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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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


For the quarterly period ended March 31, 2024

 

OR

 

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

 

For the transition period from ____________ to ____________ 

 

Commission File Number: 001-38037

 

SAFE & GREEN HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4463937

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

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

 

33132

(Address of principal executive offices)

 

(Zip Code)

 

(646) 240-4235

(Registrant’s telephone number, including area code) 

 

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


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

SGBX

The Nasdaq Stock Market LLC

 

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


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


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

 

Large accelerated filer  ☐

Accelerated filer  ☐  

Non-accelerated filer  ☒

Smaller reporting company  


Emerging growth company  


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


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


As of May 15, 2024 the issuer had a total of 1,344,668 shares of the registrant’s common stock, $0.01 par value, outstanding.  


 




SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

FORM 10-​Q


TABLE OF CONTENTS




Page Number

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

Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 2

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 3

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited) 5

Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Result of Operations 47
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 59
ITEM 4. Controls and Procedures 59
PART II. OTHER INFORMATION 
60
ITEM 1. Legal Proceedings 60
ITEM 1A. Risk Factors 60
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 63
ITEM 3. Defaults Upon Senior Securities 63
ITEM 4. Mine Safety Disclosures 63
ITEM 5. Other Information 63
ITEM 6. Exhibits 64
SIGNATURES
66

​​​

​​​​​​​​
1


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES 

Condensed Consolidated Balance Sheets

 

 

March 31,

2024

 

 

December 31,
 
2023

 

 

 

 (Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

739,787

 

 

$

17,448

 

Accounts receivable, net

 

 

93,182

 

 

 

182,753

 

Contract assets 

 

 

10,745

 

 

 

10,745

 

Held for sale assets 4,400,361 4,400,361
Inventories 283,593 156,512

Prepaid expenses and other current assets

 

 

589,223

 

 

 

572,779

 

Total current assets

 

 

6,116,891

 

 

 

5,340,598

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

5,571,862

 

 

 

5,582,401

 

Project development costs and other non-current assets 830,753 604,327

Goodwill

 

 

1,810,787

 

 

 

 

Right-of-use asset 1,830,799 1,987,137

Intangible assets, net

 

 

151,397

 

 

 

23,616

 

Deferred contract costs, net 30,589
Investment in and advances to equity affiliates  3,642,607 3,642,607

Total Assets

 

$

19,955,096

 

 

$

17,211,275

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

11,668,240

 

 

$

9,854,263

 

Contract liabilities

 

 

490,696

 

 

 

1,366,998

 

    Lease liability, current maturities 652,308 856,088
    Customer deposits 656,510
    Short-term notes payable, net 9,249,341 8,472,080

Total current liabilities

 

 

22,717,095

 

 

 

20,549,429

 










Long-term note payable

2,454,930


2,447,415
Contingent consideration liability

945,000



Lease liability, net of current maturities

475,549


549,290
Total liabilities
26,592,574 23,546,134

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value, 5,405,010 shares authorized; none issued or outstanding 

 

 

 

 

 

 

Common stock, $0.01 par value, 75,000,000 shares authorized; 1,099,269 issued and 1,095,898 outstanding as of March 31, 2024 and 881,387 issued and 814,969 outstanding as of December 31, 2023

 

 

10,993

 

 

 

8,814

 

Additional paid-in capital

 

 

70,448,355

 

 

 

68,555,050

 

Treasury stock, at cost 3,371 shares as of March 31, 2024 and 3,371 shares as of December 31, 2023 (92,396 ) (92,396 )

Accumulated deficit

 

 

(80,600,969

)

 

 

(75,930,805

)

Non-controlling interest

 

 

3,596,539

 

 

1,124,478

Total stockholders’ equity (6,637,478 )
(6,334,859 )

Total Liabilities and Stockholders’ Equity

 

$

19,955,096

 

$

17,211,275


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

2


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES


Condensed Consolidated Statements of Operations

 

For the

Three Months Ended

March 31,



For the

Three Months Ended

March 31,


 

2024

2023

 

(Unaudited)

(Unaudited)

Revenue:






Construction services $ 968,115

$ 5,503,935

Real estate commissions


49,816



Total  


1,017,931


5,503,935

 








Cost of revenue:








Construction services


644,983


5,573,407

Total   


644,983


5,573,407

 








Gross profit (loss)


372,948

(69,472 )

 








Operating expenses:








Payroll and related expenses


3,268,069


1,314,390

General and administrative expenses


944,613


1,788,956

Marketing and business development expenses


192,725


87,251

Total


4,405,407


3,190,597

 








Operating loss


(4,032,459 )

(3,260,069 )

 








Other income (expense):








Interest expense


(1,282,756 )

(287,372 )

Interest income


9,570


9,362
Other income
48,617


18,639

Total


(1,224,569 )

(259,371 )

 








Loss before income taxes  


(5,257,028 )

(3,519,440 )

Income tax expense   






 








Net loss


(5,257,028 )

(3,519,440 )








Common stock deemed dividend
(670,881 )




(5,927,909 )

(3,519,440 )

 








Add: net income (loss) attributable to noncontrolling interests  
1,257,745

Net loss attributable to common stockholders $ (4,670,164 )
$ (3,519,440 )








Net loss per share








Basic and diluted

$ (4.93 )
$ (5.00 )

 








Weighted average shares outstanding:








Basic and diluted


947,670


700,197

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

3


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

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


 

 

$0.01 Par Value
Common Stock

 


Additional
Paid-in

 



Treasury


Accumulated

 

Noncontrolling


Total
Stockholders’

 

 

 

Shares

 


Amount

 


Capital

 



Stock

Deficit

 


Interests


Equity

 

Balance at December 31, 2022

 


630,699

 


$

6,307

 


$

56,293,810

 


$ (49,680 )

$

(41,428,268

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

 

Stock-based compensation







656,369











656,369
Issuance of restricted common stock

14,376


144


437,181











437,325
Issuance of restricted stock units

67,555


676


(676 )











Issuance of warrants and restricted common stock

2,500


25


354,214











354,239
Noncontrolling interest distribution
















(46,417 )

(46,417 )

Net loss

 


 



 


 

 





 

(3,519,440

)



(3,519,440 )
Balance at March 31, 2023

715,130

$ 7,152

$ 57,740,898

$ (49,680 )
$ (44,947,708 )
$ (429,024 )
$ 12,321,638





























Balance at December 31, 2023  

 


881,387

 


$

8,814

 


$

68,555,050

 


$ (92,396 )

$

(75,930,805

)
$ 1,124,478
$ (6,334,859 )
Stock-based compensation

38,934


390


178,639











179,029
Issuance of common stock and warrants for debt issuance

15,000


150


251,211











251,361
Cashless warrant exercise

11,389


114


(114 )











Issuance of common stock from warrant inducement

94,932


949


493,264











494,213
Common stock deemed dividend







670,881





(670,881 )





Conversion of short-term notes payable

57,627


576


299,424










300,000
SG DevCorp equity transactions















3,729,806


3,729,806

Net loss

 


 



 


 

 





 

(3,999,283

)

(1,257,745 )

(5,257,028 )

Balance at March 31, 2024

 


1,099,269

 


$

10,993

 


$

70,448,355

 


$ (92,396 )

$

(80,600,969 )
$ 3,596,539
$
(6,637,478 )

  

4


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

 

 

For the

Three Months Ended 
March 31, 2024

 


For the

Three Months Ended 
March 31, 2023

 

 

 

(Unaudited)

 


(Unaudited)

 

Cash flows from operating activities:

 

 

 


 

 

Net loss

 

$

(5,257,028

)

$

(3,519,440

)

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

 

 

 

 


 

 

 

Depreciation expense

 

 

42,381

 


 

92,193

 

Amortization of intangible assets

 

 

3,417

 


 

46,119

 

Amortization of deferred license costs

30,589


10,196
Amortization of debt issuance costs and debt discount

626,978



169,040
Amortization of right of use asset

156,338


230,690
Common stock issued for services




437,325

SG DevCorp equity transactions

 

 

2,594,806


 

Interest income on long-term note receivable

 

 


 

(9,247

)

Stock-based compensation

 

 

179,029

 


 

656,369

 

Changes in operating assets and liabilities:

 

 

   

 


 

   

 

Accounts receivable

 

 

89,571


 

268,284

Contract assets

 

 


 

(864,333

)
Inventories

(127,081 )

452,571

Prepaid expenses and other current assets

 

 

(16,444

)

 

(522,314

)
Intangible assets

(30,730 )

(81,180 )

Accounts payable and accrued expenses

 

 

1,281,640


 

1,691,992

Contract liabilities



(876,302

)

 

(93,142

)
     Lease liability

(277,521 )

(343,808 )
Customer deposit

656,510


Net cash used in operating activities

 

 

(923,847

)

 

(1,378,685

)

 

 

 

 

 


 

 

 

Cash flows from investing activities:

 

 

 

 


 

 

 

Purchase of property, plant and equipment

(31,842 )

(531,083 )
Cash from business combination

1,082



Project development costs

(226,426 )

(82,265 )
Investment in and advances to equity affiliates



(25,000 )

Net cash used in investing activities

 

 

(257,186

)

 

(638,348

)

 

 

 

 

 


 

 

 

Cash flows from financing activities:

 

 

 

 


 

 

 

Repayment of short term notes payable

(884,485 )

(2,500,000 )
Proceeds from short-term notes payable and warrants, net of debt issuance costs

2,293,644


5,433,175
Proceeds from warrant inducement

494,213



Distribution paid to non-controlling interest




(46,417 )

Net cash provided by financing activities

 

 

1,903,372


 

2,886,758

 

 


 
Net increase in cash and cash equivalents

722,339

869,725









Cash and cash equivalents - beginning of period

17,448


582,776









Cash and cash equivalents - end of period
$ 739,787

$ 1,452,501









Supplemental disclosure of non-cash investing and financing activities:







Peak Stock and Warrants Issuances
$ 251,361

$
Common stock deemed dividend
$ 670,881

$
Conversion of short-term notes payable to common stock
$ 1,000,000

$
Assets and liabilities acquired in business combination:





Intangible assets
$ 100,468

$
Goodwill
$ 1,810,787

$
Accounts payable and accrued expenses
$ 32,237

$
Contingent consideration payable
$ 945,000

$

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

5


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (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 four segments: (i) manufacturing & construction services; (ii) medical; (ii) real estate development; and (iv) environmental. The manufacturing & construction services segment designs and constructs modular structures built in the Company’s factories. In the medical segment, the Company uses its modular technology to (i) provide turnkey solutions to medical testing and treatment and generate revenue from the medical testing and point of care treatment in our medical suites and (ii) sell and lease medical suites and privacy pods. The Company’s real estate development segment consists of SG Development Corp., our majority owned subsidiary, which builds innovative and green single or multifamily projects in underserved regions nationally using modules (“Modules”) built in one of the Company’s vertically integrated factories. The environmental segment consists of a sustainable medical and waste management solution that collects waste and treats waste for safe disposal.

 

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


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

 

Construction

During 2020, the Company formed SG Echo, LLC ("SG Echo"), a wholly owned subsidiary of the Company. The Company acquired substantially all the assets of Echo DCL (“Echo”), a Texas limited liability company, except for Echo's real estate holdings for which the Company obtained a right of first refusal. Echo is a container/modular manufacturer based in Durant, Oklahoma specializing in the design and construction of permanent modular and temporary modular buildings and was one of the Company's key supply chain partners. Echo caters to the military, education, administration facilities, healthcare, government, commercial and residential customers. This acquisition has allowed the Company to expand its reach for the Modules and offer an opportunity to vertically integrate a large portion of the Company's cost of goods sold, as well as increase margins, productivity and efficiency in the areas of design, estimating, manufacturing and delivery and to become the manufacturer of the Company's core container and modular product offerings. 
6


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)


1.

Description of Business (continued)


Medical

 

As of January 2021 and through the fourth quarter of 2021, the Company’s consolidated financial statements include the accounts of Chicago Airport Testing LLC (“CAT”). The Company had a variable interest in CAT as described further below. CAT is in the business of marketing, selling, distributing, leasing and otherwise commercially exploiting certain products and services in the COVID-19 testing and other medical industry. In addition, during March 2023, the Company formed Safe and Green Medical Corporation. (“SG Medical”). The Company also entered into a joint venture with Clarity Lab Solutions LLC., to provide clinical lab testing related to COVID-19.

Real Estate Development

 

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

Environmental

During 2022, SG Environmental Solutions Corp. (“SG Environmental”) was formed and is focused on biomedical waste removal and plans to 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. 

Reverse Stock Split

On May 2, 2024, the Company effected a 1-for-20 reverse stock split of its then-outstanding common stock (“May Stock Split”). All share and per share amounts set forth in the consolidated financial statements of the Company have been retroactively restated to reflect the 1-for-20 reverse stock split as if it had occurred as of the earliest period presented and unless otherwise stated, all other share and per share amounts for all periods presented in this Annual Report have been adjusted to reflect the reverse stock split effected in May 2024.

 

2.

Separation and Distribution

 

In December 2022, the Company and then owner of 100% of the issued and outstanding securities of SG DevCorp, announced its plan to separate the Company and SG DevCorp into two separate publicly traded companies (the “Separation”). To implement the Separation, on September 27, 2023 (the “Distribution Date”), the Company, effected a pro rata distribution to its stockholders of approximately 30% of the outstanding shares of SG DevCorp’s common stock (the “Distribution”). In connection with the Distribution, each Company stockholder received 0.930886 shares of SG DevCorp’s common stock for every five (5) shares of Company 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 the Company and the Company held 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, 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.

 

7


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

3.

Liquidity 


As of March 31, 2024, the Company had cash and cash equivalents of $739,787 and a backlog of $964,375. See Note 13 for a discussion of construction backlog. Based on its conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period:  


    2024
Within 1 year $ 964,375
Total Backlog $ 964,375

The Company has incurred losses since its inception, has negative working capital of $15,496,033 and has negative operating cash flows, which has raised substantial doubt about its ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.

 

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

 

4.

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, 2023 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on May 7, 2024. In the opinion of management, all adjustments, consisting of normal accruals, considered necessary for a fair presentation of the interim financial statements have been included. Results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.


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.


8


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)


4.

Summary of Significant Accounting Policies (continued)

 

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


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


                (1)  Identify the contract with a customer


                (2)  Identify the performance obligations in the contract


                (3)  Determine the transaction price

 

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

 

                (5)  Recognize revenue as performance obligations are satisfied

On certain contracts, the Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e., percentage of completion). Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress toward complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates 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. Additionally, SG DevCorp has begun to generate revenue resulting from commissions on residential real estate purchases and sales transactions. For this revenue, the Company applies recognition of revenue when the customer obtains control over such service, which his at a point in time.


Disaggregation of Revenues


The Company’s revenues are primarily derived from construction related to Modules projects. The Company's contracts are with customers in various industries. Revenue recognized over time was $968,115 and $5,503,935 for the three months ended March 31, 2024 and 2023, respectively. Revenue recognized at a point in time was $49,816 and $0 for the three months ended March 31, 2024 and 2023, respectively.

   

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


9


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

4.

Summary of Significant Accounting Policies (continued)




Three Months Ended March 31,

Revenue by Customer Type

2024

2023


Construction and Engineering Services:















    Hotel/Hospitality
$
31,758

3
%
$ 33,676


1 %

    Office

936,357


89

%


5,470,259

99


Subtotal

968,115

92 %

5,503,935

100 %

SG DevCorp sales:














 Real estate commissions

49,816


8

%



%


Total revenue by customer type

$

1,017,931


100

%  


$

5,503,935

100

 

Contract Assets and Contract Liabilities 

  

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

 

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

 

Contract assets include unbilled amounts from long-term construction services when revenue recognized under the cost-to-cost measure of progress exceeds the amounts invoiced to customers, as the amounts cannot be billed under the terms of 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.


10


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

4.

Summary of Significant Accounting Policies (continued)


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


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

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


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


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


On June 24, 2021, the Company's subsidiary, SG DevCorp, entered into an operating agreement with Jacoby Development for a 10% non-dilutable equity interest for JDI-Cumberland Inlet, LLC (“Cumberland”). The Company contributed $3,000,000 for its 10% equity interest. During the three months ended March 31, 2024, the Company contributed an additional $25,000The purpose of JDI-Cumberland Inlet, LLC is to develop a waterfront parcel in a mixed-use destination community.  The Company has determined it is not the primary beneficiary of JDI-Cumberland Inlet, LLC and thus will not consolidate the activities in its consolidated financial statements. The Company will use the equity method to report the activities as an investment in its consolidated financial statements.


During the three months ended March 31, 2024 and 2023, Norman Berry and Cumberland did not have any material earnings or losses as the investments are in development. In addition, management believes there was no impairment as of March 31, 2024.


11


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

4.

Summary of Significant Accounting Policies (continued)


The approximate combined financial position of the Company’s equity affiliates is summarized below as of March 31, 2024 and December 31, 2023:


Condensed balance sheet information:

March 31, 2024

December 31, 2023

 

 

 

(Unaudited)



(Unaudited)

 

Total assets

$

39,800,000


$

39,800,000


Total liabilities

$

9,700,000

$

9,700,000

Members’ equity

$

30,100,000


$

30,100,000


 

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 $739,787 and $17,448 as of March 31, 2024, and December 31, 2023, respectively.


Short-term investment The Company classifies investments consisting of a certificate of deposit with a maturity greater than three months but less than one year as short-term investment.  The Company had no short-term investment as of March 31, 2024 or December 31, 2023, respectively. 

    

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


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


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


The Company accounts for the transfer of accounts receivable to a third party under a factoring type arrangement in accordance with ASC 860, “Transfers and Servicing”. ASC 860 requires that several conditions be met in order to present the transfer of accounts receivable as a sale. In the case of factoring type arrangements, the Company has isolated the transferred (sold) assets and has the legal right to transfer its assets (accounts receivable).

 

Inventory Raw construction materials (primarily shipping containers and fabrication materials) are valued at the lower of cost (first-in, first-out method) or net realizable value. Finished goods and work-in-process inventories are valued at the lower of cost or net realizable value, using the specific identification method. Medical equipment and COVID-19 test and testing supplies are valued at the lower of cost, (first-in, first-out method) or net realizable value. As of March 31, 2024 and December 31, 2023, there was inventory of $283,593 and $156,512, respectively, for construction materials. 


Goodwill – The Company performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying values. The Company performs a goodwill impairment test by comparing the fair value of the reporting unit with its carrying value and recognizes an impairment charge for the amount by which the carrying value exceeds the fair value, not to exceed the total amount of goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. There were no impairments during the three months ended March 31, 2024 or 2023.


12


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)


4.

Summary of Significant Accounting Policies (continued)


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. The Company evaluated intangible assets for impairment during the year ended December 31, 2023 and determined that there was an $1,880,547 impairment loss for the year ended December 31, 2023. The amortization expense for the three months ended March 31, 2024 and 2023 was $3,417 and $46,119, respectively. The accumulated amortization as of March 31, 2024 and December 31, 2023 was $2,921,272 and $2,852,929, respectively. The remaining balance of the Company’ intangible assets is comprised of website cost which are not yet placed in service.

 

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


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


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


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


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

 

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


13


SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

4.

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 Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in such account and believes that it is not exposed to any significant credit risk on the account. 
 

With respect to receivables, concentrations of credit risk are limited to a few customers in the construction industry. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights. At March 31, 2024 and December 31, 2023, 89% and 100%, of the Company’s gross accounts receivable were due from two and three customers, respectively.


Revenue relating to one and one customer represented approximately 87% and 95%, respectively, of the Company's total revenue for the three months ended March 31, 2024 and 2023, respectively. 


There were no vendors representing 10% or more of the Company’s total cost of revenue for the three months ended March 31, 2024 and 2023. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers. 

 

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14