Sustainable Green Team (SGTM) 10-Q2023 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2023

For the transition period from ______________ to _____________

Commission file number: 333-140645

THE SUSTAINABLE GREEN TEAM, LTD.

(Exact name of registrant as specified in its charter)

(407) 886-8733

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 14, 2023, there were 84,515,224 shares of common stock, par value $0.000001 per share, of the registrant issued and outstanding.

FORM 10-Q

THE SUSTAINABLE GREEN TEAM, LTD.

INDEX

PART I. FINANCIAL INFORMATION

THE SUSTAINABLE GREEN TEAM AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Accompanying footnotes are an integral part of condensed consolidated financial statements.

THE SUSTAINABLE GREEN TEAM AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENT

(Unaudited)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

THE SUSTAINABLE GREEN TEAM AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

THE SUSTAINABLE GREEN TEAM AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

THE SUSTAINABLE GREEN TEAM, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – ORGANIZATION AND BUSINESS OPERATIONS

Business Overview

The Company is a wholesale manufacturer and supplier of wood-based mulch, soil, and lumber products , selling directly to mass merchandisers, home centers, hardware stores, nurseries, garden centers, convenience stores, food stores and drug stores, in addition to wholesalers and distributors. The Company also provides arbor care and storm recovery services at the residential, commercial, and municipal levels while offering green waste solutions to large- and small-scale waste disposal and recycling companies located throughout the southeastern United States. The Company’s subsidiary, Mulch Manufacturing Inc., is the largest provider of cypress mulch in the country. In addition, in February 2023, the Company commenced production of HumiSoil® in its Florida facilities.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered negative cash flows and has a significant accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters include expanding its product line from solely mulch to include higher margin manufactured soil products it is producing under the VRM License Agreement leading to an expected increase in revenues, gross margin and profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 2 – GOING CONCERN

Report of Independent Registered Public Accounting Firm

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Sustainable Green Team Ltd. as of December 31, 2022 and as of January 1, 2022, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered negative cash flows and has a significant accumulated deficit. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company had cash on hand of $0 at June 30, 2023. Although the Company intends to raise additional debt or equity capital, the Company expects to continue to incur significant losses from operations and have negative cash flows from operating activities for the near-term. These losses could be significant as operations ramp up along with continuing expenses related to compensation, professional fees, and regulatory are incurred.

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended June 30, 2024, and our current capital structure including equity-based instruments and our obligations and debts.

The Company has satisfied its obligations from the issuance of common stock; however, there is no assurance that such successful efforts will continue during the twelve months subsequent to the date these consolidated financial statements are issued.

If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.

These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these unaudited consolidated financial statements are issued. The unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the unaudited consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

Principles of Consolidation

The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, useful life of fixed assets, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, and assumptions used in assessing impairment of long-lived assets. Actual results could differ from those estimates.

Critical Accounting Estimates

In order to prepare our financial statements in accordance with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Such estimates are based upon management’s current judgments, which are normally based on knowledge and experience regarding past and current events and assumptions about future events. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

While there are several accounting policies affecting our financial statements, we have identified the following critical accounting estimates that require us to make the most subjective judgments in order to fairly present our consolidated financial statements.

Inventory

Summary:

Product inventories are recorded at the lower of actual cost or fair market value. The Company accounted for intercompany sales between NSR to MMI at the lower of cost or fair market value. NSR shipped 4,106 full truckloads to MMI during 2022. The fair market value of $1,095 for this material is based upon the total amount of wood purchased by MMI in 2022 divided by the total quantity of wood received. The cost value to recognize this inventory in the intercompany sale was $861 per load and the Company applied a 10% intercompany markup on this transaction bringing the value per load to $967 per load.

During the year, we perform monthly periodic cycle counts and write off excess or obsolete inventory as needed for each location. During 2022, inventories related to the production of a new segment were not recorded from January through September of 2023 resulting in a reduction of operating profit. Specifically, monthly “yard inventory” was not included in cycle counts. As a result, the inventory has been understated and these understated amounts were charged directly to the Income Statement (without reconciliation). This process was identified and corrected as part of the Company’s restated financial results for the nine month period ended October 1, 2022. As part of the year end process the plant managers were directed to count “yard inventory” and include them in physical counts. This activity has resulted in a change in management’s estimate for physical inventory.

Judgments and Uncertainties:

Significant judgment is required to estimate the fair market value of our inventory as it requires assumptions and projections to be made based off labor and overheads required for manufacturing of bulk and bagged product. Additionally, timber purchases may vary by “track” of land and the output of these purchases can yield different inputs which in turn impacts quantities of mulch, lumber and soil outputs. We monitor our inventory levels and manufacturing consumption by location to ensure cycle counts align with purchases, burn rates, etc., and record adjustments to inventory levels when inventory counts are out of balance with expected results (beginning inventory + purchases – sales = ending inventory, as compared to, monthly inventory cycle counts).

Sensitivity of Estimates to Change:

As noted above, the “track” of land and output of these purchases yield different qualities which in turn impacts quantities of mulch, lumber and soil outputs and are sensitive to what is received from log vendor(s).

The accounting estimates the Company believes to be most sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from the Company’s expectations in inventory. The Company made a change in management estimate for the accounting for yard inventory in the 3^rd quarter of 2022, whereby it incorporated inventory counts as disclosed in the Company’s 3^rd quarter 2022 and amended financial results. Subsequently, there have been no material changes to the Company’s policies to critical accounting estimates. There have been no additional changes to this estimate in 2023.

Acquisitions

Summary:

From time to time, we enter into strategic acquisitions in an effort to better service existing customers and to attract new customers. We account for acquired businesses using the acquisition method of accounting under ASC 805, which requires the assets acquired and liabilities assumed be recorded at date of acquisition at their respective fair values. In some instances, Under ASC 805-50-30 the gain or loss on a business combination should be recognized and measured as the difference between the fair value of the assets acquired and the fair value of the liabilities assumed, minus the fair value of any non-controlling interests in the acquired business. This gain or loss is then recognized in the financial statements of the acquiring entity and considered a bargain purchase gain as one time realization for the sale. The Company has acquired assets under distressed conditions resulting in bargain purchase gains. In accordance with ASC 805-50-30, the results of the acquisitions we have completed have valued the acquired assets at “certified appraised value” which have been reflected in our financial statements, thereafter.

Judgments and Uncertainties:

The Company performs annual impairment analysis to ensure the appraised value is aligned with the certified appraised value utilizing projected revenue and operating profit projections of these facilities. Additional leasehold improvements may be required to optimize the performance of these facilities.

Sensitivity of Estimates to Change:

On January 31, 2020, the Company completed the Mulch Acquisition. On December 30, 2021 the Company completed the acquisition of DDP. On December 31, 2021 the Company acquired equipment from the Beaver Washington facility and acquired the accompanying land on March 18, 2022. On December 31, 2021 the Company acquired equipment for the Jasper, Florida facility. Each of these acquisitions were accounted for under ASC 805. See “Note 11 – Acquisitions.”

Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired. We believe the estimates applied to be based on reasonable assumptions, but which are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine the fair values of the assets acquired, which could result in impairment losses in the future. Changes in business conditions may also require future adjustments to the useful lives of assets acquired. If we determine that the useful lives of assets acquired are shorter than we had originally estimated, the rate of amortization may be accelerated.

Goodwill

Summary:

Goodwill represents the acquired fair value of a business in excess of the fair values of tangible and identified intangible assets acquired and liabilities assumed. We test goodwill on an annual basis as part of our year end processes and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

The goodwill impairment test requires us to estimate and compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, the goodwill is not considered impaired. To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill is deemed impaired, and an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value.

Judgments and Uncertainties:

Significant judgment is required to determine whether impairment indicators exist and to estimate the fair value of our reporting units. Estimating the fair value of reporting units using the discounted cash flow model requires us to make assumptions and projections of revenue growth rates, gross margins, SG&A, capital expenditures, working capital, depreciation, terminal values, and weighted average cost of capital, among other factors.

The assumptions used to estimate fair value consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy. Changes in these estimates could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods.

Sensitivity of Estimates to Change:

During the fourth quarter of the 2022 Fiscal Year, we performed our annual quantitative assessment of goodwill. No goodwill impairment charge was recorded as a result of the testing and the estimated fair value of each of our reporting units substantially exceeded its carrying value.

Revenue

The Company’s revenues are derived from two major types of services to clients: landscape recovery services and the manufacturing and sale of mulch, lumber and soil products. The Company recognizes revenue when its performance obligations are satisfied. With respect to landscape recovery services, its performance obligation is satisfied upon the completion of the landscape services for its customers. With respect to the manufacturing and selling of mulch, lumber and soil products, its performance obligation is satisfied upon delivery to its customers and/or Customer pickup on site. Services are provided for cash or on credit terms. These credit terms, which are established in accordance with local and industry practices, require payment generally within 30 to 45 days day(s) of performance. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, the aging of accounts receivable and its analysis of customer data.

Cash

The Company considers all highly liquid short-term instruments that are purchased with an original maturity of six months or less to be cash equivalents. The Company had limited cash and cash equivalents as of June 30, 2023 and December 31, 2022.

Account Receivable

The Company periodically assesses its accounts receivable for collectability on a specific identification basis. If collectability of an account becomes unlikely, an allowance is recorded for that doubtful account. The Company maintained its allowance for doubtful accounts as of June 30, 2023, in the amount of $180,000 based upon aged receivables.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined by the weighted-average cost method using full absorption costing for manufactured goods. The Company is vertically integrated, as such, sales from NSR to MMI, are recorded at the lower of cost or net realizable value. Intercompany sales are eliminated in consolidations.

Property and Equipment

Property and equipment are recorded at cost. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Depreciation is computed using the straight-line method over the estimated useful lives of the related capitalized assets. Machinery and equipment is generally depreciated over 7 years. Vehicles are generally depreciated over 5 years. Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of property and equipment, its cost and accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in operations.

While we believe that our reported disclosures comply with generally accepted accounting principles in the United States (“U.S. GAAP”), in alignment with ASC 360-10-50-1, we provide for your reference the requested information:

 SCHEDULE OF PROPERTY PLANT AND EQUIPMENT USEFUL LIVES

Impairment of Long-Lived Assets and Right of Use Assets

The Company reviews long-lived assets, including finite-lived intangible assets and right of use (“ROU”) lease assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets.

Long-Term Investments and Related Accounting Policy

The Company has 0.39% ownership in an insurance group which provides annual dividends to the Company on a recurring basis. The Company performs regular impairment testing of this asset and has valued this investment on June 30, 2023, in the amount of $1,004,838.

Intangible Assets

The Company records its intangible assets at cost in accordance with Accounting Standards Codification (“ASC”) 350. Finite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over the term of the agreement. During the six months ended June 30, 2023 and July 2, 2022, the Company performed valuation and impairment testing and did not record a loss on impairment. Additional information relating to the treatment of Intangible Assets is reflected in Note 6.

Goodwill

Goodwill represents the excess of the purchase price of the acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at year end, at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is tested for impairment at the reporting level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit. No impairment of goodwill was recorded by the Company for the six months ended June 30, 2023, and July 2, 2022.

Lease

In 2020, the Company adopted ASC Topic 842, Leases, or ASC 842, using the modified retrospective transition method with a cumulative effect adjustment to be accumulated deficit as of January 1, 2019, and accordingly, modified its policy on accounting for leases as stated below. As described under “Recently Adopted Accounting Pronouncements,” below, the primary impact of adopting ASC 842 for the Company was the recognition in the consolidated balance sheet of certain lease-related assets and liabilities for operating and financing leases with terms longer than 12 months. The Company elected to use the short-term exception and does not record assets/liabilities for short term leases as of June 30, 2023, and December 31, 2022.

The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. The lease liability is initially measured at the present value of the lease payments over the lease term using the collateralized incremental borrowing rate since the implicit rate is unknown. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that the Company will exercise such an option. The right-of-use asset is initially measured as the contractual lease liability plus any initial direct costs and prepaid lease payments made, less any lease incentives. Lease expense is recognized on a straight-line basis over the lease term.

Leased right-of-use assets are subject to impairment testing as a long-lived asset at the asset-group level. The Company monitors its long-lived assets for indicators of impairment. As the Company’s leased right-of-use assets primarily relate to facility leases , early abandonment of all or part of facility as part of a restructuring plan is typically an indicator of impairment. If impairment indicators are present, the Company tests whether the carrying amount of the leased right-of-use asset is recoverable including consideration of sublease income, and if not recoverable, measures impairment loss for the right-of-use asset or asset group.

Advertising and Marketing Costs

The Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $768,536 and $113,924 for the six months ended June 30, 2023 and July 2, 2023, respectively, and are recorded in selling, general and administrative expenses on the statement of operations. The increase in advertising expense is associated with the Company’s prepaid advertising asset associated with the new product launch of HumiSoil.

Fair Value Measurements

ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The Company’s has immaterial financial assets and liabilities carried at fair value as of June 30, 2023.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of Common Stock equivalents (stock options, unvested restricted stock, and warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive.

 SCHEDULE OF NET INCOME (LOSS) PER SHARE

Income Taxes

In December 2019, the FASB issued ASU 2019-12, simplifying the Accounting for Income Taxes (Topic 740) as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. This guidance is effective for interim and annual reporting periods beginning within 2021.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company utilizes ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized. For tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit in the consolidated financial statements.

For the six months ended June 30, 2023, the Company recorded an income tax credit of $1,293,640 and recognizes a deferred tax asset of $2,514,060 on the Company’s balances sheet. The Company’s in year tax provisions are based on a 21% effective rate for federal and state income taxes in 2023 after accounting for permanent differences between book and taxable income. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations.

The Company has received a 2020 Income Tax Audit Letter relating to unpaid insurance provisions in the amount of $745,534 which it believes is not applicable and provided appropriate support; therefore the Company believes the IRS finding does not meet the “more likely than not” accounting standard and has not accrued this expense in the Company’s year to date financial statements.

NOTE 4 – INVENTORIES

Inventories are stated at the lower of cost or net realizable value, with cost determined by the weighted-average cost method using full absorption costing for manufactured goods. The Company’s inventories are comprised of the following for the periods ended June 30, 2023 and December 31, 2022:

 SCHEDULE OF INVENTORY

The Company purchases raw materials from 3^rd party vendors and is also vertically integrated and purchases feed stock from National Storm Recovery as an intercompany transaction. These intercompany sales eliminated in consolidation and the company applies the lower of cost or net realizable value for these transactions. For the twelve months ending December 31, 2022 the inventory value of these intercompany transactions were $3,888,374 and $1,073,578 for the six months ended June 30, 2023. No cash was exchanged for this transaction.

On August 12, 2022, the Company issued 500,000 shares of common stock for the purchase of raw materials. The Company recorded the value of these raw materials at $1,500,000 based upon the Company’s end of day common stock close price. No cash was exchanged for this transaction.

On May 19, 2023, the Company issued 7,000,000 shares of common stock for the purchase of raw materials. The Company recorded the value of these raw materials at $8,200,000 based upon the Company’s end of day common stock close price. No cash was exchanged for this transaction.

On May 23, 2023, the Company issued 2,000,000 shares of common stock for the purchase of raw materials. The Company recorded the value of these raw materials at $2,700,000 based upon the Company’s end of day common stock close price. No cash was exchanged for this transaction.

During the six-month ending June 30, 2023, the Company applied the average cost to products to all transactions which occurred during this period. The Company also performed a cycle count for the quarter. When comparing inventory receipts and external transactions, the Company determined inventories increased by $2,876,970 without explanation. The Inventory valuation process continues to be under review. The Company believes the reserve is conservative in nature.

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

SCHEDULE OF PROPERTY PLANT AND EQUIPMENT

Depreciation expense(s) were $1,804,455 and $1,689,768 for the six months ended June 30, 2023 and July 2, 2022, respectively. Increased depreciation expense relates to facilities placed in service in our Homerville location though the Company still reflects $26.2M in CIP primarily relating to its Jasper and Beaver facilities.

Upgrades to the Jasper facility, purchased in December of 2021, are considered “in process” as the Company plans to complete improvements once a funding source has been secured to purchase raw materials and for working capital for this facility. Capital improvements at the Jasper facility included in CIP represent leasehold improvements and equipment of $12.0M.

The Beaver facility, purchased in December of 2022, will continue to be in “in process” until such time as once a funding source has been secured to purchase raw materials, equipment, permitting costs and for working capital for this facility. Life to date improvements to the Beaver facility include leasehold improvements and equipment of $13.7M.

NOTE 6 – INTANGIBLE ASSETS

The Company records its intangible assets at cost in accordance with Accounting Standards Codification (“ASC”) 350. Finite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over the term of the agreement.

On August 9, 2022, the Company entered into a restricted sublicense agreement (collectively with the VRM Sublicense Amendment defined below, the “VRM Sublicense”) with VRM Global Holdings Pty Ltd (“VRM Global”), and its wholly owned subsidiary VRM International PTY LTD (“VRM International,” together with VRM Global, collectively referred to herein together as the “Licensor”). The VRM Sublicense was amended on October 12, 2022 (the “VRM Sublicense Amendment”), to expand collaboration between the Company and Licensor and add the Licensor’s wholly owned subsidiary VRM Biologik Inc. (the “VRM Biologik”), among other things.

Pursuant to the VRM Sublicense, the Licensor granted the Company a restricted sub-license, pursuant to which the Licensor will allow the Company to use certain rights and entitlements and provide the Company with certain catalyst ingredients which will allow the Company to manufacture Humisoil® and XLR8® Bio (the “VRM Products”). These products are made using wood materials provided by the Company and the Licensor’s technology and catalyst ingredients to be acquired by the Company from the Licensor or produced by the Company pursuant to the VRM Sublicense. In addition, the VRM Sublicense grants the Company the non-exclusive right to distribute the VRM Products throughout the U.S., the exclusive right to market and distribute these products in packaging of less than one cubic yard in addition to the right to exclusively manufacture the Licensor’s catalyst ingredients in Florida, Washington State and the Caribbean (the “Exclusive Territory”).

The Company agreed to sell to Licensor the VRM Products manufactured by the Company in amounts determined in the sole discretion of the Company at an agreed-on price. In addition, Licensor has agreed to assign to the Company rights held by the Licensor to repurchase the VRM Products manufactured by others within the Exclusive Territory and an option to acquire such rights outside such territory.

In addition, pursuant to the VRM Sublicense Amendment, the Company acquired from Licensor 10% of VRM Biologik, certain catalyst ingredients for future delivery to be used in the Company’s production of Humisoil®, XLR8® Bio and other products, co-location of Licensor’s production facilities with the Company’s facilities in Florida and the state of Washington and development of an agreed plan to complete licensed manufacture of soil amendment catalysts in other strategic locations across the U.S. The catalyst ingredients, along with other inputs to be acquired by the Company from the Licensor and other suppliers, are expected to be sufficient to produce a minimum of 4,000,000 cubic yards of Humisoil® and its companion products. The Company’s ability to produce these products is constrained by its need for additional capital.

The Term of the VRM Sublicense is for a period of ten years from October 12, 2022 with the option to renew it for a five-year period. The VRM Sublicense may be terminated by written agreement of the parties, or immediately by the Licensor if the Company amends or alters any of the inputs, outputs, products, marks, materials, media, recipes, or any of the processes as described in any of the manuals provided by Licensor to the Company except as permitted by the VRM Sublicense or appointment of a liquidator, administrator, receiver, receiver and manager, mortgagee in possession or other external controller appointed by virtue of the laws of insolvency or appointed by a creditor, by VRM Global or by the holder of security over the assets of VRM Global or an assignment of VRM Global’s rights pursuant to the VRM Sublicense without the approval of VRM Global. VRM Global may terminate the VRM Sublicense if at any time the Company is in breach of any of the terms or conditions of the VRM Sublicense and it fails to remedy such breach within 30 days of notice from Licensor. In consideration of the grant of the VRM Sublicense, the Company initially issued to the Licensor, 500,000 shares of the Company’s common stock upon execution of the VRM Sublicense and an additional 6,000,000 shares upon execution of the VRM Sublicense Amendment. Additionally, the Company agreed to pay the Licensor an aggregate of $1,000,000 in cash in two installments, with the first installment of $500,000 payable within 10 days of the Company’s completing an initial public offering of its common stock in order to raise cash (the “IPO”) and the second payment due on the one-year anniversary of the date of the IPO. In addition, pursuant to the VRM Sublicense Amendment, the Company agreed to pay VRM Global an aggregate of $7,200,000 payable in tranches of $3,600,000 by December 31, 2022 and two payments of $1,800,000 on each of May 31, 2023 and October 31, 2023. If the Company does not complete the IPO by February 4, 2023 or make the $500,000 payment within 10 days of such date, VRM Global may terminate the VRM Sublicense and, the Company will be obligated to pay the Licensor its then market rates for all inputs utilized by the Company in the production of Humisoil®, XLR8® Bio and other products produced using these inputs during the term of the VRM Sublicense.

On May 15, 2023 the Company, VRM International, VRM Global and VRM Biologik entered into an amendment to the VRM Sublicense Agreement whereby the Company agreed to issue VRM Global 7,000,000 shares of its common stock in lieu of the aggregate of $7,200,000 in cash payments and the $1,000,000 cash payments previously required to be made by the Company pursuant to the VRM Sublicense.

The Company valued the issuance of 6,000,000 shares of its Common Stock to VRM Global as consideration for the VRM Sublicense at $14,400,000 or $2.40 per share based upon the close price on the date of the VRM Sublicense and the Company began amortizing this amount at the rate of $960,000 per year over the term of the VRM Sublicense using the straight-line method.

In addition, the Company has an exclusive perpetual supply contract for timber used as feedstock for the manufacturing of mulch with a third-party vendor that is amortized at the rate of $10,650 per year. The remaining balance to be amortized as of December 31, 2022, was $73,880.

Based on the above, estimated annual other intangible assets amortization expense for the succeeding five years is as follows (in thousands):

 SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSE

As of June 30, 2023 the remaining maturities were as follows

 SCHEDULE OF REMAINING MATURITIES

Amortization expenses were $242,630 and $2,640 for the three months ended June 30, 2023 and July 2, 2022, respectively. Amortization expenses were $485,260 and $5,280 for the six months ended June 30, 2023 and July 2, 2022, respectively.

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following amounts:

 SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The Company’s increase in accounts payable is related to limited cash available resulting from the conclusion of litigation with the former owner in December 2022.

NOTE 8 – LEASES

Sale/Leaseback 

The Company reviews long-lived assets, including finite-lived intangible assets and right of use (“ROU”) lease assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets.

The Company entered into a lease agreement (the “Lease”) with a third-party financing company (the “Lessor”) on August 8, 2022, whereby the Lessor provided the Company with $7,500,000 in financing to purchase equipment located at the Company’s facilities in Jasper, Florida, Callahan, Florida and Homerville, Georgia (the “Equipment”). The Equipment was leased back to the Company pursuant to the Lease which includes the following key financial terms: an initial lease term of 30-months from the base period commencement date which period will automatically renew for successive one-year periods unless the Company notifies the Lessor at least 150 days prior to the end of the term of its intent to terminate the lease or exercise a buyout option. The Company has the right to buyout the Renewal Period obligations for an amount to be determined by Lessor and the Company. The monthly rental payments due by the Company under the Lease are initially $262,125 plus applicable sales/use and property tax subject to increase by an amount equal to.00006776 for every five basis point increase in thirty-six (36) month U.S. Treasury Notes as of the date of the lease multiplied by $7,500,000. The thirty-six (36) month U.S. Treasury Note yield is used as the basis for the calculation of the increase is 3.56%. In addition, the Company granted the Lessor a security interest in the equipment which is the subject of the Lease. The sale/leaseback transaction was recorded as a ROU Asset and Liability in accordance with ASC 842 and the fixed assets were reduced accordingly.

 SCHEDULE OF LEASE COST

On July 1, 2019, NSR LLC and Vista Landfill, LLC, a Waste Management Inc. company (“Waste Management”) entered into a Contractor Agreement which was amended on December 3, 2021 (collectively, the “Contractor Agreement”). The Contractor Agreement permits the Company to use two of Waste Management’s sites, one in Apopka, Florida and the other in Winter Garden, Florida, where we collect, store, grind, screen, color, and bag our own top-quality mulches for distribution. The Contractor Agreement requires us to store and grind at our cost and expense an agreed amount of vegetative waste belonging to Waste Management at a certain fixed price Waste Management pays us. We are obligated to provide Waste Management with certain regulatory reports regarding the amounts of materials received and processed at these sites and to comply with all Federal, state and local regulations regarding vegetative waste processing and maintain liability insurance in amounts provided for in the Contractor Agreement. In addition, we pay rent for the use of the use of the sites, a fee for each ton of ground vegetative waste leaving the sites and for our use of the electricity we consume in our operations at these sites. The Contractor Agreement expires on June 30, 2025. Waste Management invoices the Company for rent and utility charges under the Contractor Agreement which are treated as expenses by the Company and NSR LLC invoices Waste Management for processing materials which the NSR LLC performs under the Contractor Agreement and treats such amounts as revenues.

As of June 30, 2023, remaining maturities of lease liabilities were as follows:

 SCHEDULE OF REMAINING MATURITIES OF LEASE LIABILITIES

NOTE 9 –NOTES PAYABLE

Notes Payable are summarized as follows:

 SUMMARY OF NOTES PAYABLE

Below is a detailed schedule of the Company’s debt obligations:

 SCHEDULE OF DEBT OBLIGATIONS

The schedule of future maturities on the above notes are as follows:

SCHEDULE OF FUTURE MATURITIES

Note Payable - Related Parties

For the six months ended June 30, 2023 and July 2, 2022, the Company borrowed $1,500,000 and $500,000, respectively, from John Spencer on notes issued February 5, 2022 and December 15, 2022 bearing 12% simple interest over a one year term. The February 5, 2022 note was subsequently extended an additional 12 months on February 4, 2023. The Company made monthly interest only payments on these note(s) payable as of June 30, 2023.

Note Payable – Debt Restructure

The Company restructure several equipment loans during the three-month ending June 30, 2023. The restructuring did not affect the term of the loan but allowed the Company to forgo monthly payments for a period of 30 to 90 days without recourse.

Convertible Notes

On November 8, 2022, we issued to a private investor a convertible note in the amount of $1,100,000 bearing 10% interest at a conversion price of $0.50 per share of common stock. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

On May 5, 2023, we issued to a private investor a convertible note in the amount of $1,200,000 bearing 12% interest at a conversion price of $0.50 per share of common stock. On May 12, 2023 the value of the convertible note was increased to $1,600,000 bearing the same 12% interest and $0.50 conversion price. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

Note 10 - STOCKHOLDERS’ EQUITY

Preferred Stock

On December 31, 2019, the Company’s Board of Directors adopted articles of incorporation in the state of Delaware authorizing, without further vote or action by the stockholders, to create out of the unissued shares of the Company’s common stock, $0.0001 par value Preferred Stock. The Board of Directors is authorized to establish, from the authorized and unissued shares of Preferred Stock, one or more classes or series of shares, to designate each such class and series, and fix the rights and preferences of each such class of Preferred Stock; which class or series shall have such voting powers, such preferences, relative, participating, optional or other special rights, and such qualifications, limitations or restrictions as shall be stated and expressed in the resolution or resolutions providing for the issuance of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The articles of incorporation and designation authorizes the issuance of 5,000,000 shares of Preferred Stock, of which 100 shares have been designated as Series A Preferred Stock, of which 90 of Series A are issued and outstanding as of March 31, 2023. Each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Series A Preferred Stock held by such holder as of the record date for determining stockholders entitled to vote on such matter, with each share casting a vote equal to: the quotient of the sum of all outstanding shares of common stock together with any and all other securities of the Company that provide for voting on an “as converted” basis divided by 0.99.

Common Stock

As of June 30, 2023, and December 31, 2022, the Company had 245,000,000 shares of common stock authorized with a par value of $0.0001. There were 84,360,892 and 74,631,742 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.

Equity Transactions During the Period

The following issuances of common stock affected the Company’s Stockholders’ Equity:

Three months ending March 31, 2023

On January 1, 2023, we issued 250,000 shares of Common Stock to a private investor based on a subscription price of $1.00 per share with an aggregate value of $250,000. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On January 1, 2023, we issued 1,603 shares of Common Stock to an independent Board of Director at an aggregate value of $10,003 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On January 1, 2023, we issued 1,603 shares of Common Stock to an independent Board of Director at an aggregate value of $10,003 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On January 1, 2023, we issued 1,603 shares of Common Stock to an independent Board of Director at an aggregate value of $10,003 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On January 4, 2023, we issued 250,000 shares of Common Stock to a private investor based on a subscription price of $1.00 per share with an aggregate value of $250,000. These shares were issued in reliance on Section 4(a)(2) of the Securities Act

On January 30, 2023, we issued 13,181 shares of Common Stock to the Company’s CFO based on a employment agreement with an aggregate value of $1.32. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On March 2, 2023, we issued 4,538 shares of Common Stock to an independent Board of Director at an aggregate value of $9,167 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On March 8, 2023, we issued 75,000 shares of Common Stock to a private investor based on a subscription price of $1.00 per share with an aggregate value of $75,000. These shares were issued in reliance on Section 4(a)(2) of the Securities Act

On March 8, 2023, we issued 100,000 shares of Common Stock to a private investor based on a subscription price of $1.00 per share with an aggregate value of $100,000. These shares were issued in reliance on Section 4(a)(2) of the Securities Act

On March 21, 2023, we issued 33 shares of Common Stock to an independent Board of Director at an aggregate value of $0 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On March 21, 2023, we issued 33 shares of Common Stock to an independent Board of Director at an aggregate value of $0 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On March 21, 2023, we issued 33 shares of Common Stock to an independent Board of Director at an aggregate value of $0 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On March 31, 2023, we issued 50,000 shares of Common Stock to a private individual with an aggregate value of $5 based on a mutual release agreement. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

Three months ending June 30, 2023

On May 16, 2023, we issued 127,457 shares of Common Stock to a vendor at an aggregate value of $63,728.50 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On May 19, 2023, we issued 7,000,000 shares with an aggregate value of $8,820,000 in exchange for payment of raw materials. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On May 23, 2023, we issued 2,000,000 shares with an aggregate value of $2,700,000 in exchange for payment of raw materials. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On May 30, 2023, we issued 27,000 shares of Common Stock to an independent Board of Director at an aggregate value of $0 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On May 30, 2023, we issued 27,000 shares of Common Stock to an independent Board of Director at an aggregate value of $0 in exchange for services. These shares were issued in reliance on Section 4(a)(2) of the Securities Act.

On June 23, 2023, we issued 50,000 shares of Common Stock to a private investor based on a subscription price of $1.00 per share with an aggregate value of $50,000. These shares were issued in reliance on Section 4(a)(2) of the Securities Act

Convertible Notes

On November 8, 2022, we issued to a private investor a convertible note in the amount of $1,100,000 bearing 10% interest at a conversion price of $0.50 per share of common stock. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

On May 5, 2023, we issued to a private investor a convertible note in the amount of $1,200,000 bearing 12% interest at a conversion price of $0.50 per share of common stock. On May 12, 2023 the value of the convertible note was increased to $1,600,000 bearing the same 12% interest and $0.50 conversion price. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

Warrants

On October 5, 2022, we issued to a service provider a warrant to purchase up to 2,000,000 shares of Common Stock at an exercise price of $1.00 per share (the “ACCEL Warrant”); as of June 20, 2023 the outstanding shares were 1,650,000. These securities were issued in reliance on Section 4(a)(2) of the Securities Act.

On December 13, 2022, we issued to a private investor a warrant to purchase up to 25,000 shares of Common Stock in connection with the private investors common stock purchase; as of June 20, 2023 the outstanding shares were 25,000. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

On December 13, 2022, we issued to a private investor a warrant to purchase up to 50,000 shares of Common Stock in connection with the private investors common stock purchase; as of June 20, 2023 the outstanding shares were 50,000. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

On December 22, 2022, we issued to a private investor a warrant to purchase up to 50,000 shares of Common Stock in connection with the private investors common stock purchase; as of June 20, 2023 the outstanding shares were 50,000. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

On December 22, 2022, we issued to a private investor a warrant to purchase up to 35,000 shares of Common Stock in connection with the private investors common stock purchase; as of June 20, 2023 the outstanding shares were 35,000. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

On December 22, 2022, we issued to a private investor a warrant to purchase up to 25,000 shares of Common Stock in connection with the private investors common stock purchase; as of June 20, 2023 the outstanding shares were 25,000. These securities were issued in reliance on Section 4(a)(2) of the Securities Act

NOTE 11 – ACQUISITIONS

Mulch Manufacturing, Inc. Acquisition

On January 31, 2020, the Company entered into a Business Combination Agreement (the “Mulch Acquisition”) with Mulch Maufaturing, Inc (“MM”) and its sole shareholder, Ralph Spencer (“Spencer”) (collectively the “MM Parties”), pursuant to which the Company acquired all of the shares of MM. Upon closing, MM became a wholly owned subsidiary of SGTM.

Pursuant to the Mulch Acquisition, at the effective time of the acquisition:

The Company accounted for these transactions in accordance with the acquisition method of accounting for business combinations. An independent appraisal, made in February 2020, determined the fair market value of MM’s property and equipment to be $17,228,295. Assets and liabilities of the acquired business were included in the audited condensed consolidated balance sheets as of December 31, 2022 and January 1, 2022, based on their respective estimated fair values on the date of acquisition. Based on a closing market price of $0.15 per share on the January 31, 2020, business combination date, the assumption of net liabilities plus a bargain purchase recognition and asset write-up.

Day Dreamer Productions LLC Acquisition

The Company entered into an agreement to acquire 100% of the membership interest of Day Dreamer Productions, LLC around January 18, 2021, in exchange for 200,000 shares of the Company’s stock. This transaction was closed on December 30, 2021, when the Company issued the shares to its sole member. This member was also retained as an employee with responsibility for managing the activities of Day Dreamer Productions, LLC.

Jasper Sawmill Acquisition

Jasper, Florida. In December 2021, we closed on an acquisition of a sawmill in Jasper, Florida. The Jasper Mill is capable of sawing southern yellow pine lumber as well as residual products, including pine bark, pine chips, pine dust, and pine shavings. The Company acquired this facility for $7.5M, assumed the sellers debt obligations under a distressed sale due to COVID-19 and recorded a bargain purchase gain of $2.2M based upon appraised value of $9.8M.

Beaver Sawmill Acquisition

Beaver, Washington. The Company purchased this facility in 2 transactions which occurred on December 31, 2021 and March 16, 2022. The building assets were transacted on December 31, 2021, through the sale of 400,000 shares of common stock @ $8.05 per share or $3,220,000. The Company recorded the value of the building assets at $9.24 due to the valuation of the Company’s common stock on the building asset closing date which adjusted the purchase price valuation for building assets from $3,220,000 to $3,696,000. The Company purchased the land assets on March 16, 2022, through cash proceeds totaling $1,025,475. The acquisition of the facility is characterized as a distressed sale resulting from global economic situations caused by COVID-19. The Company had the facility appraised and was provided a “as is” property valuation of $20,039,580, versus purchase price of $4,721,475. The Company recorded a bargain purchase gain of $15,318,105 across 2 fiscal years, ending January 2,2022 and December 31, 2022, due to the timing of the transactions. The Beaver facility is approximately 100,000 square feet and resides on 44.6 acres. The facility will be capable of producing 100+ million board feet of lumber per year once retrofitted for production. The planned operations at the Beaver Washington facility is earmarked to begin at the close of 2023 allowing the Company launch our operations on the West Coast which will increase our lumber, mulch, and soil/fertilizer distribution to the west coast of the United States. The mill is located in a federally approved Economic Opportunity Zone and it is eligible for certain tax credits. Our ownership and operation of the mill is supported by the nearby municipal and state governments.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Inventory Purchases

VRM Biologik

On August 9, 2022, the Company entered into a restricted sublicense agreement (collectively with the VRM Sublicense Amendment defined below, the “VRM Sublicense”) with a soil technology company, VRM Global Holdings Pty Ltd (“VRM Global”), and its wholly owned subsidiary VRM International PTY LTD (“VRM International,” together with VRM Global, collectively referred to herein together as the “Licensor”). The VRM Sublicense was amended on October 12, 2022 (the “VRM Sublicense Amendment”), to expand collaboration between the Company and Licensor and add the Licensor’s wholly owned subsidiary VRM Biologik Inc. (the “VRM Biologik”), among other things.

Pursuant to the VRM Sublicense, the Licensor granted the Company a restricted sub-license, pursuant to which the Licensor will allow the Company to use certain rights and entitlements and provide the Company with certain catalyst ingredients which will allow the Company to manufacture Humisoil® and XLR8® Bio (the “VRM Products”). These products are made using wood materials provided by the Company and the Licensor’s technology and catalyst ingredients to be acquired by the Company from the Licensor or produced by the Company pursuant to the VRM Sublicense. In addition, the VRM Sublicense grants the Company the non-exclusive right to distribute the VRM Products throughout the U.S., the exclusive right to market and distribute these products in packaging of less than one cubic yard in addition to the right to exclusively manufacture the Licensor’s catalyst ingredients in Florida, Washington State and the Caribbean (the “Exclusive Territory”).

The Company agreed to sell to Licensor the VRM Products manufactured by the Company in amounts determined in the sole discretion of the Company at an agreed-on price. In addition, Licensor has agreed to assign to the Company rights held by the Licensor to repurchase the VRM Products manufactured by others within the Exclusive Territory and an option to acquire such rights outside such territory.

In addition, pursuant to the VRM Sublicense Amendment, the Company acquired from Licensor 10% of VRM Biologik, certain catalyst ingredients for future delivery to be used in the Company’s production of Humisoil®, XLR8® Bio and other products, co-location of Licensor’s production facilities with the Company’s facilities in Florida and the state of Washington and development of an agreed plan to complete licensed manufacture of soil amendment catalysts in other strategic locations across the U.S. The catalyst ingredients, along with other inputs to be acquired by the Company from the Licensor and other suppliers are expected to be sufficient to produce a minimum of 4,000,000 cubic yards of Humisoil® and its companion products.

The Term of the VRM Sublicense is for a period of ten years from October 12, 2022 with the option to renew it for a five-year period. The VRM Sublicense may be terminated by written agreement of the parties, or immediately by the Licensor if the Company amends or alters any of the inputs, outputs, products, marks, materials, media, recipes, or any of the processes as described in any of the manuals provided by Licensor to the Company except as permitted by the VRM Sublicense or appointment of a liquidator, administrator, receiver, receiver and manager, mortgagee in possession or other external controller appointed by virtue of the laws of insolvency or appointed by a creditor, by VRM Global or by the holder of security over the assets of VRM Global or an assignment of VRM Global’s rights pursuant to the VRM Sublicense without the approval of VRM Global. VRM Global may terminate the VRM Sublicense if at any time the Company is in breach of any of the terms or conditions of the VRM Sublicense and it fails to remedy such breach within 30 days of notice from Licensor. In consideration of the grant of the VRM Sublicense, the Company initially issued to the Licensor, 500,000 shares of the Company’s common stock upon execution of the VRM Sublicense and an additional 6,000,000 shares upon execution of the VRM Sublicense Amendment. Additionally, the Company agreed to pay the Licensor an aggregate of $1,000,000 in cash in two installments, with the first installment of $500,000 payable within 10 days of the Company’s completing an initial public offering of its common stock in order to raise cash (the “IPO”) and the second payment due on the one-year anniversary of the date of the IPO. In addition, pursuant to the VRM Sublicense Amendment, the Company agreed to pay VRM Global an aggregate of $7,200,000 payable in tranches of $3,600,000 by December 31, 2022 and two payments of $1,800,000 on each of May 31, 2023 and October 31, 2023. If the Company does not complete the IPO by February 4, 2023 or make the $500,000 payment within 10 days of such date, VRM Global may terminate the VRM Sublicense and, the Company will be obligated to pay the Licensor its then market rates for all inputs utilized by the Company in the production of Humisoil®, XLR8® Bio and other products produced using these inputs during the term of the VRM Sublicense.

On May 15, 2023 the Company, VRM International, VRM Global and VRM Biologik entered into an amendment to the VRM Sublicense Agreement whereby the Company agreed to issue VRM Global 7,000,000 shares of its common stock in lieu of the aggregate of $7,200,000 in cash payments and the $1,000,000 cash payments previously required to be made by the Company pursuant to the VRM Sublicense.

New Earth Technologies PTE, LTD

On May 17, 2023 (the “New Earth Effective Date”), the Company entered into a product purchase agreement (the “Product Purchase Agreement”) with New Earth Technologies PTE, LTD (“New Earth”), whereby the Company purchased 1,565,520 gallons of catalyst ingredients (the “Catalyst Products”) to manufacture an estimated aggregate 4 million cubic yards of Humisoil, XLR8 Bio and other products. The purchase price for the ingredients consisted of 2,000,000 shares of our unregistered common stock which we issued to New Earth on May 22, 2023 and a cash payment of $5,000,000 payable in 60 monthly payments of $83,333 commencing on June 17, 2023. While the Product Purchase Agreement requires delivery of the Catalyst Products on the New Earth Effective Date, we have orally agreed with New Earth]to receive shipments of the ingredients in the coming months. The Product Purchase Agreement cannot be terminated by either party and entitles either party to bring an action for specific performance if any provision of the agreement is not performed in accordance with its terms, in addition to any other remedy to which such party is entitled at law or in equity. The Agreement also contains additional covenants, representations and warranties that are customary of product purchase agreements.

Legal Claims

Ralph Spencer Litigation

First Complaint and Settlement.

On March 25, 2021, the Company filed a civil complaint (the “First Complaint”) in Florida’s Ninth Judicial Circuit Court in Orange County, Florida against Ralph Spencer (“Spencer”), the former owner and CEO of Mulch Manufacturing, Inc., alleging certain tortious interference with the Company’s business operations and dealings. On April 1, 2021, the Company was granted an Emergency Temporary Injunction by the Court enjoining Mr. Spencer from, among other things, further attempts to interfere with the Company’s business operations.

On August 16, 2021, the parties entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”), wherein, among other provisions, all outstanding debt was extinguished. The Company recognized a $17,484,728 capital contribution, credited to Additional Paid-in Capital, from the extinguishment of debt.

The Company also agreed to pay Spencer $25,650,000 plus interest as follows:

On October 11, 2021, the First Complaint was voluntarily dismissed with prejudice as provided for in the Settlement Agreement.

Second Complaint.

On April 19, 2022, the Company together with its wholly owned subsidiary Mulch Manufacturing, Inc., (referred to together as the “Plaintiffs”) filed a civil complaint in Florida’s Ninth Judicial Circuit Court in Orange County, Florida Case No. 2022-CA-003280-O (the “Second Complaint”) against Spencer alleging that (i) Spencer breached the Settlement Agreement by disclosing confidential settlement terms to third parties and violating the non-disparagement provisions by repeatedly disparaging and defaming Anthony Raynor, Tami Raynor, and other officers, agents, and employees of the Plaintiffs, (ii) that Spencer engaged in certain tortious interference with the Company’s advantageous business relationships, and (iii) that Spencer engaged in a systematic campaign to defame, disparage and spread false statements about the Company and its employees, agents and representatives, including family members of Company employees.

On December 13, 2022 (the “Effective Date”), the Plaintiffs, Tami Raynor and Anthony Raynor (collectively, “Raynor”), and Ralph Spencer (“Spencer”), by and through his attorney-in-fact Christie Spencer and his court-appointed attorney, Christine J. Lomas, and Christie Spencer, as Ralph Spencer’s attorney-in-fact (together with Spencer, the “Spencer Parties��) ( hereafter “the “Parties” or a “Party”), entered into a Settlement Agreement, (hereafter the “December 2022 Settlement Agreement”), in relation to the Second Complain (the “Business Court Litigation”).

As a complete settlement of the dispute that is the subject of the Business Court Litigation, the Parties agreed to the following material terms as provided for in the December 2022 Settlement Agreement:

Terms Regarding Promissory Note, Mortgage, and Deed to Secure Debt. Within five days of the Effective Date, Spencer and RJ Enterprises of Florida, LLC (“RJ Enterprises”) agreed to convey certain real estate located in Nassau County, Florida (the “RJ Parcels”) to the Company’s wholly owned subsidiary Mulch Manufacturing, Inc. (“Mulch Manufacturing”) free and clear from any and all interests, mortgages, liens, encumbrances, and clouds on the title, including a $200,000 mortgage from RJ Enterprises to Weber Holdings, Ltd. The RJ Parcels are comprised of two tracts of land, one of which is approximately 2.93 acres and the other is approximately 14.9 acres, both of which are located off of U.S. Highway 301 in Callahan, Florida 32011. The Company accounted for this transaction by recording additional fixed assets and APIC by $200,000, respectively, as the

In addition, Spencer agreed to release the real property located at 108 Copeland Street, Jacksonville, Florida 32204 (the “Copeland Parcel”) from the mortgage securing a debt in the original principal amount of $10,650,000 issued by the Company in favor of Spencer as provided for in the Settlement Agreement (the “August 2021 Mortgage”). Further, the Parties agreed to amend the August 2021 Mortgage and the underlying promissory note to increase the principal balance to $11,500,000, which amount will be amortized over twenty (20) years with any and all remaining amounts of principal and interest becoming due and payable sixty months after the date of amendment. The August 2021 Mortgage will be further modified to add the RJ Parcels as collateral security and limit the inspection rights of Spencer and certain other persons and restrict Spencer from selling, transferring, assigning, gifting, encumbering, or placing any liens on the August 2021 Mortgage for a period of two years from the date it is amended. The Company accounted for this transaction by recording additional fixed assets and Notes Payable by $850,000, respectively.

Terms Regarding Common Stock of the Company. According to the terms of the December 2022 Settlement Agreement, the Company agreed with Spencer to redeem 22,101,556 shares of the Company’s common stock he owns (the “Spencer Shares”) in exchange for the Company’s payment to Spencer of $1,000,000. The Company’s obligation to pay Spencer is conditioned on Spencer delivering: (i) a letter of instruction directing the Company’s transfer agent to rescind the issuance of the Spencer Shares, (ii) a quit claim deed to the RJ Parcels to Mulch Manufacturing and (iii) a release of the Copeland Property from the August 2021 Mortgage. In addition, Spencer has represented that he has no rights, options, or warrants to buy additional shares of common stock or any other stock or ownership interests in the Company, that Spencer has not sold, assigned, transferred, encumbered, or gifted, directly or indirectly, any stock, rights, options, warrants, or other ownership interests in the Company to any person or party and that he has no other ownership interests whatsoever in the Company or Mulch Manufacturing.

The December 2022 Settlement Agreement also provides that the Company shall pay Spencer an aggregate of $1,500,000 in installments of $500,000 on April 1, 2023, August 1, 2023 and December 1, 2023 conditioned on Spencer complying with his obligations under the December 2022 Settlement Agreement (the “Additional Amounts”). On December 27, 2022, these conditions were fulfilled and the Company completed the redemption of the 22,101,556 shares of common stock.

Finally, the December 2022 Settlement Agreement provides that the Parties will execute and file a joint stipulation in Business Court Litigation that provides in the event Ralph Spencer and Christie Spencer fail to comply with certain non-harassment obligations provided for in the December 2022 Settlement Agreement, then the unpaid balance of the Additional Amounts will be paid into the registry of the court or an agreed-upon third party as they become due to be held in escrow and released upon agreement or as directed by an order of the court.

NOTE 13 – CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2023, the Company did not have any deposit amounts in excess of the FDIC insured limit.

For the six months ended June 30, 2023, one customer accounted for 17% of revenue and accounts receivable.

NOTE 14 – SUBSEQUENT EVENTS

Litigation

The Company is party to certain legal proceedings from time to time incidental to the conduct of its business (including the matters described below). The Company recognizes liabilities for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in such matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts.

Such matters included an action against one of the Company’s subsidiaries for settlement of outstanding legal fees relating to an unsuccessful transactions. Based on available information to date, the Company estimates that a resolution of these matters would result in a probable loss of at least $391,137, and was recognized as an accrual on the consolidated balance sheet.

Given the uncertainty inherent in litigation and investigations, the Company does not believe it is possible to develop estimates of reasonably possible losses (or a range of possible losses) in excess of current accruals for such matters. The nature of legal proceedings is such that the Company cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date, the Company’s management does not expect that the outcome of any matter pending against the Company is likely to have a materially adverse effect on the Company’s consolidated financial position, results of operations, cash flows or liquidity.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this quarterly report, including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this annual report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes thereto contained elsewhere in this quarterly report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Overview

The Sustainable Green Team is a provider of environmentally focused business in the arbor care, disposal, recycling, mulch and manufactured soil amendments business. In our business, many of the ingredients and processes we use in the manufacturing process of our products minimize their impact on the environment and are compliant with all applicable environmental laws. We refer to this as an “environmentally focused” business. The Company is a collector of tree debris (“feedstock”), throughout the southeast region of the United States. The Company beneficially-reuses feedstock to manufacture wood-based mulch and lumber products that are sold nationwide. The Company has a division that manufactures and sells soil and proprietary mulch colorants and coloring equipment.

Historically, the harvest and processing of wood has resulted in timber waste and feedstock being sent to landfills and disposal sites, essentially collecting and disposing of useful products. The Sustainable Green Team’s mission is to address this traditional “collect-and-dispose” wasteful model, partly by partnering with a large waste management company, thereby turning feedstock that would otherwise be thrown away into reusable products such as mulch and soil. We believe that our efforts to recycle waste into a biodegradable water conserving mulch product, use of machinery powered by electricity instead of diesel fuel and the production of manufactured soil products forms the basis of our environmentally focused business.

The Sustainable Green Team operates as a holding company with two operating subsidiaries:

As illustrated below, the Company’s vertically integrated business begins with the collection of feedstock through NSR. Feedstock is then beneficially reused by MMI, for recycling and manufacturing of lumber and mulch. We package our products and sell them to retailers, wholesalers, landscapers, and garden centers nationwide. The diagram also includes soil products that we expect to begin manufacturing and selling in 2023.

We process feedstock through several processing facilities we own that are strategically located in the southeast region of the United States. The Company owns sawmills in Homerville, Georgia; Jasper, Florida; and Beaver, Washington. The Homerville sawmill produces cypress bark for our mulch product lines, as well as marketable lumber. We closed on the acquisitions of the Jasper and Beaver sawmills in December 2021. We currently purchase our pine bark from other sawmills. We expect to commence both lumber and mulch production at the Jasper mill and lumber and soil production at the Beaver mill once a funding source has been secured to purchase raw materials and for working capital for the Jasper sawmill and raw materials, equipment, permitting costs and for working capital for the Beaver sawmill. These planned expenditures are included in our disclosure regarding anticipated capital expenditures. Please see “Management’s Discussion & Analysis of Financial Condition and Results of Operations – Material Cash Requirements” and “Risk Factors – We will require additional funding for our growth plans, and such funding may result in a dilution of your investment.”

The MMI division also creates proprietary mulch dyes, colorants, and mulch processing equipment. We manufacture a range of mulch products with different textures and colors for specific landscape needs using our coloring technology. For example, MMI’s capabilities were instrumental in developing our innovative line of colored mulches that we market under our Nature’s Reflections™ brand, including our patented Softscape® products. The Company also sells to other companies that produce landscaping materials colorants and Cheetah brand coloring equipment that it manufactures.

The Company has begun a transition from a legacy manufacturer to a GreenTech provider resulting from the October 2022 licensing agreement with VRM Biologik. This licensing agreement allows the Company to manufacture and distribute our new product line called HumiSoil which has a net zero carbon output and accelerates the production of humus from 30-50 years, in its natural state, to 6 months based upon catalyst application. When humus is present in the soil, it improves its structure and water-holding capacity. It also enhances nutrient retention, promotes root development, and supports the growth of beneficial soil bacteria and fungi. These microorganisms contribute to nutrient cycling and availability, which:

(reduces the reliance on synthetic fertilizers.)

By using Humisoil, you can effectively replenish and maintain the humus content in your soil. This helps to improve soil fertility, increase crop yields, and promote overall plant health, all while reducing the need for chemical fertilizers. It’s a wonderful eco-friendly solution for sustainable agriculture and gardening practices. The Company has raw materials to produce in excess of 8,000,000 yards of this product which has a wholesale price ranging from $38.00 to $400 per yard based upon channel of distribution. The Company has received purchase order(s) exceeding $46M which it will begin to satisfy in the second half of 2023. Based upon purchase order receipt the company expects to expand gross profit from 11.1% for the six month period ending June 30, 2023 to a projected 19.9% by December 31, 2023; gross profit is projected to exceed 43.0% in 2024 and beyond.

Recent Developments

None.