What changed in this filing

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Item 1. Financial Statements

2021-11-15 compared with 2021-08-16 · 259 added, 199 removed, 795 unchanged (37% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

17 unchanged sentences

Assumed liability

Short term note payable, net

Other current liabilities

7 unchanged sentences

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

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

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

Additional paid-in capital

10 unchanged sentences

Three Months Ended

September 30,

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Construction services

10 unchanged sentences

Pre-project expenses

Operating income (loss)

Operating loss

Other income (expense):

Loss on asset disposal

Interest expense

Interest income

Income (loss) before income taxes

Loss before income taxes

Income tax expense

Net income (loss)

net income attributable to noncontrolling interests

4 unchanged sentences

Weighted average shares outstanding:

B a sic and dilute d

Basic and diluted

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

6 unchanged sentences

Stockholders’

Balance at March 31, 2021

Balance at June 30, 2021

Stock-based compensation

Conversion of warrants to common stock

Noncontrolling interest distribution

Net income (loss)

Balance at June 30 , 2021

Balance at September 30, 2021

Balance at December 31, 2020

3 unchanged sentences

Net income (loss)

Balance at June 30, 2021

Balance at September 30, 2021

$0.01 Par Value

Additional Paid-in

SG Blocks Stockholders'

1 unchanged sentence

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

Stock-based compensation

Balance at September 30, 2020

Balance at December 31, 2019

4 unchanged sentences

Issuance of common stock, net of issuance costs

Bal ance at June 30, 2020

Balance at September 30, 2020

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

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30, 2021

Nine Months Ended

September 30, 2020

Cash flows from operating activities:

6 unchanged sentences

Stock-based compensation

Loss on asset disposal

Changes in operating assets and liabilities:

10 unchanged sentences

Advances in note receivable

Purchase of Echo DCL, LLC, net of cash acquired

Purchase of property, plant and equipment

Purchase of intangible asset

Proceeds from sale of equipment

Payment on assumed liability of acquired assets

4 unchanged sentences

Proceeds from public stock offering, net of issuance costs

Proceeds from short-term note payable

Proceeds from long-term note payable

13 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Description of Business

18 unchanged sentences

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.

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

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.

6 unchanged sentences

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 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 DevCorp”), which is wholly-owned by the Company.

SG DevCorp was formed with the purpose of real property development utilizing the Company's technologies.

SG DevCorp 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 Six Months Ended June 30, 2021 and 2020 (Unaudited)

For the Nine months ended September 30, 2021 and 2020 (Unaudited)

Reverse Stock Split

1 unchanged sentence

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

As of June 30, 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.

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

As of September 30, 2021, the Company had cash and cash equivalents of $ 3,290,702 and a backlog of approximately $ 20 million.

See Note 12 for a discussion of construction backlog.

Based on our conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period:

Based on the Company's conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period:

Within 1 year

7 unchanged sentences

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

The Company completed a public and concurrent private offering in October 2021, which resulted in net proceeds of approximately $ 10,520,000 .

See Note 17 for a discussion on the public and concurrent private offering.

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.

13 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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 six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Results for the nine months ended September 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.

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

2 unchanged sentences

The ELA is described below.

Under the ELA, the Company will receive royalty payments based upon gross revenues earned by the licensee for commercialized 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 Company has determined that the ELA grants the licensee a right to access the Company’s intellectual property throughout the license period (or its remaining economic life, if shorter), and thus recognizes revenue over time as the licensee recognizes revenue and the Company has the right to payment of royalties.

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

Under the ELA, the Company was to receive royalty payments based upon gross revenues earned by the licensee for commercialized 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 Company has determined that the ELA granted 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 recognized 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, 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.

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 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.

The Agreement also provides for customary indemnification and confidentiality obligations between the parties.

Under the Agreement, the Company had 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 March 31, 2021 and the remaining 1,250 shares was to vest and be issued on September 30, 2021, unless the Agreement is earlier terminated.

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

The Agreement also provided for customary indemnification and confidentiality obligations between the parties.

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 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 Agreement also provided that CMC 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 ELA.

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

No revenue has been recognized under the Agreement during the nine months ended September 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 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.

During the nine months ended September 30, 2021, the Company recognized approximately $ 22,950,000 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 collected rental revenue from subleasing to a consortium of government entities assisting in COVID- 19 testing.

Disaggregation of Revenues

1 unchanged sentence

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

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.

Revenue recognized at a point in time and recognized over time were $ 23,906,077 and $ 5,983,027 , respectively, for the nine months ended September 30, 2021.

All revenue recognized for the nine months ended September 30, 2020 was over time.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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 June 30,

Three Months Ended September 30,

Revenue by Customer Type

6 unchanged sentences

Total revenue by customer type

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

Six Months Ended June 30,

Nine Months Ended September 30,

Revenue by Customer Type

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

20 unchanged sentences

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 of September 30, 2021, accumulated amortization related to deferred contract costs amounted to $ 81,570 .

During the nine months ended September 30, 2021 and 2020, amortization expense relating to the deferred contract costs amounted to $ 30,589 and $ 30,589 , 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.

1 unchanged sentence

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

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).

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

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

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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.

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.

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 addition, to the extent the Licensee sublicensed 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 ELA 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.

On June 15, 2021, the Company terminated the ELA.

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.

Pursuant to the Settlement Agreement with CPF and Capital Plus, the ELA was terminated, the Company released CPF and CPF MF for any claims in exchange for releases from CPF and Capital Plus and the Company received 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.

13 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

5 unchanged sentences

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.

As of September 30, 2021, $ 232,110 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 nine months ended September 30, 2021, the Company recognized revenue of $ 60,110 and other income of $ 60,000 to Clarity Labs, of which none is included in accounts receivable as of September 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.

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.

Investment Entities – On May 31, 2021, the Company's subsidiary SG DevCorp agreed to contribute $ 600,000 to acquire a 50 % membership interest in Norman Berry II Owner LLC.

The Company contributed $ 350,329 and $ 114,433 of the initial $ 600,000 in the second quarter and third quarter of 2021 respectively, with the remaining amount being funded in the fourth 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 will use the equity method to report the activities as an investment in its condensed consolidated financial statements.

On June 24, 2021, the Company's subsidiary, SG DevCorp, 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.

1 unchanged sentence

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.

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 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 $ 2,323,599 as of June 30, 2021 and $ 13,010,356 as of December 31, 2020.

Cash and cash equivalents totaled $ 3,290,702 as of September 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 June 30, 2021 or December 31, 2020, respectively.

The Company had no short-term investment as of September 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.

9 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

2 unchanged sentences

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 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 September 30, 2021 there was no inventory related to construction materials, and $ 790,081 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.

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

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

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

2 unchanged sentences

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 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.

There was no impairment during the nine months ended September 30, 2021 and 2020.

The accumulated amortization as of September 30, 2021 and 2020 was $ 773,908 and $ 610,157 , respectively.

The amortization expense for the nine months ended September 30, 2021 and 2020 was $ 124,053 and $ 108,842 , respectively.

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

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

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Summary of Significant Accounting Policies (continued)

27 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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 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.

At September 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 four customers represented approximately 90 % and 83 % of the Company's total revenue for the three months ended September 30, 2021 and 2020, respectively.

Revenue relating to one and three customers represented approximately 77 % and 53 % of the Company's total revenue for the nine months ended September 30, 2021 and 2020 , respectively.

Cost of revenue in excess of 10 % relating to three and two vendors represented approximately 68 % and 63 % of the Company’s total cost of revenue for the three months ended September 30, 2021 and 2020, respectively.

Cost of revenue relating to four and four vendors represented approximately 54 % and 67 % of the Company’s total cost of revenue for the nine months ended September 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 June 30, 2021 and December 31, 2020, the Company’s accounts receivable consisted of the following:

At September 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 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.

The allowance for credit losses was $ 957,116 and $ 795,914 as of September 30, 2021 and December 31, 2020, respectively.

There was a provision of $ 161,202 for credit losses, no recoveries collected for credit losses and no write offs during the nine months ended September 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 Six Months EndedJune 30, 2021 and 2020 (Unaudited)

For the Nine Months Ended September 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 June 30, 2021 and December 31, 2020 :

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

Costs incurred on uncompleted contracts

Provision for loss on uncompleted contracts

Estimated earnings to date on uncompleted contracts

Estimated earnings (losses) to date on uncompleted contracts

Gross contract assets

billings to date

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 June 30, 2021 and December 31, 2020 .

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, 2021 and December 31, 2020 .

Contract assets

Contract liabilities

Net contract assets (liabilities)

Net contract 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.

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

The Company has experienced accrued losses on legacy contract commitments from the acquisition of SG ECHO due to escalations in material pricing related to COVID-19 and labor overages.

Property, plant and equipment

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

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

At September 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 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.

Depreciation expense for the three months ended September 30, 2021 and 2020 amounted to $ 96,462 and $ 1,011 respectively.

Depreciation expense for the nine months ended September 30, 2021 and 2020 amounted to $ 294,860 and $ 2,858 respectively.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Notes Receivable

11 unchanged sentences

Notes Payable

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

The Company had the right to prepay the Note, in whole or in part, at any time and from time to time, without premium or penalty.

During 2020, the Note to investor of $ 200,000 and unpaid accrued interest of $ 6,263 was converted into 73,665 shares of the Company's common stock.

On July 14, 2021, SG DevCorp, a subsidiary of the Company, issued a Real Estate Lien Note, in the principal amount of $ 2,000,000 (the “Short-Term Note”), secured by a Deed of Trust, dated July 14, 2021 (the “Deed of Trust”), on the Company's 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 approximately $ 1,948,234 after fees.

The Short-Term 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 Short-Term Note is prepaid prior to nine (9) months after its issuance date, a 0.5 % prepayment penalty is due.

During the three and nine months ended September 30, 2021, the Company has capitalized $ 52,347 in interest charges related to the Lago Vista project in accordance with ASC 835-20.

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

The Company had the right to prepay the Long-Term Note, in whole or in part, at any time and from time to time, without premium or penalty.

During 2020, the Long-Term 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.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Business Combination

9 unchanged sentences

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Business Combination (continued)

Cash and cash equivalents

8 unchanged sentences

Lease liability

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Business Combination (continued)

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 earnout periods conclude as of September 30, 2021.

The earnout periods concluded 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.

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.

As of September 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 with a lease term for eighteen months .

In addition, CAT leased a vacant retail space that had been converted for the use of COVID-19 testing, vaccine distribution and a medical lab with a lease term for eighteen months which CAT has ended the lease of the vacant retail space as of September 30, 2021.

Supplemental balance sheet information related to leases is as follows:

Balance Sheet Location

June 30, 2021

September 30, 2021

Operating Leases

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Leases (continued)

5 unchanged sentences

Present value of lease liabilities

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.

Chicago Airport Testing has subleased its leased vacant area for a period of one year , the sublessee has the option to terminate at any time after the first six months.

The sublessee elected to terminate the Agreement, effective as of July 31, 2021 and the Company has no remaining lease revenue from the sublessee.

Net Income (Loss) Per Share

3 unchanged sentences

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

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.

At September 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 September 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 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 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:

At September 30, 2020 , there were options , including options 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.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

Construction Backlog (continued)

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Construction Backlog

The following represents the backlog of signed construction and engineering contracts in existence at September 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 September 30, 2021 and December 31, 2020, respectively, on which work has not yet begun:

Balance - beginning of period

3 unchanged sentences

Balance - end of period

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 June 30, 2023.

Backlog at September 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.

The Company executed one large contract in the first quarter of 2021 in the amount of approximately $ 1.3 million, one large contract in the third quarter of 2021 of approximately of $ 857,000 and had one large partial contract cancellation to an existing contract of approximately ($ 1.3 ) million.

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

1 unchanged sentence

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:

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

Within 1 year

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Stockholders’ Equity

12 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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.

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 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.

During the nine months ended September 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 exercise of the 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 ”), pursuant to which the Company paid 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 and issued to Placement Agent and its designees warrants to purchase 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.

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Share-based Compensation

1 unchanged sentence

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

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

Stock Incentive Plan, as further amended eff ective June 1, 2018 and as further amended on July 30, 2020 and as further amended on August 18, 2021, (the “Incentive Plan”).

The Incentive Plan authorizes the issuance of up to 3,625,000 shares of common stock.

2 unchanged sentences

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

As of June 30, 2021, there were 179,547 shares of common stock available for issuance under the Incentive Plan .

As of September 30, 2021, there were 2,679,547 shares of common stock available for issuance under the Incentive Plan .

Stock-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Payroll and related expenses

2 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Stock options

1 unchanged sentence

Stock-Based Option Awards

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

The Company has issued no stock-based options during the months ended September 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.

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Share-based Compensation (continued)

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

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

Weighted Average Fair Value Per Share

3 unchanged sentences

Outstanding – December 31, 2020

Outstanding – June 30, 2021

Outstanding – September 30, 2021

Exercisable – December 31, 2020

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.

Exercisable – September 30, 2021

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

For the nine months ended September 30, 2021 and 2020, the Company recognized stock-based compensation expense of $ 2,666 and $ 8,000 , respectively, related to stock options.

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

As of June 30, 2021, there was no unrecognized compensation costs related to non-vested stock options and all options have been expensed.

As of September 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 June 30, 2021 was $ 5.50 per share.

The fair value of the stock price at September 30, 2021 was $ 3.27 per share.

Restricted Stock Units

15 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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 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.

For the three months ended September 30, 2021 and 2020, the Company recognized stock-based compensation of $ 246,236 and $ 300,502 related to restricted stock units.

For the nine months ended September 30, 2021 and 2020, the Company recognized stock-based compensation of $ 775,991 and $ 463,683 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 six months ended June 30, 2021:

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

Number of Shares

1 unchanged sentence

Forfeited/Expired

Non-vested balance at June 30, 2021

Non-vested balance at September 30, 2021

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Nine Months Ended September 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 - 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.

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.

The lawsuit was filed as Pizzarotti, LLC.

23 unchanged sentences

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.

The court has not entered the proposed discovery order and no action has been taken by the plaintiff Pizzarotti nor the defendant-cross claimant Phipps since the proposed order was submitted.

There are no scheduled hearings or conferences before the court at this time.

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

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

Commitm ents and Contingencies (continued)

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

ICON Construction Inc.

SG Blocks, Inc.

- On or about June 8, 2021 ICON Construction Inc.

(“ICON”) filed a complaint against the Company and Echo DCL LLC (“Echo DCL”), seeking unspecified damages, arising out of a certain asset purchase agreement entered into between ICON and Echo DCL on or about February 20, 2020 (the “ICON-Echo Asset Agreement”) whereby, inter alia , Echo DCL acquired all of the assets of ICON.

On or about September 17, 2020, Echo DCL and SG Echo LLC entered into a certain asset purchase agreement (the “Echo Asset Agreement”) whereby, inter alia , SG Echo acquired all of the assets of Echo DCL.

In the Echo Asset Agreement Echo DCL represented and warranted to SG Echo that it had good and marketable title to the assets, had full right and power to transfer same, and that the same were free and clear of any encumbrances except for a certain permitted lien held by BTH Bank.

ICON alleges that ECHO DCL breached the terms of the ICON-Echo Asset Agreement and that the Company agreed to assume Echo DCL’s liabilities obligations under the ICON-Echo Asset Agreement .

Icon also claims a security interest in the assets conveyed to SG Echo by Echo DCL.

The Company has filed an answer to the ICON complaint denying the allegations and raised eleven affirmative defenses and that it is entitled to indemnification and/or contribution from Echo DCL and its principal Michael Ames.

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, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

Vendor Litigation –

7 unchanged sentences

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

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 February 11, 2020, the Company filed a proof of claim against 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.

4 unchanged sentences

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.

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

Teton has been served with the First Amended Third-Party Complaint and has been granted an extension of time to answer through November 2021.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Commitm ents and Contingencies (continued)

SG Blocks, Inc.

v HOLA Community Partners, et.

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

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

On April 13, 2020, the Company, as plaintiff 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.

16 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.

6 unchanged sentences

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.

16 unchanged sentences

(“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.

The case is currently in the discovery stage the parties are in the process of stipulating to new dates for the completion of discovery and fixing of a trial date for the latter part of 2022 or 2023.

On September 2, 2021, Schindler Elevator Corp.

filed its answer to the First Amended Third-Party Complaint.

On September 3, 2021, Junior Steel Co.

filed its answer to the First Amended Third-Party Complaint.

On September 7, 2021, Anderson Air Conditioning, L.P.

filed its answer to the First Amended Third-Party Complaint.

On October 6, 2021, the McIntyre Group filed its answer to the First Amended Third-Party Complaint.

With the recent entry into and appearance into the case by the various third-party defendants, with certain defendants having yet to appear and answer, the parties are in the process of collectively stipulating to a new discovery schedule that will extend the discovery period through September or October 2022, with a trial to be held in November or December 2022.

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

1 unchanged sentence

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

SG Blocks, Inc.

EDI International, PC.

10 unchanged sentences

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.

The parties are in engaged in the discovery and a trial date has been set for May 2022.

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.

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)

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

Other Litigation

SG Blocks, Inc .

al., Case No.

SG Blocks, In c .

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

7 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.

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.

On or about September 14, 2021, the Company and Former Employee entered into a settlement and release agreement resolving their respective claims.

On September 14, 2021, the parties filed a joint motion seeking court approval of the settlement.

The motion to approve the settlement remains pending before the court.

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

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

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 a provision related to this matter in the condensed consolidated financial statements for approximately $ 278,800 .

SG BLOCKS, INC.

Osang Healthcare Company, Ltd.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Commitments and Contingencies (continued)

S G Blocks, Inc.

Osang Healthcare Company, L td.

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

5 unchanged sentences

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.

The motion has been fully briefed and submitted to the court and the parties are awaiting a ruling thereon.

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.

Subsequent Events

On October 1, 2021, the Compensation Committee (the “Committee”) of the Board of Directors of the Company granted the following awards of restricted stock units ( RSUs ) under the Company’s Stock Incentive Plan (the “Plan”):

(i) Paul Galvin, the Company’s Chairman and CEO, 350,000 RSUs under the Plan vesting quarterly over two years , (ii) William Rogers, the Company’s Chief Operating Officer, 37,500 RSUs under the Plan vesting upon issuance and 200,000 RSU’s under the Plan vesting monthly over two years , (iii) Gerald Sheeran, the Company’s Acting Chief Financial Officer, 100,000 RSUs under the Plan vesting quarterly over two years , and (iv) Stevan Armstrong, the Company’s Chief Technology Officer, 40,000 RSUs under the Plan vesting quarterly over two years .

In addition, the Committee granted to each of Yaniv Blumenfeld, Margaret Coleman, Christopher Melton, Joseph Safina and David Villarreal, the Company’s non-executive directors, 11,834 RSUs under the Plan vesting monthly over one year and, if earlier, in full on the date of the Company’s 2022 Annual Meeting of Stockholders.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

Subsequent Events

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.

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Subsequent Events (continued)

On October 27, 2021,pursuant to the terms of a Securities Purchase Agreement (the “Purchase Agreement”) that the Company entered into on October 25, 2021 with an institutional investor (the “Purchaser”),the Company received approximately $ 11.55 million in gross proceeds and the Company sold to the Purchaser (A) in a registered direct offering (i) 975,000 shares (the “Public Shares”) of its Common Stock, par value $ 0.01 per share (the “Common Stock”), and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 2,189,384 shares (the “Pre-Funded Warrant Shares”) of Common Stock and (B) in a concurrent private placement, Series A warrants to purchase up to 1,898,630 shares (the “Common Stock Warrant Shares”) of Common Stock (the “Common Stock Warrants,” and together with the Public Shares and the Pre-Funded Warrants, the “Securities”) (the “Offering The Pre-Funded Warrants were immediately exercisable at a nominal exercise price of $ 0.001 and all Pre-Funded Warrants sold have been exercised.

The Common Stock Warrants have an exercise price of $ 4.80 per share, are exercisable upon issuance and will expire five years from the date of issuance.

A.G.P./Alliance Global Partners (the “Placement Agent”) acted as the exclusive placement agent for the transaction pursuant to that certain Placement Agency Agreement, dated as of October 25, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”), the Placement Agent received (i) a cash fee equal to seven percent ( 7.0 %) of the gross proceeds from the placement of the Securities sold by the Placement Agent in the Offering and (ii) a non-accountable expense allowance of one half of one percent ( 0.5 %) of the gross proceeds from the placement of the Securities sold by the Placement Agent in the Offering.

The Company also reimbursed the Placement Agent’s expenses up to $ 50,000 upon closing the Offering.

The net proceeds to the Company after deducting the Placement Agent’s fees and the Company’s estimated offering expenses was approximately $ 10.5 million.

Pursuant to the terms of the Purchase Agreement and subject to certain exceptions as set forth in the Purchase Agreement, for a period of 90 days after the Closing Date, the Company agreed not to, without the prior written consent of the Purchaser, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

(ii) file or cause to be filed any registration statement with the Securities and Exchange Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

(iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.

In addition, pursuant to the terms of the Purchase Agreement, the Company agreed that for one year from the Closing Date that it will not enter into any Variable Rate Transaction, as defined in the Purchase Agreement.

Pursuant to the Purchase Agreement, the Company is required within 30 days of the closing of the Offering to file a registration statement providing for the resale of the shares of Common Stock issued and issuable upon the exercise of the Common Stock Warrants, which registration statement was filed on November 12, 2021.

The Company is required to use commercially reasonable efforts to cause such registration to become effective within 45 days of the closing of the Offering (or 60 days in the event of a full review by the Commission) and to keep such registration statement effective at all times until no investor owns any Common Stock Warrants or Common Stock Warrant Shares.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

Subsequent Events (continued)

On October 28, 2021, SG Echo LLC (“SG Echo”), a subsidiary of SG Blocks, Inc., a Delaware corporation (the “Company”), entered into a Lease Agreement (the “Lease”) with May Properties, LLC, to lease an approximately 56,775 square foot facility located at 101 Waldron Road in Durant Oklahoma (the “Premises”).

The date on which SG Echo will become responsible for paying rent under the Lease (the “Lease Commencement Date”) will be the earlier of (i) the date SG Echo begins to operate its business on the Premises or (ii) ninety ( 90 ) days after October 28, 2021.

The initial term of the Lease will commence on the Lease Commencement Date and expire one hundred and twenty ( 120 ) months after the Lease Commencement Date, with two five -year options to renew.

SG Echo’s monthly base rent for the Premises will start at $ 15,991.63 commencing on the Lease Commencement Date and will increase at the rate of two percent ( 2 %) on an annual basis up to a maximum monthly base rent of $ 19,111.47 .

The Company intends to use the leased Premises to add two new production lines for SG Echo to manufacture projects for the Company’s subsidiary, SG DevCorp, and others.

Upon SG Echo completing certain improvements to the Premises, it will receive a credit against future rent, not to exceed $ 750,000 , for the cost and expense of the improvements to be applied pro rata over the remaining term of the Lease.

The Lease also grants SG Echo an option to purchase the Premises for (i) $ 1,000,000 after the fifteenth ( 15 th) through the end of the twenty -fourth ( 24 th) full calendar month of the Lease or (ii) $ 1,050,000 during the twenty -fifth ( 25 th) through the end of the thirty -sixth ( 36 th) full calendar month of the Lease.

Pursuant to a Guaranty Agreement, dated October 28, 2021 (the “Guaranty”), SG Echo’s obligations under the Lease have been guaranteed by the Company.

In connection with the Lease, SG Echo entered into a Loan Agreement (“Loan Agreement”) with the Durant Industrial Authority (the “Authority”) pursuant to which it received $ 750,000 to be used for improvements on the Premises and issued to the Authority a non-interest bearing Forgivable Promissory Note in the principal amount of $ 750,000 (the “Forgivable Note”).

The Forgivable Note is due on April 29, 2029 and guaranteed by the Company, provided, if no event of default has occurred under the Forgivable Note or Loan Agreement, one -third ( 1 / 3 ) of the balance of the Forgivable Note will be forgiven on April 29, 2027, one -half ( 1 / 2 ) of the balance of the Forgivable Note will be forgiven on April 29, 2028, and the remainder of the balance of the Forgivable Note will be forgiven on April 29, 2029.

The Loan Agreement includes a covenant by SG Echo to employ a minimum of 75 full-time employees in Durant Oklahoma and pay them no less than 1.5 times the federal minimum wage, and provides SG Echo 24 months to comply with the provision.

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