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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 


For the quarterly period ended March 31, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________ 

 

Commission file number: 001-38037

 

SAFE & GREEN HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4463937

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

990 Biscayne Blvd., #501, Office 12Miami, Florida

 

33132

(Address of principal executive offices)

 

(Zip Code)

 

(646) 240-4235

(Registrant’s telephone number, including area code) 

 

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


Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share 

SGBX

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No   


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No   


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer  ☐

Accelerated filer  ☐  

Non-accelerated filer  ☒

Smaller reporting company  


Emerging growth company  


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No   


As of May 11, 2023 the issuer had a total of 14,302,587 shares of the registrant’s common stock, $0.01 par value, outstanding.  


 




SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

FORM 10-​Q


TABLE OF CONTENTS




Page Number

PART I. FINANCIAL INFORMATION
2
ITEM 1. Financial Statements 2

Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 2

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (Unaudited) 3

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited) 4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited) 5

Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Result of Operations 33
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 42
ITEM 4. Controls and Procedures 42
PART II. OTHER INFORMATION 
43
ITEM 1. Legal Proceedings 43
ITEM 1A. Risk Factors 43
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 46
ITEM 3. Defaults Upon Senior Securities 46
ITEM 4. Mine Safety Disclosures 46
ITEM 5. Other Information 46
ITEM 6. Exhibits 47
SIGNATURES
49

​​​

​​​​​​​​
1


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

 

March 31,

2023

 

 

December 31,
 
2022

 

 

 

 (Unaudited)

 

 


 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,452,501

 

 

$

582,776

 

Accounts receivable, net

 

 

1,012,172

 

 

 

1,280,456

 

Contract assets 

 

 

900,717

 

 

 

36,384

 

Held for sale assets

4,400,361


4,396,826
Inventories

12,989


465,560

Prepaid expenses and other current assets

 

 

1,266,523

 

 

 

744,211

 

Total current assets

 

 

9,045,263

 

 

 

7,506,213

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

6,044,259

 

 

 

5,608,903

 

Project development costs and other non-current assets

565,809


483,546

Goodwill

 

 

1,309,330

 

 

 

1,309,330

 

Right-of-use asset

4,190,316


4,421,002
Long-term note receivable

866,781




857,534

Intangible assets, net

 

 

2,032,894

 

 

 

1,997,833

 

Deferred contract costs, net

61,178


71,374
Investment in non-marketable securities

700,000


700,000
Investment in and advances to equity affiliates 

3,624,945


3,599,945

Total Assets 

 

$

28,440,775

 

 

$

26,555,680

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

5,701,514

 

 

$

4,009,522

 

Contract liabilities

 

 

344,129

 

 

 

437,271

 

    Lease liability, current maturities

1,112,102


1,225,394
    Assumed liability

5,795


5,795
    Short term note payable, net

5,396,276


2,648,300

Total current liabilities

 

 

12,559,816

 

 

 

8,326,282

 










Long-term note payable

750,000


750,000
Lease liability, net of current maturities

2,809,321


3,039,836
Total liabilities


16,119,137


12,116,118









Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00 par value, 5,405,010 shares authorized; none issued or outstanding 

 

 

 

 

 

 

Common stock, $0.01 par value, 25,000,000 shares authorized; 14,302,587 issued and 14,225,788 outstanding as of March 31, 2023 and 12,613,978 issued and 12,590,863 outstanding as of December 31, 2022

 

 

143,026

 

 

 

126,140

 

Additional paid-in capital

 

 

57,605,024

 

 

 

56,173,977

 

Treasury stock, at cost - 23,115 shares

(49,680 )

(49,680 )

Accumulated deficit

 

 

(44,947,708

)

 

 

(41,428,268

)
Total Safe & Green Holdings Corp. stockholders’ equity

12,750,662


14,822,169

Non-controlling interest

 

 

(429,024

)

 

 

(382,607

)
Total stockholders’ equity

12,321,638


14,439,562

Total Liabilities and Stockholders’ Equity

 

$

28,440,775

 

 

$

26,555,680

 

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

2


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES


Condensed Consolidated Statements of Operations

 

For the

Three Months Ended

March 31,


For the

Three Months Ended

March 31,


 

2023
2022

 

(Unaudited)
(Unaudited)

Revenue:





Construction services $ 5,503,935
$ 1,668,384

Engineering services  




50,386

Medical revenue




6,885,828

Total  


5,503,935

8,604,598

 







Cost of revenue:







Construction services


5,573,407

1,677,560

Engineering services




43,153
Medical revenue 


4,397,450

Total   


5,573,407

6,118,163

 







Gross profit (loss)


(69,472 )
2,486,435

 







Operating expenses:







Payroll and related expenses


1,314,390

1,144,187

General and administrative expenses


1,788,956

780,021

Marketing and business development expense


87,251

143,335

Total


3,190,597

2,067,543

 







Operating income (loss)


(3,260,069 )
418,892

 







Other income (expense):







Interest expense


(287,372 )
(48,849 )

Interest income


9,362

12,783
Other income (expense)
18,639

118,902

Total


(259,371 )
82,836

 







Loss before income taxes  


(3,519,440 )
501,728

Income tax expense   





 







Net loss


(3,519,440 )
501,728

 







Add: net income (loss) attributable to noncontrolling interests  

1,218,905
Net loss attributable to common stockholders of Safe & Green Holdings Corp.  $ (3,519,440 ) $ (717,177 )







Net loss per share attributable to Safe & Green Holdings Corp.







Basic and diluted

$ (0.25 ) $ (0.06 )

 







Weighted average shares outstanding:







Basic and diluted


14,003,933

11,998,334

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

3


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)



 

 

$0.01 Par Value
Common Stock

 


Additional
Paid-in

 



Treasury


Accumulated

 



Safe & Green Holdings Corp. Stockholders' 

Noncontrolling


Total
Stockholders’

 

 

 

Shares

 


Amount

 


Capital

 



Stock

Deficit

 


Equity


Interests


Equity

 

Balance at December 31, 2021

 


11,986,873

 


$

119,869

 


$

53,341,405

 


$

$

(33,109,220

)
$ 20,352,054

$ 1,363,735

$ 21,715,789

 

Stock-based compensation

 


20,000

 



200

 


 

688,886

 





 

 



689,086





689,086

 

Noncontrolling interest distribution




















(1,274,000 )

(1,274,000 )

Net Loss

 


 



 


 

 





 

(717,177

)

(717,177 )

1,218,905

501,728
Balance at March 31, 2022

12,006,873

$ 120,069

$ 54,030,291

$
$ (33,826,397 )
$ 20,323,963

$ 1,308,640

$ 21,632,603

































Balance at December 31, 2022  

 


12,613,978

 


$

126,140

 


$

56,173,977

 


$ (49,680 )

$

(41,428,268

)
$ 14,822,169

$ (382,607 )
$ 14,439,562

 

Stock-based compensation







656,369








656,369





656,369
Issuance of restricted common stock

287,512


2,875


434,450








437,325





437,325
Issuance of restricted stock units

1,351,097


13,511


(13,511 )














Issuance of warrants and restricted common stock

50,000


500


353,739








354,239





354,239
Noncontrolling interest distribution



















(46,417 )

(46,417 )

Net loss

 


 



 


 

 





 

(3,519,440

)

(3,519,440 )




(3,519,440 )

Balance at March 31, 2023

 


14,302,587

 


$

143,026

 


$

57,605,024

 


$ (49,680 )

$

(44,947,708 )
$ 12,750,662

$ (429,024 )
$
12,321,638


  

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


4


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

 

 

For the

Three Months Ended 
March 31, 2023

 


For the

Three Months Ended 
March 31, 2022

 

 

 

(Unaudited)

 


(Unaudited)

 

Cash flows from operating activities:

 

 

 


 

 

Net income (loss)

 

$

(3,519,440

)

$

501,728

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 


 

 

 

Depreciation expense

 

 

92,193

 


 

104,825

 

Amortization of intangible assets

 

 

46,119

 


 

41,823

 

Amortization of deferred license costs

10,196


10,196
Amortization of debt issuance costs and debt discount

169,040



8,628
Amortization of right of use asset

230,690


109,308
Common stock issued for services

437,325



Bad debt expense

 

 


 

7,024

Interest income on long-term note receivable

 

 

(9,247

)

 

(9,247

)

Stock-based compensation

 

 

656,369

 


 

649,090

 

Loss on asset disposal




241

Changes in operating assets and liabilities:

 

 

 

 


 

 

 

Accounts receivable

 

 

268,284


 

486,117

Contract assets

 

 

(864,333

)

 

(91,479

)
Inventories

452,571

219,483

Prepaid expenses and other current assets

 

 

(522,314

)

 

(128,592

)
Intangible assets

(81,180 )


Accounts payable and accrued expenses

 

 

1,691,992


 

(2,052,971

)

Contract liabilities



(93,142

)

 

3,768,133

     Due to affiliates



(264,451 )
     Lease liability

(343,808 )

(102,829 )

Net cash used in operating activities

 

 

(1,378,685

)

 

3,257,027

 

 

 

 

 


 

 

 

Cash flows from investing activities:

 

 

 

 


 

 

 

Purchase of property, plant and equipment

(531,083 )

(922,865 )
Proceeds from sale of equipment




760
Repayment of promissory note



(100,000 )
Project Development Costs

(82,265 )

(338,885 )
Investment in and advances to equity affiliates

(25,000 )

Investment in non-marketable securities



(500,000 )

Net cash used in investing activities

 

 

(638,348

)

 

(1,860,990

)

 

 

 

 

 


 

 

 

Cash flows from financing activities:

 

 

 

 


 

 

 

Repayment of short term notes payable

(2,500,000 )


Proceeds from short-term notes payable and warrants

5,433,175



Distribution paid to non-controlling interest

(46,417
)

(1,274,000 )

Net cash provided by (used in) financing activities

 

 

2,886,758


 

(1,274,000

)
 

 


 
Net increase in cash and cash equivalents

869,725

122,037









Cash and cash equivalents - beginning of period

582,776


13,024,381









Cash and cash equivalents - end of period
$ 1,452,501

$ 13,146,418









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

5


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 

1.

Description of Business 

 

Safe & Green Holdings Corp. (collectively with its subsidiaries, the “Company,” “we”, “us” or “our”) was previously known as SG Blocks, Inc. as well as CDSI Holdings, Inc., a Delaware corporation incorporated on December 29, 1993. On November 4, 2011, CDSI Merger Sub, Inc., the Company’s wholly-owned subsidiary, was merged with and into SG Building Blocks, Inc. (“SG Building,” formerly SG Blocks Inc.) (the “Merger”), with SG Building surviving the Merger and becoming a wholly-owned subsidiary of the Company. The Merger was a reverse merger that was accounted for as a recapitalization of SG Building, as SG Building was the accounting acquirer. Accordingly, the historical financial statements presented are the financial statements of SG Building. 


The Company operates in the following four segments: (i) construction; (ii) medical; (ii) real estate development; and (iv) environmental. The construction segment designs and constructs modular structures built in the Company’s factories. In the medical segment the Company uses its modular technology to provide turnkey solutions to medical testing and treatment and generates revenue from the medical testing. The Company’s real estate development segment builds innovative and green single or multifamily projects in underserved regions nationally using modules built in one of the Company’s vertically integrated factories. The environmental segment, the newest segment, is a sustainable medical and waste management solution that collects waste and treats waste for safe disposal.

The building products developed with the Company's proprietary technology and design and engineering expertise are generally stronger, more durable, environmentally sensitive, and erected in less time than traditional construction methods. The use of the SGBlocks building structure typically provides between four to six points towards the Leadership in Energy and Environmental Design (“LEED”) certification levels, including reduced site disturbance, resource reuse, recycled content, innovation in design and use of local and regional materials. Due to the ability of SGBlocks to satisfy such requirements, the Company believes the products produced utilizing its technology and expertise is a leader in environmentally sustainable construction.


There are three core product offerings that utilize the Company's technology and engineering expertise. The first product offering involves GreenSteel™ modules, which are the structural core and shell of an SGBlocks building. The Company procures the containers, engineer required openings with structural steel enforcements, paint the SGBlocks and then deliver them on-site, where the customer or a customer’s general contractor will complete the entire finish out and installation. The second product offering involves replicating the process to create the GreenSteel product and, in addition, installing selected materials, finishes and systems (including, but not limited to floors, windows, doors, interior painting, electrical wiring and fixtures, plumbing outlets and bathrooms, roofing system) and delivering SGBlocks pre-fabricated containers to the site for a third party licensed general contractor to complete the final finish out and installation. Finally, the third product offering is the completely fabricated and finished SGBlocks building (including but not limited to floors, windows, doors, interior painting, electrical wiring and fixtures, plumbing outlets and bathrooms, roofing systems), including erecting the final unit on site and completing any other final steps. The building is ready for occupancy and/or use as soon as installation is completed. Construction administration and/or project management services are typically included in the Company's product offerings.


The Company also provides engineering and project management services related to the use and modification of Modules in construction.


Construction

During 2020, the Company formed, SG Echo, LLC, a wholly owned subsidiary of the Company. The Company acquired substantially all the assets of Echo DCL, a Texas limited liability company, except for Echo's real estate holdings for which the Company obtained a right of first refusal. Echo is a container/modular manufacturer based in Durant, Oklahoma specializing in the design and construction of permanent modular and temporary modular buildings and was one of the Company's key supply chain partners. Echo caters to the military, education, administration facilities, healthcare, government, commercial and residential customers. This acquisition has allowed the Company to expand its reach for the Modules and offer an opportunity to vertically integrate a large portion of the Company's cost of goods sold, as well as increase margins, productivity and efficiency in the areas of design, estimating, manufacturing and delivery and to become the manufacturer of the Company's core container and modular product offerings. The Company also entered into a joint venture with Clarity Lab Solutions LLC., to provide clinical lab testing related to COVID-19.

Medical

 

As of January 2021 and through the fourth quarter of 2021, the Company’s consolidated financial statements include the accounts of Chicago Airport Testing LLC (“CAT”). The Company had a variable interest in CAT as described further below. CAT is in the business of marketing, selling, distributing, leasing and otherwise commercially exploiting certain products and services in the COVID-19 testing and other medical industry.

6



SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


1.

Description of Business (continued)



Real Estate Development

 

In addition, during 2021, the Company formed Safe and Green Development Corporation, formerly, SGB Development Corp. (“SG DevCorp”), which is wholly-owned by the Company. SG DevCorp was formed with the purpose of real property development utilizing the Company's technologies.  SG DevCorp has a minority interest in Norman Berry II Owners LLC and JDI-Cumberland Inlet LLC as described further below.    


Environmental
During 2022, SG Environmental Solutions Corp. (“SG Environmental”) was formed and is focused on biomedical waste removal and will utilize a patented technology that it licenses to shred and disinfect biomedical waste, rendering the waste disinfected, unrecognizable, and of no greater risk to the public health than residential household waste.


2.

Liquidity 


As of March 31, 2023, the Company had cash and cash equivalents of $1,452,501 and a backlog of  $1,306,849. See Note 11 for a discussion of construction backlog. Based on our conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period:  



   
2023


Within 1 year
$ 1,306,849

Total Backlog
$ 1,306,849


The Company has incurred losses since its inception, has negative working capital of approximately $3,515,000 and has negative operating cash flows, which has raised substantial doubt about its ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.     


The Company intends to meet its capital needs from revenue generated from operations and by containing costs, entering into strategic alliances, as well as exploring other options, including the possibility of raising additional debt or equity capital as necessary. There is, however, no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive. The Company does not have any additional sources secured for future funding, and if it is unable to raise the necessary capital at the times it requires such funding, it may need to materially change its business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.


7



SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 

3.

Summary of Significant Accounting Policies

 

Basis of presentation and principals of consolidation – The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 8 Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. The condensed financial statements and notes should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 31, 2023. In the opinion of management, all adjustments, consisting of normal accruals, considered necessary for a fair presentation of the interim financial statements have been included. Results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.


Recently adopted accounting pronouncements - New accounting pronouncements implemented by the Company are discussed below or in the related notes, where appropriate.

 

Accounting estimates – The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period, together with amounts disclosed in the related notes to the financial statements. The Company's estimates used in these financial statements include, but are not limited to, revenue recognition, stock-based compensation, accounts receivable reserves, inventory valuations, goodwill, the valuation allowance related to the Company’s deferred tax assets, the carrying amount of intangible assets, right of use assets and the recoverability and useful lives of long-lived assets. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.


Operating cycle – The length of the Company’s contracts varies, but is typically between six to twelve months. In some instances, the length of the contract may exceed twelve months. Assets and liabilities relating to contracts are included in current assets and current liabilities, respectively, in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, which at times could exceed one year.


Revenue recognition – The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time, regardless of the length of contract or other factors. The recognition of revenue aligns with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with its revenue policy: 


                (1)  Identify the contract with a customer


                (2)  Identify the performance obligations in the contract


                (3)  Determine the transaction price

 

                (4)  Allocate the transaction price to performance obligations in the contract

 

                (5)  Recognize revenue as performance obligations are satisfied


On certain contracts, the Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e. percentage of completion). Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress toward complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. 


8


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 

3.

Summary of Significant Accounting Policies (continued)


For product or equipment sales, the Company applies recognition of revenue when the customer obtains control over such goods, which is at a point in time.


The Company entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”) in the fourth quarter of 2021. Revenue from the activities of the JV is related to clinical testing services and is recognized when services have been rendered, which is at a point in time.  Included in the consideration the Company expected to be entitled to receive, the Company estimates its contractual allowances, payer denials and price concessions. In addition, the Company formed Chicago Airport Testing, LLC which collected rental revenue from subleasing to a consortium of government entities assisting in COVID-19 testing. For the three months ended March 31, 2023 and 2022, the Company recognized $0 and $6,885,828, respectively related to activities through these two joint ventures, which is included in medical revenue on the accompanying consolidated statements of operations. Due to the ongoing lower affects of COVID-19 restrictions, the JV began to wind down during the fourth quarter of 2022.


Disaggregation of Revenues


The Company’s revenues for the three, months ended March 31, 2022 wase principally derived from construction and engineering contracts related to Modules, and medical revenue derived from lab testing and test kit sales. The Company’s revenues for the three, months ended March 31, 2023 was principally derived from construction and engineering contracts related to Modules The Company's contracts are with customers in various industries. Revenue recognized at a point in time and recognized over time were $0 and $5,503,935, respectively, for the three months ending March 31, 2023. Revenue recognized at a point in time and recognized over time were $6,885,828 and $1,718,770, respectively, for the three months ending March 31, 2022.

   

The following tables provide further disaggregation of the Company’s revenues by categories:    




Three Months Ended March 31,

Revenue by Customer Type

2023

2022


Construction and Engineering Services:















    Government

$

%
$ 39

%

    Hotel

33,676

1 %

897,244

10 %

    Multi-Family (includes Single Family)


%


77,626

1


    Office

5,470,259


99

%


728,875

8


    Retail





%

5,344

1 %

    Special Use



%

9,642

%

Subtotal

5,503,935

100 %

1,718,770

20 %

Medical Revenue:














 Medical (lab testing, kit sales and equipment)


%

6,885,828


80

%


Total revenue by customer type

$

5,503,935


100

%  


$

8,604,598

100


Contract Assets and Contract Liabilities  

Accounts receivable are recognized in the period when the Company’s right to consideration is unconditional. Accounts receivable are recognized net of an allowance for credit losses. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition may differ from the timing of invoicing to customers. 

Contract assets include unbilled amounts from long-term construction services when revenue recognized under the cost-to-cost measure of progress exceeds the amounts invoiced to customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Contract assets are generally classified as current within the condensed consolidated balance sheets.


9


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 

3.

Summary of Significant Accounting Policies (continued)

 

Contract liabilities from construction and engineering contracts occur when amounts invoiced to customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contract liabilities are generally classified as current within the condensed consolidated balance sheet.


Although the Company believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.


Deferred Contract Costs - Prior to entering into the Exclusive License Agreement (“ELA”) in 2019, the Company was subject to an agreement to construct and develop a certain property (“Original Agreement”), which now was subject to the ELA. Because of this, the Company is no longer obliged to its Original Agreement. Upon entering the ELA, the Company had an outstanding accounts receivable balance of $306,143 which was forfeited and recognized this amount as deferred contract costs. This amount was offset by $102,217, which was reimbursement from the licensee for project costs on this project. The Company incurred total deferred contract costs of $203,926The Company considered this amount an incremental cost of obtaining that ELA, because the Company expected to recover those costs through future royalty payments. The Company initially planned to amortize the asset over sixty months, which is the initial term of the ELA because the asset relates to the services transferred to the customer during the contract term. As of March 31, 2023, accumulated amortization related to deferred contract costs amounted to $142,747. During the three months ended March 31, 2023 and 2022, amortization expense relating to the deferred contract costs amounted to $10,196 and $10,196, respectively, and is included in general and administrative expenses on the accompanying consolidated statements of operations. The ELA was terminated on June 15, 2021 but the Company expects to recover the deferred contract costs from the Assignment of Limited Rights Under Membership Interest Redemption Agreement, dated June 15, 2021.


Business Combinations - The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations. Costs that the Company incurs to complete the business combination are charged to general and administrative expenses as they are incurred.


Variable Interest EntitiesThe Company accounts for certain legal entities as variable interest entities (“VIE"). When evaluating a VIE for consolidation, the Company must determine whether or not there is a variable interest in the entity. Variable interests are investments or other interests that absorb portions of an entity’s expected losses or receive portions of the entity’s expected returns. If it is determined that the Company does not have a variable interest in the VIE, no further analysis is required and the VIE is not consolidated. If the Company holds a variable interest in a VIE, the Company consolidates the VIE when there is a controlling financial interest in the VIE and therefore are deemed to be the primary beneficiary. The Company is determined to have a controlling financial interest in a VIE when it has both the power to direct the activities of the VIE that most significantly impact the VIE economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to that VIE. This determination is evaluated periodically as facts and circumstances change.

10


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


3.

Summary of Significant Accounting Policies (continued)


On August 27, 2020 the Company entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”).  In consideration and subject to Clarity Lab’s services and commitments and provided the agreement remains valid and in force, and is not terminated, the Company agreed to issue 200,000 restricted shares of the Company’s common stock over a defined vesting period starting in December 1, 2020. The restricted shares of the Company common stock were not issued to Clarity Labs as certain capital commitments were not met. Clarity Labs is a licensed clinical laboratory that uses specialized molecular testing equipment and that focuses on the diagnosis and treatment of critical diseases, including COVID-19. Clarity Labs is also engaged in the business of manufacturing, importing and distributing various medical tests. Under the JV, the Company and Clarity Labs were to jointly market, sell, and distribute certain products and services (“Clarity Mobile Venture”). The Company has determined it is the primary beneficiary of Clarity Mobile Venture and has thus consolidated the activities in its consolidated financial statements. Due to the ongoing lower affects of COVID-19 restrictions, the JV was wound down during the fourth quarter of 2022.


On January 18, 2021 the Company entered into an operating agreement to form CAT. The purpose of CAT is to market, sell, distribute, lease and otherwise commercially exploit certain products and services in the COVID-19 testing industry.  The Company has determined it is the primary beneficiary of CAT and has thus consolidated the activities in its consolidated financial statements. 


Investment Entities – On May 31, 2021, the Company's subsidiary SG DevCorp agreed to contribute $600,000 to acquire a 50% membership interest in Norman Berry II Owner LLC (“Norman Berry”).  The Company contributed $350,329 and $114,433 of the initial $600,000 in the second quarter and third quarter of 2021 respectively, with the remaining $135,238 funded in the fourth quarter of 2021. The purpose of Norman Berry II Owner LLC is to develop and provide affordable housing in the Atlanta, Georgia metropolitan area.  The Company has determined it is not the primary beneficiary of "Norman Berry" and thus will not consolidate the activities in its consolidated financial statements. The Company will use the equity method to report the activities as an investment in its consolidated financial statements. 


On June 24, 2021, the Company's subsidiary, SG DevCorp, entered into an operating agreement with Jacoby Development for a 10% non-dilutable equity interest for JDI-Cumberland Inlet, LLC (“Cumberland”).  The Company contributed $3,000,000 for its 10% equity interest. During the three months ended March 31, 2023, the Company contributed an additional $25,000The purpose of JDI-Cumberland Inlet, LLC is to develop a waterfront parcel in a mixed-use destination community.  The Company has determined it is not the primary beneficiary of JDI-Cumberland Inlet, LLC and thus will not consolidate the activities in its consolidated financial statements. The Company will use the equity method to report the activities as an investment in its consolidated financial statements.


During the three months ended March 31, 2023, Norman Berry and Cumberland did not have any material earnings or losses as the investments are in development. In addition, management believes there was no impairment as of March 31, 2023.


The approximate combined financial position of the Company’s equity affiliates are summarized below as of March 31, 2023 and December 31, 2022:


Condensed balance sheet information:

March 31,2023

December 31,2022

 

 

 

(Unaudited)



(Unaudited)

 

Total assets

$

37,500,000

$

37,500,000

Total liabilities

$

7,100,000

$

7,100,000

Members’ equity

$

30,400,000

$

30,400,000


11


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


3.

Summary of Significant Accounting Policies (continued)

 

Cash and cash equivalents – The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less upon acquisition. Cash and cash equivalents totaled $1,452,501 and $582,776 as of March 31, 2023, and December 31, 2022, respectively.


Short-term investment The Company classifies investments consisting of a certificate of deposit with a maturity greater than three months but less than one year as short-term investment.  The Company had no short-term investment as of March 31, 2023 or December 31, 2022, respectively. 

    

Accounts receivable and allowance for credit losses Accounts receivable are receivables generated from sales to customers and progress billings on performance type contracts. Amounts included in accounts receivable are deemed to be collectible within the Company’s operating cycle. The Company recognizes accounts receivable at invoiced amounts. 


The Company adopted ASC 326, Current Expected Credit Losses, on January 1, 2023, which requires the measurement and recognition of expected credit losses using a current expected credit loss model. The allowance for credit losses on expected future uncollectible accounts receivable is estimated considering forecasts of future economic conditions in addition to information about past events and current conditions.


The allowance for credit losses reflects the Company's best estimate of expected losses inherent in the accounts receivable balances. Management provides an allowance for credit losses based on the Company’s historical losses, specific customer circumstances, and general economic conditions. Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have been exhausted and the prospects for recovery are remote. Recoveries are recognized when they are received. Actual collection losses may differ from our estimates and could be material to our consolidated financial position, results of operations, and cash flows.


Inventory Raw construction materials (primarily shipping containers and fabrication materials) are valued at the lower of cost (first-in, first-out method) or net realizable value. Finished goods and work-in-process inventories are valued at the lower of cost or net realizable value, using the specific identification method. Medical equipment and COVID-19 test and testing supplies are valued at the lower of cost, (first-in, first-out method) or net realizable value. As of March 31, 2023 and December 31, 2022 there was inventory of $12,989 and $465,560, respectively, for construction materials. 


Goodwill – The Company performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying values. The Company performs a goodwill impairment test by comparing the fair value of the reporting unit with its carrying value and recognizes an impairment charge for the amount by which the carrying value exceeds the fair value, not to exceed the total amount of goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. There were no impairments during the  three months ended March 31, 2023 or 2022.


Intangible assets Intangible assets consist of $2,766,000 of proprietary knowledge and technology, which is being amortized over 20 years. In addition, included in intangible assets is $97,164 of trademarks, and $196,812 of website costs that are being amortized over 5 years. The Company evaluated intangible assets for impairment during the three months ended March 31, 2023 and 2022 and determined that there are no impairment losses. The accumulated amortization as of March 31, 2023 and 2022 was $1,027,082 and $857,554, respectively. The amortization expense for the three months ended March 31, 2023 and 2022 was $46,119 and $41,823, respectively. The estimated amortization expense for the successive five years is as follows:


12


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


3.

Summary of Significant Accounting Policies (continued)

  


For the year ending December 31,:

 

 

 


2023 (remaining)

 

$

142,605

 


2024 

 

 

190,271

 


2025

 

 

186,854

 


2026 

 

 

169,519

 


2027

 

 

165,841

 


Thereafter 

 

 

1,177,804

 


 

 

$

2,032,894

 


Property, plant and equipment – Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated lives of each asset. Estimated useful lives for significant classes of assets are as follows: computer and software 3 to 5 years, furniture and other equipment 5 to 7 years, automobiles 2 to 5 years, buildings held for lease 5 to 7 years, and equipment 5 to 29 years. Repairs and maintenance are charged to expense when incurred.


Held For Sale Assets – On May 10, 2021 the Company's subsidiary, SG DevCorp acquired the Lago Vista, Texas property for $3,576,130. Management has implemented a plan to sell this property during 2022, which meets all of the criteria required to classify it as Held for Sale. Including the project development costs associated with Lago Vista of $824,231, the book value is now $4,400,361


Convertible instruments – The Company bifurcates conversion options from their host instruments and accounts for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.


Common stock purchase warrants and other derivative financial instruments – The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if any event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement shares (physical settlement or net-cash settlement). The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.


Fair value measurements – Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which the Company believes approximates fair value due to the short-term nature of these instruments.

 

The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.


13


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 

3.

Summary of Significant Accounting Policies (continued)


The Company uses three levels of inputs that may be used to measure fair value:

 

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

Level 2

Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

 

Level 3

Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).


Transfer into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period. 


Share-based payments – The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, including non-employee directors, the fair value of a stock option award is measured on the grant date. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. The Company recognizes stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award. Stock-based compensation expense to employees and all directors are reported within payroll and related expenses in the consolidated statements of operations. Stock-based compensation expense to non-employees is reported within marketing and business development expense in the condensed consolidated statements of operations.


Income taxes  The Company accounts for income taxes utilizing the asset and liability approach. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.

 

The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the liabilities are no longer determined to be necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. 

 

Concentrations of credit risk Financial instruments, that potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. The Company has not experienced any losses in such account and believes that it is not exposed to any significant credit risk on the account. 
 

With respect to receivables, concentrations of credit risk are limited to a few customers in the construction industry. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights. At March 31, 2023 and December 31, 2022, 80% and 80%, respectively, of the Company’s gross accounts receivable were due from two and three customers.


Revenue relating to one and two customers represented approximately 95% and 90% of the Company's total revenue for the three months ended March 31, 2023 and 2022, respectively.


Cost of revenue relating to two vendors represented approximately 28% of the Company’s total cost of revenue for the three months ended March 31, 2022. For the three months ended March 31, 2023 there were no vendors that represented 10% or more of our cost of revenue. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.


14


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 

4.

Accounts Receivable

 

At March 31, 2023 and December 31, 2022, the Company’s accounts receivable consisted of the following: 



 

 

 2023

 

 

2022

 


Billed:

 


 

 


 


   Construction services

$ 1,157,918

$ 1,310,456

   Other receivable






115,746

      Total gross receivables

 

 

1,157,918

 

 

 

1,426,202

 


Less: allowance for credit losses  

 

 

(145,746

)

 

 

(145,746

)

      Total net receivables

 

$

1,012,172

 

 

$

1,280,456

 


Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables.



5.

Contract Assets and Contract Liabilities


Costs and estimated earnings on uncompleted contracts, which represent contract assets and contract liabilities, consisted of the following at March 31, 2023 and December 31, 2022:

 


 

 

2023

 

 

2022

 

 

Costs incurred on uncompleted contracts  

 

$

7,606,868

 

 

$

13,730,177

 


Provision for loss on uncompleted contracts






Estimated earnings to date on uncompleted contracts

 

 

657,694

 

 

(2,160,085

)

Gross contract assets

 

 

8,264,562

 

 

 

11,570,092

 


Less: billings to date

 

 

(7,707,974

)

 

 

(11,970,979

)

    Net contract liabilities on uncompleted contracts

 

$

556,588

 

$

(400,887

)


The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at March 31, 2023 and December 31, 2022. 



 

 

2023

 

 

2022

 

 

Contract assets  

 

$

900,717

 

 

$

36,384

 


Contract liabilities

 

 

(344,129

)

 

 

(437,271

)

 

    Net contract liabilities

 

$

556,588

 

$

(400,887

)

 

Although management believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.


15


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and2022(Unaudited)



6.

Property, plant and equipment


Property, plant and equipment are stated at cost less accumulated depreciation and amortization and depreciated using the straight-line method over their useful lives. At March 31, 2023 and December 31, 2022, the Company’s property, plant and equipment, net consisted of the following: 

 

 


 

2023

 

 

2022

 

 

Computer equipment and software 

 

$

94,530

 

 

$

94,530

 

 

Furniture and other equipment 

 

 

271,798

 

 

 

271,798

 


Leasehold improvements 


17,280


17,280

Equipment and machinery

943,464


943,464

Automobiles

4,638


4,638

Building held for leases

196,416


196,416

Laboratory and temporary units 

1,364,748


1,364,748

Land

1,190,655



1,190,655

Construction in progress 

2,771,649


2,244,100

 

      Property, plant and equipment

 

 

6,855,178

 

 

 

6,327,629

 

 

Less: accumulated depreciation

 

 

(810,919

)

 

 

(718,726

)

 

      Property, plant and equipment, net 

 

$

6,044,259

 

 

$

5,608,903

 

 

Depreciation expense for the three months ended March 31, 2023 and 2022 amounted to $92,193 and $104,825 respectively.

 

7.

Notes Receivable 


On January 21, 2020, CPF GP 2019-1 LLC (“CPF GP”) issued to the Company a promissory note in the principal amount of $400,000 (the “Company Note”) and issued to Paul Galvin, the Company’s Chairman and CEO, a promissory note in the principal amount of $100,000 (the “Galvin Note”). The transaction closed on January 22, 2021, on which date the Company loaned CPF GP 2019-1 LLC $400,000 and Mr. Galvin personally loaned CPF GP $100,000 on behalf of the Company. The Company Note and Galvin Note were issued pursuant to that certain Loan Agreement and Promissory Note, dated October 3, 2019 (the “Loan Agreement”), as amended on October 15, 2019 and November 7, 2019 by and between the CPF GP and the Company, and bear interest at five percent (5%) per annum, payable, together with the unpaid principal amount of the promissory notes, on the earlier of the July 31, 2023 maturity date or upon the liquidation, redemption sale or issuance of a dividend upon the LLC interests in CPF MF 2019-1 LLC, a Texas limited liability company of which CPF GP is the general partner; provided, that the terms of the Galvin Note provide that all interest payments due to Mr. Galvin under the Galvin Note shall be paid directly to, and for the benefit of, the Company.


In April 2020, CPF GP issued to the Company a promissory note in the principal amount of $250,000 (the “Company Note 2”). The transaction closed on April 15, 2021, on which date the Company loaned CPF GP 2019-1 LLC $250,000. The Company Note was issued pursuant to that certain Loan Agreement and Promissory Note, dated October 3, 2019 (the “Loan Agreement 2”), as amended on October 15, 2019 and November 7, 2019 by and between the CPF GP and the Company, and bear interest at five percent (5%) per annum, payable, together with the unpaid principal amount of the promissory notes, on the earlier of the July 31, 2023 maturity date or upon the liquidation, redemption sale or issuance of a dividend upon the LLC interests in CPF MF 2019-1 LLC, a Texas limited liability company of which CPF GP is the general partner.


During the year ended December 31, 2022, the Galvin Note was assigned to the Company and the principal amount of $100,000 was paid to Mr. Galvin. The Company has a promissory note in the principal amount of $100,000 (the "Company Note 3") and the assignment occurred in January 2022. The promissory notes are unaffected by the Settlement and Mutual Release Agreement and remain in effect and outstanding in accordance with the terms of the notes evidencing such loans.    

 

16


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)

 


8.

Notes Payable

On July 14, 2021, SG DevCorp, a subsidiary of the Company, issued a Real Estate Lien Note, in the principal amount of $2,000,000 (the “Short-Term Note”), secured by a Deed of Trust, dated July 14, 2021 (the “Deed of Trust”), on the Company's 50+ acre Lake Travis project site in Lago Vista, Texas and a related Assignment of Leases and Rents, dated July 8, 2021 (“Assignment of Rents”), for net loan proceeds of approximately  $1,948,234 after fees. The Short-Term Note has a term of one (1) year, provides for payments of interest only at a rate of twelve percent (12%) per annum and may be prepaid without penalty commencing nine (9) months after its issuance date. If the Short-Term Note is prepaid prior to nine (9) months after its issuance date, a 0.5% prepayment penalty is due. The Company capitalized $20,000 in interest charges and $4,134 in debt issuance costs during the year ended December 31, 2022 related to the Lago Vista project in accordance with ASC 835-20. On July 14, 2022, the Company entered into a renewal and extension of the Short-Term Note, with a maturity date of January 14, 2023 and all other terms remaining the same.

On September 8,2022, the Company entered into a Second Real Estate Lien Note, in the principal amount of $500,000, with similar terms to the Short-Term Note (“Second Short-Term Note”). The Second Short-Term Note had a maturity date of January 14, 2023.

During January 2023, the Short-Term Note and Second Short-Term Note were extended with a maturity date of February 1, 2024.

On March 31, 2023, LV Peninsula Holding LLC (“LV Peninsula”), a Texas limited liability company and wholly owned subsidiary of SG DevCorp, pursuant to a Loan Agreement, dated March 30, 2023 (the “Loan Agreement”), issued a promissory note, in the principal amount of $5,000,000 (the “LV Note”), secured by a Deed of Trust and Security Agreement, dated March 30, 2023 (the “Deed of Trust”) on the Lake Travis project site in Lago Vista, Texas, a related Assignment of Contract Rights, dated March 30, 2023 (“Assignment of Rights”), on our project site in Lago Vista, Texas and McLean site in Durant, Oklahoma and a Mortgage, dated March 30, 2023 (“Mortgage”), on our site in Durant, Oklahoma .

The proceeds of the LV Note were used to pay off the Short-Term Note and Second Short-Term Note. The LV Note requires monthly installments of interest only, is due on April 1, 2024 and bears interest at the prime rate as published in the Wall Street Journal (currently 8.0%) plus five and 50/100 percent (5.50%), currently equaling 13.5%; provided that in no event will the interest rate be less than a floor rate of 13.5%. The LV Peninsula obligations under the LV Note have been guaranteed by SG DevCorp pursuant to a Guaranty, dated March 30, 2023 (the “Guaranty”), and may be prepaid by LV Peninsula at any time without interest or penalty. The Company incurred $406,825 of debt issuance costs and remitted $675,000 in prepaid interest in connection with the LV Note.

On October 29, 2021, SG Echo, a subsidiary of the Company, entered into a Loan Agreement (“Loan Agreement”) with the Durant Industrial Authority (the “Authority”) pursuant to which it received $750,000 to be used for renovation improvements related to the Company's second manufacturing facility and issued to the Authority a non-interest bearing Forgivable Promissory Note in the principal amount of $750,000 (the “Forgivable Note”). The Forgivable Note is due on April 29, 2029 and guaranteed by the Company, provided, if no event of default has occurred under the Forgivable Note or Loan Agreement, one-third (1/3) of the balance of the Forgivable Note will be forgiven on April 29, 2027, one-half (1/2) of the balance of the Forgivable Note will be forgiven on April 29, 2028, and the remainder of the balance of the Forgivable Note will be forgiven on April 29, 2029. The Loan Agreement includes a covenant by SG Echo to employ a minimum of 75 full-time employees in Durant Oklahoma and pay them no less than 1.5 times the federal minimum wage, and provides SG Echo 24 months to comply with the provision.

In August 2022, SG DevCorp entered into a $148,300 promissory note (“2022 Note”) to purchase property. The 2022 Note bears annual interest at the rate of 9.75%, with interest payments due  monthly until its maturity on September 1, 2023.The 2022 Note is secured by the underlying property.

On February 7, 2023, the Company closed a private placement offering (the “Offering”) of One Million One Hundred Thousand Dollars ($1,100,000.00) in principal amount of the Company’s 8% convertible debenture (the “Debenture”) and a warrant (the “Peak Warrant”) to purchase up to Five Hundred Thousand (500,000) shares of the Company’s common stock, to Peak One Opportunity Fund, L.P. (“Peak One”). Pursuant to a Securities Purchase Agreement, dated February 7, 2023 (the “Purchase Agreement”), the Debenture was sold to Peak One for a purchase price of $1,000,000, representing an original issue discount of ten percent (10%).

In connection with the Offering the Company paid $15,000 as a non-accountable fee to Peak One to cover its accounting fees, legal fees and other transactional costs incurred in connection with the transactions contemplated by the Purchase Agreement and issued 50,000 shares of its restricted common stock (the “Commitment Shares”) to Peak One Investments, LLC (“Investments”), the general partner of Peak One.


17



SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


8.

Notes Payable (continued)


The Debenture matures twelve months from its date of issuance and bears interest at a rate of 8% per annum payable on the maturity date. The Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debenture plus all accrued and unpaid interest at a conversion price equal to $1.50 (the “Conversion Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events and in the event the Company, at any time while the Debenture is outstanding, issues, sells or grants any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues common stock or other securities convertible into, exercisable for, or otherwise entitle any person the right to acquire, shares of common stock, other than with respect to an Exempt Issuance (as defined in the Debenture), at an effective price per share that is lower than the then Conversion Price. In the event of any such anti-dilutive event, the Conversion Price will be reduced at the option of the holder to such lower effective price of the dilutive event, subject to a floor price of $0.40 per share, unless and until the Company obtains shareholder approval for any issuance below such floor price.


The Debenture is redeemable by the Company at a redemption price equal to 110% of the sum of the principal amount to be redeemed plus accrued interest, if any. So long as the Debenture is outstanding, upon any issuance by the Company of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the holder of the Debenture, then the Company shall notify the holder of such additional or more favorable term and such term, at holder’s option, will become a part of the transaction documents with the holder. In no event will the holder be entitled to convert any portion of the Debenture in excess of that portion which would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of common stock, unless the holder delivers to the Company written notice at least sixty-one (61) days prior to the effective date of such notice that the provision be adjusted to 9.99%.


While the Debenture is outstanding, if the Company receives cash proceeds of more than $1,000,000 (“Minimum Threshold”) in the aggregate from any source or series of related or unrelated sources, the Company shall, within two (2) business days of Company’s receipt of such proceeds, inform the holder of such receipt, following which the holder shall have the right in its sole discretion to require the Company to immediately apply up to 50% of all proceeds received by the Company (from any source except with respect to proceeds from the issuance of equity or debt to officers and directors of the Company) after the Minimum Threshold is reached to repay the outstanding amounts owed under the Debenture.


Upon the occurrence of certain events of default specified in the Debenture, such as a failure to honor a conversion request, failure to maintain the Company’s listing, the Company’s failure to comply with its obligations under Securities Exchange Act of 1934, as amended, a breach of the Company’s representations or covenants, or the failure obtain shareholder approval within 60 days after the Exchange Cap (as defined) is reached, as amended, 110% of all amounts owed to holder under the Debenture, together with default interest at 18% per annum if any, shall then become due and payable.


The Peak Warrant expires five years from its date of issuance. The Peak Warrant is exercisable, at the option of the holder, at any time, for up to 500,000 of shares of common stock of the Company at an exercise price equal to $2.25 (the “Exercise Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events and in the event the Company, at any time while the Peak Warrant is outstanding, issues, sells or grants any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues common stock or other securities convertible into, exercisable for, or otherwise entitle any person the right to acquire, shares of common stock, other than with respect to an Exempt Issuance, at an effective price per share that is lower than the then Exercise Price. In the event of any such anti-dilutive event, the Exercise Price will be reduced at the option of the holder to such lower effective price of the dilutive event, subject to a floor price of $0.40 per share, unless and until the Company obtains shareholder approval for any issuance below such floor price.


The number of shares of the Company’s common stock that may be issued upon conversion of the Debenture and exercise of the Peak Warrant, and inclusive of the Commitment Shares and any shares issuable under and in respect of the equity purchase agreement, dated February 7, 2023 between the Company and Peak One described below, is subject to an exchange cap (the “Exchange Cap”) of 19.99% of the outstanding number of shares of the Corporation’s common stock on the closing date, 2,760,675 shares, unless shareholder approval to exceed the Exchange Cap is approved.


The Company incurred $80,000 in debt issuance costs in connection with the Debenture. In addition, the initial fair value of the Peak Warrant amounted to $278,239 and the fair value of the restricted shares amounted to $76,000, both of which have been recorded as a debt discount and will be amortized over the effective rate method. For the three months ended March 31, 2023, the Company recognized amortization of debt issuance costs and debt discount of $13,333 and $75,706, respectively. As of March 31, 2023 the unamortized debt issuance costs and debt discount amounted to $66,667 and $704,167, respectively.


18



SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


9.

Leases

The Company leases an office, a manufacturing plant and certain equipment under non-cancelable operating lease agreements. The leases have remaining lease terms ranging from one year to ten years

Supplemental balance sheet information related to leases is as follows:  


Balance Sheet Location
March 31, 2023


Operating Leases




Right-of-use assets, net
$
2,396,732








Current liabilities Lease liability, current maturities 

415,772

Non-current liabilities  Lease liability, net of current maturities
2,004,630

Total operating lease liabilities
$ 2,420,402







Finance Leases




Right-of-use assets
$ 1,793,584







Current liabilities Lease liability, current maturities
696,330

Non-current liabilities Lease liability, net of current maturities 
804,691

Total finance lease liabilities 
$ 1,501,021







Weighted Average Remaining Lease Term






Operating leases

6.80 years


Finance leases

1.75 years

Weighted Average Discount Rate 





Operating leases

3%

Finance leases

3%

 

19


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and2022 (Unaudited)

 

9.

Leases (continued)


As the leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments, which is reflective of the specific term of the leases and economic environment of each geographic region.


Anticipated future lease costs, which are based in part on certain assumptions to approximate minimum annual rental commitments under non-cancelable leases, are as follows: 

 


Year Ending December 31:

Operating

Financing

Total

2023 (remaining)
$ 389,803
$ 608,122
$ 997,925

2024

523,722

801,869

1,325,591

2025

446,349

136,234

582,583

2026

207,379



207,379

2027

1,119,901



1,119,901

Thereafter









Total lease payments

2,687,154

1,546,225

4,233,379

Less: Imputed interest

266,753

45,204

311,957

Present value of lease liabilities
$ 2,420,401
$ 1,501,021
$ 3,921,422

 

10.

Net Income (Loss) Per Share


Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. 

  

At March 31, 2023, there were restricted stock units, options and warrants of 1,190,935, 36,436 and 2,525,020 respectively, outstanding that could potentially dilute future net income per share. Because the Company had a net loss as of March 31, 2023, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, the Company has used the same number of shares outstanding to calculate both the basic and diluted loss per share. At March 31, 2022, there were restricted stock units, options and warrants of 2,245,186, 36,436 and 2,025,520 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.  

 

20


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022Unaudited)


11.

Construction Backlog

 

The following represents the backlog of signed construction and engineering contracts in existence at March 31, 2023 and December 31, 2022, which represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress and from contractual agreements in effect at March 31, 2023 and December 31, 2022, respectively, on which work has not yet begun:


 

 

 

2023

 

 

2022

 

 

Balance - beginning of period

 

$

6,810,762

 

 

$

3,217,909

 

 

New contracts and change orders during the period

 

 

 

 

 

13,803,733

 


Adjustments and cancellations, net

22

1,086,301

 

Subtotal  

 

 

6,810,784

 

 

 

18,107,943

 

 

Less: contract revenue earned during the period

 

 

(5,503,935

)

 

 

(11,297,181

)

 

Balance - end of period

 

$

1,306,849


 

$

6,810,762

 

 

The Company’s remaining backlog as of March 31, 2023 represents the remaining transaction price of firm contracts for which work has not been performed and excludes unexercised contract options. 


The Company expects to satisfy its backlog which represents the remaining unsatisfied performance obligation on contracts as of March 31, 2023 over the following period:   





2023


Within 1 year 
$ 1,306,849

1 to 2 years




Total Backlog
$ 1,306,849


Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost and project deferrals, as appropriate.


21


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and2022Unaudited)


12.

Stockholders’ Equity 

Public Offerings – 

In October 2021, the Company closed a registered direct offering and concurrent private placement of its common stock (the "October Offering") that the Company effected pursuant to the Securities Purchase Agreement that it entered into on October 25, 2021 with an institutional investor and received gross proceeds of $11.55 million. Pursuant to the terms of the Purchase Agreement, the Company issued to the investor (A) in a registered direct offering (i) 975,000 shares (the “Public Shares”) of its common stock, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 2,189,384 shares (the “Pre-Funded Warrant Shares”) of common stock and (B) in a concurrent private placement, Series A warrants to purchase up to 1,898,630 shares (the “Common Stock Warrant Shares”) of common stock (the “Common Stock Warrants,” and together with the Public Shares and the Pre-Funded Warrants, the “Securities”) (the “Offering The Pre-Funded Warrants were immediately exercisable at a nominal exercise price of $0.001 and all Pre-Funded Warrants sold have been exercised. The Common Stock Warrants have an exercise price of $4.80 per share, are exercisable upon issuance and will expire five years from the date of issuance. A.G.P./Alliance Global Partners (the “Placement Agent”) acted as the exclusive placement agent for the transaction pursuant to that certain Placement Agency Agreement, dated as of October 25, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”), the Placement Agent received (i) a cash fee equal to seven percent (7.0%) of the gross proceeds from the placement of the Securities sold by the Placement Agent in the Offering and (ii) a non-accountable expense allowance of one half of one percent (0.5%) of the gross proceeds from the placement of the Gross Proceeds Securities sold by the Placement Agent in the Offering. The Company also reimbursed the Placement Agent’s expenses up to $50,000 upon closing the Offering. The net proceeds to the Company after deducting the Placement Agent’s fees and the Company’s estimated offering expenses was approximately $10.5 million. 

Securities Purchase Agreement – In April 2019, the Company issued 42,388 shares of its common stock at $22.00 per share through a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors and accredited investors. Concurrently with the sale of the common stock, pursuant to the Purchase Agreement, the Company also sold common stock purchase warrants to such investors to purchase up to an aggregate of 42,388 shares of common stock. The Company incurred $379,816 in issuance costs from the offering and issued 4,239 warrants to the underwriters. The warrants are further discussed in Note 14.

Underwriting Agreement – In August 2019, the Company issued 45,000 shares of its common stock at $17.00 per share pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement”) to the public. The Company incurred $181,695 in issuance costs from the offering and issued warrants to purchase 2,250 shares of common stock to the underwriter. The warrants are further discussed in Note 14.


Equity Purchase Agreement - On February 7, 2023, the Company also entered into an Equity Purchase Agreement (the “EP Agreement”) and related Registration Rights Agreement (the “Rights Agreement”) with Peak One, pursuant to which the Company shall have the right, but not the obligation, to direct Peak One to purchase up to $10,000,000.00 (the “Maximum Commitment Amount”) in shares of the Company’s common stock in multiple tranches upon satisfaction of certain terms and conditions contained in the EP Agreement and Rights Agreement which includes but is not limited to filing a registration statement with the SEC and registering the resale of any shares sold to Peak One. Further, under the EP Agreement and subject to the Maximum Commitment Amount, the Company has the right, but not the obligation, to submit a Put Notice (as defined in the EP Agreement) from time to time to Peak One (i) in a minimum amount not less than $25,000.00 and (ii) in a maximum amount up to the lesser of ( (a) $750,000.00 or (b) 200% of the Average Daily Trading Value (as defined in the EP Agreement).


22


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


12.

Stockholders’ Equity (continued)


In connection with the EP Agreement, the Company  issued to Peak One Investments, LLC (“Investments”), the general partner of Peak One, 75,000 shares of its common stock, and file a registration statement registering the common stock issued or issuable to Peak One and Investments under the Agreement for resale with the Securities and Exchange Commission within 60 calendar days of the Agreement, as more specifically set forth in the Rights Agreement. The registration statement was declared effective on April 14, 2023

 

The obligation of Peak One to purchase the Company’s common stock under the EP Agreement begins on the date of the EP Agreement, and ending on the earlier of (i) the date on which Peak One shall have purchased common stock pursuant to the EP Agreement equal to the Maximum Commitment Amount, (ii) thirty six (36) months after the date of the EP Agreement, (iii) written notice of termination by the Company or (iv) the Company’s bankruptcy or similar event (the “Commitment Period”).

  

During the Commitment Period, the purchase price to be paid by Peak One for the common stock under the EP Agreement will be 97% of the Market Price, which is defined as the lesser of the (i) closing bid price of the common stock on its principal market on the trading day immediately preceding the respective Put Date (as defined in the Agreement), or (ii) lowest closing bid price of the common stock during the Valuation Period (as defined in the Agreement), in each case as reported by Bloomberg Finance L.P or other reputable source designated by Peak One.

 

The EP Agreement and the Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. Among other things, Peak One represented to the Company, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act, and the Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.


Common Stock Issued for Services – During the three months ended March 31, 2023, the Company issued 287,512 shares of common stock for services provided. The value of the shares amounted to $437,325.


Restricted Stock Units – During the three months ended March 31, 2023, the Company issued 1,351,097 shares of common stock for previously vested restricted stock units.


23


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022 (Unaudited)


13.

Segments and Disaggregated Revenue 



 

 

Construction

 


                Medical

              Development



Corporate and support

 


Consolidated

 


Fiscal Quarter Ended March 31, 2023





















Revenue 

$ 5,503,935

$

$

$

$ 5,503,935

Cost of revenue



5,573,407











5,573,407

Operating expenses