What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-11 · 117 added, 46 removed, 237 unchanged (41% of the section changed)

1 unchanged sentence

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 Safe & Green Holdings Corp.

As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to the "Company," "we," "us," and "our" refer to Safe & Green Holdings Corp.

and its subsidiaries.

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and any factors discussed in "Part II - Item 1 A.

Risk Factors" to this Quarterly Report on Form 10-Q as well as our 2022 Form 10-K, and other filings with the Securities Exchange Commission.

Risk Factors" to this Quarterly Report on Form 10-Q as well as our 2022 Form 10-K, and other filings with the SEC.

In addition, certain information presented below is based on unaudited financial information.

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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 with Safe & Green™, “Modules”), primarily to augment or complement an Safe & Green™ 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 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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Results of Operations

Three Months Ended March 31, 2023 and 2022:

For the Three Months Ended March 31, 2023

For the Three Months Ended March 31, 2022

Six Months Ended June 30, 2023 and 2022:

For the Six Months Ended June 30, 2023

For the Six Months Ended June 30, 2022

Total revenue

Total cost of revenue

Total payroll and related expenses

Total operating expenses

Total operating profit (loss)

Total operating loss

Total other income (expense)

2 unchanged sentences

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.

During the six months ended June 30, 2023, we derived revenue solely from our construction segment.

Total revenue for the six months ended June 30, 2023 was $10,600,990 compared to $16,159,569 for the six months ended June 30, 2022.

This decrease of $5,558,579 or approximately 34.4% was mainly driven by a decrease in medical revenue of $10,203,215, offset by an increase in construction services of $4,719,342 primarily driven by one contract.

Cost of Revenue and Gross Profit

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 .

Cost of revenue was $10,636,832 for the six months ended June 30, 2023, compared to $12,901,174 for the six months ended June 30, 2022.

The decrease of $2,264,342 or a decrease of approximately 18%, is primarily related to no medical revenue being generated during the six months ended June 30, 2023.

Gross profit (loss) was $(35,842) and $ 3,258,395 for the six months ended June 30, 2023 and 2022 , respectively.

Gross profit (loss) margin percentage decreased to 0% for the six months ended June 30, 2023 compared to 20% for the six months ended June 30, 2022 primarily due to no medical revenue being generated during the six months ended June 30, 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 .

Payroll and related expenses for the six months ended June 30, 2023 were $5,498,819 compared to $2,355,696 for the six months ended June 30, 2022.

This increase was primarily caused by an increase in headcount and salary expenses during the six months ended June 30, 2023 , as well as the vesting of additional restricted stock units during 2023.

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the six months ended June 30, 2023 were $ 3,336,266 compared to $ 1,811,663 for the six months ended June 30, 2022 .

Other Income (Expense)

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.

Interest income for the six months ended June 30, 2023 was $18,816 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $23,762 of interest income for the six months ended June 30, 2022.

T here was $588,490 and $491,309 of other income for the six months ended June 30, 2023 and 2022.

Interest expense for the six months ended June 30, 2023 and 2022 was $811,343 and $121,975, respectively.

The increase in interest expense resulted from an increase in notes payable balances during 2023.

Three Months Ended June 30, 2023 and 2022:

For the Three Months Ended June 30, 2023

For the Three Months Ended June 30, 2022

Total revenue

Total cost of revenue

Total payroll and related expenses

Total operating expenses

Total operating loss

Total other income (expense)

Total loss before income tax

Net income attributable non-controlling interest

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

During the three months ended June 30, 2023, we derived revenue solely from our construction segment.

Total revenue for the three months ended June 30, 2023 was $5,097,055 compared to $7,554,971 for the three months ended June 30, 2022.

This decrease of $2,457,916 or approximately 33% was mainly driven by a decrease in medical revenue of $3,317,387 offset by an increase in construction services of $883,791 primarily driven by one contract.

Cost of Revenue and Gross Profit

Cost of revenue was $5,063,425 for the three months ended June 30, 2023, compared to $6,783,011 for the three months ended June 30, 2022.

The decrease of $1,719,586 or a decrease of approximately 25%, is primarily related to no medical revenue being generated during the three months ended June 30, 2023.

Gross profit was $33,630 and $771,960 for the three months ended June 30, 2023 and 2022, respectively.

Gross profit margin percentage decreased to 1% for the three months ended June 30, 2023 compared to 10% for the three months ended June 30, 2022 primarily due to no medical revenue being generated during the three months ended June 30, 2023.

Operating Expenses

Payroll and related expenses for the three months ended June 30, 2023 were $4,184,429 compared to $1,211,509 for the three months ended June 30, 2022.

This increase was primarily caused by an increase in headcount and salary expenses during the three months ended June 30, 2023, as well as the vesting of additional restricted stock units during 2023.

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended June 30, 2023 were $1,460,059 compared to $888,307 for the three months ended June 30, 2022.

Other Income (Expense)

Interest income for the three months ended June 30, 2023 was $9,454 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $10,979 of interest income for the three months ended June 30, 2022.

There was $569,851 and $372,407 of other income for the three months ended June 30, 2023 and 2022.

Interest expense for the three months ended June 30, 2023 and 2022 was $523,971 and $73,126, respectively.

The increase in interest expense resulted from an increase in notes payable balances during 2023.

Income Tax Provision

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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 March 31, 2023 and 2022 may not be indicative of our future operations.

Our operations for the three months ended June 30, 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 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.

As of June 30, 2023 and December 31, 2022 we had an aggregate of $ 1,601,331 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.

Liquidity and Capital Resources (continued)

We have negative operating cash flows, which has raised substantial doubt about our ability to continue as a going concern.

We intend to meet our capital needs from revenue generated from operations and by containing costs, entering into strategic alliances, as well as exploring other options, including the possibility of raising additional debt or equity capital as necessary.

There is, however, no assurance we will be successful in meeting our capital requirements prior to becoming cash flow positive.

We do not have any additional sources secured for future funding, and if we are unable to raise the necessary capital at the times we require such funding, we may need to materially change our business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.

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

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

Liquidity and Capital Resources (continued)

On May 16, 2023, SG Building, entered into a Cash Advance Agreement (“Cash Advance Agreement”) with Cedar Advance LLC (“Cedar” pursuant to which SG Building sold to Cedar $710,500 of its future receivables for a purchase price of $500,000.

Cedar is expected to withdraw $25,375 a week directly from SG Building, until the $710,500 due to Cedar is paid in full.

In the event of a default (as defined in the Cash Advance Agreement), Cedar, among other remedies, can demand payment in full of all amounts remaining due under the Cash Advance Agreement.

SG Building’s obligations under the Cash Advance Agreement have been guaranteed by SG Echo.

In connection with the exercise of its option to acquire 19 acres of land and the approximately 56,775 square foot facility located at 101 Waldron Road in Durant Oklahoma (the “Premises”), on June 8, 2023, SG Echo issued a secured commercial promissory note, dated June 1, 2023 (the “Secured Note”), in the principal amount of $1,750,000 with SouthStar Financial, LLC, a South Carolina limited liability company (“SouthStar”), and entered into a Non-Recourse Factoring and Security Agreement, dated June 1, 2023 (the “Factoring Agreement”), with SouthStar providing for its purchase from SG Echo of up to $1,500,000 of accounts receivable, subject to reduction by South Star (the “Facility Amount”).

The Secured Note bears interest at 23% per annum and is due and payable on June 1, 2025.

The Secured Note is secured by a mortgage (the “Mortgage”) on the Premises and secured by a Security Agreement, dated June 1, 2023 (the “Security Agreement”), pursuant to which SG Echo granted to SouthStar a first priority security interest in all of SG Echo’s presently-owned and hereafter-acquired personal and fixture property, wherever located, including, without limitation, all accounts, goods, chattel paper, inventory, equipment, instruments, investment property, documents, deposit accounts, commercial tort claims, letters-of-credit rights, general intangibles including payment intangibles, patents, software trademarks, trade names, customer lists, supporting obligations, all proceeds and products of the foregoing.

SG Echo paid to SouthStar an origination fee in the amount of 3% of the face amount of the Secured Note.

Upon the occurrence of an Event of Default (as defined in the Secured Promissory Note), the default interest rate will be 28% per annum, or the maximum legal amount provided by law, whichever is greater.

The Factoring Agreement provides that upon acceptance of an account receivable for purchase SouthStar will pay to SG Echo eighty percent (80%) of the face amount of the account receivable, or such lesser percentage as agreed by the parties.

SG Echo will also pay to SouthStar one and 95/100 percent (1.95%) of the face amount of the accounts receivable for the first twenty-five (25) day period after payment for the accounts receivable is transmitted to SouthStar plus one and 25/100 percent (1.25%) for each additional fifteen (15) day period or part thereof, calculated from the date of purchase until payments received by SouthStar in collected funds on the purchased accounts receivable equals the purchase price of the accounts receivable, plus all charges due SouthStar from SG Echo at the time.

An additional one and 50/100 percent (1.50%) per fifteen (15) day period will be charged for invoices exceeding sixty (60) days from advance date.

The Factoring Agreement provides that SG Echo may require additional funding from SouthStar (an “Overadvance”) and SouthStar may provide the Overadvance in its sole discretion.

In the event of an Overadvance, SG Echo will pay SouthStar an amount equal to three and 90/100 percent (3.90%) of the amount of the Overadvance for the first twenty-five (25) day period after the Overadvance is transmitted to SouthStar plus two and 50/100 percent (2.50%) for each additional fifteen (15) day period or part thereof until payments received by SouthStar in collected funds equals the amount of the Overadvance, plus all charges due SouthStar from SG Echo at the time.

The Factoring Agreement provides that SG Echo will also pay a transactional administrative fee of $50.00 for each new account debtor submitted to it and an fee equal to 0.25% of the face amount of all purchased accounts receivable for the handling, collecting, mailing, quality assuring, insuring the risk, transmitting, and performing certain data processing services with respect to the maintenance and servicing of the purchased accounts.

As security for the payment and performance of SG Echo’s present and future obligations to SouthStar under the Factoring Agreement, SG Echo granted to SouthStar a first priority security interest in all of SG Echo’s presently-owned and hereafter-acquired personal and fixture property, wherever located, including, without limitation, all accounts, goods, chattel paper, inventory, equipment, instruments, investment property, documents, deposit accounts, commercial tort claims, letters-of-credit rights, general intangibles including payment intangibles, patents, software trademarks, trade names, customer lists, supporting obligations, all proceeds and products of the foregoing.

The Factoring Agreement has an initial term of thirty-six (36) months from the first day of the month following the date the first purchased accounts receivable is purchased.

Unless terminated by SG Echo, not less than sixty (60) but not more than ninety (90) days before the end of the initial term, the Factoring Agreement will automatically extend for an additional thirty-six (36) months.

SG Echo shall be required to provide the same not less than sixty (60) but not more than ninety (90) days notice during any and all renewal terms in order to terminate the Factoring Agreement, and if no notice is provided, the renewal term will extend for an additional thirty-six (36) month period.

If SouthStar has not purchased accounts receivable in a quarterly period during any initial or renewal term which exceed fifty percent (50%) of the Facility Amount per calendar quarter, in which $250,000.00 of the purchased accounts each month must be with ATCO Structures & Logistics (USA) Inc.

(“Minimum Amount”), the Factoring Agreement provides that SG Echo will pay to SouthStar, on demand, an additional amount equal to what the charges provided for elsewhere in the Factoring Agreement would have been on the Minimum Amount assuming the number of days from the date of purchase of the Minimum Amount until receipt of payment of the Minimum Amount is thirty one (31) days, less the actual charges paid by SG Echo to SouthStar during such period.

Pursuant to a Secured Continuing Corporate Guaranty, dated June 8, 2023 (the “Corporate Guaranty”), the Company has guaranteed SG Echo’s obligations to SouthStar under the Secured Note and Factoring Agreement.

Pursuant to a Cross-Default and Cross Collateralization Agreement (the “Cross Default Agreement”), effective June 8, 2023, between SouthStar, SG Echo and the Company, SG Echo’s obligations under the Secured Note and Factoring Agreement are cross-defaulted and cross-collateralized such that any event of default under the Secured Note shall constitute an event of default under the Factoring Agreement at SouthStar’s election (and vice versa, any event of default under the Factoring Agreement shall constitute an event of default under the Secured Note at SouthStar’s election) and any collateral pledged to secure SG Echo’s obligations under the Secured Note shall also secure SG Echo’s obligations under the Factoring Agreement (and vice versa).

On June 23 2023, SG DevCorp, entered into a Loan Agreement (the “BCV Loan Agreement”) with a Luxembourg-based specialized investment fund, BCV S&G DevCorp (“BCV S&G”), for up to $2,000,000 in proceeds, of which it has raised $1,250,000 to date.

The Loan Agreement provides that the loan provided thereunder will bear interest at 14% per annum and mature on December 1, 2024.

The loan may be repaid by SG DevCo at any anytime following the twelve-month anniversary of its issue date.

The loan is secured by 1,999,999 shares of SG DevCorp’s common stock (the “Pledged Shares”), which were pledged by SG DevCorp pursuant to an escrow agreement (the “Escrow Agreement”) with American Stock Transfer & Trust Company, LLC, SG DevCorp’s transfer agent, and which represent 19.99% of SG DevCorp’s outstanding shares.

The fees associated with the issuance include $70,000 paid to BCV S&G for the creation of the BCV Loan Agreement and $27,500 payable to BCV S&G per annum for maintaining the BCV Loan Agreement.

Additionally, $37,500 in broker fees has been paid to Bridgeline Capital Partners S.A.

on the principal amount raised of $1,250,000 raised to date.

The BCV Loan Agreement further provides that if SG DevCorp’s shares of common stock are not listed on The Nasdaq Stock Market on before August 30, 2023 or if following such listing the total market value of the Pledged Shares falls below twice the face value of the loan, the loan will be further secured by SG DevCorp’s St.

Mary’s industrial site, consisting of 29.66 acres and a proposed manufacturing facility in St.

Mary’s, Georgia.

We continue to generate losses from operations.

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 .

At June 30, 2023 and December 31, 2022 we had a cash balance $ 1,601,331 and $582,776, respectively.

As of June 30, 2023 , our stockholders’ equity was $ 9,325,160 compared to $ 14,439,562 as of December 31, 2022 and an accumulated deficit of $50,503,232.

Our net loss attributable to our common stockholders for the six months ended June 30, 2023 was $(9,074,964) and net cash used in operating activities was $( 3,039,177 ).

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

Three Months Ended

Six Months Ended

Net cash provided by (used in):

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Financing activities

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.

Net increase/(decrease) in cash and cash equivalents

Operating activities used net cash of $ 3,039,177 during the six months ended June 30, 2023, and used net cash of $ 5,362,545 during the six months ended June 30, 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 $ 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.

Cash used in operating activities decreased by approximately $2,323,368.

Investing activities used net cash of $ 669,006 during the six months ended June 30, 2023, and $ 3,077,625 net cash during th e six months ended June 30, 2022 a decrease in cash used of $ 2,408,619 .

This change results primarily from a decrease of $ 526,324 of the purchase of property and equipment during the six months ended June 30, 2023 and $ 500,000 of an investment in non-marketable securities during the six months ended June 30, 2022 as well as $726,386 in project development costs during the six months ended June 30, 2022.

Financing activities provided net cash of $4,726,738 during the six months ended June 30, 2023.

Financing activities used $2,156,000 net cash during the six months ended June 30, 2022.

This change of $6,882,738 results from the proceeds from short term notes payable of $6,609,512 and $706,359 from long term notes payable offset by repayments of short term notes payable of $2,500,000.

In addition, there were $46,417 and $2,156,000 of distributions paid to non-controlling interest during the six months ended June 30, 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 March 31, 2023, we ha d eleven projects totaling $1,306,849 under contract .

As of June 30, 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.

1 unchanged sentence

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 $5,500,000 from December 31, 2022 to March 31, 2023.

Our backlog decreased by approximately $4,600,000 from December 31, 2022 to June 30, 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 March 31, 2023 and December 31, 2022, we had no material off-balance sheet arrangements to which we are a party.

As of June 30, 2023 and December 31, 2022, we had no material off-balance sheet arrangements to which we are a party.

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

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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 March 31, 2023 .

Accordingly, we have no liabilities recorded for these provisions as of June 30, 2023 .

Critical Accounting Estimates

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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 March 31, 2023.

There was no impairment during the June 30, 2023.

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

In addition, included in intangible assets is $68,344 of trademarks, and $207,636 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.

We evaluated intangible assets for impairment during the six months ended June 30, 2023 and 2022 and determined that there are no impairment losses.

New Accounting Pronouncements

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Three Months Ended

March 31, 2023

June 30, 2023

Three Months Ended

March 31, 2022

June 30, 2022

Six Months Ended

June 30, 2023

Six Months Ended

June 30, 2022

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

10 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