NOTES
TO THE CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS
June
30, 2021
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
which was engaged in the development of an internet based retailer of a multi-channel concept combining a wholesale distribution with
a retail strategy relating to the quality personal care products, fitness apparel and related accessories. 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 the business it has undertaken. The name change was effective
on October 20, 2017.
The
Company is a multinational business development company that pursue investments and partnerships with companies across sustainable sectors.
It is continually evaluating and acquiring assets for holding and/or for development. The Company is involved in mineral exploration,
consulting services and collaborative partnerships.
The
Company’s year end is December 31.
2. Going Concern
These
condensed 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
operations 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 balance sheet 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 success of its future operations.
The
Company has accumulated a deficit of $3,142,482 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 consolidated unaudited interim
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
Company has $1,697 cash on hand as at June 30, 2021. The Company will need to raise additional cash in order to fund ongoing operations
over the next 12 month period. The Company may seek additional equity as necessary and it expects to raise funds through private or public
equity investment in order to support existing operations and expand the range of its business. There is no assurance that such additional
funds will be available for the Company on acceptable terms, if at all.
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-6
|
3. Summary of principal accounting policies
Basis
of presentation
While
the information presented is unaudited, it includes all adjustments, which are, in our opinion of management, necessary to present fairly
the financial position, result of operations and cashflows for the interim period presented in accordance with accounting principles
generally accepted in the United States of America. All adjustments are of a normal recurring nature. These consolidated interim financial
statements should be read in conjunction with the Company’s December 31, 2020 annual financial statements. Operating results for
the six months ended June 30, 2021 are not necessarily indicative of the results that can be expected for the period ended December 31,
2021.
The
accompanying condensed consolidated unaudited interim financial statements include the accounts of the Company, it’s wholly subsidiary
YER Brands Inc., and its joint venture, Hero Wellness Systems Inc. (formerly Vitalizer Americas Inc.) The Company controls 55% of Hero
Wellness Systems Inc. Pursuant to Accounting Standards Codification Topic 810, the joint venture company is considered as a variable
interest entity that requires the Company to consolidate its account. All intercompany balances and transactions have been eliminated
in the consolidation. The operating results of the joint venture have been included in the Company’s consolidated financial statements
and the non-controlling interest that were not attributable to the Company have been reported separately. At June 30, 2020, the Company’s
other joint venture, Cormo USA Inc.’s assets were impaired and the Company impaired its investment and eliminated that company’s
accounts from the condensed consolidated financial statements. Operating results for the six months period ended June 30, 2020 include
the results of Cormo USA Inc.
Significant
Accounting Policies
There
have been no material changes in the Company’s significant accounting policies to those previously disclosed in the December 31,
2020 annual report.
Use
of estimates
The
preparation of the consolidated interim financial statements in conformity with generally accepted accounting principles 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.
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-7
|
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 corporation wide basis in comparison to its various businesses.
The Company has three reportable segments. The business operations consist of Hero Wellness Systems, YER Brands and Sustainable Projects
Group. The segment for Cormo USA has been extinguished at June 30, 2020. 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. The operating segment’s
performance is evaluated based on its segment income. Segment income is defined as the gross sales and miscellaneous income. At June
30, 2021, revenues were reported as follows:
Schedule
of Segment Reporting
|
|
For the six
|
|
|
For the six
|
|
|
For the twelve
|
|
|
|
months ended
|
|
|
Months ended
|
|
|
months ended
|
|
|
|
Jun 30, 2021
|
|
|
Jun 30, 2020
|
|
|
December 31 2020
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustainable Projects Group
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,000
|
|
YER Brands
|
|
|
233
|
|
|
|
2,893
|
|
|
|
4,069
|
|
Hero Wellness Systems
|
|
|
1,900
|
|
|
|
-
|
|
|
|
500
|
|
Total Sales
|
|
$
|
2,133
|
|
|
$
|
2,893
|
|
|
$
|
6,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustainable Projects Group
|
|
$
|
7,340
|
|
|
|
14,339
|
|
|
$
|
7,715
|
|
YER Brands
|
|
|
269,442
|
|
|
|
304,231
|
|
|
|
284,974
|
|
Hero Wellness Systems
|
|
|
56,616
|
|
|
|
62,277
|
|
|
|
60,205
|
|
Total Assets
|
|
$
|
333,398
|
|
|
$
|
380,847
|
|
|
$
|
352,894
|
|
Recently
issued accounting pronouncements
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current
expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held
at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing
incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies
to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller
reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial
statements.
The
Company adopts new pronouncements relating to generally accepted accounting principles 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 accompanying financial statements.
4. Inventory
Inventories
are stated at the lower of cost or net realizable value using the first-in, first out (FIFO) cost method of accounting. Cost is determined
using the first in, first out (FIFO) cost method. Costs include the cost of purchase and transportation costs that are directly incurred
to bring the inventories to their present location, and duty. Net realizable value is the estimated selling price of the inventory in
the ordinary course of business, less any estimated selling costs. At Jun 30, 2021, inventory consists of following:
Schedule
of Inventory
|
|
Jun 30, 2021
|
|
|
Dec 31, 2020
|
|
|
|
|
|
|
|
|
Hero Wellness Systems
|
|
$
|
56,500
|
|
|
$
|
59,972
|
|
YER Brands
|
|
|
3,939
|
|
|
|
5,025
|
|
Total
|
|
$
|
60,439
|
|
|
$
|
64,997
|
|
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-8
|
5. Intangible Assets
The
Company entered into an asset purchase with Soy Yer Dough to acquire intellectual property and trademarks. The following assets were
identified as intangible assets with finite useful lives and are amortized on a straight-line basis over their useful lives of five years.
Amortization commences when the assets are available for use. Intellectual properties consist of production process, know-how, product
recipe, marketing, and branding.
Summary
of Intangible Assets
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Intellectual properties
|
|
$
|
135,000
|
|
|
$
|
(30,375
|
)
|
|
$
|
104,625
|
|
Trademark, patents
|
|
|
593
|
|
|
|
-
|
|
|
|
593
|
|
|
|
$
|
135,593
|
|
|
$
|
(30,375
|
)
|
|
$
|
105,218
|
|
Amortization
for over the next 5 years will be as follows:
Schedule
of Intangible Asset Amortization
Year ended December 31
|
|
|
|
2021
|
|
$
|
13,500
|
|
2022
|
|
$
|
27,000
|
|
2023
|
|
$
|
27,000
|
|
2024
|
|
$
|
27,000
|
|
2025
|
|
$
|
10,125
|
|
Total
|
|
$
|
104,625
|
|
Goodwill:
Goodwill
has been recorded on the Soy Yer Dough purchase as the amount of the investment was greater than the identifiable net assets purchased.
The amount is not amortized but rather is tested for impairment at least annually. The goodwill recorded was $156,752. A recap of the
assets purchased from Soy Yer Dough is as follows:
Schedule
of Goodwill
Purchase Price
|
|
$
|
300,002
|
|
|
|
|
|
|
Allocated to - License
|
|
|
135,000
|
|
Equipment
|
|
|
5,000
|
|
Inventory
|
|
|
3,250
|
|
Identifiable net assets
|
|
|
143,250
|
|
|
|
|
|
|
Allocated to Goodwill
|
|
$
|
156,752
|
|
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-9
|
6. Accounts payable and accrued liabilities
Accounts
payable and accrued liabilities as of Jun 30, 2021 are summarized as follows:
Schedule
of Accounts Payable and Accrued Liabilities
|
|
Jun 30, 2021
|
|
|
Dec 31, 2020
|
|
|
|
|
|
|
|
|
Accrued audit fees
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
Accrued accounting fees
|
|
|
37,250
|
|
|
|
31,250
|
|
Accrued legal fees
|
|
|
23,040
|
|
|
|
23,040
|
|
Accrued office expenses
|
|
|
76,183
|
|
|
|
72,590
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
147,473
|
|
|
$
|
137,880
|
|
7. Notes Payable
On
March 1, 2019, the Company entered into a loan agreement with a shareholder for $50,000 with an interest rate of 3.5% per annum. The
loan is due on or before April 15, 2022. At June 30, 2021, there was $4,090 in accrued interest (December 31, 2020 - $3,222) (see Note
13).
On
July 12, 2019, the Company entered into a convertible loan agreement with a relative of the CEO for $20,000 with an interest rate of
3.0% per annum. The loan is due on or before July 12, 2022. The lender has the option to convert the whole loan and the accrued interest
into shares of the Company at the price of $1.45 per share. The closing price of the Company’s stock was $1.45 at July 11, 2019.
On May 10, 2021, the Company agreed to issue 640,000 common shares at $0.033 per share to a relative of the CEO to redeem a convertible
note payable with a principal amount of $20,000 plus accrued interest and fees valued at $21,098. At June 30, 2021, the shares have not
been issued.
8. Asset Purchase
On
May 8th, the Company entered into a Letter of Intent with Sawyer & Samantha Sparks to purchase all marketing rights, production
know-how and limited existing inventory and equipment (the “Assets”) of Soy-yer Dough. Soy-yer Dough is a gluten free modeling
clay. As part of the agreement, the Company issued 105,264 common shares to Sawyer & Samantha Sparks for meeting certain milestones
which were at $2.85 per share that was valued at $300,002. (See Note 5)
9. Agreements
On
May 1, 2020, the Company’s joint venture Cormo USA Inc. entered into a commercial lease of approximately 100,000 square feet of
building space for one year with an option to renew. The monthly rent was $12,500.
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-10
|
Effective
May 1, 2020, the Company’s joint venture Cormo USA Inc. entered into a Development Agreement with the City of Rushville, Rushville
Development Commission, and Rushville Economic Development Commission (the “City Parties” to do business in Indiana. The
City Parties is assisting Cormo USA Inc. with its business in Indiana and have provided financial incentives of up to $1,100,000 for
Cormo USA Inc. to pay for its project costs. These include:
|
1.
|
Cash
incentives sufficient to reimburse the acquisition of twenty acres of property in the Commerce Park at Rushville following purchase
of site in the Commerce Park at Rushville which shall be subject to rights of first refusal and repurchase rights on the purchased
site granted to the City
|
|
2.
|
A
commitment that at least twenty acres of land in the Commerce Park at Rushville or equivalent property suitable for the contemplated
commercial development shall be kept available for a period of two years
|
|
3.
|
Up
to $225,000 in the form of forgivable loan
|
|
4.
|
An
initial 3 year tax abatement on eligible personal property in place in Rushville in 2020 with an alternative phase-in schedule of
100%, 67% and 33%
|
|
5.
|
Tax
abatement for future eligible personal property and real property improvements at a standard ten yar tax abatement schedule
|
On
May 1, 2020, Cormo USA Inc. entered into a forgivable loan agreement and promissory note with the City of Rushville, Indiana in conjunction
to the Development Agreement of up to $225,000 at 9% interest rate for a period of two years.
At
June 30, 2020 the operating results of Cormo USA Inc. have been de-consolidated as the Cormo license was recognized as impaired.
10. Common stock
During
the six months ended June 30, 2021, the Company entered into agreements to issue the following shares:
a)
|
640,000
shares of common stock to redeem a convertible note payable of $20,000 and accrued interest of $1,098 valued at $0.033 per share.
At June 30, 2021, the shares have not been issued.
|
b)
|
300,000
shares of common stock for consulting services of $10,500 valued at $0.035 per share. At June 30, 2021, the shares have not been
issued.
|
During
the twelve months ended December 31, 2020, the Company issued the following shares:
a)
|
32,500
shares of common stock for services rendered by a consultant at $1.80 per share valued at $58,500; and
|
b)
|
105,264
shares of common stock for the acquisition of assets from Soy-Yer Dough at $2.85 per share valued at $300,002.
|
11. Equity in joint venture, Non-controlling interest
The
Company was involved in two joint venture businesses and has a majority control of both Hero Wellness Systems Inc. and Cormo USA Inc.
Pursuant to Accounting Standards Codification Topic 810, both of these companies were considered variable interest entities that requires
the Company to consolidate those entities. It runs the day to day operations, makes all managerial decisions and has the voting power
over these entities. The Company will provide and help in the financial support of these ventures, on an as needed basis. At June 30,
2020, the Cormo license was recognized as impaired and the operating results of Cormo USA Inc. have been de-consolidated from the Company’s
consolidated financial statements. The Company is only involved in Hero Wellness Systems Inc. from that point on.
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-11
|
Hero
Wellness Systems Inc.
The
Company has a controlling interest of 55% in a joint venture of Hero Wellness Systems Inc. (formerly Vitalizer Americas Inc.) (See Note
13). Hero Wellness Systems Inc. is in the business of importing, marketing, distribution and sale of luxury massage therapeutic chairs.
Hero Wellness Systems is still in its early stages of development. The company participated in several conferences in 2019 to showcase
and introduce its products in the market. The company has ordered and received inventory for sale. The following summary information
on the joint venture amounts are based on contributions received from activities since inception through to June 30, 2021 and December
31, 2020 with intercompany transactions eliminated:
Schedule
of Equity in Joint Venture, Non-Controlling Interest
|
|
Jun 30, 2021
|
|
|
Dec 31, 2020
|
|
Assets
|
|
$
|
56,616
|
|
|
$
|
60,205
|
|
Liabilities
|
|
|
(3,178
|
)
|
|
|
(3,611
|
)
|
Net Assets
|
|
$
|
53,439
|
|
|
$
|
56,594
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,900
|
|
|
$
|
500
|
|
Expenses
|
|
|
(6,458
|
)
|
|
|
(12,760
|
)
|
Net Income
|
|
$
|
(4,558
|
)
|
|
$
|
(12,260
|
)
|
|
|
|
|
|
|
|
|
|
Company’s joint venture interest portion on net income
|
|
$
|
(2,507
|
)
|
|
$
|
(6,743
|
)
|
|
|
|
|
|
|
|
|
|
Non-controlling joint venture interest on net income
|
|
$
|
(2,051
|
)
|
|
$
|
(5,517
|
)
|
|
|
|
|
|
|
|
|
|
Company’s Capital contribution to joint venture
|
|
$
|
286,825
|
|
|
$
|
286,825
|
|
|
|
|
|
|
|
|
|
|
Company’s joint venture interest portion in net assets
|
|
$
|
29,698
|
|
|
$
|
31,127
|
|
|
|
|
|
|
|
|
|
|
Total Equity of Joint Venture
|
|
$
|
443,275
|
|
|
$
|
443,275
|
|
Company’s portion of the Joint Venture
|
|
|
286,825
|
|
|
|
286,825
|
|
Non-controlling interest portion in equity
|
|
$
|
156,450
|
|
|
$
|
156,450
|
|
Reduced by losses to date
|
|
|
|
|
|
|
|
|
Prior years
|
|
|
(82,158
|
|
|
|
(76,641
|
)
|
Current period
|
|
|
(2,051
|
)
|
|
|
(5,517
|
)
|
Net non-controlling interest portion in equity
|
|
$
|
72,241
|
|
|
$
|
74,292
|
|
12. Related party transactions
During
the period ended Jun 30, 2021, the Company incurred management fees from a director totaling an aggregate of $Nil (December 31, 2020
$45,000). At Jun 30, 2021, $18,250 was owing to a director for management fees and $1,200 for out of pocket expenses. During the period
ended Jun 30, 2021, the Company incurred management fees from an officer totaling $Nil (December 31, 2020 - $30,000). At Jun 30, 2021,
$12,766 was owing to an officer for salaries.
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-12
|
At
Jun 30, 2021, the Company owed $36,332 to shareholders for expenses paid on behalf of the Company and consulting fees (December 31, 2020
- $36,332).
During
the period ended Jun 30, 2021, the Company incurred $Nil to a company with a director and officer in common for website/app maintenance
(December 31, 2020 - $Nil), and owed $20,647 for office expenses.
During
the period ending Jun 30, 2021, the Company owed $4,090 (December 31, 2020 - $3,222) for interest to a shareholder of the Company for
a note payable with a principal amount of $50,000. The loan bears an annual interest rate of 3.5% and is due on or before April 15, 2022
(see Note 10).
During
the period ending May 10, 2021, the Company owe $1,098 (December 31, 2020 - $884) for interest to a relative of the CEO for a convertible
note payable with a principal amount of $20,000. The loan bears an annual interest rate of 3.0% and is due on or before July 12, 2022.
The lender has the option to convert the whole loan and the accrued interest into shares of the Company at the price of $1.45 per share.
The closing price of the Company’s stock was $1.45 at July 11, 2019. On May 10, 2021, the Company entered into an agreement and
agreed to issue 640,000 common shares at $0.035 per share to redeem a convertible note payable with a principal amount of $20,000 plus
accrued interest and fees valued at $21,098.
Transactions
in Joint Ventures
The
Company is currently involved in one joint venture business and has a majority control of Hero Wellness Systems Inc. Pursuant to Accounting
Standards Codification Topic 810, this company is considered a variable interest entities that requires the Company to consolidate. It
runs the day to day operations, makes all managerial decisions and has the voting power over these entities. The Company will provide
and help in the financial support of this venture, on an as needed basis. On June 30, 2020, the Company impaired the Cormo license thus
extinguished the joint venture with Cormo USA Inc. The Company has de-consolidated the operating results of Cormo USA Inc. from its consolidated
financial statements.
Hero
Wellness Systems Inc.
On
September 29, 2018, the Company entered into a joint venture agreement with Vitalizer Americas Inc. with its principal purpose to import,
sale and distribute certain products offered by Vitalizer International AG of Switzerland. In April 2019, Vitalizer Americas Inc.’s
name was changed to Hero Wellness Systems Inc. as it was no longer dealing with Vitalizer International AG. The Company holds 55% interest,
Christopher Grunder of Workplan Holding Inc. holds 15% interest and Kurt Muehlbauer holds 15% interest. Hero Wellness Systems is in the
business of providing luxury massage therapy solutions. The operating results of Hero Wellness Systems Inc. have been incorporated in
the consolidated financial statements of the Company. The non-controlling interest that were not attributable to the Company have been
reported separately.
Cormo
USA Inc.
The
Company entered into a letter of intent with Cormo AG on October 25, 2018 to form a joint venture agreement for the Company to provide
business development, market research, sourcing, distribution and overall operations of Cormo AG’s exclusive unrestricted use of
its patents and licenses in North America. Cormo AG is in the business of producing and developing peat moss replacement, natural foam
products and technologies. On February 25, 2019 the joint venture shareholders’ agreement was finalized with a group of investors
whereby the Company holds 35% interest, Cormo AG holds 35% interest, Paul Meier holds 2.5% interest, Stefan Muehlbauer holds 2.5% interest,
and other investors hold an aggregate of 25% interest. The other investors contributed an aggregate of $400,000 to the joint venture.
The operating results of Cormo USA Inc. have been incorporated in the prior consolidated financial statements of the Company. At June
30, 2020 the operating results of Cormo USA Inc. have been de-consolidated as the Cormo license was recognized as impaired. The non-controlling
interest that were not attributable to the Company have been reported separately.
13. Subsequent Events
On
July 23, 2021, the Company entered into a two year $100,000 convertible promissory note bearing an interest of 10% per annum. The loan
may be renewed at the option of the Lender and is secured with the Company’s assets. The outstanding principal and unpaid accrued
interest will automatically convert into shares of the Company on or before the maturity date upon the closing of a qualified transaction
to an amount equal to 25% of the fully diluted capitalization of the Company on a post-money basis. If the event that the qualified transaction
is not consummated on or prior to the maturity date, the Lender have the right to convert the principal and unpaid accrued interest of
the note into shares of the Company to an amount equal to 25% of the fully diluted capitalization of the Company.
Form 10-Q
|
Sustainable Projects Group Inc.
|
F-13
|