What changed in this filing

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Item 1. Financial Statements

2020-11-19 compared with 2020-08-13 · 295 added, 158 removed, 653 unchanged (41% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

5 unchanged sentences

Property, plant and equipment, net

Right-of-use asset

Long-term note receivable

5 unchanged sentences

Contract liabilities

Earnout liability

Lease liability, current maturities

Other current liabilities

Total current liabilities

Lease liability, net of current maturities

Total liabilities

Commitments and contingencies

3 unchanged sentences

Common stock, $ 0.01 par value, 25,000,000 shares authorized;

8,596,189 issued and outstanding as of June 30, 2020 and 1,157,890 issued and outstanding as of December 31, 2019

8,596,189 issued and outstanding as of September 30, 2020 and 1,157,890 issued and outstanding as of December 31, 2019

Additional paid-in capital

7 unchanged sentences

Three Months Ended

September 30,

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Construction services

3 unchanged sentences

Engineering services

Gross profit (loss)

Operating expenses:

5 unchanged sentences

Other income (expense):

Loss on asset disposal

Interest expense

9 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaud ited)

$0.01 Par Value

Stockholders’

Balance at March 31, 2020

Balance at June 30, 2020

Stock-based compensation

2 unchanged sentences

Issuance of common stock, net of issuance costs

Balance at June 30, 2020

Balance at September 30, 2020

Balance at December 31, 2019

4 unchanged sentences

Issuance of common stock, net of issuance costs

Balance at June 30, 2020

Balance at September 30, 2020

$ 0.01 Par Value

Stockholders’

Balance at March 31, 2019

Balance at June 30, 2019

Stock-based compensation

Issuance of common stock, net of issuance costs

Balance at June 30, 2019

Balance at September 30, 2019

Balance at December 31, 2018

1 unchanged sentence

Issuance of common stock, net of issuance costs

Balance at June 30, 2019

Balance at September 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Cash flows from operating activities:

6 unchanged sentences

Stock-based compensation

Loss on asset disposal

Changes in operating assets and liabilities:

4 unchanged sentences

Contract liabilities

Other current liabilities

Net cash used in operating activities

Cash flows provided by investing activities:

Cash flows from investing activities:

Advances in note receivable

Purchase of Echo DCL, LLC, net of cash acquired

Purchase of property, plant and equipment

Net cash used in investing activities

7 unchanged sentences

Cash and cash equivalents - end of period

Supplemental disclosure of non-cash operating activities:

Non-cash conversion of long-term note payable to common stock

Supplemental disclosure of non-cash investing and financing activities:

Non-cash conversion of accrued interest of long-term note payable to common stock

Non-cash conversion of long-term note payable to common stock

Non-cash conversion of accrued salary to restricted stock units to common stock

Total non-cash operating activities

Total non-cash investing and financing activities

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, and 2019 (Unaudited)

Description of Business

5 unchanged sentences

Accordingly, the historical financial statements presented are the financial statements of SG Building.

The building products developed with the Company’s proprietary technology and design and engineering expertise, the Company modifies code-engineered cargo shipping containers and purpose-built modules for use for safe and sustainable commercial, industrial and residential building construction.

The Company modifies code-engineered cargo shipping containers and purpose-built modules for use for safe and sustainable commercial, industrial and residential building construction using building products developed with the Company’s proprietary technology and design and engineering expertise.

Rather than consuming new steel and lumber, the Company’s proprietary technology and design and engineering expertise allows 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.

12 unchanged sentences

The Company is now focusing on entering into licensing agreements across the Company’s construction opportunity verticals and will be able to focus its sales and marketing efforts on qualified lead generation for its licensees.

During 2020, the Company formed, SG Echo, LLC, a wholly owned subsidiary of the Company.

SG Echo, LLC was formed to complete the business acquisition as disclosed in Note 9, and to become the manufacturer of the Company's core container and modular product offerings.

Reverse Stock Split

1 unchanged sentence

All share and per share amounts set forth in the condensed consolidated financial statements of the Company have been retroactively restated to reflect the 1-for-20 reverse stock split as if it had occurred as of the earliest period presented and unless otherwise stated, all other share and per share amounts for all periods presented in these condensed consolidated financial statements have been adjusted to reflect the reverse stock split effected in February 2020.

As of June 30, 2020, the Company had 8,596,189 shares of common stock issued and outstanding.

As of September 30, 2020, the Company had 8,596,189 shares of common stock issued and outstanding.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

T he Company ha s prepar ed its condensed consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business.

However, the Company has incurred net losses since its inception and has negative operating cash flows, which raise substantial doubt about its ability to continue as a going concern.

The Company has incurred net losses since its inception and has negative operating cash flows.

The Company believes it has sufficient cash and cash equivalents and backlog to meet its obligations over the next twelve months to overcome any going concern doubts.

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.

As of June 30, 2020, the Company had cash and cash equivalents of $ 16,112,907 and a backlog of approximately $ 17.3 million.

As of September 30, 2020, the Company had cash and cash equivalents of $ 13,047,565 and a backlog of approximately $ 24.86 million.

See Note 13 for a discussion of construction backlog.

12 unchanged sentences

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.

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during the first six months, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and business.

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during the first nine months, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and business.

The Company is experiencing delays in projects due to the COVID-19.

9 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies

3 unchanged sentences

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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Recently adopted accounting pronouncements - New accounting pronouncements implemented by the Company are discussed below or in the related notes, where appropriate.

14 unchanged sentences

Accounting estimates – The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates 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.

Significant areas that require the Company to make estimates include revenue recognition, stock-based compensation, stock warrants liabilities and allowance for doubtful accounts.

Significant areas that require the Company to make estimates include revenue recognition, stock-based compensation, stock warrants liabilities and allowance for credit losses.

Actual results could differ from those estimates.

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

15 unchanged sentences

The Company has determined that the ELA grants the licensee a right to access the Company’s 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 the Company has the right to payment of royalties.

No revenue has been recognized under the ELA for the six months ended June 30, 2020.

No revenue has been recognized under the ELA for the nine months ended September 30, 2020.

CMC Right of First Refusal Agreement – On October 9, 2019, the Company entered into a Right of First Refusal Agreement (the “ Agreement ”) with CMC Development LLC (“ CMC ”), which has a term of two (2) years.

Under the Agreement, the Company has a right of first refusal with respect to being engaged as a designer and builder of any real estate projects for which CMC has secured the rights to develop and in which CMC has a greater than fifty percent ( 50 %) interest in the owner or developer entity and has the right to select the builder for such real estate project (the “ ROFR Rights ”).

In exchange for such ROFR Rights, the Company agreed to issue to CMC 2,500 shares of restricted stock of the Company’s common stock, of which 1,250 shares will vest and be issued on September 30, 2020 and the remaining 1,250 shares will vest and be issued on September 30, 2021, unless the Agreement is earlier terminated.

In exchange for such ROFR Rights, the Company agreed to issue to CMC 2,500 shares of restricted stock of the Company’s common stock, of which 1,250 shares vested on September 30, 2020 and the remaining 1,250 shares will vest and be issued on September 30, 2021, unless the Agreement is earlier terminated.

In the event that the Agreement is earlier terminated, CMC will still be entitled to receive the entire amount of such restricted stock that has vested as of such earlier termination date, but in no event less than 1,250 shares of such restricted stock.

6 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

3 unchanged sentences

Pursuant to the terms of the Distributorship Agreement, the Company is required to make payment for 100 % of any purchase order prior to shipment of the product from Osang, though it does not expect to make any cash outlays with respect to any product that it distributes and expects instead to require any third-party purchasers to make the necessary cash outlays as part of a purchase order entered into with the Company.

The Distributorship Agreement does not guarantee us a specific quantity of kits to sell or a customer list, and may be terminated by either party at any time on thirty ( 30 ) days' notice.

To date, the Company never sold any medical devices or kits and there can be no guarantee that it will be able to establish a sales force, establish distribution channels or solicit customers for the kits.

The Distributorship Agreement does not guarantee the Company a specific quantity of kits to sell or a customer list, and may be terminated by either party at any time on thirty ( 30 ) days' notice.

To date, the Company has not sold any medical devices or kits and there can be no guarantee that it will be able to establish a sales force, establish distribution channels or solicit customers for the kits.

An import license from the U.S.

1 unchanged sentence

There can be no assurance that the Distribution Agreement will continue, that it will yield the anticipated benefits or generate significant revenue, if any.

No revenue has been recognized under the distribution agreement for the six months ended June 30, 2020.

No revenue has been recognized under the distribution agreement for the nine months ended September 30, 2020.

Disaggregation of Revenues

2 unchanged sentences

The following tables provide further disaggregation of the Company’s revenues by categories:

Three Months Ended June 30,

Three Months Ended September 30,

Revenue by Customer Type

Medical (modular structures)

Multi-Family (includes Single-Family)

Total revenue by customer type

Six Months Ended June 30,

Nine Months Ended September 30,

Revenue by Customer Type

2 unchanged sentences

Total revenue by customer type

(1) Construction fee of $300,000 with no cost of revenue.

(1) Construction fee of $ 300,000 with no cost of revenue during 2020.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

1 unchanged sentence

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 doubtful accounts.

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.

16 unchanged sentences

The Company plans to amortize the asset over sixty months , which is the initial term of the ELA because the asset relates to the services transferred to the customer during the contract term.

As of June 30, 2020, accumulated amortization related to deferred contract costs amounted to $ 30,589 .

During the three and six months ended June 30, 2020, amortization expense relating to the deferred contract costs amounted to $ 10,196 and $ 20,393 , respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statement of operations.

As of September 30, 2020, accumulated amortization related to deferred contract costs amounted to $ 40,786 .

During the three and nine months ended September 30, 2020, amortization expense relating to the deferred contract costs amounted to $ 10,197 and $ 30,590 , respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statement of operations.

Exclusive License Agreement – On Oc tober 3, 2019, as amen ded on October 17, 2019, the Company entered into the ELA with CPF GP 2019-1 LLC (the “Licensee”), pursuant to which the Company granted the Licensee an exclusive license (the “License”) solely within the United States and its legal territories to the Company’s technology, intellectual property, any improvements thereto, and any related permits, in order to develop and commercialize 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.

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

7 unchanged sentences

In addition, the License Agreement provides that the Company will provide the Licensee with cost estimates for the fabrication and manufacturing of residential projects in the Company’s existing pipeline as of the date of the License Agreement, and if such projects cannot be reasonably constructed and installed at or below such estimates, then the Licensee may withhold payment of any royalty due to the Company under the License Agreement on a dollar-for-dollar basis to offset the costs above the originally estimated amounts.

Bu siness Combinations - The Company accounts for business acquisitions using the acquisition method of accounting in accordance with 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 condensed 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.

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, SGB shall issue 200,000 restricted shares of SGB common stock over a defined vesting period starting in December 1, 2020.

Clarity Labs is a licensed clinical laboratory that uses specialized molecular testing equipment and that focuses on the diagnosis and treatment of critical diseases, including COVID-19.

Clarity Labs is also engaged in the business of manufacturing, importing and distributions various medical tests.

Under the JV, the Company and Clarity Labs will jointly market, sell, and distributed certain products and services (“Clarity Mobile Venture”).

As of September 30, 2020, the only activity of Clarity Mobile Venture was a cash transfer from the Company and is included in the condensed consolidated financial statements.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

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 $ 16,112,907 as of June 30, 2020 and $ 1,625,671 as of December 31, 2019.

Cash and cash equivalents totaled $ 13,047,565 as of September 30, 2020 and $ 1,625,671 as of December 31, 2019.

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 no short-term investment as of June 30, 2020 or December 31, 2019, respectively.

Accounts receivable and allowance for doubtful accounts – Accounts receivable are receivables generated from sales to customers and progress billings on performance type contracts.

The Company had no short-term investment as of September 30, 2020 or December 31, 2019, respectively.

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 allowance for doubtful accounts reflects the Company's best estimate of expected losses inherent in the accounts receivable balances.

Management provides an allowance for doubtful accounts based on the Company’s historical losses, specific customer circumstances, and general economic 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.

1 unchanged sentence

Actual collection losses may differ from our estimates and could be material to our condensed consolidated financial position, results of operations, and cash flows.

Inventory – Raw construction materials (primarily shipping containers) are valued at the lower of cost (first-in, first-out method) or net realizable value.

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.

There was no inventory as of June 30, 2020 or December 31, 2019, respectively.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

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, 2020 there was inventory of $ 166,120 for construction materials, and $ 646,200 of medical equipment and COVID-19 test and testing supplies.

There was no inventory for December 31, 2019.

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.

3 unchanged sentences

The impairment loss was due to a deterioration in the Company's estimated future cash flows.

There were no impairments during the six months ended June 30, 2020.

There were no impairments during the nine months ended September 30, 2020.

The Company has taken the recent COVID-19 pandemic into consideration when determining impairment.

Intangible assets – Intangible assets consist of $ 2,766,000 of proprietary knowledge and technology, which is being amortized over 20 years and $ 1,113,000 of customer contracts, which has been amortized over 2.5 years, and is fully amortized.

In addition, included in intangible assets is $ 28,820 of trademarks and $ 5,300 of website costs that are being amortized over 5 years.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

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 $7,928 for non-compete agreements which is being amortized over 5 years, $105,762 of trademarks, and $ 5,300 of website costs that are being amortized over 5 years and $18,848 of customer contracts over 1 year.

The Company evaluated intangible assets for impairment during the year ended December 31, 2019, and determined that there were no impairment losses.

There was no impairment during the six months ended June 30, 2020.

The accumulated amortization as of June 30, 2020 and 2019 was $ 1,686,876 and $ 1,541,753 , respectively.

The amortization expense for the three months ended June 30, 2020 and 2019 was $ 36,281 and $ 36,281 , respectively.

The amortization expense for the six months ended June 30, 2020 and 2019 was $ 72,561 and $ 72,562 , respectively.

There was no impairment during the nine months ended September 30, 2020.

The accumulated amortization as of September 30, 2020 and 2019 was $ 610,157 and $ 1,578,034 , respectively.

The amortization expense for the three months ended September 30, 2020 and 2019 was $ 36,281 and $ 36,281 , respectively.

The amortization expense for the nine months ended September 30, 2020 and 2019 was $ 108,842 and $ 108,843 , respectively.

The estimated amortization expense for the successive five years is as follows:

3 unchanged sentences

Estimated useful lives for significant classes of assets are as follows:

computer and software 3 to 5 years and equipment 5 t o 7 years.

computer and software 3 to 5 years, furniture and other equipment 5 to 7 years, automobiles 2 to 5 years, buildings held for lease 40 years, and equipment 5 t o 29 years.

Repairs and maintenance are charged to expense when incurred.

7 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

6 unchanged sentences

Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of September 30, 2020:

Earnout liability

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 were no transfers into or out of the hierarchy levels during the six months ended June 30, 2020 or 2019.

There were no transfers into or out of the hierarchy levels during the nine months ended September 30, 2020 or 2019, besides the transfer in of the earnout liability.

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.

15 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Summary of Significant Accounting Policies (continued)

5 unchanged sentences

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 June 30, 2020 and December 31, 2019, 88 % and 92 %, respectively, of the Company’s gross accounts receivable were due from two and one customers.

Revenue relating to two customers represented approximately 72 % and 91 % of the Company’s total revenue for the three months ended June 30, 2020 and 2019, respectively.

Revenue relating to three and two customers represented approximately 69 % and 87 % of the Company's total revenue for the six months ended June 30, 2020 and 2019, respectively.

Cost of revenue relating to two and three vendors represented approximately 51 % and 92 % of the Company's total cost of revenue for the three months ended June 30, 2020 and 2019, respectively.

Cost of revenue relating to four and three vendors represented approximately 75 % and 92 % of the Company’s total cost of revenue for the six months ended June 30, 2020 and 2019, respectively.

At September 30, 2020 and December 31, 2019, 92 % and 92 %, respectively, of the Company’s gross accounts receivable were due from three and one customers.

Revenue relating to four and two customers represented approximately 83 % and 94 % of the Company’s total revenue for the three months ended September 30, 2020 and 2019, respectively.

Revenue relating to three and two customers represented approximately 53 % and 87 % of the Company's total revenue for the nine months ended September 30, 2020 and 2019, respectively.

Cost of revenue relating to two vendors represented approximately 63 % and 93 % of the Company's total cost of revenue for the three months ended September 30, 2020 and 2019, respectively.

Cost of revenue relating to four vendors represented approximately 67 % and 94 % of the Company’s total cost of revenue for the nine months ended September 30, 2020 and 2019, respectively.

The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

Acc ounts Receivable

At June 30, 2020 and December 31, 2019, the Company’s accounts receivable consisted of the following:

Accounts Receivable

At September 30, 2020 and December 31, 2019, the Company’s accounts receivable consisted of the following:

Construction services

3 unchanged sentences

Total gross receivables

allowance for doubtful accounts

allowance for credit losses

Total net receivables

Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables.

There was no provision for doubtful accounts, no recoveries collected for doubtful accounts and no write offs during the six months ended June 30, 2020.

There was no provision for doubtful accounts, no recoveries collected for doubtful accounts and no write offs during the nine months ended September 30, 2020.

There was no provision for doubtful accounts, $ 54,000 in recoveries collected for doubtful accounts and no write offs for the year ended December 31, 2019.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Contract Assets and Contract Liabilities

Costs and estimated earnings on uncompleted contracts, which represent contract assets and contract liabilities, consisted of the following at June 30, 2020 and December 31, 2019 :

Costs and estimated earnings on uncompleted contracts, which represent contract assets and contract liabilities, consisted of the following at September 30, 2020 and December 31, 2019 :

Costs incurred on uncompleted contracts

2 unchanged sentences

billings to date

Net contract liabilities

The above amounts are included in the accompanying condensed consolidated balance sheets under the f ollowing captions at June 30, 2020 and December 31, 2019 .

Net contract liabilities, on uncompleted contracts

The above amounts are included in the accompanying condensed consolidated balance sheets under the f ollowing captions at September 30, 2020 and December 31, 2019 .

Contract assets

5 unchanged sentences

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 June 30, 2020 and December 31, 2019, the Company’s property, plant and equipment, net consisted of the following:

At September 30, 2020 and December 31, 2019, the Company’s property, plant and equipment, net consisted of the following:

Computer equipment and software

Furniture and other equipment

Equipment and machinery

Building held for leases

Construction in progress

Property, plant and equipment

1 unchanged sentence

Property, plant and equipment, net

Depreciation expense for the three months ended June 30, 2020 and 2019 amounted to $ 924 and $ 3,136 , respectively.

Depreciation expense for the six months ended June 30, 2020 and 2019 amounted to $ 1,848 and $ 6,301 respectively.

Depreciation expense for the three months ended September 30, 2020 and 2019 amounted to $ 1,011 and $ 3,136 , respectively.

Depreciation expense for the nine months ended September 30, 2020 and 2019 amounted to $ 2,858 and $ 8,697 respectively.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Notes Receivable

9 unchanged sentences

Notes Payable

On February 4, 2020, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued to the investor secured note in the aggregate principal amount of $ 200,000 (“Note”) and bears interest at a rate of nine percent ( 9 %) per annum, due on July 31, 2023 , that is secured under a Pledge Agreement, dated February 4, 2020, entered into with the investor by a security interest in the royalty payable to the Company under that certain Exclusive License Agreement, dated October 3, 2019, with CPF GP 2019-1 LLC.

The Company has 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 three months ending June 30,2020, the Note to investor of $ 200,000 and unpaid accrued interest of $ 6,263 was converted into 73,665 shares of the Company's common stock.

On February 4, 2020, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued to the investor a secured note in the aggregate principal amount of $ 200,000 (“Note”) that bears interest at a rate of nine percent ( 9 %) per annum, due on July 31, 2023 , that is secured under a Pledge Agreement, dated February 4, 2020, entered into with the investor by a security interest in the royalty payable to the Company under that certain Exclusive License Agreement, dated October 3, 2019, with CPF GP 2019-1 LLC.

The Company had 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 nine months ending September 30, 2020, the Note to investor of $ 200,000 and unpaid accrued interest of $ 6,263 was converted into 73,665 shares of the Company's common stock.

Business Combination

On September 17, 2020, the Company, through SG Echo, LLC (its wholly owned subsidiary), entered into an Asset Purchase Agreement (“APA " ) to acquire substantially all of the assets of Echo DCL, LLC (“Echo”) for $ 1,059,600 in cash (the “Echo Acquisition”), except for ECHO DCL's real estate holdings.

The Echo Acquisition closed on September 23, 2020.

In addition, the sellers of Echo have the potential of additional consideration based upon the APA.

In accordance with ASC 805, the Echo Acquisition is accounted for as a business combination.

The Echo Acquisition was made for the purpose of expanding the Company’s footprint into the modular manufacturing business.

The purchase consideration amounted to:

Earnout liability

Settlement of accounts receivable and net contract liabilities

The settlement of accounts receivable and net contract liabilities represents amounts effectively settled upon the purchase of Echo, which originated from contacts between the Company and Echo prior to the purchase date.

The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed for the Echo Acquisition:

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Business Combination (continued)

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property, plant and equipment

Right-of-use assets

Intangible assets

Accounts payable and accrued expenses

Contract liabilities

Lease liability

As part of the Echo Acquisition, the Company recorded a contingent consideration liability for additional payments due to the sellers of Echo, and is included in earnout liability.

These payments are due in accordance with the APA and are based upon the net income obtained from the Echo business during certain earnout periods.

The initial contingent consideration liability of $ 752,559 was based on the fair value of the contingent consideration liability at the acquisition date, and is payable in cash and shares of restricted common stock of the Company.

As of September 30, 2020, the Company has not completed its measurement period with respect to the Echo transaction.

The amounts above represent provisional amounts recorded at this time and are subject to adjustments once the measurement period has ended.

The Company leases an office, a plant and certain equipment under non-cancelable operating lease agreements.

The leases have remaining lease terms of two and a half years to five years.

The plant lease includes an option to extend the lease for up to five years.

Supplemental balance sheet information related to leases is as follows:

Balance Sheet Location

September 30, 2020

Operating Leases

Right-of-use assets, net

Current liabilities

Lease liability, current maturities

Non-current liabilities

Lease liability, net of current maturities

Total operating lease liabilities

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

Operating leases

Finance leases

Weighted Average Discount Rate

Operating leases

Finance leases

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Leases (continued)

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-cancelable leases, are as follows:

Year Ending December 31,

2020 (remaining)

Total lease payments

Imputed interest

Present value of lease liabilities

Operating leases for office space and the plant, with total lease payments of $ 1,683,000 , has been leased from an affiliate of the Company, and an affiliate of the sellers of Echo.

Under the APA, the contingent consideration potentially due to the sellers may be paid in restricted common stock of the Company.

Net Income (Loss) Per Share

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Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive.

At June 30, 2020 , there were options, including options granted to non-employees and non-directors, restricted stock units and warrants to purchase 52,337 , 44,518 and 353,190 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

Because the Company had a net loss as of June 30, 2020 , it is prohibited from including potential common shares in the computation of diluted per share amounts.

At September 30, 2020 , there were options, including options granted to non-employees and non-directors, restricted stock units and warrants to purchase 52,337 , 465,518 and 353,190 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

Because the Company had a net loss as of September 30, 2020 , 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 June 30, 2019 , there were options , including options to non-employees and non-directors, restricted stock units and warrants to purchase 54,003 , 26,536 and 50,939 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

At September 30, 2019 , there were options , including options to non-employees and non-directors, restricted stock units and warrants to purchase 54,003 , 23,697 and 53,189 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

SG BLOCKS, INC.

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Convertible Debentures

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provided, however, that the Company will not issue any shares of common stock upon conversion of the Debenture if the investor would exceed the aggregate number of shares of common stock which the Company may issue upon conversion or exercise (as the case may be) of the Debenture without breaching the Company’s obligations under the rules or regulations of the Nasdaq Stock Market, including rules related to the aggregate of offerings under NASDAQ Listing Rule 5635 (d) (which limited such issuance to 60,048 shares, which was 19.99 % of the Company’s outstanding shares as of the date of issuance).

In addition, subject to limited exceptions, the investor will not have the right to convert any portion of the Debenture if the investor, together with its affiliates, would beneficially own in excess of 4.99 % of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion and under no circumstances may convert the Debenture if the investor, together with its affiliates, would beneficially own in excess of 9.99 % of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.

In addition, subject to limited exceptions, the investor did not have the right to convert any portion of the Debenture if the investor, together with its affiliates, would beneficially own in excess of 4.99 % of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion and under no circumstances may convert the Debenture if the investor, together with its affiliates, would beneficially own in excess of 9.99 % of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.

In connection with this transaction, the Company entered into a Placement Agency Agreement (the “ Placement Agency Agreement ”) with ThinkEquity, a division of Fordham Financial Management, Inc.

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

Construction Backlo g

The following represents the backlog of signed construction and engineering contracts in existence at June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, respectively, on which work has not yet begun:

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Construction Backlog

The following represents the backlog of signed construction and engineering contracts in existence at September 30, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, respectively, on which work has not yet begun:

Balance - beginning of period

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Balance - end of period

Backlog at June 30, 2020 included one large contract entered into by the Company during the third quarter of 2019 in the amount of approximately $ 17 million.

Backlog at September 30, 2020 included one large contract entered into by the Company during the third quarter of 2019 in the amount of approximately $ 17 million, and entered into two contracts during the third quarter of 2020 in the amount of approximately $4 million and approximately $2.95 million.

The Company expects that all of this revenue will be realized by September 30, 2022.

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Backlog does not include expected royalty fees to the Company under the ELA from projects to be delivered by our licensee.

The Company’s remaining backlog as of June 30, 2020 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 June 30, 2020 over the following period:

The Company’s remaining backlog as of September 30, 2020 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, 2020 over the following period:

Within 1 year

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

S tockholders’ Equity

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Stockholders’ Equity

Public Offerings – In June 2017, the Company issued 75,000 shares of its common stock at $ 100.00 per share through the Public Offering.

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

S tockholders’ Equity (continued)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Stockholders’ Equity (continued)

Securities Purchase Agreement – In April 2019 , the Company issued 42,388 shares of its common stock at $ 22.00 per share through a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors and accredited investors.

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Share-based Compensation

1 unchanged sentence

Effective January 20, 2017, the 2016 Stock Plan was amended and restated as the SG Blocks, Inc .

Stock Incentive Plan, as further amended eff ective June 1, 2018 (the “Incentive Plan”).

Stock Incentive Plan, as further amended eff ective June 1, 2018 and as further amended on July 30, 2020 (the “Incentive Plan”).

The Incentive Plan authorizes the issuance of up to 1,125,000 shares of common stock.

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Each of the Company’s employees, directors, and consultants are eligible to participate in the Incentive Plan.

As of June 30, 2020, there were 3,473 shares of common stock available for issuance under the Incentive Plan.

See Note 16 for a discussion on the approved amendment to the Company's Stock Incentive Plan that occurred during the 2020 Annual Meeting of Stockholders.

As of September 30, 2020, there were 582,473 shares of common stock available for issuance under the Incentive Plan .

Stock-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Payroll and related expenses

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Stock options

1 unchanged sentence

Stock-Based Option Awards

The Company has issued no stock-based options during the six months ended June 30, 2020.

The fair value of the stock-based option awards granted during the six months ended June 30, 2019, were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

The Company has issued no stock-based options during the nine months ended September 30, 2020 and 2019.

The fair value of the stock-based option awards granted during the nine months ended September 30,2020 and 2019 were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

Expected dividend yield

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Share-based Compensation (continued)

1 unchanged sentence

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 six months ended June 30, 2020 as described below:

The following table summarizes stock-based option activities and changes during the nine months ended September 30, 2020 as described below:

Weighted Average Fair Value Per Share

3 unchanged sentences

Outstanding – December 31, 2019

Outstanding – June 30, 2020

Outstanding – September 30, 2020

Exercisable – December 31, 2019

Exercisable – June 30, 2020

For the three months ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 2,667 and $ 40,098 , respectively.

For the six months ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 5,333 and $ 72,196 , respectively, related to stock options.

Exercisable – September 30, 2020

For the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 2,667 and $ 40,098 , respectively.

For the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 8,000 and $ 112,293 , respectively, related to stock options.

This expense is included in payroll and related expenses, in the accompanying condensed consolidated statements of operations.

As of June 30, 2020, there was $ 8,000 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of less than one year.

As of September 30, 2020, there was $ 5,335 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of less than one year.

The intrinsic value is calculated as the difference between the fair value of the stock price at year end and the exercise price of each of the outstanding stock options.

The fair value of the stock price at June 30, 2020 was $ 2.67 per share.

The fair value of the stock price at September 30, 2020 was $ 1.81 per share.

Restricted Stock Units

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Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Share-based Compensation (continued)

9 unchanged sentences

The fair value of these units upon issuance amounted to $ 57,120 .

For the three months ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 127,083 and $ 136,770 related to restricted stock units.

For the six months ended June 30, 2020 and 2019, the Company recognized stock-based compensation of $ 163,181 and $ 267,165 related to restricted stock units.

This expense is included in the payroll and related expenses and marketing and business development expense in the accompanying condensed consolidated statement of operations.

For the six months ended June 30, 2020 and 2019, the Company recognized $ 0 and $ 108,629 , respectively, related to restricted stock units in lieu of accrued compensation.

The following table summarized restricted stock unit activities during the six months ended June 30, 2020:

On September 23, 2020, a total of 425,000 of restricted stock units were granted to Mr.

Armstrong, Mr.

Sheeran, seven employees and one consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $ 1.81 per share, which represents the closing price of the Company's common stock on September 23, 2020.

Restricted stock units granted to Mr.

Armstrong, Mr.

Sheeran, and an aggregate of seven employees and one consultant of 50,000, 75,000 and an aggregate of 300,000, respectively, and 1/3 will vest on September 23, 2020, 1/3 on the one year anniversary of the grant date and 1/3 on the two year anniversary of the grant date.

The fair value of these units upon issuance amounted to $769,250.

For the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 300,502 and $ 102,679 related to restricted stock units.

For the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation of $ 463,683 and $ 369,846 related to restricted stock units.

This expense is included in the payroll and related expenses, general and administrative expenses, and marketing and business development expense in the accompanying condensed consolidated statement of operations.

For the nine months ended September 30, 2020 and 2019, the Company recognized $ 0 and $ 162,941 , respectively, related to restricted stock units in lieu of accrued compensation.

The following table summarized restricted stock unit activities during the nine months ended September 30, 2020:

Number of Shares

1 unchanged sentence

Forfeited/Expired

Non-vested balance at June 30, 2020

Non-vested balance at September 30, 2020

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Commitm ents and Contingencies

Legal Proceedings

We are subject to certain claims and lawsuits arising in the normal course of business.

We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available.

Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements.

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, we do not record an accrual, consistent with applicable accounting guidance.

Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition.

We note, however, that 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 our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

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, that 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.

Pizzarotti Litigation - On or about August 10, 2018 Pizzarotti, LLC 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.

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The Company intends to vigorously defend the litigation.

The parties to the litigation have completed the exchange of written discovery and are in the process of scheduling depositions which are expected to be conducted within the next ninety (90) days.

The parties to the litigation have completed the exchange of written discovery and are in the process of scheduling depositions which are expected to be conducted within the next thirty (30) days but may be extended on the consent of the parties.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Commitm ents and Contingencies (continued)

10 unchanged sentences

On or about March 16, 2020, the Bankruptcy Court converted Teton’s Chapter 11 reorganization case to a Chapter 7 liquidation case.

As such, notwithstanding the Company’s belief that its claims are meritorious and that it would have prevailed in the state court action, the Chapter 11 bankruptcy filing, and subsequent conversion to Chapter 7, make recovery against Teton much less likely.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

On April 30, 2020, Ronald Sommers, the Chapter 7 Trustee, filed a “Notice of Assets, Notice to Creditors and Other Parties In Interest of the Need to File Claims.”

The Company, through its insurance carrier, Endurance American Specialty Insurance Company, member of Sompo International Companies, is pursuing a claim against Teton’s professional liability insurance policy with Lloyd’s, London (“Lloyds”).

DWF Claims (USA) LLC, Lloyds’ claims administrator, has previously denied coverage under said policy.

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.

The Company, through its insurance carrier Endurance American Specialty Insurance Company is pursuing a claim against Teton’s general liability insurance policy with Depositors Insurance Company, a division of Nationwide Insurance.

The Company is currently unable to predict the possible loss or range of loss, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

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Code §9550, effectively depriving the Company of the ability to seek recovery from such payment bond.

HOLA has been served with the summons and complaint but has yet to file a response thereto.

The City of Los Angeles has been served with the summons and complaint but has yet to file a response thereto.

On or about April 20, 2020, HOLA commenced a separate action against the Company and several other co-defendants, including, T eton Buildings, LLC, Avesi Construction, LLC, American Home Building and M asonry Corp., in the Superior Court of the State of California for the County of Los Angeles (“HOLA Action”) raising claims of negligence , strict products liability , breach of contract , breach of express warranty and violation of California business and professions code §703l(b) all arising out of and related to the HOLA Agreement and HOLA Project.

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The Company has yet to respond to the HOLA complaint.

On August 12, 2020 HOLA moved to dismiss the Company’s complaint.

HOLA thereafter moved for judgment on the pleadings on August 21, 2020.

On September 2, 2020, the Company moved to dismiss HOLA’s complaint.

Both motions have been fully submitted to Judge Wright and the parties are awaiting decisions on the motions.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Commitments and Contingencies (continued)

7 unchanged sentences

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

Although the Company believes its claims against HOLA and the City of Los Angeles are meritorious, and that it has valid defenses to the claims of HOLA, it is currently unable to predict the possible range of recovery, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

Although the Company believes its claims against HOLA and the City of Los Angeles are meritorious, and that it has valid defenses to the claims of HOLA, it is currently unable to predict the possible range of recovery or loss, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

SG Blocks, Inc.

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20-CV-00550, United States District Court, Eastern District of New York.

On January 31, 2020, Mahesh Shetty, the Company’s former President and Chief Financial Officer (“Former Employee”), filed suit against the company and its Chairman and Chief Executive Officer, Paul Galvin, claiming (i) $ 372,638 in unpaid wages and bonuses and (ii) $ 0 due in severance (hereafter the “Action”).

O n January 31, 2020, Mahesh Shetty, the Company’s former President and Chief Financial Officer (“Former Employee”), filed suit against the Company and its Chairman and Chief Executive Officer, Paul Galvin, claiming (i) $372,638 in unpaid wages and bonuses and (ii) $300,000 due in severance ( hereafter the “Action”).

The Former Employee has also named the Company’s third party payroll processing company Staff-One as a co-defendant.

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Commitments and Contingencies (continued)

7 unchanged sentences

The Company does not, however, currently expect that the costs to resolve these routine matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

On September 29, 2020, the parties notified the court of their intention and desire to mediate their claims and defenses.

The court has appointed David Berger, Esq., as the mediator and the first mediation session has been set for December 8, 2020.

In April 2020, the Company entered into an amendment to its employment agreement, dated January 1, 2017, with Paul Gavin (the "Amendment"), to extend the term of employment to December 31, 2021, provide for an annual base salary of $ 400,000 , provide for a performance bonus structure for a bonus of up to 50 % of base salary upon the Company’s achievement of $ 2,000,000 EBITDA and additional performance bonus payments for the achievement of EBITDA in excess of $ 2,000,000 based on a percentage of the incremental increase in EBITDA (ranging from 10 % of the incremental increase in EBITDA if the Company achieves over $ 2,000,000 and up to $ 7,000,000 in EBITDA, 8 % of the incremental increase in EBITDA if the Company achieves over $ 7,000,000 and up to $ 12,000,000 in EBITDA and 3 % of the incremental increase in EBITDA over $ 12,000,000 ), provide for a profits-based additional bonus of up to $ 250,000 in certain limited circumstances, and provide for one ( 1 ) year severance, plus a pro-rated amount of any unpaid bonus earned by him during the year as verified by the Company’s principal financial officer, if Mr.

2 unchanged sentences

All other terms of the employment agreement remain in f ull force and effect.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020 and 2019 (Unaudited)

Subsequent Events

In July 2020, The Company entered into a Joint Development Agreement with Grimshaw Design, LLC ("Grimshaw").

Grimshaw is a global leader in architecture, planning and industrial design.

The Company's joint agreement with Grimshaw is to develop scalable, customizable and rapidly deployable education facilities that can be utilized as classrooms, spaces for teaching, workshops, dining, recreation, sports or other education-related purposes.

The team has also designed pressurized 150 housing units to allow for the quarantine of COVID-infected community members.

On July 30, 2020, SG Blocks, Inc.

(the “Company”) held its 2020 Annual Meeting of Stockholders (the “Annual Meeting”), at which there were an aggregate of 4,354,710 shares of common stock present, in person or by proxy, representing approximately 51 % of the 8,596,189 shares of common stock issued and outstanding and entitled to vote at the Annual Meeting.

At the Annual Meeting, the Company’s stockholders:

(1) elected Paul M.

Galvin, Yaniv Blumenfeld, Maggie Coleman and Christopher Melton to serve as directors of the Company, until the next annual meeting of stockholders and until their respective successors are duly elected and qualified;

(2) ratified the appointment of Whitley Penn LLP as the Company’s independent registered public accounting firm for fiscal year ending December 31, 2020;

(3) approved, on an advisory, non-binding basis, the compensation of the Company’s named executive officers;

and (4) approved Amendment No.

2 to the SG Blocks, Inc.

Stock Incentive Plan to increase the number of shares of common stock that the Company will have authority to grant under the Plan by 1,000,000 shares.

On October 12, 2020, the Company and Osang entered into a Managed Supply Agreement (the "Supply Agreement") in which the parties entered to memorialize the precise nature of the Company's obligations and Osang's obligations as it relates to the consignment (the "Consignment") to the Company of two ( 2 ) million units of Osang's flagship Genefinder Plus RealAmp Covid-19 PCR Test (the "Product") from Osang for the cold-chain storage and distribution of Product in the United States of America and Canada by the Company on behalf of itself, as well as for Osang to other distributors in Territory as well as for direct sales by Osang worldwide where permissible for a period of 180 days thereafter.

The Supply Agreement included confirmation by Osang that the Company has no payment obligation for the Consignment until the Company sells the Product and any unsold product remains the responsibility of Osang except that the Company is responsible for the sold-storage fees and Osang's agreement to use best efforts that all sales of Products will be drawn from the Consignment with priority.

On November 12, 2020, SG Blocks joint venture partnership in Clarity Mobile Venture entered into a contract with the City of Los Angeles for the operations of a COVID-19 PCR Test Laboratory at Los Angeles International Airport to provide a full-service modular COVID-19 laboratory and testing facility onsite at Los Angeles International Airport .

The facility will be located across from Terminal 6 and is expected to open in December 2020.

The facility will administer PCR tests with results available within 3 hours for passengers and airline crew, and no later than 24 hours for LAWA airport employees.

Additionally, other rapid coronavirus tests including antigen tests will be provided.

Clarity Mobile Venture will be the primary operator of the facility and will deploy the GeneFinder™ test for COVID-19, produced by OSANG Healthcare Co., Ltd.

On November 19, 2020, the Company and Memorial Hospital, of Michigan (“Memorial), entered into a Professional Services and Capital Support Contract (“PSCSC”) with Wayne County, Michigan to appoint Memorial the primary contractor for the construction of portable on-site laboratory facilities for COVID-19 testing.

The PSCCS engages the Company as a sub-contractor to render services and support to Memorial in connection with the fulfillment of statements of work submitted from Wayne County to Memorial.

The program deploys the D-Tec Product Series, including D-Tec 1 and D-Tec 5 facilities, designed by Grimshaw Architects and developed by SG Blocks, to deliver highly accurate PCR testing and on-site CLIA lab services directly into high risk and underserved areas.

The D-Tec 1 units are expected to be deployed throughout Wayne County and will provide sample extraction and lab services.

The D-Tec 5 will serve as the main CLIA lab and have the capacity to process 7,000 tests per day in a single eight-hour shift.

The facilities will be used to test residents for COVID-19 using the OSANG GeneFinder™ test, which is able to deliver medical grade results in approximately 3 hours.

Clarity Mobile Venture will be the primary operator of the facility.

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 1. Financial Statements