UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| quarterly report under section 13 Or 15(d) of the securities exchange act of 1934 |
| For the quarterly period ended |
| transition report under section 13 Or 15(d) of the securities exchange act of 1934 |
For the transition period from ________________________________ to _______________________________
| Commission file number |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Larger accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
As of August 13, 2024, there were shares of the registrant’s common stock, $ par value, outstanding, which is the only class of common or voting stock of the registrant issued.
SUSTAINABLE PROJECTS GROUP INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
INDEX TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
| Page F-1 |
SUSTAINABLE PROJECTS GROUP INC.
CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| As at | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and deposits | ||||||||
| Right of Use Asset – Note 9 | ||||||||
| Equipment – Note 5 | ||||||||
| Intangible assets – Note 7 | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued liabilities – Note 8 | $ | $ | ||||||
| Amounts due to related parties – Note 12 | ||||||||
| Other payable – Note 4 | ||||||||
| Payroll liabilities | ||||||||
| Note payable, related party – Note 10, 12 | ||||||||
| Notes and interest payable – Note 10 | ||||||||
| Deposits received | ||||||||
| Lease liability, current portion – Note 9 | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease Liability obligation, long term – Note 9 | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common Stock – Note 11 Par Value: $ Authorized shares Common Stock Issued: (Dec 31, 2023 – ) | ||||||||
| Additional Paid In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Other Accumulated Comprehensive Gain (Loss) | ( | ) | ||||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to the unaudited interim consolidated financial statements.
| Page F-2 |
SUSTAINABLE PROJECTS GROUP INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three | For the Three | For the Six | For the Six | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Administrative and other operating expenses | $ | $ | $ | $ | ||||||||||||
| Advertising and promotion | ||||||||||||||||
| Amortization ROU Assets | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Consulting fees | ||||||||||||||||
| Management fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Office Maintenance & Utilities | ||||||||||||||||
| Wages and salaries | ||||||||||||||||
| Travel Expenses | ||||||||||||||||
| Vehicle expenses | ||||||||||||||||
| Stock based payments | ||||||||||||||||
| Lease liability expense | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating loss before other items | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Miscellaneous income | ||||||||||||||||
| Interest (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss - translation | ( | ) | ( | ) | ||||||||||||
| Net loss and comprehensive loss attributed to shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share of common stock | ||||||||||||||||
| -Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average no. of shares of common stock | ||||||||||||||||
| -Basic and diluted | ||||||||||||||||
See accompanying notes to the unaudited interim consolidated financial statements.
| Page F-3 |
SUSTAINABLE PROJECTS GROUP INC.
CONSOLIDATED INTERIM STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Six Months Ended June 30, 2024 and 2023
(Unaudited)
Par Value at | Additional | Accumulated Other | ||||||||||||||||||||||
| Common | $0.0001 | Paid-in | Accumulated | Comprehensive | ||||||||||||||||||||
| For June 30, 2024 | Shares | Amount | Capital | Deficit | Loss | Total | ||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock based payments | - | ( | ) | |||||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Common | Par Value at $0.0001 | Share | Additional Paid-in | Shares | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||||
| For June 30, 2023 | Shares | Amount | Capital | Capital | Subscribed | Deficit | Loss | Total | ||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common stock issued in reverse acquisition* | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares subscribed at $ per share | - | |||||||||||||||||||||||||||||||
| Shares subscribed at $ per share | - | |||||||||||||||||||||||||||||||
| Stock based payments | - | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| * |
See accompanying notes to the unaudited interim consolidated financial statements.
| Page F-4 |
SUSTAINABLE PROJECTS GROUP INC.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six | For the Six | |||||||
| Months Ended | Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Cash Flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| ROU amortization | ||||||||
| Stock based compensation | ||||||||
| Interest on lease payments | ||||||||
| Changes in current assets and liabilities | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Interest payable | ||||||||
| Payroll liabilities | ( | ) | ||||||
| Other payables | ( | ) | ||||||
| Deposits received | ( | ) | ||||||
| Deferred revenue | ||||||||
| Amount due to related parties | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from investing activities: | ||||||||
| Office equipment | ( | ) | ( | ) | ||||
| Filtration equipment | ( | ) | ( | ) | ||||
| Intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from financing activities: | ||||||||
| Proceeds from note and interest payable, related party | ||||||||
| Proceeds from note payable and interest payable | ||||||||
| Shares subscribed | ||||||||
| Common stock issued in reverse acquisition | ( | ) | ||||||
| Lease payments | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of foreign exchange on cash | ( | ) | ||||||
| Net (decrease) increase in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental Disclosures | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
See accompanying notes to the unaudited interim consolidated financial statements.
| Page F-5 |
SUSTAINABLE PROJECTS GROUP INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
1. Organization and Nature of Operations
Sustainable Projects Group Inc. (the “Company”) was incorporated in the State of Nevada, USA on September 4, 2009 as Blue Spa Incorporated. On December 19, 2016, the Company amended its name from “Blue Spa Incorporated” to “Sustainable Petroleum Group Inc.” On September 6, 2017, the Company obtained a majority vote from its shareholders to amend the Company’s name from “Sustainable Petroleum Group Inc.” to “Sustainable Projects Group Inc.” to better reflect its business at the time. The name change was effective on October 20, 2017. Prior to the Exchange Transaction (as defined below), the Company was a multinational business development company that pursued investments and partnerships with companies across sustainable sectors. The Company also was involved in consulting services and collaborative partnerships.
The Company is a pure-play lithium company focused on supplying high performance lithium compounds to the fast-growing electric vehicle and broader battery markets. It has developed a proprietary technology to extract lithium from oilfield wastewater, which it believes will enable it to manufacture lithium compounds quickly, at an attractive cost, and with a minimal environmental footprint, which it expects to provide a competitive advantage over other lithium manufacturers.
On February 14, 2023, the Company entered into a Securities Exchange Agreement (the “Agreement”) with Lithium Harvest ApS (“Lithium Harvest”), and all the shareholders of Lithium Harvest (the “Shareholders”). Pursuant to the Agreement, the Company acquired all outstanding shares of capital stock of Lithium Harvest in exchange for issuing to the Shareholders shares of the Company’s common stock (the “Exchange Transaction”). In addition, the lender of a convertible note payable exercised its conversion feature and received shares of common stock in exchange for its debt and interest. The Exchange Transaction represents a change of control and was accounted for as a reverse acquisition with Lithium Harvest being the accounting acquirer and the Company being the accounting acquiree. As a result of the transaction, the number of shares of common stock outstanding was increased to .
The Company’s year-end is December 31.
2. Going Concern
These consolidated interim financial statements have been prepared in conformity with generally accepted accounting principles in the United States or “GAAP,” which contemplate continuation of the Company as a going concern. However, the Company has limited revenue and has sustained operating losses resulting in a deficit. In view of these matters, realization of a major portion of the assets in the accompanying consolidated interim balance sheets is dependent upon the continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements, and the successful completion of the Company’s planned lithium production facilities.
The
Company has accumulated a deficit of $
The
Company had $
| Page F-6 |
3. Summary of accounting policies
Basis of presentation
While the information presented is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cashflows for the interim period presented in accordance with GAAP. All adjustments are of a normal recurring nature. These consolidated interim financial statements should be read in conjunction with the Company’s audited December 31, 2023 year-end financial statements. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that can be expected for the year ending December 31, 2024.
Reverse Acquisition
The Exchange Transaction between the Company and Lithium Harvest was accounted for as a “reverse acquisition” since, immediately following completion of the Exchange Transaction, the Shareholders effectuated control of the post-combination Company. For accounting purposes, Lithium Harvest was deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of Lithium Harvest (i.e., a capital transaction involving the issuance of shares by the Company for the shares of Lithium Harvest). Accordingly, the consolidated assets, liabilities and results of operations of Lithium Harvest became the historical financial statements of the Company and its subsidiaries, and the Company’s assets, liabilities and results of operations were consolidated with those of Lithium Harvest beginning on the acquisition date. No step-up in basis or intangible assets or goodwill was recorded in this Exchange Transaction. As a result of the Exchange Transaction, Lithium Harvest became a wholly owned subsidiary of the Company.
Restatement of Previously Issued Consolidated Financial Statements
The Company restated its Consolidated Interim Balance Sheets as of June 30, 2023, Consolidated Interim Statements of Operations and Comprehensive Loss, Consolidated Interim Statements of Stockholders’ Deficit, Consolidated Interim Statements of Cash Flows and its Notes to the Consolidated Interim Financial Statements for each of the three and six months ended June 30, 2023 and 2022, which was originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 22, 2023 (the “Original Form 10-Q”). These consolidated interim financial statements were restated to reflect the identification of impairment of goodwill, intellectual property and inventories associated with the Company’s intellectual property related to its YER Brands subsidiary in the three and six months ended June 30, 2023 and 2022. These financial statements include the impairment of inventory, intellectual properties and intangible assets of YER Brands Inc.
1. Restatement of Financial Statements:
The Company restated its financial statements as of and for the three and six months ended June 30, 2023 and 2022, included in its Original Form 10-Q, due to the identification of impairment of goodwill associated with the Company’s intellectual property related to its YER Brands subsidiary. This impairment occurred subsequent to the filing of the Original Form 10-Q, retroactively, and resulted in material adjustments to the consolidated interim financial statements. The impairment assessment was performed in accordance with GAAP.
2. Change in Accounting Treatment of Reverse Acquisition:
The Company revised its accounting treatment for a reverse acquisition that was previously reported in its Original Form 10-Q. Upon further evaluation, the Company determined that prior year adjustments were necessary. The Company impaired goodwill and intellectual property and wrote-off inventory of YER Brands Inc. as of the year ended December 31, 2021.
Consolidation
The accompanying consolidated unaudited interim financial statements include the accounts of the Sustainable Projects Group Inc., Lithium Harvest ApS and YER Brands Inc. All significant intercompany transactions have been eliminated in the consolidation process.
| Page F-7 |
Operating Leases – Right of Use Assets
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases (“Topic 842”). The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset (“ROU asset”) and a lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract.
The Company adopted the new standard as of April 1, 2023. The Company has elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less. There are no other material asset leases, whether operating or finance, except as indicated below.
Lithium
Harvest has one office lease. The lease conveys no ownership at the end of the lease term and contains no purchase option nor any guarantee
of residual value. The lease does not contain renewal periods at the end of the term. The lease is amortized straight line over the entire
term of the office lease agreement. The Company uses an annual interest rate of
Lithium
Harvest has one software lease. The lease conveys no ownership at the end of the lease term and contains no purchase option nor any guarantee
of residual value. The lease has one renewal period of one year at the end of the term. The lease is amortized straight line over the
entire term of the software lease. The Company uses an annual interest rate of
Lithium
Harvest has one equipment lease. The lease conveys no ownership at the end of the lease term and contains no purchase option nor any
guarantee of residual value. The lease does not contain renewal periods at the end of the term. The lease is amortized straight line
over the entire term of the equipment lease. The Company uses an annual interest rate of
Lithium
Harvest has one service equipment lease. The lease conveys no ownership at the end of the lease term and contains no purchase option
nor any guarantee of residual value. The lease does not contain renewal periods at the end of the term. The lease is amortized straight
line over the entire term of the service equipment lease. The Company uses an annual interest rate of
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies previously disclosed in the December 31, 2023 annual report.
| Page F-8 |
Use of estimates
The preparation of the consolidated interim financial statements in conformity with 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 revenue and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
Segment Reporting
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance of its various businesses on a corporation-wide basis. As of June 30, 2024, the Company has three reportable segments: YER Brands, Sustainable Projects Group and Lithium Harvest. The segments are determined based on several factors including the nature of products and services, nature of production processes and delivery channels and consultancy services. Each operating segment’s performance is evaluated based on its segment income. Segment income is defined as gross sales and miscellaneous income. For the six months ended June 30, 2024 and the year ended December 31, 2023, segment income and total assets were reported as follows:
| For the Six | For the Year | |||||||
| Months Ended | Ended | |||||||
June 30, 2024 | December 31, 2023 | |||||||
| Sales and miscellaneous income | ||||||||
| Sustainable Projects Group | $ | $ | ||||||
| YER Brands | ||||||||
| Lithium Harvest | ||||||||
| Total Sales | $ | $ | ||||||
| Total Assets | ||||||||
| Sustainable Projects Group | $ | $ | ||||||
| YER Brands | ||||||||
| Lithium Harvest | ||||||||
| Total Assets | $ | $ | ||||||
Revenue Recognition
The Company adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company recognizes revenue when the Company transfers promised services to the customer. The performance obligation is the monthly services rendered. The Company has one main revenue source at the moment from Lithium Harvest, which is sub-leasing office space with and/or without furniture. Accordingly, the Company recognizes revenue when services are provided. This revenue is billed in advance, arrears and/or is prepaid. The performance obligation is the monthly services rendered. Where there is a sub-leasing contract for office space with and/or without furniture, the Company bills monthly for its services as rendered. Where there is no contract, the revenue is recognized when received.
The Company recognizes revenue in accordance with ASC 606 using the following five steps to identify revenues:
| ● | identify the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
Sub-leasing office
The Company recognizes revenue when the Company transfers promised services to the customer. The performance obligation is the monthly services rendered. The Company has one main revenue source at the moment from Lithium Harvest, which is sub-leasing office space with and/or without furniture. Accordingly, the Company recognizes revenue when services are provided. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. Where there is a sub-leasing contract for office space with and/or without furniture, the Company bills monthly for its services as rendered.
| Page F-9 |
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied.
Advances from clients’ deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances from clients’ deposits are recognized as revenue as we meet specified performance obligations as detailed in the contract.
The income earned from sub-leasing office space is recognized as “miscellaneous income”.
Accounts Receivable and Concentration of Risk
Accounts receivable, net is stated at the amount the Company expects to collect, or the net realizable value. The Company provides a provision for allowances that includes returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Recently issued accounting pronouncements
The Company adopts new pronouncements relating to GAAP applicable to the Company as they are issued, which may be in advance of their effective date. Management does not believe that any pronouncements not included above will have a material effect on the Company’s consolidated financial statements.
4. Other Receivables/Payables
Other
receivables/payables pertain to VAT (value added taxes) receivables/payables of Lithium Harvest. The standard VAT rate in Denmark is
5. Equipment
Equipment as of June 30, 2024 and December 31, 2023 is summarized as follows:
| Accumulated | ||||||||||||
| As of June 30, 2024 | Cost | Depreciation | Net | |||||||||
| Computer | $ | $ | $ | |||||||||
| Equipment | ||||||||||||
| Office Furniture & Equipment | ||||||||||||
| Machinery under construction | ||||||||||||
| $ | $ | $ | ||||||||||
| Accumulated | ||||||||||||
| As of December 31, 2023 | Cost | Depreciation | Net | |||||||||
| Computer | $ | $ | $ | |||||||||
| Equipment | ||||||||||||
| Office Furniture & Equipment | ||||||||||||
| Machinery under construction | ||||||||||||
| $ | $ | $ | ||||||||||
Machinery under construction has not been depreciated as it is not yet available for use.
6. Reverse Acquisition
On
February 14, 2023, the Company entered into the Agreement with Lithium Harvest and all the Shareholders. Pursuant to the Agreement, the
Company acquired all outstanding shares of capital stock of Lithium Harvest in exchange for issuing to the Shareholders shares
of the Company’s common stock. The lender of a convertible note payable exercised its conversion feature and received
shares of common stock in exchange for its debt and interest. The Exchange Transaction represents a change of control and was accounted
for as a reverse acquisition with Lithium Harvest being the accounting acquirer and the Company being the accounting acquiree. As a result
of the Exchange Transaction, the number of shares of common stock outstanding increased to . The purchase price of Lithium
Harvest was valued at $
| Page F-10 |
7. Intangible Assets
Intangible assets as of June 30, 2024 and December 31, 2023 are summarized as follows:
| Accumulated | ||||||||||||
| As of June 30, 2024 | Cost | Depreciation | Net | |||||||||
| Patent - Denmark | $ | $ | $ | |||||||||
| Accumulated | ||||||||||||
| As of December 31, 2023 | Cost | Depreciation | Net | |||||||||
| Patent - Denmark | $ | $ | $ | |||||||||
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of June 30, 2024 and December 31, 2023 are summarized as follows:
| Accounts Payable: | Jun 30, 2024 | Dec 31, 2023 | ||||||
| Accounting fee | $ | $ | ||||||
| Audit fee | ||||||||
| Consulting fee | ||||||||
| Machinery under construction | ||||||||
| Rental expenses | ||||||||
| Professional fees | ||||||||
| Others | ||||||||
| $ | $ | |||||||
| Accrued liabilities: | Jun 30, 2024 | Dec 31, 2023 | ||||||
| Professional fees | $ | $ | ||||||
| Accounting fees | ||||||||
| Audit fees | ||||||||
| General and Administrative | ||||||||
| $ | $ | |||||||
| Page F-11 |
9. Right of Use Assets and Lease Liability
The
Company has entered into lease agreements with various third parties. The terms of the Company’s operating leases range from
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Right-of-use asset | ||||||||
| Right-of-use asset, net | $ | $ | ||||||
| Lease liability | ||||||||
| Current lease liability | $ | $ | ||||||
| Non-current lease liability | ||||||||
| Total lease liability | $ | $ | ||||||
| Remaining lease term and discount rate | ||||||||
| Weighted average remaining lease term | ||||||||
| Discount rate used | % | % | ||||||
Commitments
The following table summarizes the future minimum lease payments due under the Company’s operating leases as of June 30, 2024:
| Remainder of 2024 | $ | |||
| Thereafter | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ |
10. Notes Payable, Convertible Notes Payable and Obligation to Issue Shares
On
March 1, 2019, the Company entered into an unsecured loan agreement for $
| Page F-12 |
On
July 23, 2021, the Company borrowed $
During
the year ended December 31, 2023, Lithium Harvest entered into two notes payable with a company controlled by the CEO of the Company,
with one note in the principal amount of $
On
March 29, 2023, the Company entered into a $
On
April 28, 2023, a company controlled by a director and the Chief Technology Officer of the Company loaned the Company $
On
June 27, 2024, a company controlled by a director and the Chief Executive Officer of the Company loaned the Company $
11. Common Stock
There were no stock transactions during the period ended June 30, 2024. At June 30, 2024, the Company had shares of common stock issued and outstanding.
The following stock transactions occurred with respect to the Company’s common stock during the year ended December 31, 2023:
| a) | On
February 14, 2023, shares of common stock valued at $ | |
| b) | On
February 14, 2023, | |
| c) | On
August 18, 2023, shares of common stock valued at $ | |
| d) | On
August 18, 2023, an aggregate of shares of common stock valued at $ | |
| e) | On
December 22, 2023, an aggregate of shares of common stock valued at $ |
As of December 31, 2023, the Company had shares of common stock issued and outstanding.
12. Related Party transactions
Related party transactions as of June 30, 2024 and December 31, 2023 are summarized as follows:
| Jun 30, 2024 | Dec 31, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| $ | $ | |||||||
Stefan
Muehlbauer resigned as a director on February 14, 2023 and is currently the Chief Financial Officer (“CFO”). During the six
months ended June 30, 2024, the Company incurred management fees to the CFO totaling an aggregate of $
| Page F-13 |
On
February 14, 2023, Tiffany Muehlbauer resigned as Chief Technology Officer. At June 30, 2024, $
At
June 30, 2024, the Company owed a company controlled by the above two related parties $
On
February 14, 2023, Sune Mathiesen became a director and Chief Executive Officer (“CEO”) of the Company. During the six months
ended June 30, 2024, Lithium Harvest incurred management fees payable to the CEO totaling an aggregate of $
Effective on April 1, 2024, the employment agreement with Mr. Mathiesen
and Lithium Harvest was terminated by mutual agreement of the parties and Mr. Mathiesen entered into a new executive employment agreement
with the Company (the “CEO Employment Agreement”). Under the terms of the CEO Employment
Agreement, Mr. Mathiesen will continue to serve as the Company’s chief executive officer until December 31, 2025, except upon earlier
termination pursuant to the terms of the CEO Employment Agreement. Pursuant
to the CEO Employment Agreement, Mr. Mathiesen is entitled to an annual
base salary of $
At
June 30, 2024, a company controlled by a director and CEO was owed $ (June 30, 2023 - $
On
February 14, 2023, Paw Juul became the Chief Technology Officer (“CTO”) of the Company. During the six months ended June
30, 2024, Lithium Harvest incurred management fees from the CTO totaling an aggregate of $
On
April 28, 2023, a company controlled by a director and CTO of the Company, Paw Juul, loaned the Company $
At
June 30, 2024, a company controlled by the CEO and CTOs of the Company
(Sune Mathiesen and Paw Juul), was owed $
| Page F-14 |
On May 10, 2023, the Company granted restricted stock unit (“RSU”)
awards to certain key employees and directors under the Company’s 2023 Equity Incentive Plan (the “Incentive Plan”).
The settlement of these RSU awards was subject to stockholder approval. The Company was authorized to grant options and other stock-based
awards to executive officers, directors, employees and consultants enabling them to acquire up to
RSU awards were subject to vesting spread over time at the discretion of the committee administering the Incentive Plan. Upon the vesting of RSUs and the Company’s determination that any necessary conditions precedent to the release of vested shares had been satisfied, such vested shares would have been made available to the participants. The RSU awards granted on May 10, 2023 provided that the recipients did not have rights of a stockholder prior to vesting. The fair value of the Company’s common stock on the grant date was $per share. At June 30, 2024, the stock based compensation expense was $.
Pursuant to the terms of the Incentive Plan, because the Incentive Plan did not receive approval of the Company’s stockholders on or before May 10, 2024, the Incentive Plan and all awards issued thereunder are of no further force and effect. Therefore, the Incentive Plan and all RSU awards issued under the Incentive Plan automatically terminated on May 11, 2024.
The table below sets forth the original vesting schedule with respect to the RSUs granted on May 10, 2023.
| Vesting Schedule (Number of Shares) | ||||||||||||||||||
| Name | Title | Total RSUs | May 10, 2024 | May 10, 2025 | May 10, 2026 | |||||||||||||
| Sune Mathiesen | CEO, Director | |||||||||||||||||
| Paw Juul | CTO, Director | |||||||||||||||||
| Stefan Muehlbauer | CFO, Secretary | |||||||||||||||||
| Kristian Jensen | Director | |||||||||||||||||
On February 1, 2024, the Company received the resignation of Kristian Jensen as director. In accordance with the Incentive Plan, the unvested RSU award granted to Mr. Jensen in the amount of units was forfeited. Below was the updated vesting schedule prior to the automatic termination of the RSUs on May 11, 2024:
| Vesting Schedule (Number of Shares) | ||||||||||||||||||
| Name | Title | Total RSUs | May 10, 2024 | May 10, 2025 | May 10, 2026 | |||||||||||||
| Sune Mathiesen | CEO, Director | |||||||||||||||||
| Paw Juul | CTO, Director | |||||||||||||||||
| Stefan Muehlbauer | CFO, Secretary | |||||||||||||||||
14. Commitments and Contingencies
At June 30, 2024, there were no commitments or contingencies to report other than what has been disclosed in this report.
15. Income Taxes
The Company and its subsidiaries file separate income tax returns.
The
Company files income tax returns in the United States of America and in the States of Florida and Indiana for Sustainable Projects
Group Inc. and YER Brands Inc., respectively, and is subject to a U.S. federal corporate income tax rate of
16. Legal Matters
The Company has no known legal issues pending.
17. Subsequent Events
Subsequent
to June 30, 2024, a company controlled by the CEO and director of the Company loaned the Company an additional aggregate of approximately
$
| Page F-15 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Cautionary Language Regarding Forward-Looking Statements and Industry Data
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, many of which are beyond our control. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in this report. Important factors that may cause actual results to differ from projections include, but are not limited to:
| ● | changes in economic and business conditions; | |
| ● | estimates of and volatility in lithium prices or demand for lithium; | |
| ● | our limited operating history in the lithium industry; | |
| ● | availability of raw materials; | |
| ● | increases in the cost of raw materials and energy; | |
| ● | the pace of adoption and cost of developing electric transportation and storage technologies dependent upon lithium batteries; | |
| ● | changes in our market in general; | |
| ● | the occurrence of regulatory actions, proceedings, claims or litigation; | |
| ● | changes in laws and government regulations impacting our operations; | |
| ● | the effects of climate change, including any regulatory changes to which we might be subject; | |
| ● | hazards associated with chemicals manufacturing; | |
| ● | changes in accounting standards; | |
| ● | our ability to access capital and the financial markets; | |
| ● | volatility and uncertainties in the debt and equity markets; | |
| ● | the development of an active trading market for our common stock; | |
| ● | the occurrence of cyber-security breaches, terrorist attacks, industrial accidents or natural disasters; | |
| ● | technology or intellectual property infringement, including through cyber-security breaches, and other innovation risks; | |
| ● | recruiting, training and developing employees; | |
| ● | our failure to successfully execute our growth strategy, including any delays in our future growth; | |
| ● | our ability to begin construction of our manufacturing facilities as planned; | |
| ● | our ability to enter into supply and other vendor agreements necessary to sustain our operations; | |
| ● | decisions we may make in the future; and | |
| ● | other specific risks that may be referred to in this report. |
| Page 2 |
All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements or other information contained herein. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions, or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 4, 2023, and in Part II, Item 1A. “Risk Factors” in any Quarterly Reports on Form 10-Q filed subsequently thereto, including any risks described in Part II, Item 1A. “Risk Factors” of this report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements, except as required by federal securities laws.
Overview
Sustainable Projects Group Inc. (“SPGX,” “we,” “us,” our” or the “Company”) is a pure-play lithium company focused on supplying high performance lithium compounds to the fast-growing electric vehicle and broader battery markets. We have developed a proprietary technology to extract lithium from oilfield wastewater, which we believe will enable us to manufacture lithium compounds quickly, at an attractive cost, and with a minimal environmental footprint, which we expect to provide us with a competitive advantage over other lithium manufacturers. We believe this competitive advantage will enable us to capitalize on the acceleration of vehicle electrification and renewable energy adoption.
We plan to start construction of our first two lithium carbonate manufacturing facilities in North Dakota in the second half of 2024, which we anticipate will be capable of manufacturing up to a total of 2,800 metric tons of lithium carbonate, and we plan to begin manufacturing battery-grade lithium compounds at such facilities in the second half of 2025. We plan to continue to invest in manufacturing capacity and aim to have a total manufacturing capacity of approximately 6,000 metric tons of lithium carbonate by the end of 2026. No assurance can be given that we will be able to establish such facilities or begin manufacturing within this timeframe or at all.
On February 14, 2023, we entered into the Exchange Agreement with Lithium Harvest and all of the Shareholders. Pursuant to the terms of the Exchange Agreement, we acquired all of the outstanding shares of capital stock of Lithium Harvest in exchange for issuing to the Shareholders 206,667,233 shares of our common stock. The Exchange Transaction closed on February 14, 2023.
Prior to the Exchange Transaction, we were a business development company engaged in project development and holdings through value-based investments and collaborative partnerships, including a joint venture relationship with Hero Wellness Systems Inc. and a purchase agreement with the inventors of the Soy-yer Dough product line. During September 2022, we decided to exit the joint venture with Hero Wellness, and following the Exchange Transaction, we have not made final plans on the Soy-yer Dough project. We impaired our intangible assets associated with this project as of December 31, 2021.
| Page 3 |
SUSTAINABLE PROJECTS GROUP INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three | For the Three | For the Six | For the Six | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Administrative and other operating expenses | $ | 24,868 | $ | 28,387 | $ | 125,898 | $ | 47,451 | ||||||||
| Advertising and promotion | 5,290 | 8,157 | 7,437 | 8,157 | ||||||||||||
| Amortization ROU Assets | 59,475 | 58,878 | 118,991 | 58,878 | ||||||||||||
| Depreciation | 10,357 | 11,687 | 20,569 | 12,457 | ||||||||||||
| Consulting fees | 2,010 | 61,221 | 2,010 | 61,221 | ||||||||||||
| Management fees | 216,864 | 191,885 | 484,445 | 393,476 | ||||||||||||
| Professional fees | 69,673 | 55,622 | 147,615 | 138,930 | ||||||||||||
| Rent expense | - | 2,194 | - | 51,801 | ||||||||||||
| Office Maintenance & Utilities | 45,545 | 36,116 | 88,434 | 36,116 | ||||||||||||
| Wages and salaries | 150,602 | 146,236 | 295,931 | 199,712 | ||||||||||||
| Travel Expenses | 18,501 | 10,319 | 48,219 | 17,337 | ||||||||||||
| Vehicle expenses | 14,247 | 18,878 | 38,200 | 18,878 | ||||||||||||
| Stock based payments | - | 164,236 | 148,195 | 164,236 | ||||||||||||
| Lease liability expense | 41,575 | 45,718 | 84,263 | 45,718 | ||||||||||||
| Research and development | 207 | - | 7,977 | - | ||||||||||||
| Total Operating Expenses | 659,214 | 839,534 | 1,618,184 | 1,254,368 | ||||||||||||
| Operating loss before other items | (659,214 | ) | (839,534 | ) | (1,618,184 | ) | (1,254,368 | ) | ||||||||
| Miscellaneous income | 82,725 | 69,817 | 169,897 | 91,391 | ||||||||||||
| Interest (expense) income | (810 | ) | (976 | ) | (1,620 | ) | 252 | |||||||||
| Net loss | (577,299 | ) | (770,693 | ) | (1,449,907 | ) | (1,162,725 | ) | ||||||||
| Comprehensive gain (loss) - translation | 15,611 | (6,959 | ) | 67,431 | (11,857 | ) | ||||||||||
| Net loss and comprehensive loss attributed to shareholders | $ | (561,688 | ) | $ | (777,652 | ) | $ | (1,382,476 | ) | $ | (1,174,582 | ) | ||||
| Loss per share of common stock | ||||||||||||||||
| -Basic and diluted | $ | (0.002 | ) | $ | (0.003 | ) | $ | (0.005 | ) | $ | (0.005 | ) | ||||
| Weighted average no. of shares of common stock | ||||||||||||||||
| -Basic and diluted | 296,037,813 | 287,190,813 | 296,037,813 | 217,959,199 | ||||||||||||
See accompanying notes to the unaudited interim consolidated financial statements.
Results of Operations
Quarter Ended June 30, 2024 Compared to the Quarter Ended June 30, 2023
Operating Expenses. The Company’s operating expenses during the three months ended June 30, 2024 were $659,214 as compared to $839,534 for the same time period of the prior fiscal year. The decrease in operating expenses can be primarily attributed to a decrease in stock based payments from $164,236 during the three months ended June 30, 2023 to $Nil for the same period during the year 2024 and consulting fees from $61,221 during the three months ended June 30, 2023 to $2,010 for the same period during the year 2024, partially offset by an increase in management fees from $191,885 for the three months ended June 30, 2023 to $216,864 for the same period in 2024.
Miscellaneous Income. During the three months ended June 30, 2024, the Company had miscellaneous income of $82,725 compared to $69,817 during the same prior fiscal year period. This increase in miscellaneous income was attributable to income from sub-leases of office space at our Denmark office.
Net Loss. During the three months ended June 30, 2024, the Company had a net loss of $577,299, compared to a net loss of $770,693 in the same prior fiscal year period. The decreased net loss was largely attributable to lower stock based payments and consulting expenses during the three months ended June 30, 2024 as compared to the same period during the year 2023.
Translation Gain (Loss). During the three-month period ended June 30, 2024, the Company had a translation gain of $15,611 as compared to a translation loss of $6,959 during the same period during the year 2023. Translation gains and losses stem from variability in the exchange rate between U.S. Dollars and Danish Krone.
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Operating Expenses. The Company’s operating expenses during the six months ended June 30, 2024 were $1,618,184 as compared to $1,254,368 for the same time period of the prior fiscal year. The increase in operating expenses can be primarily attributed to the expansion of business activities following the reverse acquisition of Lithium Harvest. The most significant cost drivers are related to wages and salaries, which increased from $199,712 in the first half of 2023 to $295,931 during the first half of 2024. Additionally, the increase in operating expenses was affected by a significant increase in management fees, which increased to $484,445 for the six months ending June 30, 2024 as compared to $393,476 in the corresponding period for the year 2023. The third major driver of operating expenses was increased administrative and other operating expenses, which increased from $47,451 for the six months ending June 30, 2023 to $125,898 during the six months ended June 30, 2024. Additionally, amortization of ROU Assets relating to our office lease for our headquarters in Denmark increased to $118,991 for the six months ended June 30, 2024 from $58,878 for the six months ended June 30, 2023. These operating expense increases were partially offset by a decrease in rent expense from $51,801 during the six months ended June 30, 2023 to $Nil during the six months ended June 30, 2024.
| Page 4 |
Miscellaneous Income. During the six months ended June 30, 2024, the Company had miscellaneous income of $166,897, compared to $91,391 during the same prior fiscal year period. This increase in miscellaneous income was attributable to income from sub-leases of office space at our Denmark office.
Net Loss. During the six months ended June 30, 2024, the Company had a net loss of $1,449,907, compared to a net loss of $1,162,725 in the same prior fiscal year period. The increased loss was generally attributable to increased expenses in ramping up our business activities following the reverse acquisition of Lithium Harvest. As disclosed above, the largest cost increases experienced during the six-month period ended June 30, 2024 were attributable to wages and salaries, management fees, administrative and other operating expenses and amortization of ROU assets, partially offset by a decrease in rent expense.
Translation Gain (Loss). During the six-month period ended June 30, 2024, the Company had a translation gain of $67,431 as compared to a translation loss of $11,857 during the same period during the year 2023. Translation gains and losses stem from variability in the exchange rate between U.S. Dollars and Danish Krone.
Liquidity and Capital Resources
As of June 30, 2024, we had cash of $188, compared to a cash balance of $847,724 at December 31, 2023. The decrease in cash balance was primarily due to increasing operating expenses as disclosed above. During the 12-month period following the date of this report, management anticipates that the Company will not generate sufficient revenues 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 may attempt to secure debt financing for future growth, but due to the absence of meaningful assets and limited operating history, debt financing may not be available to the Company. Management anticipates that additional funding will be in the form of equity financing from the sale of the Company’s common stock, as well as debt if available. If we are successful in completing an equity financing, existing shareholders will experience dilution of their interest in the Company. 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 or facilities and its business plan will fail. Even if the Company is successful in obtaining equity financing and developing its business, additional development of its lithium extraction facilities 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.
As of June 30, 2024, we had total assets of $1,943,187, and a working capital deficit of $1,417,243, compared with total assets of $3,069,604 and a working capital deficit of $205,103 at December 31, 2023. The increase in the working capital deficit was primarily due to a significant decrease in cash from $847,724 on December 31, 2003 to $188 on June 30, 2024. The increase in working capital deficit was also driven by increased amounts due to related parties as well as accounts payable and accrued liabilities, partially offset by a decrease in payroll liabilities.
| Page 5 |
Net Cash Used in Operating Activities
During the six months ended June 30, 2024, net cash used in operating activities was $717,206 compared to $146,292 for the six months ended June 30, 2023. The increase in cash used in operating activities was primarily related to the expansion of business activities following the reverse acquisition of Lithium Harvest. As disclosed above, the largest drivers of this increase in net cash used in operating activities were increased wages and salaries, management fees, administrative and other operating expenses and amortization of ROU assets, partially offset by a decrease in rent expense.
Net Cash Used in Investing Activities
During the six months ended June 30, 2024, net cash used in investing activities was $27,579 compared to $144,431 for the six months ended June 30, 2023. The decrease in cash used in investing activities was primarily due to decreased spending for office equipment and the completion of our website design process.
Net Cash (Used in) Provided by Financing Activities
During the six months ended June 30, 2024, net cash flows used in financing activities was $170,865 as compared with $922,346 generated for the six months ended June 30, 2023. During the six months ended June 30, 2024, net cash used in financing activities was due to lease payments. During the six months ended June 30, 2023, net cash provided by financing activities was primarily largely due to private placement shares subscribed for the Company’s common stock.
| Page 6 |
Going Concern
We have limited operations and have sustained operating losses resulting in a deficit. In view of these matters, realization values may be substantially different from carrying values as shown. We have accumulated a deficit of $4,809,664 since inception and have yet to achieve profitable operations and further losses are anticipated in the development of our business. Our 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. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We had $188 in cash as of June 30, 2024. Cash used by operations was $717,206 for the six months ended June 30, 2024. We will need to raise additional cash in order to fund ongoing operations over the next 12 months. We expect to finance our operations through public or private equity, debt or other available financing transactions. However, there is no assurance that such additional funds will be available for us on acceptable terms, if at all.
Inflation
While inflation has eased significantly globally, management anticipates continued inflation in all areas of operations. High rates of inflation could impact the Company’s development costs for its first production plant expected to be operational in the second half of 2025. During the construction of our first production plant, we expect to rely on the delivery of certain components from third party vendors, such as filtration equipment, piping and other goods. We cannot rule out that inflation could affect the cost of these components during the construction process, leading to increased development costs. Additionally, the Company could suffer from negative effects from wage inflation. We anticipate increasing our number of employees for the construction and operation phase of our first lithium production plant. Wage inflation could lead to higher than anticipated employee expenses during this hiring process.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States (“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 consolidated interim financial statements and the reported amounts of expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
A critical accounting estimate is defined as a financial statement item where significant judgment is required in the selection of accounting policies and the determination of estimates. The accounting estimates that require more significant judgment are included below:
| 1. | Revenue recognition: We use judgment in determining the timing of revenue recognition and the amount of revenue to be recognized. This judgment is based on the timing of delivery, customer acceptance and other factors. Our revenue recognition policies are subject to periodic review and changes, and any changes could have a material impact on our financial statements. | |
| 2. | Allowance for doubtful accounts: We estimate the allowance for doubtful accounts based on historical data, current economic conditions and other factors. The actual amount of uncollectible accounts may differ from our estimates, and any significant changes could impact our financial statements. | |
| 3. | Inventory valuation: We estimate the value of inventory based on historical cost, estimated future demand and other factors. We regularly review our inventory and may write down the value if it is deemed to be obsolete or overvalued. Any significant changes to our inventory valuation could impact our financial statements. | |
| 4. | Depreciation and amortization: We estimate the useful lives of our property, plant and equipment and intangible assets, and the residual values used in our depreciation and amortization calculations. Our estimates are subject to change based on economic conditions, technological advancements and other factors, and any changes could have a material impact on our financial statements. | |
| 5. | Impairment of long-lived assets: We periodically review our long-lived assets for impairment and estimate the fair value of those assets. Our estimates are based on a variety of factors, including market conditions and future plans for the assets. If the estimated fair value of the assets is lower than the carrying value, we recognize an impairment charge. Any changes to our estimates could result in impairment charges and have a material impact on our financial statements. | |
| 6. | Exchange rates and translational risks: We are exposed to exchange rate fluctuations and translational risks, particularly with respect to the Danish Krone. We estimate the impact of these fluctuations on our financial statements and make adjustments as necessary. The fluctuations in exchange rates could have a significant impact on the value of our assets and liabilities denominated in foreign currencies, and on our results of operations when translating these amounts into our functional currency. Any material changes in exchange rates could have a significant impact on our financial statements. |
| Page 7 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is not required to provide the information required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2024. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective as a result of the material weaknesses in internal control over financial reporting described below.
Material Weaknesses in Internal Control over Financial Reporting
Management has identified material weaknesses in our internal control over financial reporting.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
| Page 8 |
The matters involving internal controls and procedures that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:
(1) We currently lack a functioning audit committee and lack a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
(2) We currently have inadequate segregation of duties consistent with control objectives;
(3) We have insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; and
(4) We have ineffective controls over period end financial disclosure and reporting processes.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The above mentioned material weaknesses (1), (2), (3) and (4) contributed to additional material weaknesses:
(5) We have ineffective controls over timely impairments of intangible assets; and
(6) We lack internal control over financial reporting in the controls over the accounting treatment of subsequent events.
Material weaknesses (1), (2), (3) and (4), which were originally identified by the Company’s Chief Financial Officer in connection with fiscal year 2021 financial results, were not remediated and therefore remained ineffective at June 30, 2024. Material weaknesses (5) and (6) were identified by the Company’s Chief Financial Officer in connection with the re-audit of its financial statements as of December 31, 2022 and December 31, 2021, were not remediated and therefore remained ineffective at June 30, 2024.
The Company is committed to improving its financial organization. As part of this commitment and when funds are available, the Company intends to create a position to segregate duties consistent with control objectives and increase its personnel resources and technical accounting expertise within the accounting function by:
| (i) | appointing three or more outside directors to its board of directors who will also be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal control over financial reporting; | |
| (ii) | preparing and implementing sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; | |
| (iii) | preparing and implementing sufficient written policies and checklists that will set forth procedures for the treatment of impairment for intangible assets with respect to the requirements and application of GAAP; and | |
| (iv) | preparing and implementing sufficient written policies and checklists that will set forth procedures for the treatment of subsequent events with respect to the requirements and application of GAAP and SEC disclosure requirements. |
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Management believes that the appointment of three or more outside directors, who will also be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on the Company’s Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses:
| (i) | insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; | |
| (ii) | ineffective controls over period end financial disclosure and reporting processes; | |
| (iii) | ineffective controls over required impairments of intellectual assets; and | |
| (iv) | lack of internal control over financial reporting in the controls over the accounting treatment of subsequent events. |
Further, management believes that the hiring of additional personnel who have technical expertise and knowledge will result in proper segregation of duties and provide more checks and balances within the Company’s finance department. The Company expects additional personnel will also provide the cross training needed to support the Company if personnel turnover issues occur within the finance department.
Management will continue to monitor and evaluate the effectiveness of the Company’s internal control over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. The material weaknesses will not be considered remediated until management completes the design and implementation of the measures described above, until the controls operate for a sufficient period of time, and until management has concluded, through testing, that the controls are effective.
Changes in Internal Control over Financial Reporting
There were no changes (other than as described above) in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2024, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s controls and procedures, even when and if all material weaknesses have been remediated, will prevent all potential error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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Part II – Other Information
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our Company, nor is any such litigation threatened as of the date of this filing.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 4, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mining Safety Disclosures.
There are no current mining activities at the date of this report.
Item 5. Other Information.
Trading Arrangements
During the three months ended June 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules).
CEO Executive Agreement
On August 13, 2024, the Company entered into a new executive employment agreement (the “CEO Employment Agreement”) with its chief executive officer, Sune Mathiesen, effective as of April 1, 2024. Under the terms of the CEO Employment Agreement, Mr. Mathiesen will continue to serve as the Company’s chief executive officer until December 31, 2025 (the “Expiration Date”), except upon the earlier termination of the CEO Employment Agreement as discussed below. Following the Expiration Date, the CEO Employment Agreement may be terminated by Mr. Mathiesen or the Company for any reason.
Pursuant to the CEO Employment Agreement, Mr. Mathiesen is entitled to an annual base salary of $300,000 and is eligible to participate in the Company’s retirement plan, subject to the eligibility terms and conditions of such plan. The CEO Employment Agreement also indicates that Mr. Mathiesen shall be eligible to receive (i) an annual cash bonus of up to 150% of his base salary pursuant to a separate bonus agreement and (ii) a stock-based bonus of up to 100% of his base salary pursuant to a separate stock grant agreement. Under the CEO Employment Agreement, Mr. Mathiesen also is: (i) entitled to a company car, and the Company pays for all expenses related to such company car; (ii) the reimbursement of reasonable moving costs to the Houston area; and (iii) for so long as Mr. Mathiesen remains employed by the Company, for up to the initial two consecutive years following the date Mr. Mathiesen relocates to the Houston area, reimbursement for reasonable housing costs in the Houston area, up to a total amount of $6,500 per month.
Pursuant to the CEO Employment Agreement, if Mr. Mathiesen’s employment is involuntarily terminated by the Company without Cause (as defined below) or by reason of his death or Disability (as defined below), then, subject to his timely execution and non-revocation of a release of claims, in addition to compensation that has been earned but not yet paid, he will be entitled to a severance amount equal to his then current base monthly salary from the date of his termination until the Expiration Date, or, if such termination occurs after the Expiration Date, his then current base monthly salary for a period of 12 months following his date of termination.
For purposes of the CEO Employment Agreement, “Cause” means: (i) any act by Mr. Mathiesen that is materially detrimental to the Company’s best interests or that constitutes common law fraud, a felony or any other criminal act involving moral turpitude; (ii) gross misconduct, material neglect or any act of disloyalty or dishonesty by Mr. Mathiesen related to or connected with Mr. Mathiesen’s employment by the Company or otherwise likely to cause material harm to the Company or its reputation; (iii) a material violation by Mr. Mathesen of the Company’s written policies, codes of conduct or direction of the Company’s board of directors; (iv) wrongful appropriation by Mr. Mathiesen of the Company’s funds or property or other material breach of Mr. Mathiesen’s fiduciary duties to the Company; or (v) the material breach of the CEO Employment Agreement by Mr. Mathiesen, or any other written agreement between the Company and Mr. Mathiesen.
For purposes of the CEO Employment Agreement, “Disability” means the inability of Mr. Mathiesen to perform on a full-time basis the duties and responsibilities of Mr. Mathiesen’s employment with the Company by reason of Mr. Mathiesen’s illness or other physical or mental impairment or condition, if such inability continues for an uninterrupted period of 120 days or more during any 180 day period. A period of inability is “uninterrupted” unless and until Mr. Mathiesen returns to full time work for a continuous period of at least 30 days.
The CEO Employment Agreement also required Mr. Mathiesen to enter into a confidentiality and restrictive covenant agreement, which contains a 12 month post-termination non-solicitation requirement and a perpetual confidentiality requirement, among other terms and conditions.
The foregoing description of the CEO Employment Agreement is qualified in its entirety by reference to the full text of the CEO Employment Agreement, which is filed as Exhibit 10.2 and incorporated herein by reference.
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Item 6. Exhibits
Index to and Description of Exhibits
The exhibits listed in the following exhibit index are filed as part of this report.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Sustainable projects Group Inc. | ||
| Date: August 14, 2024 | By: | /s/ Sune Mathiesen |
| Name: | Sune Mathiesen | |
| Title: | President & Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 14, 2024 | By: | /s/ Stefan Muehlbauer |
| Name: | Stefan Muehlbauer | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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