8-K/A: SGD Completes Resource Group Acquisition

Safe and Green Development Corporation finalized its acquisition of Resource Group US Holdings LLC, integrating a green waste recycling firm despite its ongoing 'going concern' issues.

Summary

• Safe and Green Development Corporation (SGD) consummated the acquisition of all issued and outstanding membership interests of Resource Group US Holdings LLC (Resource Group) on June 2, 2025.
• Resource Group, now a wholly owned subsidiary of SGD, specializes in organic recycling and compost technology, transforming green waste into soil and mulch products, and offers collection and disposal services.
• The purchase price for Resource Group included $480,000 in unsecured 6% promissory notes, restricted common stock equal to 19.99% of SGD's outstanding common stock, and 1,500,000 shares of non-voting Series A Convertible Preferred Stock (convertible into 9,000,000 restricted common shares subject to approvals).
• Resource Group reported revenue of $18,154,944 for the year ended December 31, 2024, an increase from $16,418,032 in 2023.
• Resource Group's net loss improved to $(4,476,267) in 2024 from $(4,951,995) in 2023, and further improved to $(741,677) for Q1 2025 compared to $(1,652,551) for Q1 2024.
• Despite revenue growth and reduced losses, Resource Group has incurred net losses since inception, has a net equity deficiency, and historically negative cash flows from operating activities, raising substantial doubt about its ability to continue as a going concern.
• Pro forma combined financial statements show a net loss of $(13,384,742) for the year ended December 31, 2024, and $(2,921,670) for the three months ended March 31, 2025.
• The acquisition resulted in the recognition of significant goodwill, amounting to $22,699,970 as of March 31, 2025.

Sentiment

Score: 4

Explanation: While Resource Group showed some operational improvements and revenue growth, its significant 'going concern' issue, historical net losses, and large accumulated deficit, combined with the substantial goodwill recognized in the acquisition, present considerable financial challenges and risks for the combined entity.

Positives

• Resource Group US Holdings LLC demonstrated revenue growth, with $18,154,944 in 2024, up from $16,418,032 in 2023, and $5,278,563 in Q1 2025, up from $4,091,988 in Q1 2024.
• Resource Group's net loss significantly improved, reducing to $(4,476,267) in 2024 from $(4,951,995) in 2023, and to $(741,677) in Q1 2025 from $(1,652,551) in Q1 2024.
• Resource Group achieved positive cash flow from operating activities of $117,894 for the three months ended March 31, 2025, a notable improvement from negative cash flow of $(222,164) in the prior year period.
• A gain on settlement of debt of $97,498 was recognized by Resource Group in the three months ended March 31, 2025.

Negatives

• Resource Group US Holdings LLC has incurred net losses since its inception and has a net equity deficiency, raising substantial doubt about its ability to continue as a going concern.
• Resource Group has historically funded its operations through various debt financing and is dependent upon future issuances of equity or other financings.
• Resource Group's total liabilities increased to $22,055,976 as of March 31, 2025, from $21,737,457 as of December 31, 2024.
• Resource Group's members deficit increased to $(13,127,788) as of March 31, 2025, from $(12,386,375) as of December 31, 2024.
• The pro forma combined entity (SGD + Resource Group) reported a net loss of $(13,384,742) for the year ended December 31, 2024, and $(2,921,670) for the three months ended March 31, 2025.

Risks

• Resource Group US Holdings LLC's ability to continue as a going concern is in substantial doubt due to incurred net losses since inception, a net equity deficiency, and historical negative cash flows from operating activities, requiring reliance on future equity issuances or other financings.
• The conversion of Series A Preferred Stock into common stock and the issuance of additional common stock are subject to shareholder approval and Nasdaq's non-objection, posing a risk to the full realization of the acquisition consideration structure.

Future Outlook

The filing primarily provides historical and pro forma financial data related to the acquisition. Future actions include seeking shareholder approval for the conversion of Series A Preferred Stock into common stock and the issuance of additional common stock, contingent on Nasdaq not objecting and the company maintaining listing requirements.

Industry Context

The acquisition of Resource Group US Holdings LLC positions Safe and Green Development Corporation to expand into the organic recycling and compost technology sector. This move aligns with broader industry trends towards sustainability, waste reduction, and the development of environmentally friendly products, potentially diversifying SGD's business model beyond its existing operations.

Management Changes

Corporate Governance

Legal Proceedings

• Resource Group US Holdings LLC is not currently involved in any legal proceedings.

Related Party Transactions

• Resource Group US Holdings LLC had $2,575,720 due to related parties as of March 31, 2025, and $2,502,241 as of December 31, 2024. These amounts are non-interest bearing and due on demand.
• Resource Group US Holdings LLC has a note payable from a related party (MCS) in the amount of $4,960,517 as of March 31, 2025, and December 31, 2024.
• Resource Group US Holdings LLC has a note payable from a related party (Index) in the amount of $31,749 as of March 31, 2025, and December 31, 2024.
• In 2023, Resource Group US Holdings LLC issued a $10,510,000 note payable to an affiliate for a sublicense of milling technology, which was subsequently converted to equity. No value was recorded for the sublicense as it was transferred from a related party with no initial cost basis.

Stakeholder Impact

• Shareholders of Safe and Green Development Corporation face potential dilution from the issuance of common stock and convertible preferred stock as part of the acquisition consideration, while gaining exposure to the organic recycling sector.
• Equityholders of Resource Group US Holdings LLC received a mix of promissory notes, common stock, and convertible preferred stock of Safe and Green Development Corporation in exchange for their ownership interests.
• Creditors of Resource Group US Holdings LLC will now have their claims against Resource Group as part of the combined entity's liabilities.
• Employees of Resource Group US Holdings LLC are expected to maintain their roles as Resource Group continues as a wholly owned subsidiary of Safe and Green Development Corporation.
• Customers of Resource Group US Holdings LLC should experience continuity in organic recycling and waste management services.

Next Steps

• Secure shareholder approval for the conversion of Series A Preferred Stock into common stock.
• Obtain Nasdaq Stock Market's non-objection to the conversion and ensure SGD continues to meet Nasdaq listing requirements.
• Secure shareholder approval for the issuance of 41,182 additional common shares.

Key Dates

Recommendation

While the acquisition of Resource Group offers strategic diversification into the growing organic recycling sector and Resource Group has shown some operational improvements, the significant 'going concern' issue, persistent net losses, and substantial accumulated deficit of the acquired entity introduce considerable financial risk. The large goodwill recognized also warrants caution. Investors should hold to monitor the integration process, the combined entity's ability to address Resource Group's financial challenges, and the realization of anticipated synergies before making further investment decisions.

Keywords

Safe and Green Development Corporation, Resource Group US Holdings LLC, Acquisition, Organic Recycling, Compost Technology, Green Waste Management, SEC Filing, 8-K/A, Environmental Services, Sustainable Materials, Zimmer Equipment Inc., ETS Realty 1, LLC, Going Concern