What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-16 · 84 added, 142 removed, 199 unchanged (53% of the section changed)

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Introduction and Certain Cautionary Statements

As used in this Quarterly Report, unless the context requires otherwise, references to the "Company," "we," "us," and "our" refer to SG Blocks, Inc.

As used in this Quarterly Report, 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, 2021, which were included in our Annual Report on Form 10-K for the year then ended December 31, 2021, as filed with the Securities and Exchange Commission (the "SEC") on April 18, 2022 (the "2021 Form 10-K").

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and notes for the year ended December 31, 2022, which were included in our Annual Report on Form 10-K for the year then ended December 31, 2022, as filed with the Securities and Exchange Commission (the "SEC") on March 31, 2023 (the "2022 Form 10-K").

This discussion, particularly information with respect to our future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special note regarding forward-looking statements" in this Quarterly Report on Form10-Q.

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We operate in the following four segments:

(i) manufacturing;

(i) construction;

(ii) medical;

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and (iv) environmental.

The manufacturing segment designs and constructs modular structures built in our factories.

In the medical segment we use our modular technology to provide turnkey solutions to medical testing and treatment and generates revenue from the medical testing.

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 collects waste and treats waste for safe disposal.

We are a provider of Modular (as defined below) facilities.

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.

With 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.

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.

Our partnership with Clarity Lab Solutions, LLC (“Clarity Labs”) in Boca Raton, Florida, a CLIA-certified laboratory, has allowed us to provide laboratory testing in our Modules.

During 2021, we also began to focus on acquiring property to build multi-family housing communities that allows us to utilize the manufacturing services of Echo.

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, in Delaware, focused 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 SG 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.

Prior to October 2019, our business model was solely a project-based construction model pursuant to which we were responsible for the design and construction of finished products that incorporated our technology primarily to customers in the retail, restaurant, military and education industries throughout the United States.

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Our cargo modified Modules allow for the redesign, repurpose and conversion of heavy-gauge steel cargo shipping containers into SGBlocks™, which are safe green building blocks for commercial, industrial, and residential building construction, rather than consuming new steel and lumber.

Our technology and expertise is also used to purpose-build modules, or prefabricated steel modular units customized for use in modular construction (“SGPBMs” and, together with SGBlocks™, “Modules”), primarily to augment or complement an SGBlocks™ structure.

Our technology and expertise is also used to purpose-build modules, or prefabricated steel modular units customized for use in modular construction (“SGPBMs” and, together with with Safe & Green™, “Modules”), primarily to augment or complement an Safe & Green™ structure.

In March 2020, we began increasing our focus on providing our Modules as health care facilities for deployable medical response solutions.

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We have supplied our building modular coronavirus testing centers and provide testing services for Los Angeles International Airport (LAX), Memorial in Wayne County, Michigan and have been selected as a Trusted Testing Partner (TTP) for Hawaii’s COVID-19 travel testing program.

Due to the ongoing lower affects of COVID-19 restrictions, our joint venture with Clarity Labs is being wound down during the fourth quarter of 2022.

Due to the ongoing lower affects of COVID-19 restrictions, our joint venture with Clarity Labs was wound down during the fourth quarter of 2022.

In September 2020, we acquired substantially all the assets of Echo, a Texas limited liability com pany, except for Echo's real estate holdings for which we obtained a right of first refusal.

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In addition, during 2021 , we formed SGB Development Corp.

(“SG DevCorp”), which is our wholly-owned subsidiary.

(“SG DevCorp”), which is our wholly-owned subsidiary and has since been renamed to Safe and Green Development Corporation.

SG DevCorp was formed with the purpose of real property development utilizing our technologies.

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SG DevCorp has a minority interest in Norman Berry II Owners LLC and JDI-Cumberland Inlet LLC.

We intend to spin-out SG DevCorp as its own independent company.

Results of Operations

Nine Months Ended September 30, 2022 and 2021:

For the Nine Months Ended September 30, 2022

For the Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 and 2022:

For the Three Months Ended March 31, 2023

For the Three Months Ended March 31, 2022

Total revenue

Total cost of revenue

Total Payroll and related expenses

Total Other operating expenses

Total Operating loss

Total Other income

Total operating expenses

Total operating profit (loss)

Total other income (expense)

Total loss before income tax

Net income attributable non-controlling interest

Net loss attributable to common stockholders of SG Blocks, Inc.

During the nine months ended September 30, 2022, we derived revenue from the following three categories of sources:

construction services, engineering services and medical revenue.

Total revenue for the nine months ended September 30, 2022 was $20,289,826 compared to $29,889,104 for the nine months ended September 30, 2021.

This decrease of $9,599,278 or approximately 32.1% was mainly driven by a decrease in medical revenue of $12,265,124, offset by an increase in construction services which consisted an increase in office projects of $5,591,942, a decrease in government projects of $2,257,154 and a decrease of special use projects of $1,809,838.

Net loss attributable to common stockholders of Safe & Green Holdings Corp.

During the quarter ended March 31, 2023, we derived revenue from our construction segment.

Total revenue for the three months ended March 31, 2023 was $5,503,935 compared to $8,604,598 for the three months ended March 31, 2022.

This decrease of $3,100,663 or approximately 36.0% was mainly driven by a decrease in medical revenue of $6,885,828, offset by an increase in construction services of $3,835,551 primarily driven by one contract.

Cost of Revenue and Gross Profit

Cost of revenue was $17,196,605 for the nine months ended September 30, 2022, compared to $27,797,993 for the nine months ended September 30, 2021.

The decrease of $10,601,388 or a decrease of approximately 38%, is primarily related to lower testing volumes resulting in a decrease in our medical cost of revenue as well as a decrease in cost of goods sold from construction services in the amount of $ 1,780,066.

Gross profit was $3,093,221 and $ 2,091,111 for the nine months ended September 30, 2022 and 2021 , respectively.

Gross profit margin percentage increased to 15.25% for the nine months ended September 30, 2022 compared to 7% for the nine months ended September 30, 2021 primarily due to a legacy contract from the acquisition of SG Echo which incurred losses during the nine months ended September 30, 2021 from escalations in material pricing related to COVID-19 and labor overages.

Payroll and Related Expenses

Payroll and related expenses for the nine months ended September 30, 2022 were $3,650,553 compared to $2,665,097 for the nine months ended September 30, 2021.

This increase was primarily caused by an increase of approximately $1,096,200 in stock-based compensation during the nine months ended September 30, 2022.

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the nine months ended September 30, 2022 were $ 2,853,818 compared to $ 3,238,146 for the nine months ended September 30, 2021 .

Cost of revenue was $5,573,407 for the three months ended March 31, 2023, compared to $6,118,163 for the three months ended March 31, 2022.

The decrease of $544,756 or a decrease of approximately 9%, is primarily related to no medical revenue being generated during the three months ended March 31, 2023.

Gross profit (loss) was $(69,472) and $ 2,486,435 for the three months ended March 31, 2023 and 2022 , respectively.

Gross profit (loss) margin percentage decreased to (1)% for the three months ended March 31, 2023 compared to 29 % for the three months ended March 31, 2022 primarily due to no medial revenue being generated during the three months ended March 31, 2023 .

Operating Expenses

Payroll and related expenses for the three months ended March 31, 2023 were $1,314,390 compared to $1,144,187 for the three months ended March 31, 2022.

This increase was primarily caused by an increase in headcount and salary expenses during the three months ended March 31, 2023.

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended March 31, 2023 were $ 1,876,207 compared to $ 923,356 for the three months ended March 31, 2022 .

Other Income (Expense)

Interest income for the nine months ended September 30, 2022 was $33,518 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $41,240 of interest income for the nine months ended September 30, 2021.

Other income for the nine months ended September 30, 2022 was $ 488,346 primarily related to a return of escrow from the SG Echo acquisition.

T here was $61,477 of other income for the nine months ended September 30, 2021.

Interest expense for the nine months ended September 30, 2022 and 2021 was $174,733 and $985, respectively.

Interest income for the three months ended March 31, 2023 was $9,362 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $12,783 of interest income for the three months ended March 31, 2022.

T here was $18,639 and $118,902 of other income for the three months ended March 31, 2023 and 2022.

Interest expense for the three months ended March 31, 2023 and 2022 was $287,372 and $48,849, respectively.

The increase in interest expense resulted from the notes payable entered into during July 2021.

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Inflation has caused increases on some of the Company's estimated costs for construction projects in progress and completed during the past two fiscal years, which has affected the Company's revenue and income(loss) from continuing operations.

Our operations for the three months ended September 30, 2022 and 2021 may not be indicative of our future operations.

Three Months Ended September 30, 2022 and 2021:

For the Three Months Ended September 30, 2022

For the Three Months Ended September 30, 2021

Total Revenue

Total Cost of revenue

Total Payroll and related expenses

Total Other Operating expenses

Total Operating loss

Total Other income (expense)

Total Loss before income tax

Net profit (loss) attributable non-controlling interests

Net loss attributable to common stockholders of SG Blocks, Inc.

During the quarter ended September 30, 2022 , we derived revenue from the following three categories of sources:

construction services, engineering services and medical revenue .

Total revenue for the three months ended September 30, 2022 was $4,130,257 compared to $ 8,847,490 for the three months ended September 30, 2021 .

This decrease of $4,717,233 or approximately 53% was mainly driven by a decrease in medical revenue of $6,726,886 offset by an increase in construction services which consisted of an increase in hotel projects of $ 1,006,707 and in increase in office projects of $1,316,885 .

Cost of Revenue and Gross Profit (Loss)

Cost of revenue was $4,295,431 for the three months ended September 30, 2022, compared to $9,454,311 for the three months ended September 30, 2021.

The decrease of $5,158,880 or a decrease of approximately 55%, is primarily related to lower testing volumes resulting in a decrease in our medical revenue as well as a decrease in cost of goods sold from construction services in the amount of $445,762.

Gross profit (loss) was $(165,174) and $( 606,821 )for the three months ended September 30, 2022 and 2021, respectively.

Gross profit margin percentage in creased to approximately -4% for the three months ended September 30, 2022 compared to approximately -7% for the three months ended September 30, 2021.

This increase was mainly caused by the ability to lower indirect cost of job in production during the three months ended September 30, 2022.

Payroll and Related Expenses

Payroll and related expenses for the three months ended September 30, 2022 were $ 1,294,857 compared to $1,066,486 for the three months ended September 30, 2021.

This increase was primarily caused by an increase of approximately $348,000 in stock-based compensation expense.

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended September 30, 2022 were $ 1,042,155 c ompared to $1,053,301 for the three months ended September 30, 2021 .

Other Income (Expense)

Interest income for the three months ended September 30, 2022 was $9,756 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $9,973 of interest income for the three months ended September 30, 2021.

Interest expense for the three months ended September 30, 2022 and 2021 was $52,758 and $293, respectively.

Other income (expense) for the three months ended September 30, 20 22 and 2021 was $( 2,963) and $453, respectively .

Income Tax Provision

A 0% 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

Our operations for the three months ended March 31, 2023 and 2022 may not be indicative of our future operations.

Impact of Coronavirus (COVID-19)

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Liquidity and Capital Resources

As of September 30, 2022 and December 31, 2021 we had an aggregate of $ 2,118,169 and $13,024,381, respectively, of cash and cash equivalents and short-term investments.

As of March 31, 2023 and December 31, 2022 we had an aggregate of $ 1,452,501 and $582,776, respectively, of cash and cash equivalents and short-term investments.

Historically, our operations have primarily been funded through proceeds from equity and debt financings, as well as revenue from operations.

In June 2017, we completed a public offering, resulting in net proceeds of approximately $6,800,000 after deducting underwriting discounts and commissions and other expenses.

In July 2017, in connection with a public offering, the underwriters exercised their option to purchase 11,250 additional shares of common stock.

As a result of the exercise and closing of the option to purchase additional shares, total net proceeds from the public offering were approximately $7,900,000 after deducting underwriting discounts and commissions and related expenses.

In April 2019, we issued 42,388 shares of our common stock at a price of $22.00 per share through a Securities Purchase Agreement with certain institutional investors and accredited investors.

In August 2019, we issued 45,000 shares of our common stock at a price of $17.00 per share pursuant to the terms of an Underwriting Agreement to the public.

Liquidity and Capital Resources (continued)

In December 2019, we completed a public offering where we issued 857,500 shares of common stock at a public offering price of $3.00 per share resulting in net proceeds of approximately $2,117,948 after deducting underwriting discounts and commissions and other expenses.

In our November 2019 debt financing, we received a cash payment in the aggregate amount of $375,000 pursuant to a Securities Purchase Agreement that we entered into with Red Diamond Partners LLC (the “Lender”), and we issued to the Lender a Debenture (the "Debenture") in the aggregate principal amount of $480,770 (representing an original issue discount of 22%), which Debenture was secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions.

We received net proceeds of approximately $326,250 after deducting certain fees due to the placement agent and certain transaction expenses.

The Debenture was repaid in full out of the proceeds of our December 2019 public offering.

On February 4, 2020, we entered into a Securities Purchase Agreement with an accredited investor, pursuant to which we issued to the investor a secured note in the aggregate principal amount of $200,000 (the “Note”).

The Note bears interest at a rate of nine percent (9%) per annum, is due on July 31, 2023, and is secured under a Pledge Agreement, dated February 4, 2020, entered into with the investor (the “Pledge Agreement”) by a security interest in the royalty payable to us under that certain Exclusive License Agreement, dated October 3, 2019, with CPF GP 2019-1 LLC.

We have the right to prepay the Note, in whole or in part, at any time and from time to time, without premium or penalty.

During the third quarter of 2020, the Note to investor of $200,000 and unpaid accrued interest of $86,263 was converted into 73,665 shares of common stock.

In April 2020, we completed a public offering where we issued 440,000 shares of common stock at a public offering price of $4.25 per share, which resulted in net proceeds of approximately $1,522,339, after deducting underwriting discounts and commissions and other expenses related to the offering.

In May 2020, we sold an aggregate of 6,900,000 shares of our common stock at a public offering price of $2.50 per share and on May 15, 2020, and received total net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $15,596,141.

In October 2021, we received aggregate gross proceeds of $11.55 million from our issuance to an investor (A) in a registered direct offering of (i) 975,000 shares of our common stock and (ii) pre-funded warrants to purchase an aggregate of 2,189,384 shares of common stock and (B) in a concurrent private placement Series A warrants to purchase up to 1,898,630 shares of Common Stock.

On February 7, 2023, we closed a private placement offering (the “Offering”) of One Million One Hundred Thousand Dollars ($1,100,000.00) in principal amount of the Company’s 8% convertible debenture (the “Debenture”) and a warrant (the “Warrant”) to purchase up to Five Hundred Thousand (500,000) shares of our common stock, to Peak One Opportunity Fund, L.P.

(“Peak One”).

Pursuant to a Securities Purchase Agreement, dated February 7, 2023 (the “Purchase Agreement”), the Debenture was sold to Peak One for a purchase price of $1,000,000, representing an original issue discount of ten percent (10%).

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

The Debenture matures twelve months from its date of issuance and bear interest at a rate of 8% per annum payable on the maturity date.

The Debenture is convertible, at the option of the holder, at any time, into such number of shares of common stock of the Company equal to the principal amount of the Debenture plus all accrued and unpaid interest at a conversion price equal to $1.50 (the “Conversion Price”), subject to adjustment for any stock splits, stock dividends, recapitalizations and similar events and in the event the Company, at any time while the Debenture is outstanding, issues, sells or grants any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues common stock or other securities convertible into, exercisable for, or otherwise entitle any person the right to acquire, shares of common stock, other than with respect to an Exempt Issuance (as defined in the Debenture), at an effective price per share that is lower than the then Conversion Price.

In the event of any such anti-dilutive event, the Conversion Price will be reduced at the option of the holder to such lower effective price of the dilutive event, subject to a floor price of $0.40 per share, unless and until the Company obtains shareholder approval for any issuance below such floor price.

We continue to generate losses from operations.

At September 30, 2022 and December 31, 2021 we had a cash balance and short-term investment of $2,118,169 and $13,024,381, respectively.

As of September 30, 2022, our stockholders’ equity was $18,312,626 compared to $21,715,789 as of December 31, 2021.

Our net loss attributable to common stockholders of SG Blocks, Inc.

for the nine months ended September 30, 2022 was $4,568,120 and net cash used in operating activities was $ 5,553,160 .

We anticipate our cash balance is sufficient to last at least twelve months from the date of this Quarterly Report on Form 10-Q.

At March 31, 2023 and December 31, 2022 we had a cash balance $ 1,452,501 and $582,776, respectively.

As of March 31, 2023 , our stockholders’ equity was $ 12,321,638 compared to $ 14,439,562 as of December 31, 2022.

Our net loss attributable to common stockholders of Safe & Green Holdings Corp.

for the three months ended March 31, 2023 was $3,519,440 and net cash used in operating activities was $ 1,378,685 .

We may 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.

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Cash Flow Summary

Nine Months Ended

September 30,

Net cash used in:

Three Months Ended

Net cash provided by (used in):

Operating activities

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Financing activities

Net decrease in cash and cash equivalents

Operating activities used net cash of $ 5,553,160 during the nine months ended September 30, 2022, and used net cash of $ 1,032,417 during the nine months ended September 30, 2021.

Net increase in cash and cash equivalents

Operating activities used net cash of $ 1,378,685 during the three months ended March 31, 2023, and used net cash of $ 3,257,027 during the three months ended March 31, 2022.

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 $1,878,342.

Investing activities used net cash of $ 3,549,372 during the nine months ended September 30, 2022, and $ 8,283,525 net cash during th e nine months ended September 30, 2021 a decrease in cash used of $ 4,734,153 .

This change results primarily from a decrease of $2,810,094 of the purchase of property and equipment during the nine months ended September 30, 2022 and $3,350,239 of an investment in and advances to equity affiliates during the nine months ended September 30, 2021.

Financing activities used net cash of $1,803,680 during the nine months ended September 30, 2022.

Financing activities used $ 403,712 net cash during the nine months ended September 30, 2021.

This change of $ 1,399,968 results from the proceeds from conversion of warrants to common st ock having a value of $707,188 durin g the nine months ended September 30, 20 21 and a decrease of $805,134 of distributions paid to non-controlling interest during the nine months ended September 30, 2022.

In addition, during the nine months ended September 30, 2022 we received $500,000 from proceeds of short-term notes payable.

Investing activities used net cash of $ 638,348 during the three months ended March 31, 2023, and $ 1,860,990 net cash during th e three months ended March 31, 2022 a decrease in cash used of $ 1,222,642 .

This change results primarily from a decrease of $ 391,782 of the purchase of property and equipment during the three months ended March 31, 2023 and $ 500,000 of an investment in non-marketable securities during the three months ended March 31, 2022.

Financing activities provided net cash of $2,886,758 during the three months ended March 31, 2023.

Financing activities used $1,274,000 net cash during the three months ended March 31, 2022.

This change of $4,160,758 results from the proceeds from short term notes payable of $5,433,175 offset by repayments of short term notes payable of $2,500,000.

In addition, there were $46,417 and $1,274,000 of distributions paid to non-controlling interest during the three months ended March 31, 2023 and 2022, respectively.

We provide services to our construction and engineering customers in three separate phases:

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These phases may be embodied in a single contract or in separate contracts, which is typical of a design build process model.

As of September 30, 2022, we ha d eleven projects totaling $2,585,012 under contract .

As of March 31, 2023, we ha d eleven projects totaling $1,306,849 under contract .

Of these contracts, all eleven projects combine all three phases or parts thereof and including construction.

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Backlog may fluctuate significantly due to the timing of orders or awards for large projects and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as revenue.

Our backlog decreased by approximately $633,000 from December 31, 2021 to September 30, 2022.

Our backlog decreased by approximately $5,500,000 from December 31, 2022 to March 31, 2023.

We expect that all of this revenue will be realized by December 31, 2023.

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Off-Balance Sheet Arrangements

As of September 30, 2022 and December 31, 2021, we had no material off-balance sheet arrangements to which we are a party.

As of March 31, 2023 and December 31, 2022, we had no material off-balance sheet arrangements to which we are a party.

In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector.

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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, 2022 .

Accordingly, we have no liabilities recorded for these provisions as of March 31, 2023 .

Critical Accounting Estimates

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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 report.

We believe that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results.

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Other derivative financial instruments.

SGB classifies 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 SGB’s own shares (physical settlement or net-share settlement), provided that such contracts are indexed to SGB’s own stock.

SGB 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 SGB’s control) or (ii) give the counterparty a choice of net-cash settlement or settlement shares (physical settlement or net-cash settlement).

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

Critical Accounting Policies (continued)

Convertible instruments .

SGB bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments according to certain criteria.

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;

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and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

SGB 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.

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.

Revenue recognition – we determine, 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.

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.

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

On October 3, 2019, we entered into an Exclusive License Agreement (“ELA” ) pursuant to which it granted an exclusive license for its technology as outlined in the ELA.

The ELA is described below.

Under the ELA, we will receive royalty payments based upon gross revenues earned by the licensee for commercialized products within the field of design and project management platforms for residential use, including single-family residences and multi-family residences, but excluding military housing.

We have determined that the ELA grants the licensee a right to access our intellectual property throughout the license period (or its remaining economic life, if shorter), and thus recognizes revenue over time as the licensee recognizes revenue and we have the right to payment of royalties.

No revenue has been recognized under the ELA for the nine months ended September 30, 2022.

We entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”) in the fourth quarter of 2020.

Revenue from the activities of the JV is related to clinical testing services and is recognized when services have been rendered, which is at a point in time.

In addition, we formed Chicago Airport Testing, LLC which collects rental revenue Included in the consideration we expected to be entitled to receive, we estimate its contractual allowances, payer denials and price concessions.

During the nine months ended September 30, 2022, we recognized $11,640,953 in revenue related to activities through the JV, which is included in medical revenue on the accompanying consolidated statements of operations.

Critical Accounting Policies (continued)

Goodwill – Goodwill represents the excess of reorganization value over the fair value of identified net assets upon emergence from bankruptcy.

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Our evaluation of goodwill completed during the year ended December 31, 2022, resulted in no impairment loss.

There was no impairment during the nine months ended September 30, 2022.

Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years, $97,164 of trademarks which is being amortized over 5 years, $47,800 of website fees which is being amortized over 5 years.

Our evaluation of intangible assets for impairment during the year ended December 31, 2021, determined that there were no impairment losses.

There was no impairment during the nine months ended September 30, 2022.

There was no impairment during the March 31, 2023.

Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology, which is being amortized over 20 years.

In addition, included in intangible assets is $97,164 of trademarks, and $196,812 of website costs that are being amortized over 5 years.

The Company evaluated intangible assets for impairment during the three months ended March 31, 2023 and 2022 and determined that there are no impairment losses.

New Accounting Pronouncements

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Three Months Ended

September 30, 2022

March 31, 2023

Three Months Ended

September 30, 2021

Nine Months Ended

September 30, 2022

Nine Months Ended

September 30, 2021

Net loss attributable to common stockholders of SG Blocks, Inc.

March 31, 2022

Net loss attributable to common stockholders of Safe & Green Holdings Corp.

Addback interest expense

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EBITDA (non-GAAP)

Addback loss on asset disposal

Addback litigation expense

Addback stock issued for services

Addback stock compensation expense

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis