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 regardingSustainable 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 theSEC . 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 endedSeptember 30, 2020 should be read in conjunction with the Company's unaudited consolidated interim financial statements and related notes for the nine months endedSeptember 30, 2020 . 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-
Currently, the Company is engaged in the following projects:
1.Hero Wellness Systems Inc. and 2. YERBrands 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 withCormo AG , a company incorporated inSwitzerland , to assist in the business development of Cormo's operations inthe United States .Cormo AG is 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, includingU.S. business development, management, market research, and determination of potential distribution channels. Under the agreement,Cormo USA Inc has exclusive marketing and distribution rights toCormo AG's sustainable 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. InMay 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 byCormo 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 inthe United States .Cormo USA Inc. intends to utilize the substantial corn production volume in theU.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 timeCormo USA Inc. has initiated early discussions with several major industry partners and peat moss consumers acrossthe 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's products 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. OnMay 1st, 2020 Cormo USA Inc. signed a 2 year lease for an interim 108,000 sq ft. production site inRushville, IN as the company finalizes plants to construct its own 20-acre state-of-the art facility at theRushville Commerce Park .Rushville, IN offers an excellent combination of access to raw materials (the region has 100's of thousands addressable acres of cornfields) and logistics givenIndiana's beneficial location and connection to theUnited States Road , Rail and Ship transport channels. The company planned site improvements at theRushville site 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 AG has withdrawn its license agreement and therefore the joint venture has collapsed. The Company has impaired the investment ofCormo USA as ofJune 30, 2020 .
Form 10-
2. Gator Lotto
Gator Lotto - In 2018 the Company acquired all technology assets including source code, graphics, and online assets forUS$400,000 through the issuance of new shares. The Company 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$11,000 to further develop the technology in 2019. See Exhibit 10.12 - Asset Purchase Agreement for more details. The latest version of the Lotto App was launchedFebruary 2019 . The product currently covers lottery players in the state ofFlorida . 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 ofFlorida , with real time updates.
During
3.Hero Wellness Systems Inc. Hero Wellness Systems Inc. ("Hero Wellness") -Pursuant to the terms and conditions of a shareholder's agreement dated inSeptember 29, 2018 , the Company entered into a joint venture relationship originally for the purpose of importing, selling and distributing products offered byVitalizer International ofSwitzerland . 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 inthe 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 inChina . 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-
4. Soy-yer Dough
OnMay 8th, 2020 Sustainable Projects Group Inc. signed a letter of intent with inventors of the Soy-yer Dough product line, Sawyer andSamantha 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 inthe 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 formedYER 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-inventorSamantha 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 ofMay 8th , the new company has begun site improvement at theRushville production site and is anticipated to produce and ship first retail-ready products bymid-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 acrossthe 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 untilJanuary 2021 . There is a multitude of modeling clays available on the market, Soy-yer Dough shines as a "Made in theUSA " 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 inthe 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-
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2020 AND 2019 For the three For the three For the nine For the nine months ended months ended months ended months ended September 30, September 30, September 30, September 30, 2020 2019 2020 2019 Revenues Revenues $ 2,810 $ 9,743$ 82,765 $ 105,729 Operating Expenses Administrative and other operating expenses$ 20,358 $ 30,086 $ 82,765 $ 101,704 Advertising and Promotion -518 515 5,257 6,696 Depreciation 7,565 30,844 58,222 92,434 Consulting fees 2,500 114,000 76,495 292,000 Management fees - 37,500 74,500 82,500 Professional fees 3,500 9,540 21,750 61,664 Rent - 8,300 24,992 27,261 Salaries and wages 461 44,430 41,420 147,484 Travel - 12,755 4,922 43,724 Amortized right of use assets - 16,313 27,661 48,938 Loss/Gain on disposition of assets 359 - 141,215 - Loss on Asset Impairment - - 630,001 - Gain on De-Consolidation - - (295,543 ) - 34,225 304,283 894,015 904,405 Operating income/loss before interest expense and impairment (31,415 ) (294,540 ) (888,312 ) (798,676 ) Other interest income - 943 - 4,548 Interest expense (592 ) (573 ) (1,764 ) (1,158 ) Impairment - - - - Operating loss before income taxes (32,007 ) (294,170 ) (890,076 ) (795,286 ) Income Taxes - - - - Net income/loss attributed to non-controlling interest (2,576 ) 137,549 1,656 445,991 Net loss and comprehensive loss$ (34,583 ) $ (156,621 ) $ (436,760 ) $ (349,295 )
In addition, management anticipates incurring the following expenses during the next 12 month period:
? Management anticipates spending approximately
and administrative expenses per month for the next 12 months, for a total
anticipated expenditure of
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
SPGX'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 theSEC .
Form 10-
As atSeptember 30, 2020 , the Company had cash of$1,668 and total liabilities of$326,919 . 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 Comppany 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
Nine Month Period Ended
At
The notes to the Company's financial statements as ofSeptember 30, 2020 , disclose its uncertain ability to continue as a going concern. The Company has accumulated a deficit of$3,068,875 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$1,668 cash on hand as atSeptember 30, 2020 . Cash used in operations was$86,056 for the nine month period endedSeptember 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 Flows Provided By (Used in) Operating Activities.
Net cash flows from operating activities during the nine month period endedSeptember 30, 2020 was net cash used in operations$86,056 , which was primarily due to the decrease of our operating activities. The company incurred an operating loss of$436,760 which was reduced by non-cash expenses of$141,494 and changes in working capital of$209,210 .
Net Cash Flows From Investing Activities.
The Company's net cash flow used in investing activities during the nine month period endedSeptember 30, 2020 was$1,268 , which was primarily due to purchase of office equipment and proceeds of$3,000 from the sale of assets, as compared to a net cash flow provided by investing activities of$1,869 for the same time period for the prior fiscal period, which was primarily due to for purchase of office equipment, furniture and other assets.
Net Cash Flows From Financing Activities.
The Company's net cash flow from financing activities during the nine month period endedSeptember 30, 2020 was 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 as compared to$171,993 for the same time period for the prior fiscal period from proceeds of notes payable, proceeds from issuance of stock and proceeds from non-controlling interest.
Form 10-
Operations Results for the Three Month Period Ended
Net Loss. During the three month period endedSeptember 30, 2020 , the Company had a net loss of$32,007 , of which$2,576 was attributed to non-controlling interest, leaving a net loss of $. 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$156,621 , which was primarily due to professional fees, management fees, consulting fees, administrative and other operating expenses. These costs during the three month period endedSeptember 30, 2020 was primarily attributable to maintaining our operations. Revenue. During the three month period endedSeptember 30, 2020 , the Company had revenues of$2,810 compared to$9,743 from the same period in the prior year. The decrease in revenue 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 endedSeptember 30, 2020 were$34,225 as compared to the same time period for the prior fiscal period of$304,283 . 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.
Operations Results for the Nine Month Period Ended
Net Loss. During the nine month period endedSeptember 30, 2020 , the Company had a net loss of$890,076 of which$453,316 was attributed to non-controlling interest leaving$436,760 attributed to stockholders. The comparable period in the prior year had a net loss of$795,286 of which$349,295 was attributed to stockholders. The loss was primarily attributable to our continued growth of our operations for the current period.
Revenue. During the nine month period ended
Operating Expenses. The Company's operating expenses during the nine month period endedSeptember 30, 2020 were$894,015 as compared to$904,405 for the same period in the prior year. The decrease in operating expenses were primarily attributable to our cost cutting measures, which were implemented due to longer than expected Covid-19 impacts. The largest portion of operating expenses for the period can be attributed to impairment charges which amounted to$630,001 . 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$3,068,875 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$1,668 cash on hand as atSeptember 30, 2020 . Cash used in operations was$86,056 for the nine month period endedSeptember 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.
Form 10-
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 byHero 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. Contingencies and Commitments
The Company entered into an agreement to sub-lease office space inNaples, Florida effectiveSeptember 1, 2018 toMarch 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 ). OnMay 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$50 every weeks that there remains any past due rent. The Company is obligated to pay the sub-landlord an additional$32,300 which represent all the remaining rent due, beginningJune 1 2020 through toDecember 2020 . The$5,000 security deposit provided by the Company has been relinquished and the sub-landlord may use those funds to pay the rent obligation. AtJune 30, 2020 , the Company owed$36,304 . AtJune 30, 2020 , the Company has written off the remaining lease liability of$47,401 and has written off the right of use asset o$44,907 to 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 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 inthe 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-
© Edgar Online, source