What changed in this filing

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Item 1. Financial Statements

2021-05-20 compared with 2020-11-19 · 284 added, 341 removed, 607 unchanged (51% of the section changed)

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Condensed Consolidated Balance Sheets

September 30,

Current assets:

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Contract liabilities

Earnout liability

Lease liability, current maturities

Due to affiliates

Assumed liability

Other current liabilities

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

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

8,821,289 issued and outstanding as of March 31, 2021 and 8,596,189 issued and outstanding as of December 31, 2020

Additional paid-in capital

Accumulated deficit

Total SG Blocks, Inc.

stockholders’ equity

Non-controlling interest

Total stockholders’ equity

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Three Months Ended

September 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Construction services

Engineering services

Medical revenue

Cost of revenue:

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Engineering services

Gross profit (loss)

Medical revenue

Operating expenses:

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Other income (expense):

Loss on asset disposal

Interest expense

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Income tax expense

Net loss per share - basic and diluted:

net income attributable to noncontrolling interests

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

Net loss per share attributable to SG Blocks, Inc.

- basic and diluted:

Basic and diluted

Weighted average shares outstanding:

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$0.01 Par Value

SG Blocks Stockholders'

Noncontrolling

Stockholders’

Balance at June 30, 2020

Stock-based compensation

Conversion of restricted stock units to common stock

Conversion of debt exchange to common stock

Issuance of common stock, net of issuance costs

Balance at September 30, 2020

Balance at December 31, 2019

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Reverse stock split settlement

Conversion of debt exchange to common stock

Issuance of common stock, net of issuance costs

Balance at September 30, 2020

$ 0.01 Par Value

Stockholders’

Balance at June 30, 2019

Stock-based compensation

Issuance of common stock, net of issuance costs

Balance at September 30, 2019

Balance at March 31, 2020

Balance at December 31, 2020

Stock-based compensation

Issuance of common stock, net of issuance costs

Balance at September 30, 2019

Conversion of warrants to common stock

Net income (loss)

Balance at March 31, 2021

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

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Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

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Amortization of deferred license costs

Bad debt expense (benefit)

Interest income on long-term note receivable

Stock-based compensation

Loss on asset disposal

Changes in operating assets and liabilities:

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Prepaid expenses and other current assets

Right of use asset

Accounts payable and accrued expenses

Contract liabilities

Other current liabilities

Due to affiliates

Lease liability

Net cash used in operating activities

1 unchanged sentence

Advances in note receivable

Purchase of Echo DCL, LLC, net of cash acquired

Purchase of property, plant and equipment

Purchase of intangible asset

Payment on assumed liability of acquired assets

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from public stock offering, net of issuance costs

Proceeds from long-term note payable

Proceeds from conversion of warrants to common stock

Settlement of common stock from reverse stock split

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents - beginning of period

Cash and cash equivalents - end of period

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 investing and financing activities

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

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, and 2020 (Unaudited)

Description of Business

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

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.

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

The Company’s core customer base is comprised of architects, landowners, builders and developers who use our Modules in commercial and residential structures.

The Company’s operating model combines product design and outsourcing of the modifications and finish out of Modules using proprietary algorithms developed by the Company to produce and deliver Modules across the country.

The Company believes this combination enables us to generate economies of scale while maintaining high customer service levels in the environmentally-friendly construction space.

The building products developed with our proprietary technology and design and engineering expertise are generally stronger, more durable, environmentally sensitive, and erected in less time than traditional construction methods.

The use of the SGBlocks building structure typically provides between four to six points towards the Leadership in Energy and Environmental Design (“LEED”) certification levels, including reduced site disturbance, resource reuse, recycled content, innovation in design and use of local and regional materials.

Due to the ability of SGBlocks to satisfy such requirements, we believe the products produced utilizing our technology and expertise is a leader in environmentally sustainable construction.

There are three core product offerings that utilize our technology and engineering expertise.

The first product offering involves GreenSteel™ modules, which are the structural core and shell of an SGBlocks building.

The Company procures the containers, engineer required openings with structural steel enforcements, paint the SGBlocks and then deliver them on-site, where the customer or a customer’s general contractor will complete the entire finish out and installation.

We procure the containers, engineer required openings with structural steel enforcements, paint the SGBlocks and then delivers them on-site, where the customer or a customer’s general contractor will complete the entire finish out and installation.

The second product offering involves replicating the process to create the GreenSteel product and, in addition, installing selected materials, finishes and systems (including, but not limited to floors, windows, doors, interior painting, electrical wiring and fixtures, plumbing outlets and bathrooms, roofing system) and delivering SGBlocks pre-fabricated containers to the site for a third party licensed general contractor to complete the final finish out and installation.

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The Company also provides engineering and project management services related to the use and modification of Modules in construction.

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.

The Company is now focusing on entering into licensing agreements across the Company’s construction opportunity verticals.

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.

SG Echo, LLC was formed to complete the business acquisition as disclosed in Note 9.

The Company acquired substantially all the assets of Echo DCL, a Texas limited liability company, except for Echo's real estate holdings for which we obtained a right of first refusal.

Echo was a container/modular manufacturer based in Durant, Oklahoma specializing in the design and construction of permanent modular and temporary modular buildings and was one of the Company's key supply chain partners.

Echo catered to the military, education, administration facilities, healthcare, government, commercial and residential customers.

This acquisition has allowed the Company to expand its reach for the Modules and offer an opportunity to vertically integrate a large portion of our cost of goods sold, as well as increase margins, productivity and efficiency in the areas of design, estimating, manufacturing and delivery and to become the manufacturer of the Company's core container and modular product offerings.

T he Company also entered into a joint venture with Clarity Lab Solutions LLC., to provide clinical lab testing related to COVID-19.

As of January 2021, the Company’s condensed consolidated financial statements include the accounts of Chicago Airport Testing LLC (“CAT”).

The Company has a variable interest in CAT as described further below.

CAT is in the business of marketing, selling, distributing leasing and otherwise commercially exploiting certain products and services in the COVID-19 testing and other medical industry.

In addition, during 2021, the Company formed SGB Development Corp.

(“SGB Development”), which is wholly-owned by the Company.

SGB Development was formed with the purpose of real property development utilizing our technologies.

Reverse Stock Split

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

As of March 31, 2021, the Company had 8,821,289 shares of common stock issued and outstanding.

SG BLOCKS, INC.

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Notes to Condensed Consolidated Financial Statements

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.

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

As of March 31, 2021, the Company had cash and cash equivalents of $ 10,540,290 and a backlog of approximately $ 22.9 million.

See Note 12 for a discussion of construction backlog.

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Total Backlog

The Company completed an equity offering in April 2019 and in August 2019, which resulted in net proceeds of approximately $ 1,136,015 .

See Note 14 for a discussion of these offerings.

The Company completed a Securities Purchase Agreement in November 2019, which resulted in net proceeds of approximately $ 326,000 .

See Note 12 for a discussion on this securities purchase agreement.

The Company completed a public offering in December 2019, which resulted in net proceeds of approximately $ 2,117,948 .

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

Management has taken several actions to ensure that the Company will continue as a going concern.

As described below, the Company has recently been able to raise substantial cash through equity offerings.

In addition, as further described in these consolidated financial statements, the Company has begun to recognize revenue from new revenue streams.

Management believes that these actions will enable the Company to continue as a going concern.

The Company completed a public offering in April and May 2020, which resulted in net proceeds of approximately $ 1,522,339 , and $ 15,596,141 , respectively.

S ee N ote 13 for a discussion on these public offerings.

The Company believes that it has adequate cash balances to meet obligations coming due in the next twelve months and further intends to meet its capital needs 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.

The Company believes that it has adequate cash balances to meet obligations coming due in the next twelve months and further 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.

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 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.

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during 2020 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.

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies

Basis of presentation and principals of consolidation – The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 Regulation S-X.

Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements.

The condensed financial statements and notes should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 30, 2020 .

The condensed financial statements and notes should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2020 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on April 15, 2021 .

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

Results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).

This ASU amends ASC 820 to add, remove and modify certain disclosure requirements for fair value measurements.

For example, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The Company adopted ASU 2018-13 effective January 1, 2020.

The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flow.

I n June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This update will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years.

In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates,” which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those years.

Early adoption is permitted.

The Company adopted ASU 2016-13 effective January 1, 2020.

The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flow.

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.

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

Revenue recognition – The Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e., percentage of completion).

The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time, regardless of the length of contract or other factors.

Revenue recognition – The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time, regardless of the length of contract or other factors.

The recognition of revenue aligns with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

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( 5 ) Recognize revenue as performance obligations are satisfied

On certain contracts, the Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e.

percentage of completion).

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term.

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When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

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

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

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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 nine months ended September 30, 2020.

No revenue has been recognized under the ELA for the three months ended March 31, 2021.

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 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 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 March 31, 2021 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.

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The 2,500 shares of restricted stock of the Company's common stock has yet to be issued to CMC.

The Agreement also provides that CMC has engaged the Company to build and design, in the aggregate, approximately 100 residential and commercial units at 1100 Ridge Avenue, Atlanta, Georgia, which is known as the “Ridge Avenue, Atlanta Project.” The total value of the project is approximately $ 16,900,000 .

The project is a residential project but not subject to the Company’s Exclusive License Agreement, dated October 3, 2019.

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

In May 2020, the Company and OSANG Healthcare Co., Ltd.

("Osang"), a South Korea based global manufacturer and distributor of medical grade diagnostic tests and equipment, announced the signing of a one year, non-exclusive distributorship agreement for the United States, for OHC's "GeneFinder COVID- 19 Plus RealAmp Kit." This is a test designed to detect SARS-CoV- 2 , the virus that causes COVID- 19 .

The Distributorship Agreement is Osang's standard form of distributorship agreement and provides the Company with the non-exclusive right to distribute Osang's GeneFinder COVID- 19 Plus RealAmp Kit in the United States for a stated term of one ( 1 ) year.

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 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.

government has been issued to import and distribute the Osang test kits.

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 nine months ended September 30, 2020.

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

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

Included in the consideration the Company expected to be entitled to receive, the Company estimates its contractual allowances, payer denials and price concessions.

During the three months ended March 31, 2021, the Company recognized $ 5,863,358 related to activities through the JV, is included in medical revenue on the accompanying consolidated statements of operations.

In addition, the Company formed Chicago Airport Testing, LLC which is currently collecting rental revenue from subleasing to a consortium of government entities assisting in COVID- 19 testing.

Disaggregation of Revenues

The Company’s revenues are principally derived from construction and engineering contracts related to Modules.

The Company’s revenues are principally derived from construction and engineering contracts related to Modules, and medical revenue derived from lab testing and test kit sales.

The Company's contracts are with customers in various industries.

Revenue recognized at a point in time and recognized over time were $ 5,965,413 and $3,222,214, respectively, for the three months ending March 31, 2021.

All revenue recognized for the three months ending March 31, 2020 was over time.

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

Three Months Ended September 30,

Revenue by Customer Type

Multi-Family (includes Single-Family)

Total revenue by customer type

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue by Customer Type

Medical (modular structures)

Construction and Engineering Services:

Medical - Construction

Multi-Family (includes Single Family)

Medical Revenue:

Medical (lab testing, kit sales and equipment)

Total revenue by customer type

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

SG BLOCKS, INC.

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

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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 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.

As of March 31, 2021, accumulated amortization related to deferred contract costs amounted to $ 61,178 .

During the three months ended March 31, 2021 and 2020, amortization expense relating to the deferred contract costs amounted to $ 10,196 and $ 10,197 , 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.

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

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The Licensee also separately agreed to reimburse the Company for any third-party expenses incurred by the Company in developing the Company’s remaining and future residential projects.

As of March 31, 2021, there have been no royalties.

The License Agreement provides for customary indemnification obligations between the parties and further provides that the Licensee will indemnify the Company for any claims arising out of the commercialization of the License by the Licensee or any of its subsidiaries, contractors, or sublicensees.

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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.

In consideration and subject to Clarity Lab’s services and commitments and provided the agreement remains valid and in force, and is not terminated, the Company agreed to 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.

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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.

As of March 31, 2021, $ 102,410 was due to Clarity Labs for expenses paid on behalf of Clarity Mobile Venture, and is included in Due to Affiliates on the accompanying consolidated balance sheets.

In addition, during the three months ended March 31, 2021, the Company recognized revenue of $ 60,110 to Clarity Labs, of which $ 140,258 is included in accounts receivable as of March 31, 2021.

The Company has determined it is the primary beneficiary of Clarity Mobile Venture and has thus consolidated the activities in its condensed consolidated financial statements.

On January 18, 2021 the Company entered into an operating agreement to form CAT.

The purpose of CAT is to market , sell, distribute, lease and otherwise commercially exploit certain products and services in the COVID- 19 testing industry.

The Company has determined it is the primary beneficiary of CAT and has thus consolidated the activities in its condensed consolidated financial statements.

SG BLOCKS, INC.

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (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 $ 13,047,565 as of September 30, 2020 and $ 1,625,671 as of December 31, 2019.

Cash and cash equivalents totaled $ 10,540,290 as of March 31, 2021 and $ 13,010,356 as of December 31, 2020.

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 September 30, 2020 or December 31, 2019, respectively.

The Company had no short-term investment as of March 31, 2021 or December 31, 2020, respectively.

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

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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.

As of March 31, 2021 there was inventory of $ 4,429 for construction materials, and $ 929,650 of medical equipment and COVID-19 test and testing supplies.

As of December 31, 2020 there was inventory of $ 4,429 for construction materials, and $ 773,715 of medical equipment and COVID-19 test and testing supplies.

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.

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

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

There were no impairments during the year ended December 31, 2020 or the three months ended March 31, 2021.

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

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Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (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.

In addition, $97,164 of trademarks, and $47,800 of website costs are being amortized over 5 years.

The Company evaluated intangible assets for impairment during the year ended December 31, 2020, and determined that there were no impairment losses.

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.

There was no impairment during the three months ended March 31, 2021.

The accumulated amortization as of March 31, 2021 and 2020 was $690,262 and $ 1,650,595 , respectively.

The amortization expense for the three months ended March 31, 2021 and 2020 was $ 40,407 and $ 36,280 , 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, 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.

computer and software 3 to 5 years, furniture and other equipment 5 to 7 years, automobiles 2 to 5 years, buildings held for lease 5 to 7 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 Nine Months Ended September 30, 2020 and 2019 (Unaudited)

For the Three Months Ended March 31, 2021 and 2020 (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 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 Nine Months Ended September 30, 2020 and 2019 (Unaudited)

For the Three Months Ended March 31, 2021 and 2020 (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 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.

At March 31, 2021 and December 31, 2020, 84% and 79 %, respectively, of the Company’s gross accounts receivable were due from four and three customers.

Revenue relating to two and four customers represented approximately 80 % and 73 % of the Company's total revenue for the three months ended March 31, 2021 and 2020, respectively.

Cost of revenue relating to two and three vendors represented approximately 28% and 90 % of the Company’s total cost of revenue for the three months ended March 31, 2021 and 2020, respectively.

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

Accounts Receivable

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

At March 31, 2021 and December 31, 2020, the Company’s accounts receivable consisted of the following:

Construction services

Engineering services

Medical revenue

Retainage receivable

4 unchanged sentences

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 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.

The allowance of doubtful accounts was $ 795,914 as of March 31, 2021.

There was no provision for doubtful accounts, no recoveries collected for doubtful accounts and no write offs during the three months ended March 31, 2021.

There was a provision for doubtful accounts of $ 10,018 , and no write offs for the year ended December 31, 2020.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (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 September 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 March 31, 2021 and December 31, 2020 :

Costs incurred on uncompleted contracts

2 unchanged sentences

billings to date

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 .

Net contract assets (liabilities), on uncompleted contracts

The above amounts are included in the accompanying condensed consolidated balance sheets under the f ollowing captions at March 31, 2021 and December 31, 2020 .

Contract assets

Contract liabilities

Net contract liabilities

Net contract assets (liabilities)

Although management believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion.

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

At March 31, 2021 and December 31, 2020, the Company’s property, plant and equipment, net consisted of the following:

Computer equipment and software

Furniture and other equipment

Leasehold improvements

Equipment and machinery

Building held for leases

Laboratory and temporary units

Construction in progress

2 unchanged sentences

Property, plant and equipment, net

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.

Depreciation expense for the three months ended March 31, 2021 and 2020 amounted to $ 91,190 and $ 924 respectively.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Notes Receivable

11 unchanged sentences

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.

During 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.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Business Combination

12 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Business Combination (continued)

6 unchanged sentences

Accounts payable and accrued expenses

Assumed liabilities

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.

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

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 $ 0 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.

As of March 31, 2021, the liability remains to be $0.

The Company leases an office, a manufacturing 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.

In addition, CAT leases a vacant retail space that has been converted for the use of COVID-19 testing, vaccine distribution and a medical lab.

The CAT lease term is for eighteen months .

Supplemental balance sheet information related to leases is as follows:

Balance Sheet Location

September 30, 2020

March 31, 2021

Operating Leases

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Leases (continued)

2 unchanged sentences

Year Ending December 31,

2020 (remaining)

Total lease payments

1 unchanged sentence

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.

CAT has subleased its leased vacant area for a period of one year , the licensee has the option to terminate at any time after the first six month.

Anticipated future lease revenue, under this leases is $ 1,440,000 for the remaining period ending December 31, 2021 and $ 320,000 for the year ending December 31, 2022.

Net Income (Loss) Per Share

3 unchanged sentences

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

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.

At March 31, 2021, there were options, including options granted to non-employees and non-directors, restricted stock units and warrants to purchase 36,436 , 884,343 and 128,090 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

Because the Company had a net loss as of March 31, 2021, 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 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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Convertible Debentures

On November 12, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an investor, pursuant to which the Company issued to the investor a senior secured convertible debenture in the principal amount of $ 480,770 (the “Debenture”) for proceeds of $ 375,000 (representing an original issue discount of 22 %).

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

The Debenture was due 110 days after issuance and was secured under a Security Agreement, dated November 12, 2019, entered into with the investor (the “Security Agreement”) by a security interest in all of the Company’s existing and future assets, subject to existing security interests and exceptions.

The Company had the right to redeem all or a portion of the outstanding principal of the Debenture (i) prior to the maturity date without interest and with no conversion by the investor and (ii) after the maturity date at a premium of 120 %, and with interest accruing at 24 % from the maturity date.

A s of December 13, 2019 the Debenture was paid back in full to the investor.

The Debenture was convertible into shares of the Company’s common stock only upon (i) the occurrence of an Event of Default (as defined in the Debenture) or (ii) at maturity in the event any principal remained outstanding, at a conversion price equal to the lower of (x) 67.5 % of the lowest daily VWAPs of the common stock during the five consecutive trading days immediately preceding the Event of Default or date of maturity or (y) if the Debenture was not fully paid as of the Maturity, the lowest daily VWAP during the ten ( 10 ) consecutive trading days immediately preceding the date of the applicable Conversion, and based on a conversion amount determined by the product of (x) the portion of the principal and accrued interest to be converted and (y) 120 % or (y) if the Debenture was not fully paid as of the Maturity Date and no conversions had been effected under the Debenture, the lowest daily VWAP during the ten ( 10 ) consecutive Trading Days immediately preceding the date of the applicable Conversion;

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 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.

(the “ Placement Agent ”), pursuant to which the Company had agreed to pay the Placement Agent a cash fee equal to 9 % of the gross proceeds received by the Company from the investor in this transaction, as well as a one-time expense fee of $ 15,000 for aggregate out-of-pocket expenses incurred collectively in this transaction.

Pursuant to the Placement Agency Agreement, the Company also agreed to grant to the Placement Agent or its designees warrants to purchase up to 9 % of the aggregate number of shares of common stock underlying the Debenture, which was equal to 5,404 shares of common stock, at an exercise price of 110 % of the closing price of the Company’s common stock on the closing date (the “ Placement Agent Warrants ”).

The Placement Agent Warrants were exercisable, in whole or in part, commencing on the issuance date and have an exercise period of five years .

In the event that there is not an effective registration statement permitting for the resale of the shares underlying the Placement Agent Warrants, the Placement Agent Warrant’s shall be exercisable on a cashless basis.

There are significant restrictions pursuant to FINRA Rule 5110 against transferring the Placement Agent’s Warrants and the shares issuable upon exercise of the Placement Agent Warrants during the one hundred eighty (180) days after the closing date.

On December 10, 2019, the Company and ThinkEquity entered into a waiver agreement (“Waiver of Warrant”) pursuant to which ThinkEquity surrendered its rights to a warrant previously issued to ThinkEquity on November 12, 2019 to purchase 5,404 shares of the Company’s common stock as compensation for acting as placement agent for the private placement of the Debenture.

At March 31, 2020 , there were options , including options to non-employees and non-directors, restricted stock units and warrants to purchase 52,337 , 9,187 and 53,190 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

Construction Backlog

The following represents the backlog of signed construction and engineering contracts in existence at March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, respectively, on which work has not yet begun:

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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:

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Construction Backlog (continued)

Balance - beginning of period

3 unchanged sentences

Balance - end of period

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.

During the second quarter of 2019, the Company moved a $ 25.0 million contract out of backlog after receiving a cancellation notice from the customer.

During the third quarter of 2019, the Company removed two contracts in the amount of $ 55 million and $ 15 million out of backlog due to the fact that these projects fall under the exclusive license agreement (“ELA”) executed during the fourth quarter of 2019.

Backlog at March 31, 2021 included two contracts entered into during the third quarter of 2020 in the amount of approximately $4 million and approximately $2.95 million along with three contracts during the fourth quarter of 2020 in the amount of approximately $ 2.7 million, $ 0.80 million, and $ 0.70 million.

In addition, the Company executed one large contract in the first quarter of 2021 in the amount of approximately $1.3 million.

The Company expects that all of this revenue will be realized by March 31, 2023.

Under the ELA, the Company cannot guarantee, but expects to receive, approximately $ 2.4 million in royalties for one such project.

The Company expects to receive these royalties for this one such project through June 30, 2022.

The Company expects to receive these royalties for this one such project through September 30, 2022.

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 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:

The Company’s remaining backlog as of March 31, 2021 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 March 31, 2021 over the following period:

Within 1 year

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (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.

The Company incurred $ 1,388,615 in issuance costs from the Public Offering and issued 3,750 warrants valued at $ 55,475 to the underwriters (as discussed in Note 15).

In July 2017, as permitted by the underwriting agreement entered into in connection with the Public Offering, the underwriters exercised their option to purchase an additional 11,250 shares of common stock at $ 100.00 per share.

The Company incurred $ 176,771 in issuance costs from this issuance.

In connection with this exercise, certain affiliates of the underwriters were granted additional warrants to purchase 563 shares of common stock in the aggregate valued at $ 8,321 (as discussed in Note 15).

In connection with and prior to the Public Offering, the Company issued 90,084 shares of its common stock upon conversion of all outstanding preferred stock and 25,833 shares of its common stock upon conversion of the previously outstanding convertible debentures.

In December 2019 , the Company completed a public offering of its common stock (the “Public Offering”).

In connection with the Public Offering, the Company sold 857,500 shares of common stock at a public offering price of $ 3.00 per share, resulting in aggregate net proceeds of $ 2,117,948 after deducting underwriting discounts and commissions and other expenses related to the offering.

The Company incurred $ 454,552 in issuance costs from the Public Offering and no warrants to purchase were issued to the underwriters.

Public Offerings –

In April 2020, the Company also completed a public offering of its common stock (the "April Public Offering").

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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.

Concurrently with the sale of the common stock, pursuant to the Purchase Agreement, the Company also sold common stock purchase warrants to such investors to purchase up to an aggregate of 42,388 shares of common stock.

The Company incurred $ 379,816 in issuance costs from the offering and issued 4,239 warrants to the underwriters.

The warrants are further discussed in Note 13 .

Decrease in Authorized Shares – On June 5, 2019, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to decrease the number of authorized shares of common stock from 300,000,000 to 25,000,000 shares.

Following the meeting, on June 5, 2019, the Company filed a certificate of amendment to the amended and restated certificate of incorporation to decrease its authorized shares of common stock accordingly.

There was no change to the number of authorized shares of preferred stock.

Underwriting Agreement – In August 2019 , the Company issued 45,000 shares of its common stock at $ 17.00 per share pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement”) to the public.

The Company incurred $ 181,695 in issuance costs from the offering and issued warrants to purchase 2,250 shares of common stock to the underwriter.

The warrants are further discussed in Note 15.

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

In conjunction with the June 2017 Public Offering, the Company issued to certain affiliates of the underwriters, as compensation, warrants to purchase an aggregate of 4,313 shares of common stock at an exercise price of $ 125.00 per share.

10 unchanged sentences

The warrants are exercisable at the option of the holder on or after November 6, 2020 and expire May 5, 2025 .

During the three months ended March 31, 2021, 225,100 warrants were exercised and converted into common stock of the Company.

The Company received proceeds of approximately $703,000 from the conversion of the exercised warrants.

In connection with a convertible debenture issued on November 12, 2019 , the Company entered into a Placement Agency Agreement (the “ Placement Agency Agreement ”) with ThinkEquity, a division of Fordham Financial Management, Inc.

(the “ Placement Agent ”), pursuant to which the Company had agreed to pay the Placement Agent a cash fee equal to 9% of the gross proceeds received by the Company from the investor in this transaction, as well as a one-time expense fee of $15,000 for aggregate out-of-pocket expenses incurred collectively in this transaction.

Pursuant to the Placement Agency Agreement, the Company also agreed to grant to the Placement Agent or its designees warrants to purchase up to 9% of the aggregate number of shares of common stock underlying the Debenture, which was equal to 5,404 shares of common stock, at an exercise price of 110% of the closing price of the Company’s common stock on the closing date (the “ Placement Agent Warrants ”).

The Placement Agent Warrants were exercisable, in whole or in part, commencing on the issuance date and have an exercise period of five years.

For the three months ending March 31, 2021, we had 225,100 warrants that converted into common stock.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Share-based Compensation

6 unchanged sentences

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

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

As of March 31, 2021, there were 179,547 shares of common stock available for issuance under the Incentive Plan .

Stock-Based Compensation Expense

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Payroll and related expenses

General and administrative expenses

Marketing and business development expenses

The following table presents total stock-based compensation expense by security type included in the condensed consolidated statements of operations:

Three 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 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

Expected stock volatility

Risk-free interest rate

Expected life

The Company has issued no stock-based options during the three months ended March 31, 2021 and 2020.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (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 nine months ended September 30, 2020 as described below:

The following table summarizes stock-based option activities and changes during the three months ended March 31, 2021 as described below:

Weighted Average Fair Value Per Share

3 unchanged sentences

Outstanding – December 31, 2020

Outstanding – September 30, 2020

Outstanding – March 31, 2021

Exercisable – December 31, 2020

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.

Exercisable – March 31, 2021

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $ 2,666 and $ 2,667 , respectively, related to stock options.

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

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.

As of March 31, 2021, there was no unrecognized compensation costs related to non-vested stock options and all options have been expensed.

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 September 30, 2020 was $ 1.81 per share.

The fair value of the stock price at March 31, 2021 was $4.66 per share.

Restricted Stock Units

9 unchanged sentences

The restricted stock units granted on February 26, 2019 vested on the earlier of (A) the first anniversary of the date of the grant or (B) the date of the 2019 annual meeting of the Company’s stockholders subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Board of Directors or death or disability.

Effective June 5, 2019, a total of 9,189 of restricted stock units were granted to the Company’s non-employee directors, under the Company’s stock-based compensation plan, at the calculated fair value of $16.40 per share, which represents the average closing price of the Company’s common stock for the ten trading days immediately preceding and including the grant date.

Restricted stock units granted to directors on June 5, 2019 vest on the earlier of (A) the first anniversary of the date of the grant or (B) the date of the annual meeting of the Company’s stockholders that occurs in the year immediately following the date of the grant;

and are payable six months after the termination of the director from the Board or death or disability.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Share-based Compensation (continued)

16 unchanged sentences

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.

On November 11, 2020, a total of 46,826 of restricted stock units were granted to three of the Company’s non-employee directors, under the Incentive Plan, at the calculated fair value of $2.39 per share, which represents the closing price of the Company’s common stock on November 11, 2020.

The restricted stock units granted on November 11, 2020 will vest 1/2 on November 11, 2020 and 1/2 on the one year anniversary of the grant date, subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Company’s Board of Directors or death or disability.

The fair value of these units upon issuance amounted to $111,920.

On December 9, 2020, a total of 372,000 of restricted stock units were granted to Mr.

Galvin, under the Company's stock-based compensation plan, at the fair value of $ 3.28 per share, which represents the closing price of the Company's common stock on December 9, 2020.

Restricted stock units granted to Mr.

Galvin will vest 1/2 on December 9, 2020 and 1/2 on the first year anniversary of the grant date.

The fair value of these units upon issuance amounted to $1,220,160.

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation of $ 283,520 and $ 36,097 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:

The following table summarized restricted stock unit activities during the three months ended March 31, 2021:

Number of Shares

1 unchanged sentence

Forfeited/Expired

Non-vested balance at September 30, 2020

Non-vested balance at March 31, 2021

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Commitm ents and Contingencies

17 unchanged sentences

Pizzarotti’s claims against the Company arise from a purported assignment agreement dated August 10, 2018, whereby Pizzarotti claims that the Company agreed to assume certain obligations of Phipps under a certain trade contract between Pizzarotti and Phipps & Co.

Phipps’ claims against the Company arise from a purported Assignment Agreement, dated as of May 30, 2018, between Pizzarotti, Phipps and the Company (the “Assignment Agreement”), pursuant to which the Company purportedly provided a letter of credit in connection with the sub-contracted work to be provided by Phipps to Pizzarotti.

Phipps’ claims against the Company arise from a purported Assignment Agreement, dated as of May 30, 2018, between Pizzarotti, Phipps and the Company (the “Assignment Agreement”), pursuant to which, it is alleged, that the Company agreed to provide a letter of credit in connection with the sub-contracted work to be provided by Phipps to Pizzarotti.

The Company believes that the Assignment Agreement was void for lack of consideration and moved to dismiss the case on those and other grounds.

2 unchanged sentences

The court did not dismiss Phipps’ claim for breach of the Assignment Agreement.

The issue of the validity of the Assignment Agreement, and the Company’s defenses to the claims brought by the plaintiff Pizzarotti and cross claimant Phipps will have to be litigated.

The issue of the validity of the Assignment Agreement, and the Company’s defenses to the claims brought by the plaintiff Pizzarotti, and cross claimant Phipps, are being litigated.

The Company maintains that the Assignment Agreement, to the extent valid and enforceable, was properly terminated and/or there are no damages, and, consequently, that the claims brought against the Company are without merit.

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 thirty (30) days but may be extended on the consent of the parties.

The parties have engaged in written discovery but no depositions have been conducted as of yet.

By motion dated February 24, 2021, Pizzarotti moved to stay the entire action pending the outcome of a separate litigation captioned Pizzarotti, LLC v.

FPG Maiden Lane, LLC et.

al., Index No.

651697/2019, involving some of the same parties (but excluding the Company).

Phipps cross moved to consolidate the two actions.

The Company opposed both motions.

On April 26, 2021, the Court denied both motions and directed the parties to meet and confer concerning the scheduling of depositions.

On May 10, 2021, the parties jointly filed with the Court a proposed order providing the completion of depositions of all parties and non-parties by September 30, 2021.

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Commitm ents and Contingencies (continued)

Vendor Litigation - On January 1, 2019, SG Blocks filed a suit against Teton Buildings, LLC (“Teton”) to recover breach of contract damages of approximately $ 2,100,000 plus attorneys’ fees related to the HOLA Community Partners construction project in Los Angeles, California (the “HOLA Project”), for which Teton was engaged by the Company to supply modular units in early 2017.

The Company’s complaint alleged that Teton failed to comply with specific product requirements with respect to the modular units for the HOLA Project and that Teton’s delay and product quality resulted in damages.

The Company’s claims include breach of contract, negligence, and breach of express warranty.

The lawsuit was filed as SG Blocks, Inc.

Vendor Litigation –

Teton Buildings, LLC

Case Number 2019-02827 in the United States District Court for the Southern District of Texas.

Teton filed for Chapter 11 bankruptcy on October 16, 2019, and filed a Suggestion of Bankruptcy in the Harris County Court on October 29, 2019.

The bankruptcy is currently pending in the United States Bankruptcy Court for Southern District of Texas, Houston Division styled In re:

(i) On January 1, 2019, SG Blocks commenced an action against Teton Buildings, LLC (“Teton”) in Harris County, Texas (“Teton Action”) to recover approximately $ 2,100,000 arising from defendant’s breach of the operative contract related to Heart of Los Angeles construction project in Los Angeles (the “HOLA Project”).

The Petition brought claims of breach of contract, negligence, and breach of express warranty.

The Firm did not represent the Company in connection with the Teton Action.

(ii) On or about September 12, 2018, On or about June 2, 2017, the Company entered into a Firm Price Quote and Purchase (the “GVL Contract”) with Teton to govern the manufacture and provision of 23 shipping containers and modular units (the “Teton GVL Modules”) for the Four Oaks Gather GVL project in South Carolina (the “GVL Project.”).

The Company maintains that Teton breached the GVL Contract by (i) failing to timely deliver the Teton GVL Modules, (ii) delivering Teton GVL Modules that were defective in their design and manufacture, (iii) otherwise failed to meet South Carolina Building Code regulations and (iv) breached applicable warranties.

As a result of the breach and defects in performance, design and manufacture by Teton, Company asserts that it has sustained approximately $ 761,401.66 in actual and consequential damages, excluding attorney’s fees.

On October 16, 2019, Teton filed for Chapter 11 in the United States Bankruptcy Court for Southern District of Texas, Houston Division styled In re:

Teton Buildings, LLC and bearing the case number 19-35811.

Pursuant to the Suggestion of Bankruptcy, the state-court litigation has been stayed.

The Firm was engaged to file a proof of claim in the Teton Bankruptcy.

On February 11, 2020, the Company filed a proof of claim again Teton in the amount of $ 2,861,401.66 arising from the HOLA Project and the GVL Contract.

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

1 unchanged sentence

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.

As such, there is no prospect of any recovery against Teton.

On January 22, 2021, the Company filed a third-party complaint against Teton in the United States District Court for the Central District of California, Case No.

2:20−cv−03432 (“Teton Action”), seeking to determine Teton’s liability in its capacity as a bankruptcy debtor in order to collect any damages payable from Teton’s liability insurance carrier or carriers.

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.

HOLA Community Partners/City of Los Angeles Matter .

On or about April 13, 2020, the Company commenced an action against HOLA Community Partners (“HOLA”), a California non-profit corporation, Heart of Los Angeles Youth, Inc., and the City of Los Angeles, in the United States District Court Central District Of California, Western Division, arising out of a certain Construction and Delivery Agreement (“HOLA Agreement”), dated June 1, 2017, pursuant to which HOLA hired the Company for design, engineering, fabrication, and installation services in connection with a 33,250 square foot arts and recreation center in Lafayette Park, in Los Angeles, California (the “HOLA Project”) .

The Company alleges that HOLA Community Partners owes the Company certain amounts due for work performed on the HOLA Project and extra costs incurred due to delays and impacts caused by HOLA Community Partners.

Prior to the commencement of suit HOLA Community Partners disputed the amounts owed, and claimed that the Company failed to meet its contractual obligations.

The Company has asserted claims against that HOLA for (i) breach of contract;

(2) damages for conversion;

(3) default under security agreement and judicial foreclosure;

(4) misappropriation of trade secrets under Cal.Civ.

SG Blocks, Inc.

v HOLA Community Partners, et.

On April 13, 2020, Plaintiff SG Blocks, Inc.

(“SG Blocks”) filed a Complaint against HOLA Community Partners (“HCP”), Heart of Los Angeles Youth, Inc.

(“HOLA”) (HCP and HOLA are collectively referred to as the “HOLA Defendants”), and the City of Los Angeles (“City”) in the United States District Court for the Central District of California, Case No.

2:20-cv-03432-ODW (“HOLA Action”).

The Company asserted seven claims against HOLA Defendants arising out of and related to the HOLA Project, to wit , for:

(1) breach of contract;

(2) conversion;

(3) default and judicial foreclosure under the Agreement as a security agreement;

(4) misappropriation of trade secrets under California Civil Code section 3426;

(5) misappropriation of trade secrets under 18 U.S.C.

(6) intentional interference with contractual relations;

and (7) negligence, seeking in excess of $ 1 million in damages, plus statutory damages and attorneys’ fees.

The Company has also brought a claim of negligence against the City of Los Angeles, to wit, that the City negligently failed to require HOLA to provide the payment bond required by Civil Code Cal.Civ.

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

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.

HOLA claims damages in excess of $ 4 million plus attorneys’ fees.

On May 14, 2020, the Company removed the HOLA Action to the United States District Court for the Central District Of California, Western Division.

Upon removal to Federal court the HOLA Action was consolidated with the Company’s earlier filed action before the Hon.

Wright, II, U.S.D.J.

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.

and (6) intentional interference with contractual relations.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

On June 24, 2020, the Company and HOLA, and certain non-parties (including EDI International, P.C.;

see below), participated in a mediation of their respective claims and defenses with Mr.

Ross Hart/Arbitration Mediation Conciliation Center.

No resolution was achieved during the June 24, 2020, mediation, however the parties agreed to continue the mediation with Mr.

On July 22, 2020, the Company and HOLA participated in a second mediation session with Mr.

Although resolution of the parties’ various claims and defenses was not achieved, the parties continue to engage in settlement discussions by and through Mr.

The Company has notified its insurance carriers of the HOLA action and said carriers are in the early stages of their investigation as to coverage and/or subrogation.

On April 20, 2020, HOLA filed a separate action against the Company in the Los Angeles Superior Court arising out of the HOLA Project, asserting claims of (1) negligence;

(2) strict products liability;

(3) strict products liability, (4) breach of contract;

(5) breach of express warranty;

(6) violation of Business and Professions Code § 7031(b);

and (7) violation of California’s unfair competition law, Business and Professions Code section 17200 (“UCL”) (“HOLA State Court Action”).

The HOLA State Court Action was removed to the Central District of California and consolidated with the HOLA Action.

On January 22, 2021, the Company filed a Third-Party Complaint in the HOLA Action against Third-Party Defendants Teton Buildings, LLC, Avesi Construction, LLC, and American Home Building and Masonry Corp (“AHB”) for indemnity and contribution with respect to HOLA’s claims.

The Company has also notified its general liability carrier Sompo International regarding coverage concerning HOLA’s claims

On February 25, 2021, the Court entered an order dismissing the Company’s claims for (1) breach of contract;

(2) conversion;

(3) default and judicial foreclosure under the Agreement as a security agreement;

(4) misappropriation of trade secrets under California Civil Code section 3426;

(5) misappropriation of trade secrets under 18 U.S.C.

but denied dismissal of the Company’s claims for intentional interference with contractual relations.

The Court also denied the Company’s motion to dismiss HOLA’s claims.

The case is currently entering the discovery stage and a trial date has been set for March 22, 2022.

On March 12, 2021, the HOLA Defendants filed an answer to the Company’s complaint against it denying liability and asserting affirmative defenses.

On March 12, 2021, the Company filed an answer to the HOLA Defendants’ First Amended Consolidated Complaint against it, denying liability and asserting affirmative defenses.

On April 26, 2021, the Company and the HOLA Defendants filed a Joint Stipulation to Dismiss Hola Community Partners’ Sixth Claim for Relief (violation of California Business and Professions Code §7031(b)), with prejudice, pursuant to Fed.

41(A)(1)(A)(Ii).

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 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.

The Company is currently unable to predict the outcome or possible recovery or 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.

SG Blocks, Inc.

EDI International, PC .- On June 21, 2019, SG Blocks filed a lawsuit against EDI International, PC, a New Jersey corporation, in connection with the parties' consulting agreement, dated June 29, 2016, pursuant to which EDI International, PC, was to provide, for a fee, certain architectural and design services for the Project.

EDI International, PC.

On June 21, 2019, SG Blocks filed a lawsuit against EDI International, PC, a New Jersey corporation, in connection with the parties' consulting agreement, dated June 29, 2016, pursuant to which EDI International, PC, was to provide, for a fee, certain architectural and design services for the HOLA Project.

SG Blocks, Inc.

claims that EDI International, PC, tortuously interfered with SG Blocks, Inc's economic relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc.

The complaint seeks in excess of $ 1,275,754 in damages.

claims that EDI International, PC, tortiously interfered with SG Blocks, Inc's economic relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc.

EDI International, PC, filed a cross-complaint for alleged unpaid fees and tortious interference with EDI International, PC's contractual relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc.

EDI International, PC's cross-complaint seeks in excess of $ 30,428.71 in damages.

Litigation is pending.

EDI participated in the first mediation session referenced in the HOLA matter above, although no resolution of the respective parties’ claims and defenses was achieved thereat.

The parties have begun exchanging written discovery and are in the process of scheduling depositions of the principals and non-party witnesses.

On July 8, 2020, SG Blocks, Inc.

added PVE LLC as a defendant in the lawsuit, claiming PVE LLC is liable to the same extent as EDI International, PC.

The case is currently in the discovery stage and a trial date has been set for May 2, 2022.

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

Other Litigation

2 unchanged sentences

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

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.

The Company maintains that the Former Employee agreed to accept (and did receive) restricted stock units of the Company’s common stock in full satisfaction and payment of all alleged unpaid wages and bonuses that are claimed in the Action, and/or has otherwise been paid in full for all amounts claimed.

The Company further maintains that the Former Employee’s employment agreement precludes any entitlement to or liability for severance.

On March 25, 2020, the Former Employee filed an `amended complaint raising additional claims of retaliation and indemnification.

The Company denies the merits of the claims set forth in the Former Employee’s amended complaint and/or asserts that valid defenses preclude any recovery, and intends to vigorously defend against the Action.

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) $ 300,000 due in severance (hereafter the “Action”).

On March 25, 2020, the Former Employee filed an amended complaint raising additional claims of retaliation under the Fair Labor Standards Act, 29 U.S.C.

(“FLSA”), and contractual indemnification.

On April 27, 2020, the Company filed a motion to dismiss the Action.

The Company asserted that the Former Employee agreed to accept (and did receive) restricted stock units of the Company’s common stock in full satisfaction and payment of all alleged unpaid wages and bonuses that are claimed in the Action, and/or has otherwise been paid in full for all amounts claimed.

The Company further maintained that the Former Employee’s employment agreement precludes any entitlement to or liability for severance.

On June 15, 2020, the Court entered a decision granting in part and denying in part the Company’s motion to dismiss.

Specifically, the Court dismissed the Former Employee’s claim (i) for severance (in the amount of $ 300,000 ) and unpaid wages pursuant to the Fair Labor Standards Act, 29 U.S.C.

(“FLSA”), but denied dismissal of the Former Employee’s claims for retaliation under the FLSA or unpaid wages allegedly due under the New York Labor Law.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Commitments and Contingencies (continued)

On July 20, 2020, the Former Employee filed a motion for leave to file a second amended complaint seeking to re-plead his severance claim and to assert quasi-contract claims for severance.

The Company has filed opposition to the motion and the parties are awaiting a ruling from the Court.

In addition, the Court has entered a scheduling order for the completion of discovery, of which the parties are in the early stages.

Specifically, the Court dismissed the Former Employee’s claim (i) for severance (in the amount of $ 300,000 ) and unpaid wages pursuant to the FLSA, but denied dismissal of the Former Employee’s claims for retaliation under the FLSA or unpaid wages allegedly due under the New York Labor Law.

The parties are in the middle of pre-trial discovery.

Fact discovery is scheduled to be completed by June 30, 2021.

No trial date has been set.

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

The Company is currently unable to predict the possible loss or range of loss, if any, associated with the resolution of this litigation.

In addition, the Company is subject to other routine legal proceedings, claims, and litigation in the ordinary course of its business.

Defending lawsuits requires significant management attention and financial resources and the outcome of any litigation, including the matters described above, is inherently uncertain.

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.

Galvin is terminated without cause.

At the Company’s option, up to fifty ( 50 %) percent of the EBITDA performance bonuses may be paid in restricted stock units if then available for grant under the Company’s Stock Incentive Plan.

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

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2021 and 2020 (Unaudited)

Subsequent Events

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.

Subsequent to March 31, 2021, the Company acquired an approximately 50 -acre site in Lago Vista, Texas for $ 3,500,000 , paid in cash.

The Company plans to partner with a real estate development firm to build approximately 270,000 square feet of one and two-bedroom condominium units manufactured at the Company’s factory in Durant, Oklahoma.

SGB Development Corp., the real property development arm and wholly owned subsidiary of SG Blocks will manage the development of the site.

Groundbreaking for the project is expected in Q2 2022.

Subsequent to March 31, 2021 the Company commenced an action against Osang Healthcare Company, Ltd.

in the United States District Court, Eastern District of New York (21-cv-01990).

The Company has asserted that Osang materially breached a certain Managed Supply Agreement entered into between the parties on October 12, 2020 (the "MSA"), pursuant to which the Company received on consignment two million ( 2,000,000 ) units of Osang’s “Genefinder Plus RealAmp Covid-19 PCR Test” for domestic and international distribution.

The Company has also asserted that Osang breached the covenant of good faith and fair dealing, fraudulently induced it to enter into the MSA, and violated §349 of the New York General Business Law’s prohibition of deceptive business practices.

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