What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-05-20 · 284 added, 181 removed, 710 unchanged (40% of the section changed)

14 unchanged sentences

Deferred contract costs, net

Investment in and advances to equity affiliates

Liabilities and Stockholders’ Equity

14 unchanged sentences

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

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

8,822,489 issued and outstanding as of June 30, 2021 and 8,596,189 issued and outstanding as of December 31, 2020

Additional paid-in capital

11 unchanged sentences

Three Months Ended

Six Months Ended

Construction services

10 unchanged sentences

Pre-project expenses

Operating loss

Operating income (loss)

Other income (expense):

1 unchanged sentence

Interest income

Loss before income taxes

Income (loss) before income taxes

Income tax expense

Net income (loss)

net income attributable to noncontrolling interests

4 unchanged sentences

Weighted average shares outstanding:

Basic and diluted

B a sic and dilute d

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

6 unchanged sentences

Stockholders’

Balance at December 31, 2019

Stock-based compensation

Conversion of restricted stock units to common stock

Reverse stock split settlement

Balance at March 31, 2021

Stock-based compensation

Conversion of warrants to common stock

Noncontrolling interest distribution

Net income (loss)

Balance at June 30 , 2021

Balance at December 31, 2020

1 unchanged sentence

Conversion of warrants to common stock

Noncontrolling interest distribution

Net income (loss)

Balance at June 30, 2021

$0.01 Par Value

Additional Paid-in

SG Blocks Stockholders'

Noncontrolling

Stockholders’

Balance at March 31, 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 June 30, 2020

Balance at December 31, 2019

Stock-based compensation

Conversion of restricted stock units to common stock

Reverse stock split settlement

Conversion of debt exchange to common stock

Issuance of common stock, net of issuance costs

Bal ance at June 30, 2020

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

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

Cash flows from operating activities:

3 unchanged sentences

Amortization of deferred license costs

Bad debt expense

Interest income on long-term note receivable

15 unchanged sentences

Payment on assumed liability of acquired assets

Investment in and advances to equity affiliates

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from long-term note payable

Proceeds from conversion of warrants to common stock

Proceeds from public stock offering, net of issuance costs

Proceeds from long-term note payable

Distribution paid to noncontrolling interest

Settlement of common stock from reverse stock split

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net cash (used in) provided by financing activities

Net increase (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 operating activities:

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

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

Total non-cash operating activities

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

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Description of Business

10 unchanged sentences

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

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.

We procure 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.

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.

3 unchanged sentences

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.

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

1 unchanged sentence

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.

Echo is 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 caters 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 the Company's 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.

4 unchanged sentences

(“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

On February 5, 2020, the Company effected a 1-for-20 reverse stock split of its then-outstanding common stock, which has since been converted.

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

SGB Development was formed with the purpose of real property development utilizing the Company's technologies.

SGB Development has a minority interest in Norman Berry II Owners LLC and JDI-Cumberland Inlet LLC as described further below.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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.

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Reverse Stock Split

On February 5, 2020, the Company effected a 1-for-20 reverse stock split of its then-outstanding common stock, which has since been converted.

As of June 30, 2021, the Company had 8,822,489 shares of common stock issued and outstanding.

As of June 30, 2021, the Company had cash and cash equivalents of $ 2,323,599 and a backlog of approximately $ 21 million.

See Note 12 for a discussion of construction backlog.

4 unchanged sentences

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.

As described below, the Company has 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.

5 unchanged sentences

The Company does not have any additional sources secured for future funding, and if it is unable to raise the necessary capital at the times it requires such funding, it may need to materially change its business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.

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

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during 2020, the Company implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and business.

Any quarantines, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to the Company's suppliers and contract manufacturers or customers would likely adversely impact the Company's sales and operating results and result in further project delays.

5 unchanged sentences

In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company's business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.

The Company has been impacted by COVID-19 with supply chain distributions, absenteeism by infected workers and skilled labor shortages which has caused delays in projects and the Company could be further impacted if the COVID-19 pandemic continues.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies

3 unchanged sentences

In the opinion of management, all adjustments, consisting of normal accruals, considered necessary for a fair presentation of the interim financial statements have been included.

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

Results for the six months ended June 30, 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.

5 unchanged sentences

Assets and liabilities relating to contracts are included in current assets and current liabilities, respectively, in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, which at times could exceed one year .

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Summary of Significant Accounting Policies (continued)

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.

11 unchanged sentences

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.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

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.

3 unchanged sentences

The Company has determined that the ELA grants the licensee a right to access the Company’s intellectual property throughout the license period (or its remaining economic life, if shorter), and thus recognizes revenue over time as the licensee recognizes revenue and the Company has the right to payment of royalties.

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

No revenue has been recognized under the ELA for the six months ended June 30, 2021 and 2020.

On June 15, 2021, the Company terminated the ELA that was executed on October 3, 2019 which is discussed below.

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.

4 unchanged sentences

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 estimated to be derived by CMC 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.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Summary of Significant Accounting Policies (continued)

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 expected gross revenue to the Company for the project to be derived by CMC is approximately $ 16,900,000 .

The project is a residential project but it was not subject to the recently terminated Exclusive License Agreement, dated October 3, 2019.

The planning stage of the project was initial delayed due to COVID-19 but the project is still active.

No revenue has been recognized under the Agreement for the six months ended June 30, 2021 or 2020.

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

1 unchanged sentence

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.

During the six months ended June 30, 2021, the Company recognized approximately $ 15,000,000 related to activities through the JV, which 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, and medical revenue derived from lab testing and test kit sales.

The Company’s revenues are 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.

Revenue recognized at a point in time and recognized over time were $ 15,750,903 and $ 5,290,711 , respectively, for the six months ending June 30, 2021.

All revenue recognized for the six months ending June 30, 2020 was over time.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

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

Three Months Ended March 31,

Three Months Ended June 30,

Revenue by Customer Type

Construction and Engineering Services:

Hotel/Hospitality

Medical - Construction

3 unchanged sentences

Total revenue by customer type

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

Six Months Ended June 30,

Revenue by Customer Type

Construction and Engineering Services:

Hotel/Hospitality

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.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

13 unchanged sentences

The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.

Deferred Contract Costs - Prior to entering into the ELA, the Company was subject to an agreement to construct and develop a certain property (“Original Agreement”), which now is subject to the ELA.

Deferred Contract Costs - Prior to entering into the ELA, the Company was subject to an agreement to construct and develop a certain property (“Original Agreement”), which now was subject to the ELA.

Because of this, the Company is no longer obliged to its Original Agreement.

2 unchanged sentences

The Company incurred total deferred contract costs of $ 203,926 .

The Company considered this amount an incremental cost of obtaining that ELA, because the Company expects to recover those costs through future royalty payments.

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 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.

The Company considered this amount an incremental cost of obtaining that ELA, because the Company expected to recover those costs through future royalty payments.

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

As of June 30, 2021, accumulated amortization related to deferred contract costs amounted to $ 71,374 .

During the six months ended June 30, 2021 and 2020, amortization expense relating to the deferred contract costs amounted to $ 20,392 and $ 20,393 , respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statement of operations.

As previously mentioned, the ELA was terminated on June 15, 2021 but the Company expects to recover the deferred contract costs from the Assignment of Limited Rights Under Membership Interest Redemption Agreement, dated June 15, 2021 as described below.

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.

The Ridge Avenue Project has also been excluded from the License.

The License Agreement has an initial term of five (5) years and will automatically renew for subsequent five (5) year periods.

The License Agreement provides for customary terminating provisions, including the right by the Company to terminate if the Licensee fails to make minimum royalty payments (as described below).

The License Agreement had an initial term of five (5) years and was to automatically renew for subsequent five (5) year periods.

The License Agreement provided for customary terminating provisions, including the right by the Company to terminate if the Licensee fails to make minimum royalty payments (as described below).

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

1 unchanged sentence

$ 500,000 in year 1, $ 750,000 in year 2, $ 1,500,000 in year 3, $ 2,000,000 in year 4, and $ 2,500,000 in year 5.

If the License Agreement is extended beyond the initial term, then the parties will negotiate in good faith the royalty rate and the minimum royalty payments for the renewal term(s).

In addition, to the extent the Licensee sublicenses any aspect of the License to a sub-licensee, the Licensee will pay to the Company fifty percent ( 50 %) of all payments received by the Licensee from such sublicensee.

The Company may also provide the Licensee with professional services with respect to the License, and the Licensee will reimburse the Company for employees’ time, materials, and expenses incurred in providing such professional services.

License Agreement provided that if it was extended beyond the initial term, then the parties would negotiate in good faith the royalty rate and the minimum royalty payments for the renewal term(s).

In addition, to the extent the Licensee sublicenses any aspect of the License to a sub-licensee, the Licensee was obligated to pay to the Company fifty percent ( 50 %) of all payments received by the Licensee from such sublicensee.

The License Agreement also provided that the Company could also provide the Licensee with professional services with respect to the License, and the Licensee was obligated to the Company for employees’ time, materials, and expenses incurred in providing such professional services.

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.

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

The License Agreement provided 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.

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

On June 15, 2021, the Company terminated the Exclusive License Agreement with CPF that the Company had entered into on October 3, 2019.

In connection with the termination, the Company entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with CPF, the general partner (the “Licensee”) of CPF MF 2019-1 LLC (“CPF MF”), and Capital Plus Financial, LLC, a limited partner of the Licensee (“Capital Plus”) and an Assignment of Limited Rights Under Membership Interest Redemption Agreement, dated June 15, 2021, with Capital Plus and the Licensee.

In connection with the termination of that certain Exclusive License Agreement, dated as of October 3, 2019 (the “License Agreement”), with the Licensee Pursuant to the Settlement Agreement with CPF and Capital Plus, the License Agreement was terminated, the Company released CPF and CPF MF for any claims in exchange for releases from CPF and Capital Plus and the Company is receiving an assignment of CPF’s right under certain circumstances to a $ 1.25 million redemption distribution from CPF MF under its Operating Agreement.

Bu siness Combinations - The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained.

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This determination is evaluated periodically as facts and circumstances change.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

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

The restricted shares of SGB common stock were not issued to Clarity Labs as certain capital commitments were not met.

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

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

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

As of 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.

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

As of June 30, 2021, $ 381,770 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 six months ended June 30, 2021, the Company recognized revenue of $ 60,110 and other income of $ 60,000 to Clarity Labs, of which $ 60,000 is included in accounts receivable as of June 30, 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.

2 unchanged sentences

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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Summary of Significant Accounting Policies (continued)

Investment Entities – On May 31, 2021, the Company's subsidiary SGB Development Corp.

agreed to contribute $600,000 to acquire a 50% membership interest in Norman Berry II Owner LLC.

The Company contributed $350,329 of the initial $600,000 in the second quarter of 2021 with the remaining amount being funded in the third quarter of 2021.

The purpose of Norman Berry II Owner LLC is to develop and provide affordable housing in the Atlanta, Georgia metropolitan area.

The Company has determined it is not the primary beneficiary of "Norman Berry" and thus will not consolidate the activities in its condensed consolidated financial statements.

The Company will use the equity method to report the activities as an investment in on its condensed consolidated financial statements.

On June 24, 2021, the Company's subsidiary SGB Development Corp.

entered into an operating agreement with Jacoby Development for a 10 % non-dilutable equity interest for JDI-Cumberland Inlet, LLC.

The Company contributed $3,000,000 for its 10% equity interest.

The purpose of JDI-Cumberland Inlet, LLC is to develop a waterfront parcel in a mixed-use destination community.

The Company has determined it is not the primary beneficiary of JDI-Cumberland Inlet, LLC and thus will not consolidate the activities in its condensed consolidated financial statements.

The Company will use the equity method to report the activities as an investment in on its condensed consolidated financial statements.

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

Cash and cash equivalents totaled $ 2,323,599 as of June 30, 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 March 31, 2021 or December 31, 2020, respectively.

The Company had no short-term investment as of June 30, 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.

6 unchanged sentences

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

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

1 unchanged sentence

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 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 June 30, 2021 there was inventory of $ 4,429 for construction materials, and $ 1,405,486 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.

2 unchanged sentences

The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss.

The Company’s evaluation of goodwill completed during the year ended December 31, 2019 resulted in impairment loss of $ 2,938,653 , which represents the total goodwill impairment loss to date.

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

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

There were no impairments during the year ended December 31, 2020 or the six months ended June 30, 2021 and 2020.

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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.

1 unchanged sentence

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 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.

There was no impairment during the six months ended June 30, 2021 and 2020.

The accumulated amortization as of June 30, 2021 and 2020 was $ 732,085 and $ 1,686,876 , respectively.

The amortization expense for the six months ended June 30, 2021 and 2020 was $ 82,230 and $ 72,561 , respectively.

The amortization expense for the three months ended June 30, 2021 and 2020 was $ 41,823 and $ 36,281 , respectively.

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

7 unchanged sentences

The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

Common stock purchase warrants and other derivative financial instruments – The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock.

The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if any event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement shares (physical settlement or net-cash settlement).

The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

Fair value measurements – Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which the Company believes approximates fair value due to the short-term nature of these instruments.

23 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 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 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.

At June 30, 2021 and December 31, 2020, 62 % and 79 %, respectively, of the Company’s gross accounts receivable in excess of 10% were due from two and three customers.

Revenue in excess of 10% relating to one and two customers represented approximately 77 % and 72 % of the Company's total revenue for the three months ended June 30, 2021 and 2020, respectively.

Revenue relating to one and three customers represented approximately 71 % and 69 % of the Company's total revenue for the six months ended June 30, 2021 and 2020 , respectively.

Cost of revenue in excess of 10% relating to three and two vendors represented approximately 52 % and 51 % of the Company’s total cost of revenue for the three months ended June 30, 2021 and 2020, respectively.

Cost of revenue relating to three and four vendors represented approximately 48 % and 75 % of the Company’s total cost of revenue for the six months ended June 30, 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 March 31, 2021 and December 31, 2020, the Company’s accounts receivable consisted of the following:

At June 30, 2021 and December 31, 2020, the Company’s accounts receivable consisted of the following:

Construction services

7 unchanged sentences

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

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.

The allowance for credit losses was $ 957,116 as of June 30, 2021.

There was a provision of $ 161,202 for credit losses, no recoveries collected for credit losses and no write offs during the six months ended June 30, 2021.

There was a provision for credit losses 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 Three Months Ended March 31, 2021 and 2020 (Unaudited)

For the Six Months EndedJune 30, 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 March 31, 2021 and December 31, 2020 :

Costs and estimated earnings on uncompleted contracts, which represent contract assets and contract liabilities, consisted of the following at June 30, 2021 and December 31, 2020 :

Costs incurred on uncompleted contracts

Provision for loss on uncompleted contracts

Estimated earnings to date on uncompleted contracts

2 unchanged sentences

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 .

The above amounts are included in the accompanying condensed consolidated balance sheets under the f ollowing captions at June 30, 2021 and December 31, 2020 .

Contract assets

5 unchanged sentences

Property, plant and equipment are stated at cost less accumulated depreciation and amortization and depreciated using the straight-line method over their useful lives.

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

At June 30, 2021 and December 31, 2020, the Company’s property, plant and equipment, net consisted of the following:

Computer equipment and software

8 unchanged sentences

Property, plant and equipment, net

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

Depreciation expense for the three months ended June 30, 2021 and 2020 amounted to $ 107,208 and $ 924 respectively.

Depreciation expense for the six months ended June 30, 2021 and 2020 amounted to $ 198,398 and $ 1,848 respectively.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Notes Receivable

8 unchanged sentences

The Company Note was issued pursuant to that certain Loan Agreement and Promissory Note, dated October 3, 2019 (the “Loan Agreement 2”), as amended on October 15, 2019 and November 7, 2019 by and between the CPF GP and the Company, and bear interest at five percent ( 5 %) per annum, payable, together with the unpaid principal amount of the promissory notes, on the earlier of the July 31, 2023 maturity date or upon the liquidation, redemption sale or issuance of a dividend upon the LLC interests in CPF MF 2019-1 LLC, a Texas limited liability company of which CPF GP is the general partner.

The promissory notes are unaffected by the Settlement and Mutual Release Agreement and remain in effect and outstanding in accordance with the terms of the notes evidencing such loans.

See Note 3 for a discussion on the Settlement and Mutual Release Agreement and termination of the ELA with CPF.

Notes Payable

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Business Combination

8 unchanged sentences

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

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

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

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Business Combination (continued)

11 unchanged sentences

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 earnout periods conclude as of September 30, 2021.

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

Any contingent liability would be paid out in the period after the earn out period, once additional advances are paid in full.

As of June 30, 2021, the liability is $ 0 , and no payment has been paid out.

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

1 unchanged sentence

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 .

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 with a lease term for eighteen months .

Supplemental balance sheet information related to leases is as follows:

Balance Sheet Location

March 31, 2021

June 30, 2021

Operating Leases

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Leases (continued)

5 unchanged sentences

Present value of lease liabilities

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.

Chicago Airport Testing 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 months.

The licensee elected to terminate the Agreement, subsequent to June 30, 2021.

The effective date of the termination is July 31, 2021 and the Company has $ 160,000 for the remaining lease revenue.

Net Income (Loss) Per Share

3 unchanged sentences

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

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.

At June 30, 2021, there were options, including options granted to non-employees and non-directors, restricted stock units and warrants to purchase 36,436 , 884,344 and 126,890 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

Because the Company had a net loss as of June 30, 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 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.

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

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:

The following represents the backlog of signed construction and engineering contracts in existence at June 30, 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 June 30, 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 Three Months Ended March 31, 2021 and 2020 (Unaudited)

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Construction Backlog (continued)

4 unchanged sentences

Balance - end of period

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.

Backlog at June 30, 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 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 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:

The Company expects that all of this revenue will be realized by June 30, 2023.

As previously discussed in Note 3, the ELA was terminated and in connection with the termination a Settlement and Mutual Release Agreement was executed.

The Company is receiving an assignment of CPF's right to a $ 1.25 million redemption distribution for one such project.

The Company does not expect to receive any royalties from the terminated ELA and Backlog does not include the redemption distribution fee.

The Company’s remaining backlog as of June 30, 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 June 30, 2021 over the following period:

Within 1 year

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Stockholders’ Equity

12 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 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.

2 unchanged sentences

The fair market value of the warrants as of the date of issuance has been included in issuance costs in additional paid-in capital.

In conjunction with the Purchase Agreement in April 2019, the Company also sold warrants to purchase up to an aggregate of 42,388 shares of common stock at an initial exercise price of $ 27.50 per share.

In conjunction with a Purchase Agreement in April 2019, the Company also sold warrants to purchase up to an aggregate of 42,388 shares of common stock at an initial exercise price of $ 27.50 per share.

The warrants are exercisable at the option of the holder on or after October 29, 2019 and expire October 29, 2024 .

3 unchanged sentences

The warrants are exercisable at the option of the holder on or after February 1, 2020 and expire August 29, 2024 .

In conjunction with the Underwriting Agreement in May 2020 , the Company issued to the underwriter, as compensation, warrants to purchase an aggregate of 300,000 shares of common stock at an initial exercise price of $ 3.14 per share.

In conjunction with the Underwriting Agreement entered into May 2020 , the Company issued to the underwriter, as compensation, warrants to purchase an aggregate of 300,000 shares of common stock at an initial exercise price of $ 3.14 per share.

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.

During the six months ended June 30, 2021, 226,300 warrants were exercised and converted into common stock of the Company.

The Company has received proceeds of approximately $ 707,000 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.

5 unchanged sentences

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.

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

For the three and six months ended June 30, 2021, we had 1,200 and 226,300 warrants that converted into common stock and had no warrants that converted into common stock for the three and six months ended June 30, 2020.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 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 March 31, 2021, there were 179,547 shares of common stock available for issuance under the Incentive Plan .

As of June 30, 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

Six Months Ended

Payroll and related expenses

General and administrative expenses

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

Three Months Ended

Six Months Ended

Stock options

1 unchanged sentence

Stock-Based Option Awards

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

The Company has issued no stock-based options during the six months ended June 30, 2021 and 2020.

Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards granted to employees.

The simplified method is calculated by averaging the vesting period and contractual term of the options.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Share-based Compensation (continued)

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 three months ended March 31, 2021 as described below:

The following table summarizes stock-based option activities and changes during the six months ended June 30, 2021 as described below:

Weighted Average Fair Value Per Share

3 unchanged sentences

Outstanding – December 31, 2020

Outstanding – March 31, 2021

Outstanding – June 30, 2021

Exercisable – December 31, 2020

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.

Exercisable – June 30, 2021

For the three months ended June 30, 2021 and 2020, the Company recognized stock-based compensation expense of $0 and $ 2,667 , respectively.

For the six months ended June 30, 2021 and 2020, the Company recognized stock-based compensation expense of $ 2,666 and $ 5,333 , respectively, related to stock options.

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

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

As of June 30, 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 March 31, 2021 was $4.66 per share.

The fair value of the stock price at June 30, 2021 was $ 5.50 per share.

Restricted Stock Units

15 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Share-based Compensation (continued)

24 unchanged sentences

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.

For the three months ended June 30, 2021 and 2020, the Company recognized stock-based compensation of $ 246,236 and $ 127,083 related to restricted stock units.

For the six months ended June 30, 2021 and 2020, the Company recognized stock-based compensation of $ 529,756 and $ 163,181 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.

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

The following table summarized restricted stock unit activities during the six months ended June 30, 2021:

Number of Shares

1 unchanged sentence

Forfeited/Expired

Non-vested balance at March 31, 2021

Non-vested balance at June 30, 2021

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Commitm ents and Contingencies

8 unchanged sentences

As a result, the outcome of a particular matter or a combination of matters may be material to the results of operations for a particular period, depending upon the size of the loss or the income for that particular period.

Pizzarotti Litigation - On or about August 10, 2018 Pizzarotti, LLC filed a complaint against the Company and Mahesh Shetty, the Company’s former President and CFO, and others, seeking unspecified damages for an alleged breach of contract by the Company and another entity named Phipps & Co.

Pizzarotti Litigation - O n or about August 10, 2018 Pizzarotti, LLC filed a complaint against the Company and Mahesh Shetty, the Company’s former President and CFO, and others, seeking unspecified damages for an alleged breach of contract by the Company and another entity named Phipps & Co.

The lawsuit was filed as Pizzarotti, LLC.

13 unchanged sentences

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 Company intends to continue to vigorously defend the litigation.

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

6 unchanged sentences

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.

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

The parties are currently in the process of scheduling depositions for the latter part of September.

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Commitm ents and Contingencies (continued)

1 unchanged sentence

Teton Buildings, LLC

(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.”).

(ii) On or about September 12, 2018, 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.

9 unchanged sentences

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.

2:20−cv−03432 in the HOLA Action (described below), 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.

On July 23, 2021, the Company filed a First Amended Third-Party Complaint against Teton and other named third party defendants (see #2 below) which has yet to be served upon Teton.

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

2 unchanged sentences

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

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

(“SG Blocks” or the “Company”) 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.

8 unchanged sentences

29 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)

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;

AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Three Months Ended March 31, 2021 and 2020 (Unaudited) 16.

Commitments and Contingencies (continued) 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;

4 unchanged sentences

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

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;

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;

9 unchanged sentences

41(a)(1)(A)(ii).

On July 23, 2021, the Company filed a First Amended Third-Party Complaint adding the following additional third party defendants seeking, inter alia , contractual indemnity, equitable indemnity;

and contribution :

American Home Building and Masonry Corp.

(“American Home”), Anderson Air Conditioning, L.P.

(“Anderson”).

Broadway Glass and Mirror, Inc.

(“Broadway”), Marne Construction, Inc.

(“Marne”), The McIntyre Company (“McIntrye”), Dowell & Bradley Construction, Inc.

dba J R Construction (“JR Construction”) Junior Steel Co.

(“Junior Steel”) Saddleback Roofing, Inc.

(“Saddleback”) Schindler Elevator Corporation (“Schindler”) U.S.

Smoke & Fire Corp.

Smoke”) and FirstForm, Inc.

(“FirstForm”) (collectively the “Additional Third Party Defendants”).

The Additional Third Party Defendants are in the process of being served with the First Amended Third-Party Complaint and have yet to file an Answer.

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

2 unchanged sentences

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.

On June 21, 2019, SG Blocks filed a lawsuit against EDI International, PC, a New Jersey corporation, in the Superior Court of the State of California , County of Los Angeles, Central District , 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.

5 unchanged sentences

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

On May 14, 2021, EDI accepted the Company’s Statutory Offer of Compromise, pursuant to California Code of Civil Procedures §998, to settle EDI’s cross-claims.

On July 26, 2021, the Company and EDI entered into a certain General Release agreement whereby in exchange for payment by the Company in the amount of $ 67,125.83 EDI released SG Blocks from all liabilities and damages related to EDI’s cross-claims.

The Company continues to prosecute its claim against EDI for tortious interference with the Company’s economic relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc.

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

11 unchanged sentences

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.

On or about August 6, 2021, the Company and Former Employee reached an agreement in principle to settle the Action.

The parties, through their respective counsel, are currently negotiating the terms of a written settlement and release agreement which has yet to be finalized or executed.

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 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.

Although the Company expects that the Action will be dismissed upon the execution of a settlement and release agreement, failing same the Company is 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.

Osang Healthcare Company, Ltd.

On April 14, 2021, the Company commenced an action against Osang Healthcare Company, Ltd.

(“Osang”) in the United States District Court, Eastern District of New York, Case No.

21-01990 (“Osang Action”) .

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

On June 18, 2021, Osang served a motion to dismiss the Osang Action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

On July 30, 2021, the Company served its opposition to the motion to dismiss.

Reply papers are due by August 20, 2021, after which the motion will be submitted to the Court for adjudication.

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 outcome or possible recovery, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

For the Six Months Ended June 30, 2021 and 2020 (Unaudited)

Subsequent Events

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.

Subsequent to June 30, 2021, SGB Development Corp.

(“SG DevCorp”), a subsidiary of SG Blocks, Inc., issued a Real Estate Lien Note, dated July 14, 2021, in the principal amount of $ 2,000,000 (the “Note”), secured by a Deed of Trust, dated July 14, 2021 (the “Deed of Trust”), on its 50 + acre Lake Travis project site in Lago Vista, Texas and a related Assignment of Leases and Rents, dated July 8, 2021 (“Assignment of Rents”), for net loan proceeds of $ 1,958,233 after fees.

The Note has a term of one ( 1 ) year, provides for payments of interest only at a rate of twelve percent ( 12 %) per annum and may be prepaid without penalty commencing nine (9) months after its issuance date.

If the Note is prepaid prior to nine (9) months after its issuance date, a 0.5 % prepayment penalty is due.

SG DevCorp intends to use the proceeds of the Note for its development projects.

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