SusGlobal Energy Corp. - Quarter Report: 2021 June (Form 10-Q)

 

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1. Nature of Business and Basis of Presentation

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

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

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

SusGlobal is a 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.

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

4. Recent Adopted Accounting Policy, (continued)

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7. Intangible Assets

 

For the three and six-month periods ended June 30, 2021, the Company incurred fees in connection with various trademarks in the United States and Canada, in the amount $1,201 (C$1,488) and $4,869 (C$6,035) (2020-$3,196; C$4,355 and $5,733; C$7,813) respectively.

 

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

 

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12. Obligations under Capital Lease

(a)

The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $231,269 (C$286,650), is payable in monthly blended installments of principal and interest of $4,712 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $23,074 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021.

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13. Convertible Promissory Notes

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18. Economic Dependence

 

The Company generated 70% of its revenue from three customers and 83% of its revenue from four customers, during the three and six-month periods ended June 30, 2021 (2020-81% and 73% from four customers) respectively.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

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.

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

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

RECENT BUSINESS DEVELOPMENTS

On February 10, 2021, the Company signed an Agreement of Purchase and Sale (the "APS") for certain assets located in Hamilton, Ontario, Canada for $3,630,600 (C$4,500,000), including a vendor take-back mortgage of $1,613,600 (C$2,000,000) at an annual interest rate of 2% maturing two years after closing. Deposits of $161,360 (C$200,000) and $121,020 (C$150,000) were paid by the Company on February 10, 2021 and June 1, 2021 respectively. The APS was amended on April 8, 2021, to revise the closing date to June 4, 2021, subject to successful completion of the due diligence process and the completion of the Phase II Environmental Site Assessment at a cost of $40,179 (C$49,800), plus applicable harmonized sales taxes, expected on or before May 19, 2021. On May 20, 2021, the Company and the vendor signed a waiver and amending agreement, waiving the due diligence process and revising the closing date to June 16, 2021. On August 3, 2021, the vendor agreed to amend the APS for the purchase of certain assets in Hamilton, Ontario, Canada, with a new closing date of August 17, 2021. The newly amended APS will provide for a credit to the Company in the amount of $302,550 (C$375,000) for certain deficiencies. In addition, the Company will issue 300,000 common shares to the vendor on closing. To finance the closing, the Company increased its 1st mortgage by $1,532,920 (C$1,900,000). The funds are being held in escrow on August 16, 2021.

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On July 8, 2021, the Company applied to list its Common Stock on the Nasdaq Capital Market, and submitted the initial listing fee of $5,000.

On July 2, 2021, the Company revised a letter of intent with the vendors for the purchase of the shares of their two corporations which own proprietary processes, manufacture liquid organic fertilizers and other products. The transaction is set to close on August 31, 2021 with a total purchase price of $16,136,000 (C$20,000,000), which will consist of cash of $8,068,000 (C$10,000,000) and common shares of the Company having a value of $ 8,068,000 (C$10,000,000). The purchase price will be satisfied through a payment of $2,420,400 (C$3,000,000) in cash and the issuance of common shares having a value of $8,068,000 (C$10,000,000) on closing and a final payment of $5,647,600 (C$7,000,000) in cash on June 1, 2022.

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

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

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

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

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

On April 8, 2021, the Company completed the purchase of its new truck and hauling trailer for a total purchase price of $177,624 (C$220,159), plus the applicable harmonized sales taxes and administrative costs. The Company paid deposits of $39,649 (C$49,143) on this purchase and financed the balance over a period of forty-eight months at a monthly principal and interest payment of $3,712 (C$4,601) at an interest rate of 4.95% per annum.

On March 4, 2021, the Company announced it has signed a Capital Market Advisory Agreement (the "Agreement") with Exchange Listing, LLC ("Exchange Listing") to provide advisory services with respect to the Company's initiative to list its shares of Common Stock on the Nasdaq Capital Market.

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Exchange Listing provides companies with cost-effective and efficient direct access to one-stop solutions in the strategic planning and implementation of listing on senior exchanges such as NASDAQ or NYSE. Focusing on company-specific structuring to meet listing requirements, Exchange Listing serves as the primary point of contact with the exchange, investment bankers and lawyers throughout the listing process. With extensive experience in investment banking, securities law, corporate governance and business management, Exchange Listing and its strategic partners facilitate its clients' listing and capital markets objectives.

Purchase of Additional Lands

On November 12, 2020, the Company acquired additional lands described in the Company's Share Purchase Agreement (the "SPA") of 1684567 Ontario Inc. ("1684567"), in May of 2019. The additional lands include a 6.60-acre licensed gravel pit and a 0.20 acre right of way for a purchase price of $169,428 (C$210,000) plus the applicable harmonized sales tax. The Company is now the owner of a 49-acre land parcel at its Belleville, Ontario, Canada, organic waste processing and composting facility. The purchase was funded through an additional advance of $564,760 (C$700,000) on its 1st mortgage. The funds received, $418,921 (C$519,238), were net of financing fees of $59,481 (C$73,725) and expenses including accrued interest, property taxes and other disbursements of $92,590 (C$114,762). The new first mortgage of $2,662,440 (C$3,300,000) was registered on November 12, 2020. The terms of the new 1st mortgage are as noted under long-term debt, note 11(d) to the interim condensed consolidated financial statements, including an interest rate at the higher of the Royal Bank of Canada's prime rate plus 7.55% (currently 10% per annum) and 10% per annum, and the principal amount is due December 1, 2021.  Management used a portion of the additional advance to satisfy certain obligations with Pace Savings and Credit Union Limited ("PACE").

SusGlobal Receives Trademark Registration for LEADERS IN THE CIRCULAR ECONOMY®

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

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

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

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

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

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

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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:

 

Increase:

 

Energy Retrofit Program

On January 15, 2020, the Independent Electrical System Operator (the "IESO") pre-approved the Company's Save on Energy Retrofit Program Application (the "Program"). The total cost of the Program was $95,761 ($C118,692). As the Program was successfully completed, the Company, on April 15, 2021, received the hydro grant from the IESO of $47,191 (C$58,491), plus the applicable harmonized sales taxes. The Program was designed to realize a savings of approximately 50% in hydro costs annually, with an overall return on investment estimated at 125%.

Financings

(a) Securities Purchase Agreements

On June 16, 2021, the Company entered into a securities purchase agreement (the "June 2021 SPA") with one investor (the "June 2021 Investor") pursuant to which the Company issued to the June 2021 Investor one 10% unsecured convertible promissory note (the "June 2021 Investor Note") in the principal amount of $450,000. On June 18, 2021, the Company received proceeds of $382,500, net of transaction related expenses of $67,500. In addition, the June 2021 Investor was issued 1,000,000 common shares of the Company, determined to be valued at $300,000, based on an agreed upon price per share of $0.30.

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

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

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

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

On January 19, 2021, the remaining March 2019 Investor and the Company reached an agreement for payment in full of all obligations due and owing under its March 2019 Investor Notes by payments totaling $550,000, $50,000 paid on January 20, 2021, $200,000 on or before March 1, 2021, which was converted to 1,075,124 common shares on March 11, 2021 and $300,000 on or before March 31, 2021. The payment due on or before March 31, 2021 was extended to April 29, 2021. As of August 16, 2021, this amount has not been paid. As noted, the March 2019 Investor converted a total of $135,000 of one of his March 2019 Investor Notes, including accrued interest of $32,444 and related expense of $275 into 1,075,124 common shares of the Company, a conversion price of $0.156 per share. The balance of the convertible promissory note was forgiven by the March 2019 Investor resulting in a forgiveness of debt of $135,641, including accrued interest of $129,141, disclosed under other income in the interim condensed consolidated financial statements.

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For the three and six-month periods ended June 30, 2021, the Company recorded interest of $28,963 and $43,719 (2020-$149,965 and $333,447 interest and default amounts) respectively. As at June 30, 2021, $29,024 (December 31, 2020-$316,048) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, during the three and six-month periods ended June 30, 2021, $nil and $32,444 (2020-$1,444 and $6,455) respectively, of accrued interest was converted.

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

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

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

(i)	The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $7,071 (C$8,764) and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,290,880 (C$1,600,000), is secured by a business loan general security agreement, a $1,290,880 (C$1,600,000) personal guarantee from the CEO and a charge against the Haute leased premises. Also pledged as security are the shares of the wholly-owned subsidiaries, and a limited recourse guarantee against each of these parties. As noted above, the pledged shares were delivered by PACE and are currently held as security for the personal guarantee from the CEO and charge against the Haute leased premises. The credit facility is fully open for prepayment at any time without notice or bonus.
(ii)	The credit facility advanced on June 15, 2017, in the amount of $484,080 (C$600,000), bears interest at the PACE base of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $3,954 (C$4,901), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.
(iii)	The corporate term loan advanced on September 13, 2017, in the amount of $3,004,642 (C$3,724,147), bears interest at PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%, is payable in monthly blended installments of principal and interest of $23,971 (C$29,711), and matures September 13, 2022. The corporate term loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Security Act in the amount of $3,227,989 (C$4,000,978) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included in the asset purchase agreement.

For the three and six-month periods ended June 30, 2021, $81,163 (C$99,651) and $158,428 (C$197,467) (2020-$78,492; C$108,615 and $155,241; C$211,731) respectively, in interest was incurred on the PACE long-term debt. As at June 30, 2021 $71,051 (C$88,065) (December 31, 2020-$18,319; C$23,325) in accrued interest is included in accrued liabilities.

(c) Other Financings                                            

(i)

The Company obtained a 1st mortgage provided by private lenders to finance the acquisition of the shares of 1684567 and to provide funds for additional financing needs, received in three tranches totaling $2,662,440 (C$3,300,000) (December 31, 2020-$2,662,440; C$3,300,000). The 1st mortgage is repayable interest only on a monthly basis at an annual rate of the higher of the Royal Bank of Canada's prime rate plus 6.05% per annum (currently 8.50%) and 10% per annum with a maturity date of December 1, 2021. The mortgage payable is secured by the shares held of 1684567, a first mortgage on the land described in note 8, long-lived assets, in the interim condensed consolidated balance sheets with a carrying value of $1,700,734 (C$2,108,000) and a general assignment of rents. Financing fees on the mortgage totaled $182,096 (C$225,702). As at June 30, 2021 $21,153 (C$26,219) (December 31, 2020-$36,215; C$46,110) of accrued interest is included in accrued liabilities in the interim condensed consolidated balance sheets. In addition, as at June 30, 2021 there is $23,731 (C$29,414) (December 31, 2020-$50,253; C$63,984) of unamortized finance fees included in long-term debt in the interim condensed consolidated balance sheets. To finance the closing, the Company increased its 1st mortgage by $1,532,920 (C$1,900,000). The funds are being held in escrow on August 16, 2021. For the three and six-month periods ended June 30, 2021, $53,892 (C$65,948) and $116,422 (C$145,110) (2020-$46,936; C$65,000 and $95,316; C$130,000) respectively, in interest was incurred on the mortgage payable.

 

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(ii)	As a result of COVID-19, the Government of Canada launched the Canada Emergency Business Account (the "CEBA"), a program to ensure that small businesses have access to the capital they need to see them through the current challenges and better position them to quickly return to providing services to their communities and creating employment. The program is administered by Canadian chartered banks and credit unions. The Company has received a total of $80,680 (C$100,000) under this program, from its Canadian chartered bank. Under the initial term date of the loans, which is detailed in the CEBA term loan agreements, the amount is due on December 31, 2022 and is interest-free. If the loans are not repaid by December 31, 2022, the Company can make payments, interest only, on a monthly basis at an annual rate of 5%, under the extended term date, beginning January 31, 2023, maturing December 31, 2025. In addition, on a combined basis, if $56,476 (C$70,000) of the loans are repaid by the initial term, December 31, 2022, the Company's Canadian chartered bank will forgive the balance, $24,204 (C$30,000). The CEBA term loan agreements contain a number of positive and negative covenants, for which the Company is not in full compliance.
(iii)	On August 4, 2020, the Company received an advance in the amount of $82,992 (C$110,700) from a private lender. The advance was repayable weekly at an amount of $4,952 (C$6,138). The amount was paid in full on January 26, 2021. For the three and six-month periods ended June 30, 2021, the Company incurred interest charges of $nil (C$nil) $808 (C$883) (2020-$nil; C$nil and $nil; C$nil).
(iv)	During the three and six-month periods ended June 30, 2021, Travellers International Inc. ("Travellers"), a company controlled by the president and chief executive officer (the "CEO") of the Company, who is also a director, loaned the Company $405,321 (C$327,013). The loans were converted along with of $82,052 (C$101,700) of accounts payable owing to Travellers into 1,726,076 common shares of the Company based on the closing trading price of the shares on conversion. There are no written agreements evidencing the Travellers loans other than resolutions of the Board with attached loan schedules.

 

(d) Financings Related to Obligations Under Capital Lease

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

(i)	The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $231,269 (C$286,650), is payable in monthly blended installments of principal and interest of $4,712 (C$5,840), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $23,074 (C$28,600), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021.
(ii)	The lease agreement for certain equipment for the Company's organic composting facility at a cost of $199,643 (C$247,450 ), is payable in monthly blended installments of principal and interest of $4,129 (C$5,118), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $8,068 (C$10,000) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 19,912 (C$24,680) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.
(iii)	The lease agreement for certain equipment for the Company's organic waste processing and composting facility at a cost of $314,370 (C$389,650), is payable in monthly blended installments of principal and interest of $5,528 (C$6,852), plus applicable harmonized sales taxes for a period of fifty-nine months plus an initial deposit of $15,692 (C$19,450) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of a nominal amount of $81 (C$100) plus applicable harmonized sales taxes on February 27, 2025. The leasing agreement bears interest at the rate of 3.59% annually, compounded monthly, due February 27, 2025.

 

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For the three and six-month periods ended June 30, 2021, $3,601 (C$4,409) and $7,694 (C$9,590) (2020-$5,831; C$8,015 and $8,920; C$12,165) respectively, in interest was incurred.

Treatment of Organic Waste and Septage

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

Other

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

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

Operations

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

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

Organic Composting Facility- As noted above, the Company's organic waste processing and composting facility, located in Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 MT of waste annually and is currently in operation. Certain assets of the organic waste processing and composting facility, including the ECAs for the waste transfer station (not yet built), were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic waste composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During six-month period ended June 30, 2021, tipping fees ranged from $56 (C$69) to $128 (C$159) per MT.

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LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2021, the Company had a bank balance of $21,423 (December 31, 2020-$6,457) and current debt obligations and other current liabilities in the amount of $9,462,953 (December 31, 2020-$10,358,212). As at June 30, 2021, the Company had a working capital deficit of $8,632,361 (December 31, 2020-$9,830,314). The Company does not currently have sufficient funds to satisfy the current debt obligations.

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

The Company's total assets as at June 30, 2021 were $6,059,564 (December 31, 2020-$5,758,303) and total current liabilities were $9,462,953 (December 31, 2020-$10,358,212). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $14,573,090 as at June 30, 2021 (December 31, 2020 -$13,468,794). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to satisfy its creditors' demands and to achieve profitable operations while maintaining current fixed expense levels.

To pay current liabilities and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $9,462,953 in current debt obligations and other current liabilities, the Company estimates that approximately $13,750,000 must be raised to fund capital requirements and general corporate expenses for the next 12 months.

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

During the three and six-month periods ended June 30, 2021, the investors of the unsecured convertible promissory notes, converted a total of $nil and $681,000 of their unsecured convertible promissory notes respectively, along with a portion of their accrued interest and related costs of $nil and $32,719, a total of $nil and $713,719 for 3,175,124 common shares of the Company at prices ranging from $0.156 to $0.26 per share.

As at June 30, 2021, the current and long-term portions of our debt obligations totaled $7,885,723 (December 31, 2020-$7,922,532).

In addition, as at June 30, 2021, the Company had an outstanding letter of credit provided by PACE, in the amount of $223,347 (C$276,831), in favor of the MECP. The letter of credit is a requirement of the MECP and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MECPs environmental objectives. The MECP regularly evaluates the Company's organic waste processing and composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MECP. The Company is currently updating its financial assurance with the MECP.  The letter of credit was renewed and will remain in effect to September 30, 2021, unless terminated by PACE.

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

      

		For the three-month periods ended
		June 30, 2021			June 30, 2020
Revenue	$	212,632		$	382,639
Cost of Sales
Opening inventory		45,923			4,071
Depreciation		135,539			121,158
Direct wages and benefits		65,390			85,063
Equipment rental, delivery, fuel and repairs and maintenance		69,280			96,854
Utilities		(10,845	)		7,963
Outside contractors		21,372			1,706
		326,659			316,815
Less: closing inventory		(35,983	)		-
Total cost of sales		290,676			316,815
Gross (loss) profit		(78,044	)		65,824
Operating expenses
Management compensation-stock-based compensation		54,259			-
Management compensation-fees		92,875			49,825
Marketing		82,747			(2,917	)
Professional fees		70,844			107,887
Interest expense and default amounts		168,718			283,409
Office and administration		29,620			77,000
Rent and occupancy		36,580			28,763
Insurance		16,385			23,921
Filing fees		17,188			8,266
Amortization of financing costs		122,543			30,471
Directors' compensation		12,672			1,853
Stock-based compensation		28,209			-
Repairs and maintenance		(5,402	)		2,453
Foreign exchange (income) loss		(7,321	)		(84,635	)
Total operating expenses		719,917			526,296
Net loss from operating activities		(797,961	)		(460,472	)
Other Income		-			(58,704	)
Net loss before deferred taxes recovery		(797,961	)		(519,176	)
Deferred taxes recovery					196,005
Net Loss	$	(797,961	)	$	(323,171	)

 

During the three-month period ended June 30, 2021, the Company generated $212,632 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $382,639 in the three-month period ended June 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.

In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $290,676 for the three-month period ended June 30, 2021 compared to $316,815 for the three-month period ended June 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The reduction in costs relate partially to reduced overtime hours included in direct wages and benefits, adjustments to the estimated cost for the clean-up of certain waste as ordered by the MECP, reductions in utilities resulting from the retrofit of the hydro usage in the composting operation along with credits provided by the utility company for hydro usage offset by an increase in hauling costs included in outside contractors.

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Operating expenses increased by $193,621, from $526,296 in the three-month period ended June 30, 2020 to $719,917 in the three-month period ended June 30, 2021, explained further below.

Management compensation related to stock-based compensation increased by $54,259, in the three-month period ended June 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. The management compensation relating to fees increased by $43,050, from $49,825 in the three-month period ended June 30, 2020 to $92,875 in the three-month period ended June 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.

The Company commenced a new marketing program effective February 1, 2021 for a period of five months to June 30, 2021, at a cost of $20,000 per month, which significantly contributed to the total marketing expense of $82,747 in the three-month period ended June 30, 2021.

Professional fees were reduced by $37,043, from $107,887 in the three-month period ended June 30, 2020 to $70,844 in the three-month period ended June 30, 2021, primarily due to the absence of certain legal fees in connection with refinancing.

Interest expense and default amounts reduced by $114,691 from $283,409 in the three-month period ended June 30, 2020 to $168,718 in the three-month period ended June 30, 2021. This was primarily due to the payoff agreements finalized with the convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, a reduction of approximately $137,000. This was offset primarily by increases in the interest on the 1st mortgage payable, whose principal balance increased by $564,760 (C$700,000), effective November 10, 2020.

Office and administration expenses decreased by $47,380 from $77,000 in the three-month period ended June 30, 2020 to $29,620 in the three-month period ended June 30, 2021, primarily due to the reversal of an administrative penalty of $30,000 levied by the Internal Revenue Service in 2019, after receiving the Company's response to the administrative penalty.

Rent and occupancy increased by $7,817 from $28,763 in the three-month period ended June 30, 2020 to $36,580 in the three-month period ended June 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses.

Insurance reduced by $7,536 from $23,921 in the three-month period ended June 30, 2020 to $16,385 in the three-month period ended June 30, 2021, primarily due to the Company self-insuring certain property at its organic waste processing and composting facility.

Filing fees increased by $8,922 from $8,266 in the three-month period ended June 30, 2020 to $17,188 in the three-month period ended June 30, 2021, primarily due to costs associated with increased filings.

The amortization of financing costs incurred increased by $92,072 from $30,471 in the three-month period ended June 30, 2020 to $122,543 in the three-month period ended June 30, 2021, due primarily to the amortization of the financing fees relating to the three new convertible promissory notes dated March 31, 2021, April 1, 2021 and June 16, 2021.

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Directors' compensation increased from by $10,819 from $1,853 in the three-month period ended June 30, 2020 to $12,672 in the three-month period ended June 30, 2021. In the prior year, the majority of the directors' compensation was based on an accrual for the issuance of stock to satisfy the amounts owed and was an insignificant balance due to the reducing trading price of the common stock. In the current year, the directors' compensation is recorded as an accrual of fees owed, $20,058 (C$25,000) annually, per director.

Stock-based compensation of $28,209 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the total stock-based compensation, determined to be valued at $143,819, will be expensed over the duration of the professional services contacts, which expire at various dates from July 31, 2021 to March 31, 2023.

Repairs and maintenance reduced by $7,855 from $2,453 in the three-month period ended June 30, 2020 to a credit of $5,402 in the three-month period ended June 30, 2021, primarily due to a credit provided by one supplier.

The foreign exchange income reduced by $77,314, from income of $84,635 in the three-month period ended June 30, 2020 to income of $7,321 in the three-month period ended June 30, 2021, due primarily to gains and losses on the translation of balances and transactions during the period.

In the prior period, the Company wrote off a land option in the amount of $58,704, with no comparable amount in the current period.

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

		For the six-month periods ended
		June 30, 2021			June 30, 2020
Revenue	$	405,292		$	732,836
Cost of Sales
Opening inventory		24,740			5,389
Depreciation		272,099			234,267
Direct wages and benefits		136,449			161,246
Equipment rental, delivery, fuel and repairs and maintenance		175,173			158,156
Utilities		7,418			46,240
Outside contractors		21,372			5,279
		637,251			610,577
Less: closing inventory		(35,983	)		-
Total cost of sales		601,268			610,577
Gross (loss) profit		(195,976	)		122,259
Operating expenses
Management compensation-stock-based compensation		108,518			-
Management compensation-fees		182,924			101,182
Marketing		128,472			-
Professional fees		135,246			189,335
Interest expense and default amounts		332,592			595,700
Office and administration		104,835			132,685
Rent and occupancy		68,919			57,060
Insurance		31,387			42,100
Filing fees		36,147			22,146
Amortization of financing costs		136,121			123,009
Directors' compensation		23,336			433
Stock-based compensation		36,282			-
Repairs and maintenance		7,787			8,911
Foreign exchange (income) loss		(19,439	)		65,460
Total operating expenses		1,313,129			1,338,021
Net loss from operating activities		(1,509,105	)		(1,215,762	)
Other Income		404,809			(58,704	)
Net loss before deferred taxes recovery		(1,104,296	)		(1,274,466	)
Deferred taxes recovery		-			196,005
Net Loss	$	(1,104,296	)	$	(1,078,461	)

 

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During the six-month period ended June 30, 2021, the Company generated $405,292 of revenue from its organic waste processing and composting facility and its garbage collection operations compared to $732,836 in the six-month period ended June 30, 2020. The reduction in revenue is primarily due to changes in the customer base including an expiring contract at prior year-end and reductions in certain waste disposed of by several customers. The majority of the revenue from the organic waste processing and composting facility relates to revenue from tipping fees charged for organic and other waste accepted and to a lesser portion relating to the sale of compost processed.

In the operation of the organic waste processing and composting facility, the Company processes organic and other waste received and produces the end product, compost. The cost of producing the compost totaled $601,268 for the six-month period ended June 30, 2021 compared to $610,577 for the six-month period ended June 30, 2020. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. The reduction in costs relate partially to reduced overtime hours included in direct wages and benefits, adjustments to the estimated cost for the clean-up of certain waste as ordered by the MECP including higher machinery rental costs, reductions in utilities resulting from the retrofit of the hydro usage in the composting operation along with credits provided by the utility company for hydro usage, offset by higher depreciation expense resulting from additional equipment added during the period and higher hauling costs for services performed by outside contractors.

Operating expenses reduced by $24,892, from $1,338,021 in the six-month period ended June 30, 2020 to $1,313,129 in the six-month period ended June 30, 2021, explained further below.

Management compensation related to stock-based compensation increased by $108,518, in the six-month period ended June 30, 2021, as a result of the common stock issued to the officers on the commencement of their new executive consulting contracts, effective January 1, 2021. The balance of the total stock-based compensation valued at $217,035, based on the trading price of the shares on issuance, will be expensed over the balance of the year. And, the management compensation relating to fees increased by $81,742, from $101,182 in the six-month period ended June 30, 2020 to $182,924 in the six-month period ended June 30, 2021, the result of increased monthly fees for the CEO, effective January 1, 2021.

The Company commenced a new marketing program effective February 1, 2021 for a period of five months to June 30, 2021, at a cost of $20,000 per month, which significantly contributed to the total marketing expense of $128,472 in the six-month period ended June 30, 2021. The Company did not have a marketing program in the prior period.

Professional fees were reduced by $54,089, from $189,335 in the six-month period ended June 30, 2020 to $135,246 in the six-month period ended June 30, 2021, primarily due to the absence of the 2019 acquisition costs relating to professional fees expensed in the prior period in the amount of $54,544, offset by increases in other professional fees such as audit and related fees.

Interest expense and default amounts reduced by $263,108 from $595,700 in the six-month period ended June 30, 2020 to $332,592 in the six-month period ended June 30, 2021. In the prior period, interest and default penalties on the convertible promissory notes was approximately $347,000 and due to the payoff agreements finalized with several convertible promissory note holders at the end of the prior year and during the three-month period ended March 31, 2021, interest in the current period for interest on the convertible promissory notes amounted to $43,719, a reduction of approximately $303,000. This was offset primarily by increases in the interest on the 1st mortgage payable, whose principal balance increased by $564,760 (C$700,000), effective November 10, 2020, the interest on the new truck and trailer loan and other equipment purchased during the period.

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Office and administration expenses decreased by $27,850 from $132,685 in the six-month period ended June 30, 2020 to $104,835 in the six-month period ended June 30, 2021, primarily due to the reversal of an administrative penalty of $30,000 levied by the Internal Revenue Service in 2019, after receiving the Company's response to the administrative penalty.

Rent and occupancy increased by $11,859 from $57,060 in the six-month period ended June 30, 2020 to $68,919 in the six-month period ended June 30, 2021, primarily due to an increase in the monthly rent for the Company's Toronto, Ontario, Canada office along with higher common area expenses.

Insurance reduced by $10,713 from $42,100 in the six-month period ended June 30, 2020 to $31,387 in the six-month period ended June 30, 2021, primarily due to the Company self-insuring certain property at its organic waste processing and composting facility.

Filing fees increased by $14,001 from $22,146 in the six-month period ended June 30, 2020 to $36,147 in the six-month period ended June 30, 2021, primarily due to costs associated with increased filings.

The amortization of financing costs incurred increased by $13,112 from $123,009 in the six-month period ended June 30, 2020 to $136,121 in the six-month period ended June 30, 2021, due primarily to the increased amortization of the financing fees relating to the three new convertible promissory notes dated March 31, 2021, April 1, 2021 and June 16, 2021.

Directors' compensation increased from by $22,903 from $433 in the six-month period ended June 30, 2020 to $23,336 in the six-month period ended June 30, 2021. In the prior year, the majority of the directors' compensation was based on an accrual for the issuance of stock to satisfy the amounts owed and was an insignificant balance due to the reducing trading price of the common stock. In the current year, the directors' compensation is recorded as an accrual of fees owed, $20,058 (C$25,000) annually, per director.

Stock-based compensation of $36,282 relates to stock issued for professional services provided in the current period with no comparable amount in the prior period. The balance of the stock-based compensation, determined to be valued at $143,819, will be expensed over the duration of the professional services contacts, which expire at various dates from July 31, 2021 to March 31, 2023.

Repairs and maintenance reduced by $1,124, an insignificant change.

The foreign exchange income increased by $84,899 from a loss of $65,460 in the six-month period ended June 30, 2020 to income of $19,439 in the six-month period ended June 30, 2021, due primarily to the significant recovery of the Canadian dollar compared to the United Statements dollar, during the current period.

Other income increased by $463,513 from a loss of $58,704 in the six-month period ended June 30, 2020 to income of $404,809 in the six-month period ended June 30, 2021. The current period includes income on the forgiveness of the convertible promissory notes in the amount of $61,100 and on the accrued interest of $298,360 and a gain on the disposal of certain long-lived assets. In the prior period, the Company wrote off a land option in the amount of $58,704, with no comparable amount in the current period.

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As at June 30, 2021, the Company had a working capital deficit of $8,632,361 (December 31, 2020-$9,830,314), incurred a net loss of $1,104,296 (2020-$1,078,461) for the six-month period ended June 30, 2021 and had an accumulated deficit of $14,573,090 (December 31, 2020-$13,468,794) and expects to incur further losses in the development of its business.

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

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

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

CRITICAL ACCOUNTING ESTIMATES

Use of estimates

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

Stock-based compensation

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

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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 June 30, 2021, the Company had 91,825,299 common shares issued and outstanding and as at the date of this filing, the Company had 92,290,167 common shares issued and outstanding. Subsequent to June 30, 2021, the Company received proceeds from 4 private placements in the amount of $111,839, net of share issue costs in the amount of $8,925 (C$11,062) plus applicable harmonized sales taxes, on the issuance of 464,868 common shares. The pricing on the private placements was based on the closing trading price of the shares, $0.26 per share.

STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS

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

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RELATED PARTY TRANSACTIONS

For three and six-month periods ended June 30, 2021, the Company incurred $73,323 (C$90,000) and $144,414    (C$180,000)  (2020-$32,494; C$45,000 and $65,988; C$90,000) respectively, in management fees expense with Travellers International Inc. ("Travellers"), an Ontario company controlled by a director and the president and chief executive officer (the "CEO"); and $19,552 (C$24,000) and $38,510 (C$48,000) (2020-$17,331; C$24,000 and $35,194; C$48,000) respectively, in management fees expense with the Company's chief financial officer (the "CFO").  As at June 30, 2021, unpaid remuneration and unpaid expenses in the amount of $379,272 (C$470,094) (December 31, 2020-$396,160; C$504,405) is included in accounts payable in the interim condensed consolidated balance sheets. This balance includes amounts owing to the former chief executive officer in the amount of $319,089 (C$395,500).

In addition, during the three and six-month periods ended June 30, 2021, the Company incurred interest expense of $nil (C$nil) and $nil (C$nil) (2020-$2,187; C$2,992 and $2,628; C$3,584) respectively, on outstanding loans from Travellers.

For the three and six-month periods ended June 30, 2021, the Company incurred $24,287 (C$29,858) and $45,452    (C$56,653) (2020-$18,897; C$26,130 and $36,420; C$49,673) respectively, in rent expense paid under a lease agreement with Haute Inc. ("Haute"), an Ontario company controlled by the CEO.

For those independent directors providing their services throughout 2021, the Company recorded directors' compensation for the three and six-month periods ended June 30, 2021 in the amount of $12,672 (C$16,586) and $23,336 (C$29,086) (2020-$1,202 and $2,237) respectively.  Also included in directors' compensation for the three and six-month periods ended June 30, 2021, is the audit committee chairman's fees, in the amount of $(790) ((C$1,000)) and $nil (C$nil) (2020-$722; C$1,000 and $1,466; $C2,000). A new audit committee chairman has not yet been appointed for 2021 As at June 30, 2021, outstanding directors' compensation of $nil (C$nil) (December 31, 2020-$2,663; C$3,390) is included in accounts payable and $41,708 (C$51,696) (December 31, 2020-$37,244; C$47,421) is included in accrued liabilities, in the interim condensed consolidated balance sheets.

Furthermore, for the three and six-month periods ended June 30, 2021, the Company recognized management stock-based compensation expense of $54,259 and $108,518 (2020 $nil and $nil) respectively, on the common stock issued to the CEO and the CFO, 1,000,000 and 50,000 common stock respectively, on commencement of their new executive consulting agreements, effective January 1, 2021. The total stock-based compensation on the issuance of the common stock totaled $217,035. The portion to be expensed for the balance of the year, $108,517 is included in prepaid expenses and deposits in the interim condensed consolidated balance sheets. 

OFF-BALANCE SHEET ARRANGEMENTS

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