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 nine months ended March
31, 2022 should be read in conjunction with the Company's audited consolidated
financial statements and related notes for the full year ended December 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 past
18 months have 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 modelling
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 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 had begun
site improvement at the Rushville production site and shipped first retail-ready
products by mid-May 2020. Currently the company does not produce retail ready
products as the lack of production facilities, and significant problems in
upscaling the production process will require significant development processes.
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. had hoped place initial focus on
low-hanging online sales opportunities and upon increasing production
capabilities later in 2020 in the scholastic market. At this time these
opportunities have no materlialized. Management does not anticipate significant
revenues from the scholastic sales channel until future periods.
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.
At this time, Yer Brands Inc. is searching for a production partner able to
upscale the process and to comply with more stringent regulatory requirements
Form 10-Q Sustainable Projects Group Inc. Page 4
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