Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Introduction and Certain Cautionary Statements
The following discussion and analysis of the
financial condition and results of our operations should be read in conjunction with our consolidated financial statements and related
notes and schedules included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences
include, but are not limited to, intensified competition and operating problems in our operating business projects and their impact on
revenues and profit margins or additional factors, and those discussed in the section entitled “Risk Factors” in Part I, Item
1A of this Annual Report. In addition, certain information presented below is based on unaudited financial information.
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. During 2023 and 2024, our business focus was primarily on the direct acquisition and
indirect investment in properties nationally to be developed in the future into green single or multi-family projects and increasing our
presence in markets with favorable job formation and a favorable demand/supply ratio for multifamily and/or single-family housing. To
date, we have generated minimal revenue and our activities have consisted mostly of the acquisition and entitlement of three properties,
an investment in two entities that have acquired two properties to be further developed, entry into three joint ventures with the intention
of developing properties in the Texas market and an investment in real-estate related artificial intelligence (“AI”) assets
and entities, as further described below.
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 and selling those properties. In connection with this strategy, we have entered into agreements to sell our
St. Mary’s site and our Lago Vista site described in more detail below. Additionally, we expect to subdivide our McLean property
into buildable single family lots that can subsequently be sold to developers or developed internally. We intend to develop the properties
that we own and invest 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 for which there can be no assurance.’
31
In August 2024, we entered into joint ventures
with Milk & Honey LLC, Sugar Phase I LLC and Hacienda Olivia Phase II LLC, with the intention of developing green single-family homes
in the Southern Texas market. To date, we have started construction on five single family homes in the Sugar Phase joint venture. The
homes were delivered during the first quarter of 2025. Additionally, we were developing 57 single family lots through our Hacienda Olivia.
We have also entered into a joint venture named Pulga Internacional with the intention of developing an eco-friendly commercial retail
outlet.
In February 2025, we entered into a Membership
Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Resource Group US Holdings LLC (“Resource
Group”) and its members to acquire 100% of the membership interests of Resource Group. See “Membership Interest Purchase Agreement”
below for additional information about the Membership Interest Purchase Agreement. Upon the closing of the acquisition we intend to shift
our primary focus to the business conducted by Resource Croup, which is the transformation of targeted organic green waste materials into
engineered, environmentally friendly soil and mulch products. As a result, we have started the process of strategically realigning the
business focus towards Resource Group’s core business by monetizing real estate holdings held by us and in our joint ventures. We
will continue this process and expect that by the end of 2025 the Company will be focused solely on the engineered soils business. Following
the acquisition of Resource Group, we also intend to reevaluate the projects, technologies, and operations of our real-estate related
AI assets.
Recent Developments
Credit Agreement
On March 1, 2024, we entered into a Credit Agreement
which provided for a $250,000 Line of Credit. For a description of the Credit Agreement, see “Liquidity and Capital Resources –
Financing Activities.”
Reverse Stock Split
On October 8, 2024, we effected a 1-for-20 reverse
stock split of our then-outstanding Common Stock (“Reverse Split”). Except as specifically provided, all share and per share
amounts and related option and warrant information presented herein, including our financial statements and accompanying footnotes, has
been retroactively adjusted to give effect to the Reverse Split.
Increase in Authorized Shares
On
November 7, 2024, we filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State
of the State of Delaware (the “Certificate of Amendment”) that was effective on such date that increased the number of our
authorized shares of common stock, $0.001 par value per share from 50,000,000 shares to 100,000,000 shares.
Results of Operations
The following table sets forth, for the periods
indicated, the dollar value represented by certain items in our Statements of Operations:
For the Year Ended December 31, 2024 For the Year Ended December 31, 2023
Total cost of revenue 182,656 -
32
Results of Operations for the Years Ended December 31, 2024 and
2023
Sales
During the year ended December 31, 2024 we generated
revenues from commissions on residential real estate purchases and sale transactions amounting to $207,552. There were no sales for the
year ended December 31, 2023. This increase in sales was due to the new lines of business entered into during 2024.
Payroll and Related Expenses
Payroll and related expenses for the year ended
December 31, 2024 were $3,622,018 compared to $1,125,603 for the year ended December 31, 2023. This increase of $2,496,415 in expenses
resulted primarily from stock-based compensation of $2,169,075 being recognized during the year ended December 31, 2024, as well as additional
salaried employees during 2024.
Other Operating Expenses (General and administrative
expenses and marketing and business development expenses)
Other operating expenses for the year ended December
31, 2024 were $2,961,784 compared to $1,897,845 for the year ended December 31, 2023. During the year ended December 31, 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 year ended December 31, 2024, these expenses were primarily professional and consulting
fees. This increase of $1,063,939 in expenses is primarily attributable to an increase in legal fees, professional fees and other fees
incurred in connection with operating as a public company.
Gain on Sale
During the year ended December 31, 2024, we recognized
a gain in the amount of $1,067,540 which resulted from the sale of land.
Interest Expense
Interest expense for the year ended December 31,
2024 was $3,474,344 compared to $1,178,311 for the year ended December 31, 2023. This increase of $2,296,033 in interest expense is primarily
attributable to an increase in the interest expense and amortization of debt issuance costs in connection with an increase in notes payable
balances.
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.
Our operations for the year ended December 31,
2024 and the year ended December 31, 2023 may not be indicative of our future operations.
Liquidity and Capital Resources
We have generated limited revenue and have
incurred significant net losses in each year since inception. For the year ended December 31, 2024 we incurred a net loss of
$8,908,475 as compared to a net loss of $4,200,541 for year ended December 31, 2023. We expect to incur increasing losses in the
future when we commence development of the properties we own. As of December 31, 2024 and December 31, 2023, we had cash of $296,202
and $3,236, respectively. Prior to us becoming a public company, our operations were primarily been 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 finance Resource Group’s
expansion from the proceeds of sales of our securities to Peak One, 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. There is no guarantee we will be successful in raising capital outside of our current sources. These and other
factors raise substantial doubt about our ability to continue as a going concern. The report of our independent registered public
accounting firm includes an explanatory paragraph that our auditors have expressed substantial doubt that we will be able to
continue as a going concern.
33
Financing Activities
SG Holdings. We issued a note to
SG Holdings, dated December 19, 2021, in the principal amount of $4,200,000 for loans that SG Holdings made to us that were used to acquire
properties. The note was due upon demand and was non-interest bearing. On August 9, 2023, we entered into a Note Cancellation Agreement
with SG Holdings, effective as of July 1, 2023, pursuant to which SG Holdings cancelled and forgave the remaining $4,000,000 balance then
due on that certain promissory note, dated December 19, 2021, made by us in favor of SG Holdings in the original principal amount of $4,200,000.
In addition, as of December 31, 2023, $1,720,844 is due from SG Holdings for advances made by us. As of December 31, 2023, the Company
does not believe there is certainty in the collectability of the advances we have made to SG Holdings and therefore has recorded a reserve
against the $1,720,844, which is included in additional paid-in capital.
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 DevCorp 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. The fees associated with the issuance
include $70,000 paid to BCV S&G for the creation of the BCV Loan Agreement and $27,500 payable to BCV S&G per annum for maintaining
the BCV Loan Agreement. Additionally, $37,500 in broker fees was paid to Bridgeline Capital Partners S.A. on the principal amount raised
of $1,250,000. The BCV Loan Agreement, as amended, further provides that if our 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 shall fall below twice the
face value of the loan, the loan will be further secured by our St. Mary’s Site. Following the listing, the total market value of
the pledged shares has fallen below twice the face value of the loan and we and BCV S&G DevCorp are in discussions regarding alternatives,
if any.
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.
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. LV Holding is currently in discussions with the lender to extend the maturity of the LV Note to April 1, 2025.
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.
34
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 an 8% convertible debenture in principal amount of $700,000 (the “First Debenture”) and a warrant
to purchase up to 350,000 shares of our Common Stock. 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 offering, 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 and issued an aggregate total of 100,000 shares of our restricted Common Stock as commitment shares. The
Securities Purchase Agreement provided that a closing of a 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 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, representing an original issue discount of ten percent (10%). 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.
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 to purchase up to 125,000 shares of the Company’s Common Stock. 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 20, 2024 and we issued an 8% convertible debenture in the principal amount of $250,000 (the “Third
Debenture” and together with the First Debenture and the Second Debenture, the “Debentures”) and a 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 Debentures had a maturity date of twelve months
from their date of issuance and bore interest at a rate of 8% per annum payable on the maturity date. The Debentures were 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, 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 were 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 were outstanding,
if we received 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 had 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 contained
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 prohibited us from entering into a Variable Rate Transaction (as defined in the Debentures) until the Debentures are paid
in full.
The Debentures were paid
in full on August 12, 2024.
35
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, 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.
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. As of December 31, 2024, we have sold approximately 986,000 shares
(49,300 as adjusted for the Stock Split) under the EP Agreement for gross proceeds of approximately $749,733.
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 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 initial “Maturity Date” of the Line of Credit is September 1, 2024 which
was extended to June 1st, 2025. 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
bears 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 is 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. On March 4, 2024, we drew down $60,000.00
from the Line of Credit.
ELOC
Arena Investors LP Debentures. On
August 12, 2024, we entered into a Securities Purchase Agreement, dated August 12, 2024 (the “Arena Purchase Agreement”) with
the purchasers named therein (“Arena Investors”), related to a private placement offering (the “Arena Offering”)
of up to five tranches of 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 our
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 we 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 1,299,242 shares of our common stock (64,962 as adjusted for the Stock Split). 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, we reimbursed Arena Investors $55,000 for its legal fees and expenses and placed $250,000 in escrow,
to be released to us upon the First Registration Statement Effectiveness Date (as defined in the Purchase Agreement).
The First Closing Arena Debentures were to mature
eighteen months from their date of issuance and bears interest at a rate of 0% per annum. The First Closing Arena Debentures were 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 ($5.58 as
adjusted for the Stock Split), and (ii) 92.5% of lowest daily volume weighted average price (VWAP) of our 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 ($0.9704 as adjusted for the Stock Split).
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 our common stock (64,962 as adjusted for the Stock Split) at an exercise price equal to $0.279 (the “Exercise Price”)
($5.58 as adjusted for the Stock Split), 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.
36
We entered into a Registration Rights Agreement,
dated August 12, 2024 (the “RRA”), with Arena Investors where we 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 The
registration statement was declared effective on September 30, 2024.
Under the Arena Purchase Agreement, a closing
of the second, third, fourth or fifth tranche together (the “Additional Tranches” may occur subject to the mutual written
agreement of Arena Investors and us and satisfaction of the closing conditions set forth in the Purchase Agreement on the later (y) the
fifth trading day following the First, Second, Third or Fourth 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 prior Arena Debenture issued is
less than $100,000.00, unless the parties mutually agree in writing to consummate the second, third, fourth or fifth closing on a different
date, upon which we would issue and sell to Arena Investors on the same terms and conditions a second, third, fourth or fifth 10% original
issue discount secured convertible debentures each in the principal amount of $2,222,222 (the “Additional Closing Arena Debentures”)
and a warrant (the “Additional Closing Warrants”) to purchase a number of shares of our common stock equal to 20% of the total
principal amount of the Additional 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 additional tranches, provided the additional Closings are also contingent on the satisfaction of the following additional condition,
unless waived mutually by the parties: the median daily turnover of our 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, subject to a floor price.
The Additional Closing Arena Debentures would
be sold to Arena Investors each for a purchase price of $2,000,000, representing an original issue discount of ten percent (10%). In connection
with each closing of the additional tranches, 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, Third, Fourth or Fifth
Closing Debentures and the Second, Third, Fourth, or Fifth Closing Arena Warrants as shall be permitted with terms substantially similar
as the terms provided in the RRA. We also has agreed to reimburse Arena Investors for its legal fees and expenses related to such each
closing.
Without giving effect to the Exchange Cap discussed
below, assuming we 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 our common stock would be issuable upon conversion.
The Arena Purchase Agreement prohibits us from
entering into a Variable Rate Transaction (other than the Arena ELOC described below) until such time as no Arena Debentures remain outstanding.
We entered into a Security Agreement, dated August
12, 2024 (the “Security Agreement”), with Arena Investors where we granted Arena Investors a security interest in all of its
assets to secure the prompt payment, performance and discharge in full of all of our 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 our obligations
under the Arena Debentures.
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 , we also entered into an Purchase
Agreement (the “Arena ELOC”) with Arena Business Solutions Global SPC II, LTD (“Arena Global”), pursuant to which
we 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 our 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, we have 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.
37
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 our common stock, on the trading day commencing on the date of the Advance Notice.
There is a per share floor price of $0.9704.
In connection with the Arena ELOC, we 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 are subject to a true-up
after each issuance pursuant to which we are obligated 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, we filed a
registration statement registering the common stock issued or issuable to Arena Global under the Arena ELOC for resale with the SEC which
was declared effective on [ ].
The obligation of Arena Global to purchase our
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 us (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 us, that it is an “accredited investor” (as such term is defined
in Rule 501(a) of Regulation D under the Securities Act, and we 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.
On August 30, 2024, we and Arena Global entered
into an amendment (the “Amendment”) to the purchase agreement dated August 12, 2024 (as amended, the “ELOC Purchase
Agreement).
The Amendment revises the manner in which our
obligation to issue shares of our common stock, par value $0.001 per share (the “Common Stock”), to Arena Global as a commitment
fee is determined. The Amendment provides that we issue or cause to be issued to Arena Global, in two separate tranches, that number of
Common Stock equal to (i) with respect to the first tranche (the “First Tranche”): 925,000 shares of Common Stock together
with a warrant to purchase 1,075,000 shares of Common Stock, at an exercise price of $0.01 per share, (the “Warrant Shares”
and together with the 925,000 shares of Common Stock issued to Arena Global, the “Initial Commitment Fee Shares”) and (ii)
with respect to the second tranche (“Second Tranche”), $250,000 divided by the simple average of the daily VWAP (as defined
in the ELOC Purchase Agreement) of the Company’s Common Stock during the five (5) trading days immediately preceding the three month
anniversary (the “Anniversary”) of the effectiveness of the registration statement on which the Initial Commitment Fee Shares
are registered (the “Second Tranche Price”), promptly (but in no event later than one (1) trading day) after the Anniversary
(the “Second Tranche Commitment Fee Shares,” and together with the Initial Commitment Fee Shares, the “Commitment Fee
Shares”).”
The Amendment also has a provision that provides
for the issuance of additional shares of Common Stock as commitment fee shares in the event the value of the Initial Commitment Fee Shares
is less than $500,000 measured during a specified period and the value of the Second Tranche Commitment Fee Shares is less than $250,000
measured during a specified period.
In addition, the Amendment adjusts our obligation
related to registering the resale of shares of the Company’s Common Stock issued or issuable pursuant to the ELOC Purchase Agreement.
The Amendment provides that we will (i) register the resale of the Initial Commitment Fee Shares as soon as practicable and (ii) prepare
and file a registration statement registering the Common Stock issuable to Arena Global under the equity line pursuant to the ELOC Purchase
Agreement and the Commitment Fee Shares (to the extent then outstanding or issuable pursuant to a then outstanding convertible security)
for resale as soon as practicable following the earlier of (A) the Company filing an amendment to its amended and restated certificate
of incorporation to increase the number of shares of Common Stock authorized for issuance, or (B) the Company effecting a reverse stock
split of its Common Stock.
38
On September 19, 2024, we and Arena Special Opportunities
Partners II, LP, Arena Special Opportunities (Offshore) Master, LP, Arena Special Opportunities Partners III, LP, and Arena Special Opportunities
Fund, LP (collectively, the “Arena Investors”) entered into a Global Amendment to 10% Original Issue Discount Secured Convertible
Debentures (the “Amendment”). The Amendment amends the interest provision of the debentures issued on August 12, 2024 (the
“First Closing Debentures”) to the Arena Investors. The First Closing Debentures were issued together with warrants (the “First
Closing Warrants”) to purchase up to 1,299,242 shares of our common stock pursuant to a Securities Purchase Agreement, dated August
12, 2024 (the “SPA”) between us and the Arena Investors. The SPA related to a private placement offering of up to five secured
convertible debentures to the Arena Investors in the aggregate principal amount of $10,277,777 together with warrants to purchase a number
of shares of our common stock equal to 20% of the total principal amount of the Debentures sold divided by 92.5% of the lowest daily VWAP
(as defined in the SPA) for our common stock during the ten consecutive trading day period preceding the respective closing dates.
Pursuant to the Amendment, the First Closing Debentures
bear interest at a rate of 10% per annum paid-in-kind (“PIK Interest”) unless there is an event of default under the applicable
First Closing Debenture. The PIK Interest shall be added to the outstanding principal amount of the applicable First Closing Debenture
on a monthly basis as additional principal obligations thereunder for all purposes thereof (including the accrual of interest thereon
at the rates applicable to the principal amount generally). Upon the occurrence and during the continuance of an event of default under
the applicable First Closing Debenture, interest shall accrue on the outstanding principal amount of such First Closing Debenture at the
rate of two percent (2%) per month and such default interest shall be due and payable monthly in arrears in cash on the first of each
month following the occurrence of any event of default for default interest accrued through the last day of the prior month.
The ELOC Agreement referenced above provides that we have the right,
but not the obligation, to direct Arena Global to purchase up to $50.0 million in shares of our common stock. Pursuant to the ELOC Agreement,
the Company issued 925,000 commitment shares together with a warrant (the “Arena Global Warrant”) to purchase 1,075,000
shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Commitment Fee Warrant Shares” and
together with the 925,000 shares of Common Stock issued to Arena Global, the “Initial Commitment Fee Shares”).
On November 15, 2024, we and Arena Global entered into an amendment
(the “Amendment”) to the purchase agreement dated August 12, 2024, as amended on August 30, 2024 (as amended, the “ELOC
Purchase Agreement).
The Amendment accelerated the payment of the second tranche commitment
shares and provided for the issuance to Arena Global of a pre-funded warrant to purchase 83,333 shares of our common stock (the “Second
Tranche Commitment Fee Shares”) on November 15, 2024. The Amendment also has a provision that provides for the issuance of additional
shares of our Common Stock as commitment fee shares in the event the value of the Second Tranche Commitment Fee Shares is less than $250,000
measured during a specified period.
Arena Investors Second Tranche
On October 25, 2024, we closed the second tranche
of our private placement offering (the “Offering”) with Arena Special Opportunities Partners II, LP, Arena Special Opportunities
(Offshore) Master, LP, Arena Special Opportunities Partners III, LP, and Arena Special Opportunities Fund, LP (collectively, the “Arena
Investors”) under a Securities Purchase Agreement, dated August 12, 2024, as amended on August 30, 2024 (the “Purchase Agreement”),
between us and the Arena Investors, pursuant to which we issued 10% convertible debentures (the “Second Closing Debentures”)
in the aggregate principal amount of Two Million Two Hundred Twenty-Two Thousand Two Hundred and Twenty-Two Dollars ($2,222,222) to the
Arena Investors and warrants (the “Second Closing Warrants”) to purchase up to 170,892 shares (the “Warrant Shares”)
of our common stock, $0.001 par value per share (the “Common Stock”).
The Second Closing Debentures were sold to the
Arena Investors for a purchase price of $2,000,000, representing an original issue discount of ten percent (10%). The Second Closing Debentures
mature eighteen months from their date of issuance and bears interest at a rate of 10% per annum paid-in-kind (“PIK Interest”),
unless there is an event of default under the applicable Second Closing Debenture. The PIK Interest shall be added to the outstanding
principal amount of the applicable Second Closing Debenture on a monthly basis as additional principal obligations thereunder for all
purposes thereof (including the accrual of interest thereon at the rates applicable to the principal amount generally). Each Second Closing
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 such Second Closing Debenture plus all accrued and unpaid interest at a conversion price equal to the lesser of (i) $3.48, and
(ii) 92.5% of lowest daily volume weighted average price (VWAP) of our 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 $0.90 (subject to proportional adjustment
for stock splits). Based upon the floor price, the maximum number of shares issuable upon conversion of the Second Closing Debentures
is 3,268,197 shares of Common Stock. In connection with the closing of the second tranche, the Company reimbursed Arena Investors $10,000
for its legal fees and expenses.
39
The Second Closing Warrants expire five years
from their date of issuance. The Second Closing Warrants are exercisable, at the option of the holder, at any time, for up to 170,892
shares of our Common Stock at an exercise price equal to $3.476 (the “Exercise Price”), subject to adjustment for any stock
splits, stock dividends, recapitalizations, and similar events, as well as anti-dilution price protection provisions. The Second Closing
Warrants provide for cashless exercise under certain circumstances.
We entered into a Registration Rights Agreement, dated October 25,
2024 (the “RRA”), with the Arena Investors 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 RRA) issuable
under the Second Closing Debentures and the Second Closing 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 “Second
Registration Statement Effectiveness Date”, which is defined in the Purchase Agreement as the 30th calendar day following the Second
Closing Date (or, in the event of a “full review” by the SEC, no later than the 120th calendar day following the Second Closing
Date); provided, however, that if the registration statement will not be reviewed or is no longer subject to further review and comments,
the Second 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.
On October 31, 2024, we and the Arena Investors entered into a Global
Amendment No. 2 (the “Amendment”) to the 10% Original Issue Discount Secured Convertible Debentures issued on August 12, 2024,
as amended (the “First Closing Debentures”). Pursuant to the Amendment, the parties to the First Closing Debentures, in order
to comply with Nasdaq rules, amended the First Closing Debentures to provide that the Floor Price was set at a fixed price subject to
proportional adjustment for stock splits and deleted the prior language which allowed for the floor price to be reduced upon the written
consent of the Company and the holder.
Cash Flow Summary
For the Year Ended December 31, 2024 For the Year Ended December 31, 2023
Net cash provided by (used in):
Net increase in cash and cash equivalents $ 292,966 $ 2,516
Operating activities used net cash of $2,600,562
during the year ended December 31, 2024 and used net cash of $4,548,393 during the year ended December 31, 2023. Cash used in operating
activities decreased by $1,947,831 due to an increase of net loss of $4,707,934, , offset by an increase of $2,997 of depreciation and
amortization, increase of $1,699,756 in amortization of debt issuance cost, $2,169,075 of stock based compensation, $1,067,540 of a gain
on sale, $297,871 worth of common stock for services, $513,871 common stock for debt and warrants, a decrease of $891,642 in prepaid asset
,$347,588 decrease in accounts payable and accrued expenses, and a decrease of $1,800,505 due to affiliates.
Investing activities used net cash of $718,547
during the year ended December 31, 2024 and $81,819 net cash during the year ended December 31, 2023 resulting in an increase in cash
used of $636,728. This change results from $540,394 of property and equipment purchases, $153,593 cash used in asset acquisitions, $295,593
of intangible asset purchases, $403,738 from the proceeds of the sale of land, land acquired from our JV of $331,562, $231,562 of JV activity
and $21,293 of project development costs for the year ended December 31, 2024 that we did not have for the year ended December 31, 2023
or were increased.
Cash provided from financing activities was $3,612,075
during the year ended December 31, 2024 and $4,632,728 during the year ended December 31, 2023. This change results from additional debt
issuance costs of $2,083,938, proceeds from short-term notes payable of $313,108, repayment of short-term notes payable of $947,258, proceeds
from the issuance of common stock of $750,719, proceeds from the issuance of common stock from prefunded warrants of $11,584.
Off-Balance Sheet Arrangements
As of December 31, 2024 and 2023, we had no material
off-balance sheet arrangements to which we are a party.
40
Critical Accounting Estimates
Our financial statements have been prepared using
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 years ended
December 31, 2024 and 2023 included elsewhere in this Annual Report. 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 years ended December 31, 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 December 31, 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.
In addition, during 2024, through its JV Agreements, the Company acquired land with a value of $482,395 in Texas.
Project Development Costs –
Project development costs are stated at cost. At December 31, 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
2022, management implemented a plan to sell Lago Vista, which met all of the criteria required to classify it as an Assets Held for Sale.
Including the project development costs associated with Lago Vista of $824,231, the book value is now $4,400,361.
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.
41
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is set forth
in the consolidated financial statements and notes thereto beginning on page F-1 of this of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) 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-15(e).
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 13a-15(e), were ineffective at the reasonable assurance
level.
(b) Management’s Annual Report on Internal Control over
Financial Reporting
Our management, including our Chief Executive
Officer and Chief Financial Officer, are responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
42
Due to its inherent limitations, any system of
internal control over financial reporting, no matter how well defined, may not prevent or detect misstatements. In addition, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of
December 31, 2024, based on the framework set forth in Internal Control — Integrated Framework by The Committee of Sponsoring Organizations
of the Treadway Commission (COSO) (2013). Based on this assessment using this framework, our management concluded that our internal control
over financial reporting was ineffective as of December 31, 2024.
Material Weakness
During the course of the review of the Annual
Report on Form 10-K for the year ended December 31, 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. The company carried out adjustments
to the financial statements as a result of the audits for 2024 and due to the number of adjustments the company’s internal controls
over financial reporting were determined to be ineffective.
In order to remediate these material weaknesses,
we added additional 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 Annual Report on Form 10-K for the year ended December 31 2024
present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
This Annual Report does not include an attestation
report of our independent registered public accounting firm regarding internal control over financial reporting because Safe and Green