UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ____________ to ____________
Commission file number:
(Exact name of registrant as specified in its charter)
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Identification No.) |
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(Address of principal executive offices) |
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Securities registered pursuant to Section 12(b) of the Act:
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The |
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
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
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.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
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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
As of May 11, 2023 the issuer had a total of
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
| 1 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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March 31, 2023 |
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December 31, |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Contract assets |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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| Deferred contract costs, net | ||||||||
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Contract liabilities |
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| Short term note payable, net | ||||||||
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Total current liabilities |
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| Long-term note payable | ||||||||
| Lease liability, net of current maturities | ||||||||
| Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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| Treasury stock, at cost - |
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Accumulated deficit |
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Non-controlling interest |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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For the Three Months Ended March 31, |
For the Three Months Ended March 31, |
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2023 | 2022 | ||||
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(Unaudited) | (Unaudited) | ||||
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Revenue: |
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Engineering services |
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Medical revenue |
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Total |
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Cost of revenue: |
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Construction services |
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Engineering services |
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| Medical revenue | ||||||
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Total |
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Gross profit (loss) |
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Operating expenses: |
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Payroll and related expenses |
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General and administrative expenses |
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Marketing and business development expense |
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Total |
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Operating income (loss) |
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Other income (expense): |
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Interest expense |
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Interest income |
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Total |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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| Add: net income (loss) attributable to noncontrolling interests | ||||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
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Net loss per share attributable to Safe & Green Holdings Corp. |
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Basic and diluted |
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Weighted average shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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$0.01 Par Value |
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Additional |
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Treasury |
Accumulated |
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Safe & Green Holdings Corp. Stockholders' | Noncontrolling |
Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Stock |
Deficit |
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Equity |
Interests |
Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ | — |
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Stock-based compensation |
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— |
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— |
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| Noncontrolling interest distribution |
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Net Loss |
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— |
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— |
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— |
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| Balance at March 31, 2022 | $ | $ | $ | — | $ | ( |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ | ( |
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$ |
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| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||
| Issuance of restricted common stock | — | — | — | |||||||||||||||||||||||||||||
| Issuance of restricted stock units | ( |
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| Issuance of warrants and restricted common stock | — | — | — | |||||||||||||||||||||||||||||
| Noncontrolling interest distribution | — | — | — | — | — | — | ( |
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Net loss |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ | ( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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For the Three Months Ended |
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For the Three Months Ended |
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(Unaudited) |
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(Unaudited) |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation expense |
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Amortization of intangible assets |
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| Amortization of deferred license costs | ||||||||
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| Common stock issued for services | ||||||||
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Bad debt expense |
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Interest income on long-term note receivable |
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Stock-based compensation |
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| Loss on asset disposal | ||||||||
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Contract assets |
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Prepaid expenses and other current assets |
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Accounts payable and accrued expenses |
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Contract liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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| Purchase of property, plant and equipment | ( |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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| Repayment of short term notes payable | ( |
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| Distribution paid to non-controlling interest | ( |
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Net cash provided by (used in) financing activities |
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| Cash and cash equivalents - end of period | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
For the Three Months Ended March 31, 2023 and 2022 (Unaudited)
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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
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.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2023 and 2022 (Unaudited)
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1. |
Description of Business (continued) |
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.
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2. |
Liquidity |
As of March 31, 2023, the Company had cash and cash equivalents of $
| 2023 |
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| Within 1 year | $ | ||||
| Total Backlog | $ | ||||
The Company has incurred losses since its inception, has negative working capital of approximately $
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)
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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 to . In some instances, the length of the contract may exceed . 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
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)
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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 $
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 $
The following tables provide further disaggregation of the Company’s revenues by categories:
| Three Months Ended March 31, |
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Revenue by Customer Type |
2023 |
2022 |
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| Construction and Engineering Services: |
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| Government |
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| Multi-Family (includes Single Family) |
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| Medical Revenue: | |||||||||||||||
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Medical (lab testing, kit sales and equipment) |
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% |
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Total revenue by customer type |
$ |
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$ |
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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)
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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 $
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 Entities – The 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.
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
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 $
On June 24, 2021, the Company's subsidiary, SG DevCorp, entered into an operating agreement with Jacoby Development for a
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
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 |
$ |
|
$ |
|
|||
|
Total liabilities |
$ |
|
$ |
|
|||
|
Members’ equity |
$ |
|
$ |
|
| 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 $
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
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 $
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
Intangible assets – Intangible assets consist of $
| 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) |
|
$ |
|
|
|
|
2024 |
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
$ |
|
|
|
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
Held For Sale Assets – On May 10, 2021 the Company's subsidiary, SG DevCorp acquired the Lago Vista, Texas property for $
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,
Revenue relating to
Cost of revenue relating to
| 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 |
$ | $ | |||||||
|
Other receivable |
|||||||||
|
Total gross receivables |
|
|
|
|
|
|
|
|
|
|
Less: allowance for credit losses |
|
|
( |
) |
|
|
( |
) | |
|
Total net 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 |
|
$ |
|
|
|
$ |
|
|
| Provision for loss on uncompleted contracts | |||||||||
|
Estimated earnings to date on uncompleted contracts |
|
|
|
|
|
( |
) | ||
|
Gross contract assets |
|
|
|
|
|
|
|
|
|
|
Less: billings to date |
|
|
( |
) |
|
|
( |
) | |
|
Net contract liabilities on uncompleted contracts |
|
$ |
|
|
$ |
( |
) | ||
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 |
|
$ |
|
|
|
$ |
|
|
|
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
Net contract liabilities |
|
$ |
|
|
$ |
( |
) | |
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 |
|
$ |
|
|
|
$ |
|
|
|
|
Furniture and other equipment |
|
|
|
|
|
|
|
|
| Leasehold improvements |
|||||||||
| Equipment and machinery | |||||||||
| Automobiles | |||||||||
| Building held for leases | |||||||||
| Laboratory and temporary units | |||||||||
| Land | |
|
|||||||
| Construction in progress | |||||||||
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
Depreciation expense for the three months ended March 31, 2023 and 2022 amounted to $
|
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 $
In April 2020, CPF GP issued to the Company a promissory note in the principal amount of $
During the year ended December 31, 2022, the Galvin Note was assigned to the Company and the principal amount of $
| 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 $
On September 8,2022, the Company entered into a Second Real Estate Lien Note, in the principal amount of $
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 $
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
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 $
In August 2022, SG DevCorp entered into a $
On February 7, 2023, the Company closed a private placement offering (the “Offering”) of One Million One Hundred Thousand Dollars ($
In connection with the Offering the Company paid $
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
The Debenture is redeemable by the Company at a redemption price equal to
While the Debenture is outstanding, if the Company receives cash proceeds of more than $
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
The Peak Warrant expires
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
The Company incurred $
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
Supplemental balance sheet information related to leases is as follows:
| Balance Sheet Location |
March 31, 2023 |
||||
| Operating Leases | |||||
| Right-of-use assets, net | $ |
|
|||
| Current liabilities | Lease liability, current maturities |
||||
| Non-current liabilities | Lease liability, net of current maturities | ||||
| Total operating lease liabilities | $ | ||||
| Finance Leases | |||||
| Right-of-use assets | $ | ||||
| Current liabilities | Lease liability, current maturities | ||||
| Non-current liabilities | Lease liability, net of current maturities | ||||
| Total finance lease liabilities | $ | ||||
|
Weighted Average Remaining Lease Term |
|||||
| Operating leases |
|
||||
| Finance leases | |||||
| Weighted Average Discount Rate |
|||||
| Operating leases | |||||
| Finance leases | |||||
| 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) | $ | $ | $ | ||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less: Imputed interest | |||||||||||
| Present value of lease liabilities | $ | $ | $ |
|
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
| 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 |
|
$ |
|
|
|
$ |
|
|
|
|
New contracts and change orders during the period |
|
|
|
|
|
|
|
|
| Adjustments and cancellations, net | |||||||||
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
Less: contract revenue earned during the period |
|
|
( |
) |
|
|
( |
) |
|
|
Balance - end of period |
|
$ |
|
|
$ |
|
|
|
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 to 2 years |
|||||
| Total Backlog | $ | ||||
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 $
Securities Purchase Agreement – In April 2019, the Company issued
Underwriting Agreement – In August 2019, the Company issued
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 $
| 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,
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 (
During the Commitment Period, the purchase price to be paid by Peak One for the common stock under the EP Agreement will be
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
Restricted Stock Units – During the three months ended March 31, 2023, the Company issued
| 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 |
$ | $ | $ | $ | $ | ||||||||||||||||
|
Cost of revenue |
|||||||||||||||||||||
|
Operating expenses |
|||||||||||||||||||||