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)
|
|
|
|
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
incorporation or organization) |
|
Identification No.) |
|
|
|
|
|
|
|
|
|
(Address of principal executive offices) |
|
(Zip Code) |
(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 | ||
|
|
|
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.
|
Large accelerated filer ☐ |
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
As of November 14, 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
|
|
|
September 30, 2023 |
|
|
December 31, |
|
||
|
|
|
(Unaudited) |
|
|
|
|
||
|
Assets |
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
Contract assets |
|
|
|
|
|
|
|
|
| Held for sale assets | |
|||||||
| Inventories | ||||||||
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
| Project development costs and other non-current assets | ||||||||
|
Goodwill |
|
|
|
|
|
|
|
|
| Right-of-use asset | ||||||||
| Long-term note receivable |
|
|
||||||
|
Intangible assets, net |
|
|
|
|
|
|
|
|
| Deferred contract costs, net | ||||||||
| Investment in non-marketable securities | ||||||||
| Investment in and advances to equity affiliates | ||||||||
|
Total Assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
|
Contract liabilities |
|
|
|
|
|
|
|
|
| Lease liability, current maturities | ||||||||
| Assumed liability | ||||||||
| Short term notes payable, net | ||||||||
|
Total current liabilities |
|
|
|
|
|
|
|
|
| Long-term note payable | ||||||||
| Lease liability, net of current maturities | ||||||||
| Total liabilities |
||||||||
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ |
|
|
|
|
|
|
|
|
|
Common stock, $ |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
| Treasury stock, at cost – |
( |
) | ( |
) | ||||
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
| Total Safe & Green Holdings Corp. stockholders’ equity | ||||||||
|
Non-controlling interest |
|
|
|
|
|
( |
) | |
| Total stockholders’ equity | ||||||||
|
Total Liabilities and Stockholders’ Equity |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
|
|
For the Three Months Ended September 30, |
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||
|
|
2023 | 2022 | 2023 |
2022 |
|||||||||||
|
|
(Unaudited) | (Unaudited) | (Unaudited) |
(Unaudited) |
|||||||||||
|
Revenue: |
|||||||||||||||
| Construction services | $ | $ | $ | $ | |||||||||||
|
Engineering services |
|||||||||||||||
|
Medical revenue |
|||||||||||||||
|
Total |
|||||||||||||||
|
|
|||||||||||||||
|
Cost of revenue: |
|||||||||||||||
|
Construction services |
|||||||||||||||
|
Engineering services |
|||||||||||||||
| Medical revenue | |||||||||||||||
|
Total |
|||||||||||||||
|
|
|||||||||||||||
|
Gross profit (loss) |
( |
) | ( |
) | ( |
) | |||||||||
|
|
|||||||||||||||
|
Operating expenses: |
|||||||||||||||
|
Payroll and related expenses |
|||||||||||||||
|
General and administrative expenses |
|||||||||||||||
|
Marketing and business development expenses |
|||||||||||||||
|
Total |
|||||||||||||||
|
|
|||||||||||||||
|
Operating loss |
( |
) | ( |
) | ( |
) | ( |
) | |||||||
|
|
|||||||||||||||
|
Other income (expense): |
|||||||||||||||
|
Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | |||||||
|
Interest income |
|||||||||||||||
| Other income (expense) | ( |
) | |||||||||||||
|
Total |
( |
) | ( |
) | ( |
) | |||||||||
|
|
|||||||||||||||
|
Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | |||||||
|
Income tax expense |
|||||||||||||||
|
|
|||||||||||||||
|
Net loss |
( |
) | ( |
) | ( |
) | ( |
) | |||||||
|
|
|||||||||||||||
| Add: net income (loss) attributable to noncontrolling interests | ( |
) | |||||||||||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
|
Net loss per share attributable to Safe & Green Holdings Corp. |
|||||||||||||||
|
Basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
|
|
|||||||||||||||
|
Weighted average shares outstanding: |
|||||||||||||||
|
Basic and diluted |
|||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
|
|
|
$0.01 Par Value |
|
Additional |
|
Treasury |
Accumulated |
|
Safe & Green Holdings Corp. Stockholders' | Noncontrolling |
Total Stockholders’ |
|
||||||||||||||||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Stock |
Deficit |
|
Equity |
Interests |
Equity |
|
||||||||||||||||||
|
Balance at June 30, 2023 |
|
|
$ |
|
|
$ |
|
|
$ | ( |
) |
$ |
( |
) | $ | $ | ( |
) | $ |
|
||||||||||||
| Distribution of SG DevCorp |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Conversion of short-term notes payable | — | — | — | |||||||||||||||||||||||||||||
|
Net loss |
|
— |
|
|
|
|
|
|
|
( |
) | ( |
) | ( |
) | |||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||
|
Balance at December 31, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ | ( |
) |
$ |
( |
) | $ | $ | ( |
) | $ |
|
|||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Issuance of restricted common stock | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | ( |
) | ||||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||
| Issuance of warrants and restricted common stock | ||||||||||||||||||||||||||||||||
| Noncontrolling interest distribution | — | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Treasury stock | — | — | — | ( |
) | — | ( |
) | — | ( |
) | |||||||||||||||||||||
| Distribution of SG DevCorp | — | — | — | ( |
) | ( |
) | — | ||||||||||||||||||||||||
| Conversion of short-term notes payable | — | — | — | |||||||||||||||||||||||||||||
|
Net loss |
|
— |
|
|
|
|
|
|
|
( |
) | ( |
) | ( |
) | |||||||||||||||||
|
Balance at September 30, 2023 |
|
|
|
$ |
|
|
$ |
|
|
$ | ( |
) |
$ |
( |
) | $ | $ | $ |
|
|||||||||||||
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
|
|
|
$0.01 Par Value |
|
Additional |
|
Treasury |
Accumulated |
|
Safe & Green Holdings Corp. Stockholders' | Noncontrolling |
Total Stockholders’ |
|
||||||||||||||||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Stock |
Deficit |
|
Equity |
Interests |
Equity |
|
||||||||||||||||||
|
Balance at June 30, 2022 |
|
|
$ |
|
|
$ |
|
|
$ |
$ |
( |
) | $ | $ | $ |
|
||||||||||||||||
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Noncontrolling interest distribution |
— | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Repurchase of common stock | ( |
) | — | — | ( |
) | — | ( |
) | — | ( |
) | ||||||||||||||||||||
|
Net income (loss) |
|
— |
|
|
|
|
|
|
|
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||
|
Balance at December 31, 2021 |
|
|
|
$ |
|
|
$ |
|
|
$ |
$ |
( |
) | $ | $ | $ |
|
|||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | ( |
) | ||||||||||||||||||||||||||||||
| Noncontrolling interest distribution | — | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Repurchase of common stock | ( |
) | — | — | ( |
) | — | ( |
) | — | ( |
) | ||||||||||||||||||||
|
Net income (loss) |
|
— |
|
|
|
|
|
|
|
( |
) | ( |
) | ( |
) | |||||||||||||||||
|
Balance at September 30, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ | ( |
) |
$ |
( |
) | $ | $ | $ |
|
|||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
|
|
|
For the Nine Months Ended |
|
For the Nine Months Ended |
|
|||
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|||
|
Cash flows from operating activities: |
|
|
|
|
|
|||
|
Net loss |
|
$ |
( |
) |
$ |
( |
) | |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
| Amortization of deferred license costs | ||||||||
| Amortization of debt issuance costs and debt discount | |
|||||||
| Amortization of right of use asset | ||||||||
| Common stock issued for services | ||||||||
|
Bad debt expense |
|
|
|
|
|
|||
|
Interest income on long-term note receivable |
|
|
( |
) |
|
( |
) | |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
| Loss on asset disposal | ||||||||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|||
| Escrow - bond | ( |
) | ||||||
|
Contract assets |
|
|
|
|
|
|||
| Inventories | ||||||||
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
( |
) | |
| Intangible assets | ( |
) | ||||||
| Right of use asset | ||||||||
|
Accounts payable and accrued expenses |
|
|
|
|
( |
) | ||
|
Contract liabilities |
|
|
( |
) | ||||
| Due to affiliates | ( |
) | ||||||
| Lease liability | ( |
) | ( |
) | ||||
| Assumed liability | ||||||||
|
Net cash used in operating activities |
|
|
( |
) |
|
( |
) | |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Purchase of property, plant and equipment | ( |
) | ( |
) | ||||
| Proceeds from sale of equipment | ||||||||
| Repayment of promissory note | ( |
) | ||||||
| Project development costs | ( |
) | ( |
) | ||||
| Investment in and advances to equity affiliates | ( |
) | ( |
) | ||||
| Investment in non-marketable securities | ( |
) | ||||||
|
Net cash used in investing activities |
|
|
( |
) |
|
( |
) | |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Repurchase of common stock | ( |
) | ( |
) | ||||
| Repayment of short term notes payable | ( |
) | ||||||
| Proceeds from short-term notes payable and warrants, net of debt issuance costs | ||||||||
| Proceeds from long-term notes payable | ||||||||
| Distribution paid to non-controlling interest | ( |
) | ( |
) | ||||
|
Net cash provided by (used in) financing activities |
|
|
|
|
( |
) | ||
| Net increase/(decrease) in cash and cash equivalents | ( |
) | ||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Initial value of lease liability | $ | $ | ||||||
| Conversion of short-term notes payable to common stock | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
For the Nine Months Ended September 30, 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.
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 Company's Modules 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 the Modules to satisfy such requirements, the Company believes the products produced utilizing its technology and expertise is a leader in environmentally sustainable construction.
There are
The Company also provides engineering and project management services related to the use and modification of Modules in construction.
| 7 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
1. |
Description of Business (continued) |
In December 2022, the Company and then owner of
In connection with the Separation and Distribution, SG DevCorp entered into a separation and distribution agreement and several other agreements with the Company. These agreements provide for the allocation between SG DevCorp and the Company of the assets, employees, liabilities and obligations (including, among others, investments, property, employee benefits and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Separation and will govern the relationship between the Company and SG DevCorp subsequent to the completion of the Separation. In addition to the separation and distribution agreement, the other principal agreements entered into with the Company included a tax matters agreement and a shared services agreement.
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 September 30, 2023, the Company had cash and cash equivalents of $
| 2023 |
|||||
| Within 1 year | $ | ||||
| Total Backlog | $ | ||||
The Company has incurred losses since its inception, has negative working capital of $(
| 8 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
2. |
Liquidity |
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.
|
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 nine months ended September 30, 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
| 9 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
3. |
Summary of Significant Accounting Policies (continued) |
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.
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 was recognized when services have been rendered, which was at a point in time. Included in the consideration the Company expected to be entitled to receive, the Company estimated 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 nine months ended September 30, 2023 and 2022, the Company recognized $
Disaggregation of Revenues
The Company’s revenue for the three and nine months ended September 30, 2022 was principally derived from construction and engineering contracts related to the manufacturing of modular units used for construction, and medical revenue derived from lab testing and test kit sales. The Company’s revenues for the three and nine months ended September 30, 2023 was principally derived from construction contracts related to the manufacturing of modular units 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 September 30, |
|||||||||||||||
|
Revenue by Customer Type |
2023 |
2022 |
|||||||||||||
| Construction and Engineering Services: |
|||||||||||||||
| Hotel | $ | % | $ | % | |||||||||||
| Office |
|
|
% |
|
|
% |
|||||||||
| Subtotal | % | % | |||||||||||||
| Medical Revenue: | |||||||||||||||
|
Medical (lab testing, kit sales and equipment) |
|
|
% |
|
|
% |
|||||||||
|
Total revenue by customer type |
$ |
|
|
% |
$ |
|
|
% |
|||||||
| 10 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
3. |
Summary of Significant Accounting Policies (continued) |
| Nine Months Ended September 30, |
|||||||||||||||
|
Revenue by Customer Type |
2023 |
2022 |
|||||||||||||
| Construction and Engineering Services: |
|||||||||||||||
| Government |
$ | % | $ | % | |||||||||||
| Hotel | % | % | |||||||||||||
| Multi-Family (includes Single Family) |
|
|
% |
|
|
% |
|||||||||
| Office |
|
|
% |
|
|
% |
|||||||||
| Retail | % | % | |||||||||||||
| Special Use | % | % | |||||||||||||
| Subtotal | % | % | |||||||||||||
| Medical Revenue: | |||||||||||||||
|
Medical (lab testing, kit sales and equipment) |
|
|
% |
|
|
% |
|||||||||
|
Total revenue by customer type |
$ |
|
|
% |
$ |
|
|
% |
|||||||
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 the Company’s 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.
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”). As a result of entering into the ELA in 2019 the property became subject to the ELA and the Company was no longer obliged to its Original Agreement. Upon entering the ELA, the Company had an outstanding accounts receivable balance of $
| 11 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
3. |
Summary of Significant Accounting Policies (continued) |
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 nine months ended September 30, 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
| 12 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
3. |
Summary of Significant Accounting Policies (continued) |
The approximate combined financial position of the Company’s equity affiliates are summarized below as of September 30, 2023 and December 31, 2022:
|
Condensed balance sheet information: |
September 30, 2023 |
December 31, 2022 |
|||||
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
Total assets |
$ |
|
$ |
|
|||
|
Total liabilities |
$ |
|
$ |
|
|||
|
Members’ equity |
$ |
|
$ |
|
|||
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 the Company’s estimates and could be material to its 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 September 30, 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 $
| 13 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 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.
| 14 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 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 September 30, 2023 and December 31, 2022,
Revenue relating to
There were
| 15 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
4. |
Accounts Receivable |
At September 30, 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 September 30, 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 assets/(liabilities) on uncompleted contracts |
|
$ |
( |
) |
|
$ |
( |
) | |
The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at September 30, 2023 and December 31, 2022.
|
|
|
|
2023 |
|
|
2022 |
|
||
|
|
Contract assets |
|
$ |
|
|
|
$ |
|
|
|
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
Net contract assets (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.
| 16 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022(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 September 30, 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 | |
|
|||||||
| Building | |||||||||
| Construction in progress | |||||||||
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
Depreciation expense for the three months ended September 30, 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 $
| 17 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 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, SG DevCorp 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 $
| 18 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 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
| 19 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
8. |
Notes Payable (continued) |
The Company incurred $
On May 16, 2023, SG Building, entered into a Cash Advance Agreement (“Cash Advance Agreement”) with Cedar Advance LLC (“Cedar”) pursuant to which SG Building sold to Cedar $
On September 26, 2023, SG Building and Cedar entered into a second Cash Advance Agreement pursuant to which SG Building sold to Cedar $
In connection with the exercise of its option to acquire
The Secured Note bears interest at
| 20 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
8. |
Notes Payable (continued) |
The Factoring Agreement provides that upon acceptance of an account receivable for purchase SouthStar will pay to SG Echo eighty percent (
The Factoring Agreement provides that SG Echo will also pay a transactional administrative fee of $
As security for the payment and performance of SG Echo’s present and future obligations to SouthStar under the Factoring Agreement, SG Echo granted to SouthStar a first priority security interest in all of SG Echo’s presently-owned and hereafter-acquired personal and fixture property, wherever located, including, without limitation, all accounts, goods, chattel paper, inventory, equipment, instruments, investment property, documents, deposit accounts, commercial tort claims, letters-of-credit rights, general intangibles including payment intangibles, patents, software trademarks, trade names, customer lists, supporting obligations, all proceeds and products of the foregoing.
The Factoring Agreement has an initial term of thirty-six (
If SouthStar has not purchased accounts receivable in a quarterly period during any initial or renewal term which exceed fifty percent (
Pursuant to a Secured Continuing Corporate Guaranty, dated June 8, 2023 (the “Corporate Guaranty”), the Company has guaranteed SG Echo’s obligations to SouthStar under the Secured Note and Factoring Agreement.
Pursuant to a Cross-Default and Cross Collateralization Agreement (the “Cross Default Agreement”), effective June 8, 2023, between SouthStar, SG Echo and the Company, SG Echo’s obligations under the Secured Note and Factoring Agreement are cross-defaulted and cross-collateralized such that any event of default under the Secured Note shall constitute an event of default under the Factoring Agreement at SouthStar’s election (and vice versa, any event of default under the Factoring Agreement shall constitute an event of default under the Secured Note at SouthStar’s election) and any collateral pledged to secure SG Echo’s obligations under the Secured Note shall also secure SG Echo’s obligations under the Factoring Agreement (and vice versa).
| 21 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
8. |
Notes Payable (continued) |
SG Echo incurred $
On June 23 2023, SG DevCorp, entered into a Loan Agreement (the “BCV Loan Agreement”) with a Luxembourg-based specialized investment fund, BCV S&G DevCorp (“BCV S&G”), for up to $
On August 16, 2023, SG DevCorp secured an additional $
On August 25, 2023, SG DevCorp and BCV S&G amended the BCV Loan Agreement (“Amendment No. 1”) to change the date upon which SG DevCorp’s shares must be listed on The Nasdaq Stock Market from August 30, 2023 to September 15, 2023. According to Amendment No. 1, if SG DevCorp’s shares of common stock were not listed on The Nasdaq Stock Market before September 15, 2023 or if following such listing the total market value of the Pledged Shares falls below twice the face value of the loan, the loan will be further secured by a security interest in the St. Mary’s Site.
On September 11, 2023, SG DevCorp and BCV S&G amended the BCV Loan Agreement (“Amendment No. 2”) to change the date upon which SG DevCorp’s shares must be listed on The Nasdaq Stock Market from September 15, 2023 to September 30, 2023. According to Amendment No. 2, if SG DevCorp’s shares of common stock were not listed on The Nasdaq Stock Market before September 30, 2023 or if following such listing the total market value of the Pledged Shares falls below twice the face value of the loan, the loan will be further secured by a security interest in the St. Mary’s Site. Following the listing, the total market value of the Pledged Shares has fallen below twice the face value of the loan and SG DevCorp and BCV S&G are in discussions regarding alternatives.
| 22 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
9. |
Leases |
The Company leases an office, a manufacturing plant and certain equipment under non-cancellable operating lease agreements. The leases have remaining lease terms ranging from
Supplemental balance sheet information related to leases is as follows:
| Balance Sheet Location |
September 30, 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 | |||||
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-cancellable leases, are as follows:
| Year Ending December 31: | Operating |
Financing |
Total |
||||||||
| 2023 (remaining) | $ | $ | $ | ||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| Total lease payments | |||||||||||
| Less: Imputed interest | |||||||||||
| Present value of lease liabilities | $ | $ | $ | ||||||||
| 23 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
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 September 30, 2023, there were options and warrants of
|
11. |
Construction Backlog |
The following represents the backlog of signed construction and engineering contracts in existence at September 30, 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 September 30, 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 September 30, 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 September 30, 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.
| 24 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
12. |
Stockholders’ Equity |
Financings
Registered Direct Offering –
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 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 has the right, but not the obligation, to direct Peak One to purchase up to $
| 25 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
12. |
Stockholders’ Equity (continued) |
In connection with the EP Agreement, the Company issued to Investments, the general partner of Peak One,
The obligation of Peak One to purchase the Company’s common stock under the EP Agreement began on the date of the EP Agreement, and ends 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 nine months ended September 30, 2023, the Company issued
Restricted Stock Units – During the nine months ended September 30, 2023, the Company issued
| 26 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
| 13. |
Segments and Disaggregated Revenue |
|
|
|
Construction |
|
Medical |
Development |
Corporate and support |
|
Consolidated |
|
||||||||||||
| Nine Months Ended September 30, 2023 |
|||||||||||||||||||||
| Revenue |
$ | $ | $ | $ | $ | ||||||||||||||||
|
Cost of revenue |
|||||||||||||||||||||
|
Operating expenses |
|||||||||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
| Other income (expense) | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Income (loss) before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
| Net income attributable to non-controlling interest | |||||||||||||||||||||
| Net income (loss) attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Total assets | $ | $ | $ | $ | $ | ||||||||||||||||
| Depreciation and amortization | $ |
$ | $ | $ | $ | ||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | ||||||||||||||||
|
Construction |
Medical |
Development |
Corporate and support |
Consolidated |
|||||||||||||||||
| Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|||||||||||||||
| Revenue | $ | $ | $ | $ | $ | ||||||||||||||||
|
Cost of revenue |
|||||||||||||||||||||
|
Operating expenses |
|||||||||||||||||||||
| Operating income (loss) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||
| Other income (expense) | ( |
) | |||||||||||||||||||
|
Income (loss) before income taxes |
|
|
( |
) |
|
( |
) |
|
( |
) | |||||||||||
|
Net income attributable to non-controlling interest |
|
|
|
|
|
|
|||||||||||||||
| Net income (loss) attributable to common stockholders of Safe & Green Holdings Corp. | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||
| Total assets |
$ | $ | $ |
$ |
$ |
||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | ||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | ||||||||||||||||
| Inter-segment revenue elimination | $ | $ | $ | $ | $ | ||||||||||||||||
| 27 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
13. |
Segments and Disaggregated Revenue (continued) |
|
|
|
Construction |
|
Medical |
Development |
Corporate and support |
|
Consolidated |
|
||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||
| Revenue |
$ | $ | $ | $ | $ | ||||||||||||||||
|
Cost of revenue |
|||||||||||||||||||||
|
Operating expenses |
( |
) | |||||||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
| Other income (expense) | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Income (loss) before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
| Net income attributable to non-controlling interest | |||||||||||||||||||||
| Net income (loss) attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Total assets | |||||||||||||||||||||
| Depreciation and amortization | $ |
$ | $ | $ | $ | ||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | ||||||||||||||||
|
Construction |
Medical |
Development |
Corporate and support |
Consolidated |
|||||||||||||||||
| Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|||||||||||||||
| Revenue | $ | $ | $ | $ | $ | ||||||||||||||||
|
Cost of revenue |
|||||||||||||||||||||
|
Operating expenses |
|||||||||||||||||||||
| Operating income (loss) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||
| Other income (expense) | ( |
) | ( |
) | ( |
) | |||||||||||||||
|
Income (loss) before income taxes |
|
( |
) | ( |
) | ( |
) |
|
( |
) |
|
( |
) | ||||||||
|
Net income attributable to non-controlling interest |
|
|
( |
) |
|
|
( |
) | |||||||||||||
| Net income (loss) attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
| Total assets | |||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | ||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | ||||||||||||||||
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
14. |
Warrants |
In conjunction with the June 2017 Public Offering, the Company issued to certain affiliates of the underwriters, as compensation, warrants to purchase an aggregate of
In conjunction with the Purchase Agreement in April 2019, the Company also sold warrants to purchase up to an aggregate of
In conjunction with the Underwriting Agreement in August 2019, the Company issued to the underwriter, as compensation, warrants to purchase an aggregate of
In conjunction with the Underwriting Agreement in May 2020, the Company issued to the underwriter, as compensation, warrants to purchase an aggregate of
In conjunction with the Purchase Agreement in October 2021, the Company also issued Series A warrants to purchase up to
In conjunction with the issuance of the Debenture in February 2023, the Company issued the Peak Warrant to purchase
|
15. |
Share-based Compensation |
On October 26, 2016, the Company’s Board of Directors approved the issuance of up to
| 29 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
| 15. |
Share-based Compensation (continued) |
Stock-Based Compensation Expense
Stock-based compensation expense is included in the condensed consolidated statements of operations as follows:
|
Nine Months Ended |
|||||||||
| 2023 |
2022 |
||||||||
|
|
Payroll and related expenses |
$ | $ | ||||||
|
|
Total |
$ | $ | ||||||
|
Three Months Ended September 30, |
|||||||||
| 2023 | 2022 | ||||||||
|
|
Payroll and related expenses |
$ | $ | ||||||
|
|
Total |
$ | $ | ||||||
The following table presents total stock-based compensation expense by security type included in the condensed consolidated statements of operations:
| Nine Months Ended September 30, |
|||||||||
| 2023 | 2022 | ||||||||
|
Stock options |
$ |
|
|
|
$ |
|
|
||
|
Restricted Stock Units |
$ |
|
|
|
$ |
|
|
||
| Total | $ | $ | |||||||
| Three Months Ended September 30, |
|||||||||
| 2023 | 2022 | ||||||||
|
Stock options |
$ |
|
|
$ |
|
||||
|
Restricted Stock Units |
$ |
|
|
|
$ |
|
|
||
| Total | $ | $ | |||||||
Stock-Based Option Awards
The Company has issued
Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards granted to employees. The simplified method is calculated by averaging the vesting period and contractual term of the options.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
| 15. |
Share-based Compensation (continued) |
The following table summarizes stock-based option activities and changes during the nine months ended September 30, 2023 as described below:
|
|
|
Shares |
|
|
Weighted Average Fair Value Per Share |
|
|
Weighted |
|
|
Weighted Average Remaining Terms (in years) |
|
|
Aggregate Intrinsic Value |
|
|
|
Outstanding – December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
||
|
Cancelled |
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
||
|
Outstanding – September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable – December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable – September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense of $
As of September 30, 2023, there was
Restricted Stock Units
During 2022, a total of
On November 18, 2022, a total of
During the three months ended June 30, 2023, a total of
On April 4, 2023, a total of
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
| 15. |
Share-based Compensation (continued) |
As of September 30, 2023, all outstanding restricted stock vesting has been accelerated and there are
For the three months ended September 30, 2023 and 2022, the Company recognized stock-based compensation of $
The following table summarized restricted stock unit activities during the nine months ended September 30, 2023:
| Number of Shares |
|||||
|
Non-vested balance at January 1, 2023 |
|
||||
|
|
Granted |
|
|||
| Vested | ( |
) | |||
| Forfeited/Expired | |||||
| Non-vested balance at September 30, 2023 | |||||
|
16. |
Commitments and Contingencies |
Legal Proceedings
The Company is subject to certain claims and lawsuits arising in the normal course of business. The Company assesses liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in our consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, the Company does not record an accrual, consistent with applicable accounting guidance. Based on information currently available, advice of counsel, and available insurance coverage, the Company believes that the established accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on the consolidated financial condition. However, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution of a matter will not exceed established accruals. As a result, the outcome of a particular matter or a combination of matters may be material to the results of operations for a particular period, depending upon the size of the loss or the income for that particular period.
1.) Pizzarotti Litigation - On or about August 10, 2018 Pizzarotti, LLC filed a complaint against the Company and Mahesh Shetty, the Company’s former President and CFO, and others, seeking unspecified damages for an alleged breach of contract by the Company and another entity named Phipps & Co. (“Phipps”). The lawsuit was filed as Pizzarotti, LLC. v. Phipps & Co., et al., Index No. 653996/2018 and commenced in the Supreme Court of the State of New York for the County of New York. On or about April 1, 2019, Phipps filed cross-claims against the Company and Mr. Shetty asserting claims for indemnification, contribution, fraud, negligence, negligent misrepresentation, and breach of contract. The Company has likewise cross claimed against Phipps for indemnification and contribution, claiming that any damages to the Plaintiff were the result of the acts or omissions of Phipps and its principals.
Pizzarotti’s suit arose from a contract dated April 3, 2018 that it executed with Phipps whereby Pizzarotti, a construction manager, engaged Phipps to perform stone procuring and tile work at a construction project located at 161 Maiden Lane, New York 10038. Pizzarotti’s claims against the Company arise from a purported assignment agreement dated August 10, 2018, whereby Pizzarotti claims that the Company agreed to assume certain obligations of Phipps under a certain trade contract between Pizzarotti and Phipps & Co. Phipps’ claims against the Company arise from a purported Assignment Agreement, dated as of May 30, 2018, between Pizzarotti, Phipps and the Company (the “Assignment Agreement”), pursuant to which, it is alleged, that the Company agreed to provide a letter of credit in connection with the sub-contracted work to be provided by Phipps to Pizzarotti.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
16. |
Commitments and Contingencies (continued) |
The Company believes that the Assignment Agreement was void for lack of consideration and moved to dismiss the case on those and other grounds. On June 17, 2020, the New York Supreme Court entered an order dismissing certain claims against the Company brought by cross claimant Phipps & Co. Specifically, the court dismissed Phipps’ claims for indemnification, contribution, fraud, negligence and negligent misrepresentation. The court did not dismiss Phipps’ claim for breach of the Assignment Agreement. The issue of the validity of the Assignment Agreement, and the Company’s defenses to the claims brought by the plaintiff Pizzarotti, and cross claimant Phipps, are being litigated. The Company maintains that the Assignment Agreement, to the extent valid and enforceable, was properly terminated and/or there are no damages, and, consequently, that the claims brought against the Company are without merit. The Company intends to continue to vigorously defend the litigation. The parties have engaged in written discovery but no depositions have been conducted as of yet. By motion dated February 24, 2021, Pizzarotti moved to stay the entire action pending the outcome of a separate litigation captioned Pizzarotti, LLC v. FPG Maiden Lane, LLCet. al., Index No. 651697/2019, involving some of the same parties (but excluding the Company). Phipps cross moved to consolidate the two actions. The Company opposed both motions. On April 26, 2021, the court denied both motions and directed the parties to meet and confer concerning the scheduling of depositions. On May 10, 2021, the parties jointly filed with the court a proposed order providing the completion of depositions of all parties and nonparties by September 30, 2021. The court has not entered the proposed discovery order and no formal action has been taken by the plaintiff Pizzarotti nor the defendant-cross claimant Phipps since the proposed order was submitted. There are no scheduled hearings or conferences before the court at this time.
Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance. The Company is currently unable to predict the possible loss or range of loss, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the consolidated financial statements.
Vendor Litigation
1.) SG Blocks, Inc. v HOLA Community Partners, et. al.
On April 13, 2020, Plaintiff SG Blocks, Inc. (the “Company”) filed a Complaint against HOLA Community Partners (“HCP”), Heart of Los Angeles Youth, Inc. (“HOLA”) (HCP and HOLA are collectively referred to as the “HOLA Defendants”), and the City of Los Angeles (“City”) in the United States District Court for the Central District of California, Case No. 2:20-cv-03432-ODW (“HOLA Action”). The Company asserted
On January 22, 2021, the Company filed a Third-Party Complaint in the HOLA Action against Third-Party Defendants Teton Buildings, LLC, Avesi Construction, LLC, and American Home Building and Masonry Corp (“AHB”) for indemnity and contribution with respect to HOLA’s claims. The Company has also notified its general liability carrier Sompo International regarding coverage concerning HOLA’s claims On February 25, 2021, the Court entered an order dismissing the Company’s claims for (1) breach of contract; (2) conversion; (3) default and judicial foreclosure under the Agreement as a security agreement; (4) misappropriation of trade secrets under California Civil Code section 3426; (5) misappropriation of trade secrets under 18 U.S.C. § 1836; but denied dismissal of the Company’s claims for intentional interference with contractual relations. The Court also denied the Company’s motion to dismiss HOLA’s claims.
On March 12, 2021, the HOLA Defendants filed an answer to the Company’s complaint against it denying liability and asserting affirmative defenses. On March 12, 2021, the Company filed an answer to the HOLA Defendants’ First Amended Consolidated Complaint against it, denying liability and asserting affirmative defenses.
| 33 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
16. |
Commitments and Contingencies (continued) |
On April 26, 2021, the Company and the HOLA Defendants filed a Joint Stipulation to Dismiss HOLA Community Partners’ Sixth Claim for Relief (violation of California Business and Professions Code §7031(b)), with prejudice, pursuant to Fed. R. Civ. P. 41(a)(1)(A)(ii).
On July 23, 2021, the Company filed a First Amended Third-Party Complaint adding the following additional third party defendants seeking, inter alia, contractual indemnity, equitable indemnity; and contribution: American Home Building and Masonry Corp. (“American Home”), Anderson Air Conditioning, L.P. (“Anderson”). Broadway Glass and Mirror, Inc. (“Broadway”), Marne Construction, Inc. (“Marne”), The McIntyre Company (“McIntyre”), Dowell & Bradley Construction, Inc. dba J R Construction (“JR Construction”) Junior Steel Co. (“Junior Steel”) Saddleback Roofing, Inc. (“Saddleback”) Schindler Elevator Corporation (“Schindler”) U.S. Smoke & Fire Corp. (“U.S. Smoke”) and FirstForm, Inc. (“FirstForm”) (collectively the “Additional Third Party Defendants”).
On September 2, 2021, Schindler Elevator Corp. filed its answer to the First Amended Third-Party Complaint. On September 3, 2021, Junior Steel Co. filed its answer to the First Amended Third-Party Complaint. On September 7, 2021, Anderson Air Conditioning, L.P. filed its answer to the First Amended Third-Party Complaint. On October 6, 2021, the McIntyre Group filed its answer to the First Amended Third-Party Complaint.
On February 7, 2022, the Company filed a request for entry of a Clerk’s default against the following defendants: American Home Building and Masonry Corp., Avesi Construction, Marne Construction, Inc., FirstForm, Inc., Dowell & Bradley Construction, Inc, Saddleback Roofing, Inc., and US Smoke and Fire Corp. On February 9, 2022, the court entered a clerk’s default pursuant to Federal Rule 55 against the following defendants: American Home Building and Masonry Corp. Avesi Construction, Dowel & Bradley Construction, Inc., Saddleback Roofing Inc. and US smoke and Fire Corp. The parties that have answered and appeared in the case are currently engaged in discovery. The cut-off for fact discovery has been extended to September 12, 2022, and a trial was set for January 31, 2023.
2.) SG Blocks, Inc. v HOLA Community Partners, et. al.
On or about December 31, 2022, the parties who appeared in the HOLA Action executed a Settlement Agreement and Release. On February 28, 2023 the court “so ordered” the parties’ stipulation dismissing all causes of action against the parties to the Settlement Agreement and Release.
3.) Teton Buildings, LLC
(i) On January 1, 2019, the Company commenced an action against Teton Buildings, LLC (“Teton”) in Harris County, Texas (“Teton Texas Action”) to recover approximately $
(ii) On or about September 12, 2018, the Company entered into a Firm Price Quote and Purchase (the “GVL Contract”) with Teton to govern the manufacture and provision of 23 shipping containers and modular units (the “Teton GVL Modules”) for the Four Oaks Gather GVL project in South Carolina (the “GVL Project.”). The Company maintains that Teton breached the GVL Contract by (i) failing to timely deliver the Teton GVL Modules, (ii) delivering Teton GVL Modules that were defective in their design and manufacture, (iii) otherwise failed to meet South Carolina Building Code regulations and (iv) breached applicable warranties. As a result of the breach and defects in performance, design and manufacture by Teton, Company asserts that it has sustained $
On or about March 16, 2020, the Bankruptcy Court converted Teton’s Chapter 11 reorganization case to a Chapter 7 liquidation case. On July 18, 2019, Ronald Sommers, the Chapter 7 Trustee, filed a Report of No Distribution stating that there is no property available for distribution to creditors. On August 20, 2019, the Bankruptcy Court closed the Teton bankruptcy case. As such, there is no prospect of any recovery against Teton.
| 34 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
16. |
Commitments and Contingencies (continued) |
On January 22, 2021, the Company filed a third-party complaint against Teton in the United States District Court for the Central District of California, Case No. 2:20−cv−03432 in the HOLA Action (described above), seeking to determine Teton’s liability in its capacity as a bankruptcy debtor in order to collect any damages payable from Teton’s liability insurance carrier or carriers. On July 23, 2021, the Company filed a First Amended Third-Party Complaint against Teton and other named third party defendants (see #2 below). Teton has been served with the First Amended Third-Party Complaint and on or about February 11, 2022, Teton filed an answer and affirmative defenses.
On or about December 31, 2022, the parties who appeared in the HOLA Action, including Teton by and through its insurance carrier, executed a Settlement Agreement and Release. On February 28, 2023 the court “so ordered” the parties’ stipulation dismissing all causes of action against the parties to the Settlement Agreement and Release.
4.) SG Blocks, Inc. v. EDI International, PC.-
On June 21, 2019, the Company filed a lawsuit against EDI International, PC, a New Jersey corporation, in the Superior Court of the State of California, County of Los Angeles, Central District, in connection with the parties’ consulting agreement, dated June 29, 2016, pursuant to which EDI International, PC, was to provide, for a fee, certain architectural and design services for the HOLA Project. The Company claims that EDI International, PC, tortiously interfered with the Company’s economic relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc. EDI International, PC, filed a cross-complaint for alleged unpaid fees and tortious interference with EDI International, PC's contractual relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc. EDI International, PC's cross-complaint seeks in excess of $
On July 8, 2020, the Company added PVE LLC as a defendant in the lawsuit, claiming PVE LLC is liable to the same extent as EDI International, PC. The case is currently in the discovery stage and a trial date has been set for May 2, 2022.
On May 14, 2021, EDI accepted the Company’s Statutory Offer of Compromise, pursuant to California Code of Civil Procedures §998, to settle EDI’s cross-claims. On July 26, 2021, the Company and EDI entered into a certain General Release agreement whereby in exchange for payment by the Company in the amount of $
Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance. The Company is currently unable to predict the outcome or possible recovery or loss or range of loss, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the consolidated financial statements.
Other Litigation
SG Blocks, Inc. v. Osang Healthcare Company, Ltd.,
On April 14, 2021, the Company commenced an action against Osang Healthcare Company, Ltd. (“Osang”) in the United States District Court, Eastern District of New York, Case No. 21-01990 (“Osang Action”).
On June 18, 2021, Osang served a motion to dismiss the Osang Action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. On July 30, 2021, the Company served its opposition to the motion to dismiss. On September 22, 2022, the court entered an order granting in part and denying in part Osang’s motion to dismiss. The court denied that part of Osang’s motion that sought dismissal of the Company’s causes of action for breach of contract (but denied recovery of lost profits) and fraud, but dismissed the Company’s causes of action for breach of implied covenant of good faith and fair dealing, indemnification, accounting, and violation of the New York Unlawful and Deceptive Trade Practices Act (GBL §349).
| 35 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022 (Unaudited)
|
16. |
Commitments and Contingencies (continued) |
A status conference was held on November 16, 2022 at which time the Court entered a scheduling order for the conducting of discovery. After mediation before the Court on March 14, 2023, the parties entered into a settlement agreement and mutual release on May 4, 2023.
Safe & Green Holdings Corp. v. Shaw et al.,
On March 15, 2023, the Company commenced an action against
Commitments
In April 2020, the Company entered into an amendment to its employment agreement, dated January 1, 2017, with Paul Gavin (the "Amendment"), to extend the term of employment to December 31, 2021,
On July 5, 2022, the Company entered into an amendment to its employment agreement, dated January 1, 2017, as amended, with Paul Galvin, to provide for the payment of an annual base salary of $
On May 1, 2023, the Company appointed Patricia Kaelin as the Company’s Chief Financial Officer and entered into an employment agreement with Patricia Kaelin (the “Kaelin Employment Agreement”) to employ Ms. Kaelin in such capacity for an initial term of two (2) years, which provides for an annual base salary of $
|
17. |
Subsequent Events |
The Company has evaluated all events or transactions that occurred after September 30, 2023 through November 14, 2023, which is the date that the condensed financial statements were available to be issued. During this period, there were no material subsequent events requiring recognition or disclosure besides below.
On October 5, 2023, at the Company’s Special Meeting of Stockholders (the “Special Meeting”), the Company’s stockholders approved an amendment (the “Amendment”) to the Safe & Green Holdings Corp. Stock Incentive Plan (the “Plan”). The Amendment increased the total number of shares of the Company’s common stock authorized for issuance under the Plan by
On October 16, 2023, the Company filed a Certificate of Amendment to its Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of Delaware that increased the number of the Company’s authorized shares of common stock, $
As previously disclosed, the Company had notified William Rogers that his employment agreement (the “Employment Agreement”) with the Company would not be renewed for a full term upon its expiration on
On October 20, 2023, the Company and Mr. Rogers entered into a mutual settlement and release agreement (the “Release Agreement”) in order to resolve any and all claims and disputes between them, including but not limited to, claims arising under the Employment Agreement. Pursuant to the terms of the Release Agreement, (i) the Company agreed to pay Mr. Rogers a settlement payment equal to $
Simultaneously with the execution of the Release Agreement, Mr. Rogers entered into the Consulting Agreement with DevCo. The term of the Consulting Agreement will commence on January 1, 2024, will continue for a period of one year and will then convert to a rollover annual contract or on a month-to-month basis, as mutually agreed to be the parties. Pursuant to the Consulting Agreement, Mr. Rogers will provide advisory and consulting services for the construction of DevCo’s operational facility projects. During the term of the Consulting Agreement, DevCo will pay Mr. Rogers a monthly consulting fee of $
Introduction and Certain Cautionary Statements
As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to the "Company," "we," "us," and "our" refer to Safe & Green Holdings Corp. and its subsidiaries. The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and notes for the year ended December 31, 2022, which were included in our Annual Report on Form 10-K for the year then ended December 31, 2022, as filed with the Securities and Exchange Commission (the "SEC") on March 31, 2023 (the "2022 Form 10-K"). This discussion, particularly information with respect to our future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special note regarding forward-looking statements" in this Quarterly Report on Form10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion for important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements contained in this Quarterly Report on Form 10-Q may use forward-looking terminology, such as "anticipates," "believes," "could," "would," "estimates," "may," "might," "plan," "expect," "intend," "should," "will," or other variations on these terms or their negatives. All statements other than statements of historical facts are statements that could potentially be forward-looking. The Company cautions that forward-looking statements involve risks and uncertainties and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate or prediction is realized. Factors that could cause or contribute to such differences include, but are not limited to: general economic, political and financial conditions, including inflation, both in the United States and internationally; our ability to obtain additional financing on acceptable terms, if at all, or to obtain additional capital in other ways; our ability to increase sales, generate income, effectively manage our growth and realize our backlog; competition in the markets in which we operate, including the consolidation of our industry, our ability to expand into and compete in new geographic markets and our ability to compete by protecting our proprietary manufacturing process; a disruption or cybersecurity breach in our or third-party suppliers' information technology systems; our ability to adapt our products and services to industry standards and consumer preferences and obtain general market acceptance of our products; product shortages and the availability of raw materials, and potential loss of relationships with key vendors, suppliers or subcontractors; the seasonality of the construction industry in general, and the commercial and residential construction markets in particular; a disruption or limited availability with our third party transportation vendors; the loss or potential loss of any significant customers; exposure to product liability, including the possibility that our liability for estimated warranties may be inadequate, and various other claims and litigation; our ability to attract and retain key employees; our ability to attract private investment for sales of product; the credit risk from our customers and our customers' ability to obtaining third-party financing if and as needed; an impairment of goodwill; the impact of federal, state and local regulations, including changes to international trade and tariff policies, and the impact of any failure of any person acting on our behalf to comply with applicable regulations and guidelines; costs incurred relating to current and future legal proceedings or investigations; the cost of compliance with environmental, health and safety laws and other local building regulations; our ability to utilize our net operating loss carryforwards and the impact of changes in the United States' tax rules and regulations; dangers inherent in our operations, such as natural or man-made disruptions to our facilities and project sites, the impact of COVID-19, and related government “shelter-in-place” mandates and other restrictions on business and commercial activity and the adequacy of our insurance coverage; our ability to comply with the requirements of being a public company; fluctuations in the price of our common stock, including decreases in price due to sales of significant amounts of stock; potential dilution of the ownership of our current stockholders due to, among other things, public offerings or private placements by the Company or issuances upon the exercise of outstanding options or warrants and the vesting of restricted stock units; the ability of our principal stockholders, management and directors to potentially exert control due to their ownership interest; any ability to pay dividends in the future; potential negative reports by securities or industry analysts regarding our business or the construction industry in general; Delaware law provisions discouraging, delaying or preventing a merger or acquisition at a premium price; our ability to remain listed on the Nasdaq Capital Market and the possibility that our stock will be subject to penny stock rules; our classification as a smaller reporting company resulting in, among other things, a potential reduction in active trading of our common stock or increased volatility in our stock price; and any factors discussed in "Part II - Item 1A. Risk Factors" to this Quarterly Report on Form 10-Q as well as our 2022 Form 10-K, and other filings with the SEC. In addition, certain information presented below is based on unaudited financial information. There can be no assurance that there will be no changes to this information once audited financial information is available. As a result, readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of this report. The Company will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Company.
| 37 |
Overview
We operate 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 our factories using raw materials that are Made-in-America. In the medical segment we use our modular technology to offer turnkey solutions to medical testing and treatment and generating revenue from medical testing. Our real estate development segment builds innovative and green single or multifamily projects in underserved regions nationally using modules built in one of our vertically integrated factories. The environmental segment, the newest segment, is a sustainable medical and waste management solution that has a patented technology to collect waste and treat waste for safe disposal.
We are a provider of modular facilities (“Modules”). We currently provide Modules made out of both code-engineered cargo shipping containers and wood for use as both permanent or temporary structures for residential housing use and commercial use, including for health care facilities. Prior to the COVID-19 pandemic, the Modules we supplied were primarily for retail, restaurant and military use and were manufactured by third party suppliers using our proprietary technology and design and engineering expertise, which modifies code-engineered cargo shipping containers and purpose-built modules for use for safe and sustainable commercial, industrial and residential building. Since our acquisition in September 2020 of Echo DCL, LLC (“Echo”), one of our key supply chain providers, we now have more control over the manufacturing process and have increased our product offerings to add Modules made out of wood. In March 2020, in response to the COVID-19 pandemic we began increasing our focus on providing our Modules as health care facilities for deployable medical response solutions. In February 2023, we entered into an agreement with The Peoples Health Care, in Glendale, California, working in conjunction with Teamsters Local 848, to deliver four Modules to provide medical services to union members. In March 2023, we formed Safe & Green Medical Corporation to focus on our medical segment with an objective to establish a national presence with various clinics and labs that cater to the specific needs of local communities. During 2021, through our subsidiary, Safe and Green Development Corporation. (“SG DevCorp”), we also began to focus on acquiring property to build multi-family housing communities that allows us to utilize the manufacturing services of Echo. SG Environmental Solutions Corp. (“SG Environmental”), formed in Delaware 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.
| 38 |
SG DevCorp develops, co-develops builds and finances single and multi-family homes in underserved regions nationally using modules built in one of our vertically integrated factories. SG DevCorp has a minority interest in Norman Berry II Owners LLC and JDI-Cumberland Inlet LLC.
Recent Developments
In December 2022, we announced our plan to separate our company and SG DevCorp into two separate publicly traded companies (the “Separation”). To implement the Separation, on September 27, 2023 (the “Distribution Date”), we, effected a pro rata distribution to our stockholders of approximately 30% of the outstanding shares of SG DevCorp’s common stock (the “Distribution”). In connection with the Distribution, each of our stockholders received 0.930886 shares of SG DevCorp’s common stock for every five (5) shares of our common stock held as of the close of business on September 8, 2023, the record date for the Distribution, as well as a cash payment in lieu of any fractional shares. Immediately after the Distribution, SG DevCorp was no longer a wholly owned subsidiary of ours and we held and continue to hold approximately 70% of SG DevCorp’s issued and outstanding securities. On September 28, 2023, SG DevCorp’s common stock began trading on the Nasdaq Capital Market under the symbol “SGD.”
In connection with the Separation and Distribution, we entered into a separation and distribution agreement and several other agreements with SG Devcorp. These agreements provide for the allocation between us and SG DevCorp of the assets, employees, liabilities and obligations (including, among others, investments, property, employee benefits and tax-related assets and liabilities) of us and our subsidiaries attributable to periods prior to, at and after the Separation and will govern the relationship between us and SG DevCorp subsequent to the completion of the Separation. In addition to the separation and distribution agreement, the other principal agreements entered into with us included a tax matters agreement and a shared services agreement.
Results of Operations
Nine Months Ended September 30, 2023 and 2022:
|
For the Nine Months Ended September 30, 2023 |
For the Nine Months Ended September 30, 2022 |
|||||||
| Total revenue | $ | 14,566,351 | $ | 20,289,826 | ||||
| Total cost of revenue | (15,138,225 |
) | (17,196,605 |
) | ||||
| Total payroll and related expenses | (6,318,728 | ) | (3,650,553 | ) | ||||
| Total operating expenses | (4,955,445 |
) | (2,853,818 |
) | ||||
| Total operating loss | (11,846,047 |
) | (3,411,150 | ) | ||||
|
Total other income (expense) |
(837,051 |
) |
347,131 |
|||||
| Total loss before income tax | (12,683,098 | ) | (3,064,019 | ) | ||||
| Add: Net income attributable non-controlling interest | — |
1,522,101 |
||||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | (12,683,098 | ) | $ | (4,586,120 | ) | ||
Revenue
During the nine months ended September 30, 2023, we derived revenue solely from our construction segment. Total revenue for the nine months ended September 30, 2023 was $14,566,351 compared to $20,289,826 for the nine months ended September 30, 2022. This decrease of $5,723,475 or approximately 28.21% was mainly driven by no medical revenue during the nine months ended September 30, 2023, and by an increase in construction services of $5,998,783.
Cost of Revenue and Gross Profit
Cost of revenue was $15,138,225 for the nine months ended September 30, 2023, compared to $17,196,605 for the nine months ended September 30, 2022. The decrease of $2,058,380 or a decrease of approximately 11.97%, is primarily related to no services being provided for the medical segment during the nine months ended September 30, 2023.
Gross profit (loss) was $(571,874) and $3,093,221 for the nine months ended September 30, 2023 and 2022, respectively.
Gross profit (loss) margin percentage decreased to (4)% for the nine months ended September 30, 2023 compared to 15.25% for the nine months ended September 30, 2022 primarily due to no engineering services and medical revenue being generated during the nine months ended September 30, 2023.
Operating Expenses
Payroll and related expenses for the nine months ended September 30, 2023 were $6,318,728 compared to $3,650,553 for the nine months ended September 30, 2022. This increase was primarily caused by an increase in headcount and salary expenses during the nine months ended September 30, 2023, as well as the vesting of additional restricted stock units during 2023.
Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the nine months ended September 30, 2023 were $4,955,445 compared to $2,853,818 for the nine months ended September 30, 2022.
Other Income (Expense)
Interest income for the nine months ended September 30, 2023 was $22,002 mainly derived from bank interest and interest associated with an outstanding note receivable. There was $33,518 of interest income for the nine months ended September 30, 2022. There was $690,939 and $488,346 of other income for the nine months ended September 30, 2023 and 2022. Interest expense for the nine months ended September 30, 2023 and 2022 was $1,549,992 and $174,733, respectively. The increase in interest expense resulted from an increase in notes payable balances during 2023.
Three Months Ended September 30, 2023 and 2022:
|
For the Three Months Ended September 30, 2023 |
For the Three Months Ended September 30, 2022 |
|||||||
| Total revenue | $ | 3,965,361 |
$ | 4,130,257 | ||||
| Total cost of revenue | (4,501,393 | ) | (4,295,431 |
) | ||||
| Total payroll and related expenses | (819,909 | ) | (1,294,857 | ) | ||||
| Total operating expenses | (1,619,179 | ) | (1,042,155 |
) | ||||
| Total operating loss | (2,975,120 | ) | (2,502,186 | ) | ||||
| Total other income (expense) | (633,014 | ) | (45,965 | ) | ||||
| Total loss before income tax | (3,608,134 | ) | (2,548,151 | ) | ||||
| Add: Net income attributable non-controlling interest | — | (94,568 | ) | |||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | (3,608,134 | ) | $ | (2,453,583 | ) | ||
Revenue
During the three months ended September 30, 2023, we derived revenue solely from our construction segment. Total revenue for the three months ended September 30, 2023 was $3,965,361 compared to $4,130,257 for the three months ended September 30, 2022. This decrease of $164,896 or approximately 3.99% was mainly driven by an increase in construction services, and no medical revenue for the three months ended September 30, 2023.
Cost of Revenue and Gross Profit
Cost of revenue was $4,501,393 for the three months ended September 30, 2023, compared to $4,295,431 for the three months ended September 30, 2022. The increase of $205,962 or an increase of approximately 4.79%, is primarily related to increase in construction services during the three months ended September 30, 2023.
Gross profit (loss) was $(536,032) and $(165,174) for the three months ended September 30, 2023 and 2022, respectively.
Gross (loss) margin percentage decreased to (14)% for the three months ended September 30, 2023 compared to (4)% for the three months ended September 30, 2022 primarily due to no medical revenue being generated during the three months ended September 30, 2023.
Operating Expenses
Payroll and related expenses for the three months ended September 30, 2023 were $819,909 compared to $1,294,857 for the three months ended September 30, 2022. This decrease was primarily caused by a decrease in headcount and salary expenses during the three months ended September 30, 2023.
Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended September 30, 2023 were $1,619,179 compared to $1,042,155 for the three months ended September 30, 2022.
Other Income (Expense)
Interest income for the three months ended September 30, 2023 was $3,186 mainly derived from bank interest and interest associated with an outstanding note receivable. There was $9,756 of interest income for the three months ended September 30, 2022. There was $102,449 and $(2,963) of other income for the three months ended September 30, 2023 and 2022. Interest expense for the three months ended September 30, 2023 and 2022 was $738,649 and $52,758 respectively. The increase in interest expense resulted from an increase in notes payable balances during 2023.
Income Tax Provision
A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and, accordingly, no income tax benefit was provided.
Impact of Inflation
Inflation has caused increases on some of the Company's estimated costs for construction projects in progress and completed during the past two fiscal years, which has affected the Company's revenue and income (loss) from continuing operations.
Our operations for the three months ended September 30, 2023 and 2022 may not be indicative of our future operations.
Impact of Coronavirus (COVID-19)
With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic beginning in 2020, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and business. The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity, which is likely to decrease demand for a broad variety of goods and services, including from our customers, while also resulting in delays in projects due to labor shortages and supplier disruptions for an unknown period of time until the disease is contained. To date, we have experienced some delays in projects due to COVID-19, which we expect to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict. Any quarantines, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to the suppliers and contract manufacturers or customers would likely adversely impact our sales, and operating results and result in further project delays. In addition, the pandemic could result in an economic downturn that could affect the ability of our customers and licensees to obtain financing and therefore impact demand for our products. Order lead times could be extended or delayed and increases we have experienced in pricing could continue to increase. Some products or services may become unavailable if the regional or global spread were significant enough to prevent alternative sourcing. Accordingly, we are considering alternative product sourcing in the event that product supply becomes problematic. We expect this global pandemic to have an impact on our revenue and results of operations, the size and duration of which we are currently unable to predict. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which we face.
Liquidity and Capital Resources
As of September 30, 2023 and December 31, 2022 we had an aggregate of $712,906 and $582,776, respectively, of cash and cash equivalents and short-term investments.
Historically, our operations have primarily been funded through proceeds from equity and debt financings, as well as revenue from operations.
We have negative operating cash flows, which has raised substantial doubt about our ability to continue as a going concern.
We intend to meet our 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 we will be successful in meeting our capital requirements prior to becoming cash flow positive. We do not have any additional sources secured for future funding, and if we are unable to raise the necessary capital at the times we require such funding, we may need to materially change our business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.
On February 7, 2023, we 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 “Warrant”) to purchase up to Five Hundred Thousand (500,000) shares of our 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 we 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 our restricted common stock (the “Commitment Shares”) to Peak One Investments, LLC (“Investments”), the general partner of Peak One. During the nine months ended September 30, 2023, Peak One converted $700,000 of its principal balance into 466,664 shares of common stock of the Company.
The Debenture matures twelve months from its date of issuance and bear 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.
Liquidity and Capital Resources (continued)
On May 16, 2023, SG Building Blocks, Inc. (“SG Building”), entered into a Cash Advance Agreement (“Cash Advance Agreement”) with Cedar Advance LLC (“Cedar” pursuant to which SG Building sold to Cedar $710,500 of its future receivables for a purchase price of $500,000. Cedar is expected to withdraw $25,375 a week directly from SG Building, until the $710,500 due to Cedar is paid in full. In the event of a default (as defined in the Cash Advance Agreement), Cedar, among other remedies, can demand payment in full of all amounts remaining due under the Cash Advance Agreement. SG Building’s obligations under the Cash Advance Agreement have been guaranteed by SG Echo LLC (“SG Echo”).
On September 26, 2023, SG Building and Cedar entered into a second Cash Advance Agreement pursuant to which SG Building sold to Cedar $1,171,500 of its future receivables for a purchase price of $825,000. Cedar is expected to withdraw $41,800 a week directly from SG building, until the $1,171,500 due to Cedar is paid in full. In the event of a default (as defined in the Cash Advance Agreement), Cedar, among other remedies, can demand payment in full of all amounts remaining due under the Cash Advance Agreement. SG Building’s obligations under the Cash Advance Agreement have been guaranteed by SG Echo.
In connection with the exercise of its option to acquire 19 acres of land and the approximately 56,775 square foot facility located at 101 Waldron Road in Durant Oklahoma (the “Premises”), on June 8, 2023, SG Echo issued a secured commercial promissory note, dated June 1, 2023 (the “Secured Note”), in the principal amount of $1,750,000 with SouthStar Financial, LLC, a South Carolina limited liability company (“SouthStar”), and entered into a Non-Recourse Factoring and Security Agreement, dated June 1, 2023 (the “Factoring Agreement”), with SouthStar providing for its purchase from SG Echo of up to $1,500,000 of accounts receivable, subject to reduction by South Star (the “Facility Amount”).
The Secured Note bears interest at 23% per annum and is due and payable on June 1, 2025. The Secured Note is secured by a mortgage (the “Mortgage”) on the Premises and secured by a Security Agreement, dated June 1, 2023 (the “Security Agreement”), pursuant to which SG Echo granted to SouthStar a first priority security interest in all of SG Echo’s presently-owned and hereafter-acquired personal and fixture property, wherever located, including, without limitation, all accounts, goods, chattel paper, inventory, equipment, instruments, investment property, documents, deposit accounts, commercial tort claims, letters-of-credit rights, general intangibles including payment intangibles, patents, software trademarks, trade names, customer lists, supporting obligations, all proceeds and products of the foregoing. SG Echo paid to SouthStar an origination fee in the amount of 3% of the face amount of the Secured Note. Upon the occurrence of an Event of Default (as defined in the Secured Promissory Note), the default interest rate will be 28% per annum, or the maximum legal amount provided by law, whichever is greater.
The Factoring Agreement provides that upon acceptance of an account receivable for purchase SouthStar will pay to SG Echo eighty percent (80%) of the face amount of the account receivable, or such lesser percentage as agreed by the parties. SG Echo will also pay to SouthStar one and 95/100 percent (1.95%) of the face amount of the accounts receivable for the first twenty-five (25) day period after payment for the accounts receivable is transmitted to SouthStar plus one and 25/100 percent (1.25%) for each additional fifteen (15) day period or part thereof, calculated from the date of purchase until payments received by SouthStar in collected funds on the purchased accounts receivable equals the purchase price of the accounts receivable, plus all charges due SouthStar from SG Echo at the time. An additional one and 50/100 percent (1.50%) per fifteen (15) day period will be charged for invoices exceeding sixty (60) days from advance date. The Factoring Agreement provides that SG Echo may require additional funding from SouthStar (an “Overadvance”) and SouthStar may provide the Overadvance in its sole discretion. In the event of an Overadvance, SG Echo will pay SouthStar an amount equal to three and 90/100 percent (3.90%) of the amount of the Overadvance for the first twenty-five (25) day period after the Overadvance is transmitted to SouthStar plus two and 50/100 percent (2.50%) for each additional fifteen (15) day period or part thereof until payments received by SouthStar in collected funds equals the amount of the Overadvance, plus all charges due SouthStar from SG Echo at the time.
The Factoring Agreement provides that SG Echo will also pay a transactional administrative fee of $50.00 for each new account debtor submitted to it and an fee equal to 0.25% of the face amount of all purchased accounts receivable for the handling, collecting, mailing, quality assuring, insuring the risk, transmitting, and performing certain data processing services with respect to the maintenance and servicing of the purchased accounts.
As security for the payment and performance of SG Echo’s present and future obligations to SouthStar under the Factoring Agreement, SG Echo granted to SouthStar a first priority security interest in all of SG Echo’s presently-owned and hereafter-acquired personal and fixture property, wherever located, including, without limitation, all accounts, goods, chattel paper, inventory, equipment, instruments, investment property, documents, deposit accounts, commercial tort claims, letters-of-credit rights, general intangibles including payment intangibles, patents, software trademarks, trade names, customer lists, supporting obligations, all proceeds and products of the foregoing.
The Factoring Agreement has an initial term of thirty-six (36) months from the first day of the month following the date the first purchased accounts receivable is purchased. Unless terminated by SG Echo, not less than sixty (60) but not more than ninety (90) days before the end of the initial term, the Factoring Agreement will automatically extend for an additional thirty-six (36) months. SG Echo is required to provide the same not less than sixty (60) but not more than ninety (90) days notice during any and all renewal terms in order to terminate the Factoring Agreement, and if no notice is provided, the renewal term will extend for an additional thirty-six (36) month period.
If SouthStar has not purchased accounts receivable in a quarterly period during any initial or renewal term which exceed fifty percent (50%) of the Facility Amount per calendar quarter, in which $250,000.00 of the purchased accounts each month must be with ATCO Structures & Logistics (USA) Inc. (“Minimum Amount”), the Factoring Agreement provides that SG Echo will pay to SouthStar, on demand, an additional amount equal to what the charges provided for elsewhere in the Factoring Agreement would have been on the Minimum Amount assuming the number of days from the date of purchase of the Minimum Amount until receipt of payment of the Minimum Amount is thirty one (31) days, less the actual charges paid by SG Echo to SouthStar during such period.
Pursuant to a Secured Continuing Corporate Guaranty, dated June 8, 2023 (the “Corporate Guaranty”), we have guaranteed SG Echo’s obligations to SouthStar under the Secured Note and Factoring Agreement.
Pursuant to a Cross-Default and Cross Collateralization Agreement (the “Cross Default Agreement”), effective June 8, 2023, between SouthStar, SG Echo and us, SG Echo’s obligations under the Secured Note and Factoring Agreement are cross-defaulted and cross-collateralized such that any event of default under the Secured Note shall constitute an event of default under the Factoring Agreement at SouthStar’s election (and vice versa, any event of default under the Factoring Agreement shall constitute an event of default under the Secured Note at SouthStar’s election) and any collateral pledged to secure SG Echo’s obligations under the Secured Note shall also secure SG Echo’s obligations under the Factoring Agreement (and vice versa).
On June 23 2023, SG DevCorp, entered into a Loan Agreement (the “BCV Loan Agreement”) with a Luxembourg-based specialized investment fund, BCV S&G DevCorp (“BCV S&G”), for up to $2,000,000 in proceeds, of which it has raised $1,250,000 to date. The Loan Agreement provides that the loan provided thereunder will bear interest at 14% per annum and mature on December 1, 2024. The loan may be repaid by SG DevCorp at any anytime following the twelve-month anniversary of its issue date. The loan is secured by 1,999,999 shares of our shares of SG DevCorp’s common stock (the “Pledged Shares”), which were pledged by SG DevCorp pursuant to an escrow agreement (the “Escrow Agreement”) with American Stock Transfer & Trust Company, LLC, SG DevCorp’s transfer agent, and which represent 19.99% of SG DevCorp’s outstanding shares. The fees associated with the issuance include $70,000 paid to BCV S&G for the creation of the BCV Loan Agreement and $27,500 payable to BCV S&G per annum for maintaining the BCV Loan Agreement. Additionally, $37,500 in broker fees has been paid to Bridgeline Capital Partners S.A. on the principal amount raised of $1,250,000 raised to date. The BCV Loan Agreement further provides that if SG DevCorp’s shares of common stock are not listed on The Nasdaq Stock Market on before August 30, 2023 or if following such listing the total market value of the Pledged Shares falls below twice the face value of the loan, the loan will be further secured by SG DevCorp’s St. Mary’s industrial site, consisting of 29.66 acres and a proposed manufacturing facility in St. Mary’s, Georgia.
On August 16, 2023, SG DevCorp secured an additional $500,000 in bridge funding from BCV S&G under the BCV Loan Agreement.
On August 25, 2023, SG DevCorp and BCV S&G amended the BCV Loan Agreement (“Amendment No. 1”) to change the date upon which SG DevCorp’s shares must be listed on The Nasdaq Stock Market from August 30, 2023 to September 15, 2023. According to Amendment No. 1, if SG DevCorp’s shares of common stock were not listed on The Nasdaq Stock Market before September 15, 2023 or if following such listing the total market value of the Pledged Shares falls below twice the face value of the loan, the loan will be further secured by a security interest in the St. Mary’s Site.
On September 11, 2023, SG DevCorp and BCV S&G amended the BCV Loan Agreement (“Amendment No. 2”) to change the date upon which SG DevCorp’s shares must be listed on The Nasdaq Stock Market from September 15, 2023 to September 30, 2023. According to Amendment No. 2, if SG DevCorp’s shares of common stock were not listed on The Nasdaq Stock Market before September 30, 2023 or if following such listing the total market value of the Pledged Shares falls below twice the face value of the loan, the loan will be further secured by a security interest in the St. Mary’s Site. Following the listing, the total market value of the Pledged Shares has fallen below twice the face value of the loan and SG DevCorp and BCV S&G are in discussions regarding alternatives.
We continue to generate losses from operations. At September 30, 2023 and December 31, 2022 we had a cash balance of $712,906 and $582,776, respectively. As of September 30, 2023, our stockholders’ equity was $6,417,026 compared to $14,439,562 as of December 31, 2022 and an accumulated deficit of $62,211,370. Our net loss attributable to our common stockholders for the nine months ended September 30, 2023 was $12,683,098 and net cash used in operating activities was $4,671,862.
We will need to generate additional revenues or secure additional financing sources, such as debt or equity capital, to fund future growth, which financing may not be available on favorable terms or at all. We are in the process of securing funding, which will provide the needed working capital until we are cash flow positive, which we believe will be in the first half of 2024. If we are unable to raise the necessary capital at the times we require such funding, we may need to materially change our business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.
Cash Flow Summary
|
Nine Months Ended September 30, |
|||||||
|
|
2023 |
2022 |
|||||
|
Net cash provided by (used in): |
|||||||
|
Operating activities |
$ |
(4,671,862 |
) |
$ |
(5,553,160 |
) | |
|
Investing activities |
(692,604 |
) |
(3,549,372 |
) | |||
|
Financing activities |
5,494,596 |
(1,803,680 |
) | ||||
|
Net increase/(decrease) in cash and cash equivalents |
$ |
130,130 |
$ |
(10,906,212 |
) | ||
Operating activities used net cash of $4,671,862 during the nine months ended September 30, 2023, and used net cash of $5,553,160 during the nine months ended September 30, 2022. Generally, our net operating cash flows fluctuate primarily based on changes in our profitability and working capital. Cash used in operating activities decreased by approximately $881,298.
Investing activities used net cash of $692,604 during the nine months ended September 30, 2023, and $3,549,372 net cash during the nine months ended September 30, 2022 a decrease in cash used of $2,856,768. This amount resulted from a decrease due to project development cost of $ 119,885, decrease of $42,662 because of investment in and advances to equity affiliates, and a decrease of $530,055 due to purchase of property , plant, and equipment.
Financing activities provided net cash of $5,494,596 during the nine months ended September 30, 2023. Financing activities used $1,803,680 net cash during the nine months ended September 30, 2022. This amount resulted from a decrease of $7,298,276 due to repurchase of common stock, decrease of $2,732,144 due to repayment of short term notes payable, increase of $7,609,514 from the proceeds from short term notes payable and warrants, net of debt issuance costs, an increase of $706, 359 due to the proceeds from long term notes payable, and a decrease of $46,417 due to distribution to non-controlling interest.
We provide services to our construction and engineering customers in three separate phases: the design phase, the architectural and engineering phase and the construction phase. Each phase is independent of the other, but builds through a progression of concept through delivery of a completed structure. These phases may be embodied in a single contract or in separate contracts, which is typical of a design build process model. As of September 30, 2023, we had eleven projects totaling $1,306,849 under contract. Of these contracts, all eleven projects combine all three phases or parts thereof and including construction. We expect that all of this revenue will be realized by December 31, 2023.
Backlog may fluctuate significantly due to the timing of orders or awards for large projects and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as revenue. Our backlog decreased by approximately $3,000,000 from December 31, 2022 to September 30, 2023. We expect that all of this revenue will be realized by December 31, 2023. Backlog does not include COVID tests or testing services provided through our joint venture, Clarity Mobile Venture.
There can be no assurance that our customers will decide to and/or be able to proceed with these construction projects, or that we will ultimately recognize revenue from these projects in a timely manner or at all.
Off-Balance Sheet Arrangements
As of September 30, 2023 and December 31, 2022, we had no material off-balance sheet arrangements to which we are a party.
In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector. These agreements are typically with consultants and certain vendors. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as of September 30, 2023.
| 45 |
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”). In connection with the preparation of the financial statements, we are required to make assumptions and estimates and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that we believe to be relevant at the time the consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in “Note 3— Summary of Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We believe that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results.
Share-based payments. We measure 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 the award is measured on the grant date. For non-employees, the fair value of the award is generally re-measured on interim financial reporting dates and vesting dates until the service period is complete. 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. We recognize 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 is 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 consolidated statements of operations.
Other derivative financial instruments. We classify as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement), provided that such contracts are indexed to our own stock. We classify 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 SGB’s control) or (ii) give the counterparty a choice of net-cash settlement or settlement shares (physical settlement or net-cash settlement). SGB 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
Convertible instruments. We bifurcate 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 (i) 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; (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP measures with changes in fair value reported in earnings as they occur; and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
We determined that the embedded conversion options that were included in the previously outstanding convertible debentures should be bifurcated from their host and a portion of the proceeds received upon the issuance of the hybrid contract has been allocated to the fair value of the derivative. The derivative was subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.
Critical Accounting Estimates (continued)
Revenue recognition – We determine, at contract inception, whether we 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 we expect to be entitled in exchange for those goods or services. To achieve this core principle, we apply 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, we apply recognition of revenue over time, which is similar to the method we 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.
For product or equipment sales, we apply recognition of revenue when the customer obtains control over such goods, which is at a point in time.
Goodwill – Goodwill represents the excess of reorganization value over the fair value of identified net assets upon emergence from bankruptcy. In accordance with the accounting guidance on goodwill, we perform our 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 value. Our evaluation of goodwill completed during the year ended December 31, 2022, resulted in no impairment loss. There was no impairment during the September 30, 2023.
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 $68,344 of trademarks, and $238,422 of website costs that are being amortized over 5 years. We evaluated intangible assets for impairment during the nine months ended September 30, 2023 and 2022 and determined that there are no impairment losses.
New Accounting Pronouncements
See Note 3 to the accompanying consolidated financial statements for all recently adopted and new accounting pronouncements.
| 47 |
Non-GAAP Financial Information
In addition to our results under GAAP, we also present EBITDA and Adjusted EBITDA for historical periods. EBITDA and Adjusted EBITDA are non-GAAP financial measures and have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We calculate EBITDA as net income (loss) attributable to common stockholders before interest expense, income tax benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before certain non-recurring, unusual or non-operational items, such as litigation expense, stock issuance expense and stock compensation expense. We believe that adjusting EBITDA to exclude the effects of these items that are not closely associated with ongoing corporate operations provides management and investors with a meaningful measure that increases period-to -period comparability of our operating performance.
We believe the presentation of EBITDA and Adjusted EBITDA is relevant and useful by enhancing the readers’ ability to understand the Company’s operating performance. Our management utilizes EBITDA and Adjusted EBITDA as a means to measure performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing us and our results of operations.
Our measurements of EBITDA and Adjusted EBITDA may not be comparable to similar titled measures reported by other companies. Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than as presented in this Quarterly Report on Form 10-Q, limiting their usefulness as a comparative measure. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as an alternative to net income (loss) attributable to common stockholders, or any other measures of financial performance derived in accordance with GAAP. We do not consider these non-GAAP measures to be substitutes for or superior to the information provided by our GAAP financial results. . The non-GAAP information should be read in conjunction with our consolidated financial statements and related notes.
These measures also should not be construed as an inference that our future results will be unaffected by the non-recurring, unusual or non-operational items for which these non-GAAP measures make adjustments. Additionally, EBITDA and Adjusted EBITDA are not intended to be liquidity measures.
Non-GAAP Financial Information (continued)
The following is a reconciliation of EBITDA and Adjusted EBITDA to the nearest GAAP measure, net gain (loss) attributable to common stockholders:
| Three Months Ended September 30, 2023 |
Three Months Ended September 30, 2022 |
Nine Months Ended September 30, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
|
Net loss attributable to common stockholders of Safe & Green Holdings Corp. |
$ | (3,608,134 | ) | $ | (2,453,583 | ) | $ | (12,683,098 | ) | $ | (4,586,120 | ) | ||||
| Addback interest expense | 738,649 | 52,758 | 1,549,992 | 174,733 | ||||||||||||
| Addback interest income | (3,186 | ) | (9,756 | ) | (22,002 | ) | (33,518 | ) | ||||||||
| Addback depreciation and amortization | 1,448,305 | 145,515 | 1,747,072 | 470,425 | ||||||||||||
|
EBITDA (non-GAAP) |
(1,424,366 | ) | (2,265,066 | ) | (9,408,036 | ) | (3,974,480 | ) | ||||||||
|
Addback litigation expense |
— | 121,830 | 17,361 | 466,959 | ||||||||||||
| Addback stock issued for services |
— | — | 484,825 |
— | ||||||||||||
| Addback stock compensation expense | — | 594,694 | 3,210,631 | 1,874,857 | ||||||||||||
|
Adjusted EBITDA (non-GAAP) |
$ | (1,424,366 | ) | $ | (1,548,542 | ) | $ | (5,695,219 | ) | $ | (1,632,664 | ) |
| 48 |
Not applicable.
Management of Safe & Green Holdings Corp., with the participation of our Principal Executive Officer and the Principal Financial Officer carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The Principal Executive Officer and the Principal Financial Officer believe that the condensed consolidated financial statements and other information contained in this Quarterly Report on Form 10-Q present fairly, in all material respects, our business, financial condition and results of operations.
Changes in Internal Control over Financial Reporting
Other than as described above, for the fiscal quarter ended September 30, 2023, there have been no changes in our internal control over financial reporting identified in connection with the evaluations required by Rule 13a-15(d) or Rule 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
The information included in "Note 16 - Commitments and Contingencies" of our condensed consolidated financial statements included elsewhere in this Quarterly Report Form 10-Q is incorporated by reference into this Item.
Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, "Risk Factors," contained in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). There have been no material changes from the risk factors disclosed in “Part I—Item 1A. Risk Factors” in our 2022 Form 10-K, except as follows:
If we are not successful in our efforts to increase sales or raise capital, we could experience a shortfall in cash over the next twelve months, and our ability to obtain additional financing on acceptable terms, if at all, may be limited.
At September 30, 2023 and December 31, 2022, we had cash and cash equivalents and a short-term investment, collectively, of $712,906 and $582,776 respectively. However, during the nine months ended September 30, 2023 and year ended December 31, 2022, we reported a net loss attributable to common stockholders of Safe & Green Holdings Corp. of $12,683,098 and $4,586,120, respectively, and used $4,671,862 and $5,553,160 of cash for operations, respectively. If we are not successful with our efforts to increase revenue, we could experience a shortfall in cash over the next twelve months. If there is a shortfall, we may be forced to reduce operating expenses, among other steps, all of which would have a material adverse effect on our operations going forward.
We may also seek to obtain debt or additional equity financing to meet any cash shortfalls. The type, timing and terms of any financing we may select will depend on, among other things, our cash needs, the availability of other financing sources and prevailing conditions in the financial markets. However, there can be no assurance that we will be able to secure additional funds if needed and that, if such funds are available, the terms or conditions would be acceptable to us. In addition, our inability to currently utilize a short form registration statement on Form S-3 may impair our ability to obtain capital in a timely fashion. If we are unable to secure additional financing, further reduction in operating expenses might need to be substantial in order for us to ensure enough liquidity to sustain our operations. Any equity financing would be dilutive to our stockholders. If we incur debt, we will likely be subject to restrictive covenants that significantly limit our operating flexibility and require us to encumber our assets. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, or otherwise respond to competitive pressures will be significantly limited. Any of the above limitations could force us to significantly curtail or cease our operations, and you could lose all of your investment in our common stock. These circumstances have raised substantial doubt about our ability to continue as a going concern, and continued cash losses may risk our status as a going concern. Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.
The report of our independent registered public accounting firm contains a note stating that the accompanying financial statements have been prepared assuming we will continue as a going concern. At December 31, 2022 and 2021, we had cash and cash equivalents and a short-term investment, collectively, of $582,776 and $13,024,381, respectively. However, during the fiscal years ended December 31, 2022 and 2021, we reported a net loss of $7,089,242 and $5,908,372, respectively, and used $5,630,614 and $662,759 of cash for operations, respectively.
We have incurred losses since inception, have negative working capital of $(9,280,961) as of September 30, 2023 and have negative operating cash flows, which has raised substantial doubt about our ability to continue as a going concern. We expect our current cash and the proceeds from anticipated financings to be sufficient for working capital until we are cash flow positive, which we believe will be in the first half of 2024.
The loss of one or a few customers could have a material adverse effect on us.
A few customers have in the past, and may in the future, account for a significant portion of our revenues in any one year or over a period of several consecutive years. For example, for the nine months ended September 30, 2023 approximately 96% of our revenue was generated from one customer and for the year ended December 31, 2022, approximately 65% of our revenue was generated from three customers. Although we have contractual relationships with many of our significant customers, our customers may unilaterally reduce or discontinue their contracts with us at any time. The loss of business from a significant customer could have a material adverse effect on our business, financial condition, results of operations and cash flows.
| 50 |
We rely on certain vendors to supply us with materials and products that, if we were unable to obtain, could adversely affect our business.
We have relationships with key materials vendors, and we rely on suppliers for our purchases of products from them. Any inability to obtain materials or services in the volumes required and at competitive prices from our major trading partners, the loss of any major trading partner or the discontinuation of vendor financing (if any) may seriously harm our business because we may not be able to meet the demands of our customers on a timely basis in sufficient quantities or at all. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors’ ability to provide products in a timely manner or at competitive prices. We also rely on other vendors for critical services such as transportation, supply chain and professional services. Any negative impacts to our business or liquidity could adversely impact our ability to establish or maintain these relationships. Cost of revenue relating to two vendors represented approximately 12% of the Company’s total cost of revenue for the three months ended September 30, 2022. Cost of revenue relating to three vendors represented approximately 10% of the Company’s total cost of revenue for the nine months ended September 30, 2022. There were no vendors representing 10% or more of the Company’s total cost of revenue for the three or nine months ended September 30, 2023.
Our clients may adjust, cancel or suspend the contracts in our backlog; as such, our backlog is not necessarily indicative of our future revenues or earnings. In addition, even if fully performed, our backlog is not a good indicator of our future gross margins.
Backlog represents the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts we have been awarded. Backlog may fluctuate significantly due to the timing of orders or awards for large projects and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as revenue. We include in backlog only those contracts for which we have reasonable assurance that the customer can obtain the permits for construction and can fund the construction. As of December 31, 2022, our backlog totaled approximately $6.8 million and as of September 30, 2023, our backlog totaled approximately $3.8 million. Our backlog is described more in detail in “Note 11—Construction Backlog” of the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We cannot provide assurance that our backlog will be realized as revenues in the amounts reported or, if realized, will result in profits. In accordance with industry practice, substantially all of our contracts are subject to cancellation, termination or suspension at our customer’s discretion. In the event of a project cancellation, we generally would not have a contractual right to the total revenue reflected in our backlog. Projects can remain in backlog for extended periods of time because of the nature of the project and the timing of the particular services required by the project. In addition, the risk of contracts in backlog being cancelled or suspended generally increases during periods of widespread economic slowdowns or in response to changes in commodity prices.
The contracts in our backlog are subject to changes in the scope of services to be provided and adjustments to the costs relating to the contracts. The revenue for certain contracts included in backlog is based on estimates. Additionally, our performance of our individual contracts can affect greatly our gross margins and, therefore, our future profitability. We can provide no assurance that the contracts in backlog, assuming they produce revenues in the amounts currently estimated, will generate gross margins at the rates we have realized in the past.
The issuance of shares of our common stock upon the exercise of outstanding options, warrants and restricted stock units may dilute the percentage ownership of the then-existing stockholders and may make it more difficult to raise additional equity capital.
At September 30, 2023, there were options and warrants to purchase of 36,436 and 2,525,020, respectively, outstanding that could potentially dilute future net income per share. Because we had a net loss as of September 30, 2023, we are prohibited from including potential shares of common stock in the computation of diluted per share amounts. Accordingly, we used the same number of shares outstanding to calculate both the basic and diluted loss per share. At September 30, 2022, there were options, including options to non-employees and non-directors, restricted stock units and warrants to purchase 36,436, 2,245,186 and 2,025,520 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.
If SG DevCorp were to default in its obligation to repay the loan received from BCV S&G it could adversely affect our investment in SG DevCorp.
To date, SG DevCorp has received $1,750,000 as a secured loan from BCV S&G, a Luxembourg-based specialized investment fund, and has entered into a loan agreement with BCV S&G DevCorp to receive up to $2,000,000 as a secured loan. The loan matures on December 1, 2024 and is secured by 1,999,999 of our shares of SG DevCorp’s common stock. The loan agreement, as amended, provides that if SG DevCorp’s shares of common stock were not listed on The Nasdaq Stock Market before September 30, 2023 or if following such listing the total market value of the pledged shares falls below twice the face value of the loan, the loan would be further secured by SG DevCorp’s St. Mary’s industrial site. Following the listing, the total market value of the pledged shares has fallen below twice the face value of the loan and SG DevCorp and BCV S&G are in discussions regarding alternatives. If SG DevCorp were to default in its obligation to repay the loan when due it could adversely affect our investment in SG DevCorp.
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
The uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values also affect our business operations and our ability to enter into collaborations and joint ventures. To date, inflation has caused increases on some of our estimated costs for construction projects in progress and completed during the past two fiscal years, which has affected our revenue and income(loss) from continuing operations. It is difficult to predict the impact on increasing inflation on our operations. We are actively monitoring the effects these disruptions and increasing inflation could have on our operations.
A number of other economic and geopolitical factors both in the U.S. and abroad, could ultimately have material adverse effects on our business, financial condition, results of operations or cash flows, including the following:
● effects of significant changes in economic, monetary and fiscal policies in the U.S. and abroad including currency fluctuations, inflationary pressures and significant income tax changes;
● supply chain disruptions;
● a global or regional economic slowdown in any of our market segments;
● changes in government policies and regulations affecting the Company or its significant customers;
● postponement of spending, in response to tighter credit, financial market volatility and other factors;
● rapid material escalation of the cost of regulatory compliance and litigation;
● the effects of the war in the Middle East;
● longer payment cycles;
● credit risks and other challenges in collecting accounts receivable; and
● the impact of each of the foregoing on outsourcing and procurement arrangements.
Failure to meet NASDAQ’s continued listing requirements could result in the delisting of our common stock, negatively impact the price of our common stock and negatively impact our ability to raise additional capital.
On November 7, 2023, Safe & Green Holdings Corp. (the “Company”) received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that for the preceding 30 consecutive business days (September 26, 2023 through November 6, 2023), the Company’s common stock did not maintain a minimum closing bid price of $1.00 (“Minimum Bid Price Requirement”) per share as required by Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has a compliance period of 180 calendar days, or until May 6, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance may be achieved automatically and without further action if the closing bid price of the Company’s common stock is at or above $1.00 for a minimum of ten consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify the Company of its compliance and the matter will be closed. If, however, the Company does not achieve compliance with the Minimum Bid Price Requirement by May 6, 2024, the Company may be eligible for additional time to comply. In order to be eligible for such additional time, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and must notify Nasdaq in writing of its intention to cure the deficiency during the second compliance period. The Company intends to actively monitor the bid price of its common stock and will consider available options to regain compliance with the Nasdaq listing requirements, including such actions as effecting a reverse stock split to maintain its Nasdaq listing.
If we cannot regain compliance with the Minimum Bid Price Requirement, our common stock will be subject to delisting. If that were to occur, our common stock would be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our common stock. This would adversely affect the ability of investors to trade our common stock and would adversely affect the value of our common stock. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock.
| 52 |
We did not sell any equity securities during the quarter ended September 30, 2023 in transactions that were not registered under the Securities Act other than as set forth in our previous filings with the Securities and Exchange Commission.
None.
Not applicable.
None
| 31.1+ | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2+ | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1+ | Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2+ |
Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
| 101.INS+ | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as the XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH+ | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL+ | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF+ | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB+ | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE+ | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| + | Filed herewith. |
| * | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
| 55 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SAFE & GREEN HOLDINGS CORP. | ||
| (Registrant) | ||
| By: | /s/ Paul M. Galvin | |
|
Paul M. Galvin Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
||
| By: | /s/ Patricia Kaelin |
|
|
Patricia Kaelin Chief Financial Officer |
||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Date: November 14, 2023 | ||
| 56 |