization of intangible assets   2,971     6,171  
Non-cash professional fees on conversion of debt   550     4,883  
Non-cash interest expense on conversion of debt   (53,354 )   -  
Amortization of financing fees   371,916     141,686  
Change in business combination consideration   -     88,107  
Stock-based compensation   231,005     -  
Gain on forgiveness of convertible promissory notes and accrued interest   (359,460 )   -  
Gain on disposal of long-lived assets   (45,349 )   -  
Changes in non-cash working capital:            
Trade receivables   119,604     (114,934 )
Government remittances receivable   (31,712 )   29,870  
Other receivables   -     12,712  
Inventory   3,278     5,174  
Prepaid expenses and deposits   51,090     8,080  
Deferred assets   3,963     -  
Accounts payable   168,258     250,731  
Government remittances payable   25,040     130,995  
Accrued liabilities   612,545     278,529  
Deferred revenue   (4,876 )   (4,361 )
Net cash used in operating activities   (1,037,439 )   (440,422 )
Cash flows from investing activities            
Purchase of intangible assets   (315,305 )   (14,164 )
Purchase of long-lived assets (i)   (1,622,492 )   (192,269 )
Proceeds on disposal of long-lived assets   47,964     -  
Net cash provided by (used in) investing activities   (1,889,833 )   (206,433 )
Cash flows from financing activities            
Advance   -     81,818  
Repayments of advance   (15,735 )   (24,013 )
Advance of long-term debt (i)   1,518,860     59,128  
Repayment of long-term debt   (47,850 )   (105,490 )
Repayments of obligations under capital lease   (108,729 )   (93,467 )
Advances and penalties of convertible promissory notes (ii)   997,500     192,641  
Repayment of convertible promissory notes   (50,000 )   -  
Advances of loans payable to related parties (iii)   388,205     73,910  
Repayment of loans payable to related parties   (34,374 )   (25,869 )
Proceeds on private placement (net of share issue costs)   303,486     -  
Net cash provided by financing activities   2,951,363     158,658  
Effect of exchange rate on cash   6,364     17,501  
Increase (decrease) in cash   30,455     (470,696 )
Cash and cash equivalents-beginning of period   6,457     7,926  
Restricted cash-beginning of period   -     467,798  
Cash and cash equivalents and restricted cash-beginning of period   6,457     475,724  
Cash and cash equivalents end of period $ 36,912   $ 5,028  
Supplemental Cash Flow Disclosure:            
Interest paid $ 342,840   $ 463,717  

(i) Refer to notes 8, long-lived assets, net and 11, long-term debt, for the increases in long-term debt on long-lived assets, net acquisitions

(ii) Refer to note 13, convertible promissory notes, for the issuance of capital stock on the conversion of debt

(iii) Refer to note 14, loan payable to related party, for the issuance of capital stock on the conversion of debt.

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

8
SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

1. Nature of Business and Basis of Presentation

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

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

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

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

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

2. Going Concern
 
The interim condensed consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.
 
The Company incurred a net loss of $2,524,304 (2020-$1,507,507) for the nine months ended September 30, 2021 and as at that date had a working capital deficit of $11,236,795 (December 31, 2020-$9,830,314) and an accumulated deficit of $15,993,098 (December 31, 2020-$13,468,794) and expects to incur further losses in the development of its business. On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company until August 31, 2021 to bring the arrears current and continue to September 2022, the original maturity date. Management was not able to meet the August 31, 2021 deadline.  On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022.  Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors.
 
These factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and its other creditors, and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
 

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

9

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

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

3. Significant Accounting Policies

These interim condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements of the Company for the years ended December 31, 2020 and 2019 and their accompanying notes.

4. Recent Adopted Accounting Policy:
 
From time to time, new accounting pronouncements are issued by the financial accounting standards board (the "FASB") or other standard setting bodies and adopted by the Company as of the specified effective date or possibly early adopted, where permitted.
 
Newly Adopted
 
On January 1, 2021, the Company early adopted Accounting Standards Update ("ASU") No. 2020-06, -Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current US GAAP.  ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted earnings per share "EPS" calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under ASU 2020-06, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early adopted ASU 2020-06 on January 1, 2021 using the modified retrospective method. As a result of Management's evaluation, the adoption of ASU 2020-06 did not have a material impact on the interim condensed consolidated financial statements.

5. Financial Instruments

The carrying value of cash, trade receivables, accounts payable, accrued liabilities and deferred revenue approximated their fair values as of September 30, 2021 and December 31, 2020, due to their short-term nature. The carrying value of the advance, long-term debt, obligations under capital lease, convertible promissory notes and loan payable to related party approximated their fair values due to their market interest rates.

Interest, Credit and Concentration Risk

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

The Company is exposed to significant interest rate risk on the current portion of its long-term debt and a portion of its convertible promissory notes of $7,708,574 (C$9,821,091) (2020-$6,327,520; C$8,056,430).

Credit risk is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at September 30, 2021, the Company's credit risk is primarily attributable to cash and trade receivables. As at September 30, 2021, the Company's cash was held with reputable Canadian chartered banks, a credit union and a United States of America bank.

10

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

5. Financial Instruments, (continued)

With regards to credit risk with customers, the customers' credit evaluation is reviewed by management and account monitoring procedures are used to minimize the risk of loss. The Company believes that no additional credit risk beyond amounts provided for by the allowance for doubtful accounts are inherent in accounts receivable. As at September 30, 2021, the allowance for doubtful accounts was $nil (C$nil) (December 31, 2020-$nil; C$nil).

As at September 30, 2021, the Company is exposed to concentration risk as it had four customers (December 31, 2020-five customers) representing greater than 5% of total trade receivables and four customers (December 31, 2020-five customers) represented 74% (December 31, 2020 - 96%) of trade receivables. The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue. These customers accounted for 80% (34%, 23%, 12% and 11%) (September 30, 2020-69%; 40%, 15% and 14%) of total revenue.

Liquidity Risk

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

The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company's capital programs. In order to continue operations, the Company will need to raise capital, repay PACE for all of its outstanding obligations by September 2022 and complete the refinancing of its real property and organic waste processing and composting facility. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown. Refer also to going concern, note 2.

Currency Risk

Although the Company's functional currency is the C$, the Company realizes a portion of its expenses in United States Dollars ("$"). Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at September 30, 2021, $141,047 (December 31, 2020-$527,847) of the Company's net monetary liabilities were denominated in $. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.

6. Prepaid Expenses and Deposits

Included in prepaid expenses and deposits are costs, primarily for professional services to be expensed as stock-based compensation and stock-based compensation under management compensation after September 30, 2021, in the amount of $145,509 (C$185,385). These professional services expire at varying periods from November 30, 2021 to March 31, 2023 and expensed evenly over these periods based on the terms of the associated agreements.  The stock-based compensation is included under management compensation for the three and nine-month periods ended September 30, 2021 in the amounts of $54,259 and $162,777 respectively, disclosed also under related party transactions, note 9 and under stock-based compensation for the three and nine-month periods ended September 30, 2021 in the amounts of $31,346 and $68,228 respectively, in the interim condensed consolidated statements of operations and comprehensive loss.  The professional services disclosed under stock-based compensation related to general corporate consulting, marketing, branding and commercialization to market, and general investor relations services. The common shares issued for professional services are also noted under capital stock, note 15.  The balance consists of costs and deposits for services expiring after September 30, 2021, including insurance, rent, a subscription and a legal retainer.

7. Intangible Assets

    September 30, 2021     December 31, 2020  
Customer lists-limited life-C$10,045 (net of accumulated amortization of $11,990) (C$15,276) (2020-$10,809 (C$13,763) (net of accumulated amortization of $9,078 (C$11,559)) $ 7,885   $ 10,809  
Trademarks-indefinite life-C$53,603 (2020-C$43,135)   42,073     33,878  
Environmental compliance approvals (the "ECAs") -indefinite life- C$573,751 (2020-C$182,700)   450,337     143,493  
  $ 500,295   $ 188,180  

 

11

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

7. Intangible Assets, (continued)

For the three and nine-month periods ended September 30, 2021, the Company incurred fees in connection with various trademarks in the United States and Canada, in the amount $3,347 (C$4,433) and $8,216 (C$10,468) (2020-$8,508; C$11,349 and $14,366; C$19,162) respectively.

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

Effective May 24, 2019, the Company acquired customer lists of $22,608 (C$30,400) relating to certain municipal contracts. These customer lists are being amortized over terms ranging from forty-five to sixty-six months. During the three and nine-month periods ended September 30, 2021, amortization of $983 (C$1,239) and $2,971 (C$3,717) (2020-$506; C$680), disclosed under office and administration in the statements of operations and comprehensive loss and under amortization of intangible assets in the statements of cash flows.

As described in long-lived assets net, note 8, on August 17 2021, the Company acquired certain assets in Hamilton, Ontario, Canada, (the "Hamilton Property"), consisting of land, a vacant building and ECAs. The ECAs acquired totaled $306,936 (C$391,051).  The fair value of the ECAs was valued using a replacement cost valuation approach and incorporated a margin on cost and an entrepreneurial margin of approximately 11% and 20% respectively. The purchase consideration of the Hamilton Property was allocated ratable on assets acquired as detailed under Note 8 below.

8. Long-lived Assets, net

          September 30,           December 31,  
          2021           2020  
    Cost     Accumulated     Net book value     Net book value  
          depreciation              
Land $ 3,363,643   $ -   $ 3,363,643   $ 1,655,623  
Property under construction   1,614,030     -     1,614,030     -  
Composting buildings   2,379,910     568,833     1,811,077     1,965,959  
Gore cover system   1,105,157     420,245     684,912     771,622  
Driveway and paving   363,801     117,629     246,172     268,171  
Machinery and equipment   177,839     105,335     72,504     99,227  
Equipment under capital lease   730,743     573,982     156,761     269,116  
Office trailer   9,419     9,419     -     1,527  
Vacuum trailer   5,887     3,974     1,913     3,240  
Computer equipment   6,937     6,937     -     385  
Automotive equipment   181,852     31,350     150,502     4,754  
Signage   6,487     2,302     4,185     2,601  
  $ 9,945,705   $ 1,840,006   $ 8,105,699   $ 5,042,225  

On August 17 2021, the Company acquired the Hamilton Property assets, consisting of land, a vacant building and ECAs. The total purchase price including costs of acquisition of $173,996 (C$221,680) totaled $3,557,664 (C$4,532,633).  The costs of acquisition, were settled through cash payments of $117,996 (C$150,333) and the issuance of 200,000 common shares valued based on the trading price on the issuance date at $56,000 (C$71,347) to a consultant who assisted on the closing of the transaction. The issuance of common shares is also noted under capital stock, note 15, common shares issued for professional services.  The purchase of the Hamilton Property was funded by cash of $392,712 (C$500,333), the issuance of 300,000 common shares to the vendor on closing, having a value based on the trading price on the issuance date of $84,000 (C$107,020), the issuance noted above of 200,000 common shares to a consultant who assisted on the closing of the transaction disclosed as part of common shares issued for professional services, under capital stock, note 15, a vendor take-back 1st mortgage of $1,569,800 (C$2,000,000) and a portion of the increased existing 1st mortgage of $1,455,152 (C$1,853,933), disclosed under note 11(d), long-term debt.  The cost of the purchase price was allocated ratably over the estimated fair value of each long-lived asset acquired, land of $1,709,074 (C$2,177,442), included above under land and building $1,541,654 (C$1,964,141), described above as property under construction.  Refer to intangible assets, note 7, for details of the balance of the purchase price representing ECAs acquired.

Also included under property under construction, are construction costs incurred subsequent to the acquisition in the amount of $72,376 ($92,211).

Depreciation is disclosed in cost of sales for the three and nine-month periods ended September 30, 2021 in the amount of $116,632 (C$147,130) and $388,731 (C$486,278) (2020-$133,467; C$178,030 and $367,734; C$497,543) respectively, and in office and administration in the amount of $398 (C$509) and $2,665 (C$3,334) (2020-$1,350; C$1,800 and $3,845; C$5,203) respectively, in the interim condensed consolidated statements of operations and comprehensive loss.

In addition, under deferred assets in the interim condensed consolidated balance sheets is an accrual in the amount of $nil (C$nil) (December 31, 2020-$215,953; C$274,959), for certain long-lived assets previously expected to be received.

12

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

9. Related Party Transactions

For three and nine-month periods ended September 30, 2021, the Company incurred $71,424 (C$90,000) and $215,838 (C$270,000) (2020-$33,791; C$45,000 and $99,779; C$135,000) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $19,047 (C$24,000) and $57,557 (C$72,000) (2020-$18,021; C$24,000 and $53,215; C$72,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at September 30, 2021, unpaid remuneration and unpaid expenses in the amount of $410,219 (C$522,639) (December 31, 2020-$396,160; C$504,405) is included in accounts payable in the interim condensed consolidated balance sheets. This balance includes amounts owing to the former chief executive officer in the amount of $310,428 (C$395,500).

In addition, during the three and nine-month periods ended September 30, 2021, the Company incurred interest expense of $nil (C$nil) and $nil (C$nil) (2020-$1,771; C$2,368 and $4,399; C$5,952) respectively, on outstanding loans from Travellers and $265 C$(331) and $265 (C$331) (2020-$nil; C$nil and $nil; C$nil) respectively, on the outstanding loan from the CFO.

For the three and nine-month periods ended September 30, 2021, the Company incurred $27,220 (C$34,255) and $72,672 (C$90,908) (2020-$21,198; C$28,284 and $57,618; C$77,957) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

For those independent directors providing their services throughout 2021, the Company recorded directors' compensation for the three and nine-month periods ended September 30, 2021, in the amount of $14,905 (C$18,751) and $38,241 (C$47,837) (2020-$56,637 and $57,070) respectively. Also included in directors' compensation for the three and nine-month periods ended September 30, 2021, is the audit committee chairman's fees, in the amount of $nil (C$nil) and $nil (C$nil) (2020-$751 C$1,000 and $2,217; $C3,000). A new audit committee chairman has not yet been appointed for 2021 As at September 30, 2021, outstanding directors' compensation of $nil (C$nil) (December 31, 2020-$2,663; C$3,390) is included in accounts payable and $55,293 (C$70,446) (December 31, 2020-$37,244; C$47,421) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and nine-month periods ended September 30, 2021, the Company recognized management stock-based compensation expense of $54,259 and $162,777 (2020 $nil and $nil) respectively, on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock respectively, on commencement of their new executive consulting agreements, effective January 1, 2021. The total stock-based compensation on the issuance of the common stock totaled $217,035. The portion to be expensed for the balance of the year, $54,258 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets.

10. Advance

On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,952 (C$6,138). The amount was paid in full on January 26, 2021. For the three and nine-month periods ended September 30, 2021, the Company incurred interest charges of $nil (C$nil) and $706 (C$883) (2020-$15,554; C$21,044) and $15,554; C$21,044) respectively.

11. Long-Term Debt

 

                Corporate           Canada
Emergency		                    
    Credit
Facility		     Credit
Facility		     Term
Loan		     Mortgages
Payable		     Business
Account		     Corporate Term
Loan		     September 30,
2021 Total		     December 31,
2020 Total		  
    (a)     (b)     (c)     (d)     (e)     (f)              
Long-Term Debt $ 758,200   $ 423,988   $ 2,569,316   $ 5,526,870   $ 78,490   $ 142,037   $ 9,498,901   $ 6,406,060  
Current portion   (758,200 )   (423,988 )   (2,569,316 )   (3,957,070 )   -     (37,143 ) $ (7,745,717 )   (6,327,520 )
Long-term portion $ -   $ -   $ -   $ 1,569,800   $ 78,490   $ 104,894   $ 1,753,184   $ 78,540  
 
13

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

11. Long-Term Debt, (continued)

On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. Management was not able to meet the July 30, 2021 deadline. On August 13, 2021, PACE agreed to allow the Company to bring the arrears current by August 31, 2021 and continue to September 2022. Management was not able to meet this new deadline.  On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022.  Refer to subsequent events, note 20(b) and 20(f). Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the obligations to PACE, September 2022.  On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.

Refer also to going concern, note 2.

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

(a)
The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $6,879 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,255,840 (C$1,600,000), is secured by a business loan general security agreement, a $1,255,840 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
 
(b)
The credit facility advanced on June 15, 2017, in the amount of $470,940 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,847 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
   
(c)

The corporate term loan advanced on September 13, 2017, in the amount of $2,923,083 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,320 (C$29,711), and matures on September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,140,368 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.

 

For the three and nine-month periods ended September 30, 2021, $79,687 (C$99,683) and $236,743 (C$296,151) (2020-$70,105; C$93,162 and $225,346; C$304,893) respectively, in interest was incurred on the PACE long-term debt. As at September 30, 2021 $147,089 (C$187,399) (December 31, 2020-$18,319; C$23,325) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.

 

(d)

i.)    The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,081,480 (C$5,200,000) (December 31, 2020-$2,591,820; C$3,300,000). The fourth tranche was received on August 13, 2021 in the amount of $1,491,310 (C$1,900,000) and a portion of this fourth tranche, $1,455,152 (C$1,853,933), was used to fund a portion of the purchase of the Hamilton Property, described under long-lived assets, net note 8. The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage on the premises located at 704 Phillipston Road, Roslin, Ontario, Canada and a general assignment of rents. Financing fees on the 1st mortgage totaled $316,644 (C$403,419). As at September 30, 2021 $32,428 (C$41,315) (December 31, 2020-$36,215; C$46,110) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2021 there is $124,413 (C$158,508) (December 31, 2020-$50,253; C$63,984) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.

 
14

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

11. Long-Term Debt, (continued)

 

ii.) On August 17, 2021, the Company obtained a vendor take-back 1st mortgage in the amount of $1,569,800 (C$2,000,000), on the purchase of the Hamilton Property, described under long-lived assets, net note 8. The 1st mortgage bears interest at an annual rate of 2% per annum, repayable monthly interest only with a maturity date of August 17, 2023, secured by the assets on the Hamilton Property.

For the three and nine-month periods ended September 30, 2021, $89,762 (C$112,814) and $206,184 (C$257,924) (2020-$48,809; C$65,000 and $144,125; C$195,000) respectively in interest was incurred on the 1st mortgages payable.

(e) As a result of the COVID-19 virus, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.
   
  The Company has received a total of $78,490 (C$100,000) under this program, from its Canadian chartered bank.
   
  Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025.

 
  In addition, on a combined basis, if $54,943 (C$70,000) of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance, $23,547 (C$30,000). The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
   
(f) On April 8, 2021, the Company took delivery of a truck and hauling trailer for a total purchase price of $171,373 (C$218,338) plus applicable harmonized sales taxes. The purchase was financed by a bank term loan of $156,980 (C$200,000), over a forty-eight-month term, bearing interest at 4.95% per annum with monthly blended instalments of principal and interest payments of $3,847 (C$4,901) due April 7, 2025.
 
  For the three and nine-month periods ended September 30, 2021, $1,380 (C$1,734) and $3,173 (C$3,969) respectively, in interest was incurred.

12. Obligations under Capital Lease

                      September 30,     December 31,  
                      2021     2020  
    (a)     (b)     (c)     Total     Total  
Obligations under Capital Lease $ 22,337   $ 38,528   $ 207,279   $ 268,144   $ 375,140  
Less: current portion   (22,337 )   (38,528 )   (62,952 )   (123,817 )   (375,140 )
Long-term portion $ -   $ -   $ 144,327   $ 144,327   $ -  

Refer also to going concern, note 2.

(a)

The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $224,992 (C$286,650), is payable in monthly blended installments of principal and interest of $4,584 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. On November 3, 2021, the Company paid the final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes.

 
15

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

12. Obligations under Capital Lease, (continued)

(b) The lease agreement for certain equipment for the Company's organic composting facility at a cost of $194,224 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,017 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,849 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $19,371 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.
   
(c) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $305,836 (C$389,650), is payable in monthly blended installments of principal and interest of $5,378 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,266 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $78 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.

The lease liabilities are secured by the equipment under capital lease as described in note 8.

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

In the three-month period ending December 31, 2021 $ 60,030  
In the year ending December 31, 2022   87,930  
In the year ending December 31, 2023   64,542  
In the year ending December 31, 2024   64,542  
In the year ending December 31, 2025   5,457  
    282,501  
Less: imputed interest   (14,357 )
Total $ 268,144  

For the three and nine-month periods ended September 30, 2021, $2,147 (C$2,721) and $9,841 (C$12,311) (2020-$4,902; C$6,536 and $13,822; C$18,701) respectively, in interest was incurred.

13. Convertible Promissory Notes

      September 30, 2021     December 31, 2020  
(a) Convertible promissory notes-March 7 and March 8, 2019 (net of unamortized financing costs of $nil (2020- $nil)) $ 200,000   $ 491,500  
(b) Convertible promissory note-May 23, 2019 (net of unamortized financing costs of $nil (2020-$nil))   -     242,000  
(c) Convertible promissory note-July 19, 2019 (net of unamortized financing costs of $nil (2020-$nil))   -     187,000  
(d) Convertible promissory note-October 17, 2019 (net of accumulated financing costs of $nil (2020-$nil)   -     171,600  
(e) Convertible promissory note-March 31, 2021 (net of unamortized financing costs of $nil (2020-$nil)   275,000     -  
(f) Convertible promissory note-April 1, 2021 (net of unamortized financing costs of $nil (2020-$nil)   275,000     -  
(g) Convertible promissory note-June 16, 2021 (net of unamortized financing costs of $260,774 (2020-$nil)   189,226     -  
(h) Convertible promissory note-August 26, 2021 (net of unamortized financing costs of $34,718 (2020-$nil)   107,482     -  
    $ 1,046,708   $ 1,092,100  
 
16

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

13. Convertible Promissory Notes, (continued)

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

Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a "March 2019 Effective Date"), they became effective upon the receipt in cash of the issue price by the March 2019 Investors. On March 11, 2019, the Company received cash of $456,000, net of transaction related expenses of $94,000, for the First Notes from the March 2019 Investors.

(a)

 On April 24, 2019, the Company received one of the Back-End Notes from the March 2019 Investors in the face value amount of $275,000. The proceeds received by the Company was $228,000, net of transaction related expense of $47,000. The maturity dates of the March 2019 Investor Notes were March 7, 2020 and March 8, 2020. The March 2019 Investor Notes bear interest at a rate of twelve percent (12%) per annum (the "March 2019 Interest Rate"), which interest shall be paid by the Company to the March 2019 Investors in Common Stock at any time the March 2019 Investors send a notice of conversion to the Company.
   
 

The March 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the March 2019 Investor Notes into Common Stock, at any time, at a conversion price for each share of the Company's Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable March 2019 Effective Date; or (ii) the conversion date.
   
 

The Company initially reserved a minimum of eight (8) times the number of its authorized and unissued Common Stock (the "March 2019 Reserved Amounts"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2019 Investor Notes. Upon full conversion of the March 2019 Investor Notes, any shares remaining in such reserve were cancelled.
   
 

Since the March 2019 Investor Notes were not repaid by their March 7, 2020 and March 8, 2020 maturity dates, they were also in default resulting in the outstanding balance (principal plus accrued interest) increasing by 10% and the interest rate on the 2019 March Investor Notes increasing from 12% to 24% annually, effective January 28, 2020.
   
 

On December 24, 2020, one of the two March 2019 Investors accepted a payment of $165,000 representing payment in full of all obligations due and owing under their March 2019 Investor Note. This resulted in a gain on forgiveness of debt of $119,983, including accrued interest of $68,085, in 2020.
   
 

On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $550,000, $50,000 paid on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. The Company and the March 2019 Investor have been in discussions to settle the balance of the remaining March 2019 Investor Notes. This March 2019 Investor converted a total of $135,000 of one of his March 2019 Investor Notes for 1,075,124 common shares as noted above, including accrued interest of $32,444 (December 31, 2020-$91,802). The balance of the convertible promissory note was forgiven by the March 2019 Investor resulting in a forgiveness of debt of $135,641, including accrued interest of $129,141, disclosed under other income (loss) in the interim condensed consolidated financial statements. On November 3, 2021, the March 2019 Investor accepted a payment of $200,000 from the Company representing all outstanding principal and accrued interest. Refer also to subsequent events, note 20(d).

 
17

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

13. Convertible Promissory Notes, (continued)

  During the three-month period ended September 30, 2021, the March 2019 Investor converted $75,000 of his remaining March 2019 Investor Note for 591,905 common shares of the Company, including accrued interest and related cost of $21,185. After an interest adjustment of $25,000, the remaining balance of the March 2019 Investor Note is $200,000.
   
(b) On May 23, 2019, the Company entered into a securities purchase agreement (the "May 2019 SPA") with one investor (the "May 2019 Investor") pursuant to which the Company issued to the May 2019 Investor one 12% unsecured convertible promissory note (the "May 2019 Investor Note") in the principal amount of $250,000. On this date, the Company received proceeds of $204,250, net of transaction related expenses of $45,750.
   
  The maturity date of the May 2019 Investor Note was May 23, 2020. The May 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "May 2019 Interest Rate"), which interest shall be paid by the Company to the May 2019 Investor in Common Stock at any time the May 2019 Investor sends a notice of conversion to the Company. The May 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the May 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable May 2019 Effective Date; or (ii) the conversion date.
   
  The Company initially reserved 10,937,000 of its authorized and unissued Common Stock (the "May 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the May 2019 Investor Note. Upon full conversion of the May 2019 Investor note, any shares remaining in such reserve were cancelled.
   
  As a result of the January 2019 Investor Notes and the March 2019 Investor Notes not having been repaid by their respective due dates, these defaults resulted in the interest rate on the May 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020 and the principal balance of the May 2019 Investor Note increasing by 10% on May 23, 2020.
   
  During the three and nine-month periods ended September 30, 2021, the May 2019 Investor converted a total of $nil and $nil (December 31, 2020-$nil and $15,000) of his May 2019 Note. And, on January 21, 2021, the May 2019 Investor converted the remaining balance of his May 2019 Investor Note for 846,154 common shares of the Company. This satisfied in full all obligations due and owing under the May 2019 Investor Note. This resulted in a gain on forgiveness of debt of $95,346, including accrued interest of $73,346, disclosed as other income (loss) in the interim condensed consolidated statements of operations and comprehensive loss.
   
(c) On July 19, 2019, the Company entered into a securities purchase agreement (the "July 2019 SPA") with one investor (the "July 2019 Investor") pursuant to which the Company issued to the July 2019 Investor one 12% unsecured convertible promissory note (the "July 2019 Investor Note") in the principal amount of $170,000. On this date, the Company received proceeds of $138,225, net of transaction related expenses of $31,775.
 
  The maturity date of the July 2019 Investor Note was July 19, 2020. The July 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "July 2019 Interest Rate"), which interest shall be paid by the Company to the July 2019 Investor in Common Stock at any time the July 2019 Investor sends a notice of conversion to the Company. The July 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the July 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable July 2019 Effective Date; or (ii) the conversion date.
   
 

The Company initially reserved 5,604,000 of its authorized and unissued Common Stock (the "July 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the July 2019 Investor Note. Upon full conversion of the July 2019 Investor Note, any shares remaining in such reserve were cancelled.
 
 
18

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

13. Convertible Promissory Notes, (continued)

 

As a result of the January 2019 Investor Notes, the March 2019 Investor Notes and the May 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the July 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020 and the principal balance of the July 2019 Investor Note increasing by 10% on July 19, 2020.
 

 
 

On January 21, 2021, the July 2019 Investor converted the remaining balance of his July 2019 Investor Note for 653,846 common shares of the company. This satisfied in full all obligations due and owing under the July 2019 Investor Note. This resulted in a gain on forgiveness of debt of $69,882, including accrued interest of $52,882, disclosed as other income (loss) in the interim condensed consolidated statements of operations and comprehensive loss
 

 
(d)

On October 17, 2019, the Company entered into a securities purchase agreement (the "October 2019 SPA") with one investor (the "October 2019 Investor") pursuant to which the Company issued to the October 2019 Investor one 12% unsecured convertible promissory note (the "October 2019 Investor Note") in the principal amount of $156,000. On this date, the Company received proceeds of $129,600, net of transaction related expenses of $26,400.
 

 
 

The maturity date of the October 2019 Investor Note was October 17, 2020. The October 2019 Investor Note bears interest at a rate of twelve percent (12%) per annum (the "October 2019 Interest Rate"), which interest shall be paid by the Company to the October 2019 Investor in Common Stock at any time the October 2019 Investor sends a notice of conversion to the Company. The October 2019 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the October 2019 Investor Note into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Note) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company's shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable October 2019 Effective Date; or (ii) the conversion date.
 

 
 

The Company initially reserved 22,153,000 of its authorized and unissued Common Stock (the "October 2019 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the October 2019 Investor Note. Upon full conversion of the October 2019 Investor Note, any shares remaining in such reserve were cancelled.
 

 
 

As a result of the January 2019 Investor Notes, the March 2019 Investor Notes, the May 2019 Investor Note and the July 2019 Investor Note not having been repaid by their respective due dates, these defaults resulted in the interest rate on the October 2019 Investor Note increasing from 12% to 24% annually, effective January 28, 2020. On January 21, 2021, the October 2019 Investor converted the remaining balance of its October 2019 Investor Note for 600,000 common shares of the company. This satisfied in full all obligations due and owing under the October 2019 Investor Note. This resulted in a gain on forgiveness of debt of $58,591, including accrued interest of $42,991, disclosed as other income (loss) in the interim condensed consolidated statements of operations and comprehensive loss.
 

 
(e)

On March 31, 2021, the Company entered into a securities purchase agreement (the "March 2021 SPA") with one investor (the "March 2021 Investor") pursuant to which the Company issued to the March 2021 Investor one 10% unsecured convertible promissory note (the "March 2021 Investor Note") in the principal amount of $275,000. On this date, the Company received proceeds of $245,000, net of transaction related expenses $30,000. In addition, the March 31, 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date, determined to be valued at $66,000, based on the closing trading price at the time.
 

 
 

The maturity date of the March 2021 Investor Note is September 30, 2021. The March 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "March 2021 Interest Rate"), which shall be paid by the Company to the March 2021 Investor in Common Stock at any time the March 2021 Investor sends a notice of conversion to the Company. The March 2021 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the March 2021 Investor Note into Common Stock, at a conversion price of $0.20 per share. The original terms of the March 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. The Company and the March 2021 Investor are in discussions to settle the March 2021 Investor Note. The Company and the March 2021 Investor are in discussions to settle the March 2021 Investor Note.

 
 
19

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

13. Convertible Promissory Notes, (continued)

 

The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "March 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the March 2021 Investor Note.
   
(f) On April 1, 2021, the Company entered into a securities purchase agreement (the "April 2021 SPA") with one investor (the "April 2021 Investor") pursuant to which the Company issued to the April 2021 Investor one 10% unsecured convertible promissory note (the "April 2021 Investor Note") in the principal amount of $275,000. On April 5, 2021, the Company received proceeds of $245,000, net of transaction related expenses of $30,000. In addition, the April 2021 Investor was issued 200,000 common shares immediately subsequent to the issue date, determined to be valued at $69,000, based on the closing trading price at the time.
   
  The maturity date of the April 2021 Investor Note is September 30, 2021. The April 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "April 2021 Interest Rate"), which shall be paid by the Company to the April 2021 Investor in Common Stock at any time the April 2021 Investor sends a notice of conversion to the Company. The April 2021 Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the April 2021 Investor Note into Common Stock, at a conversion price of $0.20 per share. The original terms of the April 2021 Investor Note may be prepaid until 180 days from its issue date at a prepayment premium of 120%. The Company and the April 2021 Investor are in discussions to settle the April 2021 Investor Note.

The Company initially reserved 5,000,000 of its authorized and unissued Common Stock (the "April 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the April 2021 Investor Note.
   
(g) On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. On June 18, 2021, the Company received proceeds of $382,500, net of transaction related expenses of $67,500. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company, determined to be valued at $300,000, based on an agreed upon price per share of $0.30.

The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "June 2021 Interest Rate"), which shall be paid by the Company to the June 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The June 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the June 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the June 2021 Investor Note) period ending on the issuance date of the June 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the June 2021 Investor Note. The June 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the June 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the June 2021 Investor Note plus (c) default interest (as defined in the June 2021 Investor note on the occurrence of a default), if any.

The Company initially reserved 7,000,000 of its authorized and unissued Common Stock (the "June 2021 Reserved Amount"), free from pre-emptive rights, to provide for the issuance of Common Stock upon the full conversion of the June 2021 Investor Note.
   

(h)

On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one 10% unsecured convertible promissory note (the "August 2021 Investor Note") in the principal amount of $142,200. On September 1, 2021, the Company received proceeds of $125,000, net of transaction related expenses of $17,200. In addition, the June 2021 Investor was issued 80,000 common shares of the Company, valued at $21,200, based on the closing trading price per share of $0.265.

 
20

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

13. Convertible Promissory Notes, (continued)

The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "August 2021 Interest Rate"). The August 2021 Investor Note will include a one-time interest charge of $14,220, which shall be at repayable by the Company in 10 equal monthly amounts of $15,642 (including principal and interest) commencing October 15, 2021.

The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 75% (representing a 25% discount) multiplied by the lowest trading price (i) during the previous five (5) trading day (as defined in the August 2021 Investor Note) period prior to conversion. The Company has the right to accelerate the monthly payments or prepay the August 2021 Investor Note at any time without penalty.

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

 

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

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

For the three and nine-month periods ended September 30, 2021, the Company recorded interest of $60,693 and $104,412 (2020-$115,351 and $448,798 interest and default amounts) respectively. As at September 30, 2021, $88,474 (December 31, 2020-$316,048) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2021, $20,910 and $53,354 (2020-$8,821 and $15,276) respectively, of accrued interest was converted.

Refer also to going concern, note 2.

14. Loans Payable to Related Parties

    September 30, 2021     December 31, 2020  
             
Director $ -   $ 33,772  
Officer (CFO) $ 18,838   $ -  
  $ 18,838   $ 33,772  

The balance owing to director, is unsecured, non-interest bearing and due on demand. The balance owing to the officer is unsecured bearing interest at the rate of 12% per annum.

21

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

14. Loans Payable to Related Parties, (continued)

During the three and nine-month periods ended September 30, 2021, the director's company, Travellers, converted a total of $nil (C$nil) respectively and $371,001 (C$461,620), respectively (December 31, 2020-$nil; C$nil and $nil; C$nil) of loans provided during the period and $nil (C$nil) and $80,323 (C$101,700) of accounts payable owing to Travellers for 1,726,076 common shares. And, for the three and nine-month periods ended September 30, 2021 $265 (C$331) and $265 (C$331) (2020-$1,771; C$2,368 and $4,399; C$5,952) respectively, in interest was incurred on the loans payable to related parties.

15. Capital Stock

As at September 30, 2021, the Company had 150,000,000 common shares authorized with a par value of $.0001 per share and 94,065,404 (December 31, 2020-82,860,619) common shares issued and outstanding.

For the nine-month period ended September 30, 2021, the Company issued 3,767,029 common shares on the conversion of convertible promissory notes, in the amount of $756,000, including accrued interest and related costs of $53,901, for a total of $809,901. The share conversion prices ranged from $0.156 to $0.26 per share. The Company also issued 1,726,076 common shares on the conversion of loans payable and accounts payable to related party (Travellers), in the amount of $451,324 (C$563,320).

In addition, the Company raised $291,735 (C$381,073) net of share issue costs of $11,750 (C$14,670), on private placements for 1,195,348 common shares of the Company at per share issue prices ranging from $0.25 to $0.26). Further, 1,586,332 common shares of the Company were issued for professional services valued at $432,479, based on the closing trading prices on issuance, disclosed as stock-based compensation in the interim condensed consolidated statements of operations and comprehensive loss.

On March 31, 2021, the Company issued the March 2021 Investor Note to the March 2021 Investor, and issued, subsequent to March 31, 2021, 200,000 common shares, representing financing fees valued at $66,000, based on the closing trading price on issuance, disclosed under note 13(e), convertible promissory notes. On April 1, 2021, the Company issued the April 2021 Investor Note to the April 2021 Investor, and subsequently issued 200,000 common shares, representing financing fees valued at $69,000, based on the closing trading price on issuance, disclosed under note 13(f), convertible promissory notes. On June 16, 2021, the Company issued the June 2021 Investor Note to the June 2021 Investor, and subsequently issued 1,000,000 common shares, representing financing fees valued at $300,000 per the June 2021 SPA, disclosed under note 13(g), convertible promissory notes. And, on August 26, 2021, the Company issued the August 2021 Investor Note to the August 2021 Investor and subsequently issued 80,000 common shares representing financing fees valued at $21,200 per the August 2021 SPA, disclosed under note 13(i), convertible promissory notes.

On January 4, 2021, the Company issued 1,000,000 common shares to the CEO and 50,000 common shares to the CFO in connection with their executive consulting agreements, valued at $217,035, based on the closing trading price on issuance. Included under management stock-based compensation in the interim condensed consolidated statements of operations and comprehensive loss for the three and nine-month periods ended September 30, 2021, are amounts of $54,259 and $162,777 respectively, representing the stock-based compensation for the periods. Also, on January 4, 2021, the Company issued 400,000 common shares on proceeds of $8,580, previously received on a conversion of debt in December 2020.

During the year ended December 31, 2020, the convertible promissory note holders converted a total of $181,058 of their convertible notes, including accrued interest and related costs of $20,910 for 27,118,109 common shares. The share conversion prices ranged from $0.0036 to $0.0176 per share. On December 31, 2020, the Company issued 287,984 (2019-80,000 common shares) in the amount $60,670 to certain independent directors for their 2019 and 2020 services. In addition, the Company issued a total of 15,000 common shares to employees in the amount of $2,550 and 3,184,992 common shares on the conversion of loans payable to related party.

The Company canceled the 529,970 shares previously held by BDO Canada Limited, whose shares were returned to the Company on April 1, 2020, in the amount of $7,036. Further, on January 10, 2020, the CEO's remaining RSUs were exchanged into 1,000,000 common shares of the Company. In addition, on December 21, 2020, the Company received a notice of conversion from one of the January 2019 Investors in the amount of $7,830 plus legal fees of $750. The 400,000 common shares on this conversion were issued on January 4, 2021, as noted above.

22

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

16. Commitments

a) Effective January 1, 2021, new executive consulting agreements were finalized for the services of the CEO and the CFO, for two years and one year, respectively. The CEO's monthly fee is $23,547 (C$30,000) for 2021 and 2022 $31,396 (C$40,000) for 2022 and for the CFO $6,279 (C$8,000). The future minimum commitment under these consulting agreements, is as follows:

For the three-month period ending December 31, 2021 $ 89,478  
For the year ending December 31, 2022   376,752  
  $ 466,230  

 

b) The Company has agreed to lease its office premises from Haute on a month-to-month basis, at the monthly rate of $5,494 (C$7,000). The Company is responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance.

c) Effective June 1, 2021 a new investor relations consulting agreement was finalized with a consultant to provide investor relations service provided for six months to November 30, 2021. The investor relations consulting agreement was terminated and will not extent beyond November 30, 2021.

 

For the three-month period ending December 31, 2022 $ 13,000  

 

d) The Company was assigned the land lease on the purchase of certain assets of Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $2,355 (C$3,000) and is subject to adjustment based on the consumer price index as published by Statistics Canada ("CPI"). To date, no adjustment for CPI has been charged. The Company is also responsible for any property taxes, maintenance, insurance and utilities. In addition, the Company has the right to extend the lease for five further terms of five years each and one further term of five years less one day. As the Company acquired the business of 1684567, the previous landlord, in 2019, there are no future commitments for this lease. The Company is responsible through a special provision of the site plan agreement with the City of Belleville (the "City"), Ontario, Canada, that it is required to fund road maintenance required by the City through to September 30, 2025 at an annual rate of $7,849 (C$10,000). The future minimum commitment is as follows:

For the three-month period ending December 31, 2021 $ -  
For the year ending December 31, 2022   7,849  
For the year ending December 31, 2023   7,849  
For the year ending December 31, 2024   7,849  
For the year ending December 31, 2025   7,849  
       
  $ 31,396  

PACE has provided the Company a letter of credit in favor of the MECP in the amount of $217,285 (C$276,831) and, as security, has registered a charge of lease over the premises, located at 704 Phillipston Road, Roslin, Ontario, Canada. The Company is required to provide for environmental remediation and clean-up costs for its organic waste processing and composting facility.

The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating its financial assurance with the MECP. As a result of audits conducted by the MECP in December of 2020, the Company has accrued estimated and actual costs for corrective measures as a result of the MECP's audits totaling $654,669 (C$834,080) (2020-$570,078; C$725,844). For the three and nine-month periods ended September 30, 2021, the estimated costs for these corrective measures totaled $201,854 (C$252,816) and $270,290 (C$338,116) respectively. As at September 30, 2021, the MECP has not drawn on the letter of credit.  The letter of credit was renewed by PACE to the termination of the Company's obligations to PACE, September 2022.

23

SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

17. Other Income (Loss)

    September 30, 2021     September 30, 2020  
(a) Gain on forgiveness of convertible promissory notes $ 359,460   $ -  
(b) Gain on disposal of long-lived assets   45,349     -  
(c) Land option expired   -     (59,128 )
  $ 404,809   $ (59,128 )

(a) On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under his convertible promissory notes by payments totaling $550,000, $50,000 on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. As of August 16, 2021, this amount has not been paid. This resulted in a gain on forgiveness of the remaining March 2019 Investor Notes, in the amount of $135,641, including accrued interest of $129,141. Refer to note 13(a), convertible promissory notes.

And on January 20, 2021, the May 2019 Investor, the July 2019 Investor and the October 2019 Investor accepted in full 2,100,000 common shares of the Company representing payment in full of all obligations due and owing under their convertible promissory notes. This resulted in a gain on forgiveness of convertible promissory notes of $223,819, including accrued interest of $169,219. Refer to note 13(b) (c) and (d), convertible promissory notes.

(b) On January 8, 2021, the Company disposed of certain long-lived assets for proceeds of $47,394 (C$60,000) and realized a gain on disposal of $45,349 (C$57,411). The long-lived assets were maintained at landfills the Company managed up until early January 2021. Prior to disposal, the long-lived assets were disclosed under machinery and equipment in note 8, long-lived assets, net.

(c) Expiry of land option on the 2019 business acquisition.

18. Economic Dependence

The Company generated 69% of its revenue from three customers and 80% of its revenue from four customers, during the three and nine-month periods ended September 30, 2021 (2020-81% and 69% from three customers) respectively.

19. Legal Proceedings

From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.

The Company has a claim against it for unpaid legal fees in the amount of $51,208 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheets.

On September 24, 2020, the Company filed a statement of claim against the former chief executive officer and his company, LFGC, which was defended and counterclaimed. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $784,900 (C$1,000,000).

On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $403,556 (C$514,150) in special damages and $4392,450 (C$500,000) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020. The plaintiffs by counterclaim filed their defense to counterclaim on November 23, 2020, denying all claims in the Company's reply and defense to counterclaim. Included in accounts payable on the Company's interim condensed consolidated balance sheets is an amount for unpaid fees to the former chief executive officer in the amount of $310,428 (C$395,500), pending the results of the litigation.

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SusGlobal Energy Corp.
Notes to the Interim Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Expressed in United States Dollars)
(unaudited)

20. Subsequent Events

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

(a) On October 18, 2021, the Company entered into a services agreement with a consultant to provide strategic advisory and digital marketing. The services commenced November 1, 2021 and will continue for six months to April 30, 2022. A payment of $10,000 was due on signing with two quarterly payments of $74,000 on each of November 1, 2021 and February 1, 2022. In addition, the consultant will receive 50,000 restricted common shares of the Company as compensation.

(b) On October 29, 2021, the Company executed two convertible promissory notes totaling $1,765,118 with net proceeds to the Company in the amount of $1,330,000, net of an original issue discount and other financing costs of $265,118. On November 3, 2021, the Company received $1,330,000 on the execution of the convertible promissory notes. The convertible promissory notes bear interest at the rate of 15% annually and are due July 29, 2022. In connection with the above, on October 27, 2021, the Company signed a consulting agreement with a consultant, related to the holder of one of the convertible promissory notes, for a term of six months to provide financial and business consulting, for a fee of $50,000 and 62,500 restricted shares of the Company's common stock. Further, on October 28, 2021, the Company signed a consulting agreement with a consultant, related to the holder of the other convertible promissory note, for a term of six months to provide financial and business consulting for a fee of 10,000 restricted shares of the Company's common stock. Under both advisory agreements, the restricted shares of the Company's common stock will survive a reverse stock split prior to up listing.

(c) On November 1, 2021, the Company entered into an agreement with a consultant for corporate consulting and advisory services for a term of three months to January 31, 2022, for a fee of $10,000 per month. 

(d) On November 3, 2021, the Company repaid the remaining balance of the March 2019 Investor Notes in the amount of $200,000. Any unpaid accrued interest up to the date of repayment was forgiven by the March 2019 Investor.

(e) On November 3, 2021, the Company paid the deposit of $10,000, in connection with a letter agreement signed September 22, 2021, to its underwriter, who is also acting as the sole agent, for an offering of up to $12,000,000 on the effectiveness of a registration statement to up-list to the Nasdaq.

(f) On November 15, 2021, PACE and the Company reached an agreement whereby the Company made payment of arrears to PACE on November 15, 2021, in the amount of $238,322 (C$303,634) and allow the Company to continue monthly payments to the end of the term of the obligations, September 2022.

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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, 2020 filed with the Securities and Exchange Commission on April 15, 2021.

The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Growth and percentage comparisons made herein generally refer to the three and nine-month periods ended September 30, 2021 compared with the three and nine-month periods ended September 30, 2020 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to "we, "us, "our," the "Company," and similar expressions refer to SusGlobal Energy Corp., and depending on the context, its subsidiaries.

SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION

OUR AUDITOR ISSUED AN OPINION EXPRESSING SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN FOR THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019. YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE "GOING CONCERN" ISSUES IN MIND.

This Management's Discussion and Analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the "Financial Statements"). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States ("GAAP"). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.

OVERVIEW

The following organization chart sets forth our wholly-owned subsidiaries:

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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 SEC on May 23, 2017.

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

When the terms "the Company," "we," "us" or "our" are used in this document, those terms refer to SusGlobal Energy Corp., and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., 1684567 Ontario Inc., and SusGlobal Energy Hamilton Ltd.

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

With the growing amount of organic wastes being produced by society as a whole, a solution for sustainable global management of these wastes must be achieved. SusGlobal through its proprietary technology and processes is equipped and confident to deliver this objective. Management believes renewable energy is the energy of the future. Sources of this type of energy are more evenly distributed over the earth's surface than finite energy sources, making it an attractive alternative to petroleum-based energy. Biomass, one of the renewable resources, is derived from organic material such as forestry, food, plant and animal residuals. SusGlobal can therefore help you turn what many consider waste into precious energy and regenerative products. The portfolio will be comprised of four distinct types of technologies: (a) Process Source Separated Organics ("SSO") in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas; (b) Increasing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield; (c) Utilize recycled plastics to produce liquid fuels; and (d) Process SSO and digestate to produce an organic compost or a pathogen free organic liquid fertilizer. The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewables. These products can be converted into electricity, fuels and marketed to agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces Greenhouse Gas Emissions ("GHG") that result from landfilling organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy®.

We believe the project and services offered can benefit both the public and private markets. The following includes some of our work managing organic waste streams: Anaerobic Digestion, Dry Digestion, Biogas Production, Wastewater Treatment, In-Vessel Composting, SSO Treatment, Biosolids Heat Treatment, Leachate Management, Composting and Liquid Fertilizer production.

The Company can provide a full range of services for handling organic residuals in a period where innovation and sustainability are paramount. From start to finish we offer in-depth knowledge, a wealth of experience and cutting-edge technology for handling organic waste.

The primary focus of the services SusGlobal provides includes identifying idle or underutilized anaerobic digesters and integrating our technologies with capital investment to optimizing the operation of the existing digesters to reach their full capacity for processing SSO. Our processes not only divert significant organic waste from landfills, but also result in methane avoidance, with significant GHG reductions from waste disposal. The processes also produce renewable energy through the conversion of wastewater biosolids and organic wastes in the same equipment (co-digestion) and valuable end products such as biogas, electricity and organic fertilizer, both dry and liquid, considered Class AA organic fertilizer.

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Currently, the primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.   

The Coronavirus Outbreak ("COVID-19") May Adversely Affect Our Business Operations and Financial Condition

In December 2019, COVID-19 was reported. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.  Developments in this area continue daily at the local, provincial and national levels.  The Company has taken steps, consistent with directions from local, provincial and federal authorities, to mitigate known risks with the health and safety of its employees and customers as its first priority. The outbreak of COVID-19 was declared a national emergency. Many provinces and municipalities in Canada, announced aggressive actions to reduce the spread of COVID-19, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing "social or physical distancing" orders, which direct individuals to remain at their places of residence (subject to limited exceptions). COVID-19 poses the risk that we or our employees, contractors, customers, government and third-party payors and others may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be requested or mandated by governmental authorities.

The Company has acted on the aggressive emergency measures set in place by the provincial government and federal authorities, keeping in mind, firstly, the immediate health and safety of our employees and customers. Employees in the head office, located in Toronto, Ontario, Canada had been working remotely for some time or alternating their office time, ensuring there is no more than one employee present, ensuring they are social distancing and wearing protective face covering within the office and elsewhere outside the office, as per the measures set in place by provincial and local authorities. Employees at the site in Belleville, Ontario, Canada, have also been following the same procedures. The Company has prohibited face to face meetings and all meetings are now and for some time, being held by teleconference.

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

The occurrence of any of the these noted events and potentially others, could have a material adverse effect on our business, financial condition and results of operations. The COVID-19 outbreak and mitigation measures have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, the variants and the actions to contain its impact.

To date, there has been no material impact on the Company's workforce, operations, financial performance, liquidity, or supply chain as a result of COVID-19.  However, the ultimate duration and severity of COVID-19 or its effects on the economy, the capital and credit markets, or the Company's workforce, customers, and suppliers, as well as governmental and regulatory responses, are uncertain.

RECENT BUSINESS DEVELOPMENTS

On October 29, 2021, the Company executed two convertible promissory notes totaling $1,764,710 with net proceeds to the Company in the amount of $1,330,000, net of an original issue discount and other financing costs of $264,710. On November 3, 2021, the Company received $1,330,000 on the execution of the convertible promissory notes. The convertible promissory notes bear interest at the rate of 15% annually and are due July 29, 2022. In connection with the above, on October 27, 2021, the Company signed a consulting agreement with a consultant for a term of six months to provide financial and business consulting, for a fee of $50,000 and 62,500 restricted shares of the Company's common stock. Further, on October 28, 2021, the Company signed a consulting agreement with a consultant for a term of six months to provide financial and business consulting for a fee of 10,000 restricted shares of the Company's common stock. Under both advisory agreements, the restricted shares of the Company's common stock will survive a reverse stock split prior to up listing.

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The Company has signed an Offset Development and Marketing Agreement (the "Agreement") with Blue Source Canada ULC ("Bluesource") to develop and market greenhouse gas offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario, in order for the Company to monetize and realize benefits from its voluntary activities. 

This monetization is an exciting development for the Company's mission to reduce organic wastes from wood, leaf and yard material, treated municipal sewage waste (biosolids), residential curbside green bin material or source separated organics ("SSO") and paper sludge otherwise destined for landfills and, we believe, will also allow the Company to expand this mission.

 

Bluesource has pioneered creative solutions to climate change for over 20 years. Today, this partnership complements Bluesource's portfolio of high-quality environmental products from over 20 different technologies in over 100 locations across the United States and Canada. The partnership with SusGlobal is a core example of Bluesource's experience in identifying, creating, acquiring and marketing offsets, where there is a tangible environmental benefit.

On February 10, 2021, the Company signed an Agreement of Purchase and Sale (the "APS") for certain assets located in Hamilton, Ontario, Canada for $3,532,050 (C$4,500,000), including a vendor take-back mortgage of $1,569,800 (C$2,000,000) at an annual interest rate of 2% maturing two years after closing on August 17, 2023. Deposits of $156,980 (C$200,000) and $117,735 (C$150,000) were paid by the Company on February 10, 2021 and June 1, 2021 respectively. The APS was amended on April 8, 2021, to revise the closing date to June 4, 2021, subject to successful completion of the due diligence process and the completion of the Phase II Environmental Site Assessment at a cost of $39,088 (C$49,800), plus applicable harmonized sales taxes, expected on or before May 19, 2021. On May 20, 2021, the Company and the vendor signed a waiver and amending agreement, waiving the due diligence process and revising the closing date to June 16, 2021. On August 3, 2021, the vendor agreed to amend the APS for the purchase of certain assets in Hamilton, Ontario, Canada, with a new closing date of August 17, 2021. The newly amended APS provided for a credit to the Company in the amount of $294,338 (C$375,000) for certain deficiencies.

On August 17 2021, the Company acquired the Hamilton Property assets, consisting of land, a vacant building and ECAs. The total purchase price including costs of acquisition of $173,996 (C$221,680) totaled $3,557,664 (C$4,532,633). The costs of acquisition, were settled through cash payments of $117,996 (C$150,333) and the issuance of 200,000 common shares valued based on the trading price on the issuance date at $56,000 (C$71,347) to a consultant who assisted on the closing of the transaction. The issuance of common shares is also noted under capital stock, note 15, common shares issued for professional services, in the interim condensed consolidated financial statements.  The purchase of the Hamilton Property was funded by cash of $392,712 (C$500,333), the issuance of 300,000 common shares to the vendor on closing, having a value based on the trading price on the issuance date of $84,000 (C$107,020), the issuance noted above of 200,000 common shares to a consultant who assisted on the closing of the transaction disclosed as part of common shares issued for professional services, under capital stock, note 15, in the interim condensed consolidated financial statements, vendor take-back 1st mortgage of $1,569,800 (C$2,000,000) and a portion of the increased existing 1st mortgage of $1,455,152 (C$1,853,933), disclosed under note 11(d), long-term debt, in the interim condensed consolidated financial statements.  The cost of the purchase price was allocated ratably over the estimated fair value of each long-lived asset acquired, land of $1,709,074 (C$2,177,442), included above under land and building $1,541,654 (C$1,964,141), described above as property under construction.

Further, the fair value of the ECAs acquired in the above transaction, in the amount of $306,936 (C$391,051), was valued using a replacement cost valuation approach and incorporated a margin on cost and an entrepreneurial margin of approximately 11% and 20% respectively.

On July 8, 2021, the Company applied to list its Common Stock on the Nasdaq Capital Market, and submitted the initial listing fee of $5,000. And, on November 3, 2021, the Company paid the deposit of $10,000, in connection with a letter agreement signed September 22, 2021, to its underwriter, who is also acting as the sole agent, for an offering of up to $12,000,000 on the effectiveness of a registration statement to up-list to the Nasdaq.

On July 2, 2021, the Company revised a letter of intent with the vendors for the purchase of the shares of their two corporations which own proprietary processes, manufacture liquid organic fertilizers and other products. The transaction is set to close upon effectiveness of a registration statement and listing on the NASDAQ with a total purchase price of $16,136,000 (C$20,000,000), which will consist of cash of $8,068,000 (C$10,000,000) and common shares of the Company having a value of $ 8,068,000 (C$10,000,000). The purchase price will be satisfied through a payment of $3,139,600 (C$4,000,000) in cash and the issuance of common shares having a value of $7,849,000 (C$10,000,000) on closing and a final payment of $4,709,400 (C$6,000,000) in cash on June 1, 2022.

On June 1, 2021, the Board of Directors of the Company appointed Ms. Susan Harte as a member of the Board of Directors, effective immediately.

On May 19, 2021, Ryan Duffy submitted his resignation from his position as a member of the Board of Directors of the Company, effective immediately. Mr. Duffy did not resign as a result of any dispute with the Company on any matter relating to the Company's operations, policies or practices.

On April 28, 2021, the Company announced that it had received a (B-) score with scorecard from Circulytics®, launched by The Ellen MacArthur Foundation ("The Foundation"), a charity whose mission is to accelerate the transition to a circular economy.

The Foundation has developed this new digital tool to assess the circular economy performance of companies, which measures enablers within organizations. This measurement assists companies in achieving circular outcomes ("Circulytics" and the method used by Circulytics® being the "Circulytics Method"). The scorecard gives an overview of the company's progress on the journey towards the circular economy, by way of two overarching categories, 'Enablers' and 'Outcomes', as well as eleven themes within these categories, encouraging the company to improve and providing theme level scores to enable the company to prioritize certain activities.

On April 20, 2021, the Board of Directors of the Company appointed Mr. Gary Herman as a member of the Board, effective immediately.

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On April 8, 2021, the Company completed the purchase of its new truck and hauling trailer for a total purchase price of $172,803 (C$220,159), plus the applicable harmonized sales taxes and administrative costs. The Company paid deposits of $38,572 (C$49,143) on this purchase and financed the balance over a period of forty-eight months at a monthly principal and interest payment of $3,611 (C$4,601) at an interest rate of 4.95% per annum.

On March 4, 2021, the Company announced it has signed a Capital Market Advisory Agreement (the "Agreement") with Exchange Listing, LLC ("Exchange Listing") to provide advisory services with respect to the Company's initiative to list its shares of Common Stock on the Nasdaq Capital Market. Exchange Listing provides companies with cost-effective and efficient direct access to one-stop solutions in the strategic planning and implementation of listing on senior exchanges such as NASDAQ or NYSE. Focusing on company-specific structuring to meet listing requirements, Exchange Listing serves as the primary point of contact with the exchange, investment bankers and lawyers throughout the listing process. With extensive experience in investment banking, securities law, corporate governance and business management, Exchange Listing and its strategic partners facilitate its clients' listing and capital markets objectives.

Purchase of Additional Lands

On November 12, 2020, the Company acquired additional lands described in the Company's Share Purchase Agreement (the "SPA") of 1684567 Ontario Inc. ("1684567"), in May of 2019. The additional lands include a 6.60-acre licensed gravel pit and a 0.20 acre right of way for a purchase price of $164,829 (C$210,000) plus the applicable harmonized sales tax. The Company is now the owner of a 49-acre land parcel at its Belleville, Ontario, Canada, organic waste processing and composting facility. The purchase was funded through an additional advance of $549,430 (C$700,000) on its existing 1st mortgage. The funds received, $407,550 (C$519,238), were net of financing fees of $57,867 (C$73,725) and expenses including accrued interest, property taxes and other disbursements of $90,077 (C$114,762). The new first mortgage of $2,590,170 (C$3,300,000) was registered on November 12, 2020. The terms of the new 1st mortgage are as noted under long-term debt, note 11(d) to the interim condensed consolidated financial statements, including an interest rate at the higher of the Royal Bank of Canada's prime rate plus 7.55% (currently 10% per annum) and 10% per annum, and the principal amount is due December 1, 2021.  Management used a portion of the additional advance to satisfy certain obligations with Pace Savings and Credit Union Limited ("PACE"). Refer to new business developments above, for details on the increase in the existing 1st mortgage to $4,081,480 (C$5,200,000), with a new maturity date of September 1, 2022.

SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY®

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

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

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

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

SusGlobal Receives a Certificate of Registration for the Trademark EARTH's JOURNEY® and the Trademark CARING FOR EARTH'S JOURNEY®

On November 24, 2020, the Company received a Certificate of Registration from the United States Patent and Trademark Office for the trademark EARTH's JOURNEY® and trademark CARING FOR EARTH'S JOURNEY® (the "Marks"). The Marks were registered under Registration Number 6,197,171 and Registration Number 6,195,955 on November 10, 2020 on the Supplemental Register. The registrations will be in effect for an initial term of ten years, expiring November 10, 2030, with the option of renewing the registrations for successive ten-year terms. Now that the Marks are registered, it is permitted to use indicia of registration (e.g. ®, or phrases such as "Reg U.S. Pat. And T.M. Office").

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

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

TradeWorks Environmental's Ydro Process® is integrated into the existing SusGlobal Belleville operations by applying the Ydro Series®

Microorganisms product once during the preparation stage of the batches in the appropriate Gore® system windrows.

The integration of the Ydro Process® is expected to:

Reduce:

• Odors generated from the composting processing, its products (compost), as well as its by-products (i.e. leachate).

• Energy requirements, and the electrical consumption for aeration-heating purposes.

Increase:

• Degradation/decomposition rate and efficiency of the composting process.

• Composting process and reduce the compost processing time.

• Composting performance and efficiency of the system.

• System's composting capacity and composting cycles (over its design limit).

• Compost quality, compost maturity, N:P:K & C:N ratio.

• Composting temperature (naturally, through the biological activity).

Energy Retrofit Program

On January 15, 2020, the Independent Electrical System Operator (the "IESO") pre-approved the Company's Save on Energy Retrofit Program Application (the "Program"). The total cost of the Program was $93,161 ($C118,692). As the Program was successfully completed, the Company, on April 15, 2021, received the hydro grant from the IESO of $45,910 (C$58,491), plus the applicable harmonized sales taxes. The Program was designed to realize a savings of approximately 50% in hydro costs annually, with an overall return on investment estimated at 125%.

Financings

(a) Securities Purchase Agreements

On August 26, 2021, the Company entered into a securities purchase agreement (the "August 2021 SPA") with one investor (the "August 2021 Investor") pursuant to which the Company issued to the August 2021 Investor one 10% unsecured convertible promissory note (the "August 2021 Investor Note") in the principal amount of $142,200. On September 1, 2021, the Company received proceeds of $125,000, net of transaction related expenses of $17,200. In addition, the June 2021 Investor was issued 80,000 common shares of the Company, valued at $21,200, based on the closing trading price per share of $0.265.

The maturity date of the August 2021 Investor Note is August 26, 2022. The August 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "August 2021 Interest Rate"). The August 2021 Investor Note will include a one-time interest charge of $14,220, which shall be at repayable by the Company in 10 equal monthly amounts of $15,642 (including principal and interest) commencing October 15, 2021. The August 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the August 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 75% (representing a 25% discount) multiplied by the lowest trading price (i) during the previous five (5) trading day (as defined in the August 2021 Investor Note) period prior to conversion. The Company has the right to accelerate the monthly payments or prepay the August 2021 Investor Note at any time without penalty.

On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. On June 18, 2021, the Company received proceeds of $382,500, net of transaction related expenses of $67,500. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company, determined to be valued at $300,000, based on an agreed upon price per share of $0.30. The maturity date of the June 2021 Investor Note is June 16, 2022. The June 2021 Investor Note bears interest at a rate of ten percent (10%) per annum (the "June 2021 Interest Rate"), which shall be paid by the Company to the June 2021 Investor on a monthly basis, commencing on the first of the month following issuance. The June 2021 Investor may convert the principal amount and any accrued but unpaid interest into the Company's common stock from time to time following an event of default (as defined in the June 2021 Investor Note), at a conversion price (the "Conversion Price") equal to the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day (as defined in the June 2021 Investor Note) period ending on the issuance date of the June 2021 Investor Note, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the June 2021 Investor Note. The June 2021 Investor Note may be prepaid at any time in cash equal to the sum of (a) the then outstanding principal amount of the June 2021 Investor Note plus (b) accrued and unpaid interest on the unpaid principal balance of the June 2021 Investor Note plus (c) default interest (as defined in the June 2021 Investor note), if any.

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On April 1, 2021, the Company entered into a securities purchase agreement with an investor (the "April 2021 Investor"), in which the Company issued to the April 2021 Investor a 10% unsecured convertible promissory note (the "April 2021 Investor Note") in the aggregate principal amount of $275,000, due September 30, 2021, convertible at any time after issuance at a per share price of $0.20. In addition, the April 2021 Investor received 200,000 common shares of the Company, subsequent to issuance of the April 2021 Investor Note, valued at $69,000 based on the closing price of the common shares on issuance the day before issuance. On April 5, 2021, the Company received $245,000, net of transaction related expenses of $30,000.

On March 31, 2021, the Company entered into a securities purchase agreement with an investor (the "March 2021 Investor"), in which the Company issued to the March 2021 Investor a 10% unsecured convertible promissory note (the "March 2021 Investor Note") in the aggregate principal amount of $275,000, due September 30, 2021, convertible at any time after issuance at a per share price of $0.20. In addition, the March 2021 Investor received 200,000 common shares of the Company, subsequent to issuance of the March 2021 Investor Note, valued at $69,000 based on the closing price of the common shares the day before issuance. On March 31, 2021, the Company received $245,000, net of transaction related expenses of $30,000.

On January 20, 2021, the May 2019 Investor, the July 2019 Investor and the October 2019 Investor reached an agreement with the Company and on January 21, 2021 converted the remaining balances of their convertible promissory notes, totaling $546,000 for 2,100,000 common shares of the Company, at a conversion price of $0.26 per share. This satisfies in full all obligations due and owing on their convertible promissory notes. This resulted in a gain on forgiveness of debt of $223,819, including accrued interest of $169,219, disclosed as other income in the interim condensed consolidated statements of operations and comprehensive loss.

On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $550,000, $50,000 paid on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. As noted, the March 2019 Investor converted a total of $135,000 of one of his March 2019 Investor Notes, including accrued interest of $32,444 and related expense of $275 into 1,075,124 common shares of the Company, a conversion price of $0.156 per share. The balance of the convertible promissory note was forgiven by the March 2019 Investor resulting in a forgiveness of debt of $135,641, including accrued interest of $129,141, disclosed under other income in the interim condensed consolidated financial statements.

On November 3, 2021, the Company paid the March 2019 Investor Note in the amount of $200,000, for a total settlement of outstanding principal and accrued interest.

For the three and nine-month periods ended September 30, 2021, the Company recorded interest of $60,693 and $104,412 (2020-$115,351 and $448,798 interest and default amounts) respectively. As at September 30, 2021, $88,474 (December 31, 2020-$316,048) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and nine-month periods ended September 30, 2021, $20,910 and $53,354 (2020-$8,821 and $15,276) respectively, of accrued interest was converted.

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

On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021.  Management was not able to meet the July 30, 2021 deadline.  On August 13, 2021, PACE agreed to allow the Company to bring the arrears current by August 31, 2021 and continue to September 2022.  Management was not able to meet this new deadline.  On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022.   Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company had with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the Company’s obligations to PACE, September 2022. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.

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

(i) The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $6,879 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,255,840 (C$1,600,000), is secured by a business loan general security agreement, a $1,255,840 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.

 

(ii) The credit facility advanced on June 15, 2017, in the amount of $470,940 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,847 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.

 

(iii) The corporate term loan advanced on September 13, 2017, in the amount of $2,923,083 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,320 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,140,368 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.

 

For the three and nine-month periods ended September 30, 2021, $79,687 (C$99,683) and $236,743 (C$296,151) (2020-$70,105; C$93,162 and $225,346; C$304,893) respectively, in interest was incurred on the PACE long-term debt. As at September 30, 2021 $71,051 (C$88,065) (December 31, 2020-$18,319; C$23,325) in accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets.

(c) Other Financings

(i) The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, including additional lands, received in four tranches totaling $4,081,480 (C$5,200,000) (December 31, 2020-$2,591,820; C$3,300,000). The fourth tranche was received on August 13, 2021 in the amount of $1,491,310 (C$1,900,000). The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of September 1, 2022. The 1st mortgage payable is secured by the shares held of 1684567, a 1st mortgage property described in note 8, long-lived assets, net in the interim condensed consolidated balance sheets with a carrying value of $1,654,569 (C$2,108,000) and a general assignment of rents. Financing fees on the 1st mortgage totaled $316,644 (C$403,419). As at September 30, 2021 $32,428 (C$41,315) (December 31, 2020-$36,215; C$46,110) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at September 30, 2021 there is $124,413 (C$158,508) (December 31, 2020-$50,253; C$63,984) of unamortized financing fees included in long-term debt in the interim condensed consolidated balance sheets.

On August 17, 2021, the Company obtained a vendor take back 1st mortgage in the amount of $1,569,800 (C$2,000,000), on the purchase of the Hamilton property described under long-lived assets, net note 8. The 1st mortgage bears interest at an annual rate of 2% per annum, repayable monthly interest only with a maturity date of August 17, 2023, secured by the assets acquired in Hamilton, Ontario, Canada.

To finance the closing, the Company used a portion of its increased 1st mortgage in the amount of  $1,455,152 (C$1,853,933).                                     

For the three and nine-month periods ended September 30, 2021, $89,762 (C$112,814) and $206,184 (C$257,924) (2020-$48,409; C$65,000 and $144,125; C$195,000) respectively in interest was incurred on the 1st mortgages payable.

(ii) As a result of COVID-19, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions.

The Company has received a total of $78,490 (C$100,000) under this program, from its Canadian chartered bank.

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Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025.

In addition, on a combined basis, if $54,943 (C$70,000) of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance, $23,547 (C$30,000). The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.

(iii) On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,952 (C$6,138). The amount was paid in full on January 26, 2021. For the three and nine-month periods ended September 30, 2021, the Company incurred interest charges of $nil (C$nil) and $706 (C$883) (2020-$nil; C$nil and $nil; C$nil) respectively.

(iv) During the three and nine-month periods ended September 30, 2021, Travellers International Inc. ("Travellers"), a company controlled by the president and chief executive officer (the "CEO") of the Company, who is also a director, loaned the Company $318,136 (C$405,321). The loans were converted along with of $82,052 (C$101,700) of accounts payable owing to Travellers into 1,726,076 common shares of the Company based on the closing trading price of the shares on conversion. There are no written agreements evidencing the Travellers loans other than resolutions of the Board with attached loan schedules.

(d) Financings Related to Obligations Under Capital Lease

There were no new capital leases entered into by the Company during the three-month period ended September 30, 2021.The original terms of the obligations under capital lease are noted below under paragraphs (i), (ii) and (iii).

(i) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $224,992 (C$286,650), is payable in monthly blended installments of principal and interest of $4,556 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. On November 3, 2021, the Company paid the final payment of $22,448 (C$28,600), plus applicable harmonized sales taxes.

(ii) The lease agreement for certain equipment for the Company's organic composting facility at a cost of $194,224 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,017 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,849 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,371 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.

(iii) The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $305,836 (C$389,650), is payable in monthly blended installments of principal and interest of $5,378 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,266 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $78 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.

For the three and nine-month periods ended September 30, 2021, $2,147 (C$2,721) and $9,841 (C$12,311) (2020-$4,902; C$6,536 and $13,822; C$18,701) respectively, in interest was incurred.

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.

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Other

On May 9, 2017, the company signed a memorandum of agreement with Kentech (the "Kentech Agreement"), a corporation existing under the laws of the province of Ontario, Canada ("Kentech"). The Kentech Agreement provides the Company the right to acquire and the right to use the equipment and innovative processes of Kentech in relation to the production of liquid fertilizer from organic waste material. The Kentech Agreement is for a period of five years, commencing on the date of the Kentech Agreement. The Kentech Agreement may be terminated by either party upon providing six months' notice.

The Company's activities all contribute to GHG reductions, so we will be a key part of Ontario's initiative. The Company has also contacted counterparties in Quebec and California to explore opportunities for relevant projects. SusGlobal is committed to making all its commercial activities carbon neutral. New Cap and Trade regulations became effective January 2017. On July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap-and-Trade program in Ontario. In January 2019, a Climate Change Leadership Team (the "CCLT") was established. The CCLT is a cross-ministry group responsible for embedding climate change in government procurement, building understanding and capacity within government, and creating a process to update internal directives and guidance to help ensure climate change is considered.

The Company has signed an Offset Development and Marketing Agreement (the "Agreement") with Blue Source Canada ULC ("Bluesource") to develop and market greenhouse gas offset credits from the Company's 49-acre Organic & Non-Hazardous Waste Processing & Composting Facility in Belleville, Ontario, in order for the Company to monetize and realize benefits from its voluntary activities. 

This monetization is an exciting development for the Company's mission to reduce organic wastes from wood, leaf and yard material, treated municipal sewage waste (biosolids), residential curbside green bin material or source separated organics ("SSO") and paper sludge otherwise destined for landfills and, we believe, will also allow the Company to expand this mission.

Bluesource has pioneered creative solutions to climate change for over 20 years. Today, this partnership complements Bluesource's portfolio of high-quality environmental products from over 20 different technologies in over 100 locations across the United States and Canada. The partnership with SusGlobal is a core example of Bluesource's experience in identifying, creating, acquiring and marketing offsets, where there is a tangible environmental benefit.

Operations

The Company owns Environmental Compliance Approvals (the "ECAs") issued by the MECP from the Province of Ontario, in place to accept up to 70,000 metric tonnes ("MT") of waste annually from the provinces of Ontario, Quebec and from New York state, and to operate a waste transfer station with the capacity to process up to an additional 50,000 MT of waste annually. Once built, the location of the waste transfer station will be alongside the Organic and Non-Hazardous Waste Processing and Composting Facility which is currently operating in Belleville, Ontario, Canada.

Waste Transfer Station- Access to the waste transfer station is critical to haulers who collect waste in areas not in close proximity to disposal facilities where such disposal continues to be permitted. Tipping fees charged to third parties at waste transfer stations are usually based on the type and volume or weight of the waste deposited at the waste transfer station, the distance to the disposal site, market rates for disposal costs and other general market factors.

Organic Composting Facility- As noted above, the Company's organic waste processing and composting facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic waste composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During nine-month period ended September 30, 2021, tipping fees ranged from $54 (C$69) to $125 (C$159) per MT.

The Company owns a 40,535 square foot facility on 3.26 acres in Hamilton, Ontario, which includes an Environmental Compliance Approval to process 65,884 metric tonnes per annum of organic waste, 24 hours per day 7 days a week. The facility will be designed to produce, distribute and warehouse the Company's SusGro™ organic liquid fertilizer and other products that are provided under private label and sold through big box retailers, consumer lawn and garden suppliers, and for end use to the wine, cannabis and agriculture industries. With the addition of a further 11,000 square feet of office space and R&D labs, the Hamilton facility will also house the continued development of SusGlobal's proprietary formulations and branded liquid and dry organic fertilizers.

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LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2021, the Company had a bank balance of $36,912 (December 31, 2020-$6,457) and current debt obligations and other current liabilities in the amount of $11,592,938 (December 31, 2020-$10,358,212). As at September 30, 2021, the Company had a working capital deficit of $11,236,795 (December 31, 2020-$9,830,314). The Company does not currently have sufficient funds to satisfy the current debt obligations.

On February 18, 2021, PACE and the Company reached a new agreement to repay all amounts owing to PACE on or before July 30, 2021. The amounts owing were not repaid to PACE on July 30, 2021. On August 13, 2021, PACE agreed to allow the Company until August 31, 2021 to bring the arrears current and continue to September 2022, the original maturity date. The Company was not able to meet this deadline.  On November 15, 2021, the Company paid all arrears to PACE and PACE agreed to allow the Company to continue payments to the end of the terms of each obligation, September 2022.   Management continues discussions with equity investors to re-finance its remaining obligations to PACE and repay other creditors. In addition, the letter of credit the Company has with PACE in favor of the Ministry of the Environment, Conservation and Parks (the "MECP"), was renewed to the termination of the Company’s obligations to PACE, September 2022. On April 3, 2020, the shares previously pledged as security to PACE, were released and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises.

The Company's total assets as at September 30, 2021 were $8,962,137 (December 31, 2020-$5,758,303) and total current liabilities were $11,592,938 (December 31, 2020-$10,358,212). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $15,993,098 as at September 30, 2021 (December 31, 2020 -$13,468,794). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels.

To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $11,592,938 in current debt obligations and other current liabilities, the Company estimates that approximately $17,500,000 must be raised to fund capital requirements and general corporate expenses for the next 12 months.

In the normal course of business, we are exposed to market risks, including changes in interest rates, certain commodity prices and Canadian currency rates. The Company does not use derivatives to manage these risks.

During the three and nine-month periods ended September 30, 2021, the investors of the unsecured convertible promissory notes, converted a total of $75,000 and $756,000 of their unsecured convertible promissory notes respectively, along with a portion of their accrued interest and related costs of $21,185 and $53,904, a total of $96,185 and $809,904 for 3,767,029 common shares of the Company at prices ranging from $0.156 to $0.26 per share.

As at September 30, 2021, the current and long-term portions of our debt obligations totaled $10,832,590 (December 31, 2020-$7,922,532).

In addition, as at September 30, 2021, the Company had an outstanding letter of credit provided by PACE, in the amount of $217,285 (C$276,831), in favor of the MECP. The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating its financial assurance with the MECP.  The letter of credit was renewed by PACE to the termination of the Company's obligations to PACE.

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CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2021 COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2020   

  For the three-month periods ended 
  September 30, 2021  September 30, 2020 
       
Revenue$204,796 $439,507 
       
Cost of Sales      
Opening inventory 35,983  - 
Depreciation 116,632  133,467 
Direct wages and benefits 74,093  90,475 
Equipment rental, delivery, fuel and repairs and maintenance 371,424  52,652 
Utilities 16,872  27,185 
Outside contractors 39,717  3,886 
  654,721  307,665 
Less: closing inventory (21,506) - 
Total cost of sales 633,215  307,665 
       
Gross (loss) profit (428,419) 131,842 
       
Operating expenses      
Management compensation-stock-based compensation 54,259  - 
Management compensation-fees 90,471  51,812 
Marketing 30,131  - 
Professional fees 96,704  102,769 
Interest expense and default amounts 233,346  258,796 
Office and administration 66,329  50,042 
Rent and occupancy 56,148  32,420 
Insurance 19,719  10,056 
Filing fees 49,131  12,957 
Amortization of financing costs 235,795  18,677 
Directors' compensation 14,905  56,637 
Stock-based compensation 31,946  - 
Repairs and maintenance 3,688  1,186 
Foreign exchange loss (income) 35,569  (33,473)
Total operating expenses 1,018,141  561,879 
       
Net loss from operating activities (1,446,560) (430,037)
Other Income -  (424)
Net loss before deferred taxes recovery (1,446,560) (430,461)
Deferred and income taxes recovery 26,552  1,415 
Net Loss$(1,420,008)$(429,046)

During the three-month period ended September 30, 2021, the Company generated $204,796 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $439,507 in the three-month period ended September 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.

In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $633,215 for the three-month period ended September 30, 2021 compared to $307,665 for the three-month period ended September 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The reduction in costs relate partially to reduced overtime hours included in direct wages and benefits, adjustments to the estimated cost for the clean-up of certain waste as ordered by the MECP, reductions in utilities resulting from the retrofit of the hydro usage in the composting operation offset by an increase in hauling costs included in outside contractors.

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Operating expenses increased by $456,262, from $561,879 in the three-month period ended September 30, 2020 to $1,018,141 in the three-month period ended September 30, 2021, explained further below.

Management compensation related to stock-based compensation increased by $54,259, in the three-month period ended September 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. The management compensation relating to fees increased by $38,659, from $51,812 in the three-month period ended September 30, 2020 to $90,471 in the three-month period ended September 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.

During the three-month period ended September 30, 2021, the Company contracted with several marketing service providers for news media campaigns including articles and ad placements. There was no marketing conducted in the three-month period ended September 30, 2021.

Professional fees were reduced by $6,065 from $102,769 in the three-month period ended September 30, 2020 to $96,704 in the three-month period ended September 30, 2021, an insignificant decrease.

Interest expense and default amounts reduced by $25,450 from $258,796 in the three-month period ended September 30, 2020 to $233,346 in the three-month period ended September 30, 2021. This was primarily the result of lower interest in the current three-month period on our convertible due to the payoff agreements finalized with the convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, a reduction of approximately $137,000. This was offset primarily by increases in the interest on the 1st mortgage payable, whose principal balance increased by a total of $2,040,740 (C$2,600,000), from two increases, one effective November 10, 2020, in the amount of $549,430 (C$700,000) and one effective August 13, 2021, in the amount of $1,491,310 (C$1,900,000) and the new 1st mortgage of $1,569,800 (C$2,000,000) on the Hamilton, Ontario, Canada asset acquisition, effective August 13, 2021.

Office and administration expenses increased by $16,287 from $50,042 in the three-month period ended September 30, 2020 to $66,329 in the three-month period ended September 30, 2021, primarily due to the increases in expenses with the incorporation of the Hamilton operations, including security of $6,125 and increases in other general and administrative expenses including donations, automotive, meals and entertainment and payroll amongst all operations.

Rent and occupancy increased by $23,728 from $32,420 in the three-month period ended September 30, 2020 to $56,148 in the three-month period ended September 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses and increases in property taxes on the other properties, including the new property in Hamilton, Ontario, Canada.

Insurance increased by $9,663 from $10,056 in the three-month period ended September 30, 2020 to $19,719 in the three-month period ended September 30, 2021, primarily due to the new title insurance on the Hamilton, Ontario, Canada asset acquisition and the insurance on the Company's new truck and hauling trailer.

Filing fees increased by $36,174 from $12,957 in the three-month period ended September 30, 2020 to $49,131 in the three-month period ended September 30, 2021, primarily due to costs related to media relations services which were not incurred in the prior period and the $5,000 fee for the Nasdaq application.

The amortization of financing costs incurred increased by $217,118 from $18,677 in the three-month period ended September 30, 2020 to $235,795 in the three-month period ended September 30, 2021, due primarily to the increased amortization of the financing fees relating to the five new convertible promissory notes dated March 31, 2021, April 1, 2021, June 16, 2021 and August 26, 2021, an increase of approximately $187,500 and an increase in the amortization of the mortgage financing fees of approximately $ 29,000.

Directors' compensation decreased by $41,732 from $56,637 in the three-month period ended September 30, 2020 to $14,905 in the three-month period ended September 30, 2021. In the prior year, during three-month period ended September 30, 2020, the Board approved a new compensation arrangement whereby each independent member was entitled to an annual fee of $19,985 (C$25,000), the result being an adjustment for the year's compensation for the 4 independent Board members. In the current three-month period ended September 30, 2021, the directors' compensation has been accrued for the quarter to the three independent directors.

Stock-based compensation of $31,946 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the total stock-based compensation, determined to be valued at $135,260, will be expensed over the duration of the professional services contacts, which expire at various dates from November 30, 2021 to March 31, 2023.

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Repairs and maintenance increased by an insignificant amount of $2,502 from $1,186 in the three-month period ended September 30, 2020 to $3,688 in the three-month period ended September, 2021.

The foreign exchange income reduced by $69,042, from income of $33,473 in the three-month period ended September 30, 2020 to expense of $35,569 in the three-month period ended September 30, 2021, due primarily to gains and losses on the translation of balances and transactions during the period.

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CONSOLIDATED RESULTS OF OPERATIONS - FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2021 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020                           

  For the nine-month periods ended 
  September 30, 2021  September 30, 2020 
       
Revenue$610,088 $1,172,343 
       
Cost of Sales      
Opening inventory 24,740  5,389 
Depreciation 388,731  367,734 
Direct wages and benefits 210,542  251,721 
Equipment rental, delivery, fuel and repairs and maintenance 546,597  210,808 
Utilities 24,290  73,425 
Outside contractors 61,089  9,165 
  1,255,989  918,242 
Less: closing inventory (21,506) - 
Total cost of sales 1,234,483  918,242 
       
Gross (loss) profit (624,395) 254,101 
       
Operating expenses      
Management compensation-stock-based compensation 162,777  - 
Management compensation-fees 273,395  152,994 
Marketing 158,605  - 
Professional fees 231,950  292,104 
Interest expense and default amounts 565,938  854,496 
Office and administration 171,164  182,727 
Rent and occupancy 125,067  89,480 
Insurance 51,106  52,156 
Filing fees 85,278  35,103 
Amortization of financing costs 371,916  141,686 
Directors' compensation 38,241  57,070 
Stock-based compensation 68,228  - 
Repairs and maintenance 11,475  10,097 
Foreign exchange (income) loss 16,130  31,987 
Total operating expenses 2,331,270  1,899,900 
       
Net loss from operating activities (2,955,665) (1,645,799)
Other Income 404,809  (59,128)
Net loss before deferred taxes recovery (2,550,856) (1,704,927)
Deferred taxes recovery 26,552  197,420 
Net Loss$(2,524,304)$(1,507,507)

During the nine-month period ended September 30, 2021, the Company generated $610,088 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $1,172,343 in the nine-month period ended September 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end, the closure of a customer plan in mid-2020 and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.

In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $1,234,483 for the nine-month period ended September 30, 2021 compared to $918,242 for the nine-month period ended September 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The increased costs relate primarily to adjustments to the estimated costs for the clean-up of certain waste as ordered by the MECP including higher machinery rental costs and increased fuel charges and disposal fees, along with hauling costs for garbage collection disclosed as outside contractors, offset by reductions in utilities resulting from the retrofit of the hydro usage in the composting operation along with credits provided by the utility company for hydro usage and reduced overtime hours by employees in the organic waste processing and composting operation.

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Operating expenses increased by $431,370 from $1,899,900 in the nine-month period ended September 30, 2020 to $2,331,270 in the nine-month period ended September 30, 2021, explained further below.

Management compensation related to stock-based compensation increased by $162,777, in the nine-month period ended September 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. And, the management compensation relating to fees increased by $120,401, from $152,994 in the nine-month period ended September 30, 2020 to $273,395 in the nine-month period ended September 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.

The Company commenced a new marketing program effective February 1, 2021 for a period of five months to June 30, 2021, at a cost of $20,000 per month, which significantly contributed to the total marketing expense of $158,605 in the nine-month period ended September 30, 2021. The Company also incurred, during the recent quarter, marketing expenses provided by service providers for articles, ad placements and a news media campaign. The Company did not have a marketing program in the prior period.

Professional fees were reduced by $60,154, from $292,104 in the nine-month period ended September 30, 2020 to $231,950 in the nine-month period ended September 30, 2021, primarily due to the absence of the 2019 acquisition costs relating to professional fees expensed in the prior period in the amount of $54,544, offset by increases in other professional fees such as audit and related fees.

Interest expense and default amounts reduced by $288,558 from $854,496 in the nine-month period ended September 30, 2020 to $565,938 in the nine-month period ended September 30, 2021. In the prior period, interest and default penalties on the convertible promissory notes was approximately $449,000 and due to the payoff agreements finalized with several convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, interest in the current period for interest on the convertible promissory notes amounted to approximately $104,412, a reduction of approximately $345,000. This was offset primarily by increases in the interest on the existing 1st mortgage payable, whose principal balance increased in total by $2,040,740 (C$2,600,000), in two tranches, effective November 10, 2020 and August 13, 2021, the interest on the new 1st mortgage on the Hamilton, Ontario, Canada asset acquisition, and the interest on the new truck and trailer loan purchased during the period, an increase of approximately $60,000.

Office and administration expenses decreased insignificantly by $11,563 from $182,727 in the nine-month period ended September 30, 2020 to $171,164 in the nine-month period ended September 30, 2021.

Rent and occupancy increased by $25,587 from $89,480 in nine-month period ended September 30, 2020 to $125,067 in the nine-month period ended September 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses and increases in property taxes on other properties, including the new property in Hamilton, Ontario, Canada.

Insurance reduced insignificantly by $1,050 from $52,156 in the nine-month period ended September 30, 2020 to $51,106 in the nine-month period ended September 30, 2021.

Filing fees increased by $50,175 from $35,103 in the nine-month period ended September 30, 2020 to $85,278 in the nine-month period ended September 30, 2021, primarily due to costs related to the media relations services which were not incurred in the prior period and the $5,000 fee for the Nasdaq application.

The amortization of financing costs incurred increased by $230,230 from $141,686 in the nine-month period ended September 30, 2020 to $371,916 in the nine-month period ended September 30, 2021, due primarily to the increased amortization of the financing fees relating to the four new convertible promissory notes dated March 31, 2021, April 1, 2021, June 16, 2021 and August 26, 2021, an increase of approximately $223,000 and an increase in the amortization of the mortgage finance fees of approximately $7,500.

Directors' compensation decreased from by $18,829 from $57,070 in the nine-month period ended September 30, 2020 to $38,241 in the nine-month period ended September 30, 2021. In the prior year, each of the four independent directors were entitled to compensation of $19,985 (C$25,000) annually and the audit committee chairman was entitled to a fee of $784 (C$1,000) per quarter for his services. In the current period, only one independent director served for the entire period and the 2 remaining independent directors joined in April and June of 2021, respectively, resulting in a lower overall expense.

Stock-based compensation of $68,228 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the stock-based compensation, determined to be valued at $135,260, will be expensed over the duration of the professional services contacts, which expire at various dates from November 30, 2021 to March 31, 2023.

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Repairs and maintenance increased by $1,378, an insignificant change.

The foreign exchange expense decreased by $15,857 from a loss of $31,987 in the nine-month period ended September 30, 2020 to income of $16,130 in the nine-month period ended September 30, 2021, due primarily to a reduction of gains and losses on the translation of balances and transactions during the period.

Other income increased by $463,937 from a loss of $59,128 in the nine-month period ended September 30, 2020 to income of $404,809 in the nine-month period ended September 30, 2021. The current period includes income on the forgiveness of the convertible promissory notes in the amount of $61,100 and on the accrued interest of $298,360 and a gain on the disposal of certain long-lived assets of $45,349. In the prior period, the Company wrote off a land option in the amount of $59128, with no comparable amount in the current period.

As at September 30, 2021, the Company had a working capital deficit of $11,236,795 (December 31, 2020-$9,830,314), incurred a net loss of $2,524,304 (2020-$1,507,507) for the nine-month period ended September 30, 2021 and had an accumulated deficit of $15,993,098 (December 31, 2020-$13,468,794) and expects to incur further losses in the development of its business.

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

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

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

CRITICAL ACCOUNTING ESTIMATES

Use of estimates

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

Stock-based compensation

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

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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 Interim Condensed Consolidated Statements of Operations and Comprehensive Loss.

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

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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

On January 1, 2021, the Company early adopted Accounting Standards Update ("ASU") No. 2020-06, -Debt-"Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity": simplifies accounting for convertible instruments by removing major separation models required under current US GAAP.  ASU 2020-06 reduces the number of models used to account for convertible instruments, amends diluted earnings per share "EPS" calculations for convertible instruments, and amends the requirements for a contract (or embedded derivative) that is potentially settled in an entity's own shares to be classified in equity. The amendments add certain disclosure requirements to increase transparency and decision-usefulness about a convertible instrument's terms and features. Under ASU 2020-06, the Company must use the if-converted method for including convertible instruments in diluted EPS as opposed to the treasury stock method. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023. Early adoption is allowed under the standard with either a modified retrospective or full retrospective method. The Company early adopted ASU 2020-06 on January 1, 2021 using the modified retrospective method. As a result of Management's evaluation, the adoption of ASU 2020-06 did not have a material impact on the interim condensed consolidated financial statements.

EQUITY

As at September 30, 2021 and the date of this filing, the Company had 94,065,404 common shares issued and outstanding.

STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS

The Company has no stock options, warrants or restricted stock units outstanding as at September 30, 2021 and as of the date of this filing.

RELATED PARTY TRANSACTIONS

For three and nine-month periods ended September 30, 2021, the Company incurred $71,424 (C$90,000) and $215,838 (C$270,000) (2020-$33,791; C$45,000 and $99,779; C$135,000) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $19,047 (C$24,000) and $57,557 (C$72,000) (2020-$18,021; C$24,000 and $53,215; C$72,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO"). As at September 30, 2021, unpaid remuneration and unpaid expenses in the amount of $410,219 (C$522,639) (December 31, 2020-$396,160; C$504,405) is included in accounts payable in the interim condensed consolidated balance sheets. This balance includes amounts owing to the former chief executive officer in the amount of $310,428 (C$395,500).

In addition, during the three and nine-month periods ended September 30, 2021, the Company incurred interest expense of $nil (C$nil) and $nil (C$nil) (2020-$1,771; C$2,368 and $4,399; C$5,952) respectively, on outstanding loans from Travellers and $265 (C$331) and $265 (C$331) (2020-$nil; C$nil and $nil; C$nil) respectively, on the outstanding loan from the CFO.

For the three and nine-month periods ended September 30, 2021, the Company incurred $27,220 (C$34,255) and $72,672 (C$90,908) (2020-$21,198; C$28,284 and $57,618; C$77,957) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

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For those independent directors providing their services throughout 2021, the Company recorded directors' compensation for the three and nine-month periods ended September 30, 2021, in the amount of $14,905 (C$18,751) and $38,241 (C$47,837) (2020-$56,637 and $57,070) respectively. Also included in directors' compensation for the three and nine-month periods ended September 30, 2021, is the audit committee chairman's fees, in the amount of $nil (C$nil) and $nil (C$nil) (2020-$751 C$1,000 and $2,217; $C3,000). A new audit committee chairman has not yet been appointed for 2021 As at September 30, 2021, outstanding directors' compensation of $nil (C$nil) (December 31, 2020-$2,663; C$3,390) is included in accounts payable and $55,293 (C$70,446) (December 31, 2020-$37,244; C$47,421) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and nine-month periods ended September 30, 2021, the Company recognized management stock-based compensation expense of $54,259 and $162,777 (2020 $nil and $nil) respectively, on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock respectively, on commencement of their new executive consulting agreements, effective January 1, 2021. The total stock-based compensation on the issuance of the common stock totaled $217,035. The portion to be expensed for the balance of the year, $54,258 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets

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 nine-month period ended September 30, 2021 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II: OTHER INFORMATION

 

Item 1. Legal Proceedings.

From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.

The Company has a claim against it for unpaid legal fees in the amount $51,208 (C$65,241). The amount is included in accounts payable on the Company's consolidated balance sheets.

44
On September 24, 2020, the Company filed a statement of claim against the former chief executive officer and his company, LFGC, which was defended and counterclaimed. The Company's claim relates to damages for breach of contract, non-performance of contractual duties, breach of fiduciary duty, misrepresentation and breach of a duty of fidelity in the amount of $784,900 (C$1,000,000).

On October 26, 2020, the Company received a statement of defense and counterclaim from the defendants in response to the Company's statement of claim. The defendants are seeking $403,556 (C$514,150) in special damages and $392,450 (C$500,000) in punitive and exemplary damages. The Company filed its reply and defense to counterclaim on November 13, 2020. The plaintiffs by counterclaim filed their defense to counterclaim on November 23, 2020, denying all claims in the Company's reply and defense to counterclaim. Included in accounts payable on the Company's interim condensed consolidated balance sheets is an amount for unpaid fees to the former chief executive officer in the amount of $310,428 (C$395,500), pending the results of the litigation.

Item 1A. Risk Factors.

As a smaller reporting company, we are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the nine-month period ended September 30, 2021, the Company issued the following shares not previously reported in Current Report on Form 8-K or a quarterly report on Form 10-Q:

(i) 1,726,076 common shares issued on the conversion of related party debt and accounts payable to equity.

(ii) 1,586,332 common shares issued for professional services.

(iii) 5,647,029 common shares issued to convertible promissory note holders on the issuance and conversion of convertible promissory notes. 

(iv) 1,195,348 common shares issued on private placements. 

(iv) 1,050,000 common shares issued to officers.

The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits.

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

45

 

Exhibit No. Description
   

4.1

 

Mortgage increase (filed as Exhibit 4.1 to the Registrant's 8-K filed with the SEC on August 20, 2021 and incorporated herein by reference).

   
4.2 Mortgage, dated August 17, 2021 (filed as Exhibit 4.1 to the Registrant's 8-K filed with the SEC on August 23, 2021 and incorporated herein by reference).
   
10.1 Guarantee by and and between SusGlobal Energy Corp., and private lenders (filed as Exhibit 10.1 to the Registrant's 8-K filed with the SEC on August 20, 2021 and incorporated herein by reference).
   
31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2*  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1+ Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley Act of 2002).
   
32.2+ Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of Sarbanes-Oxley Act of 2002)
   
101.INS* XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL documentXBRL Instance Document
   
101.SCH*  XBRL Taxonomy Extension Schema Document
   
101.CAL*  XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF*  XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB*  XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE*  XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
   
* Filed herewith
+ In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

SIGNATURES

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

 SUSGLOBAL ENERGY CORP.
   
November 15, 2021By:/s/ Marc Hazout
  Marc Hazout
  Executive Chairman, President and Chief Executive Officer
   
   
November 15, 2021By:/s/ Ike Makrimichalos
  Ike Makrimichalos
  Chief Financial Officer (Principal Financial and Accounting Officer)

 

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