Cautionary Note 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. (SPGX's or the Company's) capital
needs, business plans and expectations. Such forward-looking statements involve
risks and uncertainties regarding SPGX's ability to carry out its planned
development and production of products. Forward-looking statements are made,
without limitation, in relation to SPGX's operating plans, SPGX's liquidity and
financial condition, availability of funds, operating and exploration costs and
the market in which SPGX 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 SPGX files with
the SEC. These factors may cause SPGX's actual results to differ materially from
any forward-looking statement. SPGX 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 the Company's financial condition, changes in
financial condition and results of operations for the three months ended March
31, 2021 should be read in conjunction with the Company's unaudited consolidated
interim financial statements and related notes for the three months ended March
31, 2021.
The Company 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.
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 Sustainable Projects Group Inc. Page 2
Currently, the Company is engaged in the following projects:
1. Hero Wellness Systems Inc. and
2. YER Brands Inc.
1. 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 International
of 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. Additionally, the year
2021 has seen significant price erosion in the luxury massage chair segment,
with several generic Chinese competitive products entering the market. This led
to significant price pressures in this segment.
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 Sustainable Projects Group Inc. Page 3
2. YER Brands Inc.
On 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 Group has 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
Sparks will 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 Rushville production 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
Inc is 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 Sustainable Projects Group Inc. Page 4
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
For the three For the three
months ended months ended
March 31, 2021 March 31, 2020
Revenues
Gross Revenues $ 2,133 $ -
Cost of Goods Sold (2,815 ) -
Gross Margin (682 ) -
Operating Expenses
Administrative and other operating expenses 5,405 25,590
Advertising and Promotion 1,157 -
Depreciation 7,566 33,760
Consulting fees - 20,000
Management fees - 45,000
Professional fees 4,076 10,250
Rent - 14,183
Salaries and wages - 18,285
Travel - 3,900
Amortized right of use assets - 16.312
18,204 187,280
Operating income/loss before interest expense (18,886 ) (187,280 )
Interest expense (579 ) (586 )
Net loss and comprehensive loss (19,465 ) (187,866 )
Net loss attributed to non-controlling interest 1,800 32,331
Net loss and comprehensive loss attributed to
stockholders $ (17,665 ) $ (155,535 )In addition, management anticipates incurring the following expenses during the
next 12 month period:
? Management anticipates spending approximately $7,500 in ongoing general and
administrative expenses per month for the next 12 months, for a total
anticipated expenditure of $90,000 over the next 12 months. The general and
administrative expenses for the year will consist primarily of professional
fees for the audit and legal work relating to SPGX's regulatory filings
throughout the year, as well as transfer agent fees, development costs and
general office expenses.
? Management anticipates spending approximately $30,000 in complying with
Company's obligations as a reporting company under the Securities Exchange Act
of 1934. These expenses will consist primarily of professional fees relating
to the preparation of the Company's financial statements and completing and
filing its annual report, quarterly report, and current report filings with
the SEC.
Form 10-Q Sustainable Projects Group Inc. Page 5
As at March 31, 2021, the Company had cash of $2,429 and total liabilities of
$306,992. 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.
Liquidity and Capital Resources
Three Month Period Ended March 31, 2021
At March 31, 2021, the Company had a cash balance of $2,429 and a working
capital deficit of $167,174, compared to a cash balance of $1,265 for the period
ended March 31, 2020.
The notes to the Company's financial statements as of March 31, 2021, disclose
its uncertain ability to continue as a going concern. The Company has
accumulated a deficit of $3,118,294 since 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 $2,429 cash on hand as at March 31, 2021. Cash provided by
operations was $1,164 for the three month period ended March 31, 2021. 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 Flows Provided By (Used in) Operating Activities.
Net cash flows from operating activities during the three month period ended
March 31, 2021 was net cash provided in operations $1,164, which was primarily
due to the decrease of our operating activities and sale of some inventory.
Net Cash Flows From Investing Activities.
There was no cash flow used in investing activities during the three month
period ended March 31, 2021. .
Net Cash Flows From Financing Activities.
There was not cash flow generated from financing activities during the three
month ended March 31, 2021.
Form 10-Q Sustainable Projects Group Inc. Page 6
Operations Results for the Three Month Period Ended March 31, 2021
Net Loss. During the three month period ended March 31, 2021, the Company had a
net loss of $19,465, of which included an allocation of $1,800 attributed to
non-controlling interest, leaving a net loss of $17,665. The loss consisted
generally from consulting fees and other operating expenses such as
administrative fees, depreciation, and professional fees, compared to the same
time period for the prior fiscal period, when the Company had a net loss of
$187,866, which was primarily due to professional fees, management fees,
consulting fees, administrative and other operating expenses. These costs during
the three month period ended March 31, 2021 was primarily attributable to
maintaining our operations.
Revenue. During the three month period ended March 31, 2021, the Company had
revenues of $2,133 compared to $Nil from the same period in the prior year. The
slower than expected revenue increase was primarily due to our shortage of staff
and continued impact of the unprecedented Covid-19 crisis, which had significant
impact on consulting opportunities.
Operating Expenses. The Company's operating expenses during the three month
period ended March 31, 2021 were $18,204 as compared to the same time period for
the prior fiscal period of $187,280. Given the unprecedented impact of the
Covid-19 crisis and underlying uncertainty of financing and business expansion
opportunities, management implemented a stringent cost cutting program which led
to the significantly lower cost base for the company. The costs during the
three-month period ended March 31, 2020 included $44,989 from the operation of
Cormo. USA Inc.
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 $3,118,294
since 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 $2,429 cash
on hand as at March 31, 2021. Cash provided by operations was $1,164 for the
three month period ended March 31, 2021. 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.
Form 10-Q Sustainable Projects Group Inc. Page 7
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.
Inflation
Management anticipates increased inflation in all areas of operations. First
impacts, particular in freight rates can be anticipated on supplies imported by
Hero Wellness Systems Inc, due to increase container shipping rates.
Off-balance Sheet Arrangements
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.
Tabular Disclosure of Contractual Obligations
The Company is a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and is not required to provide the information required under this
item.
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 aspects of
the Company's financial statements is critical to an understanding of the
Company's financial statements. Please read the notes to the financial
statements for details.
Form 10-Q Sustainable Projects Group Inc. Page 8
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