Safe & Green Holdings Corp. (Nasdaq: SGBX) — Q1 2023 Form 10-Q
Filing identity: The supplied filing is for Safe & Green Holdings Corp., not Olenox Industries Inc. It covers the unaudited three months ended March 31, 2023, compared with the same period in 2022.
Business context and reporting period
The company operates construction, medical, real estate development and environmental businesses, with modular construction its principal revenue source in Q1 2023. The COVID-19 testing joint venture had wound down in Q4 2022; medical revenue was zero in the quarter. The company reported its financial statements on a consolidated basis.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Q1 2022 / December 31, 2022 |
|---|---|---|
| Revenue | $5.50 million | $8.60 million |
| Gross profit (loss) and margin | $(69,472); approximately (1)% | $2.49 million; approximately 29% |
| Operating income (loss) | $(3.26) million | $418,892 |
| Net income (loss) | $(3.52) million | $501,728 |
| Net loss attributable to common stockholders | $(3.52) million; $(0.25) per share | $(717,177); $(0.06) per share |
| Adjusted EBITDA (non-GAAP) | $(1.99) million | $239,206 |
| Cash and cash equivalents | $1.45 million | $582,776 |
| Cash flow from operations | $(1.38) million | $3.26 million |
| Cash flow from investing | $(638,348) | $(1.86) million |
| Cash flow from financing | $2.89 million | $(1.27) million |
| Total assets / total liabilities | $28.44 million / $16.12 million | $26.56 million / $12.12 million |
| Stockholders’ equity | $12.32 million | $14.44 million |
Revenue fell about 36% year over year: construction revenue rose by $3.84 million, primarily on one contract, but this was more than offset by the absence of $6.89 million in medical revenue. Construction cost of revenue exceeded construction revenue, producing a quarterly gross loss. General and administrative expense rose to $1.79 million from $780,021; payroll and related expense increased to $1.31 million from $1.14 million. Interest expense increased to $287,372 from $48,849.
At March 31, current assets were $9.05 million and current liabilities were $12.56 million, implying negative working capital of approximately $3.52 million. Current liabilities included $5.40 million of short-term notes payable. The balance sheet reports $750,000 of long-term notes payable and total lease liabilities of approximately $3.92 million, including current and non-current amounts.
Material changes, financing and outlook
- Construction backlog declined from $6.81 million at December 31, 2022 to $1.31 million at March 31, 2023. Management expected the remaining backlog to be recognized by year-end 2023, but notes contracts may be cancelled, deferred or adjusted and backlog may not produce profit.
- On March 30, a subsidiary issued a $5.0 million secured note, due April 1, 2024, with monthly interest-only payments at a minimum rate of 13.5%. Proceeds were used to refinance earlier Lago Vista short-term notes. The loan is secured by project-related property and rights and guaranteed by the development subsidiary.
- In February, the company received $1.0 million in cash for an $1.1 million principal 8% convertible debenture due in 12 months, and issued a warrant for up to 500,000 shares. The conversion price is $1.50, subject to anti-dilution adjustments and a $0.40 floor unless shareholder approval permits a lower price. The agreement includes default provisions and potential dilution.
- A separate equity purchase agreement gives Peak One the option to buy up to $10 million of stock over a commitment period, subject to conditions; purchase pricing is 97% of a defined market price. The resale registration statement became effective April 14, 2023. This is a potential financing source, not committed cash proceeds.
- Management disclosed recurring losses, negative operating cash flow and negative working capital, raising substantial doubt about the company’s ability to continue as a going concern. It said no additional funding sources were secured and there is no assurance of raising capital or becoming cash-flow positive. Failure to obtain funding could require changes to, or curtailment of, the business plan.
Risks, contingencies and unusual items
- Customer concentration is high: approximately 95% of Q1 revenue came from one customer; 80% of gross receivables was due from two customers. Losing a significant customer could materially affect results and liquidity.
- Inflation has increased estimated project costs. Management also cites risks involving construction project execution, cost estimates, supply chains, customer financing and collections, competition, financing availability, dilution, and share-listing requirements.
- Legal matters include ongoing Pizzarotti and EDI litigation; the company stated it could not estimate potential loss or recovery in those matters. The HOLA action was settled and dismissed in February 2023. The Osang matter was settled after quarter-end, on May 4, 2023.
- The company issued 287,512 shares for services valued at $437,325 and recognized $656,369 of stock-based compensation in Q1. Common shares issued increased from 12.61 million at year-end to 14.30 million at March 31. Further dilution may arise from outstanding awards, warrants, the convertible debenture and the equity purchase agreement.
- Management stated disclosure controls and procedures were effective at quarter-end. The filing reports no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: this filing is Safe & Green Holdings Corp. (SGBX), despite the request metadata naming Olenox Industries Inc.
- Assess whether the $1.31 million backlog is converted to revenue and whether the company can rebuild backlog beyond its highly concentrated customer base.
- Review cash burn, near-term obligations, the 13.5% secured loan, debenture terms and actual availability and economics of the Peak One equity facility.
- Track project-level gross margins and cost estimates, particularly because Q1 construction revenue was loss-making and management warns estimates may change.
- Check subsequent filings for the effect of post-quarter events, including the Osang settlement, equity-facility share sales, and additional share issuances or financing.
- Reconcile note and share counts across the filing where disclosures differ: the risk-factor text gives 2,025,520 warrants, while Note 10 reports 2,525,020 at March 31, 2023; the company’s total potentially dilutive securities should be confirmed.