SG DevCo(SGD) - 2023 Q4 - Annual Report

Part I Business The company is a pre-revenue real estate developer focusing on green modular construction projects and technology platforms - The company's primary business is real property development, focusing on acquiring land for future green single or multi-family projects, often utilizing modular construction from its former parent company, SG Holdings[25] - On September 27, 2023, the company separated from SG Holdings via a pro rata distribution of its stock, and on September 28, 2023, its common stock began trading on the Nasdaq Capital Market under the symbol "SGD"[27] - In February 2024, the company acquired Majestic World Holdings LLC (MWH), owner of the Xene AI Software platform, for 500,000 shares of restricted stock and $500,000 in cash[44][45] - The company has secured significant financing through various agreements, including convertible debentures and warrants with Peak One, an equity line of credit for up to $10 million, and a $250,000 line of credit[32][41][46] Current Projects and Development Sites | Project Name | Location | Description | Ownership/Interest | | :--- | :--- | :--- | :--- | | Lago Vista | Lago Vista, TX | 50+ acre site approved for 174 condominium units | 100% owned, subject to a JV contribution agreement | | Norman Berry Village | Atlanta, GA | Affordable housing project with ~134 multi-family rental apartments | 50% membership interest in a JV | | Cumberland Inlet | St. Mary's, GA | 1,298-acre waterfront parcel for a mixed-use community | 10% non-dilutable equity interest in a JV | | St. Mary's Site | St. Mary's, GA | ~27 acres of land adjacent to Cumberland Inlet, under agreement to be sold | 100% owned | | McLean Mixed Use Site | Durant, OK | ~114 mixed-use acres for ~800 residential units and industrial space | 100% owned | Risk Factors The company faces significant risks from its limited operating history, lack of revenue, dependency on capital, and conflicts of interest with its controlling shareholder - The company's auditors have expressed substantial doubt about its ability to continue as a going concern due to a history of significant net losses ($4.2 million in 2023) and no revenue generation[83] - The business is highly dependent on raising additional capital to fund its long-term development plans[85][86] - SG Holdings beneficially owns approximately 44.3% of the company's outstanding Common Stock, giving it substantial control over management and affairs, which may create conflicts of interest[23][137] - The company operates in the highly competitive and cyclical real estate industry, facing risks from economic downturns, fluctuations in real estate values, and competition[89][114][115] - The company does not anticipate paying dividends on its Common Stock in the foreseeable future[139] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[156] Cybersecurity The company maintains a cyber risk management program overseen by the Audit Committee and has experienced no incidents to date - The company has a cyber risk management program that includes identity access management, endpoint protection, data loss prevention, and encryption, with oversight from the Audit Committee[157][159] - A third-party, NIST 800-171 compliant Security Operations Center (SOC) provides 24/7 monitoring and incident response services[157][158] - As of the report date, the company has not had a cybersecurity incident[160] Properties The company owns or has investments in five properties across Texas, Oklahoma, and Georgia, with no development yet commenced - The company's portfolio consists of three directly owned properties and investments in two entities that own two other properties, with no development activities commenced yet[162] Property Portfolio Summary | Property/Project | Location | Status/Plan | | :--- | :--- | :--- | | Lago Vista | Lago Vista, TX | 50+ acre site, to be contributed to a joint venture valued at $11.5M | | Norman Berry Village | Atlanta, GA | 50% interest in a JV to build ~134 multi-family rental apartments | | Cumberland Inlet | St. Mary's, GA | 10% interest in a JV to develop a 1,298-acre mixed-use community | | St. Mary's Industrial Site | St. Mary's, GA | ~27 acres of land under an agreement of sale | | McLean Mixed Use Site | Durant, OK | ~114 acres for ~800 residential units and industrial space | Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently a party to any material legal proceedings[167] Mine Safety Disclosures This item is not applicable to the company - Not applicable[168] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "SGD", with 83 holders of record, and no dividends are anticipated - The company's Common Stock is traded on the Nasdaq Capital Market under the symbol "SGD"[170] - As of March 29, 2024, there were approximately 83 holders of record of the Common Stock[170] - The company has never paid cash dividends and does not plan to in the foreseeable future[171] Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net loss increased to $4.2 million in 2023, driven by higher operating and interest expenses, raising going concern doubts Results of Operations Comparison (2023 vs. 2022) | Line Item | 2023 | 2022 | | :--- | :--- | :--- | | Total Payroll and related expenses | $1,125,603 | $1,106,997 | | Total Other operating expenses | $1,897,845 | $1,030,869 | | Operating loss | ($3,023,448) | ($2,137,866) | | Interest expense | ($1,178,311) | ($306,393) | | Net loss | ($4,200,541) | ($2,444,259) | - The increase in net loss from 2022 to 2023 was primarily driven by a $0.8 million increase in other operating expenses and a $0.87 million increase in interest expense from new debt facilities[189][190] - The company's financial condition raises substantial doubt about its ability to continue as a going concern, with only $3,236 in cash as of December 31, 2023[192] Cash Flow Summary (2023 vs. 2022) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in Operating activities | ($4,570,603) | ($2,316,170) | | Net cash used in Investing activities | ($59,609) | ($1,397,022) | | Net cash provided by Financing activities | $4,632,728 | $3,713,912 | - Financing activities in 2023 included proceeds from the $5M LV Note and the BCV Loan Agreement, and the initial tranche of the Peak One private placement[194][196][198][210] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable[223] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and notes, which begin on page F-1 of the Annual Report - The company's consolidated financial statements and supplementary data are included starting on page F-1 of the report[224] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting and financial disclosure - None[225] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the end of the reporting period - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[227] - As a newly public company, this annual report does not include a management assessment or auditor attestation on internal control over financial reporting[228][229] - There were no changes in internal control over financial reporting during the quarter ended December 31, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[230] Other Information This section provides an update on financing conversions and confirms no new executive trading plans were adopted - The company has issued 998,905 shares of common stock to date pursuant to the full conversion of the principal of the First Debenture from the Peak One transaction[234] - No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the fourth quarter of 2023[231] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[236] Part III Directors, Executive Officers and Corporate Governance The company is led by its CEO and CFO, with an eight-member classified board and three independent standing committees Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | David Villarreal | 72 | President and Chief Executive Officer | | Nicolai Brune | 26 | Chief Financial Officer | - The Board of Directors is divided into three classes and has three standing committees: Audit, Compensation, and Nominating and Governance[243][263] - The Audit Committee is chaired by Christopher Melton, the Compensation Committee by John Scott Magrane, Jr, and the Nominating and Governance Committee by Jeffrey Tweedy[264] Executive Compensation Executive compensation in 2023 was heavily weighted toward stock awards, with a new incentive plan adopted for future equity grants 2023 Summary Compensation Table | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | David Villarreal, President & CEO | 2023 | 275,000 | 71,025 | 1,131,000 | 1,250 | 1,478,275 | | Nicolai Brune, CFO | 2023 | 217,000 | 55,875 | 348,000 | 1,250 | 622,125 | - CEO David Villarreal's employment agreement provides for an annual base salary of $300,000 (increased to $450,000 effective Nov 2023) and a discretionary bonus up to 25%[276] - The company's 2023 Incentive Compensation Plan authorizes up to 4,000,000 shares for issuance as various equity awards[284][289] - Non-employee director compensation for 2023 included a pro-rated annual cash retainer of $80,000 and an annual equity grant valued at $80,000[305] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Safe & Green Holdings Corp is the largest beneficial owner with 44.3% of common stock, while directors and officers as a group own 12.8% Beneficial Ownership as of March 29, 2024 | Name of Beneficial Owner | Shares Beneficially Owned | Percentage of Ownership | | :--- | :--- | :--- | | Safe & Green Holdings Corp | 6,353,508 | 44.3% | | All current executive officers and directors as a group (9 persons) | 1,840,368 | 12.8% | - Under the company's equity compensation plans, 2,168,750 shares remained available for future issuance as of December 31, 2023[318] Certain Relationships and Related Transactions, and Director Independence The company has significant related party transactions with its former parent, SG Holdings, including service agreements and a forgiven $4 million note - The company has a shared services agreement with SG Holdings for administrative, accounting, and other support services, for which it incurred fees of $180,000 in 2023[333] - On August 9, 2023, SG Holdings cancelled and forgave a $4 million promissory note from the company[325][326] - A Master Purchase Agreement was established with SG Echo, an SG Holdings subsidiary, for modular construction services, with SG Echo receiving a fee of 12% of the agreed cost[337][338] - The Board of Directors has determined that six of its eight directors are independent[341] Principal Accountant Fees and Services The company engaged M&K CPAS PLLC as its new auditor in December 2023, with total audit fees increasing significantly to $169,664 - The company changed its independent registered public accounting firm on December 15, 2023, dismissing Whitley Penn LLP and engaging M&K CPAS PLLC[343] Accountant Fees (2023 vs. 2022) | Service Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $169,664 | $23,000 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | — | — | | Total | $169,664 | $23,000 | Part IV Exhibit and Financial Statement Schedules This section provides an index of all exhibits filed with the report and indicates that financial statements begin on page F-1 - The company's financial statements and notes begin on page F-1 of the Annual Report[350] - All financial statement schedules have been omitted as they are not applicable, not material, or the required information is included in the financial statements or notes[351] Form 10-K Summary This item is not applicable to the company - Not applicable[353] Consolidated Financial Statements Financial Statements The audited financial statements confirm a $4.2 million net loss for 2023 and include a going concern warning from the independent auditor - The independent auditor's report emphasizes a "going concern" uncertainty due to the company's history of net losses and its net capital deficiency[370][379] Consolidated Balance Sheet Highlights (As of Dec 31, 2023) | Category | Amount | | :--- | :--- | | Cash | $3,236 | | Total Assets | $9,559,966 | | Total Current Liabilities | $7,672,189 | | Total Stockholders' Equity | $1,887,777 | - As of December 31, 2023, the company had short-term notes payable, net of discounts, of $6.8 million[386] - Subsequent to year-end, the company entered into several significant transactions, including an agreement to sell its St Mary's property for $1.35 million and the acquisition of MWH[470][471][472][476]