UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ____________ to ____________
Commission
file number: 001-41581
SAFE
AND GREEN DEVELOPMENT CORPORATION
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(Address of principal executive offices) (Zip Code)
904-496-0027
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share SGD The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
☒
The aggregate market value of the common stock
held by non-affiliates of Safe and Green Development Corporation based on the closing price of the shares of common stock on the Nasdaq
Capital Market on September 28, 2023 was approximately $5,908,713. The registrant has elected to use September 28, 2023, which was the
date of the first day of trading of the registrant’s stock on the Nasdaq Capital Market, as the calculation date because on June
30, 2023 (the last business day of the registrant’s mostly recently completed second fiscal quarter), the registrant was a privately-held
company. Shares of the registrant’s common stock held by each executive officer, director and holder of 5% or more of the outstanding
common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect a determination
that certain persons are affiliates of the registrant for any other purpose.
As of March 29, 2024, the issuer
had a total of 14,351,248 shares of common stock outstanding and 83 record holders.
DOCUMENTS
INCORPORATED BY REFERENCE
None
SAFE
AND GREEN DEVELOPMENT CORPORATION
FORM
10-K
TABLE
OF CONTENTS
Page
PART I 1
Item 1. Business 1
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 26
Item 1C. Cybersecurity 26
Item 2. Properties 27
Item 3. Legal Proceedings 27
Item 4. Mine Safety Disclosures 27
Item 6. Reserved 28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35
Item 8. Financial Statements and Supplementary Data 35
Item 9A. Controls and Procedures 36
Item 9B. Other Information 36
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 36
PART III 37
Item 10. Directors, Executive Officers and Corporate Governance 37
Item 11. Executive Compensation 43
Item 14. Principal Accountant Fees and Services 54
Item 15. Exhibit and Financial Statement Schedules 55
SIGNATURES 60
i
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K (the “Annual Report”) 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, or the “Securities Act”, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
“Exchange Act.” Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,”
“believe,” “can,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,”
“target,” “will,” “would” and similar expressions or variations intended to identify forward-looking
statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management.
Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the
timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section
titled “Risk Factors” included under Part I, Item 1A below. Furthermore, such forward-looking statements speak only as of
the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events
or circumstances after the date of such statements.
Although
we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light
of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should
not be regarded as a representation by us or any other person that the objectives and plans of ours will be achieved. Investors are
cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date on which such statements are
made. Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake to
update any forward-looking statement that may be made from time to time on our behalf.
As
used in this Annual Report, unless the context requires otherwise, references to “SG DevCo”, “the Company”, “we”,
“us”, and “our” refer to Safe and Green Development Corporation and its subsidiaries, as the context requires.
References to Common Stock refer to the Company’s common stock, par value $0.001 per share.
“SG
DevCo” and the SG logo are our trademarks. All other trademarks and service marks appearing in this Annual Report are the property
of their respective owners.
ii
Summary
of Risk Factors
An
investment in our Company is subject to a number of risks, including risks relating to our business, and risks related to our Common
Stock. Set forth below is a high-level summary of some, but not all, of these risks. You should review and consider carefully the risks
and uncertainties described in more detail in “Part I, Item 1A. Risk Factors” of this Annual Report, which includes a more
complete discussion of the risks summarized below as well as a discussion of other risks related to our business and an investment in
our Common Stock.
Risks
Related to Our Business Generally
iii
● We may not be able to sell our real property assets when we desire.
Risks
Related to Our Common Stock
iv
PART
I
Item
1. Business.
Company
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 not generated any revenue and our activities have consisted solely of the
acquisition of three properties and an investment in two entities that have acquired two properties to be further developed; however
we have not yet commenced any development activities. We are focused on increasing our presence in markets with favorable job formation
and a favorable demand/supply ratio for multifamily housing. We intend to construct many of the planned developments using modules built
by SG Echo, LLC (“SG Echo”), a subsidiary of SG Holdings. In addition to these development projects, we intend, subject to
our ability to raise sufficient capital, to build additional, strategically placed manufacturing facilities that will be sold or leased
to third parties. 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 have forecasted to invest approximately $500,000
over the course of the next 12 months to start the development of our Magnolia Gardens Project to be built on our McLean mixed-use site
in Durant, Oklahoma.
Recent
Developments
The
Separation and Distribution
In
December 2022, SG Holdings, the then owner of 100% of our issued and outstanding securities, announced its plan to
separate SG DevCo and SG Holdings into two separate publicly traded companies (the “Separation”). To implement the Separation,
on September 27, 2023 (the “Distribution Date”), SG Holdings, effected a pro rata distribution to SG Holdings’ stockholders
of approximately 30% of the outstanding shares of our Common Stock (the “Distribution”). In connection with the Distribution,
each SG Holdings’ stockholder received 0.930886 shares of our Common Stock for every five (5) shares of SG Holdings common stock
held as of the close of business on September 8, 2023, the record date for the Distribution, as well as a cash payment in lieu of any
fractional shares. Immediately after the Distribution, we were no longer a wholly owned subsidiary of SG Holdings and SG Holdings held
approximately 70% of our issued and outstanding securities. On September 28, 2023, our Common Stock began trading on the Nasdaq Capital
Market under the symbol “SGD.”
In
connection with the Separation and Distribution, we entered into a separation and distribution agreement and several other agreements
with SG Holdings to provide a framework for our relationship with SG Holdings after the Separation and Distribution. These agreements
provide for the allocation between SG Holdings and us of the assets, employees, liabilities and obligations (including, among others,
investments, property, employee benefits and tax-related assets and liabilities) of SG Holdings and its subsidiaries attributable to
periods prior to, at and after the Separation and govern the relationship between us and SG Holdings subsequent to the completion of
the Separation. In addition to the separation and distribution agreement, the other principal agreements entered into with SG Holdings
included a tax matters agreement and a shared services agreement.
Contribution
Agreement
On
November 28, 2023, LV Peninsula Holding LLC (“LV Holding”), a Delaware limited liability company and our wholly owned subsidiary,
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 approximately 59.3712 acres located in Lago Vista, Texas currently owned
by LV Holding (the “Lago Vista Property”) 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 $11,500,000 in the JV Agreement.
1
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 5% brokerage commission based upon the $11,500,000 property value. Until the Closing or the earlier termination
of the Contribution Agreement, LV Holding has agreed to not convey or encumber all or any portion of the Lago Vista Property, or any
interest therein, or enter into any agreement granting to any person any right with respect to the Lago Vista Property (or any portion
thereof), provided, however, prior to Closing, LV Holding may solicit, discuss, and negotiate purchase offers so long as it notifies
all potential buyers that the Lago Vista Property is under contract pursuant to the Contribution Agreement. There can be no assurance
the Closing will occur. In addition, if we should receive a favorable purchase offer for the Lago Vista Property, we may choose not to
form the Joint Venture.
The
Peak One Transactions
Private
Placement Offering
On
November 30, 2023, we entered into a Securities Purchase Agreement, dated November 30, 2023 (the “Securities Purchase Agreement”)
and related registration rights agreement (the “Registration Rights Agreement”) with Peak One, pursuant to which we agreed
to issue, in a private placement offering (the “Offering”) upon the satisfaction of certain conditions specified in the 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 “Initial Warrant”) and 100,000 shares of Common Stock as commitment shares (“Initial SPA Commitment Shares”).
On November 30, 2023, we issued an 8% convertible debenture in the principal amount of $700,000 (the “First Debenture”) in
addition to the Initial Warrant to the Initial SPA Commitment Shares. The First 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 Pursuant to the Registration Rights Agreement we agreed
to file a registration statement within 45 days to register the shares of Common Stock issuable under the First Debenture and the Initial
Warrant with the Securities and Exchange Commission (the “SEC”) and to use our reasonable best efforts to have the registration
statement declared effective by the SEC within ninety (90) calendar days from November 30, 2023. The registration statement was declared
effective on December 27, 2023. The Securities Purchase Agreement provided that a closing of the second tranche may occur subject to
the mutual written agreement of Peak One and us and satisfaction of the closing conditions set forth in the 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 Securities Purchase Agreement with Peak One.
The
Amendment provides 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
provides that we will 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.
2
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 Debenture”) and a warrant (the “Second Warrant”) to purchase up to 125,000 shares of
the Company’s common stock. The Second 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 Debenture”) and a warrant (the “Third Warrant”) to purchase up to 125,000 shares of the Company’s
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 its 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 Debenture, the Second Debenture the Third Debenture are collectively referred
to as the “Debentures.” The First Warrant, the Second Warrant and the Third Warrant are collectively referred to as the “Warrants.”
The
Debentures mature twelve months from their date of Issuance and bear interest at a rate of 8% per annum payable on the maturity date.
The 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 Debentures plus all accrued and unpaid interest at a conversion price equal to $2.14 (the “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 as set forth in the Debentures.
The
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 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 Debentures.
The
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 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 Debentures, in an amount equal to 110% of the outstanding principal amount and accrued
and unpaid interest. The Debentures prohibits us from entering into a Variable Rate Transaction (as defined in the Debentures) until
the Debentures are paid in full.
The
Warrants expire five years from their date of issuance. The Warrants are exercisable, at the option of the holder, at any time, for shares
of our Common Stock at an exercise price equal to $2.53 (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 Warrants. The Warrants provide for cashless exercise under certain circumstances.
Also
on February 15, 2024, the Company entered into an amendment (the “RRA Amendment”) to the Registration Rights Agreement, dated
November 30, 2023, with Peak One where it agreed to file a registration statement within 60 days of the date of the RRA Amendment with
the SEC to register the maximum number of Registrable Securities (as defined in the RRA Amendment) permitted to be included therein in
accordance with applicable SEC rules.
ELOC
On
November 30, 2023, we also entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) and related
registration rights agreement (the “EP 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 EP 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 and pursuant to the EP Registration Rights Agreement we agreed
to file a registration statement registering the Common Stock issued or issuable under the Equity Purchase Agreement for resale with
the SEC.
3
Strategic
Property Monetization Initiative
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.
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 will bear interest at 10% per annum, provide for monthly
interest only payments of $3,750 commencing May 1, 2024, mature on April 30, 2025, and be secured by a mortgage on the St Mary’s
Site. We expect the transaction will close on or about April 1, 2024. The Agreement of Sale provides that the closing of the sale by
us to Pigmental Studios of the St Mary’s Site will occur no later than April 30, 2024, with time being of the essence.
XENE
Acquisition
On February 7, 2024, we acquired Majestic World
Holdings LLC (“MWH”) a real estate technology firm and owner of the Xene AI Software platform (the “XENE 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 XENE 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 XENE Platform
is designed to streamline property transactions and offer a cost-effective alternative to traditional buyers’ agent models. The
platform launched during the first quarter of 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 thousand in cash (the “Cash Consideration”).
The Purchase Agreement and a related side letter agreement (the “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) sixty-eight and one quarter percent (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, assignments of the Membership Interests and employment agreements. Pursuant to the profit
sharing agreement (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.
Credit
Agreement
On March 1, 2024, we entered into a credit
agreement (the “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. On March 4, 2024, we drew down $60,000.00
from the Line of Credit.
4
Housing
Industry
The
multifamily housing industry is growing. Multi-family dwellings have numerous competitive advantages, including:
● lower construction costs;
● efficient land use;
● the creation of open, public space; and
The National Multifamily Housing Council and National
Apartment Association shared that the United States would need approximately 4.3 million new apartments by 2035 to meet the rising demand
for housing. One contributing factor to this supply/demand imbalance was the 2008 recession, which significantly slowed new building projects.
Another more recent and significant factor is the move to remote work as a result of the COVID-19 pandemic. The workforce gained the ability
to move to different areas while continuing to access remote employment opportunities. This sparked migration patterns to states that
offer a higher quality of life with a lower cost of living. This migration has also led to a large supply of new apartments which is expected
to temper rent growth and improve affordability for renters in 2024. According to Freddie Mac, economic conditions appear to be moderating
in 2024 and it is expected that the economy will achieve a soft landing. Assuming such soft landing, Freddie Mac projects that the multifamily
market will see slow growth while it works to absorb the high level of new supply in 2024.
Joint
Venture and Partnership Activities
We
have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships)
through which we would own an indirect economic interest of less than 100% of the property owned directly by such joint ventures. Our
decision to either develop a property on our own or through a joint venture is based on a variety of factors and considerations, including:
(i) the economic and tax terms required by the seller of land; (ii) our desire to diversify our portfolio of communities by market, submarket
and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv)
our projections, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture
vehicle is used. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in
our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.
Current
Projects/Development Sites
Lago
Vista. On May 10, 2021, we acquired a 50+ acre site in Lago Vista, Texas for $3,500,000, paid in cash, pursuant to an Unimproved
Property Contract, dated February 25, 2021, with Northport Harbor LLC. The acquired parcel sits on Lake Travis on the Colorado River
in central Texas. We acquired the property and were able to successfully get a PDD approved for 174 condominium units with an allowance
for 30% short-term rental. As a result of obtaining the site approval and market conditions, the property’s value increased significantly
from the time of purchase.
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 $1,945,233 after fees. The Short-Term Note had a term of one (1) year, provided
for payments of interest only at a rate of twelve percent (12%) per annum and could be prepaid without penalty commencing nine (9) months
after its issuance date. If the Short-Term Note was prepaid prior to nine (9) months after its issuance date, a 0.5% prepayment penalty
would be due. 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 provided for payments
of interest only at a rate of twelve percent (12%) per annum and originally matured on January 14, 2023, which maturity date was extended
until February 1, 2024.
5
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 proceeds of the LV Note were used to pay off
the Short-Term Note and the Second Short-Term Note. The LV Note requires monthly installments of interest only, is due in full 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. LV Holdings expects to execute extension documents in the first week of April to extend the
maturity of the LV Note to April 1, 2025.
On
November 28, 2023, LV Holding entered into a Contribution Agreement with Preserve Acquisitions, LLC pursuant to which LV Holding will
contribute the Lago Vista Property to a Joint Venture as a capital contribution to be valued at $11,500,000. See “– Recent
Developments – Contribution Agreement.” There can be no assurance the Closing of the Joint Venture will occur. In addition,
if LV Holding should receive a favorable purchase offer for the Lago Vista Property, LV Holding may choose not to form the Joint Venture.
Norman
Berry Village. On May 31, 2021, we acquired a 50% membership interest for $600,000 in a limited liability company, Norman
Berry II Owners, LLC (“NB Owners”), that is building affordable housing in the Atlanta, Georgia metropolitan area to be known
as “Norman Berry Village.” We partnered with CMC Development Group (“CMC”), a New York City-based real estate
development firm with national expertise providing design build services. CMC owns the other 50% membership interest in NB Owners. The
NB Owners’ operating agreement provides that NB Owners will initially have two managers, one designated by CMC (the “CMC
Manager”) and one designated by us. Pursuant to the operating agreement, the CMC Manager will manage the day-to-day business and
affairs of NB Owners and all non-routine decisions requires the approval of members owning a majority of the outstanding membership interests.
The operating agreement also provides that any fee earned by CMC in connection with the acquisition and development of the Norman Berry
Village and related real property will be split 75% to CMC and 25% to us. We have no obligation under the operating agreement to make
any additional capital contributions to NB Owners. In addition, neither we nor CMC may voluntarily make any additional capital contributions
to NB Owners. In accordance with the operating agreement, we are entitled to a preferred return equal to 10% per annum on our unreturned
capital contributions which return will (i) accrue from the date on which our capital contributions were actually contributed to NB Owners
until the date such capital contributions are returned to us, and (ii) compound annually. We expect the project to develop 125,000 square
feet of space and build approximately 134 multi-family rental apartments in two buildings. We expect the project to commence in the third
quarter of 2024, subject to available funding, and to be completed within three years of commencement. The estimated development costs
for this project are approximately $35,000,000. NB Owners recently received approval from the city of Eastpoint to purchase the right
of way approval to begin developing the Norman Berry Village. On March 11, 2024, NB Owners, pursuant to a loan agreement dated March
11, 2022, issued a promissory note in the amount of $200,000. The note has a maturity date of March 11, 2025 and provides for interest
only payments at a rate of 12%. To secure the full payment of the note, the note is secured by a security deed in the Norman Berry property.
The proceeds of the note will be used to purchase the right of way on the property and an 18,000 square foot adjacent parcel.
Cumberland
Inlet. On June 24, 2021, we, as a member, entered into an Operating Agreement, with Jacoby Development, Inc., a Georgia
corporation (“JDI”), as manager, dated June 24, 2021 (the “Operating Agreement”), for JDI-Cumberland Inlet, LLC,
a Georgia limited liability company (“JDI-Cumberland”), pursuant to which we acquired a 10% non-dilutable equity interest
(“LLC Interest”) in JDI-Cumberland for $3,000,000. JDI-Cumberland has purchased a 1,298 acre waterfront parcel in downtown
historic St. Mary’s, Georgia and expects to develop approximately 352 acres thereof (the “Cumberland Inlet Project”).
We, in conjunction with JDI, expect to develop a mixed-use destination community. The location will serve as home to 3,500 units made
up of single family, multi-family, vacation and hospitality use, as well as a full-service marina, village, and upscale Eco-Tourism park
inclusive of camping, yurts, cabins and cottages. JDI-Cumberland recently received all approvals to build out the marina portion of the
project.
6
We
have no obligation under the Operating Agreement to make any additional capital contributions to JDI-Cumberland. The Operating Agreement
provides JDI with the right, at its option, to purchase the LLC Interest from us on or before June 24, 2023 for $3,000,000, plus an amount
equal to an annual internal rate of return (IRR) on such funds of forty (40%) percent (i.e., $1,200,000 annualized). After June 24, 2023,
the Operating Agreement provides JDI with the right, at its option, to purchase the LLC Interest from us for $3,000,000 million, plus
an amount equal to an IRR of thirty-two and one-half (32.5%) percent (i.e., $975,000 annualized). The Operating Agreement also provides
that if JDI receives a good faith, bona fide written offer from an unaffiliated third party to purchase all or any portion of the Cumberland
Inlet Project, JDI shall first offer the Cumberland Inlet Project to us at the same price and upon substantially the same terms as are
contained in the offer. The Operating Agreement contains certain protective provisions that prevent JDI, as manager, from determining
to, or taking, certain significant actions without our consent. SG Echo, a subsidiary of SG Holdings, entered into a Fabrication and
Building Services Agreement (“Building Services Agreement”) with JDI-Cumberland to design, fabricate and install various
improvements for the Cumberland Inlet Project using modular structures, pursuant to budgets prepared by SG Echo submitted for approval
to JDI-Cumberland, including a marina, town center, apartments and single family units, townhomes, commercial, retail and lodging buildings/structures,
eco-tourism park, camping yurts, cabins and cottages. The Building Services Agreement has an initial term of three years, with two-year
automatic renewal provisions. During the term of the Building Services Agreement, SG Echo will have a right of first refusal with respect
to each phase of the construction of the project buildings. If SG Echo’s quote for a given phase is no more than five percent more
than the average of all bona fide, arm’s length bids that JDI-Cumberland obtains from reputable, unaffiliated builders, the phase
will be awarded to SG Echo. In the event that SG Echo’s quote for a given phase is more than five percent more than the average
of all bona fide arm’s length bids JDI-Cumberland obtains from reputable, unaffiliated builders, SG Echo will have the right to
match such best bona fide, arm’s length offer and secure the work.
We
anticipate that the first phase of development activities at this site will be the construction of 165 multifamily units over the course
of 12-18 months, which activities are anticipated to commence during the third quarter of 2024, with an estimated cost of $38,000,000.
Current plans are to sell this development three (3) years after development.
St
Mary’s Site. On August 18, 2022, we purchased, for $296,870 approximately 27 acres of land adjacent to our Cumberland Inlet
Project from the Camden County Joint Development Authority (JDA). We had planned to build a 120,000 square foot state of the art manufacturing
facility on this site. In connection with the purchase of the St. Mary’s Site, we entered into a promissory note in the amount
of $148,300. This note had a maturity date of September 1, 2023, subject to our right to extend for 6 months upon payments 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, provided, however,
if the lender has not received six months of interest, we must pay the lender an amount equivalent to the months of interest necessary
to complete six months of interest. 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, we entered into a modification agreement to the
promissory note to increase the loan amount to $200,000.
On
January 31, 2024, we entered into an Agreement of Sale with Pigmental Studios to sell the St. Mary’s Site. See “– Recent
Developments – St. Mary’s Site.”
McLean
Mixed Use Site. On November 10, 2021, we entered into a Purchase Agreement (“Purchase Agreement) with the Durant Industrial
Authority to acquire 100% ownership of approximately 114 mixed-use acres in Durant, Oklahoma for $868,000. We anticipate building approximately
800 residential units and up to 1.1 million square feet of industrial manufacturing space on the mixed-use property. The closing on the
114 mixed-use acres occurred in the first quarter of 2022. We plan to build and SG Echo will occupy a 120,000 square foot state of the
art manufacturing facility. The property is zoned for an additional 1.0 million square feet of industrial space. We are currently marketing
the additional space to potential tenants. It is anticipated that SG Echo will provide modular construction services to us in connection
with the residential project described above pursuant to the Master Purchase Agreement dated December 17, 2023 between us and SG Echo.
See “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence.”
7
We
anticipate that the first phase of development activities at this site will be the construction of 30 single family units over the course
of 12 months, which activities are anticipated to commence during the second quarter of 2024, with an estimated cost of $8,500,000. Current
plans are to sell this development two (2) years after development.
Modular
Construction
The
sites we develop will primarily utilize modular construction. We believe that modular construction provides the following benefits:
STRONG FAST GREEN
● Less weather related damage to construction materials
In
cases where modular construction is not advantageous, we will utilize other construction methods. In the case of building manufacturing
facilities, for example, we expect to work with a team of third-party architects, engineers and construction management firms with deep
experience in developing industrial sites to build out such facilities.
Conflicts
of Interest
We
expect that numerous conflicts of interest will exist after the Separation and Distribution based upon the numerous arrangements and/or
agreements between the parties. For example, JDI-Cumberland Inlet, LLC, a company in which we hold a 10% non-dilutable interest, is obligated
to hire SG Echo with respect to each phase of the construction of the project buildings for our project in downtown St. Mary’s,
Georgia so long as SG Echo is offering its services at a price that is within five percent of all arms-length bona fide bids. As a result,
JDI-Cumberland could end up paying to SG Echo five percent more than it would have paid for these construction services if it hired an
independent contractor.
Pursuant
to the shared services agreement we entered into with SG Holdings, SG Holdings provides to us certain services or functions that the
companies historically have shared. Shared services include various information technology, finance, human resources, compliance, legal,
and other support services. In consideration for such services, we pay fees to SG Holdings for the services provided, and those fees
are generally in amounts intended to allow SG Holdings to recover all of its direct and indirect costs incurred in providing those services.
The personnel performing services under the shared services agreement are employees and/or independent contractors of SG Holdings and
are not under our direction or control. As such, conflicts of interest may arise in connection with the performance of the services by
SG Holdings personnel and the allocation of priority to the services requested by us. See “Part III, Item 13. Certain Relationships
and Related Transactions, and Director Independence.”
Competition
We
face competition in the real estate development and housing industries. Real estate developers compete for, among other things, residents,
desirable land parcels, financing, raw materials, and skilled labor. Increased competition may prevent us from acquiring attractive land
parcels or make such acquisitions more expensive, hinder our market share expansion, or lead to pricing pressures that may adversely
impact our margins and revenues. Competitors may independently develop land and construct housing units that are superior or substantially
similar to our products and because they are or may be significantly larger, have a longer operating history, and have greater resources
or lower cost of capital than us, may be able to compete more effectively in one or more of the markets in which we operate or plan to
operate. We believe we can distinguish ourselves from our competitors on the basis of our quality and construction time savings when
utilizing modular construction technology.
8
In
addition, we will compete with public and private funds, commercial and investment banks, commercial financing companies and public and
private REITs to make some of the investments that we plan to make. Many of such competitors are substantially larger and have considerably
greater financial, technical and marketing resources than us. In addition, some of such competitors may have higher risk tolerances or
different risk assessments, allowing them to pay higher consideration, consider a wider variety of investments and establish more effective
relationships than us.
Regulation
and Environmental Matters
Our
real estate investments are subject to extensive local, city, county and state rules and regulations regarding permitting, zoning, subdivision,
utilities and water quality as well as federal rules and regulations regarding air and water quality, and protection of endangered species
and their habitats. Such regulation may delay development of our properties and may result in higher development and administrative costs.
See “Part III, Item 1A. “Risk Factors” for further discussion.
We
have made, and will continue to make, expenditures for the protection of the environment with respect to our real estate development
activities. Emphasis on environmental matters will result in additional costs in the future. Further, regulatory and societal responses
intended to reduce potential climate change impacts may increase our costs to develop, operate and maintain our properties. Based on
an analysis of our operations in relation to current and presently anticipated environmental requirements, we currently do not anticipate
that these costs will have a material adverse effect on our future operations or financial condition.
Sustainability
We are committed to protecting the environment
and developing sustainable properties. We emphasize sustainable design, construction and operations as essential goals in developing and
operating our properties. Our projects begin with a careful site assessment, taking into account unique and environmentally sensitive
site features, including vegetation, slopes, soil profiles and water resources. Our sites are then engineered to protect our environment
and promote their natural attributes. The building products we plan to utilize in many of our sites are developed with SG Holdings’
proprietary technology and are generally stronger, more durable, environmentally sensitive, and erected in less time than traditional
construction methods. The use of the SG Holdings’ building structure typically provides between four to six points towards the Leadership
in Energy and Environmental Design (“LEED”) certification levels, including reduced site disturbance, resource reuse, recycled