10-Q: Safe & Green Holdings Faces Nasdaq Delisting Threat Amidst Deepening Losses and Dilutive Financing

Safe & Green Holdings Corp. reported a significant net loss and negative working capital for Q1 2025, alongside ongoing Nasdaq delisting concerns stemming from recent dilutive equity issuances and failure to meet listing standards.

Summary

• Safe & Green Holdings Corp. (SGBX) reported a net loss of $2,746,668 for the three months ended March 31, 2025, compared to a net loss of $4,436,031 for the same period in 2024.
• Revenue decreased by approximately 41% to $566,354 in Q1 2025 from $968,115 in Q1 2024, primarily due to a decline in construction services.
• The company experienced a gross loss of $(323,755) in Q1 2025, a significant reversal from a gross profit of $323,132 in Q1 2024, with gross margin falling to (57)%.
• Operating loss increased to $(1,831,982) in Q1 2025 from $(1,530,583) in Q1 2024.
• Cash and cash equivalents decreased to $230,509 as of March 31, 2025, from $375,873 at December 31, 2024.
• The company reported negative working capital of $21,495,360 and an accumulated deficit of $101,278,751 as of March 31, 2025.
• Total assets significantly increased to $49,165,227 from $6,071,524, and total liabilities increased to $28,088,840 from $18,531,832, largely due to the acquisition of New Asia Holdings, Inc. (NAHD).
• Stockholders' equity shifted to a positive $21,076,387 as of March 31, 2025, from a deficit of $(12,460,308) at December 31, 2024, primarily driven by the NAHD acquisition consideration.
• Construction backlog decreased to $801,944 as of March 31, 2025, from $1,182,955 at December 31, 2024.
• The company faces substantial doubt about its ability to continue as a going concern due to incurred losses, negative working capital, and negative operating cash flows.
• Nasdaq has issued multiple delisting notifications, citing public interest concerns over substantial shareholder dilution from recent securities issuances (April 14, 2025 private placement) and failure to meet the minimum $1.00 bid price requirement.
• The company has appealed the delisting determination and has a hearing scheduled with the Nasdaq Hearings Panel on June 17, 2025.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by significant losses, negative working capital, and a going concern warning. The ongoing Nasdaq delisting threats due to dilutive financing and non-compliance with listing rules indicate a highly precarious situation. While strategic acquisitions offer diversification, the immediate financial health and regulatory challenges are overwhelmingly negative, suggesting a high risk of value erosion for shareholders.

Positives

• The acquisition of New Asia Holdings, Inc. (NAHD) on February 13, 2025, expanded the company's operations into the oil and gas and industrial Internet of Things (IoT) sectors, diversifying its business segments.
• The deconsolidation of SG DevCorp in 2024 resulted in a recognized gain of $4,637,013.
• Net loss attributable to common stockholders decreased to $2,746,668 in Q1 2025 from $4,436,031 in Q1 2024, and net loss per share improved from $(4.93) to $(0.45).
• The company secured a $2,000,000 revolving Line of Credit for its Olenox subsidiary from Prosperity Bank on June 3, 2025.
• A jury verdict in the company's favor for $1.274 million was received against EDI International, PC, with an additional court-ordered award of $1.157 million for attorney fees and costs, though subject to appeal and collection uncertainty.

Negatives

• Total revenue decreased by 41% year-over-year, primarily driven by a significant decline in construction services.
• The company shifted from a gross profit of $323,132 in Q1 2024 to a gross loss of $(323,755) in Q1 2025, with gross margin dropping to (57)%.
• General and administrative expenses significantly increased to $945,573 in Q1 2025 from $478,158 in Q1 2024.
• Cash and cash equivalents declined by approximately 38.7% from December 31, 2024, to March 31, 2025.
• The company has negative working capital of $21,495,360 as of March 31, 2025, and has incurred losses since inception, raising substantial doubt about its ability to continue as a going concern.
• Construction backlog decreased by approximately 32% from December 31, 2024, to March 31, 2025.
• Multiple promissory notes acquired through the NAHD merger are currently in default.
• The company is involved in numerous ongoing legal proceedings, with several having estimated potential losses or uncertain outcomes.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to incurred losses, negative working capital, and negative operating cash flows.
• Inability to obtain additional financing on acceptable terms, or at all, which could force the company to materially change, delay, or abandon its business plan.
• Potential delisting of common stock from Nasdaq due to public interest concerns over substantial shareholder dilution from recent securities issuances and failure to meet the minimum bid price requirement.
• Significant customer concentration, with one customer accounting for approximately 84% of revenue in Q1 2025, posing a risk if business from this customer is lost or reduced.
• Backlog is subject to cancellation, termination, or suspension at customers' discretion, and may not be realized as revenues or result in profits.
• Issuance of shares upon exercise of outstanding options, warrants, and restricted stock units may dilute the percentage ownership of existing stockholders and make it more difficult to raise additional equity capital.
• Adverse impacts from changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, and monetary policies, including inflationary pressures and supply chain disruptions.
• Exposure to various claims and litigation, with uncertain outcomes and potential material adverse effects on financial condition.
• Reliance on estimates for revenue recognition on long-term contracts, which may be revised and could result in provisions for estimated losses.
• Uncertainty regarding the collection of awarded judgments from legal proceedings.

Future Outlook

The company intends to meet its capital needs from revenue generated from operations, cost containment, strategic alliances, and raising additional debt or equity capital. Management believes current cash and anticipated financings will be sufficient for working capital until the company becomes cash flow positive, which is expected in the second half of 2025. However, there is no assurance of success in meeting capital requirements or securing additional funding on favorable terms, which could necessitate material changes to or abandonment of the business plan. The company also plans to apply for trading on the OTCQB market to mitigate delisting risk from Nasdaq.

Management Comments

• "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."
• "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 2025."
• "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."

Industry Context

Safe & Green Holdings Corp. operates across diverse sectors including modular construction, medical, oil and gas, and environmental solutions. The recent acquisition of NAHD significantly expands its footprint into the energy sector (oil & gas production, energy services, energy technologies) and industrial IoT, aiming to leverage proprietary plasma pulse and ultrasonic cleaning tools for enhanced production efficiency and reduced environmental impact. This diversification attempts to broaden revenue streams beyond its core modular construction, which has seen declining revenue. The company's focus on sustainable construction (LEED certification points) and biomedical waste management aligns with growing environmental and sustainability trends. However, the company's financial struggles and reliance on dilutive financing may hinder its ability to capitalize on these industry opportunities effectively.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Pizzarotti Litigation: Ongoing lawsuit for alleged breach of contract, with the Company vigorously defending claims. No estimated potential loss.
• CPF GP 2019-1, LLC Litigation: Settled in February 2024, with the Company to receive $745,000 in monthly payments.
• Farnam Litigation: Ongoing disputes post-settlement regarding a lease agreement. No estimated potential loss beyond approximately $1.5 million already included in accounts payable.
• American Express Litigation: Default judgment granted against the Company for $232,218.94 for breaches of a commercial credit card agreement.
• Choctaw Litigation: Ongoing suit against SG Echo and the Company for alleged breaches of a commercial lease agreement and ownership of cranes. Estimated potential loss of approximately $138,000.
• Durant Industrial Authority Litigation: Ongoing suit alleging breaches of a forgivable promissory note for $750,000, with the DIA claiming the note is accelerated and due in full. The $750,000 is included in short-term notes payable.
• Rulien Litigation: Ongoing suit alleging breaches of a consulting agreement and seeking commissions. No estimated potential loss.
• Caliber Litigation: Ongoing suit alleging breaches of a consulting services agreement for $46,350. No estimated potential loss.
• MDisrupt Litigation: Ongoing suit against Safe and Green Medical Corporation and the Company for alleged breaches of a consulting services agreement for $183,901. Estimated potential loss of $183,901.
• SG Blocks, Inc. v HOLA Community Partners: Settled in December 2022. Claims against Avesi Construction, LLC and Saddleback Roofing, Inc. were pursued, with Saddleback settling for $400,000 (refunded to insurer) on February 17, 2025.
• SG Blocks, Inc. v. EDI International, PC: Jury verdict in the Company's favor for $1.274 million on November 15, 2024. A court-ordered award for approximately $1.157 million for attorneys fees and costs was received on May 28, 2025. Both are subject to appeal and collection uncertainty.
• SG Blocks, Inc. v. Osang Healthcare Company, Ltd.: Settlement conference in March 2023 resulted in a $450,000 grant to the Company.
• John Williams Shaw and Leo Patrick Shaw: Settled on September 26, 2023, regarding short swing profits.

Related Party Transactions

• As of March 31, 2025, approximately $450,000 is accrued for amounts due to Paul Galvin, the former CEO, for deferred salary.
• Notes J, L, and M, acquired in the NAHD acquisition, are due to related parties.
• As of March 31, 2025, $3,416,574 is due to related parties, primarily from the NAHD acquisition.
• Certain shareholders and related parties paid operating expenses and outstanding bills on behalf of Olenox, recorded as related party liabilities.

Stakeholder Impact

• Shareholders face significant dilution risk from ongoing equity raises and potential further dilution from convertible notes and warrants.
• Shareholders are exposed to the risk of delisting from Nasdaq, which could reduce liquidity and share price.
• Employees may face uncertainty due to the company's going concern issues and potential business plan changes.
• Customers in the construction segment may experience reduced service capacity due to declining backlog and financial constraints.
• Creditors, particularly holders of notes in default, face repayment uncertainty.
• New stakeholders from the NAHD acquisition (oil & gas, IoT) are now exposed to the company's financial and operational risks.

Next Steps

• The company will present its views to the Nasdaq Hearings Panel at a hearing scheduled for June 17, 2025, to address delisting concerns.
• The company plans to apply for trading on the OTCQB market if delisted from Nasdaq.
• The company expects to use current cash and proceeds from anticipated financings to provide working capital until it becomes cash flow positive, which is projected for the second half of 2025.
• The company is obligated to make cash payments for the County Line Industrial LLC acquisition on April 15, 2025 ($125,000), May 15, 2025 ($100,000), July 15, 2025 ($250,000), and January 31, 2026 ($525,000).
• The company must pay its current payable of $76,000 to County Line on or before May 1, 2025.
• The company aims to execute definitive documents for the Giant Containers Inc. acquisition within 15 days of May 27, 2025, and close the transaction on or before June 15, 2025.
• The company will control the timing and amount of sales of ELOC Shares to Generating Alpha Ltd. under the ELOC Purchase Agreement, subject to SEC registration and commencement date, until May 8, 2026, or until the $100 million commitment amount is purchased.

Key Dates

Recommendation

Keywords

Modular Construction, Oil and Gas, Industrial IoT, Environmental Solutions, SEC Filing, 10-Q, Nasdaq Delisting, Going Concern, Dilution, Financial Performance, Acquisition, Debt Financing, Legal Proceedings