Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
General
The
following discussion of SPGX’s financial condition, changes in financial condition and results of operations for the three
months ended August 31, 2017 should be read in conjunction with SPGX’s unaudited interim financial statements and related
notes for the three months ended August 31, 2017.
SPGX
is an exploration stage issuer engaged in the business of natural resource development and holdings through value based investments
and collaborative partnerships with companies across the natural resources sector. It is continually evaluating and acquiring
assets for holding and or development. SPGX initiated its goals by pursuing investment and partnerships amongst diversified holdings
and companies globally. SPGX is currently involved in the following businesses: (1) Mineral Exploration; (2) Consulting Services;
and (3) Collaborative partnerships.
Through
its main initiatives, the development of natural resources, holdings, consulting services, and collaborative partnerships, SPGX
plans to build on shareholder value which in return, will present opportunity for new and exciting projects ahead
.
Forward
Looking Statements
This
quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks
and uncertainties, including statements regarding SPGX’s capital needs, business plans and expectations. Such forward-looking
statements involve risks and uncertainties regarding SPGX’s ability to carry out its planned development and production
of products. Forward-looking statements are made, without limitation, in relation to SPGX’s operating plans, SPGX’s
liquidity and financial condition, availability of funds, operating and exploration costs and the market in which SPGX competes.
Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”,
“expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”,
“predict”, “potential” or “continue”, the negative of such terms or other comparable terminology.
Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including
the risks outlined below, and, from time to time, in other reports SPGX files with the SEC. These factors may cause SPGX’s
actual results to differ materially from any forward-looking statement. SPGX disclaims any obligation to publicly update these
statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking statements.
Plan
of Operation
SPGX’s
plan of operation for the next 12 months is to continue to evaluate and acquire assets for holding or development, and to collaborate,
develop and create new assets with industry leaders in the natural resources and other sustainable industries. SPGX is currently
evaluating other projects such as gold mining and mineral exploration interests in Mongolia. Other projects of interest that management
is currently researching are in the field of energy technology and sustainability. Currently, SPGX is evaluating the following
projects:
1.
Thunder Bay Claims - Work Program.
By
the end of the 3rd quarter (February 2018) management plans to complete a two 2,000 meter diamond drill programs on the Thunder
Bay Claims at an estimated cost of $1.2 million. The two programs will require approximately 80 days to complete. One drill program
will be conducted on the Foisey claims of the Thunder Bay Claims to test the north branching arm of a gold-bearing breccia system.
The second drill program will be conducted on gold-mineralized zones on the Thunder Bay claims, which have been identified from
previous and historic work. See ‘Item 1.b - Business of SPGX’ for more details on the proposed work program.
Form 10-Q – Q1
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Sustainable Petroleum Group Inc.
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2.
Alimex GmbH - Collaborative Partnership
On
June 28, 2017, SPGX loaned Alimex GmbH $200,000 with a per annum interest rate of 3.5%. Alimex GmbH is a global producer of high-precision
aluminium cast plates. In 2017 SPGX plans to negotiate and enter into a collaborative partnership to work with Alimex to finance
their structural and organic growth to position Alimex as the world leader in their sector.
3.
Oil & Gas Projects - Arundel AG
During
the next 12 months SPGX will continue to seek opportunities to fund and invest in projects in the oil & gas sector. Currently,
SPGX has been negotiating with Arundel AG, a Swiss investment company whose shares are listed on the SIX Swiss Exchange, to fund
and invest in projects in the oil & gas sector. SPGX is currently negotiating terms.
4.
Consulting Services - Amixca AG
SPGX
plans to continue to provide consulting services throughout the next 12 months, in addition to the consulting services it is currently
providing SP Group (Europe) AG. On July 18
th
, 2017 SPGX paid a refundable deposit of $190,000 in order to perform due
diligence on Amixca AG’s records. Amixca AG is a private Swiss corporation whose business is consulting. Management is in
the process of completing its due diligence on Amixca AG.
5.
Myfactor.io AG
On
July 26, 2017, SPGX paid a refundable deposit of $83,496 (70,000 Euro) in order to perform due diligence on the entities records
of Myfactor.io AG. Myfactor.io AG is a company incorporated in Liechtenstein. The company holds a bond and its purpose is the
acquisition and exploitation various interests from real estate, patents and other industrial property rights. Management is in
the process of completing its due diligence on Myfactor.io AG.
In
addition, management anticipates incurring the following expenses during the next 12 month period:
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●
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Management
anticipates spending approximately $2,000 in ongoing general and administrative expenses per month for the next 12
months, for a total anticipated expenditure of $24,000 over the next 12 months. The general and administrative expenses
for the year will consist primarily of professional fees for the audit and legal work relating to SPGX’s regulatory
filings throughout the year, as well as transfer agent fees, development costs and general office expenses.
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●
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Management
anticipates spending approximately $16,000 in complying with SPGX’s obligations as a reporting company under the
Securities
Exchange Act of 1934
. These expenses will consist primarily of professional fees relating to the preparation of SPGX’s
financial statements and completing and filing its annual report, quarterly report, and current report filings with the SEC.
|
As
at August 31, 2017, SPGX had cash of $68,159 and total liabilities of $56,093. Accordingly, SPGX will require additional financing
in the amount of $27,934 in order to fund its obligations as a reporting company under the
Securities Act of 1934
and
its general and administrative expenses for the next 12 months.
During
the 12 month period following the date of this report, management anticipates that SPGX will not generate any revenue. Accordingly,
SPGX will be required to obtain additional financing in order to continue its plan of operations. Management believes that debt
financing will not be an alternative for funding SPGX’s plan of operations as it does not have tangible assets to secure
any debt financing. Rather management anticipates that additional funding will be in the form of equity financing from the sale
of SPGX’s common stock. However, SPGX 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, SPGX will not be able to develop its products and its business plan will fail. Even if SPGX is successful in
obtaining equity financing and developing its products, additional development of its website and marketing program will be required.
If SPGX does not continue to obtain additional financing, it will be forced to abandon its business and plan of operations.
Form 10-Q – Q1
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Sustainable Petroleum Group Inc.
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18
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Liquidity
and Capital Resources
Three
Month Period Ended August 31, 2017
At
August 31, 2017, SPGX had a cash balance of $68,159 and a working capital surplus of $1,131,552 for the three month period ended
August 31, 2017, compared to a cash balance of $161,096 and negative cash flows from operating activities of $213,788 for the
fiscal period ended May 31, 2017.
The
notes to SPGX’s unaudited interim financial statements as of August 31, 2017, disclose its uncertain ability to continue
as a going concern. SPGX has not and does not expect to generate any revenues to cover its expenses while it is in the development
stage and as a result SPGX has accumulated a deficit of $1,199,788 since inception. As of August 31, 2017, SPGX had $56,093 in
current liabilities compared to $381,801 for the time period ended May 31, 2017. When its current liabilities are offset against
its current assets of $1,187,645 SPGX is left with a working capital of $1,131,552.
While
SPGX has successfully generated sufficient working capital through the sale of common stock and management believes that SPGX
can continue to do so for the next year, there are no assurances that SPGX will succeed in generating sufficient working capital
through the sale of common stock to meet its ongoing cash needs.
Net
Cash Flows Used in Operating Activities
.
Net cash flows from operating activities during the three month period ended
August 31, 2017 was a net cash used in operations of $324,766, which was primarily due to a net loss of $869,406 and non-cash
items consisting of a loss on acquisition of deposit of $779,278, amortization of $583, shares for debt and shares for services
of $2,730 and $56,000, respectively, changes in current assets and liabilities consisting of an increase in prepaid expenses of
$269,620, a decrease in accounts payable and accrued expenses of $8,812, increase in amount due to director of $708, and a decrease
in deferred revenue of $15; compared to a net loss of $19,732 for the same time period for the prior fiscal period, which was
primarily due to an increase in accounts payable and accrued expenses of $12,416 and an increase in interest payable of $3,249,
resulting in net cash used in operation activities of $4,067.
Net
Cash Flows From Investing Activities
.
SPGX’s net cash flow from investing activities during the three month period
ended August 31, 2017 was $1,817,334, which was primarily due to an advance of a note receivable in the amount of $200,000, shares
issued for the lease deposit of $1,400,000, and shares issued for debt settlement of $305,334, as compared to $nil for the same
time period for the prior fiscal period.
Net
Cash Flows From Financing Activities
. SPGX’s net cash flow from financing activities during the three month period
ended August 31, 2017 was $431,829 which was due to subscription proceeds, compared to $26,000 for the same time period for the
prior fiscal period.
Results
of Operations – Three months ended August 31, 2017 and August 31, 2016
References
to the discussion below to fiscal 2017 are to SPGX’s current fiscal year, which ended on May 31, 2017. References to fiscal
2016 are to SPGX’s fiscal year ended May 31, 2016.
Form 10-Q – Q1
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Sustainable Petroleum Group Inc.
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For
the Three Months Ended August 31 2017 $
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|
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For
the Three Months Ended August 31 2016 $
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Revenue
|
|
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16,227
|
|
|
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–
|
|
|
|
|
|
|
|
|
|
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Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Administrative
and other operating expenses
|
|
|
(18,627
|
)
|
|
|
(2,704
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)
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Amortization
|
|
|
(583
|
)
|
|
|
-
|
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Management
fees
|
|
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(65,518
|
)
|
|
|
-
|
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Professional
fees
|
|
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(17,900
|
)
|
|
|
(13,779
|
)
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Rent
|
|
|
(1,000
|
)
|
|
|
-
|
|
Loss
on acquisition of deposit
|
|
|
(779,278
|
)
|
|
|
-
|
|
Interest
expenses
|
|
|
(2,727
|
)
|
|
|
(3,249
|
)
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Operating
loss before income taxes
|
|
|
|
|
|
|
(19,732
|
)
|
|
|
|
|
|
|
|
-
|
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Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
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Net
loss and comprehensive loss
|
|
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(869,406
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)
|
|
|
(19,732
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)
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Three
Month Period Ended August 31, 2017
Net
Loss
.
During the three month period ended August 31, 2017, SPGX had a net loss of $869,406 or $(0.100) per share. The
loss was primarily due to a loss on acquisition of the lease deposit, administrative and other operating expenses, management
fees, and professional fees, compared to the same time period for the prior fiscal period, when SPGX had a net loss of $19,732
or $ (0.003) per share, which was primarily due to administrative and other operating expenses and interest expenses.
Revenue
.
During the three month period ended August 31, 2017, SPGX had revenues of $16,227. The revenue was primarily due to consulting
fees and interest income, compared to the same time period for the prior fiscal period, when SPGX had no operating revenues. SPGX’s
activities have been financed from the proceeds of share subscriptions and debt financing.
Operating
Expenses
.
SPGX’s operating expenses during the three month period ended August 31, 2017 were $882,906, which were
primarily due to $779,278 in a loss on acquisition of the lease deposit, $65,518 in management fees, $18,627 in administrative
and other operating expenses, and $17,900 in professional fees, compared to the same time period for the prior fiscal period,
which SPGX’s operating expenses were$16,483,which were due to $13,779 in professional fees, and $2,704 in administrative
and other operating expenses.
Going
Concern
SPGX
has not attained profitable operations and is dependent upon obtaining financing to pursue any extensive business activities.
For these reasons the financial statements have been prepared assuming SPGX will continue as a going concern.
Future
Financings
Management
anticipates continuing to rely on equity sales of SPGX’s common stock in order to continue to fund its business operations.
Issuances of additional common stock will result in dilution to SPGX’s existing stockholders. There is no assurance that
SPGX will achieve any additional sales of its common stock or arrange for debt or other financing to fund its planned activities.
Form 10-Q – Q1
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Inflation
Management
does not believe that inflation will have a material impact on SPGX’s future operations.
Off-balance
Sheet Arrangements
SPGX
has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to stockholders.
Contingencies
and Commitments
SPGX
had no contingencies or long-term commitments at August 31, 2017.
Tabular
Disclosure of Contractual Obligations
SPGX
is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required
under this item.
Critical
Accounting Policies
SPGX’s
financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United
States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application
of accounting policies. Management believes that understanding the basis and nature of the estimates and assumptions involved
with the following aspects of SPGX’s financial statements is critical to an understanding of SPGX’s financial statements.
Use
of Estimates
The
preparation of 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.
Foreign
Currency Translation
SPGX
maintains an office in Naples, Florida. The functional currency of SPGX is the U.S. Dollar. At the transaction date, each asset,
liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the
period end, monetary assets and liabilities are re-measured by using the exchange rate in effect at that date. The resulting foreign
exchange gains and losses are included in operations.
Website
Development Costs
SPGX
recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost”
that codified the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”)
NO. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. Relating to website
development costs SPGX follows the guidance pursuant to the Emerging Issues Task Force (EITF) NO. 00-2, “Accounting for
Website Development Costs”. The website development costs are divided into three stages, planning, development and production.
The development stage can further be classified as application and infrastructure development, graphics development and content
development. In short, website development cost for internal use should be capitalized except content input and data conversion
costs in content development stage.
Form 10-Q – Q1
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Sustainable Petroleum Group Inc.
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Costs
associated with the website consist primarily of website development costs paid to third party. These capitalized costs will be
amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related
to the development of website content will be charged to operations as incurred. Web-site development costs related to the customers
are charged to cost of sales.
Revenue
Recognition
SPGX
recognizes revenue in accordance with ASC 605-10 “Revenue Recognition” which requires that four basic criteria must
be met before revenue can be recognized: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred; 3) the selling
price is fixed and determinable; and 4) collectability is reasonably assured.
Financial
Instruments
SPGX’s
financial instruments consist principally of cash, accounts payable, accrued liabilities and some notes payable. The carrying
amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively
short-term nature or the underlying terms are consistent with market terms. It is the management’s opinion that SPGX is
not exposed to any significant currency or credit risks arising from these financial instruments.
Mineral
Property Costs
All
costs of acquisition and option costs of mineral and property rights are capitalized upon acquisition. To determine if the capitalized
mineral property costs are in excess of their recoverable amount, SPGX shall conduct periodic evaluation of the carrying value
of the capitalized costs based upon expected future cash flows and/or estimated salvage value in accordance to ASC 360-10-35-15
“Impairment or Disposal of Long Lived Assets”. Exploration and pre-extraction expenditures shall be expensed until
such time SPGX exits the exploration stage by establishing proven or probable reserves. Expenditures relating to exploration activities
such as drill programs to search for mineralized materials shall be expensed as incurred. Expenditures relating to pre-extraction
activities such as construction of mine, well fields, ion exchange facilities and disposal wells shall be expensed as incurred
until such time proven or probable reserves are established for a particular project, after which subsequent expenditures relating
to mine development activities for the particular project shall be capitalized as incurred.
Fair
Value Measurements
SPGX
follows the guidelines in ASC Topic 820 “Fair Value Measurements and Disclosures”. Fair value is defined as the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded
at fair value, SPGX considers the principal or most advantageous market in which SPGX would transact and the market-based risk
measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer
restrictions and credit risk.
SPGX
applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases
the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
|
Level
1 —
|
Quoted
prices in active markets for identical assets or liabilities.
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Level
2 —
|
Observable
inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar
assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
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Level
3 —
|
Inputs
are generally unobservable and typically reflect management’s estimates of assumptions that market participants would
use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option
pricing models and discounted cash flow models.
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Form 10-Q – Q1
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Sustainable Petroleum Group Inc.
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Concentration
of Credit Risk
SPGX
places its cash and cash equivalents with a high credit quality financial institution. SPGX maintains United States Dollars. SPGX
minimizes its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institution.
Income
Taxes
SPGX
follows the guideline under ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Since
SPGX is in the exploration stage and has losses, no deferred tax asset or income taxes have been recorded in the financial statements.
SPGX
has identified its federal tax return and its state tax returns in Nevada as its major tax jurisdictions, and such returns remain
subject to examination. Subsequent to the year ended May 31, 2017, SPGX recently filed a registration in the State of Florida,
and shall be subject to state tax return in Florida as well.