{"url_path":"/sec/snrg/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 *****Management's Discussion and Analysis of Financial Condition and Results of Operations.***","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-07-14","source_url":"https://www.sec.gov/Archives/edgar/data/1652539/0001062993-26-003641-index.html","accession_number":"0001062993-26-003641","cik":"0001652539","ticker":"SNRG","issuer_name":"SusGlobal Energy Corp.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1652539/0001062993-26-003641-index.html","primary_entity_key":"0001652539","primary_entity_name":"SusGlobal Energy Corp."},"word_count":3720,"has_tables":true,"body_markdown":"**Item 7.*****Management's Discussion and Analysis of Financial Condition and Results of Operations.***\n\nThis section includes a discussion of our results of operations for the years ended December 31, 2025 and 2024. 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.\n\n***Overview***\n\nOur 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.\n\n***CONSOLIDATED RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2025 COMPARED TO THE YEAR ENDED DECEMBER 31, 2024***\n\n \n \n**2025**\n \n \n2024\n \n\nRevenue\n**$**\n**32,340**\n \n$\n79,886\n \n\n \n \n** **\n \n \n \n \n\nCost of Sales\n \n** **\n \n \n \n \n\nDepreciation\n \n**257,516**\n \n \n290,866\n \n\nDirect wages and benefits\n \n**54,972**\n \n \n72,928\n \n\nEquipment rental, delivery, fuel and repairs and maintenance\n \n**422,672**\n \n \n923,610\n \n\nUtilities\n \n**3,810**\n \n \n311\n \n\nOutside contractors\n \n**-**\n \n \n5,111\n \n\n \n \n**738,970**\n \n \n1,292,826\n \n\nTotal cost of sales\n \n**738,970**\n \n \n1,292,826\n \n\n \n \n** **\n \n \n \n \n\nGross loss\n \n**(706,630**\n**)**\n \n(1,212,940\n)\n\n \n \n** **\n \n \n \n \n\nOperating expenses\n \n** **\n \n \n \n \n\nManagement compensation-stock- based compensation\n \n**-**\n \n \n216,000\n \n\nManagement compensation-fees\n \n**536,775**\n \n \n547,650\n \n\nProfessional fees\n \n**266,317**\n \n \n682,965\n \n\nMarketing\n \n**-**\n \n \n501\n \n\nInterest expense\n \n**1,468,955**\n \n \n1,214,288\n \n\nOffice and administration\n \n**423,428**\n \n \n312,216\n \n\nRent and occupancy\n \n**232,264**\n \n \n240,643\n \n\nInsurance\n \n**-**\n \n \n42,988\n \n\nFiling fees\n \n**38,256**\n \n \n34,520\n \n\nAmortization of financing costs\n \n**-**\n \n \n165,878\n \n\nRepairs and maintenance\n \n**445**\n \n \n709\n \n\nDirector compensation\n \n**53,678**\n \n \n68,456\n \n\nForeign exchange (income) loss\n \n**(757,288**\n**)**\n \n1,168,768\n \n\nTotal operating expenses\n \n**2,262,830**\n \n \n4,695,582\n \n\n \n \n** **\n \n \n \n \n\nNet Loss from Continued Operations Before Other Expenses\n \n**(2,969,460**\n**)**\n \n(5,908,522\n)\n\nOther Expenses\n \n**(2,717,409**\n**)**\n \n(386,248\n)\n\nNet Loss from Continued Operations\n \n**(5,686,869**\n**)**\n \n(6,294,770\n)\n\n**Net Loss from Assets Held For Sale**\n \n**-**\n \n \n(1,564,401\n)\n\n**Net Loss**\n \n**(5,686,869**\n**)**\n \n(7,859,171\n)\n\n \n\n28\n\n**RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024**\n\nAs a result of a lightning storm that caused a power outage with the local hydro provider and a consequential power surge at the Company's facility, certain electrical systems were rendered inoperable. Following this incident, the Ministry of Labour, Immigration, Training and Skills Development issued an order relating to elevated ammonia levels detected in one of the Company's composting buildings. The Company ceased accepting waste after January 10, 2024, to address this and other compliance matters issued by the MECP. The Company received orders from the MECP to address repairs, the clean-up of unusable waste on site, re-habilitating its stormwater management system and other matters. Management anticipates these matters will take the balance of the year to be completed and be able to re-open. This will require significant investment and is dependent on the Company securing funding. Our operating property, vehicle and equipment will require significant investment to carry out repairs and improvements as ordered by the MECP. This will also include replacement of certain equipment at the Company's Belleville Facility.\n\nDuring the year ended December 31, 2025, the Company generated revenue totaling $32,240 from its Belleville Facility compared to $79,886 in the year ended December 31, 2024. The decrease in revenue is due to the result of not accepting waste after January 10, 2024. The current year's revenue is entirely from the sale of carbon credits whereas in the prior year the revenue included both tipping fee revenue from the acceptance of waste and from the sale of carbon credits.\n\nIn the normal operation of the Belleville Facility, the Company processes organic and other waste received and produces the end product, compost. The cost of sales totaled $738,970 during the current year compared to $1,292,826 for the prior year. These costs include equipment rental, delivery, fuel, repairs and maintenance, direct wages and benefits, depreciation, utilities and outside contractors. Included are costs for actual and estimated expenditures for completing certain known compliance matters as ordered by the MECP.\n\nOperating expenses decreased by $2,432,752 from $4,695,582 in the year ended December 31, 2024 to $2,262,830 in the year ended December 31, 2025, explained further below.\n\nManagement compensation related to stock-based compensation reduced by $216,000, in the year ended December 31, 2025 compared to the year ended December 31, 2024, since any remaining stock-based compensation became fully vested by December 31, 2024. And the management compensation relating to fees decreased by $10,875 impacted only by the translation of the Canadian dollar fees to the United States dollar. In Canadian dollars, the fees were unchanged.\n\nThere was no marketing plan in 2025 thus no marketing expenses were incurred.\n\nProfessional fees reduced by $416,648, from $682,965 in year ended December 31, 2024 to $266,317 in the year ended December 31, 2025, primarily due to a reduction in legal fees and consulting fees for environmental services incurred in addressing the orders issued by the MECP and the reduction or absence of legal fees defending a previous claim.\n\n29\n\nInterest expense increased by $254,667, from $1,214,288 in the year ended December 31, 2024 to $1,468,955 in year ended December 31, 2025. This increase was primarily due to the new fourth mortgage for the Belleville Facility received in April 2024 and the interest accruing on the obligation owing to the Company's general contractor for the Hamilton Facility.\n\nOffice and administration expenses increased by $111,212, from $312,216 in the year ended December 31, 2024, to $423,428 in year ended December 31, 2025. The increase was primarily due to a fine levied by the MECP during the fourth quarter in the amount of $196,818 (C$275,000) offset by a reduction in wages and administrative expenses in the Belleville Facility due to ceasing operations and a reduction in interest and penalties overall related to unpaid accounts payable.\n\nRent and occupancy decreased by $8,379, from $240,643 in the year ended December 31, 2024, to $232,264 in the year ended December 31, 2025 impacted primarily by the translation of the Canadian dollar fees to the United States dollar.\n\nThe Company has no active insurance policies in place and thus no insurance expense during the current year.\n\nFiling fees increased nominally by $3,736 from $34,520 in the year ended December 31, 2024, to $38,256 in the year ended December 31, 2025. The Company continues to not have any investor relations website service.\n\nThe amortization of financing costs reduced by $165,878 as the financing fees had been fully amortized in the prior year.\n\nDirectors' compensation reduced by $14,778, from $68,456 in the year ended December 31, 2024, to $53,678 in the year ended December 31, 2025, as there are now three independent directors compared to four in the prior year.\n\nRepairs and maintenance was minimal in both years as no significant repairs were carried out.\n\nThe foreign exchange income in the year ended December 31, 2025 of $757,288 represented an increase of $1,926,056 from the loss of $1,168,768 recorded in the year ended December 31, 2024, due primarily to the translation of significant United States dollar denominated transactions and balances during the current year including the convertible promissory notes, compared to the prior year, during a period of a strengthening Canadian dollar compared to the United States dollar. In the prior year the Canadian dollar had weakened compared to the United States dollar.\n\nDuring the year ended December 31, 2025, the Company recorded a loss on the revaluation of the convertible promissory notes in the amount of $2,369,411 compared to a loss of $1,450,086 in the year ended December 31, 2024. In addition, in the prior year, the company recognized a recovery of a previously recorded provision for loss for a March 2022 convertible promissory note in the amount of $1,191,033 compared to a provision for loss of $440,424 in the current year. In the prior year, the Company recognized a gain of $22,242 on the forgiveness of a portion of the CEBA loans on repayment in January of 2024 and a gain of $151,128 on the disposal of certain long-lived assets at the Belleville Facility. Also, in the prior year, the Company recognized a loss of $300,565 on settlement of claim with the general contractor for the Hamilton Facility. In the current year, the Company recognized an insurance recovery of $92,426 relating to legal fees recovered on a previous claim. Overall, the other expenses increased by $2,331,161 to $2,717,409 during the current year compared to $386,248 during the prior year.\n\nIn the prior year, on December 31, 2024, due to the current market conditions, the Company recorded an impairment loss of $nil (2024-$1,564,401), on the assets held for sale.\n\n30\n\n**Critical Accounting Estimates and Assumptions**\n\n***Use of estimates***\n\nThe preparation of the Company's consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Areas involving significant estimates and assumptions include: the allowance for doubtful accounts, inventory valuation, useful lives of long-lived and intangible assets, impairment of long-lived assets and intangible assets, valuation of asset acquisition, accruals, the fair value of convertible promissory notes, deferred income tax assets and related valuation allowance, environmental remediation costs, stock-based compensation and going concern. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.\n\n***Stock-based compensation***\n\nThe Company records compensation costs related to stock-based awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. Where necessary, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of highly subjective assumptions including: the expected option life, the risk-free rate, the dividend yield, the volatility of the Company's stock price and an assumption for employee forfeitures. The risk-free rate is based on the U.S. Treasury bill rate at the date of the grant with maturity dates approximately equal to the expected term of the option. The Company has not historically issued any dividends and does not expect to in the near future. Changes in any of these subjective input assumptions can materially affect the fair value estimates and the resulting stock-based compensation recognized. The Company has not issued any stock options and has no stock options outstanding at December 31, 2025.\n\n***Indefinite Asset Impairments***\n\nThe Company evaluates the intangible assets for impairment annually in the fourth quarter or when triggering events are identified and whether events and circumstances continue to support the indefinite useful life using Level 3 inputs. As at December 31, 2025 and December 31, 2024, the Company had no indefinite assets on its consolidated balance sheets.\n\n***Long-Lived Asset Impairments***\n\nIn accordance with ASC 360, \"Property, Plant and Equipment\", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.\n\nThe 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.\n\nAt December 31, 2025, the Company tested the long-lived assets for impairment to determine whether the carrying value exceeded the fair value. The Company used quoted market values and recent offers for of its long-lived assets and determined that an asset impairment of $nil (2024-$1,564,401) was required to be recognized.\n\n31\n\n**Liquidity and Capital Resources**\n\nAs at December 31, 2025, the Company had a cash balance of $nil (2024-$1,295) and current liabilities in the amount of $40,448,765 (2024-$33,510,297). As at December 31, 2025, the Company had a working capital deficit of $40,416,007 (2024-$33,441,301). 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 for or satisfy any such claims currently. The Company has been in discussions with other creditors and equity investors for new financing options to repay or re-finance certain current debt obligations.\n\nThe Company's total assets at December 31, 2025 were $8,840,820 (2024-$8,709,418) and total current liabilities were $40,448,765 (2024-$33,510,297). Significant losses from operations have been incurred since inception and there is an accumulated deficit of $52,116,571 as of December 31, 2025 (2024-$46,429,702). Continuation as a going concern is dependent upon generating significant new revenue, raising external capital and refinancing certain current debt, whilst achieving profitable operations and maintaining current fixed expense levels.\n\nTo 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 $40,448,765 in current liabilities, the Company estimates that approximately $4,000,000 in additional funds must be raised to fund capital requirements and general corporate expenses for the next 12 months.\n\nIn 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.\n\n*Interest Rate Exposure* - Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.\n\nOur exposure to market risk for changes in interest rates relates primarily to our financing activities. We have no debt in the current and prior year that is exposed to changes in market interest rates as the interest rate on our debt is fixed.\n\n*Credit Risk Exposure -* is the risk of loss associated with a counterparty's inability to perform its payment obligations. As at December 31, 2025, the Company's credit risk is primarily attributable to cash. As at December 31, 2025, the Company's cash was held with a Canadian chartered bank and a US bank.\n\n*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.\n\n*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 the results of operations.\n\n***Summary of Cash and Debt Obligations***\n\nThe following is a summary of our cash and debt balances as of December 31:\n\n \n \n**2025**\n \n \n2024\n \n\n**Cash**\n**$**\n**67**\n \n$\n1,295\n \n\n**Debt:**\n \n** **\n \n \n \n \n\n**Current portion**\n**$**\n**24,970,575**\n \n$\n21,730,791\n \n\n**Long-term portion**\n \n**-**\n \n \n-\n \n\n**Total debt**\n**$**\n**24,970,575**\n \n$\n21,730,791\n \n\n32\n\nWe 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, 2025 and 2024 are described in notes 9, 10, 11 and 12 to the consolidated financial statements.\n\nChanges in our outstanding debt balances from December 31, 2024 to December 31, 2025 were primarily attributable to (i) increase in net debt borrowings of $389,217 and (ii) the impacts of other non-cash changes in our debt balances due to foreign currency translation and the loss on the revaluation of convertible promissory notes.\n\nRefer to Security Purchase Agreements, Mortgages Payable and Other financings noted above for details.\n\n***Summary of Cash Flow Activity***\n\nThe following is a summary of our cash flows for the years ended December 31:\n\n \n \n**2025**\n \n \n2024\n \n\n**Net cash used in operating activities (a)**\n**$**\n**(2,895**\n**)**\n$\n(1,849,939\n)\n\n**Net cash provided by investing activities (b)**\n**$**\n**-**\n \n$\n151,128\n \n\n**Net cash provided by financing activities (c)**\n**$**\n**609,217**\n \n$\n525,455\n \n\n \n\n \n(a)\n*Net Cash Used in Operating Activities -*The most significant items affecting the comparison of our operating cash flows in 2025 as compared with 2024 are summarized below:\n\n \n \n \n\n \n \n*Decrease in Net Loss -*Our loss from operations, excluding depreciation and amortization and other expenses decreased by $2,171.302 in 2025, principally driven by a reduced gross loss, reduced professional fees and management compensation and a reduced foreign exchange losses, offset by higher interest expense and office and administration.\n\n \n \n \n\n \n \n*Changes in Assets and Liabilities -Our net cash used in operating activities was impacted by changes in assets and liabilities.*\n\n \n \n \n\n \n(b)\n*Net Cash Provided by Investing Activities -*The Company did not generate any proceeds in 2025 compared to $151,128 in 2024 on the disposal of long-lived assets.\n\n \n \n \n\n \n(c)\n*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:\n\n \n \n \n\n \n \n*Debt Borrowings -*In the current year, the Company incurred new net debt borrowings of $389,217 a decrease of $16,238 compared to 2024 and an increase of $100,000 in private placement proceeds in 2025 compared to 2024.\n\nRefer to notes 9, 10 and 12 to the consolidated financial statements for additional information related to our various borrowings.\n\n33\n\n**Summary of Contractual Obligations and Commitments**\n\nThe following table summarizes our contractual obligations of principal payments as of December 31, 2025 and the anticipated effect of these obligations on our liquidity in future years:\n\n \n \n**2026**\n \n \n**2027**\n \n \n**2028**\n \n \n**2029**\n \n \n**2030**\n \n \n**Thereafter**\n \n \n**Total**\n \n\n**Contractual Obligations:**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n**Long-term debt (a)**\n$\n9,730,662\n \n$\n-\n \n$\n-\n \n$\n-\n \n$\n-\n \n$\n-\n \n$\n9,730,662\n \n\n**Convertible promissory notes (b)**\n \n9,907,272\n \n \n-\n \n \n-\n \n \n-\n \n \n-\n \n \n-\n \n \n9,907,272\n \n\n**Loans payable to related parties**\n \n781,591\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n781,591\n \n\n**Management consulting agreements (c)**\n \n547,200\n \n \n-\n \n \n-\n \n \n-\n \n \n-\n \n \n-\n \n \n547,200\n \n\n**Various third-party consulting and other agreements**\n \n545,000\n \n \n125,000\n \n \n125,000\n \n \n-\n \n \n-\n \n \n-\n \n \n795,000\n \n\n**Anticipated liquidity impact as of December 31, 2025**\n$\n21,511,725\n \n$\n125,000\n \n$\n125,000\n \n$\n-\n \n$\n-\n \n$\n-\n \n$\n21,761,725\n \n\n \n\n(a)\nThis amount represents the scheduled principal payments related to the Company's long-term debt excluding interest.\n\n \n \n\n \nRefer to note 9 to the consolidated financial statements for additional information on our long-term debt.\n\n \n \n\n(b)\nThe convertible promissory notes balance includes the principal balances plus accrued interest.\n\n \n \n\n(c)     \nThe management consulting contracts for the CEO and the CFO expired on December 31, 2024 and December 31, 2023 respectively. Although there are no contractual terms, the obligation noted above is based on the month-to-month fees for the services provided by the Company's officers for 2025.\n\n**Off-Balance Sheet Arrangements**\n\nWe have no off-balance sheet arrangements.\n\n**Going Concern**\n\nThe 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.\n\nAs at December 31, 2025, the Company had a working capital deficit of $40,416,007 (2024-$33,441,301), incurred a net loss of $5,686,869 (2024-$7,859,171) for the year and had an accumulated deficit of $52,116,571 (December 31, 2024-$46,429,702) and expects to incur further losses in the development of its business.\n\nOn January 10, 2024, the Company stopped receiving waste at its waste processing and composting operation in Belleville, Ontario Canada, to address several non-compliance matters described in orders from the Ministry of the Environment, Conservation and Parks (the \"MECP\"). The Company continues to seek investors to raise funds through debt or equity. The Company was unsuccessful in raising funds with a firm through an advisory and distribution agreement announced on December 14, 2023.\n\nThese factors cast substantial doubt as to the Company's ability to continue as a going concern, which is dependent upon its ability to obtain necessary financing to further the development of its business, satisfy its obligations to its creditors, and upon achieving profitable operations. There is no assurance of funding being available, or available on acceptable terms. Realization values may be substantially different from carrying values as recorded on these consolidated financial statements.\n\n34\n\nThese consolidated financial statements do not include any adjustments to reflect the potential 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. Such adjustments could be material.\n\n**Recently Accounting Pronouncements**\n\nThe following section provides a description of new accounting pronouncements (\"Accounting Standard Update\" or \"ASU\") issued by the Financial Accounting Standards Board (\"FASB\") that are applicable to the Company.\n\nIn December 2023, the FASB issued ASU No. 2023-09 (\"ASU 2023-09\"), Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis and early adoption is permitted. The Company is currently evaluating the potential effect of this accounting standard update on its consolidated financial statements and related disclosures. The adoption of ASU 2023-09 did not have a material impact on the Company's financial statements and disclosures.\n\nThere were no new accounting pronouncements issued and not yet adopted that were expected to have a material impact on the Company's consolidated financial position or results of operations in the current or future periods."}