OLOX 10-Q
Olenox Industries Inc. (OLOX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ____________ to ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of November 20, 2024 the issuer had a total of
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
| 1 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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September 30, 2024 |
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December 31, 2023 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Contract assets |
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Prepaid expenses and other current assets |
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| Current assets of discontinued operations | ||||||||
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Total current assets |
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Property, plant and equipment, net |
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| Project development costs and other non-current assets | ||||||||
| Right-of-use asset | ||||||||
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Intangible assets, net |
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| Deferred contract costs, net | ||||||||
| Investment in and advances to equity affiliates | ||||||||
| Long-term assets of discontinued operations | ||||||||
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Contract liabilities |
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| Lease liability, current maturities | ||||||||
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| Short-term notes payable, net | ||||||||
| Current liabilities of discontinued operations | ||||||||
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Total current liabilities |
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| Long-term notes payable, net | ||||||||
| Lease liability, net of current maturities | ||||||||
| Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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| Treasury stock, at cost |
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Accumulated deficit |
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Non-controlling interest |
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| Total stockholders’ equity | ( |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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For the Three Months Ended September 30, |
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
For the Nine Months Ended September 30, |
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2024 | 2023 | 2024 | 2023 | |||||||||||
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(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
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Revenue: |
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| Construction services | $ | $ | $ | $ | |||||||||||
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Total |
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Cost of revenue: |
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Construction services |
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Total |
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Gross (loss) profit |
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Operating expenses: |
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Payroll and related expenses |
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General and administrative expenses |
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Marketing and business development expenses |
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Total |
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Operating loss |
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Other income (expense): |
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Interest expense |
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Interest income |
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| Loss on disposition of equity-based investment | ( |
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Change in fair value of equity-based investment |
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| Other income | |||||||||||||||
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Total |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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| Common stock deemed dividend – reduction in conversion rate | ( |
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| Loss from continuing operations | ( |
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| Income (loss) from discontinued operations | ( |
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| Net loss attributable to common stockholders | $ | ( |
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Net loss per share |
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Basic and diluted – continued operations |
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| Basic and diluted – discontinued operations | $ | $ | ( |
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Weighted average shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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$0.01 Par Value |
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Additional |
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Treasury |
Accumulated |
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Noncontrolling |
Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Stock |
Deficit |
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Interests |
Equity |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ | ( |
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| Fractional share adjustment | ( |
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| Issuance of stock for accounts payable settlement |
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| Stock-based compensation and issuance of RSU’s | — | — | — | ||||||||||||||||||||||||||
| Prefunded warrant exercise | ( |
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Net loss |
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| Balance at September 30, 2024 | $ | $ | $ | ( |
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Balance at December 31, 2023 |
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$ |
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$ | ( |
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| Stock-based compensation and issuance of RSU’s | — | — | — | ||||||||||||||||||||||||||
| Common stock deemed dividend – inducement | — | — | — | ( |
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| Common stock deemed dividend – reduction in conversion rate | — | — | — | ( |
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| Cashless warrant exercise | ( |
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| Prefunded warrant exercise | ( |
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| Issuance of stock upon inducement |
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| Issuance of common stock and warrants for debt issuance | — | — | — | ||||||||||||||||||||||||||
| Conversion of debt and interest | — | — | — | ||||||||||||||||||||||||||
| Factional share adjustment | ( |
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| Issuance of common stock under EP Agreement | — | — | — | ||||||||||||||||||||||||||
| Issuance of stock for accounts payable settlement | — | — | — | ||||||||||||||||||||||||||
| SG DevCorp equity transactions | — | — | — | — | |||||||||||||||||||||||||
| Deconsolidation of SG DevCorp | — | — | — | — | — | ( |
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| Issuance of common stock for cash | — | — | — | ||||||||||||||||||||||||||
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Net loss |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ | ( |
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$ |
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( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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$0.01 Par Value |
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Additional |
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Treasury |
Accumulated |
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Noncontrolling |
Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Stock |
Deficit |
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Interests |
Equity |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ | ( |
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$ |
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Distribution of SG DevCorp |
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| Conversion of short-term notes payable | — | — | — | |||||||||||||||||||||||||
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Net loss |
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| Balance at September 30, 2023 | $ | $ | $ | ( |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ | ( |
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$ |
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| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||
| Issuance of restricted common stock | — | — | — | |||||||||||||||||||||||||
| Issuance of restricted stock units | ( |
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| Common stock issued for services | — | — | — | |||||||||||||||||||||||||
| Issuance of warrants and restricted common stock | — | — | — | |||||||||||||||||||||||||
| Noncontrolling interest distribution | — | — | — | — | — | ( |
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| Treasury stock | — | — | — | ( |
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| Distribution of SG DevCorp | — | — | — | ( |
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| Conversion of short-term notes payable | — | — | — | |||||||||||||||||||||||||
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Net loss |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ | ( |
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$ |
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SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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For the Nine Months Ended |
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For the Nine Months Ended |
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(Unaudited) |
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(Unaudited) |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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| Income (loss) from discontinued operations | ( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation expense |
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Amortization of intangible assets |
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| Amortization of deferred license costs | ||||||||
| Amortization of debt issuance costs and debt discount | |
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| Amortization of right of use asset | ||||||||
| Gain on deconsolidation – SG DevCorp | ( |
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| Loss on disposition of equity-based investment | ||||||||
| Change in fair value of equity-based investment | ||||||||
| Common stock issued for services | ||||||||
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Interest income on long-term note receivable |
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Stock-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Contract assets |
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| Inventories | ( |
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Prepaid expenses and other current assets |
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| Intangible assets | ( |
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Accounts payable and accrued expenses |
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Contract liabilities |
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| Lease liability | ( |
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| Assumed liability | ||||||||
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Net cash used in operating activities by continuing operations |
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| Net cash used in operating activities by discontinued operations | ( |
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Cash flows from investing activities: |
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| Purchase of property, plant and equipment | ( |
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| Cash received from sale of equity-based investment | ||||||||
| Project development costs | ( |
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| Investment in and advances to equity affiliates | ||||||||
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Net cash used in investing activities by continuing operations |
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| Net cash used in investing activities by discontinued operations | ( |
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Cash flows from financing activities: |
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| Repurchase of common stock | ( |
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| Repayment of short term notes payable | ( |
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| Proceeds from short-term notes payable and warrants, net of debt issuance costs | ||||||||
| Proceeds from long-term notes payable | ||||||||
| Proceeds from warrant inducement | ||||||||
| Prefunded warrant exercise | ||||||||
| Issuance of common stock for cash | ||||||||
| Issuance of common stock under EP Agreement | ||||||||
| Distribution paid to non-controlling interest | ( |
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Net cash provided by financing activities by continuing operations |
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| Net cash provided by financing activities by discontinued operations | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | ||||||||
| Less: cash and cash equivalents – discontinued operations | |
( |
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| $ | $ | |||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Assets and liabilities effected in deconsolidation | ||||||||
| Cash | $ | $ | ||||||
| Assets held for sale |
$ | $ | ||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| Property and equipment, net | $ | $ | ||||||
| Project development costs and other assets | $ | $ | ||||||
| Goodwill | $ | $ | ||||||
| Intangible assets |
$ | $ | ||||||
| Investments in equity-based investments | $ | $ |
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| Accounts payable and accrued expenses | $ | $ |
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| Contingent consideration payable | $ | $ | ||||||
| Short-term notes payable | $ | $ | ||||||
| Cashless warrant exercise | $ | $ | ||||||
| Fractional common share adjustment | $ | $ | ||||||
| Common stock deemed dividend - inducement | $ | $ | ||||||
| Common stock deemed dividend – reduction in conversion price | $ | $ | ||||||
| Conversion of short-term notes payable to common stock | $ | $ | ||||||
| Fair value of warrants issued with debt | $ | $ | ||||||
| Common stock issuance for accounts payable settlement | $ | $ | ||||||
| Assets and liabilities acquired in business combination: | ||||||||
| Intangible assets | $ | $ | ||||||
| Goodwill | $ | $ | ||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contingent consideration payable | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
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1. |
Description of Business |
Safe & Green Holdings Corp. (collectively with its subsidiaries, the “Company,” “we”, “us” or “our”) was previously known as SG Blocks, Inc. as well as CDSI Holdings, Inc., a Delaware corporation incorporated on December 29, 1993. On November 4, 2011, CDSI Merger Sub, Inc., the Company’s wholly-owned subsidiary, was merged with and into SG Building Blocks, Inc. (“SG Building,” formerly SG Blocks Inc.) (the “Merger”), with SG Building surviving the Merger and becoming a wholly-owned subsidiary of the Company. The Merger was a reverse merger that was accounted for as a recapitalization of SG Building, as SG Building was the accounting acquirer.
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 (Unaudited)
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1. |
Description of Business (continued) |
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2. |
Separation and Distribution |
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.
During 2024, the Company’s ownership in SG DevCorp fell below
| 8 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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3. |
Liquidity |
As of September 30, 2024, the Company had cash and cash equivalents of $
| 2024 |
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| Within 1 year | $ | ||||
| Total Backlog | $ | ||||
The Company has incurred losses since its inception, has negative working capital of $
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.
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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 nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
Reclassifications - Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net loss or cash flows.
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.
|
4. |
Summary of Significant Accounting Policies (continued) |
Operating cycle – The length of the Company’s contracts varies, but is typically between to
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.
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 $
The following tables provide further disaggregation of the Company’s revenues by categories:
| 10 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
4. |
Summary of Significant Accounting Policies (continued) |
| Three Months Ended September 30, | |||||||||||||||
|
Revenue by Customer Type |
2024 |
2023 | |||||||||||||
| Construction and Engineering Services: |
|||||||||||||||
| Office | $ |
|
|
% |
$ |
|
|
% | |||||||
|
Total revenue by customer type |
$ |
|
|
% |
$ |
|
|
% | |||||||
| Nine Months Ended September 30, | |||||||||||||||
|
Revenue by Customer Type |
2024 |
2023 | |||||||||||||
| Construction and Engineering Services: |
|||||||||||||||
| Hotel/Hospitality | $ |
% | $ | % | |||||||||||
| Office |
|
|
% |
|
|
% | |||||||||
|
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.
| 11 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (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.
For acquisitions of assets that do not constitute a business, any assets and liabilities acquired are recognized at their cost based upon their relative fair value of all asset and liabilities acquired.
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 and other medical industry. The Company has determined it is the primary beneficiary of CAT and has thus consolidated the activities in its consolidated financial statements.
Equity Method Investments—The Company accounts for investments under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. The equity method investment is typically initially recorded at cost and adjusted each period for capital contributions, distributions and the Company's share of the entity’s net income or loss as well as other comprehensive income or loss.
Upon the Deconsolidation during 2024, the Company began to report its investment in SG DevCorp on the equity method. The Company has elected to measure its investment in SG DevCorp on the fair value method. Subsequent to the Deconsolidation, the Company disposed a portion of its investment in SG DevCorp and recorded a loss of $
| 12 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
4. |
Summary of Significant Accounting Policies (continued) |
As of September 30, 2024, the Company had a
The approximate combined financial position of the Company’s equity affiliate (SG DevCorp) is summarized below as of September 30, 2024:
|
Condensed balance sheet information: |
September 30, 2024 |
|||
|
|
|
|
(Unaudited) |
|
|
Total assets |
$ |
|
||
|
Total liabilities |
$ |
|
||
|
Stockholder’s equity/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.
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 September 30, 2024 and December 31, 2023, 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
|
4. |
Summary of Significant Accounting Policies (continued) |
Intangible assets – Intangible assets consist of $
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
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.
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). |
| 14 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
4. |
Summary of Significant Accounting Policies (continued) |
Transfer into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period. There have been no changes in Level 1, Level 2, and Level 3 and no changes in valuation. The fair value of the Company’s equity-based investment in SG DevCorp was determined based on Level 1 inputs. The Company does not have any financial instruments in the Level 2 or Level 3 category.
| Fair value measured as of September 30, 2024 | |||||||||||||
|
|
Total at September 30, 2024 |
Quoted prices in active markets |
Significant other observable inputs | Significant unobservable inputs | |||||||||
| (Level 1) | (Level 2) | (Level 3) | |||||||||||
| Assets | |||||||||||||
|
Equity-based investment – SG DevCorp |
$ | $ |
$ |
|
$ |
|
|||||||
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 September 30, 2024 and December 31, 2023,
Revenue relating to
There were
| 15 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
5. |
Accounts Receivable |
At September 30, 2024 and December 31, 2023, the Company’s accounts receivable consisted of the following:
|
|
|
2024 |
|
|
2023 |
| |||
|
Billed: |
|
|
|
| |||||
| Construction services |
$ | $ | |||||||
|
Total gross receivables |
|
|
|
|
|
|
|
| |
|
Less: allowance for credit losses |
|
|
( |
) |
|
|
( |
) | |
|
Total net receivables |
|
$ |
|
|
|
$ |
|
| |
|
6. |
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, 2024 and December 31, 2023:
|
|
|
|
2024 |
|
|
2023 |
| ||
|
|
Costs incurred on uncompleted contracts |
|
$ |
|
|
|
$ |
|
|
| Provision for loss on uncompleted contracts | |||||||||
|
Estimated earnings to date on uncompleted contracts |
|
|
( |
) |
|
|
( |
) | |
|
Gross contract assets |
|
|
|
|
|
|
|
| |
|
Less: billings to date |
|
|
( |
) |
|
|
( |
) | |
|
Net contract liabilities on uncompleted contracts |
|
$ |
( |
) |
|
$ |
( |
) | |
The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at September 30, 2024 and December 31, 2023.
|
|
|
|
2024 |
|
|
2023 |
| ||
|
|
Contract assets |
|
$ |
|
|
|
$ |
|
|
|
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
Net contract liabilities |
|
$ |
( |
) |
|
$ |
( |
) |
Although management believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.
| 16 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
7. |
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, 2024 and December 31, 2023, the Company’s property, plant and equipment, net consisted of the following:
|
|
|
|
2024 |
|
|
2023 |
| ||
| Computer equipment and software | $ | |
$ | |
|||||
| Furniture and other equipment | |
|
|||||||
| Leasehold improvements |
|||||||||
| Equipment and machinery | |||||||||
| Automobiles | |||||||||
| Building held for leases | |||||||||
| Building | |||||||||
| Construction in progress | |||||||||
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
$ |
|
|
|
$ |
|
|
Depreciation expense for the three months ended September 30, 2024 and 2023 amounted to $
|
8. |
Notes Receivable |
On January 21, 2020, pursuant to that certain Loan Agreement and Promissory Note, dated October 3, 2019 (the “CPF GP Loan Agreement”), as amended on October 15, 2019 and November 7, 2019, by and between CPF GP 2019-1 LLC (“CPF GP”) and the Company, CPF GP issued to the Company a promissory note in the principal amount of $
On April 15, 2020, pursuant to the CPF GP Loan Agreement, CPF GP issued to the Company a promissory note in the principal amount of $
During the year ended December 31, 2023, the Company determined that the Company Note, the Galvin Note and the Company Note 2 were not collectible and recorded bad debts for the outstanding amounts, which resulted in a write off of principal of $
| 17 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable |
Authority Loan Agreement
On October 29, 2021, SG Echo entered into a Loan Agreement (the “Authority Loan Agreement”) with the Durant Industrial Authority (the “Authority”) pursuant to which it issued to the Authority a non-interest bearing Forgivable Promissory Note in the principal amount of $
| 18 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
Peak One Transactions
On February 7, 2023, the Company closed a private placement offering (the “Peak One Offering”) of $
In connection with the Peak One Offering, the Company paid $
The Debenture matured
During the year ended December 31, 2023 and during the nine months ended September 30, 2024, Peak One converted the Debenture in full and received a total of
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 February 2023 Purchase Agreement, is subject to an exchange cap (the “Exchange Cap”) of
| 19 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
The Company incurred $
On January 11, 2024, the Company entered into a Securities Purchase Agreement (the “January 2024 Purchase Agreement”) with Peak One, pursuant to which the Company agreed to issue, in a private placement offering (the “January Offering”), upon the satisfaction of certain conditions specified in the January 2024 Purchase Agreement,
The closing of the first tranche was consummated on January 12, 2024 and the Company issued an
The Holdings Debenture matures
The Holdings Debenture is redeemable by the Company at a redemption price equal to
| 20 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
The Peak Warrant #3 expires
Maxim Group LLC (“Maxim”) acted as placement agent in the January Offering. In connection with the closing of the first tranche of the January Offering, the Company paid a placement fee of $
Cash Advance Agreements
On May 16, 2023, SG Building entered into a Cash Advance Agreement (the “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 (the “Second Cash Advance Agreement”) pursuant to which SG Building sold to Cedar $
On November 20, 2023, SG Building entered into a third Cash Advance Agreement (the “Third Cash Advance Agreement”) with Cedar pursuant to which SG Building sold to Cedar $
On January 5, 2024, SG Building and SG Echo (together with SG Building, the “Merchants”) entered into a Cash Advance Agreement (the “January Cash Advance Agreement”) with Maison Capital Group (“Maison”) pursuant to which the Merchants sold to Maison $
Pursuant to the January Cash Advance Agreement, Maison is expected to withdraw $
| 21 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
On January 29, 2024, SG Building entered into a Cash Advance Agreement (the “Fourth Cash Advance Agreement” and, together with the Cash Advance Agreement, the Second Cash Advance Agreement and the Third Cash Advance Agreement, the “Cedar Cash Advance Agreements”) with Cedar pursuant to which SG Building sold to Cedar $
Pursuant to the Fourth Cash Advance Agreement, Cedar is expected to withdraw $
On February 23, 2024, the Merchants entered into a Cash Advance Agreement (“February Cash Advance Agreement”) with Bridgecap Advance LLC (“Bridgecap”) pursuant to which the Merchants sold to Bridgecap $
Pursuant to the February Cash Advance Agreement, Bridgecap is expected to withdraw $
On July 31, 2024, SG Building entered into a Cash Advance Agreement (the “July Cash Advance Agreement”) with Cedar pursuant to which SG Building sold to Cedar $
Pursuant to the July Cash Advance Agreement, Cedar is expected to withdraw $
On August 27, 2024, SG Building entered into a Cash Advance Agreement (the “Pawn Cash Advance Agreement”) with Pawn Funding (“Pawn”) pursuant to which SG Building sold to Pawn $
| 22 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
SouthStar Secured Note
In connection with the exercise of its option to acquire
The Secured Note bears Interest at
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 (
| 23 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
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, effective June 8, 2023, among 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).
SG Echo incurred $
Enhanced Note
On September 20, 2024, SG Echo entered into a Loan and Security Agreement (the “Enhanced Loan Agreement”) with Enhanced Capital Oklahoma Rural Fund, LLC (“Enhanced”) pursuant to which SG Echo borrowed $
Pursuant to the terms of the Enhanced Note, SG Echo shall make monthly payments of accrued interest on the first business day of each calendar month until December 31, 2025. Commencing January 2026, SG Echo shall make
Pursuant to the terms of the Enhanced Loan Agreement, on the closing date, $
Pursuant to the terms of the Enhanced Loan Agreement, SG Echo shall grant Enhanced a first priority mortgage on the real property located at 101 Waldron Rd., Durant, Oklahoma. Additionally, SG Echo shall grant Lender a continuing security interest in, a general lien upon, collateral assignment of, and a right of set-off against all of SG Echo’s right, title, and interest in and to all assets of SG Echo.
As of September, 30, 2024, the Company paid off the remaining balances of the Secured Note and the Overadvance with the proceeds of the Enhanced Note.
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
Galvin Promissory Note
On December 14, 2023, the Company entered into a promissory note with Paul Galvin, the Company’s Chairman and CEO, for $
1800 Diagonal Note
On March 5, 2024, the Company issued a promissory note (the “1800 Diagonal Note”) in favor of 1800 Diagonal Lending LLC (“1800 Diagonal”) in the aggregate principal amount of $
The 1800 Diagonal Note was purchased by 1800 Diagonal for a purchase price of $
Among other things, an event of default will be deemed to have occurred if the Company fails to pay the principal or interest when due on the 1800 Diagonal Note, whether at maturity, upon acceleration or otherwise, if bankruptcy or insolvency proceedings are instituted by or against the Company or if the Company fails to maintain the listing of its common stock on The Nasdaq Stock Market. Upon the occurrence of an event of default, the 1800 Diagonal Note will become immediately due and payable and the Company will be obligated to pay to the Investor, in satisfaction of its obligations under the 1800 Diagonal Note, an amount equal to
After an event of default, at any time following the
On August 28, 2024, the Company issued a promissory note (the “August 1800 Diagonal Note”) in favor of 1800 Diagonal in the principal amount of $
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
9. |
Notes Payable (continued) |
As of September 30, 2024 and December 31, 2023, long term notes payable consisted of the following:
| 2024 |
2023 |
|||||||
| Authority Loan Agreement | $ | $ | ||||||
| Debenture | ||||||||
| Cedar Cash Advance Agreements | ||||||||
| Secured Note | ||||||||
| July Cash Advance Agreement | ||||||||
| Pawn Advance Agreement | ||||||||
| Enhanced Note | ||||||||
| Overadvance | ||||||||
| 1800 Diagonal Note | ||||||||
| August 1800 Diagonal Note |
||||||||
| Galvin Note Payable | ||||||||
| Total | ||||||||
| Less: Debt discount and debt issuance costs | ( |
) | ( |
) | ||||
| Total debt, net | ||||||||
| Less: current maturities, net | ( |
) | ( |
) | ||||
| Long-term debt, net | $ | $ | ||||||
| 26 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
10. |
Leases |
The Company leases 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, 2024 |
||||
| 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 |
|||||
| Finance leases | |||||
| Weighted Average Discount Rate |
|||||
| 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: | Financing |
|||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| Total lease payments | ||||
| Less: Imputed interest | ||||
| Present value of lease liabilities | $ | |||
|
11. |
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, 2024, there were options, restricted stock units and warrants of
|
12. |
Construction Backlog |
The following represents the backlog of signed construction and engineering contracts in existence at September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, respectively, on which work has not yet begun:
|
|
|
|
2024 |
|
|
2023 |
| ||
|
|
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, 2024 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, 2024 over the following period:
| 2024 |
|||||
| 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.
| 28 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
13. |
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 $
| 29 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
13. |
Stockholders’ Equity (continued) |
In connection with the EP Agreement, the Company issued to Peak One Investments,
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.
During the nine months ended September 30, 2024, the Company issued
Issuance of common stock and warrants for debt issuance – During the nine months ended September 30, 2024, the Company issued
Restricted Stock Units – During the nine months ended September 30, 2024, the Company issued
Conversion – During the nine months ended September 30, 2024, Peak One converted $
Warrant exercise – During the nine months ended September 30, 2024,
Settlement of accounts payable – During the nine months ended September 30, 2024,
Noncontrolling interest – During the nine months ended September 30, 2024, SG DevCorp recorded $
Common stock deemed dividend – During the nine months ended September 30, 2024, the Company recorded a common stock deemed dividend in the amount of $
| 30 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
13. |
Stockholders’ Equity (continued) |
Inducement - On March 8, 2024, the Company entered into a warrant inducement agreement (the “Inducement Agreement”) with a certain holder (the “Holder”) of warrants to purchase shares of the Company’s common stock, par value $
In consideration of the Holder’s immediate exercise of the Existing Warrants, the Company issued unregistered warrants (the “New Warrants”) to purchase
The issuance of the shares of Common Stock underlying the Existing Warrants have been registered pursuant to an existing registration statement on Form S-1 (File No. 333-260996), which was declared effective by the Securities and Exchange Commission (the “SEC”) on November 23, 2021.
In addition, pursuant to the Inducement Agreement, the Company agreed not to issue any shares of Common Stock or Common Stock equivalents (as defined in the Inducement Agreement) or to file any other registration statement with the SEC (in each case, subject to certain exceptions) until thirty (
The Company agreed in the Inducement Agreement to file a registration statement to register the resale of the New Warrant Shares (the “Resale Registration Statement”) on or before thirty (
Under the Inducement Agreement, to the extent required under the rules and regulations of the Nasdaq Stock Market, the Company agreed to hold a special or annual meeting of shareholders no later than the
The Company expects to use the net proceeds from these transactions for working capital and other general corporate purposes.
Maxim served as the Company’s financial advisor in connection with the transactions described in the Inducement Agreement, and the Company paid Maxim (i) a cash fee equal to
May 2024 Private Placement - On May 3, 2024, the Company entered into a Securities Purchase Agreement (the “May Securities Purchase Agreement”) for a private placement (the “Private Placement”) with a single accredited institutional investor (the “Purchaser”). Pursuant to the Securities Purchase Agreement, the Purchaser agreed to purchase
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
13. |
Stockholders’ Equity (continued) |
The Pre-Funded Warrants are exercisable immediately following the date of issuance, may be exercised at any time until all of the Pre-Funded Warrants are exercised in full, and have an exercise price of $
In the event of a “Fundamental Transaction,” which term is defined in the Pre-Funded Warrants and the Common Warrants and generally includes (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person (as defined in the Pre-Funded Warrants and Common Warrants) in which the Company is not the surviving entity (other than a reincorporation in a different state, a transaction for changing the Company’s name, or a similar transaction pursuant to which the surviving company remains a public company), (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of the Company’s assets in one or a series of related transactions (which, for the avoidance of doubt, shall not include such transactions that do not require approval of the Company’s stockholders), (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of more than
The Private Placement closed on May 7, 2024. The Company received net proceeds from the Private Placement of $
| 32 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 14. |
Segments and Disaggregated Revenue |
|
|
|
Construction |
|
Medical |
Corporate and support |
Consolidated |
| ||||||||||
| Nine Months Ended September 30, 2024 |
|||||||||||||||||
| Revenue |
$ | $ | $ | $ | |||||||||||||
|
Cost of revenue |
|||||||||||||||||
|
Operating expenses |
|||||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | |||||||||||
| Other expense | ( |
) | ( |
) | ( |
) | |||||||||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
| Common stock deemed dividend | ( |
) | ( |
) | |||||||||||||
| Income from discontinued operations | |||||||||||||||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
| Total assets | $ | $ | $ | $ | |||||||||||||
| Depreciation and amortization | $ |
$ | $ | $ | |||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||
|
Construction |
Medical |
Corporate and support |
Consolidated |
||||||||||||||
| Nine Months Ended September 30, 2023 |
|
|
|
|
|
||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||
|
Cost of revenue |
|||||||||||||||||
|
Operating expenses |
|||||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
| Other (expense) income | ( |
) | ( |
) | |||||||||||||
|
Loss before income taxes |
|
( |
) | ( |
) |
|
( |
) |
|
( |
) | ||||||
|
Net income attributable to non-controlling interest |
|
|
|
|
|
||||||||||||
| Loss from discontinued operations | ( |
) | ( |
) | |||||||||||||
| Net 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 (Unaudited)
| 14. |
Segments and Disaggregated Revenue (continued) |
|
| |||||||||||||||||
|
|
|
Construction |
|
Medical |
Corporate and support |
|
Consolidated |
| |||||||||
| Three Months Ended September 30, 2024 | |||||||||||||||||
| Revenue |
$ | $ | $ | $ | |||||||||||||
|
Cost of revenue |
|||||||||||||||||
|
Operating expenses |
|||||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
| Other expense | ( |
) | ( |
) | ( |
) | |||||||||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
| Common stock deemed dividend | |||||||||||||||||
| Net income attributable to non-controlling interest | |||||||||||||||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
| Total assets | $ | $ | $ | $ | |||||||||||||
| Depreciation and amortization | $ |
$ | $ | $ | |||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||
|
Construction |
Medical |
Corporate and support |
Consolidated |
||||||||||||||
| Three Months Ended September 30, 2023 |
|
|
|
|
|
||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||
|
Cost of revenue |
|||||||||||||||||
|
Operating expenses |
( |
) | |||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
| Other (expense) income | ( |
) | ( |
) | |||||||||||||
|
Loss before income taxes |
|
( |
) | ( |
) |
|
( |
) |
|
( |
) | ||||||
|
Net income attributable to non-controlling interest |
|
|
|
|
|
||||||||||||
| Loss from discontinued operations | ( |
) | ( |
) | |||||||||||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
| Total assets | |||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | |||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||
| 34 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
15. |
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
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
15. |
Warrants (continued) |
In connection with the issuance of the Holdings Debenture in January 2024, the Company issued the “Peak Warrant” #3 to purchase up to
In connection with the Private Placement in May 2024, the Company issued common warrants (the “Common Warrants”) to purchase up to
Warrant activity for the nine months ended September 30, 2024 are summarized as follows:
| Warrants | Number of Warrants | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding and exercisable - January 1, 2024 | $ | ||||||||||||||||
| Granted |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|||
|
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
|
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
| Outstanding and exercisable - September 30, 2024 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
The fair value of warrants granted during the nine months ended September 30, 2024 were valued using a Black-Scholes Value model, with the following assumptions
| Risk-free interest rate |
|
% |
|||
| Contractual term |
|
|
|||
| Dividend yield |
|
% |
|||
| Expected volatility |
|
% |
|
16. |
Share-based Compensation |
On October 26, 2016, the Company’s Board of Directors approved the issuance of up to
Stock-Based Compensation Expense
Stock-based compensation expense is included in the condensed consolidated statements of operations as follows:
|
Nine Months Ended |
|||||||||
| 2024 |
2023 |
||||||||
|
|
Payroll and related expenses |
$ | $ | ||||||
|
|
Total |
$ | $ | ||||||
|
Three Months Ended |
|||||||||
| 2024 |
2023 |
||||||||
|
|
Payroll and related expenses |
$ | $ | ||||||
|
|
Total |
$ | $ | ||||||
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 16. |
Share-based Compensation (continued) |
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.
The following table summarizes stock-based option activities and changes during the nine months ended September 30, 2024 as described below:
|
|
|
Shares |
|
|
Weighted Average Fair Value Per Share |
|
|
Weighted |
|
|
Weighted Average Remaining Terms (in years) |
|
|
Aggregate Intrinsic Value |
| |
|
Outstanding – December 31, 2023 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
| |
|
Granted |
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
| |
|
Exercised |
|
|
|
|
|
|
|
|
|
— |
|
|
— |
| ||
|
Cancelled |
|
|
|
|
|
|
|
|
|
— |
|
|
— |
| ||
|
Outstanding – September 30, 2024 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
| |
|
Exercisable – December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Exercisable – September 30, 2024 | $ | $ |
Restricted Stock Units
During the three months ended June 30, 2023, a total of
On April 4, 2023, a total of
During the three months ended March 31, 2024, a total of
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 16. |
Share-based Compensation (continued) |
As of September 30, 2024, there was $
The following table summarized restricted stock unit activities during the nine months ended September 30, 2024:
| Number of Shares |
|||||
|
Non-vested balance at January 1, 2024 |
|
||||
|
|
Granted |
|
|||
| Vested | ( |
) | |||
| Forfeited/Expired | |||||
| Non-vested balance at September 30, 2024 | |||||
|
17. |
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, 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 (“Pizzarotti”) 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. Phipps’ claims against the Company arise from a purported assignment agreement, dated as of May 30, 2018, among 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 (Unaudited)
|
17. |
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. 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, LLC et. 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. On April 4, 2024, the court entered an order setting forth the following dates for the completion of the parties depositions: (1) deposition of plaintiff shall occur by May 31, 2024, (2) deposition of Phipps shall occur by June 30, 2024, (3) deposition of the Company shall occur by July 20, 2024, (4) deposition of Mr. Shetty shall occur by August 9, 2024, (5) deposition of FPG Maiden Lane, & J. Landau shall occur by August 30, 2024, and (6) depositions of non-parties shall occur by September 30, 2024. As of September 30, 2024, the Company cannot estimate any potential loss.
2.) CPF GP 2019-1, LLC (“CPF GP”) Litigation – In September 2023, a suit was filed in the form of a declaratory judgment to say CPF GP did not owe certain monies to the Company. The Company filed counterclaims for the amounts owed. The case settled in February 2024 in exchange for mutual dismissals and monthly payments of the balance due, which is $
3.) Farnam Litigation – In October 2023, Farnam Street Financial, Inc. (“Farnam”) filed suit against the Company in the United States District Court for the District of Minnesota (Case No. 23-CV-3212) alleging breaches by the Company under a certain lease agreement between Farnam and the Company dated as of October 13, 221. Farnam sought monies owed under such lease agreement. On August 1, 2024, the Company, SG Echo and SG Environmental Solutions Corp. (“SG Environmental”), a wholly owned subsidiary of the Company, entered into a settlement agreement (the “Settlement”) with Farnam to resolve the pending litigation. Simultaneously with the execution of the Settlement, (i) the Company, SG Environmental and Farnam entered into an assignment and assumption agreement, pursuant to which SG Environmental was substituted for the Company as the lessee under the lease agreement, and (ii) SG Environmental and Farnam executed a new Lease Schedule No. 001R (“Schedule 1R”), which replaced the prior schedule in its entirety. The terms of the Settlement included the following: (i) SG Environmental will be the signatory under the “Lessee” under the lease; (ii) the initial term (the “Initial Term”) of Schedule 1R is
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
17. |
Commitments and Contingencies (continued) |
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” and together with HCP, 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.
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).
| 41 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
17. |
Commitments and Contingencies (continued) |
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 dispute between SG Blocks, Inc., HOLA Community Partners, and others in the above-described lawsuit settled, and a formal settlement agreement was executed in December 2022. In accordance with the settlement agreement, all funds to be paid were, in fact, paid. On February 27, 2023, the settling parties filed a Joint Stipulation to Dismiss All Causes of Action Against All Parties Except Avesi Construction, LLC (“Aveshi”), and Saddleback Roofing, Inc. (“Saddleback”). The claims against the settling parties, pursuant to the settlement, were to be dismissed and have since been dismissed. SG Blocks, Inc. had taken defaults against Aveshi and Saddleback, and is continuing to pursue default judgments against same.
2.) SG Blocks, Inc. v. EDI International, PC
On June 21, 2019, SG Blocks, Inc. filed a lawsuit against EDI International, PC (“EDI”), a New Jersey corporation, in connection with the parties’ consulting agreement, dated June 29, 2016, pursuant to which EDI, was to provide, for a fee, certain architectural and design services for the original project between the Company and HOLA (“Project”). The lawsuit is styled SG Blocks, Inc. v. EDI et al., and was filed in California Superior Court, for the County of Los Angeles, case no. 19STCV21725. SG Blocks, Inc. claims that EDI, tortiously interfered with SG Blocks, Inc’s economic relationship with HCP and HOLA. The complaint seeks in excess of $
| 42 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
17. |
Commitments and Contingencies (continued) |
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.
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.
Other Litigation
1.) 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”).
| 43 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
17. |
Commitments and Contingencies (continued) |
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).
A status conference was held on November 16, 2022 at which time the Court entered a scheduling order for the conducting of discovery. Discovery is ongoing. A settlement conference was held by the Court on March 14, 2023, of which the Company was granted $
2.) John Williams Shaw and Leo Patrick Shaw
On March 15, 2023, a complaint was filed against John Williams Shaw and Leo Patrick Shaw (the “Defendants”) in the United States District Court of the Southern District of New York seeking damaged to recover short swing profits from the Defendants pursuant to Section 16(b) of the Exchange Act. On September 26, 2023, the matter was settled and on, October 3, 2023, a Stipulation and Order of Dismissal with Prejudice was filed and so-ordered by the assigned judge. The Company is currently unable to predict the outcome or possible recovery, 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.
See Note 21 – Subsequent Events, for additional contingencies.
Commitments
In April 2020, the Company entered into an amendment to its employment agreement, dated January 1, 2017, with Paul Galvin (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 $
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
18. |
Related Party Transactions |
On December 14, 2023, the Company and Mr. Galvin entered into the Galvin Note Payable and an additional note payable during the three and nine months ended September 30, 2024. See Note 9 – Notes Payable.
|
19. |
Deconsolidation |
| Assets: | |||||
| Cash | $ | ||||
|
Assets held for sale |
|||||
| Prepaid expenses and other current assets |
|||||
| Total current assets | |||||
| Property, plant and equipment, net | |||||
| Project development costs and other non-current assets |
|||||
| Intangible assets, net | |||||
| Goodwill | |||||
| Investment in and advances to equity affiliates | |||||
| Total long-term assets |
|||||
| Liabilities: | |||||
| Accounts payable and accrued expenses | |||||
| Contingent consideration payable | |||||
| Short-term notes payable, net |
|||||
| $ |
| 45 |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 20 | Discontinued Operations |
|
For the Nine Months Ended September 30, 2024 |
For the Nine Months Ended September 30, 2023 |
For the Three Months Ended September 30, 2023 |
||||||||||
| Operating Expenses: | ||||||||||||
| Payroll and related expenses | $ | $ | $ | |||||||||
| General and administrative expenses |
||||||||||||
| Marketing and business development expenses |
||||||||||||
| Operating loss |
( |
) | ( |
) | ( |
) | ||||||
| Other income (expense) | ( |
) | ( |
) | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Gain from Deconsolidation |
$ | |||
| Net loss from discontinued operations | ( |
) | ||
|
Net loss |
$ |
|
|
The following table presents the aggregate carrying amounts of assets and liabilities of discontinued operations of SG DevCorp as of December 31, 2023:
| Assets: | |||||
| Cash | $ | ||||
|
Assets held for sale |
|||||
| Prepaid expenses and other current assets |
|||||
| Total current assets | |||||
| Property, plant and equipment, net | |||||
| Project development costs and other non-current assets |
|||||
| Intangible assets, net | |||||
| Investment in and advances to equity affiliates | |||||
| Total long-term assets |
|||||
| Liabilities: | |||||
| Accounts payable and accrued expenses | |||||
| Short-term notes payable, net |
|||||
| $ |
SAFE & GREEN HOLDINGS CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
21. |
Subsequent Events |
On October 22, 2024, the Board of Directors (the “Board”) of the Company determined not to renew the Executive Employment Agreement, dated as of January 1, 2017 (the “Employment Agreement”), between the Company and Paul Galvin, the Company’s Chief Executive Officer and, in connection with such determination, delivered a written notice of termination to Mr. Galvin on October 24, 2024 in accordance with the terms of the Employment Agreement. Mr. Galvin’s employment with the Company as its Chief Executive Officer will terminate effective as of the close of business on December 31, 2024 (the “Effective Date”). After the Effective Date, Mr. Galvin is expected to continue to serve as the Chairman of the Company’s Board of Directors. The Board is conducting a comprehensive search to identify Mr. Galvin’s successor.
On October 22, 2024, the Company executed and issued a Promissory Note in favor of 1800 Diagonal in the aggregate principal amount of $
During October 2024,
On November 6, 2024, the Company entered into an agreement with a single investor that is an existing holder of warrants to purchase shares of common stock of the Company for cash (the “Existing Warrants”), wherein the investor agreed to exercise the Existing Warrants to purchase up
On or about November 6, 2024, The Durant Industrial Authority (“DIA”) filed a complaint against the Company and others, seeking unspecified damages for alleged misrepresentations made by the Company to induce DIA to enter into a forgivable promissory note, and alleged fraudulent transfer of real property that the Company purchased from DIA. The lawsuit was filed as The Durant Industrial Authority v. SG Blocks, Inc., Safe & Green Holdings Corp.; SG Echo, LLC; SGB Development Corp.; Safe and Green Development Corp. FKA SGB Development Corp.; LV Peninsula Holdings, LLC; Austerra Stable Growth Fund, LP; Paul Galvin AKA Paul Gavin; Gerald Sheeran; David Villarreal; and Nicolai Brune, Case No. CJ-2024-249 and commenced in the District Court of Bryan County, State of Oklahoma. On or about November 13, 2024, the Company was served the summons and complaint. The Company strongly denies each of the claims set forth in the complaint and will shortly file its answer. Currently, the Company cannot estimate any potential loss.
On November 21, 2024, the Company received a letter from Nasdaq notifying the Company that since the Company has not yet filed its Form 10-Q for the period ended September 30, 2024, it no longer complies with Nasdaq’s Listing Rules for continued listing. The Company expects to regain compliance by filing its Form 10-Q for the period ended September 30, 2024, on or about November 26, 2024.
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Introduction and Certain Cautionary Statements
As used in this Quarterly Report on Form 10-Q for the period ended September 30, 2024 (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, 2023, which were included in our Annual Report on Form 10-K for the year then ended December 31, 2023, as filed with the Securities and Exchange Commission (the "SEC") on May 7, 2024 (the "2023 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 the 2023 Form 10-K and 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: our ability to continue as a going concern; our ability to obtain additional financing on acceptable terms, if at all, or to obtain additional capital in other ways ; general economic, political and financial conditions, including inflation, both in the United States and internationally; 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 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 “Part I – Item 1A. Risk Factors” in our 2023 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.
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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.
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.
During 2024, the Company’s ownership in SG DevCorp fell below 50%, and the Company deconsolidated SG DevCorp from its financial statements (the “Deconsolidation”). As of September 30, 2024, the Company accounts for its investment in SG DevCorp on the equity method. Upon deconsolidation, the Company recognized a gain of $4,728,348 which resulted from the difference between the fair value of the Company’s investment upon deconsolidation, and the net assets and carrying value of the non-controlling interest. The Deconsolidation represents a strategic shift in the Company’s operations and will have a major effect on the Company’s operations and financial results. Prior year financial statements for 2023 have been restated to present the operations of SG DevCorp as a discontinued operation
Recent Developments
On October 30, 2024, we have successfully completed two substantial projects for a long-time customer, a large contractor to a U.S. government agency. The contracts, totaling 45 container-style office units, included one order for 15 units and another for 30 units, resulting in significant time and material savings for the customer. The entire design-to-completion process highlights SG Echo’s rapid production capabilities, high-quality manufacturing, and commitment to timely delivery. The office units, custom-designed from shipping containers, provide flexible, “plug-and-play” temporary office solutions for U.S. military operations. Each unit is built to meet strict safety and quality standards, underscoring SG Echo’s reputation for reliability, durability, and cost-effectiveness in modular construction. The quick turnaround time of the project emphasizes SG Echo’s efficiency and capability in supporting government projects on tight timelines.
On November 6, 2024, we entered into an agreement with a single investor that is an existing holder of warrants to purchase shares of common stock of the Company for cash (the “Existing Warrants”), wherein the investor agreed to exercise the Existing Warrants to purchase up 2,758,620 shares of common stock at a reduced exercise price of $0.8718 per share, resulting in gross proceeds of approximately $2.4 million, before deducting offering fees and other expenses payable by the Company. In consideration for the exercise of the Existing Warrants for cash, the investor received new warrants (the “New Warrants”) to purchase up to an aggregate of 5,517,240 shares of common stock. The New Warrants are exercisable after stockholder approval at an exercise price of $0.8718 per common share and will expire five years after stockholder approval. The Company issued and sold the New Warrants and any shares of common stock issuable upon exercise of the New Warrants in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder.
Results of Operations
Nine Months Ended September 30, 2024 and 2023:
|
For the Nine Months Ended September 30, 2024 |
For the Nine Months Ended September 30, 2023 |
|||||||
| Total revenue | $ | 3,932,592 |
$ | 14,566,351 | ||||
| Total cost of revenue | 3,618,031 | 15,138,225 |
||||||
| Total payroll and related expenses | 3,507,118 | 5,419,852 | ||||||
| Total other operating expenses | 1,829,370 | 4,052,957 |
||||||
| Total operating loss | (5,021,927 | ) | (10,044,683 | ) | ||||
| Total other expense | (8,119,147 | ) | (22,450 | ) | ||||
| Total loss before income tax | (13,141,074 | ) | (10,067,133 | ) | ||||
| Common stock deemed dividend | (1,146,594 | ) | — | |||||
| Income (loss) from discontinued operations | 2,776,013 | (2,615,965 | ) | |||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | (11,511,655 | ) | $ | (12,683,098 | ) | ||
Revenue
During the nine months ended September 30, 2024, we derived revenue from our construction segment. Total revenue for the nine months ended September 30, 2024 was $3,932,592 compared to $14,566,351 for the nine months ended September 30, 2023. This decrease of $10,633,759, or approximately 73%, was mainly driven by a decrease in revenues from construction services due to less jobs in progress.
Cost of Revenue and Gross Profit
Cost of revenue was $3,618,031 for the nine months ended September 30, 2024, compared to $15,138,225 for the nine months ended September 30, 2023. The decrease of $11,520,194, or a decrease of approximately 76%, is primarily related to the decrease in construction services during the nine months ended September 30, 2024.
Gross profit (loss) was $314,561 and $(571,874) for the nine months ended September 30, 2024 and 2023, respectively.
Gross profit (loss) margin percentage increased to 8% for the nine months ended September 30, 2024 compared to (4)% for the nine months ended September 30, 2023 primarily due to the recognition of losses on construction services recognized during the nine months ended September 30, 2023.
Operating Expenses
Payroll and related expenses for the nine months ended September 30, 2024 were $3,507,118 compared to $5,419,852 for the nine months ended September 30, 2023. This decrease was primarily caused by a decrease in the vesting of restricted stock units during the nine months ended September 30, 2024 as compared to the prior period, as well as the deconsolidation of SG DevCorp during 2024.
Other operating expenses (general and administrative expenses and marketing and business development expenses) for the nine months ended September 30, 2024 were $1,829,370 compared to $4,052,957 for the nine months ended September 30, 2023. This decrease was due to an overall decrease in operating expenses spend during the nine months ended September 30, 2024, as well as the deconsolidation of SG DevCorp during 2024..
Other Income (Expense)
Interest income for the nine months ended September 30, 2024 was $9,570 mainly derived from bank interest and interest associated with an outstanding note receivable. There was $22,002 of interest income for the nine months ended September 30, 2023. There was $186,634 and $690,618 of other income for the nine months ended September 30, 2024 and 2023, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was $(2,404,277) and $(735,070), respectively. The increase in interest expense resulted from an increase in notes payable balances during the nine months ended September 30, 2024. During the nine months ended September 30, 2024, there was a change in fair value of equity-based investments of $(5,590,666) recognized which resulted from the deconsolidation of SG DevCorp as well as $320,408 recognized from the disposition of SG DevCorp shares.
Income from Discontinued Operations
During the nine months ended September 30, 2024, there was a gain on deconsolidation of $4,738,348 recognized which resulted from the deconsolidation of SG DevCorp, as well as $1,952,335 in a net loss recognized. .
Three Months Ended September 30, 2024 and 2023:
| For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | |||||||
| Total revenue | $ | 1,753,223 | $ | 3,965,361 | ||||
| Total cost of revenue | 1,878,799 | 4,501,393 | ||||||
| Total payroll and related expenses | 1,761,827 | 591,130 | ||||||
| Total other operating expenses | 353,682 | 1,263,971 | ||||||
| Total operating loss | (2,241,085 | ) | (2,391,133 | ) | ||||
| Total other expense | (1,475,020 | ) | (293,458 | ) | ||||
| Total loss before income tax | (3,716,105 | ) | (2,684,591 | ) | ||||
| Add: Net income attributable non-controlling interest | — | — | ||||||
| Loss from discontinued operations |
— | (923,543 | ) | |||||
| Net loss attributable to common stockholders of Safe & Green Holdings Corp. | $ | (3,716,105 | ) | $ | (3,608,134 | ) |
Revenue
During the three months ended September 30, 2024, we derived revenue primarily from our construction segment. Total revenue for the three months ended September 30, 2024 was $1,753,223 compared to $3,965,361 for the three months ended September 30, 2023. This decrease of $2,212,138, or approximately 56%, was mainly driven by a decrease in construction services due to less jobs in progress.
Cost of Revenue and Gross Profit
Cost of revenue was $1,878,799 for the three months ended September 30, 2024, compared to $4,501,393 for the three months ended September 30, 2023. The decrease of $2,622,594, or a decrease of approximately 58%, is primarily related to the decrease in construction services during the three months ended September 30, 2024.
Gross loss was $(125,576) and $(536,032) for the three months ended September 30, 2024 and 2023, respectively.
Gross profit margin percentage increased to (7)% for the three months ended September 30, 2024 compared to (14)% for the three months ended September 30, 2023 primarily due to the recognition of losses on construction services recognized during the three months ended September 30, 2023.
Operating Expenses
Payroll and related expenses for the three months ended September 30, 2024 were $1,761,827 compared to $591,130 for the three months ended September 30, 2023. This increase was primarily caused by a decrease in the vesting of restricted stock units during the three months ended September 30, 2024 as compared to the prior year period.
Other operating expenses (general and administrative expenses and marketing and business development expenses) for the three months ended September 30, 2024 were $353,682 compared to $1,263,971 for the three months ended September 30, 2023. This decrease was due to an overall decrease in operating expenses spend during the three months ended September 30, 2024, as well as the deconsolidation of SG DevCorp during 2024.
Other Income (Expense)
There was $3,186 of interest income for the three months ended September 30, 2023. There was $2,652 and $102,128 of other income for the three months ended September 30, 2024 and 2023, respectively. Interest expense for the three months ended September 30, 2024 and 2023 was $864,007 and $398,772, respectively. The increase in interest expense resulted from an increase in notes payable balances during the three months ended September 30, 2024. Additionally, during the three months ended September 30, 2024, there was a change in fair value of equity-based investments of $(613,665) recognized which resulted from the deconsolidation of SG DevCorp.
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 nine months ended September 30, 2024 and 2023 may not be indicative of our future operations.
Liquidity and Capital Resources
As of September 30, 2024 and December 31, 2023, we had an aggregate of $256,957 and $14,212, 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 for a period of one year after the date the financial statements in this Quarterly Report on Form 10-Q are issued.
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 July 31, 2024, SG Building Blocks, Inc. (“SG Building”), a wholly owned subsidiary of the Company, entered into a Cash Advance Agreement (the “Fifth Cedar Cash Advance Agreement”) with Cedar Advance LLC (“Cedar”), pursuant to which SG Building sold to Cedar $1,957,150 of its future receivables for a purchase price of $1,350,000, less underwriting fees and expenses paid and the repayment of prior amounts due to Cedar, for net proceeds to SG Building of $285,180. Cedar is expected to withdraw $49,150 a week directly from SG Building until the $1,957,150 due to Cedar is paid in full. In the event of a default (as defined in the Fifth Cedar Cash Advance Agreement), Cedar, among other remedies, can demand payment in full of all amounts remaining due under the Fifth Cash Advance Agreement. SG Building’s obligations under the Fifth Cash Advance Agreement have been guaranteed by SG Echo, LLC, a wholly owned subsidiary of the Company.
On August 27, 2024, SG Building entered into a Cash Advance Agreement (the “Pawn Cash Advance Agreement”) with Pawn Funding (“Pawn”) pursuant to which SG Building sold to Pawn $599,600 of its future receivables for a purchase price of $400,000, less underwriting fees and expenses paid and the repayment of prior amounts due Pawn, for net funds provided of $360,000. Pursuant to the Pawn Cash Advance Agreement, Pawn is expected to withdraw $4,999.67 a week directly from SG Building until the $599,600 due to Pawn is paid in full. In the event of a default (as defined in the Pawn Cash Advance Agreement), Cedar, among other remedies, can demand payment in full of all amounts remaining due under the Pawn Cash Advance Agreement.
On August 28, 2024, the Company issued a promissory note (the “August 1800 Diagonal Note”) in favor of 1800 Diagonal in the principal amount of $290,000 for a purchase price of $250,000, representing an original issue discount of $40,000. A one-time interest charge of twelve percent (12%) be applied on the issuance date to the principal balance. Under the terms of the August 1800 Diagonal Note, beginning on February 28, 2025, the Company is required to make five monthly payments of accrued, unpaid interest and outstanding principal, subject to adjustment, in the amount of $40,600, with $162,400 being due on February 28, 2025. The Company has right to accelerate payments or prepay in full at any time with no prepayment penalty. The connection with the August 1800 Diagonal Note, the Company incurred $8,000 in debt issuance costs. The August 1800 Diagonal Note has default terms similar to the 1800 Diagonal Note as described above.
On September 20, 2024, SG Echo entered into a Loan and Security Agreement (the “Enhanced Loan Agreement”) with Enhanced Capital Oklahoma Rural Fund, LLC (“Enhanced”) pursuant to which SG Echo borrowed $4,000,000 (the “Principal”) from Enhanced, and whereby SG Echo executed and delivered a Secured Promissory Note (the “Enhanced Note”) to Enhanced to evidence SG Echo’s obligations under the Enhanced Loan Agreement. The Enhanced Note shall bear interest at a rate equal to the greater of (i) the Secured Overnight Financing Rate (“SOFR”) plus six and sixty-five tenths percent (6.65%) and (ii) ten percent (10.0%) per annum (the “Interest Rate”). SG Echo shall pay to Enhanced a closing fee of $80,000, which shall be due and payable on October 1, 2025, unless such date shall be extended by Lender. SG Echo’s obligations under the Enhanced Loan Agreement and the Enhanced Note have been guaranteed by the Company.
Pursuant to the terms of the Enhanced Note, SG Echo shall make monthly payments of accrued interest on the first business day of each calendar month until December 31, 2025. Commencing January 2026, SG Echo shall make monthly payments of accrued interest and additionally shall make a monthly principal payment on the Note in an amount equal to $22,222.22. The maturity date of the Note shall be the sixty-month anniversary of the closing date (the “Enhanced Maturity Date”). All outstanding principal and accrued interest shall be due and payable on the Enhanced Maturity Date.
Pursuant to the terms of the Enhanced Loan Agreement, on the closing date, $360,000 (the “Interest Reserve”) will be deposited in a segregated deposit account in SG Echo’s name, which account shall be subject to a Control Agreement in favor of the Lender (the “Interest Reserve Account”). Beginning February 1, 2025, Lender may withdraw the monthly interest payments due under the Enhanced Note from the Interest Reserve Account until the Interest Reserve has been fully withdrawn. SG Echo shall have no obligation to replenish amounts withdrawn from the Interest Reserve Account.
Pursuant to the terms of the Enhanced Loan Agreement, SG Echo shall grant Enhanced a first priority mortgage on the real property located at 101 Waldron Rd., Durant, Oklahoma. Additionally, SG Echo shall grant Lender a continuing security interest in, a general lien upon, collateral assignment of, and a right of set-off against all of SG Echo’s right, title, and interest in and to all assets of SG Echo.
In the event of default (as defined in the Enhanced Loan Agreement), Enhanced, among other remedies, can demand all amounts and/or liabilities owing from time to time by SG Echo to Enhanced pursuant to the Enhanced Loan Agreement and the Enhanced Note (with accrued interest thereon) and all other amounts owing under the Enhanced Loan Agreement due and payable.
We continue to generate losses from operations. As of September 30, 2024, our stockholders’ equity was $(8,158,927), compared to $(6,334,859) as of December 31, 2023, and we had an accumulated deficit of $84,303,865, compared to $75,930,805 as of December 31, 2023. Our net loss attributable to our common stockholders for the nine months ended September 30, 2024 was $(11,511,655) and net cash used in operating activities was $9,915,916.
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 we believe will provide the needed working capital until we are cash flow positive, which we believe will be in [the second 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, |
|||||||
| 2024 |
2023 |
||||||
|
Net cash provided by (used in): |
|||||||
|
Operating activities |
$ |
(9,915,916 |
) |
$ |
(4,671,863 |
) | |
|
Investing activities |
(401,448 |
) |
(692,603 |
) | |||
|
Financing activities |
10,560,109 |
5,494,596 |
|||||
|
Net increase in cash and cash equivalents |
$ |
242,745 |
$ |
130,130 |
|||
Operating activities used net cash of $9,915,916 during the nine months ended September 30, 2024, and used net cash of $4,671,863 during the nine months ended September 30, 2023. Generally, our net operating cash flows fluctuate primarily based on changes in our profitability and working capital. Cash used in operating activities increased by approximately $5,244,053.
Investing activities used net cash of $401,448 during the nine months ended September 30, 2024, and $692,603 net cash during the nine months ended September 30, 2023 a decrease in cash used of $291,155. This amount resulted from $8,007 in purchases of property and equipment, , $125,000 received from the sale of equity-based investment and $154,089 in project development costs, as well as $364,352 used in discontinued operations.
Financing activities provided net cash of $10,560,109 during the nine months ended September 30, 2024. Financing activities provided $5,494,596 net cash during the nine months ended September 30, 2023. This amount resulted from $5,143,298 in repayments of short-term notes payable, proceeds of $8,013,745 from the issuances of short-term notes payable, $494,213 received from a warrant inducement transaction, $30 from prefunded warrant exercise, and $3,619,253 from proceed from issuance of stock, as well as $3,576,166 received from discontinued operations.
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, 2024 and December 31, 2023, 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, 2024.
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, 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.
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 nine months ended September 30, 2024 or 2023.
Intangible assets – Intangible assets consist of $68,344 of trademarks, and $6,706 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 relating to intangible assets of proprietary knowledge and technology. The amortization expense for the nine months ended September 30, 2024 and 2023 was $10,251 and $140,437, respectively. The accumulated amortization as of September 30, 2024 and December 31, 2023 was $59,975 and $2,852,929, respectively.
New Accounting Pronouncements
See Note 4 to the accompanying consolidated financial statements for all recently adopted and new accounting pronouncements.
| 56 |
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, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||
|
Net loss attributable to common stockholders of Safe & Green Holdings Corp. |
$ | (3,716,105 | ) | $ | (3,608,134 | ) | $ | (11,511,655 | ) | $ | (12,683,098 | ) | ||||
| Addback interest expense | 864,007 | 398,772 | 2,404,277 | 735,070 | ||||||||||||
| Addback interest income | — | (3,186 | ) | (9,570 | ) | (22,002 | ) | |||||||||
| Addback depreciation and amortization | 110,407 | 1,448,305 | 1,709,230 | 1,538,585 | ||||||||||||
|
EBITDA (non-GAAP) |
(2,741,691 | ) | (1,764,243 | ) | (7,407,718 | ) | (10,431,445 | ) | ||||||||
| Common stock deemed dividend | — | — | 1,146,594 | — | ||||||||||||
| Gain on deconsolidation-SG DevCorp (including noncontrolling interest portion) | — | — | (3,990,304) | — | ||||||||||||
| Change in fair value of equity-based investments | 613,665 | — | 5,590,666 | — | ||||||||||||
| Loss on disposition of equity-based investments | — | — | 320,408 | — | ||||||||||||
|
Addback litigation expense |
43,801 | — | 356,046 | 17,361 | ||||||||||||
| Addback stock issued for services |
— | — | — | 484,825 | ||||||||||||
| Addback stock compensation expense | 570,362 | — | 1,097,698 | 3,210,631 | ||||||||||||
|
Adjusted EBITDA (non-GAAP) |
$ | (1,513,863 | ) | $ | (1,764,243 | ) | $ | (2,886,610 | ) | $ | (6,718,628 | ) |
| 57 |
Not required.
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 not 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
For the fiscal quarter ended September 30, 2024, 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 17 - 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 2023 Form 10-K. There have been no material changes from the risk factors disclosed in “Part I—Item 1A. Risk Factors” in our 2023 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, 2024 and December 31, 2023, we had cash and cash equivalents and a short-term investment, collectively, of $256,957 and $14,212 respectively. However, during the nine months ended September 30, 2024 and September 30, 2023 we reported a net loss attributable to common stockholders of Safe & Green Holdings Corp. of $(11,511,655) and $(12,683,098), respectively, and used $9,915,916 and $4,671,863 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 September 30, 2024 and December 31, 2023, we had cash and cash equivalents and a short-term investment, collectively, of $256,957 and $14,212, respectively. However, during the nine months ended September 30, 2024 and September 30, 2023, we reported a net loss attributable to common stockholders of Safe & Green Holdings Corp. of $(11,511,655) and $(12,683,098), respectively, and used $9,915,916 and $4,671,863 of cash for operations, respectively.
We have incurred losses since inception, have negative working capital of $11,237,131 as of September 30, 2024 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 2025.
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 three months ended September 30, 2024 approximately 84% of our revenue was generated from one customer and for the year ended December 31, 2023, approximately 87% of our revenue was generated from one 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.
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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, 2023, our backlog totaled approximately $1.9 million and as of September 30, 2024, our backlog totaled approximately $1.9 million. Our backlog is described more in detail in “Note 13—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, 2024, there were options, restricted stock units and warrants of 1,822, 12,406 and 4,008,411, respectively, outstanding that could potentially dilute future net income per share. Because the Company had a net loss as of September 30, 2024, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, the Company has used the same number of shares outstanding to calculate both the basic and diluted loss per share. At September 30, 2023, there were no restricted stock units and options and warrants of 1,822 and 126,251, 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.
Our Common Stock is listed on the Nasdaq Capital Market (“Nasdaq” or the “Nasdaq Capital Market”), which imposes, among other requirements, a minimum bid requirement. On May 10, 2024, the Company received a letter (the “Delisting Notice”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that Nasdaq previously notified the Company on November 7, 2023 that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”), which requires a minimum bid price of at least $1.00 per share for continued listing.On May 16, 2014, the Company received a letter from Nasdaq stating that for the period from May 2, 2024 to May 15, 2024, the closing bid price of the Company’s common stock had been at $1.00 per share or greater, and accordingly the Company had regained compliance with Rule 5550(a)(2). However, the Company cannot provide assurances that it will be able to continue to comply with Rule 5550(a)(2) in the future.
On April 19, 2024, the Company received a letter from Nasdaq notifying it that it was not in compliance with Nasdaq Listing Rule 5250(c)(1) (“Rule 5250(c)(1)”), which requires companies to timely file all required periodic financial reports with the SEC for continued listing. On May 13, 2024, the Company received a letter from Nasdaq notifying the Company that, based on the May 7, 2024 and May 10, 2024 filings of the Company’s Form 10-K and Form 10-K/A, respectively, for the year ended December 31, 2023, the Company had regained compliance with Rule 5250(c)(1). However, the Company cannot provide assurances that it will be able to continue to comply with Rule 5250(c)(1) in the future.
On May 16, 2024, the Company received a letter from Nasdaq notifying the Company that it was not in compliance with Nasdaq Listing Rule 5550(b)(1) (“Rule 5550(b)(1)”) because the stockholders’ equity of the Company of $6,334,859, as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, was below the minimum requirement of $2.5 million. As of the date of this Quarterly Report on Form 10-Q, the Company does not have a market value of listed securities of $35 million, or net income from continued operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years, the alternative quantitative standards for continued listing on Nasdaq. In accordance with Nasdaq’s Listing Rules, the Company had until June 30, 2024 to submit a plan to regain compliance with Rule 5550(b)(1). On July 25, 2024, Nasdaq notified the Company that, based on its review of the Company and the materials submitted by the Company to Nasdaq, Nasdaq Staff determined to grant the Company an extension to regain compliance with Rule 5550(b)(1) until November 12, 2024, subject to the Company regaining and evidencing compliance with Rule 5550(b)(1) by such date.
The Company expects to regain compliance with Rule 5550(b)(1) as a result of the recent private placement, cost-cutting initiatives aimed at achieving positive cash flow in 2024, ongoing debt reduction and other strategic initiatives; provided that there can be no assurances that such measures will be consummated or that they will achieve their intended effects. If the Company does not regain compliance with Rule 5550(b)(1) by November 12, 2024, Nasdaq will provide written notice that our common stock is subject to delisting. At such time, the Company would be entitled to appeal the delisting determination to a Nasdaq Hearing Panel (the "Panel"). The hearing request would stay any suspension or delisting action pending the conclusion of the hearing process and expiration of any additional extension period granted by the Panel following the hearing.
Any delisting of the Company’s common stock from Nasdaq, including as a result of its inability to regain compliance with Rule 5550(b)(1), could adversely affect the Company’s ability to attract new investors, reduce the liquidity of its outstanding shares of common stock, reduce its ability to raise additional capital, reduce the price at which its common stock trades, result in negative publicity and increase the transaction costs inherent in trading such shares with overall negative effects for the Company’s stockholders. The Company cannot assure its investors that its common stock, if delisted from Nasdaq, will be listed on another national securities exchange or quoted on an over-the-counter quotation system. In addition, delisting of the Company’s common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in the Company’s common stock and might deter certain institutions and persons from investing in the Company’s securities at all. For these reasons and others, delisting could adversely affect the Company’s business, financial condition and liquidity.
None.
None.
Not applicable.
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, no director or officer of the Company or a “Rule 10b5-1 trading arrangement” or “ ,” as each term is defined in Item 408(a) of Regulation S-K.
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| 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. |
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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 26, 2024 | ||
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