10-K: Sustainable Projects Group Inc. Reports Full Year 2023 Results, Focuses on Lithium Production

Sustainable Projects Group Inc. (SPGX) reports its full year 2023 results, highlighting its transition to a pure-play lithium company and plans for manufacturing facility construction.

Summary

• Sustainable Projects Group Inc. (SPGX) is now focused on supplying lithium compounds for the electric vehicle and battery markets.
• The company has developed a proprietary technology to extract lithium from oilfield wastewater.
• SPGX plans to begin construction of its first two lithium carbonate manufacturing facilities in North Dakota and Ohio in the first half of 2024.
• These facilities are expected to have a combined manufacturing capacity of 2,000 metric tons of lithium carbonate equivalent (LCE).
• The company anticipates starting production of battery-grade lithium compounds in the second half of 2025.
• SPGX aims to increase its total manufacturing capacity to approximately 6,000 metric tons of LCE by the end of 2026.
• The company reported a net loss of $2,747,952 for the year ended December 31, 2023, compared to a net loss of $222,944 in 2022.
• Operating expenses increased significantly to $2,997,753 in 2023, up from $222,944 in 2022, primarily due to the expansion of business activities following the acquisition of Lithium Harvest.
• The company had cash of $847,724 as of December 31, 2023, compared to $0 at the end of 2022.
• Management has expressed substantial doubt about the company's ability to continue as a going concern without additional financing.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company has a promising technology and growth plans, the significant losses, material weaknesses in internal controls, and going concern issues raise concerns. The need for additional capital and the risks associated with the lithium market further temper the positive aspects.

Positives

• The company's DLE technology allows for faster and more efficient lithium extraction.
• SPGX's technology uses oilfield wastewater, a readily available resource, as a lithium feedstock.
• The company's manufacturing facilities are expected to have a smaller footprint and lower capital expenditure compared to traditional lithium operations.
• SPGX plans to produce lithium compounds locally, which aligns with government incentives for local supply of critical minerals.
• The company's sustainable production methods are expected to appeal to environmentally conscious customers.
• The company has secured long-term lease agreements for land for its first two facilities.
• The company has identified major vendors for its proprietary lithium extraction process.

Negatives

• The company reported a significant net loss of $2,747,952 for 2023.
• Operating expenses increased substantially to $2,997,753 in 2023.
• Management has expressed substantial doubt about the company's ability to continue as a going concern without additional financing.
• The company has material weaknesses in its internal control over financial reporting.
• The company is subject to fluctuations in currency exchange rates, which may adversely affect operating results.
• The company is dependent on a continued supply of produced water.
• The company is still in the development stage and has not yet generated revenue from lithium production.

Risks

• The company's success is dependent on the demand and market prices for lithium, which are subject to volatility.
• Competition from larger companies with more resources could adversely affect SPGX's business.
• The development of non-lithium battery technologies could reduce demand for lithium compounds.
• The company's business is subject to hazards common to chemical and natural resource extraction businesses.
• The company's operations are subject to various operational risks, including environmental contamination and accidents.
• The company's ability to fund ongoing operations is dependent on raising additional capital, which may be costly or difficult to obtain.
• The company's stock price may fluctuate significantly, and the stock is subject to penny stock rules.
• The company may be involved in legal and regulatory proceedings, which may be material in the future.
• The company's business and operations could suffer in the event of cybersecurity breaches or information technology system failures.
• The company's insurance may not fully cover all potential exposures.

Future Outlook

The company plans to start construction of its first two lithium carbonate manufacturing facilities in the first half of 2024 and begin manufacturing battery-grade lithium compounds in the second half of 2025. SPGX aims to have a total manufacturing capacity of approximately 6,000 metric tons of LCE by the end of 2026. The company will need to raise additional capital to fund ongoing operations and development.

Management Comments

• Management anticipates that the Company will not generate sufficient revenues to continue the development of current projects and projects in the pipeline.
• Management anticipates that additional funding will be in the form of equity financing from the sale of the Companys common stock, as well as debt if available.
• Management believes that the appointment of one 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 Companys Board.

Industry Context

The document highlights the growing demand for lithium due to the increasing adoption of electric vehicles and renewable energy sources. The company's focus on sustainable lithium production aligns with the industry's increasing emphasis on environmental, social, and governance (ESG) issues. The company's DLE technology is positioned as a competitive advantage in the lithium market.

Comparison to Industry Standards

• The document states that traditional lithium extraction methods from brine or hard rock can take two to three years, while SPGX's DLE technology can extract lithium in a few hours, suggesting a significant time advantage.
• The document mentions that traditional lithium production facilities require up to 65 acres for solar evaporation brine extraction and 115 acres for hard rock mining per 1,000 metric tons of LCE production, while SPGX's facilities require only 1.4 acres, indicating a smaller land footprint.
• The document cites Benchmark Minerals' estimates that lithium demand is forecasted to rise from 350,000 tons in 2020 to more than 3 million tons in 2030 and over 7 million tons in 2040, with a positive long-term price trend estimate of $15,000 per ton for battery-grade Lithium Carbonate and Lithium Hydroxide from 2025 to 2040, providing a market context for the company's growth plans.
• The document notes that the global oil and gas industry produces more than 250 million barrels of produced water per day, with the U.S. producing more than 50 million barrels per day, indicating a large potential supply of lithium feedstock for SPGX's DLE technology.
• The document states that the current U.S. production of produced water is sufficient to produce more than 500,000 metric tons of LCE annually, suggesting a significant potential for SPGX's technology.

Management Changes

Corporate Governance

Legal Proceedings

• The company is 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.

Related Party Transactions

• The company incurred management fees to the CFO, Stefan Muehlbauer, totaling $120,625 in 2023, with $140,875 owing at year-end.
• The company owed Tiffany Muehlbauer $12,766 for past due salaries and $25,500 for management fees at the end of 2023.
• The company owed a company controlled by Stefan and Tiffany Muehlbauer $20,647 for office expenses at the end of 2023.
• Lithium Harvest incurred management fees payable to the CEO, Sune Mathiesen, totaling $285,020 in 2023, with $151,764 owing at year-end.
• A company controlled by the director and CEO was owed $40,425 for out of pocket expenses at the end of 2023.
• Lithium Harvest incurred management fees from the CTO, Paw Juul, totaling $285,020 in 2023, with $143,895 owing at year-end.
• A company controlled by a director and CTO of the Company, Paw Juul, loaned the Company $14,506, which was repaid during the year.

Stakeholder Impact

• Shareholders may experience dilution due to potential future equity financing.
• Employees may benefit from the company's growth and investment in its people.
• Customers may benefit from the company's sustainable and locally produced lithium compounds.
• Suppliers may benefit from long-term supply agreements with the company.
• Creditors may be at risk due to the company's going concern issues.

Next Steps

• The company plans to start construction of its first two lithium carbonate manufacturing facilities in North Dakota and Ohio in the first half of 2024.
• The company plans to begin manufacturing battery-grade lithium compounds at such facilities in the second half of 2025.
• The company plans to continue to invest in manufacturing capacity and aim to have a total manufacturing capacity of approximately 6,000 metric tons of LCE by the end of 2026.
• 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.
• The company intends to appoint one or more outside directors to its board of directors who will also be appointed to the audit committee of the Company.
• The company intends to prepare and implement sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

Key Dates

Keywords

lithium, direct lithium extraction, DLE, oilfield wastewater, electric vehicles, EV, battery materials, lithium carbonate, lithium hydroxide, manufacturing facilities, sustainable production, financial results, capital raising