Caution Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding
Sustainable Projects Group Inc.'s(the "Company" or "SPGX") capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the Company's ability to carry out its planned development and production of products. Forward-looking statements are made, without limitation, in relation to the Company's operating plans, the Company's liquidity and financial condition, availability of funds, operating and exploration costs and the market in which the Company competes. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined below, and, from time to time, in other reports the Company files with the SEC. These factors may cause the Company's actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Overview The following discussion of Sustainable Projects Group Inc.'s(the "Company") financial condition, changes in financial condition and results of operations for the three months ended June 30, 2020should be read in conjunction with the Company's unaudited consolidated interim financial statements and related notes for the three months ended June 30, 2020. Sustainable Projects Group Inc.is a business development company engaged in project development and holdings through value-based investments and collaborative partnerships with companies across sustainable sectors. It is continually evaluating and acquiring assets for holding and or development. The Company initiated its goals by pursuing investment and partnerships amongst diversified holdings and companies globally. The Company is currently involved in the evaluation and acquisition of assets and partnerships for holding or business development activities with a continued focus on sustainability projects. Plan of Operation The Company's plan of operation for the next 12 months is to continue to evaluate and acquire assets and partnerships for holding or business development activities, and to collaborate, develop and create new assets with a continued focus on sustainability. The Company is currently evaluating other projects to find attractive partnerships to expand the Company's business development activities. Other projects of interest that management is currently researching are in the field of sustainability. Covid-19 has had a significant impact on development of legacy projects, as well as the sourcing of new participations and partnerships. The company has experienced significant difficulty in virtually all aspects of project development, including but not limited to access to funding, sourcing of materials and machinery as well as staffing. For this reason, the company has undertaken a stringent cost cutting and operations optimization plan.
Form 10-Q – Q2
Currently, the Company is engaged in the following projects:
1. Gator Lotto 2.
Hero Wellness Systems Inc.and 3. YER Brands Inc.1. Cormo USA Inc. Cormo USA Inc.- Based on a letter of intent and a shareholder agreement, the Company entered into a joint venture with Cormo AG, a company incorporated in Switzerland, to assist in the business development of Cormo's operations in the United States. Cormo AGis in the business of producing and developing peat moss replacement and natural foam products and technologies. Also, for its participation in the joint venture, the Company will be required to provide certain services, including U.S.business development, management, market research, and determination of potential distribution channels. Under the agreement, Cormo USA Inchas exclusive marketing and distribution rights to Cormo AG'ssustainable agriculture business and suite of patents. Cormo's technology allows field waste from maize farms to be turned into a variety of products, including peat moss. In May 2019, a site was chosen for its first production facility, with production scheduled to start in late fall of 2020. The joint venture is controlled by Cormo AG(35%) and the Company (35%) equally with the balance of shares held by eight non-controlling shareholders. Cormo USA Inc.is in its development stage and in the process of establishing the first pilot project in the United States. Cormo USA Inc.intends to utilize the substantial corn production volume in the U.S.to gain a foothold in the agricultural industry and provide a revenue source for struggling farmers. Likewise, the company offers a viable alternative to harvested peat moss, a major source of carbon dioxide (CO2). Major consumers of peat moss, such as the horticultural industry are looking for a stable, price beneficial solution for their peat moss needs. At this time Cormo USA Inc.has initiated early discussions with several major industry partners and peat moss consumers across the United States. Additionally, Cormo USA Inc.is in the process of establishing industry partnerships to develop additional applications for the company's foam replacement product BABS. The company anticipates the distribution of peat moss replacement TEFA through its own brand of soil blends through retail channels and wholesale through partnerships with industrial end-users. The main uses of the company's BABS foam replacement are in the agricultural, industrial, and building materials industry. At this point, the company is in development stages with proven prototypes in the segments air filtrations and building materials. Cormo USA'sproducts are sustainable replacements for existing, widely-used materials, such as peat moss, building bricks and air filters. While "being green" is an attribute that speaks loudly, the Company realizes that it is operating in a crowded market space where the price is a bigger motivator for customers than sustainability. Hence, it will be vitally important for the company to operate under strict cost controls to fulfill its mission to offer "greener, better solutions - at better prices" to be commercially successful. On May 1st, 2020 Cormo USA Inc.signed a 2 year lease for an interim 108,000 sq ft. production site in Rushville, INas the company finalizes plants to construct its own 20-acre state-of-the art facility at the Rushville Commerce Park. Rushville, INoffers an excellent combination of access to raw materials (the region has 100's of thousands addressable acres of cornfields) and logistics given Indiana'sbeneficial location and connection to the United States Road, Rail and Ship transport channels. The company planned site improvements at the Rushvillesite that will continue into the early summer in anticipation of production equipment assembly and commission in time for the 2020 corn harvest. During these unprecedented times with the onset of the global pandemic, Covid-19 has disrupted the development of this business and presented a lot of challenges primarily related to knowledge transfer from the licensor, sourcing and/or price increases in equipment and financing. Cormo AGhas withdrawn its license agreement and therefore the joint venture has collapsed. The Company has impaired the investment of Cormo USAas of June 30, 2020.
Form 10-Q – Q2
2. Gator Lotto
Gator Lotto - In 2018 the Company acquired all technology assets including source code, graphics, and online assets for
US$400,000through the issuance of new shares. SPGX aims to commercialize this project which features a fully functioning lotto ticket management app (currently in version 2.0) with more than 40,000 downloads. Management plans to spin out this technology into a newly formed partnership within the next 24 months with the aim to increase monetization, user growth and eventual sale or licensing. The Company spent an additional $11,000to further develop the technology in 2019. See Exhibit 10.12 - Asset Purchase Agreement for more details. The latest version of the Lotto App was launched February 2019. The product currently covers lottery players in the state of Florida. The app is available for download on Android ( App Store) and its associated website www.gatorlotto.com. The app is currently in Version 2.0 offering stable optical character recognition of all major lottery games offered in the state of Florida, with real time updates.
Hero Wellness Systems Inc. Hero Wellness Systems Inc.("Hero Wellness") -Pursuant to the terms and conditions of a shareholder's agreement dated in September 29, 2018, the Company entered into a joint venture relationship originally for the purpose of importing, selling and distributing products offered by Vitalizer Internationalof Switzerland. However, due to supplies and other processing issues, Hero Wellness has sourced its own supplier and is now importing, selling and distributing its own products. The Company's participation in the joint venture is 55%. The Company's role is to provide certain services, including general management and day to day operations of the joint venture. Currently, the joint venture is comprised of the following ownership: 55% the Company with the balance of ownership held by two non-controlling owners. The Company was previously focused almost exclusively on the B2B market segment of the lifestyle and healthcare markets. B2B clients consisted of spas and salons, hotels and hospitality and entertainment venues in the United States. Covid has led to a near total collapse of B2B customer interest due to changes in disinfection between users and other safety protocols relating to Covid 19. This has led to a refocus on the B2C segment, focusing on direct to consumer sales through the company's webstore www.herochroma.com and additional websites operated by the company.
Hero Wellness Systems Inc.is dependent upon a functioning supply chain, as it sources finished products from its suppliers in China. Hero Wellness sees this as a risk-factor and is looking for alternative suppliers at this time. Thus far, the supplier has never experienced inventory shortfall, however increased logistics rates pose a risk to increased cost of goods sold. Additionally, due to its targeting retail customers through internet sales, as well as key account management to gain corporate customers, Hero Wellness is not dependent on singular customers. However, the company's products are considered luxury lifestyle products and thus are dependent on healthy consumer spending behavior. Slowdowns in consumer confidence could have a negative impact on purchasing behavior of these types of products across the economy. Hero Wellness Systems operates in a crowded market place. Several providers of massage chair products from low-end to high-end exist. Hero Wellness Systems Inc.operates in the high end-spectrum, competing against a number of established companies. The company aims to differentiate itself from existing providers through a higher level of service, including white glove delivery and significantly faster delivery times (through a US based in-sourced logistics operation).
Form 10-Q – Q2
4. Soy-yer Dough
May 8th, 2020 Sustainable Projects Group Inc.signed a letter of intent with inventors of the Soy-yer Dough product line, Sawyer and Samantha Sparks, to purchase all production rights, know-how, trademarks and manufacturing equipment of Soy-yer Dough. Soy-yer Dough is a soy and corn-based, gluten free modeling clay. It is estimated that up 6% of the US population suffers from some form of gluten intolerance, with approximately 1% of the US population suffering from the more severe form, Celiac Disease. The product gained initial commercial success when it was featured on the TV Show ABC's Shark Tank and was named as one of the most innovative product inventions by college students in the New York Times newspaper. Since its invention, the product has been sold in all 50 states in the United States, and to a smaller extent internationally, both online and in retail locations. However, with limited production capabilities and resources, growth prospects were limited. Sustainable Projects Grouphas formed YER Brands Inc.as a wholly-owned subsidiary to establish increased production and distribution capabilities of the Soy-yer Dough product line. Inventor and face of the brand, Sawyer Sparks, has agreed to take on the CEO position, while his wife and co-inventor Samantha Sparkswill be responsible for production. Production facilities will be co-located with one of the Company's portfolio companies, Cormo USA Inc.manufacturing facility to benefit from raw material sourcing, logistics and marketing infrastructure synergies. As of May 8th, the new company has begun site improvement at the Rushvilleproduction site and is anticipated to produce and ship first retail-ready products by mid-May 2020. Previously Soy-yer Dough was sold through the Online B2C, Brick and Mortar, and Scholastic Market. Over the past years, predominantly driven by limited production capacities, a heavy focus was placed on the scholastic market. With COVID-19 related shutdowns, that market has been severely impacted and is currently virtually non-existent even as schools have reopened across the United States. Upon production start, YER Brands Inc.will place initial focus on low-hanging online sales opportunities and upon increasing production capabilities later in 2020, it will initiate a campaign to regain footing in the brick-and-mortar sales channel. While the exact timing of school re-openings still appears uncertain, with some schools hoping to reopen for the fall semester 2020, management does not anticipate significant revenues from the scholastic sales channel until January 2021. There is a multitude of modeling clays available on the market, Soy-yer Dough shines as a "Made in the USA" and a "Gluten-Free" product with a long track record of positive reviews in the US media. Management believes the product is well positioned for market expansion in the near term. Additionally, YER Brands Incis in the planning stages for additional, value-added products that involve Soy-yer Dough modeling clay to further the product portfolio and potential revenue and profit generation. The majority of raw ingredients required for the formulation of the product are widely available and produced in the United States. The company does not anticipate supply chain issues for the main ingredients of the Soy-Yer Dough line of products. Additional raw materials are widely available, and several sources of suppliers exist. The company is not dependent on one single source of supplies for any of its ingredients and packaging materials and management sees limited supply chain and sourcing risks.
Form 10-Q – Q2
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 2020AND 2019 For the three For the three For the six For the six months ended months ended months ended months ended Jun 30 2020 Jun 30 2019 Jun 30 2020 Jun 30 2019 Revenues Gross Revenues $ 2,893 $ 986 $ 2,893 $ 95,986Operating Expenses Administrative and other operating expenses $ 36,816 $ 26,295 $ 62,407 $ 71,619Advertising and Promotion 5,775 2,660
5,775 6,181 Depreciation 16,897 30,805 50,657 61,590 Consulting fees 53,995 137,500 73,995 178,000 Management fees 29,500 22,500 74,500 45,000 Professional fees 8,000 28,178 18,250 52,124 Rent 10,809 8,069 24,992 18,961 Salaries and wages 22,674 45,945 40,959 103,054 Travel 1,022 23,863 4,922 30,969
Amortized right of use assets 11,349 16,312 27,661 32,625 Loss/Gain on disposition of assets 771,216 - 771,216 - Loss/Gain on deconsolidation (240,582 ) - (240,582 ) - 727,471 342,127 914,752 600,123 Operating income/loss before interest expense and impairment (724,578 ) (341,141 ) (911,859 ) (504,137 ) Other interest income - 1,819 - 3,605 Interest expense (586 ) (437 ) (1,172 ) (585 ) Impairment - - - - Operating loss before income taxes (725,164 ) (339,759 ) (913,031 ) (501,117 ) Loss/Gain attributed to disposition of non-controlling interest 449,589 - 506,622 - Net income/loss attributed to non-controlling interest 20,579 206,644 42,781 308,443
Net loss and overall loss
In addition, management plans to incur the following expenses over the next 12 months:
? Management plans to spend approximately
administrative costs per month for the next 12 months, for a total
planned spending of
the administrative costs for the year will mainly consist of professional costs
fees for audit and legal work relating to the Company’s regulatory filings
throughout the year, as well as transfer agent fees, development fees and
? Management plans to spend approximately
Obligations of the company as a reporting company under the Securities Exchange Act
of 1934. These expenses will consist mainly of professional fees relating to
the preparation of the financial statements of the Company and the realization and
filing of registration fees, annual report, quarterly report and current report
filings with the
SEC. As of June 30, 2020, the Company had cash of $1,947and total liabilities of $309,401. During the 12 month period following the date of this report, management anticipates that the Company will not generate enough revenue to continue the development of current projects and projects in the pipeline. Accordingly, the Company will be required to obtain additional financing in order to continue its plan of operations. Management believes that debt financing will not be an alternative for funding the Company's plan of operations as it does not have tangible assets to secure any debt financing. Rather management anticipates that additional funding will be in the form of equity financing from the sale of the Company's common stock. However, the Company does not have any financing arranged and cannot provide investors with any assurance that it will be able to raise sufficient funding from the sale of its common stock to fund its plan of operations. In the absence of such financing, the Company will not be able to develop its products and its business plan will fail. Even if the Company is successful in obtaining equity financing and developing its various business ventures, additional development of its website and marketing program will be required. If the Company does not continue to obtain additional financing, it will be forced to abandon its business and plan of operations.
Form 10-Q – Q2
Liquidity and capital resources
Six month period ended
June 30, 2020, the Company had a cash balance of $1,947and a working capital deficit of $161,063, compared to a cash balance of $68,992for the period ended December 31, 2019. The notes to the Company's financial statements as of June 30, 2020, disclose its uncertain ability to continue as a going concern. The Company has accumulated a deficit of $2,995,743since inception and has yet to achieve profitable operations and further losses are anticipated in the development of its business. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has $1,947cash on hand as at June 30, 2020. Cash used by operations was $82,777for the six month period ended June 30, 2020. The Company will need to raise additional cash in order to fund ongoing operations over the next 12 month period. The Company may seek additional equity as necessary and it expects to raise funds through private or public equity investment in order to support existing operations and expand the range of its business. There is no assurance that such additional funds will be available for the Company on acceptable terms, if at all.
Net cash flow provided by (used in) operating activities.
Net cash flows from operating activities during the six month period ended
June 30, 2020was net cash used in operations of $82,777which was primarily due to restructuring of liabilities and obligations.
Net cash flow from investing activities.
Net cash flows used in investing activities during the six-month period ended
Net cash flow from financing activities.
Net cash flows from financing activities during the six month period ended
June 30, 2020was net cash provided from financing activities of $20,000. This was generated due to issuance of shares for repayment of outstanding invoices from a service provider
Net Loss. During the six month period ended
June 30, 2020, the Company had a net loss of $913,183compared to a net loss for the same period for the previous year of $501,117. After allocations attributed to non-controlling interests, the loss for the six months attributed to stockholders was $363,628in 2020 compared to 192,674 in 2019.There were more expenses incurred during the same period last year due to more staff and resources.
Form 10-Q – Q2
Revenue. During the six month period ended
June 30, 2020, the Company had $2,893revenues as compared to $95,986for the same period last year. The increase in revenue was primarily due first revenues derived from product sales and a government emergency grant related to Covid-19. The Company's activities have been financed from the proceeds of share subscriptions and debt financing. Operating Expenses. The Company's operating expenses during the six month period ended June 30, 2020were $914,752as compared to the same period last year of $600,123. The increase in expenses relates to significant losses attributed to Loss on Disposal of Assets of $771,216which relates to the write down of the Cormo USAlicense and the write down of the Gator Lotto App. When the Company de-consolidated Cormo USA, there was a gain of $240,582. Going Concern The Company has not attained profitable operations and is dependent upon obtaining financing to pursue any extensive business activities. For these reasons the financial statements have been prepared assuming the Company will continue as a going concern. The Company has accumulated a deficit of $2,995,743since inception and has yet to achieve profitable operations and further losses are anticipated in the development of its business. The Company's ability to continue as a going concern is in substantial doubt and is dependent upon obtaining additional financing and/or achieving a sustainable profitable level of operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has $1,947cash on hand as at June 30, 2020. Cash used in operations was $82,777. The Company will need to raise additional cash in order to fund ongoing operations over the next 12 month period. The Company may seek additional equity as necessary, and it expects to raise funds through private or public equity investment in order to support existing operations and expand the range of its business. There is no assurance that such additional funds will be available for the Company on acceptable terms, if at all. Impact of COVID-19 With the present COVID-19 pandemic, the Company will need to manage its cash flow during these difficult times and funding resources may not be available as the outlook is uncertain. The Company's plan of operations may not proceed and can be held up due to the impact of COVID-19. These are unprecedented times and the Company will adjust to the new realties and will actively monitor the impact of the pandemic on the Company's business. The full extent of the impact of economic uncertainty on the Company's business, operations and financial results will depend on numerous factors that the Company may not be able to accurately predict. In an effort to protect the health and safety our employees and consultants, a significant amount of time is spent working remotely, international travel has been curtailed and a lot of our functions has been paused. Governments from around the world have enacted various measures to slow the spread and contain COVID-19. These measures include orders to close all businesses deemed "not essential", isolate residents to their homes and practice social distancing when engaging in essential activities. The Company anticipates that these actions and the global health crisis caused by the pandemic will continue to negatively impact business activity across the globe. It is not clear what the potential effects, if any, that such alterations or modifications may have on our business, financial condition and cash flows. The duration of these measures is also unknown and may be extended with additional imposed measures. The Company has applied for governmental subsidies and/or relief during this time and there is no assurance that such resources will be achievable or available for the Company. Future Financings
Management anticipates raising financing through debt financing or the sale of the Company's common stock in order to continue to fund its business operations. Issuances of additional common stock will result in dilution to the Company's existing stockholders. There is no assurance that the Company will achieve any additional sales of its common stock or arrange for debt or other financing
to fund its planned activities.
Form 10-Q – Q2
Off-balance sheet provisions
The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. Contingencies and Commitments
The Company entered into an agreement to sub-lease office space in
Naples, Floridaeffective September 1, 2018to March 31, 2021. The monthly base rent for the first year is $4,552.56(annual $54,630.75); the monthly base rent for the second year is $4,684.52(annual $56,214.25); and the monthly base rent for the third year is $4,816.48(annual $57,797.75). On May 31, 2020, the office lease was terminated and the Company agreed to pay the past due amount of $36,304. In addition, the Company also agreed that the sub-landlord may add a late fee of $50every weeks that there remains any past due rent. The Company is obligated to pay the sub-landlord an additional $32,300which represent all the remaining rent due, beginning June 1 2020through to December 2020. The $5,000security deposit provided by the Company has been relinquished and the sub-landlord may use those funds to pay the rent obligation. At June 30, 2020, the Company owed $36,304. At June 30, 2020, the Company has written off the remaining lease liability of $47,401and has written off the right of use asset o $44,907to reflect the extinguishment of the office lease, thereby creating a gain on disposal of the office lease of $2,494.
Tabular disclosure of contractual obligations
The Company is a small reporting company within the meaning of Rule 12b-2 of the Exchange Act and is not required to provide the information required under this point.
Critical Accounting Policies The Company's financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in
the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Management believes that understanding the basis and nature of the estimates and assumptions involved with the following aspects of the Company's financial statements is critical to an understanding of the Company's financial statements.
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