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

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2018

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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  
Toronto, Ontario, Canada M5R1J2
(Address of principal executive offices) (Zip code)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Yes [   ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ] No [X]

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 [   ] No [X]*

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations 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 [   ]

0


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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                         [   ] 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 revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

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

The number of shares of Common Stock, $0.0001 par value, of the registrant outstanding as of April 1, 2019 was 41,404,531.

* The Company has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, however, it has not yet been 90 days since the Company has been subject to such filing requirements.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

    Page
    PART I    
Item 1. Business 2
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 20
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Mine Safety 20
    PART II    
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
Item 6. Selected Financial Data 21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 53
Item 9A. Controls and Procedures 53
Item 9B. Other Information 53
    PART III    
Item 10. Directors, Executive Officers and Corporate Governance 53
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 58
Item 13. Certain Relationships and Related Transactions, and Director Independence 60
Item 14. Principal Accounting Fees and Services 61
  PART IV      
Item 15. Exhibits, Financial Statement Schedules 61

1


PART I

Item 1. Business.

OVERVIEW

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

2


General

On February 4, 2019, the Company registered its common stock, having a par value of $.0001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is effective pursuant to General Instruction A.(d).

SusGlobal Energy Corp. (“SusGlobal”) was formed by articles of amalgamation on December 3, 2014, in the Province of Ontario, Canada and its executive office is in Toronto, Ontario, Canada, at 200 Davenport Road. Our telephone number is 416-223-8500. Our website address is www.susglobalenergy.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are all available, free of charge, on our website as soon as practicable after we file the reports with the Securities and Exchange Commission (the “SEC”). SusGlobal Energy Corp., a company in the start-up stages and Commandcredit Corp. (“Commandcredit”), an inactive Canadian public company, amalgamated to continue business under the name of SusGlobal Energy Corp.

On May 23, 2017, SusGlobal Energy Corp. 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 Energy Corp. continued its existence under the DGCL as a corporation incorporated in the State of Delaware. The business, assets and liabilities of the Company 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 Energy Corp. 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 (the “SEC”) on May, 23, 2017.

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

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

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. The portfolio will be comprised of four distinct types of technologies: (a) Process Source Separated Organics (“SSO”) in anaerobic digesters to divert from landfills and recover biogas. This biogas can be converted to gaseous fuel for industrial processes, electricity to the grid or cleaned for compressed renewable gas; (b) Increasing the capacity of existing infrastructure (anaerobic digesters) to allow processing of SSO to increase biogas yield; (c) Utilize recycled plastics to produce liquid fuels; and (d) process digestate to produce a pathogen free organic fertilizer.

The convertibility of organic material into valuable end products such as biogas, liquid biofuels, organic fertilizers and compost shows the utility of renewable energy. These products can be converted into electricity and fuels and are marketed to agricultural operations that are looking for an increase in crop yields, soil amendment and environmentally-sound practices. This practice also diverts these materials from landfills and reduces greenhouse gas emissions that result from landfilling organic wastes. The Company can provide peace of mind that the full lifecycle of organic material is achieved, global benefits are realized and stewardship for total sustainability is upheld. It is management's objective to grow SusGlobal into a significant sustainable waste to energy and regenerative products provider, as Leaders in The Circular Economy™

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

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

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

Currently, our primary customers are municipalities in both rural and urban centers throughout southern and central Ontario, Canada. Much of the research and development that has been carried out has been completed by our CEO through multiple projects carried out prior to the formation of SusGlobal. Where necessary, to be in compliance with provincial and local environmental laws and regulations, SusGlobal submits applications to the respective authorities for approval prior to any necessary engineering being carried out.

Our Status as an Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, and the JOBS Act. Certain specified reduced reporting and other regulatory requirements are available to public companies that are emerging growth companies. These provisions include:

  • an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;
  • an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
  • an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and
  • reduced disclosure of our executive compensation arrangements.

We have elected to opt out of the extended transition period for complying with new or revised accounting standards. This election is irrevocable.

We will continue to be an emerging growth company until the earliest of:

  • the last day of our fiscal year in which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every five years by the SEC to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $1,000,000) or more;
  • the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended;
  • the date on which we have, during the prior three-year period, issued more than $1,000,000,000 in non- convertible debt; or
  • the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC, which means the market value of our common stock that is held by non-affiliates (or public float) exceeds $700 million as of the last day of our second fiscal quarter in our prior fiscal year.

We are also a “smaller reporting company,” as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and also are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until our public float exceeds $75 million on the last day of our second fiscal quarter in our prior fiscal year.

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RECENT BUSINESS DEVELOPMENTS

Trademark Applications

On March 13, 2019, the Company filed trademark applications with the Canadian and US trademark offices to register the SusGlobal logo, Earth’s Journey, SusGro, Leaders in the Circular Economy and Caring for Earth’s Journey.

Securities Purchase Agreements

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

Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, a “March 2019 Note Effective Date”), they became effective upon the payment in cash of the purchase price by the March 2019 Investors. The purchase prices of $250,000 and $250,000 for the First Notes was paid in cash by the March 2019 Investors on March 11, 2019. After payment of transaction-related expenses, net proceeds to the Company from the First Notes totaled $456,000.

The maturity dates of the March 2019 Notes are March 7, 2020 and March 8, 2020. The March 2019 Notes shall bear interest at a rate of twelve percent (12%) per annum (the “March 2019 Notes 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 Notes into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the March 2019 Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable March 2019 Note Effective Date; or (ii) the conversion date (the “March 2019 Notes Variable Conversion Price”).

On January 28, 2019 (the “January 2019 Notes Effective Date”), the Company entered into three securities purchase agreements (the “January 2019 SPAs”) with three investors (the “January 2019 Investors”) pursuant to which the January 2019 Investors purchased 12% unsecured convertible promissory notes (the “January 2019 Notes”) from the Company in the aggregate principal amount of $337,500, such principal and the interest thereon convertible into shares of the Company’s Common Stock at the January 2019 Investors’ option. After payment of transaction related expenses, net proceeds to the Company from the January 2019 Notes totaled $302,500 and were received on February 1 and 4 of 2019.

The maturity date of each January 2019 Note is January 28, 2020 (the “January 2019 Notes Maturity Dates”). The January 2019 Notes shall bear interest at a rate of twelve percent (12%) per annum (the “January 2019 Notes Interest Rate”), which interest shall be paid by the Company to the January 2019 Investors in Common Stock at any time the January 2019 Investors send a notice of conversion to the Company. The January 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the January 2019 Notes into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the January 2019 Notes Effective Date; or (ii) the conversion date (the “January 2019 Notes Variable Conversion Price”).

Treatment of Organic Waste and Septage

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

Deposits on Acquisition of Shares and Assets

On February 5, 2019, the Company advanced a non-refundable deposit of $52,776 ($72,000 CAD) in connection with an executed non-binding letter of intent in the amount of $1,295,394 ($1,767,250 CAD) to acquire 100% of the shares of a company, whose primary asset includes the 39.44 acres of property in Roslin (near Belleville), Ontario, Canada which includes the site the Company currently leases for its organic composting facility.

5


On January 31, 2019, the Company advanced a deposit of $36,650 ($50,000 CAD) in connection with a $1,905,800 ($2,600,000 CAD) offer to purchase certain property located in Hamilton, Ontario, Canada, from the court appointed receiver for future operations.

Asset Purchase

On September 15, 2017, the Company entered into an asset purchase agreement (the “APA) with Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP (“Astoria”), pursuant to which the Company purchased certain assets of Astoria from the court appointed receiver of Astoria, BDO Canada Limited (the “Receiver”). The purchase price for the composting buildings, Gore cover system, driveway and paving, office trailer, certain machinery and equipment, computer equipment, computer software and intangible assets (the “Assets”) consisted of cash of $3,005,300 ($4,100,000 CAD), funded by PACE Savings and Credit Union Limited (“PACE”) and 529,970 restricted common shares of the Company, determined to be valued at $529,970 ($700,000 CAD) based on private placement pricing at the time. In addition, legal costs of $21,442 ($29,253 CAD) in connection with acquiring the Assets are included in the cost of the organic composting facility. In addition, the Company purchased certain accounts receivable which it was required to collect, totaling $127,650 ($174,147 CAD) and a deposit with a local municipality in the amount of $36,650 ($50,000 CAD).

Financing Agreement with PACE

Effective January 1, 2017, the Company obtained a Line of Credit of up to $4,031,500 ($5,500,000 CAD) with PACE (the “PACE Line of Credit”). On February 2, 2017, the Company received the first and only advance in the amount of $1,172,800 ($1,600,000 CAD) on the PACE Line of Credit. The PACE Line of Credit was due February 2, 2019 and is now one of multiple credit facilities with PACE, as noted below.

The funds advanced on the PACE Line of Credit of $1,172,800 ($1,600,000 CAD) bore interest at the PACE base rate of 6.75% plus 1.25% per annum, at the time 8%, and was payable on a monthly basis, interest only, until refinanced, as noted below. The PACE Line of Credit is secured by a business loan general security agreement, a $1,172,800 ($1,600,000 CAD) personal guarantee from the president of the Company (the “President”) and a charge against the Company’s office premises lease. Also pledged as security are the shares of the wholly-owned subsidiaries and a pledge of 3,300,000 shares of Common Stock of the Company held by Landfill Gas Canada Ltd. (“LFGC”), an Ontario company controlled by a director and chief executive officer of the Company (the “CEO”), 500,000 shares of Common Stock of the Company held by the chief financial officer (the “CFO”) and 2,000,000 shares of Common Stock of the Company held by a director’s company, and a limited recourse guarantee by each. The PACE Line of Credit is fully open for prepayment at any time without notice or bonus. A total commitment fee of $80,630 ($110,000 CAD) was paid to PACE. In addition, the agents who assisted in establishing the PACE Line of Credit received 1,620,000 shares of Common Stock of the Company determined to be valued at $469,800, based on private placement pricing at the time and cash of $300,000, on closing, for their services. Other closing costs in connection with the PACE Line of Credit included legal fees of $28,377 ($38,713 CAD). As at December 31, 2018, $745,897 ($1,017,595 CAD) (2017-$817,932; $1,026,135 CAD) remains outstanding. During the year, the Company incurred interest charges of $64,042 ($82,945 CAD) (2017-$63,842; $82,901 CAD) on the PACE Line of Credit.

On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $6,424 ($8,764 CAD), commencing August 2, 2018, amortized over a twenty-year period and matures on September 2, 2022.

On June 15, 2017, PACE loaned the Company $439,800 ($600,000 CAD) under a variable rate business loan agreement (the “PACE Business Loan Agreement”), for its bid for the purchase of certain assets of Astoria on terms and conditions similar to the abovementioned PACE Line of Credit. As at December 31, 2018, $417,137 ($569,081 CAD) (2017-$457,428; $573,865 CAD) remains outstanding under the PACE Business Loan Agreement. During the year, the Company incurred interest charges of $35,870 ($46,458 CAD) (2017-$19,276; $25,031 CAD) in connection with the PACE Business Loan Agreement.

On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $3,592 ($4,901 CAD), commencing August 2, 2018, amortized over a twenty-year period and matures on September 2, 2022.

On August 4, 2017, PACE loaned the Company $36,665 ($50,000 CAD) under a variable business loan agreement, to satisfy an outstanding liability on terms and conditions similar to the abovementioned PACE Line of Credit, except that the loan was due February 4, 2019. As at December 31, 2018, $36,344 ($49,583 CAD) (2017-$39,855; $50,000 CAD) remains outstanding. During the year, the Company incurred interest charges of $3,126 ($4,048 CAD) (2017-$478; $625 CAD) on this credit facility.

6


On July 27, 2018, the Company refinanced this credit facility at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The credit facility is payable on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $313 ($427 CAD), commencing August 4, 2018, amortized over a twenty-year period and matures on September 4, 2022.

On September 13, 2017, PACE loaned the Company $2,729,800 ($3,724,147 CAD) under a corporate term loan (the “PACE Corporate Term Loan”). The funds were used for the purpose of acquiring certain assets of Astoria from the court appointed receiver on September 15, 2017. The PACE Corporate Term Loan bore interest at the PACE base rate of 6.75% plus 1.25% per annum, 8% at the time, payable in monthly blended installments of principal and interest of $55,388 ($75,564 CAD), and matures on September 13, 2022. The PACE Corporate Term Loan is secured by a business loan general security agreement representing a floating charge over the assets and undertakings of the Company, a first priority charge under a registered debenture and a lien registered under the Personal Property Securities Act in the amount of $2,932,717 ($4,000,978 CAD) against the Company’s assets, including accounts receivable, inventory and equipment. PACE has also provided the Company with a letter of credit in the favor of the Ministry of the Environment and Climate Change (“MOECC”) in the amount of $202,917 ($276,831 CAD) and, as security, has registered a charge of lease over the premises, located at 704 Phillipston Road, Roslin, Ontario, Canada. As at December 31, 2018, and the date of this filing, the MOECC has not drawn on this letter of credit. The PACE Corporate Term Loan also includes an assignment of existing contracts included under the APA. On June 13, 2018, the unpaid and previously deferred interest on the PACE Corporate Term Loan for the period beginning on March 13, 2018 and ending June 13, 2018, in the amount of $50,828 ($69,343 CAD), was capitalized and included in the principal balance of the PACE Corporate Term Loan. As at December 31, 2018, $2,528,400 ($3,449,387 CAD) (2017-$2,846,220; $3,570,719 CAD) remains outstanding under the PACE Corporate Term Loan. During the year, the Company incurred interest charges of $218,514 ($283,013 CAD) (2017-$68,048; $88,358 CAD) under PACE Corporate Term Loan. The shares pledged as security for the Line of Credit and the other credit facilities also pertain to this corporate term loan.

On July 26, 2018, the Company refinanced the PACE Corporate Term Loan. The first and only blended installment of principal and interest of $21,377 ($29,164 CAD) was due August 1, 2018 at the rate of 8% per annum, and amortized over a twenty-year period. The PACE Corporate Term Loan is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $21,778 ($29,711 CAD), commencing August 13, 2018, at the PACE base rate of 7% plus 1.25% per annum, currently 8.25%. The PACE Corporate Term Loan continues to be amortized over a twenty-year period and matures on September 13, 2022.

Other

On April 11, 2018, three directors each loaned the Company $19,928 ($25,000 CAD) for working capital purposes (the “Director Loans”). The Director Loans bear interest at the rate of 12% per annum, are due on demand and unsecured. There are no written agreements evidencing the Director Loans. During the year, $5,026 ($6,510 CAD) of interest was charged on the Director Loans. As at December 31, 2018, $4,772 ($6,510 CAD) (December 31, 2017-$nil; $nil CAD) in interest is included in accrued liabilities and the Director Loans remain outstanding in the amount of $54,975 ($75,000 CAD).

On April 3, 2018, a new loan was provided by Travellers International Inc. (“Travellers”), an Ontario company controlled by the Executive Chairman and President, who is also a director of the Company, in the amount of $159,420 ($200,000 CAD) (the “Travellers Loan”). A portion of the funds, $110,777 ($151,128 CAD), was used to pay two overdue monthly principal and interest instalments on the Company’s PACE Corporate Term Loan. This new loan is due on demand, unsecured and bears interest at the rate of 12% per annum. There is no written agreement evidencing the Travellers Loan. During the year, $14,094 ($18,254 CAD) (2017-$15,056; $19,550 CAD) in interest was charged on the Travellers Loan and other loans repaid to Travellers during the year. As at December 31, 2018, $13,110 ($17,885 CAD) (December 31, 2017-$22,120; $27,750 CAD) in interest is included in accrued liabilities and the Travellers Loan remains outstanding in the amount of $146,600 ($200,000 CAD).

On February 16, 2018, the Company finalized a lease agreement for certain equipment for its organic composting facility, which was previously on monthly rental, in the amount of $181,381 ($247,450 CAD) (the “2018 Equipment Lease Agreement”). The 2018 Equipment Lease Agreement is for a period of forty-eight months, with two initial monthly installments of $7,330 ($10,000 CAD) each, plus the applicable harmonized sales taxes, followed by forty-six monthly blended installments of principal and interest of $3,751 ($5,118 CAD), plus the applicable harmonized sales taxes. The Company has the option to purchase the equipment on the forty ninth month for an amount of $18,090 ($24,680 CAD), plus the applicable harmonized sales taxes. The 2018 Equipment Lease Agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022. During the year, $8,514 ($11,027 CAD) of interest was charged on the 2018 Equipment Lease Agreement.

7


On October 30, 2017, the Company finalized a lease agreement for certain equipment for its organic composting facility, which commenced on October 30, 2017, in the amount of $210,114 ($286,650 CAD) (the “October 2017 Equipment Lease Agreement”). The October 2017 Equipment Lease Agreement requires monthly blended installments of principal and interest of $4,281 ($5,840 CAD), plus applicable harmonized sales taxes and a final balloon payment of $20,964 ($28,600 CAD), plus applicable harmonized sales taxes on October 31, 2021. The October 2017 Equipment Lease Agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021. During the year, $10,724 ($13,889 CAD) (2017-$2,064; $2,680) of interest was charged on the October 2017 Equipment Lease Agreement.

On September 21, 2017, the company finalized a lease agreement for the lease of certain equipment for its organic composting facility, in the amount of $12,593 ($17,180 CAD) (the “September 2017 Equipment Lease Agreement”). The September 2017 Equipment Lease Agreement requires monthly blended installments of principal and interest of $929 ($1,268 CAD) at a monthly interest rate of 5.95%, due and fully paid on November 10, 2018. During the year, $299 ($388 CAD) (2017-$136; $177 CAD) of interest was charged under the September 2017 Equipment Lease Agreement.

On May 11, 2017, the Company signed a posting agreement with CrowdVest, a Tennessee limited liability company (“CrowdVest”), to act as the Company’s online intermediary technology platform in connection with the Company’s offering of shares of Common Stock pursuant to Rule 506 of Regulation D under the Securities Act of 1933. As compensation, CrowdVest received 20,000 restricted shares of Common Stock of the Company, based on an issuance price of $5 per share, once the 506(c)-general solicitation offering commenced. The offering terminated on October 27, 2017 and was not extended.

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

Effective January 1, 2017, new consulting agreements were finalized for the services of the President and the CEO (the “Consulting Agreements”). The Consulting Agreements are for a period of three years, commencing January 1, 2017. For each of the President and the CEO, the monthly fees are as follows: $3,665 ($5,000 CAD) for 2017 and $10,995 ($15,000 CAD) for 2018 and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1, 2017, determined to be valued at $990,000, based on private placement pricing at the time. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 shares of Common Stock of the Company. The RSUs of the remaining two installments are expected to vest on January 1, 2019 and 2020, upon meeting certain performance objectives. On May 17, 2018, the President’s Consulting Agreement was amended by the Board of Directors’ (the “Board”), to add the granting of 3,000,000 RSUs, determined to be valued at $3,000,000 based on private placement pricing at the time on the same terms and conditions as those of the CEO. On this date, the President was issued 1,000,000 shares of Common Stock of the Company in exchange for 1,000,000 RSUs.  The RSUs of the remaining two installments are expected to vest on January 1, 2019 and 2020, upon meeting certain performance objectives.

On December 7, 2016, the Company was awarded funding for the AWT Program, a program for business led collaborations in the water sector. The AWT Program is administered by the Southern Ontario Water Consortium to assist small and medium sized businesses in the Province of Ontario, Canada, leverage world-class research facilities and academic expertise to develop and demonstrate water technologies for successful introduction to market. In addition, the AWT Program is designed to enhance the Ontario water cluster and continue to build Ontario’s reputation for water excellence around the world. The Company’s academic partner is the CAWT at Fleming College in Lindsay, Ontario, Canada. The original AWT Program budget was for $586,400 ($800,000 CAD), of which the Company contributes 50% in cash and in-kind contributions and CAWT contributes 50%. CAWT revised its budget for the second and third years of the AWT Program. As a result, the cash commitments for 2017 and 2018, the second and third years of the AWT Program were cancelled.

The Company had already completed and provided its commitment for the first year of the AWT Program which ended March 31, 2017, consisting of professional fees of $7,217 ($9,432 CAD) and a contribution to the capital requirements of the AWT Program, totaling $71,017 ($94,000 CAD), for equipment to be used in the AWT Program and to be retained by CAWT.

On October 21, 2016, the Company hired the services of a contractor to assume the role of vice-president of corporate development (“VPCD”), effective November 1, 2016, for a period of fourteen months, at the rate of $2,932 ($4,000 CAD) per month, plus applicable taxes. In addition, the contractor was offered up to 115,000 shares of Common Stock of the Company, at a price of $0.10 per common share, exercisable within 180 days of the effective date of the contract. On April 30, 2017, the contractor exercised the offer to purchase 115,000 shares of Common Stock of the Company. At the end of the fourteen-month term, the VPCD continued to provide services on a monthly basis for the first three months of 2018.

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On November 4, 2016, the Company’s BioGrid Project, a project described in the expansion and operation agreement (the “BioGrid Agreement”) with the Township of Georgian Bluffs and the Township of Chatsworth (the “Municipalities”), was terminated.

On August 19, 2016, Travellers provided an unsecured loan bearing interest at an annual rate of 12% in the amount of 153,930 ($210,000 CAD) which was required to initiate a letter of credit in the amount of $146,600 ($200,000 CAD). This loan was repaid in full, with accrued interest on April 3, 2018. Fees for the letter of credit included $7,330 ($10,000 CAD) incurred and charged by Travellers and $2,199 ($3,000 CAD) charged by the Company’s chartered bank. There is no written agreement evidencing this loan and the loan was approved by the Board of Directors of the Company.

On August 3, 2016, the Company signed an agreement with Grimsby Energy Inc. from Grimsby, Ontario, Canada, to allow hydrolyzed and pasteurized organic wastes to be processed at their Anaerobic Biodigester. The agreement commenced November 1, 2016 and can be terminated by either party within three hundred and sixty-five days minimum written notice. Up to the date of this filing, there has been no activity under this agreement.

On May 14, 2015, the Ontario Ministry of Environment and Climate Change announced formal targets to be met to satisfy a commitment necessary to join the Western Climate Initiative (the “WCI”) along with Quebec and California, who are in the WCI with Cap and Trade commitments since 2014. The Ontario emission targets are very ambitious, with greenhouse gas (“GHG”) emission reductions of 15% by 2020, 37% by 2030 and 80% by 2050, all from a 1990 baseline. Ontario achieved a 6% reduction in GHG emissions from 1990 levels in 2014, mainly by closing all coal-fired power plants. The targets announced will require a focused program to reduce GHG emissions. The Company’s activities all contribute to GHG reductions, so we will be a key part of Ontario’s initiative. The Company has also contacted counterparties in Quebec and California to explore opportunities for relevant projects. SusGlobal is committed to making all its commercial activities carbon neutral. New Cap and Trade regulations became effective on January 2017. Subsequently, on July 3, 2018, the new premier of the Province of Ontario announced the end of the Cap and Trade program in Ontario.

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

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

Operations

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

Waste Transfer Station - Access to the waste transfer 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 composting facility, located near Belleville, Ontario Canada, has ECAs in place to accept up to 70,000 metric tonnes of waste annually and is currently in operation. Certain assets of the organic composting facility, including the ECAs for the waste transfer station, were acquired by the Company on September 15, 2017, from the Receiver for Astoria, under the APA. The Company charges tipping fees for the waste accepted at the organic composting facility based on arrangements in place with the customers and the type of waste accepted. Typical waste accepted includes, leaf and yard, biosolids, food, liquid, paper sludge and source separated organics. During the year, tipping fees ranged from $19 ($25 CAD) to $100 ($130 CAD) per metric tonne.

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Compost Sales. The Company also sells organic compost (screened and unscreened) to local customers. During the year, the average selling price of the compost per metric tonne was approximately $14 ($18 CAD).

Competition

Seasonal Trends

Our operating revenues tend to be somewhat higher in summer months, primarily due to waste volumes resulting from higher construction and demolition waste volumes and the availability of leaf and yard waste along with contracts involving the grinding of leaf and yard waste. In addition, revenue from the sale of organic compost would be higher beginning in late spring and tapering off in the fall. This will be more evident when our organic composting facility will have been in operation for a full fiscal year.

Employees

As of December 31, 2018, the Company had six full-time employees and three independent contractors. Of the six full time employees, two were employed in management and administrative positions, and the balance in operations. The three independent contractors provide services in management positions. None of our employees are covered by collective bargaining agreements.

Financial Assurance and Insurance Obligations

Financial Assurance

Municipal and governmental waste service contracts generally require contracting parties to demonstrate financial responsibility for their obligations under the contract. Financial assurance is also a requirement for (i) obtaining or retaining disposal site or waste transfer station operating permits; and (ii) estimated post-closure and environmental remedial obligations at our operations. We have established financial assurance using letters of credit and/or deposits with the municipalities. The type of assurance used is based on several factors, most importantly: the jurisdiction, contractual requirements, market factors and availability of credit capacity.

A letter of credit in favor of the MOECC is supported by our credit facility with PACE. As at December 31, 2018 and the date of filing, the MOECC has not drawn on the letter of credit.

Insurance

We carry a broad range of insurance coverages, including general liability, automobile liability, workers’ compensation, real and personal property, directors’ and officers’ liability, environmental and pollution legal liability and other coverages we believe are customary to the industry. Our exposure to loss for insurance claims is generally limited to the per-incident deductible under the related insurance policy. We do not expect the impact of any known casualty, property, environmental or other contingency to have a material impact on our financial condition, results of operations or cash flows.

Regulation

Our business is subject to extensive and evolving federal, provincial and local environmental, health, safety and transportation laws and regulations. These laws and regulations are administered by the MOECC, Environment Canada, and various other federal, provincial and local environmental, zoning, transportation, land use, health and safety agencies in Canada. Many of these agencies regularly examine our operations to monitor compliance with these laws and regulations and have the power to enforce compliance, obtain injunctions or impose civil or criminal penalties in case of violations.

Because the primary mission of our business is to collect and manage solid and liquid waste in an environmentally sound manner, our capital expenditures are related, either directly or indirectly, to environmental protection measures, including compliance with federal, provincial and local rules. There are costs associated with siting, design, permitting, operations, monitoring, site maintenance, corrective actions, financial assurance, and facility closure and post-closure obligations. With acquisition, development or expansion of a waste management or waste transfer station, we must often spend considerable time, effort and money to obtain or maintain required permits and approvals. There are no assurances that we will be able to obtain or maintain required governmental approvals. Once obtained, operating permits are subject to renewal, modification, suspension or revocation by the issuing agency. Compliance with current regulations and future requirements could require us to make significant capital and operating expenditures. However, most of these expenditures are made in the normal course of business and do not place us at any competitive disadvantage.

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The primary Provincial statutes affecting our business are summarized below:

Provincial and Local Regulations

Various provincial and local regulations affect our operations. The Province of Ontario has its own laws and regulations governing solid waste disposal, water and air pollution, and, in most cases, releases and cleanup of hazardous substances and liabilities for such matters. The Province of Ontario has also adopted regulations governing the design, operation, maintenance and closure of waste transfer stations. Some regions, municipalities and other local governments in Ontario have adopted similar laws and regulations. Our facilities and operations are likely to be subject to these types of requirements.

Our operations are affected by the increasing preference for alternatives to landfill disposal. Many regional and local governments in Ontario mandate recycling and waste reduction at the source and prohibit the disposal of certain types of waste, such as yard waste, food waste and electronics at landfills. The number of regional and local governments in Ontario with recycling requirements and disposal bans continues to grow, while the logistics and economics of recycling the items remain challenging. In addition, Ontario has imposed timelines for the ban of organics from landfills in the province in an effort to totally divert these wastes from landfills. This will provide opportunities for the expansion of facilities like ours. This had already occurred in the province of Quebec and in the United States of America (the “USA”), where various states have enacted, or are considering enacting, laws that restrict the disposal within the state of solid waste generated outside the state. While laws that overtly discriminate against out-of-state waste have been found to be unconstitutional, some laws that are less overtly discriminatory have been upheld in court. From time to time, the United States Congress has considered legislation authorizing states to adopt regulations, restrictions, or taxes on the importation of out-of-state or out-of-jurisdiction waste. Additionally, several state and local governments have enacted “flow control” regulations, which attempt to require that all waste generated within the state or local jurisdiction be deposited at specific sites. In 1994, the U.S. Supreme Court ruled that a flow control ordinance that gave preference to a local facility that was privately owned was unconstitutional, but in 2007, the Court ruled that an ordinance directing waste to a facility owned by the local government was constitutional. The United States Congress’ adoption of legislation allowing restrictions on interstate transportation of out-of-state or out-of-jurisdiction waste or certain types of flow control, or courts’ interpretations of interstate waste and flow control legislation, could adversely affect our solid and hazardous waste management services.

Federal, Provincial and Local Climate Change Initiatives

In light of regulatory and business developments related to concerns about climate change, we have identified a strategic business opportunity to provide our public and private sector customers with sustainable solutions to reduce their GHG emissions. As part of our on-going marketing evaluations, we assess customer demand for and opportunities to develop waste services offering verifiable carbon reductions, such as waste reduction, increased recycling, and conversion of biogas and discarded materials into electricity and fuel. We use carbon life cycle tools in evaluating potential new services and in establishing the value proposition that makes us attractive as an environmental service provider. We are active in support of public policies that encourage development and use of lower carbon energy and waste services that lower users’ carbon footprints. We understand the importance of broad stakeholder engagement in these endeavors, and actively seek opportunities for public policy discussion on more sustainable materials management practices. In addition, we work with stakeholders at the federal and provincial level in support of legislation that encourages production and use of renewable, low-carbon fuels and electricity. Despite the U.S. withdrawal from the Paris Climate Accords, we have seen no reduction in customer demand for services aligned with their GHG reduction goals and strategies. Ontario is part of the WCI led by the state of California and, if anything, California has doubled down on their GHG reduction goals. The states of Oregon and Washington are also considering joining the WCI that currently has California, Ontario and Quebec as members.

We continue to assess the physical risks to company operations from the effects of severe weather events and use risk mitigation planning to increase our resiliency in the face of such events. We are investing in infrastructure to withstand more severe storm events, which may afford us a competitive advantage and reinforce our reputation as a reliable service provider through continued service in the aftermath of such events.

Item 1A. Risk Factors.

In an effort to keep our stockholders and the public informed about our business, we may make “forward-looking statements.” Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend” and words of a similar nature and generally include statements containing:

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  • projections about accounting and finances;

  • plans and objectives for the future;

  • projections or estimates about assumptions relating to our performance; or

  • our opinions, views or beliefs about the effects of current or future events, circumstances or performance.

You should view these statements with caution. These statements are not guarantees of future performance, circumstances or events. They are based on facts and circumstances known to us as of the date the statements are made. All aspects of our business are subject to uncertainties, risks and other influences, many of which we do not control. Any of these factors, either alone or taken together, could have a material adverse effect on us and could change whether any forward-looking statement ultimately turns out to be true. Additionally, we assume no obligation to update any forward-looking statement as a result of future events, circumstances or developments. The following discussion should be read together with the Consolidated Financial Statements and the notes thereto. Outlined below are some of the risks that we believe could affect our business and financial statements for 2019 and beyond and that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company.

Any investment in our securities involves a high degree of risk, including the risks described below. Our business, financial condition and results of operations could suffer as a result of these risks, and the trading price of our shares could decline, perhaps significantly, and you could lose all or part of your investment. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled “Information Regarding Forward-Looking Statements.”

Risks Related to Our Business and Industry

             We may experience claims that our products infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

            We seek to improve our business processes and develop new products and applications. Many of our competitors have a substantial amount of intellectual property that we must continually monitor to avoid infringement. We cannot guarantee that we will not experience claims that our processes and products infringe issued patents (whether present or future) or other intellectual property rights belonging to others. If we are sued for infringement and lose, we could be required to pay substantial damages or be enjoined from using or selling the infringing products or technology. Further, intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management’s attention from operating our business.

             Our relationship with our employees could deteriorate, and certain key employees could leave the Company, which could adversely affect our business and our results of operations.

            Our business involves complex operations and therefore demands a management team and employee workforce that is knowledgeable and expert in many areas necessary for our operations. We rely on our ability to attract and retain skilled employees, including our specialized research and development and sales and service personnel, to maintain our efficient production. The departure of a significant number of our highly skilled employees or of one or more employees who hold key regional management positions could have an adverse impact on our operations, including as a result of customers choosing to follow a regional manager to one of our competitors.

             We face intense competition, and our failure to compete successfully may have an adverse effect on our net sales, gross profit and financial condition.

            Our industry is highly competitive. Many of our competitors may have greater financial, technical and marketing resources than we do and may be able to devote greater resources to promoting and selling certain products, and our competitors may therefore have greater financial, technical and marketing resources available to them than we do.

            If we do not compete successfully by developing and deploying new cost-effective products, processes and technologies on a timely basis and by adapting to changes in our industry and the global economy, our net sales, gross profit and financial condition could be adversely affected.

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             Failure to comply with the Foreign Corrupt Practices Act, or FCPA, and other similar anti-corruption laws, could subject us to penalties and damage our reputation.

            We are subject to the FCPA, which generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain certain policies and procedures. Certain of the jurisdictions in which we conduct business may be at a heightened risk for corruption, extortion, bribery, pay-offs, theft and other fraudulent practices. Under the FCPA, U.S. companies may be held liable for actions taken by their strategic or local partners or representatives. If we, or our intermediaries, fail to comply with the requirements of the FCPA, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.

             We are not insured against all potential risks.

            To the extent available, we maintain insurance coverage that we believe is customary in our industry. Such insurance does not, however, provide coverage for all liabilities, including certain hazards incidental to our business, and we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to maintain adequate insurance at rates we consider reasonable.

             We may not be able to consummate future acquisitions or successfully integrate acquisitions into our business, which could result in unanticipated expenses and losses.

            Part of our strategy is to grow through acquisitions. Consummating acquisitions of related businesses, or our failure to integrate such businesses successfully into our existing businesses, could result in unanticipated expenses and losses. Furthermore, we may not be able to realize any of the anticipated benefits from the acquisitions.

            In connection with potential future acquisitions, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with acquisitions include:

  • unexpected losses of key employees or customers of the acquired company;
  • conforming the acquired company’s standards, processes, procedures and controls with our operations;
  • coordinating new product and process development;
  • hiring additional management and other critical personnel;
  • negotiating with labor unions; and
  • increasing the scope, geographic diversity and complexity of our operations.

            In addition, we may encounter unforeseen obstacles or costs in the integration of businesses we may acquire. Also, the presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may have a material adverse effect on our financial condition or results of operations.

             Business disruptions could seriously harm revenues and increase our costs and expenses.

            Our operations could be subject to extraordinary events, including natural disasters, political disruptions, terrorist attacks, acts of war and other business disruptions, which could seriously harm our net sales and increase our costs and expenses. These blackouts, floods and storms could cause disruptions to our operations or the operations of our suppliers, distributors, resellers or customers. Similar losses and interruptions could also be caused by earthquakes, telecommunications failures, water shortages, tsunamis, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters for which we are predominantly self-insured.

Risks Relating to Our Common Stock

             An active trading market may not result for our common stock.

            On December 11, 2018 our common stock commenced quotation on the OTCQB Market. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market or how liquid that market might become. An active public market for our common stock may not develop or be sustained. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.

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             We have a history of net losses and we expect to incur additional losses.

            In each year since our inception we have incurred losses and have generated only $1,273,482 in revenue. For the year ended December 31, 2018, net losses attributable to common stockholders aggregated $3,894,016 (2017-$2,212,481) and, at December 31, 2018, the Company’s accumulated deficit was $8,554,312 (2017-$4,660,296). We expect to incur further losses in the development of our business. We cannot assure you that we can achieve profitable operations in any future period.

            Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt as to our ability to continue as a going concern.

            Although our consolidated financial statements have been prepared assuming we will continue as a going concern, our independent registered public accounting firm, in its report accompanying our consolidated financial statements as of and for the years ended December 31, 2018 and 2017, expressed substantial doubt as to our ability to continue as a going concern as of December 31, 2018, as a result of our operating losses since inception and because the Company expects to incur further losses in the development of our business. The inclusion of a going concern explanatory paragraph may make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain.

             We have no intention of declaring dividends in the foreseeable future.

            The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend income on their investment in the foreseeable future.

             We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.

            Under the certificate of incorporation of the Company, our Board of Directors are authorized to create and issue one or more additional series of preferred stock, and, with respect to each series, to determine number of shares constituting the series and the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, which may include dividend rights, conversion or exchange rights, voting rights, redemption rights and terms and liquidation preferences, without stockholder approval. If we create and issue one or more additional series of preferred stock, it could affect your rights or reduce the value of our outstanding common stock. Our Board of Directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock and which could have certain anti-takeover effects.

             Special Meetings of our Stockholders may only be called by our Board of Directors or our CEO and as such, our stockholders do not have the ability to call a meeting.

            Under our bylaws only our Board of Directors or CEO may call a special meeting of shareholders and as such, your ability to participate and take certain corporate actions like amending the Company’s certificate of incorporation or electing directors is limited.

             We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.

            Pursuant to Sarbanes-Oxley Act of 2002, our management will be required to report on, and our independent registered public accounting firm may in the future be required to attest to, the effectiveness of our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

             If our internal controls and accounting processes are insufficient, we may not detect in a timely manner misstatement that could occur in our financial statements in amounts that could be material.

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            As a public company, we will have to devote substantial efforts to the reporting obligations and internal controls required of a public company, which will result in substantial costs. A failure to properly meet these obligations could cause investors to lose confidence in us and have a negative impact on the market price of our shares. We expect to devote significant resources to the documentation, testing and continued improvement of our operational and financial systems for the foreseeable future. These improvements and efforts with respect to our accounting processes that we will need to continue to make may not be sufficient to ensure that we maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations in the USA or result in misstatements in our financial statements in amounts that could be material. Insufficient internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares and may expose us to litigation risk.

            As a public company, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley, which requires annual management assessments of the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal control over financial reporting, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares.

             For as long as we are an “emerging growth company,” we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to some other public companies.

            As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:

  • the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;

  • the last day of the fiscal year following the fifth anniversary of an offering; the date on which we have, during the previous 3-year period, issued more than $1 billion in non- convertible debt; or

  • the date on which we are deemed a “large accelerated filer” as defined under the federal securities laws.

             For so long as we remain an “emerging growth company”, we will not be required to:

  • have an auditor report on our internal control over financial reporting pursuant to the Sarbanes- Oxley Act of 2002;

  • comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis);

  • submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and

  • include detailed compensation discussion and analysis in our filings under the Exchange Act and instead may provide a reduced level of disclosure concerning executive compensation.

            In addition, the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period for complying with new or revised accounting standards. The Company has elected to opt out of this extended transition period for complying with new or revised accounting standards. This election is irrevocable.

             Information Regarding Forward-Looking Statements

            Statements in this Form 10-K may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus and in other documents which we file with the SEC.

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            In addition, such statements could be affected by risks and uncertainties related to

  • our ability to raise funds for general corporate purposes and operations, including our clinical trials;
  • our ability to recruit qualified management and technical personnel;
  • our ability to complete successfully within our industry;
  • fluctuations in foreign currency exchange rates;
  • our ability to maintain and enhance our technological capabilities and to respond effectively to technological changes in our industry; and
  • our ability to protect our intellectual property, on which our business avoiding infringing the intellectual property rights of others;

            Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus.

             If we fail to implement our business strategy, our financial performance and our growth could be materially and adversely affected.

            Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Implementation of our strategy will require effective management of our operational, financial and human resources and will place significant demands on those resources. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview for more information on our business strategy.

            There are risks involved in pursuing our strategy, including the following:

  • Our employees, customers or investors may not embrace and support our strategy.

  • We may not be able to hire or retain the personnel necessary to manage our strategy effectively.

  • We may be unsuccessful in implementing improvements to operational efficiency and such efforts may not yield the intended result.

  • We may not be able to maintain cost savings achieved through restructuring efforts.

  • Strategic decisions with respect to our asset portfolio may result in impairments to our assets. See Item 1A. Risk Factors We may record material charges against our earnings due to impairments to our assets .

  • Our ability to make strategic acquisitions depends on our ability to identify desirable acquisition targets, negotiate advantageous transactions despite competition for such opportunities, fund such acquisitions on favorable terms, obtain regulatory approvals and realize the benefits we expect from those transactions.

  • Acquisitions, investments and/or new service offerings may not increase our earnings in the timeframe anticipated, or at all, due to difficulties operating in new markets or providing new service offerings, failure of emerging technologies to perform as expected, failure to operate within budget, integration issues, or regulatory issues, among others.

  • Integration of acquisitions and/or new services offerings could increase our exposure to the risk of inadvertent noncompliance with applicable laws and regulations.

  • Liabilities associated with acquisitions, including ones that may exist only because of past operations of an acquired business, may prove to be more difficult or costly to address than anticipated.

  • Execution of our strategy, particularly growth through acquisitions, may cause us to incur substantial additional indebtedness, which may divert capital away from our traditional business operations and other financial plans.

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  • We continue to seek to divest underperforming and non-strategic assets if we cannot improve their profitability. We may not be able to successfully negotiate the divestiture of underperforming and non-strategic operations, which could result in asset impairments or the continued operation of low-margin businesses.

            In addition to the risks set forth above, implementation of our business strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses and changes in industry trends. We may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully, our operating results may not improve to the extent we anticipate, or at all.

             Compliance with existing or increased future regulations and/or enforcement of such regulations may restrict or change our operations, increase our operating costs or require us to make additional capital expenditures, and a decrease in regulation may lower barriers to entry for our competitors.

            Stringent government regulations at the federal, state, provincial and local level in the U.S. and Canada have a substantial impact on our business, and compliance with such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection, health, safety, land use, zoning, transportation and related matters. Among other things, governmental regulations and enforcement actions may restrict our operations and adversely affect our financial condition, results of operations and cash flows by imposing conditions such as:

  • limitations on constructing a new waste transfer stations, recycling or processing facilities or on expanding existing facilities;
  • limitations, regulations or levies on collection and disposal prices, rates and volumes;
  • limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste;
  • mandates regarding the management of solid waste, including requirements to recycle, divert or otherwise process certain waste, recycling and other streams; or
  • limitations or restrictions on the recycling, processing or transformation of waste, recycling and other streams.

            We also have a significant financial obligation relating to closure, post-closure and environmental remediation at our existing facility. The obligation is supported by a letter of credit from PACE in favor of the MOECC. Environmental regulatory changes could accelerate or increase such costs, requiring our expenditures to materially exceed our current letter of credit.

             Our operations are subject to environmental, health and safety laws and regulations, as well as contractual obligations that may result in significant liabilities.

            There is risk of incurring significant environmental liabilities in the acceptance, use and storage of waste materials. Under applicable environmental laws and regulations, we could be liable if our operations cause environmental damage to our property or to the property of other landowners, particularly as a result of the contamination of air, drinking water or soil. Under current law, we could also be held liable for damage caused by conditions that existed before we acquired our current facility. This risk is of particular concern as we execute our growth strategy, partially though acquisitions, because we may be unsuccessful in identifying and assessing potential liabilities during our due diligence investigations. Further, the counterparties in such transactions may be unable to perform their indemnification obligations owed to us. Additionally, we could be liable if we arrange for the transportation and acceptance at our facility of hazardous substances that cause environmental contamination, or if a predecessor owner made such arrangements and, under applicable law, we are treated as a successor to the prior owner. Any substantial liability for environmental damage could have a material adverse effect on our financial condition, results of operations and cash flows.

            In the ordinary course of our business, we may in the future, become involved in legal and administrative proceedings relating to land use and environmental laws and regulations. These include proceedings in which:

  • agencies of federal, state, provincial or local governments seek to impose liability on us under applicable statutes, sometimes involving civil or criminal penalties for violations, or to revoke or deny renewal of a permit we need; and

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  • local communities, citizen groups, landowners or governmental agencies oppose the issuance of a permit or approval we need, allege violations of the permits under which we operate or laws or regulations to which we are subject, or seek to impose liability on us for environmental damage.

            We generally seek to work with the authorities or other persons involved in these proceedings to resolve any issues raised. If we are not successful, the adverse outcome of one or more of these proceedings could result in, among other things, material increases in our costs or liabilities as well as material charges for asset impairments.

             General economic conditions can directly and adversely affect our revenues and our income from operations margins.

            Our business is directly affected by changes in national and general economic factors that are outside of our control, including consumer confidence, interest rates and access to capital markets. A weak economy generally results in decreased consumer spending and decreases in volumes of waste generated, which decreases our revenues. In addition, we have a relatively high fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels. Consumer uncertainty and the loss of consumer confidence may limit the number or amount of services requested by customers. Economic conditions may also limit our ability to implement our pricing strategy. For example, many of our contracts have price adjustment provisions that are tied to an index such as the Consumer Price Index, and our costs may increase in excess of the increase, if any, in the Consumer Price Index.

             Some of our customers have suffered financial difficulties affecting their credit risk, which could negatively impact our operating results.

            Many non-governmental customers have also suffered serious financial difficulties, including bankruptcy in some cases. Purchasers of our recycling commodities can be particularly vulnerable to financial difficulties in times of commodity price volatility. The inability of our customers to pay us in a timely manner or to pay increased rates, particularly large national accounts, could negatively affect our operating results.

             We are increasingly dependent on technology in our operations and if our technology fails, our business could be adversely affected.

            We may experience problems with the operation of our current information technology systems or the technology systems of third parties on which we rely, as well as the development and deployment of new information technology systems, that could adversely affect, or even temporarily disrupt, all or a portion of our operations until resolved. Inabilities and delays in implementing new systems can also affect our ability to realize projected or expected cost savings

            Additionally, any systems failures could impede our ability to timely collect and report financial results in accordance with applicable laws and regulations.

             A cybersecurity incident could negatively impact our business and our relationships with customers and expose us to litigation risk.

            We use computers in substantially all aspects of our business operations. We also use mobile devices, social networking and other online activities to connect with our employees and our customers. Such uses give rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ personal information, private information about employees, and financial and strategic information about the Company and its business partners. Further, as the Company pursues its strategy to grow through potential acquisitions and to pursue new initiatives that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we fail to assess and identify cybersecurity risks associated with acquisitions and new initiatives, we may become increasingly vulnerable to such risks. Additionally, while we have implemented measures to prevent security breaches and cyber incidents, our preventative measures and incident response efforts may not be entirely effective. The theft, destruction, loss, misappropriation, or release of sensitive and/or confidential information or intellectual property, or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, negative publicity, brand damage, violation of privacy laws, loss of customers, potential litigation and liability and competitive disadvantage.

             Our business is subject to operational and safety risks, including the risk of personal injury to employees and others.

            The operation of an organic composting facility involves risks such as truck accidents, equipment defects, malfunctions and failures.

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Any of these risks could potentially result in injury or death of employees and others, a need to shut down or reduce operation of the facility, increased operating expense and exposure to liability for pollution and other environmental damage, and property damage or destruction.

            While we seek to minimize our exposure to such risks through comprehensive training, compliance and response and recovery programs, as well as vehicle and equipment maintenance programs, if we were to incur substantial liabilities in excess of any applicable insurance, our business, results of operations and financial condition could be adversely affected. Any such incidents could also tarnish our reputation and reduce the value of our brand. Additionally, a major operational failure, even if suffered by a competitor, may bring enhanced scrutiny and regulation of our industry, with a corresponding increase in operating expense.

             We have substantial financial assurance and insurance requirements and increases in the costs of obtaining adequate financial assurance, or the inadequacy of our insurance coverages, could negatively impact our liquidity and increase our liabilities.

            The amount of insurance we are required to maintain for environmental liability is governed by statutory requirements. We believe that the cost for such insurance is high relative to the coverage it would provide and, therefore, our coverages are generally maintained at the minimum statutorily-required levels. We face the risk of incurring additional costs for environmental damage if our insurance coverage is ultimately inadequate to cover those damages. We also carry a broad range of other insurance coverages that are customary for a company our size. We use these programs to mitigate risk of loss, thereby enabling us to manage our self-insurance exposure associated with claims. The inability of our insurers to meet their commitments in a timely manner and the effect of significant claims or litigation against insurance companies may subject us to additional risks. To the extent our insurers are unable to meet their obligations, or our own obligations for claims are more than we estimated, there could be a material adverse effect to our financial results.

             Our capital requirements and our business strategy could increase our expenses, cause us to change our growth and development plans, or result in an inability to maintain our desired credit profile.

            If economic conditions or other risks and uncertainties cause a significant reduction in our cash flows from operations, we may reduce or suspend capital expenditures, growth and acquisition activity and implementation of our business strategy. We may choose to incur indebtedness to pay for these activities, although our access to capital markets is not assured and we may not be able to incur indebtedness at a cost that is consistent with current borrowing rates. We also may need to incur indebtedness to refinance scheduled debt maturities, and it is possible that the cost of financing could increase significantly, thereby increasing our expenses and increasing our net losses. Further, our ability to execute our financial strategy and our ability to incur indebtedness is somewhat dependent upon our ability to maintain investment grade credit ratings on our senior debt. The credit rating process is contingent upon our credit profile, as well as a number of other factors, many of which are beyond our control, including methodologies established and interpreted by third-party rating agencies. If we were unable to maintain our investment grade credit ratings in the future, our interest expense would increase and our ability to obtain financing on favorable terms could be adversely affected.

            Additionally, we have $3,727,778 ($5,085,645 CAD) of debt as of December 31, 2018 that is exposed to changes in market interest rates within the next 12 months. In addition, as of December 31, 2018, we had a letter of credit outstanding of $202,917 ($276,831 CAD). If interest rates increase, our interest expense would also increase, increasing our net losses and decreasing our cash flow.

            As at December 31, 2018, and the date of this filing, the Company did not have any revolving credit facility to support cash flow requirements. In the event of a default under our any of our credit facilities, term loans, obligations under capital lease and loans from related parties, we could be required to immediately repay such debt under default, which we may not be able to do. Additionally, any such default may cause a default under many of our other credit agreements and debt instruments. Without waivers from lenders party to those agreements, and/or the availability of other financing, either debt or equity, any such default would have a material adverse effect on our ability to continue to operate.

             The seasonal nature of our business and severe weather events may cause our results to fluctuate, and prior performance is not necessarily indicative of our future results.

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            Our operating revenues tend to be somewhat higher in summer months, primarily due to the higher organic compost sales and higher leaf and yard waste volumes. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect these seasonal trends.

            Service disruptions caused by severe storms, extended periods of inclement weather or climate extremes resulting from climate change can significantly affect the operating results of the Areas affected. While weather-related and other event driven special projects can boost revenues through additional work for a limited time, as a result of significant start-up costs and other factors, such revenue will generate earnings at comparatively higher margins.

            For these and other reasons, operating results in any interim period are not necessarily indicative of operating results for an entire year, and operating results for any historical period are not necessarily indicative of operating results for a future period. Our stock price may be negatively or positively impacted by interim variations in our results.

             We may experience adverse impacts on our reported results of operations as a result of adopting new accounting standards or interpretations.

            Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our reported financial position or operating results or cause unanticipated fluctuations in our reported operating results in future periods.

Item 1B. Unresolved Staff Comments.

            None.

Item 2. Properties.

            Our principal executive office is in Toronto, Ontario, Canada. We lease this property from an Ontario company controlled by the President of the Company, who is also a director. This lease expires on December 31, 2019. We also lease the land on which our organic composting facility is situated, near Belleville, Ontario, Canada. This lease expires on March 31, 2034 and has several renewal options of five years each.

            We believe that our operating property, vehicle and equipment are adequately maintained and sufficient for our current operations. However, we expect to continue to make investments in additional property and equipment for expansion, for replacement of assets and to support our strategy of continuous improvement through efficiency and innovation. For more information, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included within this report.

Item 3. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

On December 15, 2017, the Company filed a motion record in the Ontario Superior Court of Justice (the “Court”) against the Business Development Bank of Canada and Astoria, together in the amount of $553,708 ($755,400 CAD) in connection with the Company’s purchase of certain assets from the court appointed receiver for Astoria, BDO, on September 15, 2017. The basis for the claim is for the Company’s costs to process biosolids stored onsite that amounted to approximately more than 10 times the amount permitted to be stored by conditions set in the Environmental Compliance Approval for the site. The processing costs are paid when the biosolids are received onsite. Costs to process are incurred over the 12 weeks it takes to incorporate the biosolids into a compost product. The Court ruled against the Company’s motion. Subsequently, on June 12, 2018, the Company, upon unanimous approval by the Board, filed an appeal. The motion on the appeal was heard before the Court on September 21, 2018. On November 8, 2018, The Court dismissed the motion and awarded BDO its costs in the amount of $115,887 ($158,099 CAD). The Company appealed the Court’s decision and filed an appeal which was heard by a panel of three judges. As of the date of this filing, the Company was awaiting the decision from the panel of judges.

Item 4. Mine Safety Disclosures.

The Company has no reporting to provide relative to information concerning mine safety and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Market Price of Common Stock

Our common stock is quoted on the OTCQB marketplace run by OTC Markets Group, Inc. under the symbol “SNRG”. As of the date of this filing, the number of stockholders of record was seventy-four (74). This does not include persons whose stock is in nominee or “street name” accounts through brokers.

Securities.

The information below was derived from the audited Consolidated Financial Statements included within this report and in previous annual reports, including those we filed with the SEC. This information should be read together with those Consolidated Financial Statements and the notes thereto. These historical results are not necessarily indicative of the results to be expected in the future.

There were no declared dividends in 2018 and since incorporation. Future decisions to pay cash dividends are at the discretion of our Board of Directors. It is our intention to retain any future profits for use in the development and expansion of our business and for general corporate purposes.

Unregistered Sales of Equity Securities and Use of Proceeds.

During the year ended December 31, 2018, the Company issued a total of 2,906,500 shares of Common Stock for net cash and non-cash proceeds of $1,670,240 for working capital and other purposes, as follows:

696,500 shares of Common Stock for net cash proceeds of $650,240 at a price of $1.00 per share. 190,000 shares of Common Stock issued for proceeds previously received at a price of $1.00 per share, and 2,000,000 shares of Common Stock issued on the vesting of 2017 stock awards.

20,000 shares of Common Stock were issued to a director at a price of $1.00 per share.

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 6. Selected Financial Data.

    Years Ended December 31,  
    2018(a)     2017(a)      2016     2015     2015  
                               
Statement of Operations Data:                              
Operating revenues $  1,000,106   $  273,376   $  15,721-   $  -   $  -  
Other income   -     110,110     -     -     -  
Consolidated net loss   3,894,016     2,212,481     551,529     1,279,054     60,677  
Consolidated comprehensive loss   3,826,750     2,318,829     584,736     1,280,223     45,129  
Basic and diluted loss per common share   0.10     0.06     0.02     0.04     0.00  
Balance Sheet Data:                              
Working capital deficit $  4,830,948   $  2,238,911   $  487,703   $  262,070   $  26,137  
Total assets   3,710,713     4,437,682     198,081     26,758     -  
Long-term debt and obligations under capital lease including current portion   4,016,486     4,381,219     -     -     -  
Total stockholders’ deficiency   1,542,248     720,338     485,153     258,733     26,137  

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___________________
(a)

For more information see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section includes a discussion of our results of operations for the years ended December 31, 2018 and 2017. This discussion may contain forward-looking statements that anticipate results based on management’s plans that are subject to uncertainty. We discuss in more detail various factors that could cause actual results to differ materially from expectations in Item 1A. Risk Factors . The following discussion should be read considering those disclosures and together with the Consolidated Financial Statements and the notes thereto.

Overview

Our Company’s goals are targeted at serving our customers, our employees, the environment, the communities in which we work and our stockholders. Increasingly, customers want more of their waste materials recovered, while waste streams are becoming more complex, and our aim is to address the current needs, while anticipating the expanding and evolving needs of our customers.

CONSOLIDATED RESULTS OF OPERATIONS – FOR THE YEAR ENDED DECEMBER 31, 2018 COMPARED TO THE YEAR ENDED DECEMBER 31, 2017

    2018     2017  
Revenue $  1,000,106   $ 273,376  
             
Cost of sales   868,594     392,256  
Gross profit (loss)   131,512     (118,880 )
Operating expenses            
Management compensation-stock-based compensation   2,330,000     330,000  
Management compensation-fees   338,180     166,342  
Professional fees   474,457     283,488  
Interest expenses   360,209     168,900  
Office and administration   182,140     120,987  
Rent and occupancy   146,141     81,283  
Insurance   55,571     74,906  
Contribution to Advanced Water Technology Program   -     71,017  
Directors’ compensation   75,088     27,110  
Filing fees   31,717     19,296  
Repairs and maintenance   32,025     -  
Operations and maintenance   -     (21,771 )
Financing costs   -     882,153  
Total operating expenses   4,025,528     2,203,711  
             
Net loss before other income   (3,894,016 )   (2,322,591 )
Other income-insurance proceeds and gain on collection of trade receivables   -     110,110  
Net loss $  (3,894,016 ) $ (2,212,481 )

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

During the year, the Company generated $1,000,106 of revenue from its organic composting facility, an increase of $726,730 over the prior year. During the prior year, the organic composting facility was in operation from the date of the asset purchase on September 15, 2017 to the end of the year. The majority of the revenue from the organic composting facility relates to revenue from tipping fees charged for organic waste accepted at the facility and a small portion relating to the sale of organic compost processed at the site. Other income included insurance proceeds of $48,516 which represented the receipt of an insurance claim for the catastrophic engine failure in the Company’s 2016 BioGrid Project ($33,079) and business income loss ($15,437), submitted in the prior year. In addition, other income included $61,594, representing a gain on the collection of accounts receivable over and above the purchase price of the assets on September 15, 2017, for the organic composting facility.

In the operation of the organic composting facility, the Company processes the organic waste received and produces the end product, organic compost. The cost of producing the organic compost totaled $868,594 for the current year ended December 31, 2018 compared to $392,256 in the prior year ended December 31, 2017. The costs include equipment rental, deliver and repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. In addition, the Company determined the inventory on hand at the end of the year for its screened organic compost to be $18,550.  Improvements in the processing of the waste materials significantly improved the gross profit.

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Operating expenses increased by $1,821,817 from $2,203,711 for the year ended December 31, 2017 to $4,025,528 for the year ended December 31, 2018. The increase was the result of various expenses noted below and offset by the absence of financing fees and the advanced water technology program (“AWT Program”).

During the year, the Company incurred management compensation expense of $2,668,180 compared to $496,342 for the year ended December 31, 2017, an increase of $2,171,838. This was primarily due to the higher management compensation expense related to stock-based compensation of $2,330,000 in the current year compared to $330,000 in the prior year and the net increase in the management fees to the officers of $171,838. The $2,330,000 stock-based compensation relates to the exchange of 1,000,000 2017 RSUs for common stock and the vesting of the 2,000,000 2018 RSUs during the year. On January 8, 2019 1,000,000 RSUs were exchanged for common stock.

Professional fees increased by $190,969, from $283,488 in the prior year to $474,457 in the current year. Professional fees include audit and accounting fees, legal fees and consulting fees. Legal fees relating to the Company’s organic composting facility increased by approximately $263,000, which included approximately $122,000 awarded by the court on the dismissal of the Company’s motion which it launched against a third party represented by BDO Canada Limited. Legal fees for services provided by US counsel decreased by approximately $31,000 as a result of not incurring legal services in the current year for the Company’s Form S-4 filings with the SEC, resulting in the Company’s registration statement becoming effective May 23, 2017. Further, the Company did not incur certain legal services in the current year in connection with the 2016 BioGrid Project totaling approximately $13,000 and other general legal services totaling approximately $7,000. Audit and accounting fees, including tax services increased by approximately $17,000 resulting from increased activity and complexity. Consulting fees were reduced by approximately $38,000 as a result of the absence of certain services.

During the year, the Company incurred interest expense of $360,209, an increase of $191,309 over the year ended December 31, 2017 amount of $168,900. The current year’s interest includes interest on the PACE credit facilities and term loan of $321,552, an increase of $169,908 over the prior year and interest on the obligations under capital leases of $19,537, an increase of $17,337. The primarily reason being the full year’s operation of the Company’s organic composting facility in 2018 versus only 107 days in 2017 and the increase in the interest rate on the PACE loans by 0.25% effective July 2018. In addition, the Company incurred interest expense on the loans from related parties totaling $19,120, an increase of $4,064 over the prior year, primarily as a result of the loans from the directors on April 11, 2018.

Rent and occupancy increased by $64,858, from $81,283 in the year ended December 31, 2017 to $146,141 for the year ended December 31, 2018, primarily due to the full year’s operation of the Company’s organic composting facility in 2018 versus 107 days in 2017, an increase of approximately $ 62,000.

Insurance expense decreased by $19,335, from $74,906 in the year ended December 31, 2017 to $55,571 in the year ended December 31, 2018, primarily due to a reduction in the premium for the Company’s directors’ and officers’ liability of approximately $18,000.

Office and administration expenses increased by $61,153, from $120,987 in the year ended December 31, 2017 to $182,140 for the year ended December 31, 2018, primarily due to the full year of operation for the Company’s organic composting facility. The increased expenses are approximately as noted: depreciation-$7,100; bank charges-$5,900; website and internet costs-$6,900; lab testing-$20,700; office wages and benefits-$13,700; state filings-$2,000; meals and entertainment-$8,600; utilities-$4,600, offset by a reduction is various other office expenses and supplies-$8,300.

Filing fees increased by $12,421, from $19,296 in the year ended December 31, 2017 to $31,717 for the year ended December 31, 2018, primarily due to the fees in connection with the application and annual charges for the Company’s listing on the OTCQB exchange.

Repairs and maintenance of $32,025 was incurred in the current year with no comparable amount in the prior year. The costs related primarily to repairs and maintenance to the facilities and other general maintenance for the Company’s organic composting facility totaling $30,550 and the balance for the Company’s main office premises in Toronto, Ontario, Canada.

Directors’ compensation increased by $47,978, from $27,110 in the year ended December 31, 2017 to $75,088 in the year ended December 31, 2018. The current year’s expense includes compensation in the form of common shares issued to a new director determined to be valued at $20,000 based on private placement pricing at the time, directors' fees of $52,000 and fees of $3,088 charged by the audit committee chairperson.

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In the prior year, the Company incurred financing cost of $882,153 in connection with the PACE financing. No similar costs were incurred in the current year.

In the prior year, the Company made a contribution to the AWT Program in the amount of $71,017. No similar expenditures were incurred in the current year.

In addition, the Company recovered certain expenses in the prior year totaling $21,771 for operations and maintenance on the 2016 BioGrid Project, which was terminated in November 2016.

Critical Accounting Estimates and Assumptions

Use of estimates

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

Stock-based compensation

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

Long-Lived Asset Impairments

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

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

Liquidity and Capital Resources

As of December 31, 2018, the Company had a cash balance of $42,711 (2017-$126,117) and current debt obligations in the amount of $5,045,362 (2017-$2,659,636). As at December 31, 2018, the Company had a working capital deficit of $4,830,948 (2017-$2,238,911). The Company does not currently have sufficient funds to satisfy the current debt obligations. Should the Company’s creditors seek or demand payment, the Company does not have the resources to pay or satisfy any such claims currently.

The Company’s total assets at December 31, 2018 were $3,710,713 (2017-$4,432,413) and total current liabilities were $5,045,362 (2017-$2,659,636). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $8,554,312 as of December 31, 2018 (2017-$4,660,296). Continuation as a going concern is dependent upon generating significant new revenue and generating external capital and securing debt to achieve profitable operations while maintaining current fixed expense levels.

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To pay current debt obligations and to fund any future operations, the Company requires significant new funds, which the Company may not be able to obtain. In addition to the funds required to liquidate the $5,045,362 in current debt obligations, the Company estimates that approximately $18,000,000 must be raised to fund capital requirements and general corporate expenses for the next 12 months.

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

Interest Rate Exposure — Our exposure to market risk for changes in interest rates relates primarily to our financing activities. We have $3,727,778 ($4,161,435 CAD) of debt that is exposed to changes in market interest rates within the next 12 months. We currently estimate that a 100-basis point increase in the interest rates of our outstanding variable-rate debt obligations would increase our 2019 interest expense by approximately $37,000.

            Our remaining outstanding debt obligations have fixed interest rates through the scheduled maturity of the debt. The fair value of our fixed-rate debt obligations would not be expected to increase or decrease significantly if market interest rates change.

             Commodity Price Exposure — In the normal course of our business, we are subject to operating agreements that expose us to market risks arising from changes in the prices for commodities such as diesel fuel, propane, and electricity. We attempt to manage these risks through operational strategies that focus on capturing our costs in the prices we charge our customers for the services provided. Accordingly, as the market prices for these commodities increase or decrease, our revenues may also increase or decrease.

             Currency Rate Exposure — Our operations are currently in Ontario, Canada. Where significant, we have quantified and described the impact of foreign currency translation on components of income, including operating revenue and operating expenses. However, the impact of foreign currency has not materially affected our results of operations.

             Summary of Cash and Debt Obligations

The following is a summary of our cash and cash equivalents and debt balances as of December 31:

    2018     2017  
Cash and cash equivalents $  42,711   $  126,117  
Debt:            
     Current portion $  3,727,778   $  2,659,636  
     Long-term portion   -     2,493,115  
Total debt $   3,727,778   $  5,152,751  

We use long-term borrowings in addition to the cash we are able to generate from operations as part of our overall financial strategy to support and grow our business. The components of our borrowings as of December 31, 2018 are described in note 10 to the Consolidated Financial Statements.

Changes in our outstanding debt balances from December 31, 2017 to December 31, 2018 were primarily attributable to (i) net debt borrowings of $(157,829) ($4,020,475) and (ii) the impacts of other non-cash changes in our debt balances due to foreign currency translation.

On March 7 and 8 of 2019, the Company entered into March 2019 SPAs with the March 2019 Investors pursuant to which each March 2019 Investor purchased the First Notes being in the amount of $275,000 each, and the remaining notes in the amount of $275,000 each, the Back-End Notes, and, together with the First Notes, the March 2019 Notes in the aggregate principal amount of $1,100,000, such principal and the interest thereon convertible into shares of the Company’s Common Stock at the March 2019 Investors’ option. Each First Note contained a $25,000 OID such that the purchase price of each First Note was $250,000. The First Notes were paid for by the March 2019 Investors upon the signing of the March 2019 SPAs. The Back-End Notes were initially paid for by the issuance of two offsetting $250,000 secured notes issued to the Company by the March 2019 Investors, the Investor Notes, provided that prior to conversion of the Investor Notes, the March 2019 Investors must have paid back the Investor Notes in cash.

25


Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 each, a March 2019 Note Effective Date, they became effective upon the payment in cash of the purchase price by the March 2019 Investors. The purchase prices of $250,000 and $250,000 for the First Notes was paid in cash by the March 2019 Investors on March 11, 2019. After payment of transaction-related expenses, net proceeds to the Company from the First Notes totaled $456,000.

The maturity dates of the March 2019 Notes are March 7, 2020 and March 8, 2020. The March 2019 Notes shall bear interest at the March 2019 Notes 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 Notes into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the March 2019 Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the applicable March 2019 Note Effective Date; or (ii) the conversion date, the March 2019 Notes Variable Conversion Price.

On January 28, 2019, the January 2019 Notes Effective Date, the Company entered into the January 2019 SPAs with the January 2019 Investors pursuant to which the January 2019 Investors purchased the January 2019 Notes from the Company in the aggregate principal amount of $337,500, such principal and the interest thereon convertible into shares of the Company’s Common Stock at the January 2019 Investors’ option. After payment of transaction related expenses, net proceeds to the Company from the January 2019 Notes totaled $302,500 and were received on February 1 and 4 of 2019.

The maturity date of each January 2019 Note is January 28, 2020, the January 2019 Notes Maturity Dates. The January 2019 Notes shall bear interest at a rate of twelve percent (12%) per annum, the January 2019 Notes Interest Rate, which interest shall be paid by the Company to the January 2019 Investors in Common Stock at any time the January 2019 Investors send a notice of conversion to the Company. The January 2019 Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the January 2019 Notes into Common Stock, at any time, at a conversion price for each share of Common Stock equal to 65% multiplied by the lowest trading price (as defined in the Notes) of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding (i) the January 2019 Notes Effective Date; or (ii) the conversion date, the January 2019 Notes Variable Conversion Price.

On April 11, 2018, three directors each loaned the Company $19,928 ($25,000 CAD) for working capital purposes. The loans bear interest at the rate of 12% per annum, are due on demand and unsecured. There are no written agreements evidencing these loans. During the year, $4,772 ($6,510 CAD) of interest was charged on these loans. As at December 31, 2018, $4,772 ($6,510 CAD) (December 31, 2017-$nil; $nil CAD) in interest is included in accrued liabilities and the loans remain outstanding. Details of this borrowing is described in Note 12 to the Consolidated Financial Statements.

In addition, on April 3, 2018, Travellers provided the Company with a new loan in the amount of $159,420 ($200,000 CAD). The loan is due on demand is unsecured and bears interest at the rate of 12% annually. On April 4, 2018, a portion of the funds provided by Travellers, was used to pay the Company’s overdue monthly principal and interest instalments on the PACE corporate term loan which were due February 13 and March 13, 2018, in the amount of $110,777 ($151,128). At December 31, 2018, the outstanding balance with Travellers is $146,600 ($200,000 CAD) (2017-$15,942; $20,000 CAD). Details of this borrowing is also described in Note 12 to the Consolidated Financial Statements.

As of December 31, 2018, the current and long-term portions of our long-term debt balance and our obligations under capital lease were $3,808,887 ($5,196,299 CAD) and $207,599 ($283,218 CAD) respectively of $4,016,486 ($5,479,517 CAD) in total.

In addition, at December 31, 2018, the Company had an outstanding letter of credit prepared by PACE, in the amount of $202,917 ($276,831 CAD), in favor of the MOECC. The letter of credit is a requirement of the MOECC and is in connection with the financial assurance provided by the Company, for it to be in compliance with the MOECCs environmental objectives. The MOECC regularly evaluates the Company’s organic composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MOECC. As of December 31, 2018, and the date of this filing, the MOECC has not drawn on this letter of credit.

Summary of Cash Flow Activity

The following is a summary of our cash flows for the years ended December 31:

      2018     2017  
  Net cash used in operating activities (a) $  (631,979 ) $  (1,067,852 )
  Net cash used in investing activities (b) $  (1,543 ) $  (3,219,193 )
  Net cash provided by financing activities (c) $  594,058   $  4,481,442  

  (a)

Net Cash Used in Operating Activities — The most significant items affecting the comparison of our operating cash flows in 2018 as compared with 2017 are summarized below:


 

.

Increase in Net Loss — Our loss from operations, excluding depreciation and amortization, increased by $1,379,431 in 2018, principally driven by higher management compensation, professional fees, interest expense and rent and occupancy, offset by higher sales and the absence of financing costs and the AWT Program.

26



 
Changes in Assets and Liabilities — Our net cash used in operating activities was impacted by changes in assets and liabilities.
     
  (b)

Net Cash Used in Investing Activities — There were no significant items affecting the current investing cash flows, but improved significantly compared to 2017, primarily as a result of the absence of the purchase of long-lived assets of $3,053,274 (3,964,776 CAD), intangible assets of $140,697 ($182,700 CAD) and trade accounts receivable of $140,737 ($182,752 CAD).

     
  (c)

Net Cash Provided by Financing Activities — The most significant items affecting the comparison of our financing cash flows for the periods presented are summarized below:

     
 

Debt Borrowings (Repayments) — In the current year, the Company did not incur any new net debt borrowings except for the advances of loans from related parties. The net borrowings in the current year were reduced by $60,782 ($78,723 CAD) compared to total new net borrowings in 2017 of $3,789,368 ($4,920,618). The Company also generated cash of $650,240 from the proceeds of private placements in 2018 compared to 2017 of $513,874, an increase of $136,366, all net of share issue costs. Furthermore, the Company received funds on subscriptions payable proceeds in the amount of $4,600 in 2018 compared to $178,200 in 2017, all net of share issue costs.

Refer to Notes 10, 11 and 12 to the Consolidated Financial Statements for additional information related to our long-term debt borrowings, obligations under capital lease and loans payable to related parties.

Summary of Contractual Obligations and Commitments

            The following table summarizes our contractual obligations as of December 31, 2018 and the anticipated effect of these obligations on our liquidity in future years:

    2019     2020     2021     2022     2023     Thereafter     Total  
Contractual Obligations:                                          
                                           
Long-term debt and obligations under capital lease (a) $  161,848   $  172,987   $  194,936   $  3,486,715   $  -   $  -   $  4,016,486  
                                           
Consulting agreements (b)   277,074     -     -     -     -     -     277,074  
                                           
Premises lease-Toronto office (b)   52,776     -     -     -     -     -     52,776  
Land lease-Roslin, Ontario and road maintenance obligation (b)   33,718     33,718     33,718     33,718     33,718     285,870     454,460  
Anticipated liquidity impact as of December 31, 2017 $  525,416   $  206,705   $  228,654   $  3,520,433   $  33,718   $  285,870   $  4,800,796  

(a)

These amounts represent the scheduled principal payments related to the Company’s long-term debt and scheduled payments on the obligations under capital lease, excluding interest.

   

Refer to notes 10 and 11 to the Consolidated Financial Statements for additional information on our long-term debt and obligations under capital lease.

   
(b)

Refer to Note 15 to the Consolidated Financial Statements for additional information on our commitments.

Off-Balance Sheet Arrangements

            We have no off-balance sheet arrangements.

Going Concern

The 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.

27


As at December 31, 2018, the Company had a working capital deficit of $4,830,948 (December 31, 2017-$2,238,911), incurred a net loss of $3,894,016 (2017-$2,212,481) for the year and had an accumulated deficit of $8,554,312 (December 31, 2017-$4,660,296) and expects to incur further losses in the development of its business. These factors cast substantial doubt as to the Company’s ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business, satisfy its obligations to PACE and upon achieving profitable operations. Management believes that the Company will be able to obtain the necessary funding by equity or debt; however, there is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.

The consolidated financial statements included below 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.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by 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 will not have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842 ) . The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. ASU 2016-02 requires the recognition on the balance sheet of a lease liability to make lease payments by lessees and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance will also require significant additional disclosure about the amount, timing and uncertainty of cash flows from leases. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018 (January 1, 2019 for the Company). The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. In March 2018, the FASB approved a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. The Company plans to elect this transition method, and as a result, the Company will not adjust the comparative financial information or make the new required lease disclosures for periods before the effective date. The Company anticipates the adoption of this new standard will result in a significant increase in lease-related assets and liabilities in the consolidated balance sheets. As the impact of this standard is non-cash in nature, the Company does not anticipate its adoption having an impact on the Company’s consolidated statements of cash flows. The Company currently estimates the impact of the adoption will result in the recognition of a right of use asset and a lease liability of approximately $228,000 ($311,000 CAD) as of January 1, 2019.

Further, in July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”. This ASU simplifies transition requirements and, for lessors, provides a practical expedient for the separation of non-lease components from lease components. Specifically, the ASU provides: (1) an optional transition method that entities can use when adopting ASC 842 and (2) a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. For entities that have not adopted Topic 842 before the issuance of this update, the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements in update ASU No. 2016-02. For entities that have adopted Topic 842 before the issuance of this update, the transition and effective date of the amendments in this update are as follows: 1) The practical expedient may be elected either in the first reporting period following the issuance of this update or at the original effective date of Topic 842 for that entity. 2) The practical expedient may be applied either retrospectively or prospectively. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected. The Company will adopt the new standard using the option adoption method and thereby not adjust comparable financial statements. The ASU will be adopted on January 1, 2019.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other ( Topic 350) - Simplifying the Test for Goodwill Impairment”. The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is to be effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2017-04.

28


Recently Adopted Accounting Pronouncements

During the year ended December 31, 2018, the Company adopted the following significant accounting policies:

On January 1, 2018, the Company adopted accounting standards (“ASU”) update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The Company now includes restricted cash as part of cash and cash equivalents. The Company adopted this policy on a retrospective basis.

On January 1 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. The updated guidance, and subsequent clarifications, collectively referred to as accounting standards codification (“ASC”) 606, require an entity to recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In addition, the guidance requires the disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this standard, utilizing the modified retrospective approach, with the cumulative effect of initially applying the new standard recognized in deficit. Accordingly, comparative prior period information has not been restated and continues to be reported under that accounting standard. The adoption of ASC 606 had no impact on the Company’s consolidated balance sheets as of January 1, 2018.

On January 1, 2018, the Company adopted ASU No. 2017-09, Compensation-Stock Compensation : Topic 718 : Scope of Modification Accounting (ASU 2017-09) to provide clarity and reduce both the (1) diversity in practice and (2) cost and complexity when changing the terms or conditions of share-based payment awards. Under ASU 2017-09, modification accounting is required to be applied unless all of the following are the same immediately before and after the change:

1.

The award’s fair value (or calculated value or intrinsic value if those measurement methods are used).

2.

The award’s vesting conditions.

3.

The award’s classification as an equity or liability instrument.

The adoption of this pronouncement had no impact on the Company’s consolidated balance sheets as of January 1, 2018.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data.

SUSGLOBAL ENERGY CORP.
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2018 and 2017

(Expressed in United States Dollars)

CONTENTS

Report of the Independent Registered Public Accounting Firm 30
Consolidated Balance Sheets as of December 31, 2018 and 2017 31
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2018 and 2017 32
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2018 and 2017 33
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 34
Notes to the Consolidated Financial Statements 35-52

29


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of SusGlobal Energy Corp.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SusGlobal Energy Corp. (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 2018 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2018 and 2017 and the consolidated results of its operations and its cash flows for the years ended December 31, 2018 and 2017, in conformity with accounting principles generally accepted in the United States of America.

The Company's Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has experienced operating losses since inception and expects to incur further losses in the development of its business. These conditions, along with other matters as set forth in Note 2, raise substantial doubt about Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

SF Partnership, LLP

We have served as the Company's auditors since 2014.

Toronto, Canada

April 1, 2019

30


SusGlobal Energy Corp.
Consolidated Balance Sheets
As at December 31, 2018 and 2017
(Expressed in United States Dollars)

    2018     2017  
          (refer to note 19 )
ASSETS            
Current Assets            
Cash and cash equivalents $  42,711   $  126,117  
Trade receivables   129,981     183,254  
Government remittances receivable   -     3,671  
Inventory   18,550     53,964  
Prepaid expenses and deposits   23,172     53,719  
             
Total Current Assets   214,414     420,725  
             
Intangible Assets (note 7)   135,189     147,100  
             
Long-lived Assets, net (note 8)   3,361,110     3,864,588  
Total Assets $  3,710,713   $  4,432,413  
             
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY            
Current Liabilities            
Accounts payable (note 9) $   353,728   $  408,173  
Government remittances payable   35,169     -  
Accrued liabilities (notes 9 and 12)   646,003     347,417  
Current portion of long-term debt (note 10)   3,727,778     1,828,900  
Current portion of obligations under capital lease (note 11)   81,109     59,204  
Loans payable to related parties (note 12)   201,575     15,942  
             
Total Current Liabilities   5,045,362     2,659,636  
             
Long-Term Liabilities            
Long-term debt (note 10)   -     2,332,535  
Obligations under capital lease (note 11)   207,599     160,580  
Total Long-term Liabilities   207,599     2,493,115  
Total Liabilities   5,252,961     5,152,751  
Stockholders’ Deficiency            
Preferred stock, $.0001 par value, 10,000,000 authorized, none issued and outstanding            
Common stock, $.0001 par value, 150,000,000 authorized, 40,299,531 (2017- 37,393,031) shares issued and outstanding (note 13)   4,031     3,740  
Additional paid-in capital   5,754,260     3,576,111  
Subscriptions payable   4,600     178,200  
Stock compensation reserve   1,330,000     330,000  
Accumulated deficit   (8,554,312 )   (4,660,296 )
Accumulated other comprehensive loss   (80,827 )   (148,093 )
             
Stockholders’ deficiency   (1,542,248 )   (720,338 )
             
Total Liabilities and Stockholders’ Deficiency $  3,710,713   $  4,432,413  
             
             Going concern (note 2)            
              Commitments (note 15)            

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

31


SusGlobal Energy Corp.
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31, 2018 and 2017
(Expressed in United States Dollars)

    2018     2017  
          (refer to note 19 )
Revenue (note 9) $  1,000,106   $  273,376  
             
Cost of Sales            
Opening inventory   53,964     -  
Depreciation   387,622     92,592  
Direct wages and benefits   174,778     83,307  
Equipment rental, delivery and            
Repairs and maintenance   134,277     165,082  
Utilities   103,376     31,054  
Outside contractors   33,127     74,185  
    887,144     446,220  
Less: closing inventory   (18,550 )   (53,964 )
Total cost of sales   868,594     392,256  
             
Gross profit (loss)   131,512     (118,880 )
             
Operating expenses            
Management compensation-stock- based compensation (note 9)   2,330,000     330,000  
Management compensation-fees (note 9)   338,180     166,342  
Professional fees   474,457     283,488  
Interest expense (notes 9, 10, 11 and 12)   360,209     168,900  
Rent and occupancy (note 9)   146,141     81,283  
Insurance   55,571     74,906  
Office and administration (note 15)   182,140     120,987  
Filing fees   31,717     19,296  
Repairs and maintenance   32,025     -  
Directors’ compensation   75,088     27,110  
Financing costs   -     882,153  
AWT Program   -     71,017  
Operations and maintenance   -     (21,771 )
Total operating expenses   4,025,528     2,203,711  
             
Loss before other income   (3,894,016 )   (2,322,591 )
Other income-insurance proceeds and gain on collection of trade receivables   -     110,110  
Loss before income taxes   (3,894,016 )   (2,212,481 )
Provision for income taxes (note 14)   -     -  
Net Loss   (3,894,016 )   (2,212,481 )
Other comprehensive loss            
             
Foreign exchange gain (loss)   67,266     (106,348 )
             
Comprehensive loss $ (3,826,750 ) $  (2,318,829 )
             
Net loss per share-basic and diluted $ (0.10 ) $  (0.06 )
             
Weighted average number of common shares outstanding- basic and diluted   39,466,561     36,471,218  

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

32


SusGlobal Energy Corp.
Consolidated Statements of Changes in Stockholders’ Deficiency
For the years ended December 31, 2018 and 2017
(Expressed in United States Dollars)

                Additional                       Accumulated      
    Number of     Common     Paid-     Share     Stock     Accumulated      Other     Stockholder s’  
    Shares     Shares     in Capital     Subscriptions     Compensation     Deficit     Comprehensive     Deficiency  
                      Payable     Reserve           Loss        
Balance – Dec 31, 2016   34,128,910   $ 2,004,407   $   $ -   $  -   $   (2,447,815 ) $ (41,745 ) $ (485,153 )
Shares issued to directors   40,000     11,600     -     -     -     -     -     11,600  
Shares issued to employee   5,000     1,450     -     -     -     -     -     1,450  
Shares issued for consulting services   15,000     4,950     -     -     -     -     -     4,950  
Shares issued on exercise of offer to acquire shares   115,000     11,500     -     -     -     -     -     11,500  
Shares issued to agents on financing   1,620,000     469,800     -     -     -     -     -     469,800  
Shares issued on private placement, net of share issue costs   329,176     98,048     -     -     -     -     -     98,048  
Reallocation between common shares and additional paid-in capital   -     (2,598,130 )   2,598,130     -     -     -     -     -  
Shares issued to directors   40,000     4     13,196     -     -     -     -     13,200  
Shares issued as compensation for director nomination   20,000     2     6,598     -     -     -     -     6,600  
Shares issued to employee   4,000     1     3,999     -     -     -     -     4,000  
Shares issued for consulting services   20,000     2     19,998     -     -     -     -     20,000  
Shares issued for private placement compensation   5,000     1     4,999     -     -     -     -     5,000  
Shares issued on acquisition of assets   529,970     53     529,917     -     -     -     -     529,970  
Shares issued on private placement, net of share issue costs   520,975     52     399,274     -     -     -     -     399,326  
Stock compensation expensed on vesting of stock award   -     -     -     -     330,000     -     -     330,000  
Proceeds received on shares yet to be issued   -     -     -     178,200     -     -     -     178,200  
Other comprehensive loss   -     -     -     -     -     -     (106,348 )   (106,348 )
Net loss   -     -     -     -     -     (2,212,481 )   -     (2,212,481 )
Balance – December 31, 2017   37,393,031     3,740     3,576,111     178,200     330,000     (4,660,296 )   (148,093 )   (720,338 )
Shares issued for proceeds previously received   190,000     19     178,181     (178,200 )   -     -     -     -  
Shares issued on vesting of 2017 stock award   2,000,000     200     1,329,800     -     (330,000 )   -     -     1,000,000  
Shares issued for private placement, net of share issue costs   696,500     70     650,170     -     -     -     -     650,240  
Share issued to director   20,000     2     19,998     -     -     -     -     20,000  
Stock compensation expensed on vesting of stock award s   -     -     -     -     1,330,000     -     -     1,330,000  
Proceeds received for shares yet to be issued               4,600                 4,600  
Other comprehensive loss   -     -     -     -     -     -     67,266     67,266  
Net loss   -     -     -     -     -     (3,894,016 )   -     (3,894,016 )
Balance-December 31, 2018   40,299,531   $ 4,031   $ 5,754,260   $ 4,600   $  1,330,000   $ (8,554,312 ) $ (80,827 ) $ (1,542,248 )

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

33


SusGlobal Energy Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2018 and 2017
(Expressed in United States Dollars)

    2018     2017  
          (refer to note 19 )
Cash flows from operating activities            
Net loss $ (3,894,016 ) $ (2,212,481 )
Adjustments for:            
Depreciation   395,580     93,476  
Amortization of intangible asset   200     200  
Non-cash financing fees costs and professional fees   -     501,350  
Stock-based compensation   2,350,000     360,250  
Interest capitalized   53,540     -  
Changes in non-cash working capital:   -     -  
Trade receivables   40,591     (26,873 )
Government remittances receivable   3,556     13,085  
Inventory   32,732     (52,136 )
Prepaid expenses and deposits   27,627     6,856  
Accounts payable   (22,775 )   91,811  
Government remittances payable   37,045     -  
Accrued liabilities   343,941     156,610  
Net cash used in operating activities   (631,979 )   (1,067,852 )
             
Cash flows from investing activities            
Disposal of term deposit   -     154,020  
Purchase of trade receivables   -     (140,737 )
Purchase of deposit   -     (38,505 )
Purchase of intangible assets   -     (140,697 )
Purchase of long-lives assets   (1,543 )   (3,053,274 )
Net cash used in investing activities   (1,543 )   (3,219,193 )
             
Cash flows from financing activities            
Advances of long-term debt   -     4,580,564  
Repayment of long-term debt   (157,829 )   (560,089 )
Repayments of obligations under capital lease   (99,839 )   (21,640 )
Advances of loans payable to related parties   212,328     38,505  
Repayments of loans payable to related parties   (15,442 )   (247,972 )
Private placement proceeds (net of share issue costs)   650,240     513,874  
Subscription payable proceeds (net of shares issue costs)   4,600     178,200  
Net cash provided by financing activities   594,058     4,481,442  
             
Effect of exchange rate on cash   (43,942 )   (70,054 )
(Decrease) increase in cash   (83,406 )   124,343  
Cash and cash equivalents-beginning of year   126,117     1,774  
             
Cash and cash equivalents-end of year $  42,711   $ 126,117  
             
Supplemental Cash Flow Disclosures:            
             
Interest paid $  286,434   $ 134,936  
Income taxes paid   -     -  

(i)

Refer to notes 10 and 11, long-term debts and obligations under capital lease, for details on the non-cash purchase of certain long-lived assets.

(ii)

Refer to note 13, capital stock, for details on the issuance of capital stock for the purchase of long-lived certain assets.

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

34



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

1. Nature of Business and Basis of Presentation

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

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

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

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

2. Going Concern

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

As at December 31, 2018, the Company had a working capital deficit of $4,830,948 (2017-$2,238,911), incurred a net loss of $3,894,016 (2017-$2,212,481) for the year and had an accumulated deficit of $8,554,312 (December 31, 2017-$4,660,296) 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 Savings & Credit Union Limited (“PACE”) and upon achieving profitable operations. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.

These 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.

35



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

3. Recently Adopted Accounting Pronouncements

On January 1, 2018, the Company adopted accounting standards (“ASU”) update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The Company now includes restricted cash as part of cash and cash equivalents. The Company adopted this policy on a retrospective basis.

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. The updated guidance, and subsequent clarifications, collectively referred to as accounting standards codification (“ASC”) 606, require an entity to recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In addition, the guidance requires the disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this standard, utilizing the modified retrospective approach, with the cumulative effect of initially applying the new standard recognized in deficit. Accordingly, comparative prior period information has not been restated and continues to be reported under that accounting standard. The adoption of ASC 606 had no impact on the Company’s consolidated balance sheet as of January 1, 2018.

On January 1, 2018, the Company adopted ASU No. 2017-09, Compensation-Stock Compensation : Topic 718 : Scope of Modification Accounting (ASU 2017-09) to provide clarity and reduce both the (1) diversity in practice and (2) cost and complexity when changing the terms or conditions of share-based payment awards. Under ASU 2017-09, modification accounting is required to be applied unless all of the following are the same immediately before and after the change:

1.

The award’s fair value (or calculated value or intrinsic value if those measurement methods are used).

2.

The award’s vesting conditions.

3.

The award’s classification as an equity or liability instrument.

The adoption of this pronouncement had no impact on the Company’s consolidated balance sheet as of January 1, 2018.

4. Significant Accounting Policies

a)     Principles of consolidation

The consolidated financial statements include the accounts of SusGlobal and its wholly-owned subsidiaries, SusGlobal Energy Canada Corp., incorporated on December 14, 2015, SusGlobal Energy Canada I Ltd., incorporated on December 15, 2015 and SusGlobal Energy Belleville Ltd., incorporated on July 27, 2017. All significant inter-company balances and transactions have been eliminated on consolidation.

b)     Business combinations

The Company has chosen to early adopt Audit Standards update No. 2017-01 (“ASU 2017-01”), which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

36



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

4. Significant Accounting Policies, (continued)

c)     Use of estimates

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

d)     Cash and cash equivalents

Cash and cash equivalents consist of deposits held in financial institutions and liquid investments with original maturities of three months or less at the time of purchase. There were no cash equivalents on December 31, 2018 and 2017.

e)     Trade receivables

Trade receivables, which are recorded when billed and when services are performed, are claims against third parties that will be settled in cash. The carrying value of trade receivables, net of an allowance for doubtful accounts, represents the estimated realizable value. An estimate of allowance for doubtful accounts is based on historical trends; type of customer, such as commercial or municipal; the age of outstanding trade receivables; and existing economic conditions. If events or changes in circumstances indicate that specific trade receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due trade receivable balances are written off when internal collection efforts have been unsuccessful.

37



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

4. Significant Accounting Policies, (continued)

f)      Fair value of financial instruments

The Company measures the fair value of financial assets and liabilities based on ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”), which determines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

  a.

Level 1 – Quoted prices in active markets for identical assets or liabilities.

  b.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

  c.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments, such as cash and cash equivalents, trade receivables, accounts payable and accrued liabilities and other current liabilities approximates fair value due to the short-term nature of these instruments. The carrying amount of long-term debt, obligations under capital lease and loans payable to related parties also approximates fair value due to their market interest rate.

g)     Inventory

Inventory, which consists of screened organic compost, is stated at the lower of cost and net realizable value, with net realizable value represented by the selling price. Cost is represented by production cost, which includes equipment rental, delivery, repairs and maintenance, direct wages and benefits, outside contractors and manufacturing overhead. Inventory quantities on hand are reviewed on a weekly basis and typically, there is no need to record provisions for excess or obsolete inventory as the inventory has a long shelf life. The inventory is stored outdoors and accumulated in piles.

h)      Intangible assets

Intangible assets include a technology license, which is stated at cost less accumulated amortization and is amortized on a straight-line basis over the useful life which is the contract term of five years plus the renewal option of five years. Intangible assets also include environmental compliance approvals, which are stated at cost, have an indefinite useful life and are not amortized until their useful lives are determined to be no longer indefinite. The Company evaluates the intangible assets for permanent impairment when triggering events are identified and whether events and circumstances continue to support the indefinite useful life.

i)     Long-lived assets

Long-lived assets are stated at cost. Equipment awaiting installation on site is not depreciated until it is commissioned. Depreciation is based on the estimated useful life of the asset and depreciated annually on a straight-line basis at the following annual rates:

38



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

4. Significant Accounting Policies, (continued)

Category Rate
Computer equipment 30%
Computer software 50%
Officer trailer 30%
Signage 20%
Machinery and equipment, including under capital lease 30%
Automotive equipment 20%
Composting buildings 6%
Gore cover system 10%
Driveway and paving 8%

Composting buildings-over the term of the lease, which expires March 31, 2034

j)     Impairment of long-lived assets

In accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

The Company evaluates at each balance sheet date whether events or circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event that such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.

k)     Debt issuance costs

Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.

l)     Environmental remediation costs

The Company accrues for costs associated with environmental remediation and clean-up obligations when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change.

m)      Income taxes

The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recorded for differences between the accounting and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or receivable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

39



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

4. Significant Accounting Policies, (continued)

n)     Revenue recognition

The Company’s revenues are from the tipping fees charged for waste delivery to the Company’s organic composting facility and from the sale of organic compost. The tipping fees charged for services are generally defined in service agreements and vary based on contract-specific terms such as frequency of service, type of waste, weight, volume and the general market factors influencing a region’s rates. The Company also generates revenue from fees charged for arrangements with haulers to haul waste to the Company’s organic composting facility, based on agreements with customers. Revenue is recognized as waste is accepted and collection is reasonably assured. The waste collected is processed, cured and screened before being sold as organic compost. The cost of these processes is accrued at the time of revenue recognition.

o)     Loss per share

Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus potentially dilutive securities outstanding for each year. The computation of diluted loss per share has not been presented as its effect would be anti-dilutive.

p)     Stock-based compensation

The Company records compensation costs related to stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of highly subjective assumptions including: the expected option life, the risk-free rate, the dividend yield, the volatility of the Company’s stock price and an assumption for employee forfeitures. The risk-free rate is based on the U.S. Treasury bill rate at the date of the grant with maturity dates approximately equal to the expected term of the option. The Company has not historically issued any dividends and does not expect to in the near future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting stock-based compensation recognized.

q)     Comprehensive Loss

 The Company accounts for comprehensive loss in accordance with ASC 220, “Comprehensive Income,” which establishes standards for reporting and presentation of comprehensive loss and its components. Comprehensive loss is presented in the consolidated statements of stockholders’ deficiency and consists of net loss and foreign currency translation adjustments.

r)     Foreign currency translation

The functional currency of the Company is Canadian dollars (the “CAD”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. In translating the financial statements of the Company’s Canadian subsidiaries from their functional currency into the Company’s reporting currency of United States dollars (the “USD”), balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders’ deficiency. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

40



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

5. Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by 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 will not have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842 ) . The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. ASU 2016-02 requires the recognition on the balance sheet of a lease liability to make lease payments by lessees and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance will also require significant additional disclosure about the amount, timing and uncertainty of cash flows from leases. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018 (January 1, 2019 for the Company). The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. In March 2018, the FASB approved a new, optional transition method that will give companies the option to use the effective date as the date of initial application on transition. The Company plans to elect this transition method, and as a result, the Company will not adjust the comparative financial information or make the new required lease disclosures for periods before the effective date. The Company anticipates the adoption of this new standard will result in a significant increase in lease-related assets and liabilities in the consolidated balance sheets. As the impact of this standard is non-cash in nature, the Company does not anticipate its adoption having an impact on the Company’s consolidated statements of cash flows. The Company currently estimates the impact of the adoption will result in the recognition of a right of use asset and a lease liability of approximately $228,000 ($311,000 CAD) as of January 1, 2019.

Further, in July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”. This ASU simplifies transition requirements and, for lessors, provides a practical expedient for the separation of non-lease components from lease components. Specifically, the ASU provides: (1) an optional transition method that entities can use when adopting ASC 842 and (2) a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. For entities that have not adopted Topic 842 before the issuance of this update, the effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements in update ASU No. 2016-02. For entities that have adopted Topic 842 before the issuance of this update, the transition and effective date of the amendments in this update are as follows: 1) The practical expedient may be elected either in the first reporting period following the issuance of this update or at the original effective date of Topic 842 for that entity. 2) The practical expedient may be applied either retrospectively or prospectively. All entities, including early adopters, that elect the practical expedient related to separating components of a contract in this update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected. The Company will adopt the new standard using the option adoption method and thereby not adjust comparable financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other ( Topic 350) - Simplifying the Test for Goodwill Impairment”. The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is to be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is to be effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2017-04.

41



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

6. Financial Instruments

The carrying value of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximated their fair values as of December 31, 2018 and 2017 due to their short-term nature. The carrying value of the long-term debt, obligations under capital lease and loans payable to related parties approximated their fair values due to their market interest rates.

Interest, Credit and Concentration Risk

In the opinion of management, the Company is exposed to significant interest rate risk on its long-term debt of $3,727,778 ($5,085,645 CAD) (2017-$4,161,435; $5,220,719 CAD). As at December 31, 2018, the Company is exposed to concentration risk as it had five customers (2017-five customers) representing greater than 5% of total trade receivables and five customers (2017-four customers) represented 90% (2017-91%) 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 69% (22%, 23% and 24%) (2017-88%; 10%, 10%, 31% 37%) of total revenue.

Liquidity Risk

Liquidity risk is the risk that the Company is unable to meet its obligations as they fall due. The Company takes steps to ensure it has sufficient working capital and available sources of financing to meet future cash requirements for capital programs and operations.

The Company actively monitors its liquidity to ensure that its cash flows and working capital are adequate to support its financial obligations and the Company’s capital programs. In order to continue operations, the Company will need to raise capital. There is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.

Currency Risk

Although the Company’s functional currency is the CAD, the Company realizes a portion of its expenses in USD. Consequently, certain assets and liabilities are exposed to foreign currency fluctuations. As at December 31, 2018, $68,393 (2017-$6,057) of the Company’s net monetary liabilities were denominated in USD. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.

42



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

7. Intangible Assets

    2018     2017  
Technology license (net of accumulated amortization of $731 (2017- $531)) $   1,270   $  1,470  
Environmental compliance approvals-indefinite life- $182,700 CAD   133,919     145,630  
  $  135,189   $  147,100  

On May 6, 2015, the Company acquired an exclusive license from Syngas SDN BHD (“Syngas”), a Malaysian company to use Syngas intellectual property within North America for a period of five years for $1 consideration, renewable every five years upon written request. Syngas manufactures equipment that produces liquid transportation fuel from plastic waste material. The Company issued 20,000 common shares of the Company to an introducing party, determined to be valued at $2,000.

On September 15, 2017, the Company acquired the environmental approvals on the purchase of certain assets of Astoria Organic Matters Ltd., and Astoria Organic Matters Canada LP (“Astoria”) from BDO Canada Limited (“BDO”) under the asset purchase agreement (“APA”).

8 . Long-lived Assets, net

          2018           2017  
    Cost     Accumulated     Net book value     Net book value  
          depreciation              
Composting buildings $  2,155,572   $  167,428   $   1 ,988,144   $  2,302,651  
Gore cover system   859,076     110,964     748,112     906,953  
Driveway and paving   339,746     35,107     304,639     360,835  
Machinery and equipment   44,713     17,052     27,661     44,667  
Equipment under capital lease   404,088     123,765     280,323     229,561  
Office trailer   6,231     2,414     3,817     6,182  
Computer equipment   6,478     3,292     3,186     3,368  
Computer software   6,744     4,355     2,389     6,264  
Automotive equipment   1,466     513     953     1,514  
Signage   2,488     602     1,886     2,593  
  $  3,826,602   $  465,492   $  3,361,110   $  3,864,588  

Included above are certain assets of Astoria acquired from BDO under the APA, which closed on September 15, 2017. The purchase price for the purchased assets, described as an organic composting facility, including composting buildings, Gore cover system, driveway and paving, certain machinery and equipment, an office trailer, certain computer equipment and computer software consisted of cash of $2,871,381 ($3,917,300 CAD) and 529,970 restricted common shares of the Company, determined to be valued at $529,970 ($700,000 CAD), based on private placement pricing at the time. In addition, legal costs in connection with acquiring the assets of $21,442 ($29,253 CAD), are included in the cost of the composting buildings. The purchase price was allocated to the assets acquired based on their estimated relative fair value as at the date the assets were acquired.

43



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

9. Related Party Transactions

During the year, the Company incurred $138,978 ($180,000 CAD) (2017-$46,206; $60,000 CAD) in management fees expense with Travellers International Inc. (“Travellers”), an Ontario company controlled by a director and president of the Company (the “President”); $138,978 ($180,000 CAD) (2017-$46,206; $60,000 CAD) in management fees expense with Landfill Gas Canada Ltd. (“LFGC”), an Ontario company controlled by a director and chief executive officer of the Company (the “CEO”); $50,959 ($66,000 CAD) (2017-$36,965; $48,000 CAD) in management fees expense with the Company’s chief financial officer (the “CFO”); and $9,265 ($12,000 CAD) (2017-$36,965; $48,000 CAD) in management fees expense with the Company’s vice-president of corporate development (the “VPCD”). As at December 31, 2018, unpaid remuneration and unpaid expenses in the amount of $48,691 ($66,426 CAD) (2017-$111,426; $139,789 CAD) is included in accounts payable and $184,714 ($251,997 CAD) (2017-$102,935; $129,137 CAD) is included in accrued liabilities.

In addition, during the year, the Company incurred interest expense of $14,094 ($18,254 CAD) (2017-$15,056; $19,550 CAD) on the outstanding loans from Travellers and $4,772 ($6,510 CAD) (2017-$nil; $nil CAD) on the outstanding loans from the directors. As at December 31, 2018, interest of $17,882 ($24,395 CAD) (December 31, 2017-$22,120; $27,750 CAD) on these loans is included in accrued liabilities.

During the year, the Company incurred $66,068 ($85,569 CAD) (2017-$63,223; $82,097 CAD) in rent paid under a rental agreement to Haute Inc. (“Haute”), an Ontario company controlled by the President.

During the year, the Company sold $15,515 ($20,095 CAD) of compost product to LFGC.

For those independent directors providing their services throughout the year, the Company accrued directors' compensation totaling $52,000, based on the issuance of 20,000 common stock of the Company in 2019 to each of the four directors. This compensation was priced based on the trading price of the shares at the close of business on March 28, 2019.

Furthermore, the Company granted the CEO 3,000,000 restricted stock units (“RSU”), under a consulting agreement effective January 1, 2017, determined to be valued at $990,000 based on private placement pricing at the time. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 common stock. The RSUs for the remaining two installments are expected to vest annually on January 1, 2019 and 2020, subject to meeting certain performance objectives. On May 17, 2018, at a meeting of the board of directors (the “Board”), approved an amendment to the President’s consulting agreement, to include the granting of 3,000,000 RSUs to the President, determined to be valued at $3,000,000, based on private placement pricing at the time, on the same terms and conditions as those granted to the CEO. Effective May 17, 2018, 1,000,000 RSUs were exchanged into 1,000,000 common stock. Based on private placement pricing at the time, the common stock issued to the President in exchange for the RSUs, was determined to be valued at $1,000,000, presented as management compensation expense.

The Company also recognized management compensation expense of $1,330,000 (2017-$330,000 on the award to the CEO) on the awards to the President and the CEO, who met their performance objectives in 2018.

44



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

10. Long-Term Debt

    Credit     Credit     Credit     Corporate     2018     2017  
    Facility     Facility     Facility     Term     Total     Total  
                      Loan              
    (a)     (b)     (c)     (d)              
Long-Term Debt $  745,897   $  417,137   $  36,344   $  2,528,400   $  3,727,778   $  4,161,435  
Current portion   (745,897 )   (417,137 )   (36,344 )   (2,528,400 )   (3,727,778 )   (1,828,900 )
Long-term Debt $  -   $  -   $  -   $  -   $  -   $  2,332,535  

The presentation above is based on the due on demand terms of the long-term debt.

  (a)

The credit facility bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $6,424 ($8,764 CAD), and matures on September 2, 2022. The first and only advance on the credit facility on February 2, 2017, in the amount of $1,172,800 ($1,600,000), is secured by a business loan general security agreement, a $1,172,800 ($1,600,000 CAD) personal guarantee from the President and a charge against the Company’s premises lease. Also pledged as security are the shares of the wholly-owned subsidiaries, a pledge of 3,300,000 of the Company’s shares held by LFGC, 500,000 of the Company’s shares held by the CFO, 2,000,000 of the Company’s shares held by a director’s company and a limited recourse guarantee by each of these parties. The credit facility is fully open for prepayment at any time without notice or bonus.

     
  (b)

The credit facility advanced on June 15, 2017, in the amount of $439,800 ($600,000 CAD), bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $3,592 ($4,901 CAD), and matures on September 2, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.

     
  (c)

The credit facility advanced on August 4, 2017, in the amount of $36,650 ($50,000 CAD), bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%. The credit facility is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $313 ($427 CAD), and matures on September 4, 2022. The credit facility is secured by a variable rate business loan agreement on the same terms, conditions and security as noted above.

     
  (d)

The corporate term loan advanced on September 13, 2017, in the amount of $2,729,800 ($3,724,147 CAD), bears interest at the PACE base rate of 7.00% plus 1.25% per annum, currently 8.25%. The corporate term loan is due on demand, but until a demand is made, is payable in monthly blended installments of principal and interest of $21,778 ($29,711 CAD), 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 $2,932,717 ($4,000,978 CAD) against the assets including inventory, accounts receivable and equipment. The corporate term loan also included an assignment of existing contracts included under the APA.

     
 

The shares of the wholly-owned subsidiaries and those shares held by the companies and the CFO noted under (a) above, also represent security for the corporate term loan.

     
 

Repayments based on the terms of the long-term debt are as follows:


  In the year ending December 31, 2019 $  80,739  
  In the year ending December 31, 2020   86,825  
  In the year ending December 31, 2021   95,139  
  In the year ending December 31, 2022   3,465,075  
  Total $  3,727,778  

During the year, $321,552 ($416,464 CAD) (2017-$151,644; $196,915 CAD) in interest was charged.

45



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

11. Obligations under Capital Lease

                2018       2017    
    (a)     (b)     Total     Total  
Obligations under Capital Lease $  147,667   $  141,041   $  288,708   $  219,784  
Less: current portion   (43,723 )   (37,386 )   (81,109 )   (59,204 )
Obligations under Capital Lease $  103,944   $  103,655   $  207,599   $  160,580  

(a)

The lease agreement for certain equipment for the Company’s organic composting facility at a cost of $210,114 ($286,650 CAD), is payable in monthly blended installments of principal and interest of $4,281 ($5,840 CAD), plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $20,964 ($28,600 CAD), plus applicable harmonized sales taxes on October 31, 2021. The lease agreement bears interest at the rate of 5.982% annually, compounded monthly, due September 30, 2021.

   
(b)

The lease for certain equipment for the Company’s organic composting facility at a cost of $181,381 ($247,450 CAD), is payable in monthly blended installments of principal and interest of $3,751 ($5,118 CAD), plus applicable harmonized sales taxes for a period of forty-six months plus the first two monthly blended installments of $7,330 ($10,000 CAD) plus applicable harmonized sales taxes and an option to purchase the equipment for a final payment of $ 18,090 ($24,680 CAD) plus applicable harmonized sales taxes on February 27, 2022. The leasing agreement bears interest at the rate of 6.15% annually, compounded monthly, due January 27, 2022.

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

Minimum lease payments are as follows:

In the year ending December 31, 2019 $  96,388  
In the year ending December 31, 2020   96,388  
In the year ending December 31, 2021   104,509  
In the year ending December 31, 2022   21,842  
    319,127  
Less: imputed interest   (30,419 )
Total $  288,708  

During the year, $19,537 ($25,304 CAD) (2017-$2,200; $2,857 CAD) in interest was charged.

46



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

12. Loans Payable to Related Parties

    2018     2017  
             
Travellers International Inc. $  146,600   $  15,942  
Directors   54,975     -  
  $  201,575   $  15,942  

Loan payable in the amount of $146,600 ($200,000 CAD) (2017-$15,942; $20,000 CAD), owing to Travellers and bearing interest at the rate of 12% per annum, is due on demand and unsecured. As at December 31, 2018, $13,110 ($17,885 CAD) (2017-$22,120; $27,750 CAD) in interest is included in accrued liabilities.

During the year, three directors each loaned the Company $18,325 ($25,000 CAD). The loans bear interest at the rate of 12% per annum, are due on demand and unsecured. As at December 31, 2018, $4,772 ($6,510 CAD) (December 31, 2017-$nil; $nil CAD) in interest is included in accrued liabilities.

During the year, $19,120 ($24,764 CAD) (2017-$15,056; $19,550 CAD) in interest was charged on the loans payable and any repaid loans during the year to related parties.

13. Capital Stock

As at December 31, 2018, the Company had 150,000,000 of common shares authorized with a par value of $.0001 per share and 40,299,531 (2017-37,393,031) common shares issued and outstanding.

During the year, the Company raised $650,240 (2017-$497,374) cash on a private placement, net of share issue costs of $46,260 (2017-$48,100), on the issuance of 696,500 (December 31, 2017-850,151) common shares of the Company. In addition, during the year, the Company issued 190,000 common shares of the Company, in regard to the $178,200 cash received from a private placement prior to December 31, 2017, net of share issue costs of $11,800 and received cash on a private placement prior to December 31, 2018 of $4,600, net of share issue costs of $400. In addition, on November 22, 2018, the Company issued 20,000 common shares of the Company to a new director, determined to be valued at $20,000, based on private placement pricing at the time. The service provided by the director is disclosed under directors’ compensation in the consolidated statements of operations and comprehensive loss.

During the prior year, on January 5, 2017 and January 30, 2017, the Company issued, in total, 1,620,000 common shares of the Company, determined to be valued at $469,800, based on private placement pricing at the time, to agents for their services in assisting in establishing the first credit facility with PACE. On each of January 30, 2017 and June 8, 2017, the Company issued a total of 40,000 common shares to two new directors, determined to be valued at $11,600 and $13,200 respectively, based on private placement pricing at the time. The services provided by the directors were disclosed under directors’ compensation in the consolidated statements of operations and comprehensive loss. On February 6, 2017, the Company issued 5,000 common shares and on August 23, 2017, the Company issued 4,000 common shares to a current employee for services and a new employee as an incentive to join the Company, respectively, determined to be valued at $1,450 and $4,000, respectively, based on private placement pricing at the time and disclosed under office and administration in the consolidated statements of operations and comprehensive loss. On May 9, 2017, the Company issued 15,000 common shares, on June 8, 2017, another 20,000 common shares and then on August 23, 2017, a further 20,000 common shares to consultants for their services, determined to be valued at $4,950, $6,600 and $20,000 respectively, based on private placement pricing at the time. These services were disclosed under professional fees in the consolidated statements of operations and comprehensive loss. On May 9, 2017, the Company issued 115,000 common shares on the exercise of the offer to acquire common shares at a price of $0.10 per common share by the VPCD. On September 5, 2017, the Company issued 5,000 common shares as compensation for a private placement, determined to be valued at $5,000 based on private placement pricing at the time. In addition, on September 11, 2017, the Company issued 529,970 common shares on the acquisition of assets, determined to be valued at $529,970 ($700,000 CAD), based on private placement pricing at the time (see note 8).

47



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

13. Capital Stock (continued)

All non-cash transactions were valued based on the proceeds of a private placement at the time.

The Company also granted the CEO 3,000,000 RSUs under a new consulting agreement effective January 1, 2017. The RSUs are expected to vest in three equal installments annually on January 1, 2018, 2019 and 2020. On January 1, 2018, the Company issued 1,000,000 common shares in exchange for 1,000,000 RSUs to the CEO. In addition, on May 17, 2018, at a meeting of the Board, the Board approved an amendment to the President’s consulting agreement, to include the granting of 3,000,000 RSUs to the President, determined to be valued at $3,000,000, based on private placement pricing at the time, on the same terms and conditions as those granted to the CEO. Effective May 17, 2018, 1,000,000 RSUs were exchanged into 1,000,000 common stock. Based on private placement pricing at the time, the common stock issued in exchange for the RSUs, was determined to be valued at $1,000,000. During the year, management compensation expense of $2,330,000, relating to the issuance of the 1,000,000 common shares of the Company and the vesting of the 2,000,000 RSUs to the President and the CEO was disclosed in the consolidated statements of operations and comprehensive loss presented as management compensation expense.

14. Income Taxes

The Company’s income tax provision has been calculated as follows:

    2018     2017  
Loss before income taxes $ (3,894,016 ) $  (2,212,481 )
Expected income tax recovery at the statutory rate of 21% (2017-26.5%)   (817,743 )   (774,368 )
Foreign tax rate differences   (213,459 )   188,061  
Foreign exchange effect on deferred tax assets   51,968     (6,577 )
Permanent differences   637,593     104,173  
Change in valuation allowance   341,641     488,711  
Provision for income taxes $  -   $  -  

Deferred tax assets and liabilities

The tax effects of temporary differences that give rise to significant components of the deferred income tax assets and deferred income tax liabilities are presented below:

    2018     2017  
Net operating loss carry forwards $ 1,157,180   $  686,863  
Financing costs   143,260     209,074  
Depreciable and amortizable assets   (141,159 )   (78.297 )
Total gross deferred income tax assets   1,159,281     817,640  
Less: valuation allowance   (1,159,281 )   (817,640 )
Total deferred income tax assets $  -   $  -  

As at December 31, 2018 and 2017, the valuation allowance was due to the history of losses generated. The valuation allowance is reviewed periodically and if the assessment of the more likely than not criteria changes, the valuation allowance is adjusted accordingly.

48



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

14. Income Taxes, (continued)

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company computes tax asset benefits for net operating losses (“NOL”) carried forward.

The Company has US NOL available for carryforward of $294,428 ($401,675 CAD) (2017-$78,903; $98,988 CAD) a portion of which, $78,903, expires in the year 2037 and the balance indefinitely and Canadian NOL available for carryforward of $4,366,717 ($5,957,322 CAD) (2017-$2,513,031; $3,152,717 CAD CAD) which expire in the years 2026 through 2038.

In addition, the Company has capital losses carried forward totaling $102,619 ($139,999 CAD). These losses can be carried forward indefinitely and can be used only against capital gains in Canada.

15 . Commitments

a)

Effective January 1, 2017, new consulting agreements were finalized for the services of the President and for the CEO. The consulting agreements are for a period of three years, commencing January 1, 2017. For each of these two executive officers, the monthly fees are as follows: $3,665 ($5,000 CAD) for 2017 and $10,995 ($15,000 CAD) for 2018 and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1, 2017. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 common stock. The RSUs of the remaining two installments are to vest annually on January 1, 2019 and 2020, respectively, upon meeting certain performance objectives. On May 17, 2018, the President’s consulting agreement was amended by the Board to add the granting of 3,000,000 RSUs, on the same terms and conditions as those of the CEO. On this date, the President was issued 1,000,000 common stock on the exchange of 1,000,000 RSUs. The future minimum commitment under these consulting agreements, is as follows:


  For the year ending December 31, 2019 $ 263,880  

b)

Effective January 1, 2017, the Company entered into a new three-year premises lease agreement with Haute at a monthly amount of $2,932 ($4,000 CAD) for 2017, $ 3,665 ($5,000 CAD) for 2018 and $4,398 ($6,000 CAD) for 2019. The Company is also responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance. The future minimum commitment under this premises lease agreement is as follows:


  For the year ending December 31, 2019 $  52,776  

c)

The Company was assigned the land lease on the purchase of certain assets of Astoria. The land lease, which comprises 13.88 acres in Roslin, Ontario, Canada, has a term expiring March 31, 2034. The basic monthly rent on the net lease is $2,199 ($3,000 CAD) and is subject to adjustment based on the consumer price index as published by Statistics Canada (“CPI”). To date, no adjustment for CPI has been charged by the landlord. The Company is also responsible for any property taxes, maintenance, insurance and utilities. In addition, the

49



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

15. Commitments , (continued)

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. The future minimum commitment under this land lease (excluding any CPI adjustment) is as follows:

  For the year ending December 31, 2019 $  26,388  
  For the year ending December 31, 2020   26,388  
  For the year ending December 31, 2021   26,388  
  For the year ending December 31, 2022   26,388  
  For the year ending December 31, 2023   26,388  
  Thereafter   270,477  
    $  402,417  

In addition, the Company was recently informed that, through a special provision of the site plan agreement with the City of Belleville (the “City”), Ontario, the Company is required to fund certain road maintenance required by the City for the years 2017 through to 2025 at an annual rate of $7,330 ($10,000 CAD). The first year of the special provision was 2016, approximately one year before the Company acquired certain assets of Astoria. This special provision was not addressed in the APA and as a result, the Company may be liable for both the 2016 and 2017 assessments.

   

The payments are due each September 30 th . The Company’s estimates that its portion for the year ended September 30, 2017, would be equal to the 15 days the Company owned the organic composting facility, after it was acquired on September 15, 2017. The amounts for 2016 and 2017 have not been paid and unless this can be resolved with the operator for the period prior to September 15, 2017, the Company may be liable for both these years.

   
d)

On April 9, 2018, a new one-year consulting agreement was finalized for the services of the Company’s CFO, effective April 1, 2018, at a monthly rate of $4,398 ($6,000 CAD). The future minimum commitment under this agreement is as follows:


  For the year ending December 31, 2019 $  13,194  

e)

PACE has provided the Company a letter of credit in favor of the Ministry of the Environment and Climate Change (“MOECC”) in the amount of $202,917 ($276,831 CAD) and, as a security, has registered a charge of lease over the premises, located at 704 Phillipston Road, Roslin, Ontario, Canada. The Company is required to provide for environmental remediation and clean-up costs for its organic composting facility. The letter of credit is a requirement of the MOECC and is in connection with the financial assurance provided by the Company for it to be in compliance with the MOECCs environmental objectives. The MOECC regularly evaluates the Company’s organic composting facility to ensure compliance is adhered to and the letter of credit is subject to change by the MOECC. Since the fair value of the environmental remediation costs cannot be determined at this time, no estimate of such costs has been recorded in the accounts. As at December 31, 2018, the MOECC has not drawn on the letter of credit. During the year, the Company renewed the letter of credit for a further twelve months.

The Company has committed to a $500,000 marketing program subsequent to the year-end. In connection with this program, the Company provided the marketer with a deposit of $15,000 prior to the end of the year, included with prepaid expenses and deposits in the consolidated balance sheets.

50



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

16. Segmented Information

The Company uses a management approach for determining segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. The Company’s management reporting structure provides for only one segment: renewable energy and operates in one country, Canada.

17. Economic Dependence

The Company generated 69% of its revenue from three customers. The Company’s ability to continue operations is dependent on continuing to generate a similar amount of revenue from these customers.

18. Subsequent Events

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

  (a)

Subsequent to the end of the year, the Company issued 1,000,000 common shares to the President in relation to the RSUs granted in his consulting agreement determined to be valued at $1,000,000 based on private placement pricing at the time, 100,000 common shares issued to US counsel for services rendered totaling $53,000 based on the trading price of the shares at the close of business on January 18, 2019 and 5,000 common shares on proceeds of $4,600, net of shares issue costs of $400 received prior to December 31, 2018.

     
  (b)

On January 28, 2019, the Company entered into three securities purchase agreements with three investors (the “January 2019 Investors”) pursuant to which the January 2019 Investors purchased 12% unsecured convertible promissory notes from the Company in the aggregate principal amount of $337,500, such principal and the interest thereon convertible into shares of the Company’s common stock at the January Investors’ option. After payment of transaction related expenses, net proceeds to the Company from the unsecured convertible promissory notes totaled $302,500 and were received on February 1 and 4, 2019.

     
  (c)

On January 31, 2019, the Company advanced a deposit of $36,650 ($50,000 CAD) in connection with an offer for $1,905,800 ($2,600,000 CAD) to purchase certain property located in Hamilton, Ontario, Canada, from another court appointed receiver for future operations.

     
  (d)

On February 5, 2019, the Company advanced a non-refundable deposit of $52,776 ($72,000 CAD) in connection with an executed non-binding letter of intent for $1,295,394 ($1,767,250 CAD) to acquire 100% of the shares of a company whose primary asset includes the 39.44 acres of property in Roslin (near Belleville), Ontario, Canada which includes the site the Company currently leases for its organic composting facility.

51



SusGlobal Energy Corp.
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(Expressed in United States Dollars)

18. Subsequent Events , (continued)

  (e)

On March 7 and 8, 2019, the Company entered into securities purchase agreements (the “March 2019 SPAs”) with two investors (the “March 2019 Investors”) pursuant to which each Investor purchased 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 “Notes”) in the aggregate principal amount of $1,100,000, such principal and the interest thereon convertible into shares of the Company’s common stock (the “Common Stock”) at the Investors’ option. Each First Note contained a $25,000 original issue discount such that the purchase price of each First Note was $250,000. The First Notes were paid for by the March Investors upon the signing of the SPAs. The Back-End Notes were initially paid for by the issuance of two offsetting $250,000 secured notes issued to the Company by the March Investors (the “Investor Notes”), provided that prior to conversion of the Investor Notes, the March Investors must have repaid the Investor Notes in cash.

     
 

Although the March 2019 SPAs are dated March 7, 2019 and March 8, 2019 (each, an “Effective Date”), they became effective upon the payment in cash of the purchase price by the March Investors. The purchase prices of $250,000 and $250,000 for the First Notes were paid in cash by the March Investors on March 11, 2019. After payment of transaction-related expenses, net proceeds to the Company from the Notes totaled $456,000.

19. Comparative Figures

Certain of the prior year’s comparative figures have been reclassified to conform to the current year’s presentation.

52


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

            None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of senior management, including our chief executive officer and our chief financial officer, also our principal financial and accounting officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as of December 31, 2018 (the “Evaluation Date”). Based on this evaluation, Gerald Hamaliuk, our chief executive officer and Ike Makrimichalos, our chief financial officer and principal financial and accounting officer, concluded that our internal control over financial reporting was not effective for the year ended December 31, 2018. Such conclusions were based on the small size of the Company and the resulting lack of a segregation of duties.

Report by Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The framework used by management to evaluate internal controls over financial reporting is Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations (COSO), as implemented by their subsequent publication Internal Control over Financial Reporting – Guidance for Smaller Public Companies. Based on this evaluation, Gerald Hamaliuk, our chief executive officer and Ike Makrimichalos, our chief financial officer and principal financial and accounting officer, concluded that our internal control over financial reporting was not effective for the year ended December 31, 2018. The matters involving internal controls over financial reporting that may be considered material weaknesses included the small size of the Company and the resulting lack of a segregation of duties.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission which permanently exempt smaller reporting companies.

Changes in Internal Control over Financial Reporting

There were no changes to the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

            Not applicable

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Our Board of Directors currently consists of seven directors. For the size and scope of our business and operations, we believe a board of approximately this size is appropriate as it is small enough to allow for effective communication among the members but large enough so that we get a diverse set of perspectives and experiences around our board room. Our bylaws provide that, in uncontested elections, directors will be elected by a majority of the votes cast, and in contested elections, directors will be elected by a plurality of the votes cast.

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Each director on our Board of Directors will serve a one-year term or until their successor has been duly elected and qualified, subject to their earlier death, resignation, disqualification or removal. Pursuant to the DGCL and our bylaws, in general, any vacancies on our Board of Directors resulting from death, retirement, resignation, disqualification, removal or other cause may be filled only by an affirmative vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director. Our current directors and executive officers are as follows:

Name Age Position
     
Marc M. Hazout 54 Chairman of the Board, President and Director
     
Gerald P. Hamaliuk 72 Chief Executive Officer and Director
     
Ike Makrimichalos 63 Chief Financial Officer
     
Vincent R. Ramoutar 56 Director
     
Gordon E. Miller 66 Director
     
Laurence W. Zeifman 57 Director
     
Ryan Duffy 46 Director
     
Andrea Calla 67 Director

We believe that each of our directors and executive officers possesses the experience, skills and qualities to fully perform his duties as a director or executive officer and contribute to our success. Our directors were nominated because each is of high ethical character, highly accomplished in his field with superior credentials and recognition, has a reputation, both personal and professional, that is consistent with our image and reputation, has the ability to exercise sound business judgment, and is able to dedicate sufficient time to fulfilling his obligations as a director. Our directors as a group complement each other and each of their respective experiences, skills and qualities so that collectively the Board operates in an effective, collegial and responsive manner. Similarly, for the executive officers. Described below, are the directors’ and executive officers’ principal occupations and other pertinent information about particular experience, qualifications, attributes and skills that led the Board and management to conclude that such person should serve as a director or executive officer.

            Gerald P. Hamaliuk , age 72, has served as Chief Executive Officer and as a member of the Board of Directors of the Company since December 2014. Since 2001, Mr. Hamaliuk has served as the president of Landfill Gas Canada Ltd., Oakville (Canada), Shenzhen (China), Kuala Lumpur (Malaysia), a company that utilizes Canadian biogas technology to develop renewable energy projects that reduce greenhouse gas emissions in developing countries in Asia. From 1997 to 2001, Mr. Hamaliuk was a vice-president industrial division/business development Engineer at Kilborn Engineering Inc. and SNCLavalin after SNC acquired Kilborn in 1997.

The determination was made that Mr. Hamaliuk should serve our Board of Directors because of his extensive experience in the services the Company intends to offer.

            Ike Makrimichalos, age 63, is a Chartered Professional Accountant (Chartered Accountant), with over 25 years of experience in servicing public and private companies, including manufacturing, automotive, technology & telecommunications and insurance, for Deloitte in Toronto. Mr. Makrimichalos has served as a Chief Financial Officer and Controller in the mining sector for companies with global operations and multiple filing jurisdictions and currently serves as a Chief Financial Officer and Controller in the financial services and mining sectors, along with providing financial consulting services for several private companies. Mr. Makrimichalos graduated from the University of Toronto with a Bachelor of Arts degree and became a Chartered Accountant in 1986.

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The determination was made that Mr. Ike Makrimichalos join the executive team because he possesses significant experience in financial reporting and accounting matters.

            Marc M. Hazout, age 54, has served as Chairman and President of SusGlobal Energy since it was founded in 2014. Since 2005, Mr. Hazout has also served as the Chief Executive Officer, President, principal financial and accounting officer and a director of Silver Dragon Resources Inc., a company whose common stock is quoted on the OTC marketplace and is engaged in the acquisition and exploration of silver and other mineral properties. Mr. Hazout has over 20 years of experience in public markets, finance and business operations. Over the past several years, Mr. Hazout has been involved in acquiring, restructuring and providing management services as both a director and an officer to several publicly traded companies. In 1998, Mr. Hazout founded and has been President and CEO of Travellers International Inc. (“Travellers”), a private equity firm headquartered in Toronto. Over the past several years, Travellers has focused on building relationships in China with the objective of participating in that country’s growth opportunities. Mr. Hazout attended York University in Toronto studying International Relations and Economics. Mr. Hazout speaks English, French and Hebrew, as well as some Spanish and Italian.

The determination was made that Mr. Hazout should serve on our Board of Directors because he possesses significant experience in securities and capital markets.

            Vincent R. Ramoutar , age 56, is a seasoned executive and an inventor who has gained exposure in several high-tech businesses in an entrepreneurial startup environment. Having co-founded or worked in six startup companies. Vincent’s specialties include raising capital for startups, corporate strategy, marketing, and business development. Mr. Ramoutar has been involved in several energy and resources companies as an adviser since 2007 and has provided management services and partnerships in the European public markets with focus on raising capital and growth opportunities. Mr. Ramoutar obtained a Bachelor of Science degree in computer science from New York Institute of Technology (magna cum laude), New York.

The determination was made that Mr. Ramoutar should serve on our Board of Directors because he possesses significant experience in securities and capital markets and brings an extensive network of relationships in several technology markets.

             Gordon E. Miller, age 66, has held several senior management positions with the Ontario Ministry of the Environment and was the Environmental Commissioner of Ontario from 2000 to 2015. Mr. Miller was also a Professor at Sir Sandford Fleming College, Frost Campus, Lindsay, Ontario from 1986-1989 where SusGlobal Energy in partnership with the College recently was awarded an application under the AWT Program for academic research. Mr. Miller graduated with honors from the University of Guelph in Guelph, Ontario, with a Hon. B.Sc. in Biology and a M.Sc. in Plant Ecology. Mr. Miller has been recognized for his many publications as well as his many scientific and technical presentations.

The determination was made that Mr. Miller should serve on our Board of Directors because of his strong scientific and technical experience which will be extremely valuable as the Company continues to grow.

             Laurence W. Zeifman, age 57, is a partner of Zeifmans LLP, ranked Canada’s eighteenth largest Chartered Professional Accounting (“CPA”) firm with a total staff of over 100. For over twenty years, Mr. Zeifman served as managing partner, successfully steering its steady growth and emergence as a leading midsized firm and continues to serve on the firm’s management committee.

As well, he has serviced the auditing, accounting and/or consulting needs of a clientele of medium-sized public and private companies, including those in the financial services and health care sectors, being instrumental in the growth of his clients, and assisting them in managing their growth. Mr. Zeifman has also played a key role in Zeifmans’ quality control regime, maintaining compliance with the rules of professional conduct of CPA Ontario (formerly the Institute of Chartered Accountants of Ontario), and the professional standards of CPA Canada (formerly the Canadian Institute of Chartered Accountants). Mr. Zeifman is Zeifmans’ contact partner to Nexia International, Chair of Nexia Canada and a member of Nexia International’s Marketing and Business Development Committee. Nexia is an international network of accounting firms, and one of the ten largest accounting organizations in the world.

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The determination was made that Mr. Zeifman should serve on our Board of Directors and serve as Chairman of the Audit Committee, due to his extensive technical and business experience which will be extremely valuable as the Company continues to grow.

            Ryan Duffy, age 46 , is the President and CEO of Blackstone Energy Services Inc. a Canadian firm that manages energy portfolios for a diverse range of companies across North America and the Caribbean. Blackstone is a leading provider of integrated custom energy management solutions that help large energy users manage their energy budget at risk, achieve efficiency improvements, implement renewable generation, and carbon offsetting. Prior to Blackstone Mr. Duffy worked with a number of Fortune 500 companies, including several in the energy space. Mr. Duffy is very active within the energy committee on Trans Canada’s-Tolls Task Force, Union Gas’– Marketer Council, the IESO’s – Information Technology Standing Committee, the Energy Services Association of Canada and the Canadian Manufactures and Exporters-Energy Committee. In addition, he is a member of the Canadian Healthcare Energy Society, the Association of Power Producers of Ontario, the Ontario Energy Association, SWITCH Ontario, and was a former board member of Rethink Sustainability Initiative. For his community involvement and corporate successes, Mr. Duffy was recently awarded the Ontario Sustainable Energy Association’s SMARTpreneur of the Year Award.

The determination was made that Mr. Duffy should serve on our Board of Directors due to his extensive technical and business experience which will be extremely valuable as the Company continues to grow.

             Andrea Calla, age 67, is President and CEO of the Calla Group and is an accomplished professional with over 35 years of experience in business, more recently a senior executive for ten years with The Tridel Group, one of Canada's largest community builders/developers. He was actively involved in the different company divisions and all facets of the industry. He is also Managing Partner of The Callian Capital Group, a globally active Toronto-based investment and capital management firm. Mr. Calla has held key leadership and entrepreneurial roles driving innovative, practical and effective changes to improve quality of life through various company start-ups across diverse industries, some include: Chairman, Deep Geo Inc., a global nuclear waste management company, Chairman & Co-Founder of TransAsia Investment Partners, Hong Kong, Founding Director of 350 Capital, a "cleantech" investment company, Co-Founder of Nordicon, a design-build company, Canada, US, Mid-East, Founding member of Novator, pioneer in e-commerce and AI, helped make it the 14th fastest growing company in Canada, reported by Profit 100 magazine, Board of Sumbola, an innovative internet e-publishing company, Co-Founder, Board member of Twin Hills Resources, developer of partial upgrading cavitation technology, reducing the viscosity of oil sands bitumen to flow through pipelines without having to be blended with diluent, Board of SEL Global, an innovative Mobile Shopping Solutions Software and Advertising company, software developed in Silicon Valley, Advisory Board of Magnovate, innovative Magnetic Levitation transportation systems, Co-Founder of Fusion Sailboats, designed, developed, manufactured and distributed the Fusion 15, winner of Sailing World's "International Boat of the Year" in 2003, Advisory Board of Dorsay Development Corp., currently planning a purpose-built community in the GTA with a ground-breaking model in place-making. The over 1,200-acre community will combine global best practices in creating a sustainable community that is economically, environmentally, socially healthy and resilient. Throughout his career, Andrea has been committed to City and Community building, improving the quality of life in urban regions and continually driving innovative, practical and effective change in different sectors through his leadership and entrepreneurial skills. Andréa holds a Bachelor of Architecture from the University of Toronto, a Master of Science from Columbia University, New York and an Executive MBA from Ivey School of Business, Western University.

Director Compensation Policy

            The Company does not currently have a director compensation policy. For the year ended December 31, 2018, except as noted below no option or stock awards were granted to directors and no cash payments were made to directors during the fiscal year ended December 31, 2018. The director compensation for the year ended December 31, 2018, is noted below:

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Director Compensation





Name

Fees
earned or
paid in
cash ($)



Stock|
awards ($)



Option
awards ($)
Non-equity
incentive
plan
compensation
($)

Nonqualified
deferred
compensation
earnings ($)



All other
compensation ($)




Total ($)
               
(a) (b) (c) (d) (e) (f) (g) (h)
               
Marc Hazout - - - - - - -
               
Gerald Hamaliuk - - - - - - -
               
Vincent Ramoutar - 13,000 (c) - - - - 13,000
               
Gordon Miller - 13,000 (c) - - - - 13,000
               
Laurence Zeifman

3,088
(4,000
CAD) (a)
13,000 (c)

-

-

-

-

16,088
Ryan Duffy - 13,000 (c) - - - - 13,000
Andrea Calla - 20,000 (b) - - - - 20,000

(a)

The fee is for services as Chairman of the audit committee and is incurred with Zeifmans LLP for whom the director is a partner.

(b)

The stock award is in the name of The Calla Group for whom the director is an employee.

(c)

The stock award was unpaid at December 31, 2018 and the date of this filing.

            We have adopted a code of ethics that applies to our Chief Executive Officer, President, and Chief Financial Officer, as well as other officers, directors and employees of the Company. The code of ethics, entitled “Code of Conduct,” is posted on our website at www.susglobalenergy.com under the section “Corporate Governance” within the “Investor Relations” tab.

Section 16(a) Beneficial Ownership Reporting Compliance

As of December 31, 2018, and through February 3, 2019, we did not have a class of securities registered under the Exchange Act and therefore our directors, executive officers, and any persons holding more than ten percent of our Common Stock were not required to comply with Section 16 of the Exchange Act. Such persons became obligated to comply with such rules upon the February 4, 2019 filing of our Form 8-A12G registering our class of Common Stock.

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Item 11. Executive Compensation.

Summary Compensation Table

            The following table sets forth certain summary information with respect to the compensation paid to the Company’s Chief Executive Officer, President and Chief Financial Officer for services rendered in all capacities to the Company for the fiscal years ended December 31, 2018 and 2017. Other than as listed below, the Company had no executive officers whose total annual salary and bonus exceeded $100,000 for that fiscal year:

    Summary Compensation Table    
                   
Name and Year Salary Bonus Stock Option  Non-equity  Nonqualified All other Total
principal   ($) ($) awards awards incentive      deferred   compensation ($)
position       ($) ($) plan compensation ($)  
            compensation  earnings    
            ($) ($)    
                   
                   
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
                   
Gerald
Hamaliuk
2018
2017
138,978
46,206
-
-
330,000*
-
-
-
-
-
-
-
-
-
468,978
46,206
                   
Chief
Executive
Officer


















                   
Marc Hazout
2018
2017
138,978
46,206
-
-
2,000,000*
-
-
-
-
-
-
-
-
-
2,138,978
46,206
                   
President                  
                   
Ike
Makrimichalos

2018
2017

50,959
36,965

-
-

-
-

-
-

-
-

-
-

-
-

50,959
36,965
                   
                   

(e) Stock Awards

The grant date fair values of the stock awards were computed in accordance ASC Topic 718, Compensation-Stock Compensation.

The stock award for the Chief Executive Officer consisted of 3,000,000 restricted stock units (“RSUs”) granted on January 1, 2017, determined to be valued at $990,000 based on private placement pricing at the time. 1,000,000 RSUs vested on January 1, 2018 and the following two installments are expected to vest annually on January 1, 2019 and 2020. The 3,000,000 RSUs for the President were granted on May 17, 2018 by the Board of Directors, determined to be valued at $3,000,000 based on private placement pricing at the time. On May 17, 2018, 1,000,000 of the President’s RSUs vested and were exchanged for 1,000,000 shares of Common Stock.The following two installments are expected to vest equally on January 1, 2019 and 2020.

*Subsequent to the date of this filing, the CEO exchanged his 2018 RSUs for 1,000,000 shares of Common Stock. Included in the President’s $2,000,000 stock award, was his 2018 1,000,000 RSUs which were exchanged for 1,000,000 shares of Common Stock on January 8, 2019.

Consulting and Management Agreements

Effective January 1, 2017, new consulting agreements were finalized for the services of the President and the CEO. The Consulting Agreements are for a period of three years, commencing January 1, 2017. For each of President and the CEO, the monthly fees are as follows: $3,665 ($5,000 CAD) for 2017 and $10,995 ($15,000 CAD) for 2018 and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1, 2017. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 shares of Common Stock of the Company. The RSUs of the remaining two installments are expected to vest annually on January 1, 2019 and 2020, upon meeting certain performance objectives. On May 17, 2018, the President’s Consulting Agreement was amended by the Board to add the granting of 3,000,000 RSUs, on the same terms and conditions as those of the CEO. On this date, the President was issued 1,000,000 shares of Common Stock of the Company in exchange for 1,000,000 RSUs.

In addition, the Company also recognized management compensation expense of $1,330,000 (2017-$330,000 on the award to the CEO) on the awards to the President and the CEO, who met their performance objectives in 2018.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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The following table sets forth certain information regarding beneficial ownership of SusGlobal Energy Corp’s securities as of April 1, 2019:

  • by each person who is known by us to beneficially own more than 5% of our securities;
  • by each of our officers and directors; and
  • by all of our officers and directors as a group.
    Amount And       
  Nature Of   Approximate
  Beneficial   Percent of
Title of Class Name And Ownership (2)   Class (%)
Address of Beneficial      
Owner (1)      
Common Marc Hazout 9,900,000 23.91
Common Ike Makrimichalos 500,000 (3) 1.21
Common Gerald Hamaliuk 4,311,500 (4) 10.41
Common Vincent Ramoutar 2,000,000 (3) 4.83
Common Gordon Miller 20,000 0.05
Common Laurence Zeifman 20,000 0.05
Common Ryan Duffy 307,261 (5) 0.74
Common Andrea Calla 20,000 0.05
       
  All officers and    
  directors as a group    
Common (8 persons) 17,078,761 41.25%

(1)

Except as noted above, the address for the above identified officers and directors of the Company is c/o 200 Davenport Road, Toronto, ON, Canada M5R 1J2.

   
(2)

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the shares shown. Except where indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them. Percentages are based upon the assumption that each shareholder has exercised all of the currently exercisable options he or she owns which are currently exercisable or exercisable within 60 days and that no other shareholder has exercised any options he or she owns.

   
(3)

The noted shares have been pledged as security for the credit facilities with PACE.

   
(4)

3,300,000 of the noted shares have been pledged as security for the credit facilities with PACE.

The above-referenced table is based on 41,404,531 issued and outstanding shares of common stock on the date of this filing.

EQUITY

As of December 31, 2018, the Company had 40,299,531 common shares issued and outstanding. At the date of this filing, the Company had 41,404,531 common shares issued and outstanding.

STOCK OPTIONS AND WARRANTS

As at December 31, 2018, and the date of this filing, the Company has no stock options or warrants outstanding.

Effective January 1, 2017, new consulting agreements were finalized for the services of the President and the CEO. The Consulting Agreements are for a period of three years, commencing January 1, 2017. For each of President and the CEO, the monthly fees are as follows: $3,665 ($5,000 CAD) for 2017 and $10,995 ($15,000 CAD) for 2018 and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1, 2017, determined to be valued at $990,000, based on private placement pricing at the time. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 shares of Common Stock of the Company. The RSUs of the two remaining installments are expected to vest annually on January 1, 2019 and 2020, upon meeting certain performance objectives. On May 17, 2018, the President’s Consulting Agreement was amended by the Board to add the granting of 3,000,000 RSUs, determined to be valued at $3,000,000 based on private placement pricing at the time on the same terms and conditions as those of the CEO. On this date, the President was issued 1,000,000 shares of Common Stock of the Company in exchange for 1,000,000 RSUs. The RSUs of the two remaining installments are expected to vest annually on January 1, 2019 and 2020.

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In addition, the Company also recognized management compensation expense of $1,330,000 (2017-$330,000 on the award to the CEO) on the awards to the President and the CEO, who met their performance objectives in 2018.

The Company has no stock options or warrants outstanding as of December 31, 2018 and as of the date of this filing.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Related Party Transactions

During the fiscal year ended December 31, 2018, the Company incurred $138,978 ($180,000 CAD) (2017-$46,206; $60,000 CAD) in management fees expense with Travellers International Inc. (“Travellers”), an Ontario company controlled by a director and president of the Company (the “President”); $138,978 ($180,000 CAD) (2017-$46,206; $60,000 CAD) in management fees expense with Landfill Gas Canada Ltd. (“LFGC”), an Ontario company controlled by a director and chief executive officer of the Company (the “CEO”); $50,959 ($66,000 CAD) (2017-$36,965; $48,000 CAD) in management fees expense with the Company’s chief financial officer (the “CFO”); and $9,265 ($12,000 CAD) (2017-$36,965; $48,000 CAD) in management fees expense with the Company’s vice-president of corporate development (the “VPCD”). As of December 31, 2018, unpaid remuneration and unpaid expenses in the amount of $48,691 ($66,426 CAD) (2017-$111,426; $139,789 CAD) is included in accounts payable and $184,714 ($251,997 CAD) (2017-$102,935; $129,137 CAD) is included in accrued liabilities.

In addition, during the fiscal year ended December 31, 2018, the Company incurred interest expense of $14,094 ($18,254 CAD) (2017-$15,056; $19,550 CAD) on the outstanding loans from Travellers and $4,772 ($6,510 CAD) (2017-$nil; $nil CAD) on the outstanding loans from the directors. As of December 31, 2018, interest of $17,882 ($24,395 CAD) (December 31, 2017-$22,120; $27,750 CAD) on these loans is included in accrued liabilities.

During the fiscal year ended December 31, 2018, the Company incurred $66,068 ($85,569 CAD) (2017-$63,223; $82,097 CAD) in rent paid under a rental agreement to Haute Inc. (“Haute”), an Ontario company controlled by the President.

During the fiscal year ended December 31, 2018, the Company sold $15,515 ($20,095 CAD) of compost product to LFGC.

For those independent directors providing their services throughout the year, the Company accrued directors' compensation totaling $52,000, based on the issuance of 20,000 common stock of the Company in 2019 to each of the four directors. This compensation was priced based on the trading price of the shares at the close of business on March 28, 2019.

Effective January 1, 2017, new consulting agreements were finalized for the services of the President and the CEO. The Consulting Agreements are for a period of three years, commencing January 1, 2017. For each of President and the CEO, the monthly fees are as follows: $3,665 ($5,000 CAD) for 2017 and $10,995 ($15,000 CAD) for 2018 and 2019. In addition, the CEO was granted 3,000,000 RSUs on January 1, 2017. On January 1, 2018, 1,000,000 RSUs were exchanged into 1,000,000 shares of Common Stock of the Company. The RSUs for the remaining two installments are expected to vest annually on January 1, 2019 and 2020, upon meeting certain performance objectives. On May 17, 2018, the President’s Consulting Agreement was amended by the Board to add the granting of 3,000,000 RSUs, on the same terms and conditions as those of the CEO. On this date, the President was issued 1,000,000 shares of Common Stock of the Company in exchange for 1,000,000 RSUs.

In addition, the Company also recognized management compensation expense of $1,330,000 (2017-$330,000) on the award to the CEO) on the awards to the President and the CEO, who met their performance objectives in 2018.

On April 11, 2018, three directors each loaned the Company $19,928 ($25,000 CAD) for working capital purposes (the “Director Loans”). The Director Loans bear interest at the rate of 12% per annum, are due on demand and unsecured. There are no written agreements evidencing the Director Loans. During the fiscal year of 2018, $5,026 ($6,510 CAD) of interest was charged on the Director Loans. As of December 31, 2018, $4,772 ($6,510 CAD) (December 31, 2017-$nil; $nil CAD) in interest is included in accrued liabilities and the Director Loans remain outstanding in the amount of $54,975 ($75,000 CAD).

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On April 3, 2018, Travellers provided the Company with a new loan in the amount of $159,420 ($200,000 CAD). The loan is due on demand is unsecured and bears interest at the rate of 12% annually. On April 4, 2018, a portion of the funds provided by Travellers, were used to pay the Company’s overdue monthly principal and interest instalments on the PACE corporate term loan which were due February 13 and March 13, 2018, in the amount of $110,777 ($151,128). At December 31, 2018, the outstanding balance with Travellers is $146,600 ($200,000 CAD) (2017-$15,942; $20,000 CAD). Details of this borrowing is also described in Note 12 to the Consolidated Financial Statements.

Item 14. Principal Accounting Fees and Services.

The aggregate fees billed by the Company’s external auditors in each of the last two fiscal years are as follows:

  2018 2017
Audit fees (1) $ 52,841 $26,954
Audit-related fees (2) 48,777 60,204
Tax fees 5,284 770
All other fees - -
Total $ 106,902 $87,928

(1)

Audit fees consisted of the audit work on annual financial statements.

(2)

Audit-related fees consist principally of reviews of quarterly financial statements and reviews of registration statements.

The Audit Committee Charter provides that the Audit Committee is responsible for the pre-approval of all audit and non-audit services to be provided to the Company by the independent public accountants. The Audit Committee has not, however, adopted any specific policies and procedures for the engagement of non-audit services.

PART IV

Item 15. Exhibits, Financial Statement Schedules

            (a) (1) Consolidated Financial Statements:

            The financial statements filed as part of this report are listed separately in the Index to Financial Statements.

            (a) (2) Consolidated Financial Statement Schedules:

            None

            (a) (3) Exhibits:

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Exhibit No. Description
   
3.1

Form of Certificate of Incorporation of SusGlobal Energy Corp. (filed as Exhibit 3.1 to the Registrant’s Post Effective Amendments for Registration Statement filed with the SEC on June 7, 2017 and incorporated herein by reference).

   
3.2

Form of Bylaws of SusGlobal Energy Corp. (filed as Exhibit 3.2 to the Registrant’s S-4/A filed with the SEC on December 23, 2016 and incorporated herein by reference).

   
4.1

Specimen Common Stock certificate (filed as Exhibit 4.1 to the Registrant’s S-4/A filed with the SEC on December 23, 2016 and incorporated herein by reference).

   
4.2 Form Convertible Promissory Note, issued by SusGlobal Energy Corp. on January 28, 2019 (filed as Exhibit 4.1 to the Registrant’s Form 8-K filed with the SEC on February 8, 2019 and incorporated herein by reference).
   
4.3 Form of 12% Convertible Redeemable Note, issued by SusGlobal Energy Corp. on March 7, 2019  (filed as Exhibit 4.1 to the Registrant’s Form 8-K filed with the SEC on March 15, 2019 and incorporated herein by reference).
   
4.4 Form of 12% Convertible Redeemable Note and Back End Note issued by SusGlobal Energy Corp. on March 7, 2019 (filed as Exhibit 4.2 to the Registrant’s Form 8-K filed with the SEC on March 15, 2019 and incorporated herein by reference).
   
4.5 Form of Collateralized Secured Promissory Note, issued by SusGlobal Energy Corp. on March 7, 2019 (filed as Exhibit 4.3 to the Registrant’s 8-K filed with the SEC on March 15, 2019 and incorporated herein by reference).
   
10.1

SusGlobal Stock Option Plan (filed as Exhibit 10.1 to the Registrant’s S-4 filed with the SEC on January 28, 2016 and incorporated herein by reference).

   
10.2

Executive Chairman Consulting Agreement between SusGlobal Energy corp., Travellers International Inc. and Marc Hazout (filed as Exhibit 10.2 to the Registrant’s S-4 filed with the SEC on January 28, 2016 and incorporated herein by reference).

   
10.3

CEO Consulting Agreement SusGlobal Energy Corp., Landfill Gas Canada Ltd. and Gerald Hamaliuk (filed as Exhibit 10.3 to the Registrant’s S-4 filed with the SEC on January 28, 2016 and incorporated herein by reference).

   
10.4

CFO Consulting Agreement between SusGlobal Energy Corp. and Ike Makrimichalos (filed as Exhibit 10.4 to the Registrant’s S-4 filed with the SEC on January 28, 2016 and incorporated herein by reference).

   
10.5

Financing Agreement with Phoenix Capital Partners Inc. dated December 2, 2015 (filed as Exhibit 10.5 to the Registrant’s S-4 filed with the SEC on January 28, 2016 and incorporated herein by reference).

   
10.6

Memorandum of Agreement between Syngas SDN BHD and SusGlobal Energy Corp. (filed as Exhibit 10.6 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.7

Commercial Lease Agreement between Haute Inc. and SusGlobal Energy Corp. (filed as Exhibit 10.7 to the Registrant’s S-4/A filed with the SEC on December 23, 2016 and incorporated herein by reference).

   
10.8

Biodigester Expansion and Operation Agreement (filed as Exhibit 10.8 to the Registrant’s S-4/A filed with the SEC on December 23, 2016 and incorporated herein by reference).

   
10.9

Phoenix Amended Engagement Agreement Dated July 20, 2016 (filed as Exhibit 10.9 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.10

Executive Chairman Consulting Agreement between SusGlobal Energy Corp., Travellers International Inc. and Marc Hazout (filed as Exhibit 10.10 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.11

CEO Consulting Agreement SusGlobal Energy Corp., Landfill Gas Canada Ltd. and Gerald Hamaliuk (filed as Exhibit 10.11 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.12

Commercial Lease Agreement between Haute Inc. and SusGlobal Energy Corp. (filed as Exhibit 10.12 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.13

Pace Savings and Credit Union Limited Term Sheet dated December 31, 2016 (filed as Exhibit 10.13 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.14

Susglobal Energy Ron Williamson Quarter Horses Inc. 1428245 Ontario Limited Engagement Letter (filed as Exhibit 10.14 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.15

Summary of Oral Agreement with Silver Dragon Resources Ltd. (filed as Exhibit 10.15 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.16

Summary of Oral Agreement with Travellers International Inc. (filed as Exhibit 10.16 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.17

Summary of Oral Agreement with Travellers International Inc. (Summary of Oral Agreement with Travellers International Inc. (filed as Exhibit 10.17 to the Registrant’s S-4/A filed with the SEC on February 13, 2017 and incorporated herein by reference).

   
10.18

Variable Rate Business Loan Agreement from Borrowers and Guarantor-Marc Hazout (filed as Exhibit 10.18 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.19

Business Loan General Security Agreement from SusGlobal Energy Corp. (filed as Exhibit 10.19 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

 

10.20

Business Loan General Security Agreement from SusGlobal Energy Canada Corp. (filed as Exhibit 10.20 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.21

Business Loan General Security Agreement from SusGlobal Energy Canada I Ltd. (filed as Exhibit 10.21 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.22

Guarantee and Postponement of Claim by Marc M. Hazout (filed as Exhibit 10.22 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

62


10.23

Hypothecation of 500,000 Common Shares of SusGlobal Energy Corp. dated January 31, 2017 and executed by Ike Makrimichalos (filed as Exhibit 10.23 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.24

Hypothecation of 2,000,000 Common Shares of SusGlobal Energy Corp. dated January 31, 2017 and executed by Vince Ramoutar (filed as Exhibit 10.24 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.25

Hypothecation of 3,300,000 Common Shares of SusGlobal Energy Corp. dated January 31, 2017 and executed by Gerald Hamaliuk (filed as Exhibit 10.25 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.26

Hypothecation of 1 Common Share of SusGlobal Energy Canada Corp., dated January 29, 2017 and executed by Marc Hazout (filed as Exhibit 10.26 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.27

Hypothecation of 1 Common Share of SusGlobal Energy Canada I Ltd., dated January 29, 2017 and executed by Marc Hazout (filed as Exhibit 10.27 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.28

Guarantee and Postponement of claim for each of Ike Makrimichalos, Landfill Gas Canada Ltd., and 1370383 Ontario Ltd. (filed as Exhibit 10.28 to the Registrant’s S-4/A filed with the SEC on April 05, 2017 and incorporated herein by reference).

   
10.29

Variable Rate Business Loan Agreement (filed as Exhibit 10.1 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference)

   
10.30

Agreement for Line of Credit Loan (filed as Exhibit 10.2 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.31

Irrevocable Letter of Credit (filed as Exhibit 10.3 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.32

Business Loan Security Agreement between Pace Savings and SusGlobal Energy Corp. (filed as Exhibit 10.4 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.33

Business Loan Security Agreement between Pace Savings and SusGlobal Energy Canada Corp. (filed as Exhibit 10.5 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.34

Business Loan Security Agreement between Pace Savings and SusGlobal Energy Canada I Ltd. (filed as Exhibit 10.6 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.35

Business Loan Security Agreement between Pace Savings and SusGlobal Energy Belleville Ltd. (filed as Exhibit 10.7 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.36

Asset Purchase Agreement (filed as Exhibit 10.8 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.37

Amendment to Asset Purchase Agreement (filed as Exhibit 10.9 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.38

Second Amendment to the Asset Purchase Agreement (filed as Exhibit 10.10 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.39

Third Amendment to the Asset Purchase Agreement (filed as Exhibit 10.11 to the Registrant’s Form 10-Q filed with the SEC on November 14, 2017 and incorporated herein by reference).

   
10.40 Summary of Oral Agreement with Travellers International Inc. (filed as Exhibit 10.40 to the Registrant’s Form 10-K filed with the SEC on April 16, 2018 and incorporated herein by reference).
   
10.41 CFO Consulting Agreement between SusGlobal Energy Canada Corp. and Ike Makrimichalos (filed as Exhibit 10.41 to the Registrant’s Form 10-K filed with the SEC on April 16, 2018 and incorporated herein by reference).
   
10.42 Summary of Oral Agreement with Gordon Miller (filed as Exhibit 10.42 to the Registrant’s Form 10-K filed with the SEC on April 16, 2018 and incorporated herein by reference).
   
10.43 Summary of Oral Agreement with Laurence Zeifman (filed as Exhibit 10.43 to the Registrant’s Form 10-K filed with the SEC on April 16, 2018 and incorporated herein by reference).
   
10.44 Summary of Oral Agreement with Vincent Ramoutar (filed as Exhibit 10.44 to the Registrant’s Form 10-K filed with the SEC on April 16, 2018 and incorporated herein by reference).

63


   
10.45 Loan Amending Agreement dated July 26, 2018, by and among SusGlobal Energy Corp., SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd. and Pace Savings & Credit Union Limited (filed as Exhibit 10.45 to the Registrant’s Form 10-Q filed with the SEC on November 13, 2018 and incorporated herein by reference).
   
10.46 Loan Amending Agreement dated July 26, 2018, by and among SusGlobal Energy Corp., SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd. and Pace Savings & Credit Union Limited (filed as Exhibit 10.46 to the Registrant’s Form 10-Q filed with the SEC on November 13, 2018 and incorporated herein by reference).
   
10.47 Loan Amending Agreement dated July 26, 2018, by and among SusGlobal Energy Corp., SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., Haute, Inc., Marc H Hazout and Pace Savings & Credit Union Limited (filed as Exhibit 10.47 to the Registrant’s Form 10-Q filed with the SEC on November 13, 2018 and incorporated herein by reference).
   
10.48 Loan Amending Agreement dated July 26, 2018, by and among SusGlobal Energy Corp., SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., Haute, Inc., Marc H Hazout and Pace Savings & Credit Union Limited (filed as Exhibit 10.48 to the Registrant’s Form 10-Q filed with the SEC on November 13, 2018 and incorporated herein by reference).
   
10.49 Loan Amending Agreement dated July 26, 2018, by and among SusGlobal Energy Corp., SusGlobal Energy Canada Corp., SusGlobal Energy Canada I Ltd., SusGlobal Energy Belleville Ltd., Haute, Inc., Marc H Hazout and Pace Savings & Credit Union Limited (filed as Exhibit 10.49 to the Registrant’s Form 10-Q filed with the SEC on November 13, 2018 and incorporated herein by reference).
   
10.50 Form Securities Purchase Agreement dated January 28, 2019 (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on February 8, 2019 and incorporated herein by reference).
   
10.51 Letter of Intent, dated January 8, 2019, from David Moore and Kim Moore to SusGlobal Energy Belleville Ltd. (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on February 20, 2019 and incorporated herein by reference).
   
10.52 Form Securities Purchase Agreement dated March 7, 2019 (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed with the SEC on March 15, 2019 and incorporated herein by reference).
   
14 Code of Ethics.*
   
21 Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Registrant’s Form 10-K filed with the SEC on April 16, 2018 and incorporated herein by reference).
   
31.1 Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
   
31.2 Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
   
32.1 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.*
   
32.2 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.*
   
101.INS XBRL 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*
   
* Filed herewith.

64



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.

April 1, 2019 By: /s/ Gerald Hamaliuk
    Gerald Hamaliuk
    Chief Executive Officer
     
     
April 1, 2019 By: /s/ Ike Makrimichalos
    Ike Makrimichalos
    Chief Financial Officer (Principal
    Financial and Accounting Officer)

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature   Title   Date
         
/s/ Gerald Hamaliuk*   Chief Executive Officer   April 1, 2019
Gerald Hamaliuk   (principal executive officer) and Director    
         
         
/s/ Ike Makrimichalos   Chief Financial Officer   April 1, 2019
Ike Makrimichalos   (principal financial and accounting officer)    
         
/s/ Marc Hazout   President and Chairman of the Board and Director   April 1, 2019
Marc Hazout        
         
/s/ Vincent Ramoutar   Director   April 1, 2019
Vincent Ramoutar        
         
/s/ Gordon Miller   Director   April 1, 2019
Gordon Miller        
         
/s/ Laurence Zeifman   Director   April 1, 2019
Laurence Zeifman        
         
         
/s/ Ryan Duffy   Director   April 1, 2019
Ryan Duffy        
         
/s/ Andrea Calla   Director   April 1, 2019
Andrea Calla        

65



 


 


 


 



Exhibit 31.1

SUSGLOBAL ENERGY CORP.

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Gerald Hamaliuk, certify that:

1.

I have reviewed this Annual Report on Form 10-K of SusGlobal Energy Corp.;

   
2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

   
3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

   
4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2019

 

  /s/ Gerald Hamaliuk
  Gerald Hamaliuk
  Chief Executive Officer
  (principal executive officer)



Exhibit 31.2

SUSGLOBAL ENERGY CORP.

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Ike Makrimichalos:

1.

I have reviewed this Annual Report on Form 10-K of SusGlobal Energy Corp.;

   
2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

   
3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

   
4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and



5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2019

 

  /s/ Ike Makrimichalos
  Ike Makrimichalos
  Chief Financial Officer
  (principal financial officer
  and principal accounting office)



Exhibit 32.1

SUSGLOBAL ENERGY CORP.

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of SusGlobal Energy Corp. (the “Company”) for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerald Hamaliuk, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2019

 

  /s/ Gerald Hamaliuk
  Gerald Hamaliuk
  Chief Executive Officer
  (Principal Executive Officer)



Exhibit 32.2

SUSGLOBAL ENERGY CORP. .

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of SusGlobal Energy Corp. (the “Company”) for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ike Makrimichalos, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2019

 

  /s/ Ike Makrimichalos
  Ike Makrimichalos
  Chief Financial Officer
  (Principal Financial and
  Accounting Officer)