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SAFE AND GREEN DEVELOPMENT CORPORATION AND SUBSIDIARY
FORM 10-Q
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SAFE AND GREEN DEVELOPMENT CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheets
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid asset and other current assets | ||||||||
| Current Assets | ||||||||
| Assets held for sale | ||||||||
| Land | ||||||||
| Property and equipment, net | ||||||||
| Project development costs and other non-current assets | ||||||||
| Equity-based investments | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholder’s Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Due to affiliates | ||||||||
| Short term notes payable, net | ||||||||
| Total current liabilities | ||||||||
| Contingent consideration liability | ||||||||
| Total Liabilities | ||||||||
| Stockholder’s equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholder’s equity | ||||||||
| Total Liabilities and Stockholder’s Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
1
Safe and Green Development Corporation and Subsidiary
Condensed Consolidated Statements of Operations
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue: | ||||||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Total | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Payroll and related expenses | $ | $ | $ | $ | ||||||||||||
| General and administrative expenses | ||||||||||||||||
| Marketing and business development expense | ||||||||||||||||
| Total | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense: | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding: | ||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
2
Safe and Green Development Corporation and Subsidiary
Condensed Consolidated Statements of Changes in Stockholder’s Equity (Unaudited)
| $0.001 Par Value Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Capital contributions | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| $0.001 Par Value Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at January 1, 2024 | $ | $ | ( | ) | $ | |||||||||||||||
| Conversion of notes payable | ||||||||||||||||||||
| Issuance of common stock from EP agreement | ||||||||||||||||||||
| Issuance of stock for debt and warrant issuance | ||||||||||||||||||||
| Issuance of stock for services | ||||||||||||||||||||
| Issuance of common stock from restricted stock units | ||||||||||||||||||||
| Cashless warrant exercise | ( | ) | ||||||||||||||||||
| Issuance of stock in connection with business combination | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2024 | $ | $ | ( | ) | $ | |||||||||||||||
| Restricted stock units | ||||||||||||||||||||
| Conversion of notes payable and accrued interest | ||||||||||||||||||||
| Issuance of common stock from EP agreement | ||||||||||||||||||||
| Cashless warrant exercise | ( | ) | ||||||||||||||||||
| Issuance of stock for debt and warrant issuance | ||||||||||||||||||||
| Issuance of stock for purchase of MVONIA | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
3
Safe and Green Development Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
| For the Six Months Ended June 30, 2024 | For the Six Months Ended June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt issuance costs | ||||||||
| Stock based compensation | ||||||||
| Common stock for debt and warrant issuance | ||||||||
| Common stock for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid asset and other current assets | ||||||||
| Intangible assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Due to affiliates | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Additions to assets held for sale | ( | ) | ||||||
| Cash acquired bus combination | ||||||||
| Purchase of computers and software | ( | ) | ||||||
| Project development costs | ( | ) | ( | ) | ||||
| Equity-based investments | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Proceeds from short-term notes payable | ||||||||
| Issuance of common stock from EP Agreement | ||||||||
| Repayment of short-term notes payable | ( | ) | ||||||
| Contributions | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ||||||||
| Cash – beginning of period | ||||||||
| Cash – end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash operating activities: | ||||||||
| Prepaid interest held back from proceeds from short-term notes payable | $ | $ | ||||||
| Conversion of notes payable | $ | $ | ||||||
| Intangible assets acquired in connection with asset acquisition | $ | $ | ||||||
| Assets and liabilities acquired in business combination: | ||||||||
| Intangible assets | $ | $ | ||||||
| Goodwill | $ | $ | ||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contingent consideration payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
4
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 1. | Description of Business |
Safe and Green Development Corporation (the “Company” or “SG DevCo”), previously known as SGB Development Corp., a Delaware corporation, was incorporated on February 17, 2021. The Company was formed in 2021 for the purposes of real property development using purpose-built, prefabricated modules built from both wood and steel. The Company’s current business focus is primarily on the direct acquisition and indirect investment in properties nationally that will be further developed in the future into green single or multi-family projects. Additionally, a majority owned subsidiary of SG DevCo, Majestic World Holdings LLC, is a prop-tech company that has created an AI powered real estate marketplace. It aims to decentralize the real estate marketplace, creating an all-in-one solution that brings banks, institutions, home builders, clients, agents, vendors, gig workers, and insurers into a seamlessly integrated and structured AI-driven environment. MyVONIA Innovations LLC, a wholly own subsidiary, is the owner of MyVONIA which is an AI-powered personal assistant designed to help simplify daily tasks and improve productivity for individuals and businesses. MyVONIA aims to assist with managing both personal and professional tasks.
Going Concern
The Company began operations during 2021 and has incurred net losses since inception and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Prior to becoming a public company, the Company’s operations had primarily been funded through advances from Safe & Green Holdings Corp., the Company’s then parent company (“Parent”) and the Company had been largely dependent upon Parent for funding. The Company has also funded its operations through bridge note financing, project level financing, and the issuance of its equity and debt securities. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company has initiated strategic monetization of properties, which may yield additional financing proceeds to fund operations, however there is no assurance that the Company will be successful in achieving its objectives.
Separation and Distribution
In December 2022, Parent and then owner
of
In connection with the Separation and Distribution, the Company entered into a separation and distribution agreement and several other agreements with Parent. These agreements provide for the allocation between Parent and the Company of the assets, employees, liabilities and obligations (including, among others, investments, property, employee benefits and tax-related assets and liabilities) of Parent and its subsidiaries attributable to periods prior to, at and after the Separation and govern the relationship between the Company and Parent subsequent to the completion of the Separation. In addition to the separation and distribution agreement, the other principal agreements entered into with Parent included a tax matters agreement and a shared services agreement.
Basis of presentation and principals of consolidation — The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”) and include the accounts of the Company and its wholly owned subsidiaries, LV Peninsula Holding, LLC (“LV Holding”) and MyVonia Innovations LLC (“MyVonia LLC”).
5
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 2. | Summary of Significant Accounting Policies |
Recently adopted accounting pronouncements — New accounting pronouncements implemented by the Company are discussed below or in the related notes, where appropriate.
Accounting estimates — The preparation of 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition – The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time, regardless of the length of contract or other factors. The recognition of revenue aligns with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with its revenue policy:
| (1) | Identify the contract with a customer |
| (2) | Identify the performance obligations in the contract |
| (3) | Determine the transaction price |
| (4) | Allocate the transaction price to performance obligations in the contract |
| (5) | Recognize revenue as performance obligations are satisfied |
The revenue the Company has generated to date resulted from commissions related to residential real estate purchases and sales transactions. For this revenue, the Company applies recognition of revenue when the customer obtains control over such service, which is at a point in time.
Investment Entities — On
May 31, 2021, the Company agreed to contribute $
On June 24, 2021, the Company
entered into an operating agreement with Jacoby Development for a
During the six months ended June 30, 2024 and 2023, Norman Berry and Cumberland did not have any material earnings or losses as the investments are in development. In addition, management believes there was no impairment as of June 30, 2024 or December 31, 2023.
Cash and cash equivalents — The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less upon acquisition. The Company has minimal cash and cash equivalents on hand as of June 30, 2024 and December 31, 2023.
Property, plant and equipment — Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated lives of each asset. Repairs and maintenance are charged to expense when incurred.
On May 10, 2021 the Company acquired
a
During February 2022 and September 2022,
the Company acquired properties in Oklahoma and Georgia for $
6
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 2. | Summary of Significant Accounting Policies (cont.) |
Intangible assets — Intangible
assets consist of $
Project Development Costs — Project development costs are stated at cost. At June 30, 2024 and December 31, 2023, the Company’s project development costs are expenses incurred related to development costs on various projects that are capitalized during the period the project is under development.
Assets Held For Sale — During
2022, management implemented a plan to sell Lago Vista, which meets all of the criteria required to classify it as an Asset Held For Sale.
Including previous project development costs associated with Lago Vista of $
On November 28, 2023, LV Peninsula
Holding LLC (“LV Holding”) entered into a Contribution Agreement (the “Contribution Agreement”) with Preserve
Acquisitions, LLC, a Delaware limited liability company (“Preserve”), to form either a Delaware or Texas limited liability
company or limited partnership (the “Joint Venture”) for the purpose of owning, holding for investment and ultimately selling
a residential housing development (the “Project”) to be developed by the parties on Lago Vista upon the terms and conditions
set forth in the Contribution Agreement and in the operating agreement of the Joint Venture to be negotiated between the parties (the
“JV Agreement”). The Contribution Agreement provides that the parties will negotiate the JV Agreement within five months of
the November 28, 2023 execution date of the Contribution Agreement. The Contribution Agreement further provides that LV Holding will contribute
the Lago Vista Property to the Joint Venture as a capital contribution to be valued at $
Preserve will lead the development process and, after the completion of a feasibility period, will be required to submit permits for the first phase of the Project within 11 months from the execution of the Contribution Agreement. In addition, the Contribution Agreement provides that LV Holding must remove, pay and/or satisfy prior to or at Closing (as defined below) any monetary liens (as defined in the Contribution Agreement) on the Lago Vista Property.
The closing for the formation of the Joint Venture (the “Closing”) is to be held on the date which is 30 days after the expiration of the feasibility period subject to fulfillment of the following conditions: (a) an affiliate of Preserve, LV Holding or its affiliate (the “LV Member”) and a third party equity investor, if applicable, have executed and delivered the JV Agreement in form approved by Preserve and LV Holding, which terms must be consistent with waterfall provisions set forth in the Contribution Agreement; (b) the Joint Venture having secured a legally binding and unconditional commitment for construction financing and capital commitments sufficient for the Project from third parties (debt and equity); and (c) the Title Agent being unconditionally committed to issue the Owner’s Title Policy to the Joint Venture.
At Closing, LV Holding must pay a
On April 25, 2024, the Company
entered into a Commercial Contract (the “Contract of Sale”) with Lithe Development Inc., a Texas corporation (“Lithe”),
to sell the Lago Vista Property for $
Fair value measurements — Financial instruments, including accounts payable and accrued expenses are carried at cost, which the Company believes approximates fair value due to the short-term nature of these instruments. The short-term note payable is carried at cost which approximates fair value due to corresponding market rates.
The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
7
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 2. | Summary of Significant Accounting Policies (cont.) |
The Company uses three levels of inputs that may be used to measure fair value:
| Level 1 | Quoted prices in active markets for identical assets or liabilities. | |
| Level 2 | Quoted prices for similar assets and liabilities in active markets or inputs that are observable. | |
| Level 3 | Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions). |
Transfer into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period.
Income taxes — The Company accounts for income taxes utilizing the asset and liability approach. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the liabilities are no longer determined to be necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.
Business Combinations — The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations. Costs that the Company incurs to complete the business combination are charged to general and administrative expenses as they are incurred.
For acquisitions of assets that do not constitute a business, any assets and liabilities acquired are recognized at their cost based upon their relative fair value of all asset and liabilities acquired.
Concentrations of credit risk — Financial instruments, that potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. The Company has not experienced any losses in such account and believes that it is not exposed to any significant credit risk on the account.
| 3. | Property and Equipment |
Property and equipment are stated at
cost less accumulated depreciation and amortization and depreciated using the straight-line method over their useful lives.
| 2024 | 2023 | |||||||
| Computer equipment and software | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense for the six months
ended June 30, 2024 amounted to $
8
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 4. | Equity-based investments |
As of June 30, 2024, the Company’s
investment in Norman Barry and Cumberland amount to $
| Condensed balance sheet information: | June 30, 2024 | December 31, 2023 | ||||||
| (Unaudited) | (Unaudited) | |||||||
| Total assets | $ | $ | ||||||
| Total liabilities | $ | $ | ||||||
| Members’ equity | $ | $ | ||||||
| 5. | Notes Payable |
During August 2022, in connection with
the purchase of the St. Mary’s property in Georgia, the Company entered into a promissory note in the amount of $
On March 31, 2023, LV Peninsula Holding
LLC (“LV Peninsula”), a Texas limited liability company and wholly owned subsidiary of the Company, pursuant to a Loan Agreement,
dated March 30, 2023 (the “Loan Agreement”), issued a promissory note, in the principal amount of $
The proceeds of the LV Note were used
to pay off prior notes. The LV Note requires monthly installments of interest only and bears interest at the prime rate as published in
the Wall Street Journal (currently
On April 3, 2024, LV Holding, entered
into a Modification and Extension Agreement, effective as of April 1, 2024 (the “Extension Agreement”), to extend to
On June 23, 2023, the Company entered
into a Loan Agreement (the “BCV Loan Agreement”) with a Luxembourg-based specialized investment fund, BCV S&G DevCorp
(“BCV S&G”), for up to $
On August 9, 2023, Parent and the Company
entered into a Note Cancellation Agreement, effective as of July 1, 2023, pursuant to which Parent cancelled and forgave the remaining
balance then due on that certain promissory note, dated December 19, 2021, made by the Company in favor of Parent in the original principal
amount of $
9
Safe
and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 5. | Notes Payable (cont.) |
On August
16, 2023, the Company secured an additional $
On August 25, 2023, the Company and BCV S&G amended the BCV Loan Agreement (“Amendment No. 1”) to change the date upon which the Company’s shares must be listed on The Nasdaq Stock Market from August 30, 2023 to September 15, 2023. According to Amendment No. 1, if the Company’s shares of common stock were not listed on The Nasdaq Stock Market before September 15, 2023 or if following such listing the total market value of the Pledged Shares fell below twice the face value of the loan, the loan would be further secured by a security interest in the St. Mary’s Site.
On September 11, 2023, the Company and BCV S&G amended the BCV Loan Agreement (“Amendment No. 2”) to change the date upon which the Company’s shares must be listed on The Nasdaq Stock Market from September 15, 2023 to September 30, 2023. According to Amendment No. 2, if the Company’s shares of common stock were not listed on The Nasdaq Stock Market before September 30, 2023 or if following such listing the total market value of the Pledged Shares fell below twice the face value of the loan, the loan would be further secured by a security interest in the St. Mary’s Site. Following the listing, the total market value of the Pledged Shares fell below twice the face value of the loan and the Company and BCV S&G are in discussions regarding alternatives, if any.
On November 30, 2023, the Company entered
into a Securities Purchase Agreement, dated November 30, 2023 (the “Purchase Agreement”) with Peak One Opportunity Fund, L.P.
(“Peak One”), pursuant to which the Company agreed to issue, in a private placement offering consisting of two tranches, two
Debentures to Peak One in the aggregate principal amount of $
The closing of the first tranche was
consummated on November 30, 2023 and the Company issued an
The Initial Debenture matured twelve
months from its date of issuance and bore interest at a rate of
The Initial Debenture was redeemable
by the Company at a redemption price equal to
The Initial Debenture contained customary
events of default. If an event of default occurs, until it was cured, Peak One may increase the interest rate applicable to the Initial
Debenture to the lesser of eighteen percent (
The First Warrant expired
Under the Purchase Agreement, a closing
of the second tranche could occur subject to the mutual written agreement of Peak One and the Company and satisfaction of the closing
conditions set forth in the Purchase Agreement at any time after January 29, 2024, upon which the Company would issue and sell to Peak
One on the same terms and conditions a second
10
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 5. | Notes Payable (cont.) |
In connection with the Purchase Agreement,
the Company incurred a total of $
During the six months ended June 30,
2024 the balance of $
On February 15, 2024, the Company entered into an amendment (the “Amendment”) to the Purchase Agreement with Peak One.
The Amendment provided that the second
tranche be separated into two tranches (the second and third tranche) wherein which the Company would issue in each tranche an
The closing of the second tranche was
consummated on February 16, 2024. In connection with the second tranche, the Company incurred a total of $
The closing of the third tranche was
consummated on March 20, 2024. In connection with the third tranche, the Company incurred a total of $
During the six months ended June 30,
2024, $
On March 1, 2024, the Company entered into a credit agreement with
the Bryan Leighton Revocable Trust Dated December 13, 2023 (the “Lender”) pursuant to which the Lender agreed to provide the
Company with a line of credit facility (the “Line of Credit”) up to the maximum amount of $
On April 29, 2024, the Company entered
into a Securities Purchase Agreement, dated April 29, 2024 (the “April 2024 Purchase Agreement”) with Peak One, pursuant to
which the Company agreed to issue, in a private placement offering upon the satisfaction of certain conditions specified in the April
2024 Purchase Agreement, three Debentures to Peak One in the aggregate principal amount of $
11
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 5. | Notes Payable (cont.) |
The First 2024 Debenture matures twelve
months from its date of issuance and bears interest at a rate of
The First 2024 Debenture is redeemable
by the Company at a redemption price equal to
The First 2024 Warrant expires
Under the April 2024 Purchase Agreement,
as amended, a closing of the second tranche could occur subject to the mutual written agreement of Peak One and the Company and satisfaction
of the closing conditions set forth in the April 2024 Purchase Agreement at any time after May 19, 2024, upon which the Company would
issue and sell to Peak One on the same terms and conditions a second
Under the April 2024 Purchase Agreement,
as amended, a closing of the third tranche could occur subject to the mutual written agreement of Peak One and the Company and satisfaction
of the closing conditions set forth in the April 2024 Purchase Agreement at any time after 20 days after the closing of the second tranche,
upon which the Company would issue and sell to Peak One on the same terms and conditions a third
On May 24, 2024, the Company closed
the second tranche of its private placement offering under the April 2024, Purchase Agreement pursuant to which the Company issued an
The Second 2024 Debenture was sold to Peak One for a purchase price
of $
12
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 5. | Notes Payable (cont.) |
The Second 2024 Debenture is redeemable
by the Company at a redemption price equal to
The Second 2024 Debenture contains
customary events of default. If an event of default occurs, until it is cured, Peak One may increase the interest rate applicable to the
Second 2024 Debenture to the lesser of eighteen percent (
The Second 2024 Warrant expires
In connection with the First 2024 Debenture
and the Second 2024 Debenture the Company incurred $
For the six months ended June 30, 2024,
the Company recognized amortization of debt issuance costs and debt discount of $
| 6. | Business Combination and Acquisition of Assets |
On February 7, 2024, the Company,
entered into a Membership Interest Purchase Agreement (“MIPA”) to acquire Majestic World Holdings LLC (“Majestic”).
The aggregate consideration payable by the Company for the outstanding membership interests (the “Membership Interests”)
of Majestic consists of
| Cash | $ | |||
| Contingent consideration payable | ||||
| Equity compensation | ||||
| $ |
As part of the Majestic acquisition,
the Company recorded a contingent consideration liability for additional payments pursuant to the Profit Sharing Agreement. The initial
contingent consideration liability of $
13
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 6. | Business Combination and Acquisition of Assets (cont.) |
| Cash and cash equivalents | $ | |||
| Intangible assets | ||||
| Goodwill | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| $ |
As of June 30, 2024, the intangible assets are not in service. Once they are in service, they will be amortized over three years. As of June 30, 2024, the Company has not completed its measurement period with respect to the Majestic acquisition. The amounts above represent provisional amounts recorded at this time and are subject to adjustments once the measurement period has ended.
Below is a proforma condensed consolidated
statement of operations for the six months ended June 30, 2024, as if the Company purchased Majestic as of January 1, 2024.
| For the Six Months Ended June 30, 2024 | ||||
| (Unaudited) | ||||
| Revenue: | ||||
| Sales | $ | |||
| Total | ||||
| Operating expenses: | ||||
| Payroll and related expenses | $ | |||
| General and administrative expenses | ||||
| Marketing and business development expense | ||||
| Total | ||||
| Operating loss | ( | ) | ||
| Other expense: | ||||
| Interest Expense | ( | ) | ||
| Net loss | $ | ( | ) | |
As of May 7, 2024, the Company entered into an Asset Purchase Agreement (the “APA”) with Dr. Axely Congress to purchase all of the assets related to the A.I technology known as My Virtual Online Intelligent Assistant (“MyVONIA”). MyVONIA, an advanced artificial intelligence (AI) assistant, utilizes machine learning and natural language processing algorithms to provide users with human-like conversational interactions, tailored to their specific needs. MyVONIA does not require an app, or website but is accessible to subscribers via text messaging.
On June 6, 2024, the Company completed
the acquisition of all of the assets related to MyVONIA pursuant to the APA. The purchase price for MyVONIA is up to
14
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 7. | Net Loss Per Share |
Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive.
At June 30, 2024, there were
| 8. | Stockholder’s Equity |
As of June 30, 2024, the Company
has
On September 27, 2023, Parent effected
a pro rata distribution to Safe & Green Holdings Corp.’s stockholders of approximately
During the six months ended June 30, 2024, the Company issued
Equity Purchase Agreement
On November 30, 2023, the Company entered
into an Equity Purchase Agreement (the “EP Agreement”) with Peak One, pursuant to which the Company shall have the right,
but not the obligation, to direct Peak One to purchase up to $
In connection with the EP Agreement, the Company agreed, among other
things, to issue to Peak One’s designee
Additionally, as disclosed in Note 5, in connection with the Purchase Agreement and April 2024 Purchase Agreement with Peak One, the Company has paid additional commitment shares to Peak One and its designee.
Warrants
In conjunction with the issuance of
the Initial Debenture in November 2023, the Company issued the First Warrant to purchase
| Risk-free interest rate | % | |||
| Contractual term | ||||
| Dividend yield | % | |||
| Expected volatility | % |
15
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 8. | Stockholder’s Equity (cont.) |
In conjunction with the issuance of the second and third Peak debentures
in February and March 2024, the Company issued the second and third Peak warrants to purchase an aggregate of
| Risk-free interest rate | % | |||
| Contractual term | ||||
| Dividend yield | % | |||
| Expected volatility | % |
In conjunction with the issuance of
First 2024 Debenture and Second 2024 Debenture in April and May 2024, the Company issued warrants to purchase an aggregate of
| Risk-free interest rate | % | |||
| Contractual term | ||||
| Dividend yield | % | |||
| Expected volatility | % |
| Warrants | Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
| Outstanding and exercisable – January 1, 2024 | ||||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding and exercisable – June 30, 2024 | $ | $ | ||||||||||||||
| 9. | Share-based Compensation |
On February 28, 2023, the Company’s
Board of Directors approved the issuance of up to
16
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 9. | Share-based Compensation (cont.) |
As of December 31, 2023,
On May 20, 2024,
For fiscal 2024, each director shall be given the option to select one of the following three compensation options quarterly (with payments to be made on April 1, 2024, July 1, 2024, October 1, 2024 and January 1, 2025):
| Option A | Option B | Option C | |||||
| ● | A cash retainer of $ | ● | A cash retainer of $ | ● | A grant of | ||
| ● | A grant of | ● | A grant of | ||||
For the three months and six months
ended June 30, 2024, the Company recorded stock-based compensation expense of $
| Number of Shares | ||||
| Non – vested balance at January 1,2024 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Forfeited/Expired | ||||
| Non – vested balance at June 30, 2024 | ||||
17
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 10. | Related Party Transactions |
On August 9, 2023, Parent and the Company
entered into a Note Cancellation Agreement, effective as of July 1, 2023, pursuant to which the Parent cancelled and forgave the remaining
balance then due on that certain promissory note, dated December 19, 2021, made by the Company in favor of the Parent in the original
principal amount of $
In addition, as of June 30, 2024 and
December 31, 2023, $
On December 17, 2023, the Company entered
into a Master Purchase Agreement with SG Echo pursuant to which the Company may engage SG Echo from time to time to provide modular construction
design, engineering, fabrication, delivery and other services (collectively, the “Work”) on such terms as the parties may
mutually agree. The Master Purchase Agreement provides that if the Company should desire that SG Echo provide services in connection with
any location, the Company will request from SG Echo a written proposal and that within
As of June 30, 2024 and December 31,
2023, included in accounts payable and accrued expenses is $
18
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 11. | Commitments and Contingencies |
At times the Company is subject to certain claims and lawsuits arising in the normal course of business. The Company assesses liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, the Company does not record an accrual, consistent with applicable accounting guidance. The Company is not currently involved in any legal proceedings.
| 12. | Subsequent Events |
Peak One Conversion
During July 2024, Peak One converted
$
NASDAQ Notice
On July 22, 2024, the Company received a letter from Nasdaq stating that based on the Quarterly Report on Form 10-Q that the Company filed with the SEC for the period ended March 31, 2024, and the Company’s submission to the Staff, dated May 29, 2024, it determined that the Company was in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Rule”). The letter further stated that if the Company fails to evidence compliance with the Rule upon filing its next periodic report it may be subject to delisting. At that time, Nasdaq staff will provide written notification to the Company, which may then appeal the staff’s determination to a Nasdaq Hearings Panel.
Sugar Phase I Joint Venture
On July 23, 2024, the Company entered into a Joint Venture Agreement (the “JV Agreement”) with Milk & Honey LLC, a Texas limited liability company (“Milk & Honey”), for the purpose of establishing a joint venture to be conducted under the name of Sugar Phase I LLC (the “Joint Venture”) for the purpose of developing and constructing single-family homes (the “Project”) on five parcels of land located in Edinburg Texas (the “Land”). Each of the Company and Milk & Honey are referred to as a “Joint Venturer” and collectively are referred to as the “Joint Venturers.”
Pursuant to the JV Agreement, the
Company has agreed to contribute capital in the amount of $
The JV Agreement provides that the Company will have a
19
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
| 12. | Subsequent Events (cont.) |
The JV Agreement provides that the Company will act as the manager of the Joint Venture and shall be responsible for overseeing and dictating all responsibilities associated with managing a real estate development project, including: (i) overseeing the planning, development, and construction phases of the Project to ensure that it is completed on time and within budget, (ii) coordinating with architects, contractors, suppliers, and other relevant parties to facilitate smooth project execution, and (iii) ensuring compliance with all applicable laws, regulations, and industry standards throughout the duration of the Project. The Company will also oversee the financial management of the Joint Venture, including the establishment and maintenance of financial accounts and records.
The JV Agreement provides that Milk & Honey will be responsible for the construction and development aspects of the Project, including: (i) overseeing and managing all aspects of the construction process, including the selection and supervision of contractors, subcontractors, and suppliers and (ii) ensuring that all construction activities are carried out in accordance with the approved development plan, building codes, and industry standards.
The JV Agreement provides that the following powers may be exercised only upon the mutual consent of the Joint Venturers: (i) the power to borrow money on the general credit of the Joint Venture in any amount, or to create, assume, or incur any indebtedness to any person or entity; (ii) the power to make loans in any amount, to guarantee obligations of any person or entity, or to make any other pledge or extension of credit; (iii) the power to purchase or otherwise acquire any other property except in the ordinary course of business of the Joint Venture; (iv) the power to sell, encumber, mortgage or refinance any loan or mortgage on any of the Joint Venture property; (v) the power to confess any judgment against the Joint Venture, or to create, assume, incur or consent to any charge (including any deed of trust, pledge, encumbrance or security interest of any kind) upon any property or assets of the Joint Venture; (vi) the power to spend any renovation or remodeling funds or to make any other expenditures except for routine day-to-day maintenance and operation of the Joint Venture.
Pursuant to JV Agreement, in the event the Joint Venturers are divided on a material issue and cannot agree on the conduct of the business and affairs of the Joint Venture, a deadlock shall be deemed to have occurred in which event one Joint Venturer (the “Offeror”) may elect to purchase the Joint Venture interest of the other Joint Venturer (the “Offeree”) at a price calculated based on the Offeree’s percentage interest in a total purchase price for all of the assets of the Joint Venture. The JV Agreement provides that the Offeror must notify the Offeree in writing of the offer to purchase, state the total purchase price for all of the assets of the Joint Venture, and the price offered for the Offeree’s Joint Venture interest expressed as Offeree’s percentage interest in the Joint Venture assets multiplied by the total purchase price for all of the assets of the Joint Venture. The Offeree shall then have the right to buy the interest of the Offeror at the designated price and terms, or to sell the Offeree’s interest to the Offeror at the designated price and terms, whichever the Offeree may elect.
Peak One Payoff
On August 13, 2024 the Company exercised
its option to repay Peak One at a
20
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
Arena Investors LP Debentures
On August 12, 2024, the Company
entered into a Securities Purchase Agreement, dated August 12, 2024 (the “Arena Purchase Agreement”) with the purchasers
named therein (“Arena Investors”), pursuant to which the Company issued in a private placement offering (the
“Arena Offering”) after satisfaction of certain conditions specified in the Arena Purchase Agreement, four secured
convertible debentures to Arena Investors in the aggregate principal amount of $
The closing of the first tranche
was consummated on August 12, 2024 (the “First Closing Date”) and the Company issued to Arena Investors
The First Closing Arena Debentures
mature eighteen months from their date of issuance and bears interest at a rate of
The First Closing Arena Debentures
are redeemable by the Company at a redemption price equal to
The First Closing Arena Debentures
contain customary events of default. If an event of default occurs, until it is cured, the holder may increase the interest rate
applicable to the First Closing Arena Debentures to two percent (
21
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
The First Closing Arena Warrants
expire
The Company entered into a Registration Rights Agreement, dated August 12, 2024 (the “RRA”), with Arena Investors where it agreed to file with the SEC an initial registration statement within 30 days to register the maximum number of Registrable Securities (as defined in the RRA) issuable under the First Closing Arena Debentures and the First Closing Arena Warrants as shall be permitted to be included thereon in accordance with applicable SEC rules and to use its reasonable best efforts to have the registration statement declared effective by the SEC no later than the “First Registration Statement Effectiveness Date”, which is defined as the 30th calendar day following the First Closing Date (or, in the event of a “full review” by the SEC, no later than the 120th calendar day following the First Closing Date); provided, however, that if the registration statement will not be reviewed or is no longer subject to further review and comments, the First Registration Statement Effectiveness Date will be the fifth trading day following the date on which the Company is so notified if such date precedes the date otherwise required above.
Under the Arena Purchase Agreement,
a closing of the second tranche may occur subject to the mutual written agreement of Arena Investors and the Company and
satisfaction of the closing conditions set forth in the Purchase Agreement on the later (y) the fifth trading day following the
First Registration Statement Effectiveness Date (or if such day is not a trading day, on the next succeeding trading day) and (z)
such date as the outstanding principal balance of the First Closing Arena Debenture issued is less than $
22
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
The Second Closing Arena Debentures
would be sold to Arena Investors for a purchase price of $
Under the Arena Purchase Agreement,
a closing of the third tranche may occur subject to the mutual written agreement of Arena Investors and the Company and satisfaction
of the closing conditions set forth in the Arena Purchase Agreement on the later (y) the fifth trading day following the Second
Registration Statement Effectiveness Date (as defined in the Arena Purchase Agreement) (or if such day is not a trading day, on the
next succeeding trading day) and (z) such date as the aggregate outstanding principal balance of the First Closing Arena Debentures
and Second Closing Arena Debentures issued is less than $
The Third Closing Arena Debentures
would be sold to Arena Investors for a purchase price of $
Under the Arena Purchase Agreement,
a closing of the fourth tranche may occur subject to the mutual written agreement of Arena Investors and the Company and
satisfaction of the closing conditions set forth in the Arena Purchase Agreement on the later (y) the fifth trading day following
the Third Registration Statement Effectiveness Date (as defined in the Arena Purchase Agreement) (or if such day is not a trading
day, on the next succeeding trading day) and (z) such date as the aggregate outstanding principal balance of the First Closing Arena
Debentures, Second Closing Arena Debentures and Third Closing Arena Debentures issued is less than $
23
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
The Fourth Closing Arena Debentures
would be sold to Arena Investors for a purchase price of $
Under the Arena Purchase Agreement,
a closing of the fifth tranche may occur subject to the mutual written agreement of Arena Investors and the Company and satisfaction
of the closing conditions set forth in the Arena Purchase Agreement on the later (y) the fifth trading day following the Fourth
Registration Statement Effectiveness Date(as defined in the Arena Purchase Agreement) (or if such day is not a trading day, on the
next succeeding trading day) and (z) such date as the outstanding principal balance of the First Closing Arena Debentures, Second
Closing Arena Debentures, Third Closing Arena Debentures and Fourth Closing Arena Debentures issued is less than $
The Fifth Closing Arena Debentures
would be sold to Arena Investors for a purchase price of $
Without giving effect to the
Exchange Cap discussed below, assuming the Company issued all of the Arena Debentures and converted accrued interest in full on each
of the Debentures into its common stock at the floor price (assuming each of such Arena Debentures accrued interest for a period one
year), approximately
24
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
The Arena Purchase Agreement prohibits the Company from entering into a Variable Rate Transaction (other than the Arena ELOC described below) until such time as no Arena Debentures remain outstanding. In addition, the Purchase Agreement provides that from the (i) the First Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the First Registration Statement Effectiveness Date, (ii) the Second Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Second Registration Statement Effectiveness Date, (iii) the Third Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Third Registration Statement Effectiveness Date, (iv) the Fourth Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Fourth Registration Statement Effectiveness Date, and (v) the Fifth Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Fifth Registration Statement Effectiveness Date, neither the Company nor any subsidiary may issue any Common Stock or Common Stock equivalents, except for certain exempted issuances (i.e., stock options, employee grants, shares issuable pursuant to outstanding securities, acquisitions and strategic transactions) and the Arena ELOC.
The Company entered into a Security Agreement, dated August 12, 2024 (the “Security Agreement”), with Arena Investors where it agreed to grant Arena Investors a security interest in all of its assets to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Arena Debentures. In addition, each of the Company’s subsidiaries entered into a Guaranty Agreement, dated August 12, 2024 (the “Subsidiary Guaranty”), with Arena Investors pursuant to which they agreed to guarantee the prompt payment, performance and discharge in full of all of the Company’s obligations under the Arena Debentures.
Maxim Group LLC
(“Maxim”) acted as placement agent in the Offering. In connection with the closing of the first tranche of the Arena
Offering, the Company paid a placement fee of $
The Arena Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Arena Investors represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
Arena Investors ELOC
On August 12, 2024 , the Company also
entered into an Purchase Agreement (the “Arena ELOC”) with Arena Business Solutions Global SPC II, LTD (“Arena Global”),
pursuant to which the Company shall have the right, but not the obligation, to direct Arena Global to purchase up to $
25
Safe and Green Development Corporation
Notes to Condensed Financial Statements
For the Six Months Ended June 30, 2024 and 2023
During the Commitment Period (as defined
below), the purchase price to be paid by Arena Investors for the common stock under the EP Agreement will be
In connection with the Arena ELOC, the
Company agreed, among other things, to issue to Arena Global, in two separate tranches, as a commitment fee, that number of shares of
its restricted common stock (“Commitment Fee Shares”) equal to (i) with respect to the first tranche (“First Tranche”),
The Commitment Fee Shares shall be subject
to a true-up after each issuance pursuant to which the Company shall issue to Arena Global common stock having an aggregate dollar value
equal to (i) with respect to the First Tranche,
In connection with the Arena ELOC, the Company agreed to file a registration statement registering the common stock issued or issuable to Arena Global under the Arena ELOC for resale with the SEC within 30 calendar days of the Arena ELOC.
The obligation of Arena Global to purchase the Company’s common stock under the Arena ELOC begins on the date of the Arena ELOC, and ends on the earlier of (i) the date on which Arena Global shall have purchased common stock pursuant to the Arena ELOC equal to the Commitment Amount, (ii) thirty six (36) months after the date of the Arena ELOC or (iii) written notice of termination by the Company (the “Commitment Period”). The Arena ELOC contains customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Arena Global represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act, and the Company will sell the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
The number of shares of the
Company’s common stock that may be issued upon conversion of the Arena Debentures and exercise of the Arena Warrants, and
inclusive of the Commitment Shares and any shares issuable under and in respect of the Arena ELOC, is subject to an exchange cap
(the “Exchange Cap”) of
The foregoing descriptions of the Arena Purchase Agreement, the Arena Debentures, the Arena Warrants, the Registration Rights Agreement, the Security Agreement, the Subsidiary Guaranty and Arena ELOC are qualified in their entirety by reference to the full text of such agreements, copies of which are attached hereto as Exhibit 10.1, 4.1, 4.2, 10.2, 10.3, 10.4 and 10.5, respectively, and each of which is incorporated herein in its entirety by reference. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introduction and Certain Cautionary Statements
As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to the “Company,” “SG DevCo,” “we,” “us,” and “our” refer to Safe and Green Development Corporation and its subsidiaries. The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and notes for the year ended December 31, 2023 included in our Annual Report for the year ended December 31, 2023 filed with the Securities and Exchange Commission on April 1, 2024 (the “2023 10-K”). This discussion, particularly information with respect to our future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note regarding forward-looking statements” in this Quarterly Report on Form10-Q. You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and the 2023 10-K for a discussion for important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Special Note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements contained in this Quarterly Report on Form 10-Q may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “would,” “estimates,” “may,” “might,” “plan,” “expect,” “intend,” “should,” “will,” or other variations on these terms or their negatives. All statements other than statements of historical facts are statements that could potentially be forward-looking. We caution that forward-looking statements involve risks and uncertainties, and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate or prediction is realized.
Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:
| ● | Our limited operating history makes it difficult for us to evaluate our future business prospects. |
| ● | Our auditors have expressed substantial doubt about our ability to continue as a going concern. |
| ● | Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth or investments effectively. |
| ● | The long-term sustainability of our operations as well as future growth depends in part upon our ability to acquire land parcels suitable for residential projects at reasonable prices. |
| ● | We operate in a highly competitive market for investment opportunities, and we may be unable to identify and complete acquisitions of real property assets. |
| ● | Our property portfolio has a high concentration of properties located in certain states. |
| ● | There can be no assurance that the properties in our development pipeline will be completed in accordance with the anticipated timing or cost. |
| ● | Our insurance coverage on our properties may be inadequate to cover any losses we may incur and our insurance costs may increase. |
| ● | Our operating results may be negatively affected by potential development and construction delays and resultant increased costs and risks. |
27
| ● | We rely on third-party suppliers and long supply chains, and if we fail to identify and develop relationships with a sufficient number of qualified suppliers, or if there is a significant interruption in our supply chains, our ability to timely and efficiently access raw materials that meet our standards for quality could be adversely affected. |
| ● | Previously undetected environmentally hazardous conditions may adversely affect our business. |
| ● | Legislative, regulatory, accounting or tax rules, and any changes to them or actions brought to enforce them, could adversely affect us. |
| ● | If we were deemed to be an investment company, applicable restrictions could make it impractical for us to continue our business as contemplated and could have an adverse effect on our business. |
| ● | Our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for housing and, as a result, could have a material adverse effect on us. |
| ● | Fluctuations in real estate values may require us to write-down the book value of our real estate assets. |
| ● | We could be impacted by our investments through joint ventures, which involve risks not present in investments in which we are the sole owner. |
| ● | We may not be able to sell our real property assets when we desire. |
| ● | Access to financing sources may not be available on favorable terms, or at all, which could adversely affect our ability to maximize our returns. |
| ● | If we were to default in our obligation to repay the loan we received from BCV S&G DevCorp or Peak One, it could disrupt or adversely affect our business and our stock price could decline. |
| ● | Future outbreaks of any highly infectious or contagious diseases, could materially and adversely impact our performance, financial condition, results of operations and cash flows. |
| ● | SG Holdings beneficially owns a significant portion of our outstanding common stock, and it may therefore be able to substantially control our management and affairs. |
| ● | We currently do not intend to pay dividends on our common stock. Consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock. |
| ● | We may issue shares of preferred or common stock in the future, which could dilute your percentage ownership of the company. |
| ● | If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline |
| ● | Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company more difficult and may prevent attempts by our stockholders to replace or remove our management. |
| ● | If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline |
| ● | Our failure to comply with continued listing requirements of Nasdaq. |
| ● | Risks relating to ownership of our common stock, including high volatility and dilution. |
28
The risks and uncertainties included here are not exhaustive or necessarily in order of importance. Other sections of this report and other reports we file with the SC include additional factors that could affect our business and financial performance, including discussed in “Part II – Item 1A. Risk Factors” to this Quarterly Report on Form 10-Q as well as the Risk Factors set forth in our 2023 10-K. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.
In addition, certain information presented below is based on unaudited financial information. There can be no assurance that there will be no changes to this information once audited financial information is available. As a result, readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of this report. We will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of us.
Overview
We were formed in 2021 by Safe & Green Holdings Corp. (“SG Holdings”) for the purpose of real property development utilizing SG Holdings’ proprietary technologies and SG Holdings’ manufacturing facilities. Our current business focus is primarily on the direct acquisition and indirect investment in properties nationally that will be further developed in the future into green single or multi-family projects. To date, we have generated minimal revenue and our activities have consisted solely of the acquisition and entitlement of three properties, an investment in two entities that have acquired two properties to be further developed; however we have not yet commenced any development activities. We have since executed contracts to sell two properties for a profit. We have also acquired a majority interest in MWH described below.. We are focused on increasing our presence in markets with favorable job formation and a favorable demand/supply ratio for multifamily and / or single-family housing.. Our business model is flexible and we anticipate developing properties on our own and also through joint ventures in which we partner with third-party equity investors or other developers.
We intend to develop the properties that we own from the proceeds of sales of our securities and future financings, both at the corporate and project level, and/or sale proceeds from properties that are sold. However, our ability to develop any properties will be subject to our ability to raise capital either through the sale of equity or by incurring debt. We expect development activities to begin for our Magnolia Gardens Project Single Family project to be built on our McLean mixed use site in the fourth quarter of 2024.In addition, in January 2024, we announced that we would strategically look to monetize our real estate holdings throughout 2024 by identifying markets where our land may have increased in value, as demonstrated by third-party appraisals. In connection with this strategy, we have entered into agreements to sell our St. Mary’s site and our Lago Vista site as described in more detail below.
Additionally, we acquired a majority interest in Majestic World Holdings LLC (“MWH”) during the first quarter of 2024. MWH is a prop-tech company that has created an AI Software platform (the “AI Powered Platform”). The AI Powered Platform, which was launched in April 2024, aims to decentralize the real estate marketplace, creating an all-in-one solution that brings banks, institutions, home builders, clients, agents, vendors, gig workers, and insurers into a seamlessly integrated and structured AI-driven environment. In addition, we purchased all of the assets related to the A.I technology known as My Virtual Online Intelligent Assistant (“MyVONIA”). MyVONIA, an advanced artificial intelligence (AI) assistant, which utilizes machine learning and natural language processing algorithms to provide users with human-like conversational interactions, tailored to their specific needs.
During the second quarter of 2024, we have generated minimal revenue and our primary source of funding has been from sales of debt and equity described in more detail below.
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Recent Developments.
The Peak One Transactions
2023 Private Placement Offering
On November 30, 2023, we entered into a securities purchase agreement (the “2023 Securities Purchase Agreement”) and related registration rights agreement with Peak One Opportunity Fund, L.P. (“Peak One”), pursuant to which we agreed to issue, in a private placement offering (the “2023 Offering”) upon the satisfaction of certain conditions specified in the 2023 Securities Purchase Agreement, two debentures in the aggregate principal amount of $1,200,000, a warrant to purchase up to 350,000 shares of common stock (the “First 2023 Warrant”) and 100,000 shares of common stock as commitment shares (“Initial 2023 SPA Commitment Shares”). On November 30, 2023, we issued an 8% convertible debenture in the principal amount of $700,000 (the “First 2023 Debenture”) in addition to the First 2023 Warrant and the Initial 2023 SPA Commitment Shares. The First 2023 Debenture was sold to Peak One for a purchase price of $630,000, representing an original issue discount of ten percent (10%). In connection with the closing on November 30, 2023, we paid $17,500 as a non-accountable fee to Peak One to cover its accounting fees, legal fees and other transactional costs incurred in connection with the transactions contemplated by the securities purchase agreement.
The 2023 Securities Purchase Agreement provided that a closing of the second tranche could occur subject to the mutual written agreement of Peak One and us and satisfaction of the closing conditions set forth in the 2023 Securities Purchase Agreement at any time after January 29, 2024, upon which we would issue and sell to Peak One on the same terms and conditions a second 8% convertible debenture in the principal amount of $500,000 for a purchase price of $450,000, representing an original issue discount of ten percent (10%).
On February 15, 2024, we entered into an amendment (the “Amendment”) to the 2023 Securities Purchase Agreement with Peak One. The Amendment provided that the second tranche be separated into two tranches (the second and third tranche) wherein which we would issue in each tranche an 8% convertible debenture in the principal amount of $250,000 at a purchase price of $225,000. In addition, the Amendment provided that we would issue (i) 35,000 shares of our common stock on the closing of each of the second tranche and the third tranche as a commitment fee in connection with the issuance of the second debenture and the third debenture, respectively; (ii) a common stock purchase warrant for the purchase of 125,000 shares of common stock on the closing of each of the second tranche and the third tranche; and (iii) pay $6,500 of Peak One’s non-accountable fees in connection with each of the second tranche and the third tranche.
The closing of the second tranche was consummated on February 16, 2024, and we issued an 8% convertible debenture in the principal amount of $250,000 (the “Second 2023 Debenture”) and a warrant (the “Second 2023 Warrant”) to purchase up to 125,000 shares of our common stock. The Second 2023 Debenture was sold to Peak One for a purchase price of $225,000, representing an original issue discount of ten percent (10%). In connection with the closing of the second tranche, we paid $6,500 as a non-accountable fee to Peak One to cover its accounting fees, legal fees and other transactional costs incurred in connection with the second tranche and issued an aggregate total of 35,000 shares of our common stock as commitment shares.
The closing of the third tranche was consummated on March 22, 2024, and we issued an 8% convertible debenture in the principal amount of $250,000 (the “Third 2023 Debenture”) and a warrant (the “Third 2023 Warrant”) to purchase up to 125,000 shares of our common stock. In connection with the closing of the third tranche, we paid $6,500 as a non-accountable fee to Peak One to cover our accounting fees, legal fees and other transactional costs incurred in connection with the third tranche and issued an aggregate total of 35,000 shares of our common stock as commitment shares. The First 2023 Debenture, the Second 2023 Debenture the Third 2023 Debenture are collectively referred to as the “2023 Debentures.”
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The 2023 Debentures mature twelve months from their respective date of issuance and bear interest at a rate of 8% per annum payable on the maturity date. The 2023 Debentures are convertible, at the option of the holder, at any time, into such number of shares of our common stock equal to the principal amount of the 2023 Debentures plus all accrued and unpaid interest at a conversion price equal to $2.14 (the “2023 Conversion Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events and in the event we, at any time while the 2023 Debentures are outstanding, issue, sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of, or issue common stock or other securities convertible into, exercisable for, or otherwise entitle any person the right to acquire, shares of common stock, other than with respect to an Exempt Issuance (as defined in the 2023 Debentures), at an effective price per share that is lower than the then 2023 Conversion Price. In the event of any such anti-dilutive event, the 2023 Conversion Price will be reduced at the option of the holder to such lower effective price of the dilutive event, subject to a floor price of $0.39 per share.
The 2023 Debentures are redeemable by us at a redemption price equal to 110% of the sum of the principal amount to be redeemed plus accrued interest, if any. While the 2023 Debentures are outstanding, if we receive cash proceeds of more than $1,500,000.00 (“Minimum Threshold”) in the aggregate from any source or series of related or unrelated sources, we shall, within two (2) business days of our receipt of such proceeds, inform the holder of such receipt, following which the holder shall have the right in its sole discretion to require us to immediately apply up to 50% of all proceeds received by us (from any source except with respect to proceeds from the issuance of equity or debt to our officers and directors) after the Minimum Threshold is reached to repay the outstanding amounts owed under the 2023 Debentures.
The 2023 Debentures contain customary events of default. If an event of default occurs, until it is cured, Peak One may increase the interest rate applicable to the 2023 Debentures to the lesser of eighteen percent (18%) per annum and the maximum interest rate allowable under applicable law and accelerate the full indebtedness under the 2023 Debentures, in an amount equal to 110% of the outstanding principal amount and accrued and unpaid interest. The 2023 Debentures prohibit us from entering into a Variable Rate Transaction (as defined in the 2023 Debentures) until the 2023 Debentures are paid in full.
To date, we have issued 1,022,222 shares of our common stock pursuant to the First 2023 Debenture which was converted in full. On May 9, 2024, we issued 506,189 shares of our common stock upon conversion of the Second 2024 Debenture and partial conversion of the Third 2024 Debenture. On July 22, 2024 we issued 970,941 shares of our common stock upon conversion of the remainder of the Third 2023 debenture in full and partial conversion of the 1st 2024 Debenture. As of August 8th, 2024 the outstanding principle on debentures is $500,000.
On January 8, 2024, 305,000 shares of our common stock were issued in connection with the exercise, in full, of the First 2023 Warrant, on a cashless basis. On April 30th, 2024, 229,216 shares of our common stock were issued in connection with the exercise, in full, of the Second 2023 Warrant and the Third 2023 Warrant, on a cashless basis.
Second Private Placement Offering
On April 29, 2024, we entered into a securities purchase agreement, dated April 29, 2024 (the “2024 Securities Purchase Agreement”) with Peak One, pursuant to which we agreed to issue, in a private placement offering (the “2024 Offering”) upon the satisfaction of certain conditions specified in the 2024 Securities Purchase Agreement, three 2024 Debentures to Peak One in the aggregate principal amount of $1,200,000.
The closing of the first tranche was consummated on April 29, 2024 and we issued an 8% convertible debenture in principal amount of $350,000 (the “First 2024 Debenture”) to Peak One and a warrant (the “First 2024 Warrant”) to purchase up to 262,500 shares of common stock, to Peak One’s designee as described in the 2024 Securities Purchase Agreement. The First 2024 Debenture was sold to Peak One for a purchase price of $315,000, representing an original issue discount of ten percent (10%). In connection with the closing of the first tranche, we paid $10,000 as a non-accountable fee to Peak One to cover its accounting fees, legal fees and other transactional costs and issued to Peak One and its designee an aggregate total of 80,000 shares of our restricted common stock (the “2024 Initial Commitment Shares”) as described in the 2024 Securities Purchase Agreement.
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The First 2024 Debenture matures twelve months from its date of issuance and bears interest at a rate of 8% per annum payable on the maturity date. The First 2024 Debenture is convertible, at the option of the holder, at any time, into such number of shares of our common stock equal to the principal amount of the First 2024 Debenture plus all accrued and unpaid interest at a conversion price equal to $0.70 (the “First 2024 Conversion Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events, as well as anti-dilution price protection provisions that are subject to a floor price of $0.165.
The First 2024 Debenture is redeemable by us at a redemption price equal to 110% of the sum of the principal amount to be redeemed plus accrued interest, if any. While the First 2024 Debenture is outstanding, if we receive cash proceeds of more than $1,500,000.00 in the aggregate from any source or series of related or unrelated sources, we shall, within two (2) business days of our receipt of such proceeds, inform the holder of such receipt, following which the holder shall have the right in its sole discretion to require us to immediately apply up to 50% of all proceeds received by us (from any source except with respect to proceeds from the issuance of equity or debt to our officers and directors) after the Minimum Threshold is reached to repay the outstanding amounts owed under the First 2024 Debenture.
The First 2024 Debenture contains customary events of default. If an event of default occurs, until it is cured, Peak One may increase the interest rate applicable to the First 2024 Debenture to the lesser of eighteen percent (18%) per annum and the maximum interest rate allowable under applicable law and accelerate the full indebtedness under the First 2024 Debenture, in an amount equal to 110% of the outstanding principal amount and accrued and unpaid interest. Subject to limited exceptions set forth in the First 2024 Debenture, the First 2024 Debenture prohibits us from entering into a Variable Rate Transaction (as defined in the First 2024 Debenture) or incurring any new indebtedness that is senior to the First 2024 Debenture or secured by our assets until the First 2024 Debenture is paid in full.
The First 2024 Warrant expires five years from its date of issuance. The First 2024 Warrant is exercisable, at the option of the holder, at any time, for up to 262,500 of shares of common stock at an exercise price equal to $0.76 (the “Exercise Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations, and similar events, as well as anti-dilution price protection provisions that are subject to a floor price as set forth in the First 2024Warrant. The First 2024 Warrant provides for cashless exercise under certain circumstances.
Under the 2024 Securities Purchase Agreement, as amended, a closing of the second tranche could occur subject to the mutual written agreement of Peak One and us and satisfaction of the closing conditions set forth in the 2024 Securities Purchase Agreement at any time after May 19, 2024, upon which we would issue and sell to Peak One on the same terms and conditions a second 8% convertible debenture in the principal amount $350,000 (the “Second 2024 Debenture”) and issue to Peak One’s designee on the same terms and conditions a second warrant (the “Second 2024 Warrant”) to purchase up to 262,500 shares of the common stock. The Second 2024 Debenture would be sold to Peak One for a purchase price of $315,000, representing an original issue discount of ten percent (10%). In connection with the closing of the second tranche, we will pay $10,000 as a non-accountable fee to Peak One to cover its accounting fees, legal fees and other transactional costs and we would issue to Peak One and its designee an aggregate total of 80,000 shares of our restricted common stock as commitment shares (the “Second 2024 Commitment Shares”) as described in the 2024 Securities Purchase Agreement.
Under the 2024 Securities Purchase Agreement, as amended, a closing of the third tranche may occur subject to the mutual written agreement of Peak One and us and satisfaction of the closing conditions set forth in the Purchase Agreement at any time after 20 days after the closing of the second tranche, upon which we would issue and sell to Peak One on the same terms and conditions a third 8% convertible debenture in the principal amount of $500,000 (the “Third 2024 Debenture” and together with the First 2024 Debenture and the Second 2024 Debenture, the “2024 Debentures”) and issue to Peak One’s designee on the same terms and conditions a third warrant (the “Third 2024 Warrant” and together with the First 2024 Warrant and the Second 2024 Warrant, the “2024 Warrants”) to purchase up to 375,000 shares of common stock. The Third 2024 Debenture would be sold to Peak One for a purchase price of $450,000, representing an original issue discount of ten percent (10%). In connection with the closing of the third tranche, we will pay $10,000 as a non-accountable fee to Peak One to cover its accounting fees, legal fees and other transactional costs and will issue to Peak One and its designee an aggregate total of 100,000 shares of our restricted common stock as commitment shares (the “Third 2024 Commitment Shares” and together with the Initial 2024 Commitment Shares and the Second 2024 Commitment Shares, the “2024 Commitment Shares”) as described in the 2024 Securities Purchase Agreement.
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We entered into a Registration Rights Agreement, dated April 29, 2024 (the “2024 RRA”), with Peak One where we agreed to file with the Securities and Exchange Commission (the “SEC”) an initial registration statement within 30 days to register the maximum number of Registrable Securities (as defined in the 2024 RRA) as shall be permitted to be included thereon in accordance with applicable SEC rules and to use our reasonable best efforts to have the registration statement declared effective by the SEC within 90 calendar days from April 29, 2024.
On May 24, 2024, we closed the second tranche of our private placement offering with Peak One under the 2024 Securities Purchase Agreement, as amended on May 22, 2024 (the “Amended 2024 Securities Purchase Agreement”), between us and Peak One, pursuant to which we issued the Second 2024 Debenture, Second 2024 Warrant and Second 2024 Commitment Shares. The Second Debenture is convertible, at the option of the holder, at any time, into such number of shares of Common our common stock equal to the principal amount of the Second 2024 Debenture plus all accrued and unpaid interest at a conversion price equal to $0.60, subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events, as well as anti-dilution price protection provisions that are subject to a floor price of $0.165. Second Warrant is exercisable, at the option of the holder an exercise price equal to $0.65, subject to adjustment for any stock splits, stock dividends, recapitalizations, and similar events, as well as anti-dilution price protection provisions that are subject to a floor price as set forth in the Second Warrant. The Second Warrant provides for cashless exercise under certain circumstances.
On June 17th, 2024, 484,470 shares of our common stock were issued in connection with the exercise, in full, of the First 2024 Warrant and the Second 2024 Warrant, on a cashless basis.
ELOC
On November 30, 2023, we also entered into an equity purchase agreement (“Equity Purchase Agreement”) and related registration rights agreement with Peak One, pursuant to which we have the right, but not the obligation, to direct Peak One to purchase up to $10,000,000 (the “Maximum Commitment Amount”) in shares of our common stock in multiple tranches upon satisfaction of certain terms and conditions contained in the Equity Purchase Agreement and the related registration rights agreement. Pursuant to the terms of the Equity Purchase Agreement, we issued to Peak One Investments 100,000 shares of our common stock as commitment shares. To date, we have issued 386,000 shares of our common stock pursuant to the terms of the Equity Purchase Agreement for $423,660. Accordingly, we currently have the right, but not the obligation, to direct Peak One to purchase up to $9,576,340 in shares of our common stock pursuant to the Equity Purchase Agreement.
As of August 8, 2024, we have sold approximately 986,000 shares under the Equity Purchase Agreement for gross proceeds of approximately $758,660.00
St. Mary’s Site
On January 31, 2024, we entered into an Agreement of Sale (the “Agreement of Sale”) with Pigmental, LLC, a Delaware limited liability company (“Pigmental Studios”), to sell approximately 27 acres of land zoned for a manufacturing facility in St. Mary’s, Georgia (the “St Mary’s Site”) owned by us to Pigmental Studios for $1.35 million, payable $900,000 in cash and $450,000 by the issuance of a promissory note to us. The promissory note was to bear interest at 10% per annum, provide for monthly interest only payments, mature on April 30, 2025, and be secured by a mortgage on the St Mary’s Site. The Agreement of Sale provided that the closing of the sale of the St Mary’s Site by us to Pigmental Studios was agreed to occur no later than June 20th, 2024.
As of April 25, 2024, we entered into an amendment to the Agreement of Sale (the “Amendment”). The Amendment amends the closing date to one of three dates (April 30, 2024, May 15, 2024 and May 30, 2024) and amends the purchase price contingent upon the closing date met by Pigmental Studios as follows:
| ● | If Pigmental Studios closes by April 30, 2024, the total purchase price will be $1,290,000. The payment breakdown for the purchase price will be as follows: $899,000 in cash and $390,000 by the issuance of a promissory note to us. |
| ● | If Pigmental Studios closes by May 15, 2024, the total purchase price will be $1,310,000. The payment breakdown for the purchase price will be as follows: $899,000 in cash and $410,000 by the issuance of a promissory note to us. |
| ● | If Pigmental Studios closes by May 30, 2024, the total purchase price will be $1,375,000. The payment breakdown for the purchase price will be as follows: $899,000 in cash and $475,000 by the issuance of a promissory note to us. |
As of August 13th, 2024 Pigmental Studios is currently in breach of the Agreement of Sale and the we are in discussions to execute an amendment for the closing of the property to take place in the third quarter of 2024.
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Lago Vista Extension and Second Lien
On April 3, 2024, LV Peninsula Holding LLC (“LV Holding”), a Delaware limited liability company and our wholly owned subsidiary, entered into a Modification and Extension Agreement, effective as of April 1, 2024 (the “Extension Agreement”), to extend to April 1, 2025 the maturity date of the promissory note, in the principal amount of $5,000,000 (the “LV Note”), issued by LV Holding pursuant to a loan agreement, dated March 30, 2023. As consideration for the Extension Agreement, LV Holding agreed to pay an extension fee of $50,000. Additionally, the Extension Agreement provides for the LV Note’s interest rate to be increased to a fixed rate of 17.00%.
In addition, pursuant to a loan agreement dated April 3, 2024, LV Holding issued a promissory note, in the principal amount of $1,000,000 (the “2nd Lien Note”), secured by a revised Deed of Trust and Security Agreement, dated April 3, 2024 on our Lake Travis project site in Lago Vista, Texas, a Modification to Real Estate Mortgage, dated April 3, 2024, to the Mortgage, dated March 30, 2023, on our McLean site in Durant, Oklahoma. The 2nd Lien Note is subordinate to the LV Note.
The 2nd Lien Note requires monthly installments of interest only, is due in full on April 1, 2025, bears interest at a fixed rate of 17.00% and may be prepaid by LV Holding at any time without interest or penalty. LV Holding’s obligations under the 2nd Lien Note have been guaranteed by us pursuant to a guaranty, dated April 3, 2024.
Contract for Sale of Lago Vista
On April 25, 2024, we entered into a Commercial Contract (the “Contract of Sale”) with Lithe Development Inc., a Texas corporation (“Lithe”), to sell our approximately 60-acre waterfront Lago Vista site in Lake Travis, Texas (the “Lago Vista Property”) to Lithe for $5.825 million. The Contract of Sale provides that the closing of the sale by us to Lithe of the Lago Vista Property is expected to occur after a 70-day due diligence period and a subsequent 30-day closing period. As of July 18, 2024, the Company entered into an amendment to the Contract of Sale which extended the closing date of the sale of the Lago Vista Property to August 12, 2024. On July 18th, 2024 the Company entered into an amendment o the Contract of Sale to extend the closing date to August 4th, The contract was further amended on July 25th, 2024, to increase the sales price to $5.84 million. On August 8, 2024, the Company entered into an additional amendment to the Contract of Sale to extend the closing date to August 20th, 2024 and increase the price sales price to $5.86M
AI Platform Acquisition
On February 7, 2024, we acquired MWH, a real estate technology firm and owner of the an AI powered real estate marketplace Home Platform, pursuant to a Membership Interest Purchase Agreement (the “Purchase Agreement”), dated as of February 7, 2024, by and among us, the members of MWH listed therein (the “Members”), MWH and Matthew A. Barstow, as Sellers Representative. The AI Powered Platform, powered by advanced AI technology, has the goal of creating a decentralized real estate marketplace, creating an all-in-one solution that brings banks, institutions, home builders, clients, agents, vendors, gig workers, and insurers into a seamlessly integrated and structured AI-driven environment. This development is expected to significantly save time and resources for all parties involved. The AI Powered Platform is designed to streamline property transactions and offer a cost-effective alternative to traditional buyers’ agent models. The AI Powered Platform was launched in April 2024.
Pursuant to the Purchase Agreement, the aggregate consideration payable by us for the outstanding membership interests (the “Membership Interests”) of MWH consists of 500,000 shares of our restricted stock (the “Stock Consideration”) and $500,000 in cash (the “Cash Consideration”). The Purchase Agreement and a related side letter agreement provide that the aggregate purchase price be paid as follows: (i) the Stock Consideration was issued at the closing on February 7, 2024; and (ii) 100% of the Cash Consideration will be paid in five equal installments of $100,000 each on the first day of each of the five quarterly periods following the closing. The Membership Interests will be transferred and assigned to us as follows: (y) 68.25% of the Membership Interests were transferred to us at closing, and (z) the remaining 31.75% will be transferred to us in five equal installments of 6.35% each on the first day of each of the five quarterly periods following the closing. The Purchase Agreement contains customary representations, warranties, and covenants of the parties. Additional agreements ancillary to the Purchase Agreement were executed at the closing, including but not limited to a profit sharing agreement (the “Profit Sharing Agreement”), assignments of the Membership Interests and employment agreements. Pursuant to the Profit Sharing Agreement entered into as of February 7, 2024, we agreed to pay the Members a 50% share of the net profits for a period of five years that are directly derived from the technology and intellectual property utilized in the real estate focused software as a service offered and operated by MWH and its subsidiaries.
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MyVONIA
As of May 6, 2024, we entered into an Asset Purchase Agreement (the “APA”) with Dr. Axely Congress to purchase all of the assets related to the A.I technology known as My Virtual Online Intelligent Assistant (“MyVONIA”). MyVONIA, an advanced artificial intelligence (AI) assistant, utilizes machine learning and natural language processing algorithms to provide users with human-like conversational interactions, tailored to their specific needs. MyVONIA does not require an app, or website but is accessible to subscribers via text messaging. The purchase price for MyVONIA is up to 500,000 shares of our common stock. Of such shares, 200,000 shares of common stock will be issued at closing, with an additional 300,000 shares of common stock issuable upon the achievement of certain benchmarks. The APA contains customary closing conditions and Dr. Congress has agreed to a non-compete.
On June 6, 2024, we completed the acquisition of all of the assets related to the A.I technology known as MyVONIA pursuant to the previously disclosed theAPA. MyVONIA, an advanced artificial intelligence (AI) assistant, utilizes machine learning and natural language processing algorithms to provide users with human-like conversational interactions, tailored to their specific needs. MyVONIA does not require an app, or website but is accessible to subscribers via text messaging. theOf such shares, 200,000 shares of common stock were issued at the closing on June 6, 2024, with an additional 300,000 shares of common stock issuable upon the achievement of certain benchmarks. Pursuant to the APA, Dr. Congress has agreed to a non-compete. In connection with the closing, Dr. Congress also entered into a consulting agreement with us to continue to develop MyVONIA and provide such other services as are required pursuant thereto under which Dr. Congress will receive a consulting fee of $10,000 per month. The consulting agreement has a term of two years and has a non-compete.
Credit Agreement
On March 1, 2024, we entered into a credit agreement with the Bryan Leighton Revocable Trust dated December 13, 2023 (the “Lender”) pursuant to which the Lender agreed to provide us with a line of credit facility (the “Line of Credit”) up to the maximum amount of $250,000 from which we may draw down, at any time and from time to time, during the term of the Line of Credit. The “Maturity Date” of the Line of Credit is September 1, 2024. At any time prior to the Maturity Date, upon mutual written consent of us and the Lender, the Maturity Date may be extended for up to an additional six-month period. The advanced and unpaid principal of the Line of Credit from time to time outstanding will bear interest at a fixed rate per annum equal to 12.0% (the “Fixed Rate”). On the first day of each month, we will pay to the Lender interest, in arrears, on the aggregate outstanding principal indebtedness of the Line of Credit at the Fixed Rate. The entire principal indebtedness of the Line of Credit and any accrued interest thereon will be due and payable on the Maturity Date. In consideration for the extension of the Line of Credit, we issued 154,320 shares of our restricted common stock to Lender. During the three months ended June 30, 2024, we drew down $250,000 from the Line of Credit.
Nasdaq Notice
On April 16, 2024, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Rule”) because our stockholders’ equity of $1,887,777 as of December 31, 2023, as reported in our Annual Report on Form 10-K filed with the SEC on April 1, 2024, was below the minimum requirement of $2,500,000. Pursuant to Nasdaq’s Listing Rules, we had 45 calendar days (until May 31, 2024), to submit a plan to evidence compliance with the Rule (a “Compliance Plan”). We submitted a Compliance Plan within the required time. On July 22, 2024, we received a letter from Nasdaq stating that based on the Quarterly Report on Form 10-Q that we filed with the Securities and Exchange Commission for the period ended March 31, 2024, and our submission to the Staff, dated May 29, 2024, it determined that we were in compliance with Nasdaq Listing Rule 5550(b)(1). The letter further stated that if we fail to evidence compliance with Nasdaq Listing Rule 5550(b)(1) upon filing our next periodic report we may be subject to delisting. At that time, Nasdaq staff will provide written notification to us, upon which we may then appeal the staff’s determination to a Nasdaq Hearings Panel.
On April 25, 2024, we received written notice from Nasdaq notifying us that for the preceding 30 consecutive business days (March 14, 2024 through April 24, 2024), our common stock did not maintain a minimum closing bid price of $1.00 (“Minimum Bid Price Requirement”) per share as required by Nasdaq Listing Rule 5550(a)(2). The notice has no immediate effect on the listing or trading of the common stock and the common stock will continue to trade on The Nasdaq Capital Market under the symbol “SGD.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a compliance period of 180 calendar days, or until October 22, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance may be achieved without further action if the closing bid price of our common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify us if it determines it is in compliance and the matter will be closed; however Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that a company complies.
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If, however, we do not achieve compliance with the Minimum Bid Price Requirement by October 22, 2024, we may be eligible for additional time to comply. In order to be eligible for such additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and must notify Nasdaq in writing of its intention to cure the deficiency during the second compliance period.
We intend to actively monitor the bid price of our common stock and will consider available options to regain compliance with the Nasdaq listing requirements, including such actions as effecting a reverse stock split to maintain our Nasdaq listing. At our 2024 Annual Meeting of Stockholders held on July 2, 2024, the stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, to effect a reverse stock split with respect to the Company’s issued and outstanding common stock at a ratio of 1-for-2 to 1-for-20, with the ratio within such range to be determined at the discretion of the board of directors and included in a public announcement, subject to the authority of the board of directors to abandon such amendment.
There can be no assurance that we will be able to meet the Nasdaq continued listing requirements.
Sugar Phase I Joint Venture
On July 23, 2024, we entered into a Joint Venture Agreement (the “JV Agreement”) with Milk & Honey LLC, a Texas limited liability company (“Milk & Honey”), for the purpose of establishing a joint venture to be conducted under the name of Sugar Phase I LLC (the “Joint Venture”) for the purpose of developing and constructing single-family homes (the “Project”) on five parcels of land located in Edinburg Texas (the “Land”). We and Milk & Honey are each referred to as a “Joint Venturer” and collectively are referred to as the “Joint Venturers.”
Pursuant to JV Agreement, we have agreed to contribute capital in the amount of $100,000 to the Joint Venture to be used for the development and construction of single-family homes on the Land, and Milk & Honey has agreed to contribute the Land, valued at $317,500, to the Joint Venture. The Joint Venturers shall make such other capital contributions required to enable the Joint Venture to carry out its purposes as set forth in the JV Agreement as the Joint Venturers may mutually agree upon. The Joint Venturers shall arrange for or provide any financing as may be required by the Joint Venture for carrying out the purposes of the Joint Venture.
The JV Agreement provides that we will have a 60% interest and Milk & Honey will have a 40% interest in the Joint Venture. In addition, it provides that net profits of the Joint Venture as they accrue will be distributed 45% to the Company and 55% to Milk & Honey, and that the expenses of the Joint Venture will be paid by the Joint Venturers, in the ratio which the contribution of each Joint Venturer bears to the total contributions.
The JV Agreement provides that we will act as the manager of the Joint Venture and shall be responsible for overseeing and dictating all responsibilities associated with managing a real estate development project, including: (i) overseeing the planning, development, and construction phases of the Project to ensure that it is completed on time and within budget, (ii) coordinating with architects, contractors, suppliers, and other relevant parties to facilitate smooth project execution, and (iii) ensuring compliance with all applicable laws, regulations, and industry standards throughout the duration of the Project. We will also oversee the financial management of the Joint Venture, including the establishment and maintenance of financial accounts and records.
The JV Agreement provides that Milk & Honey will be responsible for the construction and development aspects of the Project, including: (i) overseeing and managing all aspects of the construction process, including the selection and supervision of contractors, subcontractors, and suppliers and (ii) ensuring that all construction activities are carried out in accordance with the approved development plan, building codes, and industry standards.
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The JV Agreement provides that the following powers may be exercised only upon the mutual consent of the Joint Venturers: (i) the power to borrow money on the general credit of the Joint Venture in any amount, or to create, assume, or incur any indebtedness to any person or entity; (ii) the power to make loans in any amount, to guarantee obligations of any person or entity, or to make any other pledge or extension of credit; (iii) the power to purchase or otherwise acquire any other property except in the ordinary course of business of the Joint Venture; (iv) the power to sell, encumber, mortgage or refinance any loan or mortgage on any of the Joint Venture property; (v) the power to confess any judgment against the Joint Venture, or to create, assume, incur or consent to any charge (including any deed of trust, pledge, encumbrance or security interest of any kind) upon any property or assets of the Joint Venture; (vi) the power to spend any renovation or remodeling funds or to make any other expenditures except for routine day-to-day maintenance and operation of the Joint Venture.
Pursuant to JV Agreement, in the event the Joint Venturers are divided on a material issue and cannot agree on the conduct of the business and affairs of the Joint Venture, a deadlock shall be deemed to have occurred in which event one Joint Venturer (the “Offeror”) may elect to purchase the Joint Venture interest of the other Joint Venturer (the “Offeree”) at a price calculated based on the Offeree’s percentage interest in a total purchase price for all of the assets of the Joint Venture. The JV Agreement provides that the Offeror must notify the Offeree in writing of the offer to purchase, state the total purchase price for all of the assets of the Joint Venture, and the price offered for the Offeree’s Joint Venture interest expressed as Offeree’s percentage interest in the Joint Venture assets multiplied by the total purchase price for all of the assets of the Joint Venture. The Offeree shall then have the right to buy the interest of the Offeror at the designated price and terms, or to sell the Offeree’s interest to the Offeror at the designated price and terms, whichever the Offeree may elect.
Arena Investors LP Debentures
On August 12, 2024, the Company entered into a Securities Purchase Agreement, dated August 12, 2024 (the “Arena Purchase Agreement”) with the purchasers named therein (“Arena Investors”), pursuant to which the Company issued in a private placement offering (the “Arena Offering”) after satisfaction of certain conditions specified in the Arena Purchase Agreement, four secured convertible debentures to Arena Investors in the aggregate principal amount of $10,277,777 (the “ Arena Debentures”) together with warrants to purchase a number of shares of the Company’s common stock equal to 20% of the total principal amount of the Arena Debentures sold divided by 92.5% of the lowest daily VWAP (as defined in the Purchase Agreement) for the Company’s common stock during the ten consecutive trading day period preceding the respective closing dates (the “Arena Warrants”).
The closing of the first tranche was consummated on August 12, 2024 (the “First Closing Date”) and the Company issued to Arena Investors 10% original issue discount secured convertible debentures in principal amount of $1,388,888.75 (the “First Closing Arena Debentures”) and a warrant (the “First Closing Arena Warrants”) to purchase up to 277,777 shares of the Company’s common stock. The First Closing Arena Debentures were sold to Arena Investors for a purchase price of $1,250,000, representing an original issue discount of ten percent (10%). In connection with the closing, the Company reimbursed Arena Investors $55,000 for its legal fees and expenses and placed $250,000 in escrow, to be released to the Company upon the First Registration Statement Effectiveness Date (as defined in the Purchase Agreement).
The First Closing Arena Debentures mature eighteen months from their date of issuance and bears interest at a rate of 0% per annum. The First Closing Arena Debentures are convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the First Closing Arena Debentures plus all accrued and unpaid interest at a conversion price equal to the lesser of (i) $0.279, and (ii) 92.5% of lowest daily volume weighted average price (VWAP) of the Company’s common stock during the ten trading day period ending on such conversion date (the “Conversion Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events, as well as anti-dilution price protection provisions, and subject to a floor price of $0.04854.
The First Closing Arena Debentures are redeemable by the Company at a redemption price equal to 115% of the sum of the principal amount to be redeemed plus accrued interest, if any. While the First Closing Arena Debentures are outstanding, if the Company or any of its subsidiaries receives cash proceeds from the issuance of equity or indebtedness (other than the issuance of additional secured convertible debentures as contemplated by the Arena Purchase Agreement), in one or more financing transactions, whether publicly offered or privately arranged (including, without limitation, pursuant to the Arena ELOC (as defined below), the Company shall, within two (2) business days of Company’s receipt of such proceeds, inform the holder of such receipt, following which the holder shall have the right in its sole discretion to require the Company to immediately apply up to 20% of all proceeds received by the Company to repay the outstanding amounts owed under the First Closing Arena Debentures.
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The First Closing Arena Debentures contain customary events of default. If an event of default occurs, until it is cured, the holder may increase the interest rate applicable to the First Closing Arena Debentures to two percent (2%) per annum and accelerate the full indebtedness under the First Closing Arena Debentures, in an amount equal to 150% of the outstanding principal amount and accrued and unpaid interest. Subject to limited exceptions set forth in the First Closing Arena Debentures, the First Closing Arena Debentures prohibit the Company and, as applicable, its subsidiaries from incurring any new indebtedness that is not subordinated to the Company’s and, as applicable, any subsidiary’s obligations in respect of the First Closing Arena Debentures until the First Closing Arena Debentures are paid in full.
The First Closing Arena Warrants expire five years from its date of issuance. The First Closing Arena Warrants are exercisable, at the option of the holder, at any time, for up to 1,299,242 of shares of the Company’s common stock at an exercise price equal to $0.279 (the “Exercise Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations, and similar events, as well as anti-dilution price protection provisions that are subject to a floor price as set forth in the First Closing Arena Warrants. The First Closing Arena Warrants provide for cashless exercise under certain circumstances.
The Company entered into a Registration Rights Agreement, dated August 12, 2024 (the “RRA”), with Arena Investors where it agreed to file with the SEC an initial registration statement within 30 days to register the maximum number of Registrable Securities (as defined in the RRA) issuable under the First Closing Arena Debentures and the First Closing Arena Warrants as shall be permitted to be included thereon in accordance with applicable SEC rules and to use its reasonable best efforts to have the registration statement declared effective by the SEC no later than the “First Registration Statement Effectiveness Date”, which is defined as the 30th calendar day following the First Closing Date (or, in the event of a “full review” by the SEC, no later than the 120th calendar day following the First Closing Date); provided, however, that if the registration statement will not be reviewed or is no longer subject to further review and comments, the First Registration Statement Effectiveness Date will be the fifth trading day following the date on which the Company is so notified if such date precedes the date otherwise required above.
Under the Arena Purchase Agreement, a closing of the second tranche may occur subject to the mutual written agreement of Arena Investors and the Company and satisfaction of the closing conditions set forth in the Purchase Agreement on the later (y) the fifth trading day following the First Registration Statement Effectiveness Date (or if such day is not a trading day, on the next succeeding trading day) and (z) such date as the outstanding principal balance of the First Closing Arena Debenture issued is less than $100,000.00, unless the parties mutually agree in writing to consummate the second closing on a different date, upon which the Company would issue and sell to Arena Investors on the same terms and conditions a second 10% original issue discount secured convertible debentures in principal amount of $2,222,222 (the “Second Closing Arena Debentures”) and a warrant (the “Second Closing Warrants”) to purchase a number of shares of the Company’s common stock equal to 20% of the total principal amount of the Second Closing Arena Debentures divided by 92.5% of the lowest daily VWAP (as defined in the Purchase Agreement) for the common stock during the ten consecutive trading day period ended on the last trading day immediately preceding the closing of the second tranche, provided the second Closing is also contingent on the satisfaction of the following additional condition, unless waived mutually by the parties: the median daily turnover of the Company’s common stock on its principal trading market for the thirty consecutive trading day period ended as of the last trading day immediately preceding the date of the proposed second Closing must be greater than $200,000.
The Second Closing Arena Debentures would be sold to Arena Investors for a purchase price of $2,000,000, representing an original issue discount of ten percent (10%). In connection with the closing of the second tranche, the Company will enter into a registration rights agreement pursuant to which the Company will agree to register the maximum number of shares of the Company’s common stock issuable under the Second Closing Debentures and the Second Closing Arena Warrants as shall be permitted with terms substantially similar as the terms provided in the RRA. The Company also has agreed to reimburse Arena Investors for its legal fees and expenses related to such second closing.
Under the Arena Purchase Agreement, a closing of the third tranche may occur subject to the mutual written agreement of Arena Investors and the Company and satisfaction of the closing conditions set forth in the Arena Purchase Agreement on the later (y) the fifth trading day following the Second Registration Statement Effectiveness Date (as defined in the Arena Purchase Agreement) (or if such day is not a trading day, on the next succeeding trading day) and (z) such date as the aggregate outstanding principal balance of the First Closing Arena Debentures and Second Closing Arena Debentures issued is less than $100,000.00, unless the parties mutually agree in writing to consummate the third closing on a different date, upon which the Company would issue and sell to Arena Investors on the same terms and conditions a third 10% original issue discount secured convertible debenture in principal amount of $2,222,222 (the “Third Closing Arena Debentures”) and a warrant (the “Third Closing Arena Warrants”) to purchase a number of shares of the Company’s common stock equal to 20% of the total principal amount of the Third Closing Arena Debentures divided by 92.5% of the lowest daily VWAP (as defined in the Purchase Agreement) for the common stock during the ten consecutive trading day period ended on the last trading day immediately preceding the closing of the third tranche, provided the third Closing is also contingent on the satisfaction of the following additional condition, unless waived mutually by the parties: the median daily turnover of the Company’s common stock on its principal trading market for the thirty consecutive trading day period ended as of the last trading day immediately preceding the date of the proposed third Closing must be greater than $200,000.
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The Third Closing Arena Debentures would be sold to Arena Investors for a purchase price of $2,000,000, representing an original issue discount of ten percent (10%). In connection with the closing of the third tranche, the Company will enter into a registration rights agreement pursuant to which the Company will agree to register the maximum number of shares of the Company’s common stock issuable under the Third Closing Arena Debentures and the Third Closing Arena Warrants as shall be permitted with terms substantially similar as the terms provided in the RRA. The Company also has agreed to reimburse Arena Investors for its legal fees and expenses related to such third closing.
Under the Arena Purchase Agreement, a closing of the fourth tranche may occur subject to the mutual written agreement of Arena Investors and the Company and satisfaction of the closing conditions set forth in the Arena Purchase Agreement on the later (y) the fifth trading day following the Third Registration Statement Effectiveness Date (as defined in the Arena Purchase Agreement) (or if such day is not a trading day, on the next succeeding trading day) and (z) such date as the aggregate outstanding principal balance of the First Closing Arena Debentures, Second Closing Arena Debentures and Third Closing Arena Debentures issued is less than $100,000.00, unless the parties mutually agree in writing to consummate the fourth closing on a different date, upon which the Company would issue and sell to Arena Investors on the same terms and conditions a fourth 10% original issue discount secured convertible debenture in principal amount of $2,222,222 (the “Fourth Closing Arena Debentures”) and a warrant (the “Fourth Closing Arena Warrants”) to purchase a number of shares of the Company’s common stock equal to 20% of the total principal amount of the Fourth Closing Arena Debentures divided by 92.5% of the lowest daily VWAP (as defined in the Purchase Agreement) for the common stock during the ten consecutive trading day period ended on the last trading day immediately preceding the closing of the fourth tranche, provided the fourth Closing is also contingent on the satisfaction of the following additional condition, unless waived mutually by the parties: the median daily turnover of the Company’s common stock on its principal trading market for the thirty consecutive trading day period ended as of the last trading day immediately preceding the date of the proposed fourth Closing must be greater than $200,000.
The Fourth Closing Arena Debentures would be sold to Arena Investors for a purchase price of $2,000,000, representing an original issue discount of ten percent (10%). In connection with the closing of the fourth tranche, the Company will enter into a registration rights agreement pursuant to which the Company will agree to register the maximum number of shares of the Company’s common stock issuable under the Fourth Closing Arena Debentures and the Fourth Closing Arena Warrants as shall be permitted with terms substantially similar as the terms provided in the RRA. The Company also has agreed to reimburse Arena Investors for its legal fees and expenses related to such fourth closing.
Under the Arena Purchase Agreement, a closing of the fifth tranche may occur subject to the mutual written agreement of Arena Investors and the Company and satisfaction of the closing conditions set forth in the Arena Purchase Agreement on the later (y) the fifth trading day following the Fourth Registration Statement Effectiveness Date(as defined in the Arena Purchase Agreement) (or if such day is not a trading day, on the next succeeding trading day) and (z) such date as the outstanding principal balance of the First Closing Arena Debentures, Second Closing Arena Debentures, Third Closing Arena Debentures and Fourth Closing Arena Debentures issued is less than $100,000.00, unless the parties mutually agree in writing to consummate the fifth closing on a different date, upon which the Company would issue and sell to Arena Investors on the same terms and conditions a fifth 10% original issue discount secured convertible debenture in principal amount of $2,222,222 (the “Fifth Closing Arena Debentures”) and a warrant (the “Fifth Closing Arena Warrants”) to purchase a number of shares of the Company’s common stock equal to 20% of the total principal amount of the Fifth Closing Arena Debentures divided by 92.5% of the lowest daily VWAP (as defined in the Purchase Agreement) for the common stock during the ten consecutive trading day period ended on the last trading day immediately preceding the closing of the fifth tranche, provided the fifth Closing is also contingent on the satisfaction of the following additional condition, unless waived mutually by the parties: the median daily turnover of the Company’s common stock on its principal trading market for the thirty consecutive trading day period ended as of the last trading day immediately preceding the date of the proposed fifth Closing must be greater than $200,000.
The Fifth Closing Arena Debentures would be sold to Arena Investors for a purchase price of $2,000,000, representing an original issue discount of ten percent (10%). In connection with the closing of the fifth tranche, the Company will enter into a registration rights agreement pursuant to which the Company will agree to register the maximum number of shares of the Company’s common stock issuable under the Fifth Closing Arena Debentures and the Fifth Closing Arena Warrants as shall be permitted with terms substantially similar as the terms provided in the RRA. The Company also has agreed to reimburse Arena Investors for its legal fees and expenses related to such fifth closing.
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Without giving effect to the Exchange Cap discussed below, assuming the Company issued all of the Arena Debentures and converted accrued interest in full on each of the Debentures into its common stock at the floor price (assuming each of such Arena Debentures accrued interest for a period one year), approximately 232,912,128 shares of the Company’s common stock would be issuable upon conversion.
The Arena Purchase Agreement prohibits the Company from entering into a Variable Rate Transaction (other than the Arena ELOC described below) until such time as noArena Debentures remain outstanding. In addition, the Purchase Agreement provides that from the (i) the First Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the First Registration Statement Effectiveness Date, (ii) the Second Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Second Registration Statement Effectiveness Date, (iii) the Third Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Third Registration Statement Effectiveness Date, (iv) the Fourth Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Fourth Registration Statement Effectiveness Date, and (v) the Fifth Registration Statement Effectiveness Date until the earlier of (x) such date thereafter as no Debentures remain outstanding and (y) 120 days after the Fifth Registration Statement Effectiveness Date, neither the Company nor any subsidiary may issue any Common Stock or Common Stock equivalents, except for certain exempted issuances (i.e., stock options, employee grants, shares issuable pursuant to outstanding securities, acquisitions and strategic transactions) and the Arena ELOC.
The Company entered into a Security Agreement, dated August 12, 2024 (the “Security Agreement”), with Arena Investors where it agreed to grant Arena Investors a security interest in all of its assets to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Arena Debentures. In addition, each of the Company’s subsidiaries entered into a Guaranty Agreement, dated August 12, 2024 (the “Subsidiary Guaranty”), with Arena Investors pursuant to which they agreed to guarantee the prompt payment, performance and discharge in full of all of the Company’s obligations under the Arena Debentures.
Maxim Group LLC (“Maxim”) acted as placement agent in the Offering. In connection with the closing of the first tranche of the Arena Offering, the Company paid a placement fee of $75,000 to Maxim. Assuming the second tranche is closed, a placement fee in an amount equal to $120,000 will be payable by the Company to Maxim upon closing of the second tranche of the Arena Offering. Assuming the third tranche is closed, a placement fee in an amount equal to 120,000 will be payable by the Company to Maxim upon closing of the third tranche of the Arena Offering. Assuming the fourth tranche is closed, a placement fee in an amount equal to 120,000 will be payable by the Company to Maxim upon closing of the fourth tranche of the Arena Offering. Assuming the fifth tranche is closed, a placement fee in an amount equal to 120,000 will be payable by the Company to Maxim upon closing of the fifth tranche of the Arena Offering.
The Arena Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Arena Investors represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
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Arena Investors ELOC
On August 12, 2024 , the Company also entered into an Purchase Agreement (the “Arena ELOC”) with Arena Business Solutions Global SPC II, LTD (“Arena Global”), pursuant to which the Company shall have the right, but not the obligation, to direct Arena Global to purchase up to $50,000,000.00 (the “Maximum Commitment Amount”) in shares of the Company’s common stock in multiple tranches upon satisfaction of certain terms and conditions contained in the Arena ELOC, which includes, but is not limited to, filing a registration statement with the SEC and registering the resale of any shares sold to Arena Global. Further, under the Arena ELOC and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit an Advance Notice (as defined in the Arena ELOC) from time to time to Arena Global calculated as follows: (a) if the Advance Notice is received by 8:30 a.m. Eastern Time. the lower of: (i) an amount equal to seventy percent (70%) of the average of the Daily Value Traded (as defined in the Arena ELOC) of the Company’s common stock on the ten trading days immediately preceding an Advance Notice, or (ii) $20 million, (b) if the Advance Notice is received after 8:30 a.m. Eastern Time but prior to 10:30 a.m. Eastern Time, the lower of (i) an amount equal to forty percent (40%) of the average of the Daily Value Traded of the Company’s common stock on the ten trading days immediately preceding an Advance Notice, or (ii) $15 million, and (c) if the Advance Notice is received after 10:30 a.m. Eastern Time but prior to 12:30 p.m. Eastern Time, the lower of (i) an amount equal to twenty percent (20%) of the average of the Daily Value Traded of the Company’s common stock on the ten trading days immediately preceding an Advance Notice, or (ii) $10 million.
During the Commitment Period (as defined below), the purchase price to be paid by Arena Investors for the common stock under the EP Agreement will be 96% of the Market Price, defined as the daily volume weighted average price (VWAP) of the Company’s common stock, on the trading day commencing on the date of the Advance Notice.
In connection with the Arena ELOC, the Company agreed, among other things, to issue to Arena Global, in two separate tranches, as a commitment fee, that number of shares of its restricted common stock (“Commitment Fee Shares”) equal to (i) with respect to the first tranche (“First Tranche”), 500,000 divided by the simple average of the daily VWAP of the common stock during the five trading days immediately preceding the effectiveness of the initial registration statement (the “Initial Registration Statement”) on which the Commitment Fee Shares are registered (the “First Tranche Price”), promptly the effectiveness of the Registration Statement (the “Initial Issuance”) and (ii) with respect to the second tranche (“Second Tranche”), 250,000 divided by the simple average of the daily VWAP of the Common Shares during the five trading days immediately preceding the three month anniversary (the “Anniversary”) of the effectiveness of the registration statement on which the Commitment Fee Shares are registered (the “Second Tranche Price”), promptly after the Anniversary.
The Commitment Fee Shares shall be subject to a true-up after each issuance pursuant to which the Company shall issue to Arena Global common stock having an aggregate dollar value equal to (i) with respect to the First Tranche, 500,000 based on the lower of (A) the First Tranche Price and (B) the lower of (a) the simple average of the three lowest daily intraday trade prices over the twenty trading days after (and not including) the date of effectiveness of the Initial Registration Statement and (b) the closing price on the twentieth trading day after the effectiveness of the Registration Statement, and (ii) with respect to the Second Tranche, 250,000 based on the lower of (A) the Second Tranche Price and (B) the lower of (a) the simple average of the three lowest daily intraday trade prices over the twenty trading days after (and not including) the Anniversary and (b) the closing price on the twentieth trading day after the Anniversary.
In connection with the Arena ELOC, the Company agreed to file a registration statement registering the common stock issued or issuable to Arena Global under the Arena ELOC for resale with the SEC within 30 calendar days of the Arena ELOC.
The obligation of Arena Global to purchase the Company’s common stock under the Arena ELOC begins on the date of the Arena ELOC, and ends on the earlier of (i) the date on which Arena Global shall have purchased common stock pursuant to the Arena ELOC equal to the Commitment Amount, (ii) thirty six (36) months after the date of the Arena ELOC or (iii) written notice of termination by the Company (the “Commitment Period”). The Arena ELOC contains customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Arena Global represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act, and the Company will sell the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
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The number of shares of the Company’s common stock that may be issued upon conversion of the Arena Debentures and exercise of the Arena Warrants, and inclusive of the Commitment Shares and any shares issuable under and in respect of the Arena ELOC, is subject to an exchange cap (the “Exchange Cap”) of 19.99% of the outstanding number of shares of the Corporation’s common stock on the closing date, 3,559,961 shares, unless shareholder approval to exceed the Exchange Cap is approved.
The foregoing descriptions of the Arena Purchase Agreement, the Arena Debentures, the Arena Warrants, the Registration Rights Agreement, the Security Agreement, the Subsidiary Guaranty and Arena ELOC are qualified in their entirety by reference to the full text of such agreements, copies of which are attached hereto as Exhibit 10.1, 4.1, 4.2, 10.2, 10.3, 10.4 and 10.5, respectively, and each of which is incorporated herein in its entirety by reference. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
Results of Operations for the Three Months Ended June 30, 2024 and Three Months Ended June 30, 2023
The following table sets forth, for the periods indicated, the dollar value represented by certain items in our Statements of Operations:
| For the Three Months Ended June 30, 2024 | For the Three Months Ended June 30, 2023 | |||||||
| Sales | $ | 42,162 | $ | - | ||||
| Total Payroll and related expenses | 595,645 | 196,601 | ||||||
| Total Other operating expenses | 349,490 | 299,863 | ||||||
| Operating loss | $ | (902,973 | ) | (496,464 | ) | |||
| Interest expense | (1,065,818 | ) | (291,456 | ) | ||||
| Net loss | $ | (1,968,791 | ) | $ | (787,920 | ) | ||
Sales
During the three months ended June 30, 2024 we generated revenues from commissions on residential real estate purchases and sale transactions amounting to $42,162. There were no sales for the three months ended June 30, 2023. This was due to the new lines of business entered into during 2024.
Payroll and Related Expenses
Payroll and related expenses for the three months ended June 30, 2024 were $595,645 compared to $196,601 for the three months ended June 30, 2023. This increase of $399,044 in expenses resulted primarily from stock-based compensation of $185,091 being recognized during the three months ended June 30, 2024.
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Other Operating Expenses (General and administrative expenses and marketing and business development expenses)
Other operating expenses for three months ended June 30, 2024 were $349,489 compared to $299,863 for the three months ended June 30, 2023. During the three months ended June 30, 2023, these expenses were primarily allocated to us by SG Holdings and consisted of legal fees, professional fees, rent, office expenses, insurance and other general and administrative expenses. During the three months ended June 30, 2024, these expenses were primarily professional and consulting fees. This increase of $49,62949,629 resulted primarily from the increased cost of professional fees in relation of being a public company.
Interest Expense
During the three months ended June 30, 2024 and 2023, we incurred $1,065,818 and $291,456 of interest expense. This increase resulted from an increase in the balance of our notes payable.
Income Tax Provision
A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and, accordingly, no income tax benefit was provided.
Results of Operations for the Six Months Ended June 30, 2024 and Six Months Ended June 30, 2023
The following table sets forth, for the periods indicated, the dollar value represented by certain items in our Statements of Operations:
| For the Six Months Ended June 30, 2024 | For the Six Months Ended June 30, 2023 | |||||||
| Sales | $ | 91,978 | $ | - | ||||
| Total Payroll and related expenses | 2,611,732 | 670,098 | ||||||
| Total Other operating expenses | 884,895 | 547,278 | ||||||
| Operating loss | $ | (3,404,649 | ) | (1,217,376 | ) | |||
| Interest expense | (1,631,814 | ) | (475,046 | ) | ||||
| Net loss | $ | (5,036,463 | ) | $ | (1,692,422 | ) | ||
Sales
During the six months ended June 30, 2024 we generated revenues from commissions on residential real estate purchases and sale transactions amounting to $91,978. There were no sales for the six months ended June 30, 2023. This was due to the new lines of business entered into during 2024.
Payroll and Related Expenses
Payroll and related expenses for the six months ended June 30, 2024 were $2,611,732 compared to $670,098 for the six months ended June 30, 2023. This increase of $1,941,634 in expenses resulted primarily from stock-based compensation of $1,931,731 being recognized during the six months ended June 30, 2024.
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Other Operating Expenses (General and administrative expenses and marketing and business development expenses)
Other operating expenses for six months ended June 30, 2024 were $884,895 compared to $547,278 for the six months ended June 30, 2023. During the six months ended June 30, 2023, these expenses were primarily allocated to us by SG Holdings and consisted of legal fees, professional fees, rent, office expenses, insurance and other general and administrative expenses. During the six months ended June 30, 2024, these expenses were primarily professional and consulting fees.- This increase of $337,617 resulted primarily from the increased cost of professional fees in relation of being a public company.
Interest Expense
During the six months ended June 30, 2024 and 2023, we incurred $1,631,814 and $475,046 of interest expense. This increase resulted from an increase in the balance of our notes payable.
Income Tax Provision
A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and, accordingly, no income tax benefit was provided.
Liquidity and Capital Resources
We have generated limited revenue and have incurred significant net losses in each year since inception. For the six months ended June 30, 2024 and the year ended December 31, 2023 we incurred a net loss of $5,036,463 and $4,200,541, respectively. We expect to incur increasing losses in the future when we commence development of our McLean Property. We also expect to incur additional software development expenses related to the development of the Xene Platform and the MyVONIA Asset. As of June 30, 2024 and December 31, 2023, we had cash of $24,238 and $3,236, respectively. Prior to us becoming a public company, our operations were primarily funded through advances from SG Holdings and we had been largely dependent upon SG Holdings for funding. We have recently funded our operations through bridge note financing, project level financing, and the issuance of our equity and debt securities. We intend to develop the properties that we own from the proceeds of sales of our securities to Arena Investors LP and future financings, both at the corporate and project level, and/or sale proceeds from properties that are sold. Additional financing will be required to continue operations, which may not be available at acceptable terms, if at all. If we are unable to obtain additional funding when it becomes necessary, we would likely be forced to delay, reduce, or terminate some or all of our operating activities, including selling some of our properties. There is no guarantee we will be successful in raising capital outside of our current sources. In addition, we also have amounts owed to us from SG Holdings for advances we made to them in the amount of $1,720,844, the collectability of which is uncertain. These and other factors raise substantial doubt about our ability to continue as a going concern.
Financing Activities
SG Holdings. As of December 31, 2023, $1,720,844 is due from SG Holdings for advances made by us, which we have written off due to the financial position of SG Holdings.
BCV Loan Agreement. On June 23, 2023, we entered into the BCV Loan Agreement with BCV S&G DevCorp, a Luxembourg-based specialized investment fund, to receive up to $2,000,000 as a secured loan. To date, we have received $1,750,000 as a secured loan from BCV S&G DevCorp. The loan matures on December 1, 2024 and is secured by 1,999,999 of SG Holdings’ shares of our common stock, which were pledged pursuant to an escrow agreement with our transfer agent. The BCV Loan Agreement provides that the loan provided thereunder will bear interest at 14% per annum. The loan may be repaid by us at any anytime following the twelve-month anniversary of its issue date.
Lago Vista Financing. On July 14, 2021, we issued a Real Estate Lien Note, dated July 14, 2021, in the principal amount of $2,000,000 (the “Short Term Note”), secured by a Deed of Trust, dated July 14, 2021, on the Lake Travis project site in Lago Vista, Texas and a related Assignment of Leases and Rents, dated July 8, 2021, for net loan proceeds of $1,945,234 after fees. This Short-Term Note was initially extended until January 14, 2023 and was further extended until February 1, 2024. In addition, on September 8, 2022, we issued a Second Lien Note in the principal amount of $500,000 (the “Second Short-Term Note”) also secured by a Deed of Trust on the Lake Travis project site in Lago Vista, Texas. The Second Short-Term Note originally matured on January 14, 2023, which maturity date was extended until February 1, 2024.
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On March 31, 2023, LV Holding, pursuant to a Loan Agreement, dated March 30, 2023 (the “Loan Agreement”), issued a promissory note, in the principal amount of $5,000,000 (the “LV Note”), secured by a Deed of Trust and Security Agreement, dated March 30, 2023 (the “Deed of Trust”) on our Lake Travis project site in Lago Vista, Texas, a related Assignment of Contract Rights, dated March 30, 2023 (“Assignment of Rights”), on our project site in Lago Vista, Texas and McLean site in Durant, Oklahoma and a Mortgage, dated March 30, 2023 (“Mortgage”), on our site in Durant, Oklahoma. The LV Note requires monthly installments of interest only, is due on April 1, 2024 and bears interest at the prime rate as published in the Wall Street Journal (currently 8.0%) plus five and 50/100 percent (5.50%), currently equaling 13.5%; provided that in no event will the interest rate be less than a floor rate of 13.5%. The LV Holding obligations under the LV Note have been guaranteed by us pursuant to a Guaranty, dated March 30, 2023 (the “Guaranty”), and may be prepaid by LV Holding at any time without interest or penalty. The net loan proceeds were approximately $1,337,000, after loan commission fees of $250,000, broker fees of $125,000, the escrow of a 12-month $675,000 interest reserve, other closing fees and the repayment of the Short-Term Note and Second Short-Term Note.
On April 3, 2024, LV Holding entered into a Modification and Extension Agreement, to extend to April 1, 2025 the maturity date of the LV Note. As consideration for the Extension Agreement, LV Holding agreed to pay an extension fee of $50,000.00. Additionally, the Extension Agreement provides for the LV Note’s interest rate to be increased to a fixed rate of 17.00%. In addition, pursuant to the 2nd Lien Loan Agreement, LV Holding issued a promissory note, in the principal amount of $1,000,000 (the “2nd Lien Note”), secured by the Revised Deed of Trust on the Lago Vista site, and Mortgage Modification, to the mortgage, dated March 30, 2023, on the Company’s McLean site in Durant, Oklahoma. The 2nd Lien Note is subordinate to the LV Note. The 2nd Lien Note requires monthly installments of interest only, is due in full on April 1, 2025, bears interest at fixed rate of 17.00% and may be prepaid by LV Holding at any time without interest or penalty. LV Holding’s obligations under the 2nd Lien Note have been guaranteed by the Company.
St. Mary’s Financing. In connection with the purchase of the St. Mary’s Site, we entered into a promissory note in the amount of $148,300. The secured note on the St. Mary’s Site had a maturity date of September 1, 2023, subject to our right to extend for 6 months upon payment of a fee equal to 1% of the principal balance of the note and provides for payments of interest only at a rate of nine and three quarters percent (9.75%) per annum. During August 2023, such note was extended for a one-year period. This note could be prepaid without penalty. In addition, at the time of payment in full of the note, we must pay the lender an amount equivalent to half of one percent (0.50%) of the original loan amount. To secure payment in full of the note, the note is secured by a security deed in the property with power of the lender to sell the property. On March 7, 2024, the Company entered into a modification agreement to the promissory note to increase the loan amount to $200,000.
Peak One Private Placement. On November 30, 2023, we entered into a Securities Purchase Agreement with Peak One pursuant to which we issued, in a private placement offering the following securities in three tranches: (i) first tranche: an 8% convertible debenture in the principal amount of $700,000, a warrant to purchase up to 350,000 shares of our common stock and 100,000 of our restricted common stock as commitment shares, (ii) second tranche: an 8% convertible debenture in the principal amount of $250,000, a warrant to purchase up to 125,000 shares of our common stock and 35,000 of our restricted common stock as commitment shares, and (iii) third tranche: an 8% convertible debenture in the principal amount of $250,000, a warrant to purchase up to 125,000 shares of our common stock and 35,000 of our restricted common stock as commitment shares. During the three months ended March 31, 2024, the balance of $700,000 from the first tranche debenture was converted into 1,098,904 shares of common stock and we issued 305,831 shares of our common stock in connection with the exercise, in full, of the first tranche warrant, on a cashless basis.
On April 29, 2024, we entered into the April 2024 Purchase Agreement with Peak One, pursuant to which we agreed to issue, in the April 2024 Offering upon the satisfaction of certain conditions specified in the April 2024 Purchase Agreement, three debentures to Peak One in the aggregate principal amount of $1,200,000. The closing of the first tranche was consummated on April 29, 2024 and the Company issued securities including an 8% convertible debenture in principal amount of $350,000.00 to Peak One and a warrant to purchase up to 262,500 shares of the Company’s common stock, to Peak One’s designee. On May 24, 2024, we closed the second tranche of our private placement offering with Peak One under the April 2024 Purchase Agreement , as amended between the Company and issued an 8% convertible debenture in principal amount of $350,000.00to Peak One and a warrant to purchase up to 262,500 shares of our common stock. The Second Debenture was sold to Peak One for a purchase price of $315,000, representing an original issue discount of ten percent (10%). The Second Debenture matures twelve months from its date of issuance and bears interest at a rate of 8% per annum payable on the maturity date. Common Stock See “Recent Developments-The Peak One Transactions” for additional information regarding transactions with Peak One.
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ELOC. On November 30, 2023, we also entered into an Equity Purchase Agreement with Peak One, pursuant to which we have the right, but not the obligation, to direct Peak One to purchase up to $10,000,000 in shares of our common stock in multiple tranches. Pursuant to the terms of the Equity Purchase Agreement, we issued 100,000 shares of our common stock as commitment shares. To date, we have issued 986,000 shares of our common stock pursuant to the terms of the Equity Purchase Agreement for approximately $757,970. Accordingly, we currently have the right, but not the obligation, to direct Peak One to purchase up to $9,242,031 in shares of our common stock pursuant to the Equity Purchase Agreement.
Credit Agreement. On March 1, 2024, we entered into a Credit Agreement with the Bryan Leighton Revocable Trust Dated December 13th, 2023 pursuant to which the Lender agreed to provide us with a Line of Credit up to the maximum amount of $250,000 from which the Company may draw down, at any time and from time to time, during the term of the Line of Credit. The “Maturity Date” of the Line of Credit is September 1, 2024. At any time prior to the Maturity Date, upon mutual written consent of us and the Lender, the Maturity Date may be extended for up to an additional six-month period. The advanced and unpaid principal of the Line of Credit from time to time outstanding will bear interest at a Fixed Rate per annum equal to 12.0%. On the first day of each month, we will pay to the Lender interest, in arrears, on the aggregate outstanding principal indebtedness of the Line of Credit at the Fixed Rate. The entire principal indebtedness of the Line of Credit and any accrued interest thereon will be due and payable on the Maturity Date. In consideration for the extension of the Line of Credit, we issued 154,320 shares of the Company’s restricted common stock to Lender. During the six months ended June 030, 2024, we drew down $25250,000 from the Line of Credit
Cash Flow Summary
| For the Six Months Ended June 30, 2024 | For the Six Months Ended June 30, 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (1,270,494 | ) | $ | (2,289,957 | ) | ||
| Investing activities | (30,820 | ) | (40,879 | ) | ||||
| Financing activities | 1,322,316 | 3,412,559 | ||||||
| Net increase in cash and cash equivalents | $ | 21,002 | $ | 1,081,723 | ||||
Operating activities used net cash of $1,270,494 during the six months ended June 30, 2024, and used cash of $22,289,957 during the six months ended June 30, 2023. Cash used in operating activities decreased by $1,019,463 due to an increase of net loss of $3,344,041, depreciation of $356, increase in amortization of debt issuance cost of $872,429, stock based compensation of $1,931,731, common stock for services of $784,692, increase change in prepaid assets of $127,234, increase in change in intangible assets of $166,081, a decrease in change in accounts payable of $261,113 and an increase in due to affiliates of $1,074,257.
Investing activities used net cash of $30,820 during the six months ended June 30, 2024, and $40,879 net cash during the six months ended June 30, 2023, which is a decrease in cash used of $10,059. This change results from a decrease in assets held for sale of $3,535, an increase of cash acquired from a business combination of $1,082, the purchase of computers and software of $1,002, an increase in project pre-development costs of $3030,900, and a decrease in equity-based investments of $25,000.
Cash provided from financing activities was $1,322,316 during the six months ended June 30, 2024, which resulted from $895,794 debt issuance costs paid, increased by $11,501,700 proceeds from short-term note payable, and $716,410 from issuance of common stock. Cash provided from financing activities was $33,412,559 during the six months ended June30, 2023, which resulted from $486,825 debt issuance costs paid, increased by $55,440,000 proceeds from short-term note payable, decreased by $2,500,000 from issuance of common stock, and increased by $959,384 contributions from SG Holdings.
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Off-Balance Sheet Arrangements
As of June 30, 2024 and December 31, 2023, we had no material off-balance sheet arrangements to which we are a party.
Critical Accounting Estimates
Our financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”). In connection with the preparation of the financial statements, we are required to make assumptions and estimates and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that we believe to be relevant at the time the financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in “Note 2— Summary of Significant Accounting Policies” of the notes to our financial statements for the six months ended June 30, 2024 and the year ended December 31, 2023 included elsewhere in this Form 10-Q. We believe that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results.
Investment Entities – On May 31, 2021, we agreed to contribute $600,000 to acquire a 50% membership interest in Norman Berry II Owner LLC (“Norman Berry”). We contributed $350,329 and $114,433 of the initial $600,000 in the second quarter and third quarter of 2021 respectively, with the remaining $135,183 funded in the fourth quarter of 2021. The purpose of Norman Berry is to develop and provide affordable housing in the Atlanta, Georgia metropolitan area. We have determined we are not the primary beneficiary of Norman Berry and thus will not consolidate the activities in our financial statements. We use the equity method to report the activities as an investment in our financial statements.
On June 24, 2021, we entered into an operating agreement with Jacoby Development for a 10% non-dilutable equity interest for JDI-Cumberland Inlet, LLC (“Cumberland”). We contributed $3,000,000 for our 10% equity interest. The purpose of Cumberland is to develop a waterfront parcel in a mixed-use destination community. We have determined we are not the primary beneficiary of Cumberland and thus will not consolidate the activities in our financial statements. We use the equity method to report the activities as an investment in our financial statements.
During the six months ended June 30, 2024 and the year ended December 31, 2023, Norman Berry and Cumberland did not have any material earnings or losses as the investments are in development. In addition, management believes there was no impairment as of June 30, 2024.
Property, plant and equipment – Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated lives of each asset. Repairs and maintenance are charged to expense when incurred.
On May 10, 2021 we acquired a 50+ acre Lake Travis project site in Lago Vista, Texas (“Lago Vista”) for $3,576,130 which is recorded in assets held for sale on the accompanying balance sheets.
During February 2022 and September 2022, we acquired properties in Oklahoma and Georgia for $893,785 and $296,870, respectively, which is recorded as land on the accompanying balance sheets.
Project Development Costs – Project development costs are stated at cost. At June 30, 2024 our project development costs are expenses incurred related to development costs on various projects that are capitalized during the period the project is under development.
Assets Held For Sale – During 2023, management implemented a plan to sell Lago Vista, which meets all of the criteria required to classify it as an Asset Held for Sale. Including the project development costs associated with Lago Vista of $824,231, the book value is now $4,400,361.
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JOBS Act
The JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of the extended transition period for complying with new or revised financial accounting standards.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which generally means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1 billion in non-convertible debt securities during the prior three-year period.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance 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 Securities and Exchange Commission’s rules and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-1I). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as defined in Rule 13-15(e), were ineffective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended June 30, 2024, other than the material weakness discussed below, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness
During the course of the review of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, we identified a material weakness in our controls relating to the ineffective design of certain management review controls across a portion of the Company’s financial statements. Specifically, the controls related to the review of internal and externally prepared reports and analysis utilized in the financial reporting process of outside consultants that aid in the preparation of our financial statements.
In order to remediate these material weaknesses, we will change certain control activities over financial reporting to include, but are not limited to utilization of an increased number of external consultants to assist in the preparation of our financial statements.
We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weaknesses are remediated as soon as possible.
Notwithstanding the material weaknesses described above, management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The information included in “Note 11 - Commitments and Contingencies” of our condensed consolidated financial statements included elsewhere in this Quarterly Report Form 10-Q is incorporated by reference into this Item.
ITEM 1A. Risk Factors
Except as set forth below, there have been no material changes in our risk factors from the risks previously reported in Part 1, Item 1A, “Risk Factors” of our 2023 10-K. You should carefully consider the factors discussed in Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Our auditors have expressed substantial doubt about our ability to continue as a going concern.
We have generated limited revenue and have incurred significant net losses in each year since inception. For the six months ended June 30, 2024, we incurred a net loss of $5,036,463 as compared to a net loss of $787,920 for the six months ended June 30, 2023. We expect to incur increasing losses in the future when we commence development of our McLean Property. We also expect to incur additional software development expenses related to the development of the Xene Platform and the MyVONIA Asset We cannot offer any assurance as to our future financial results. Also, we cannot provide any assurances that we will be able to secure additional funding from public or private offerings on terms acceptable to us, or at all, if, and when needed. In addition, we can provide no assurance that we will be able to collect amounts owed to us from SG Holdings and have taken a reserve against the $1,720,844 owed to us by SG Holdings, which is included in additional paid-in capital. Our inability to achieve profitability from our current operating plans or to raise capital to cover any potential shortfall would have a material adverse effect on our ability to meet our obligations as they become due. If we are not able to secure additional funding, if, and when needed, we would be forced to curtail our operations or take other action in order to continue to operate. A significant portion of our funding was historically provided by SG Holdings. These and other factors raise substantial doubt about our ability to continue as a going concern. If we are unable to meet our obligations and are forced to curtail or cease our business operations, our stockholders could suffer a complete loss of any investment made in our securities.
We identified a material weakness in our internal control over financial reporting and determined that our disclosure controls and procedures were ineffective as of June 30, 2024. In the future, we may identify additional material weaknesses or otherwise fail to maintain an effective system of internal control over financial reporting or adequate disclosure controls and procedures, which may result in material errors in our financial statements or cause us to fail to meet our period reporting obligations.
Management and our Audit Committee, in consultation with M&K CPAS PLLC (“M&K”), our independent registered public accounting firm, determined that there was a material weakness in our internal controls as of June 30, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, our management is required to report on the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Annually, we perform activities that include reviewing, documenting and testing our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to achieve and maintain an effective internal control environment, we could suffer misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could result in significant expenses to remediate any internal control deficiencies and lead to a decline in our stock price.
We cannot provide assurance that we have identified all, or that we will not in the future have additional, material weaknesses in our internal control over financial reporting. As a result, we may be required to implement further remedial measures and to design enhanced processes and controls to address deficiencies. If we do not effectively remediate the material weaknesses identified by management and maintain adequate internal controls over financial reporting in the future, we may not be able to prepare reliable financial reports and comply with our reporting obligations under the Exchange Act on a timely basis. Any such delays in the preparation of financial reports and the filing of our periodic reports may result in a loss of public confidence in the reliability of our financial statements, which, in turn, could materially adversely affect our business, the market value of our common stock and our access to capital markets.
Our failure to meet the continued listing requirements of the Nasdaq could result in a de-listing of our common stock.
Our shares of common stock are listed for trading on the Nasdaq. If we fail to satisfy the continued listing requirements of the Nasdaq such as the corporate governance requirements, the stockholder’s equity requirement or the minimum closing bid price requirement, Nasdaq may take steps to de-list our common stock or warrants.
On April 16, 2024, we received a letter from Nasdaq stating that we were not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Rule”) because our stockholders’ equity of $1,887,777 as of December 31, 2023, as reported in our Annual Report on Form 10-K filed with the SEC on April 1, 2024, was below the minimum requirement of $2,500,000. Pursuant to Nasdaq’s Listing Rules, we had 45 calendar days (until May 31, 2024), to submit a plan to evidence compliance with the Rule (a “Compliance Plan”). We submitted a Compliance Plan within the required time. On July 22, 2024, we received a letter from Nasdaq stating that based on the Quarterly Report on Form 10-Q that we filed with the Securities and Exchange Commission for the period ended March 31, 2024, and our submission to the Staff, dated May 29, 2024, it determined that we were in compliance with Nasdaq Listing Rule 5550(b)(1). The letter further stated that if we fail to evidence compliance with Nasdaq Listing Rule 5550(b)(1) upon filing our next periodic report we may be subject to delisting. At that time, Nasdaq staff will provide written notification to us, upon which we may then appeal the staff’s determination to a Nasdaq Hearings Panel. Our stockholder’s equity of $2,018,163 as reported in this Quarterly Report on Form 10-Q is below the minimum requirement of $2,500,000 and therefore we may be subject to a delisting notice which we plan to appeal to a Nasdaq Hearings Panel; however there can be no assurance that the appeal with be successful.
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On April 25, 2024, we received written notice from Nasdaq notifying us that for the preceding 30 consecutive business days (March 14, 2024 through April 24, 2024), our common stock did not maintain a minimum closing bid price of $1.00 (“Minimum Bid Price Requirement”) per share as required by Nasdaq Listing Rule 5550(a)(2). The notice has no immediate effect on the listing or trading of the common stock and the common stock will continue to trade on The Nasdaq Capital Market under the symbol “SGD.”
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a compliance period of 180 calendar days, or until October 22, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance may be achieved without further action if the closing bid price of our common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify us if it determines it is in compliance and the matter will be closed; however Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that a company complies.
If, however, we do not achieve compliance with the Minimum Bid Price Requirement by October 22, 2024, we may be eligible for additional time to comply. In order to be eligible for such additional time, we will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq, with the exception of the Minimum Bid Price Requirement, and must notify Nasdaq in writing of its intention to cure the deficiency during the second compliance period.
We intend to actively monitor the bid price of its common stock and will consider available options to regain compliance with the Nasdaq listing requirements, including such actions as effecting a reverse stock split to maintain its Nasdaq listing. At our 2024 Annual Meeting of Stockholders held on July 2, 2024, the stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, to effect a reverse stock split with respect to the Company’s issued and outstanding common stock at a ratio of 1-for-2 to 1-for-20, with the ratio within such range to be determined at the discretion of the board of directors and included in a public announcement, subject to the authority of the board of directors to abandon such amendment.
There can be no assurance that we will be able to meet Nasdaq continued listing requirements. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below The Nasdaq Capital Market minimum bid price requirement or stockholder’s equity requirement prevent future non-compliance with The Nasdaq Capital Market’s listing requirements.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock is listed on Nasdaq, our common stock is a covered security. Although the states are preempted from regulating the sale of covered securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were to be delisted from the Nasdaq, our common stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which we offer our securities.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any equity securities during the quarter ended June 30, 2024, in transactions that were not registered under the Securities Act other than as previously disclosed in our filings with the SEC.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
During the second quarter of
2024, none of our directors or executive officers
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ITEM 6. Exhibits
EXHIBIT INDEX
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| + | Filed herewith. |
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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.
| SAFE AND GREEN DEVELOPMENT CORPORATION | ||
| (Registrant) | ||
| By: | /s/ David Villarreal | |
|
David Villarreal Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Nicolai Brune | |
|
Nicolai Brune Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Date: August 14, 2024 | ||
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