What changed in this filing

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Item 1. Financial Statements

2022-05-24 compared with 2021-11-15 · 296 added, 353 removed, 701 unchanged (48% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

2 unchanged sentences

Contract assets

Held for sale assets

Prepaid expenses and other current assets

1 unchanged sentence

Property, plant and equipment, net

Project development costs and other non-current assets

Right-of-use asset

2 unchanged sentences

Deferred contract costs, net

Investment in non-marketable securities

Investment in and advances to equity affiliates

7 unchanged sentences

Short term note payable, net

Other current liabilities

Total current liabilities

Long-term note payable

Lease liability, net of current maturities

Total liabilities

Commitments and contingencies

Stockholders’ equity:

2 unchanged sentences

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

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

12,006,873 issued and outstanding as of March 31, 2022 and 11,986,873 issued and outstanding as of December 31, 2021

Additional paid-in capital

10 unchanged sentences

Three Months Ended

September 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Construction services

10 unchanged sentences

Pre-project expenses

Operating loss

Operating profit/(loss)

Other income (expense):

Loss on asset disposal

Interest expense

Interest income

Loss before income taxes

Income (loss) before income taxes

Income tax expense

Net income (loss)

net income attributable to noncontrolling interests

2 unchanged sentences

Basic and diluted

Weighted average shares outstanding:

8 unchanged sentences

Stockholders’

Balance at June 30, 2021

Stock-based compensation

Noncontrolling interest distribution

Net income (loss)

Balance at September 30, 2021

Balance at December 31, 2020

1 unchanged sentence

Conversion of warrants to common stock

Noncontrolling interest distribution

Net income (loss)

Balance at September 30, 2021

$0.01 Par Value

SG Blocks Stockholders'

Noncontrolling

Stockholders’

Balance at June 30, 2020

Stock-based compensation

Balance at September 30, 2020

Balance at March 31, 2021

Balance at December 31, 2021

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

Balance at September 30, 2020

Noncontrolling interest distribution

Net income (loss)

Balance at March 31, 2022

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

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 30, 2021

Nine Months Ended

September 30, 2020

Three Months Ended

March 31, 2022

Three Months Ended

March 31, 2021

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation expense

1 unchanged sentence

Amortization of deferred license costs

Amortization of Debt Issuance Costs

Bad Debt Expense

11 unchanged sentences

Lease liability

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Advances in note receivable

Purchase of Echo DCL, LLC, net of cash acquired

Purchase of property, plant and equipment

1 unchanged sentence

Proceeds from sale of equipment

Repayment of promissory note

Payment on assumed liability of acquired assets

Investment in and advances to equity affiliates

Project Development Costs

Investment in non-marketable securities

Net cash (used in) investing activities

1 unchanged sentence

Proceeds from conversion of warrants to common stock

Proceeds from public stock offering, net of issuance costs

Proceeds from short-term note payable

Proceeds from long-term note payable

Distribution paid to noncontrolling interest

Settlement of common stock from reverse stock split

Distribution paid to NCI

Net cash (used in) provided by financing activities

2 unchanged sentences

Cash and cash equivalents - end of period

Supplemental disclosure of non-cash operating activities:

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

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Description of Business

5 unchanged sentences

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

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

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

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

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

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

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

There are three core product offerings that utilize the Company's technology and engineering expertise.

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 deliver them on-site, where the customer or a customer’s general contractor will complete the entire finish out and installation.

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

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.

1 unchanged sentence

The building is ready for occupancy and/or use as soon as installation is completed.

Construction administration and/or project management services are typically included in our product offerings.

Construction administration and/or project management services are typically included in the Company's product offerings.

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

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

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

SG Echo, LLC was formed to complete the business acquisition.

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.

3 unchanged sentences

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

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

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

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

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

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

6 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three months ended March 31, 2022 and 2021 (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 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.

As of March 31, 2022, the Company had 12,006,873 shares of common stock issued and outstanding.

As of March 31, 2022, the Company had cash and cash equivalents of $ 13,146,418 and a backlog of approximately $ 7,591,863 .

See Note 11 for a discussion of construction backlog.

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

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

Within 1 year

2 unchanged sentences

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

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

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

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

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

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

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

The Company completed a public and concurrent private offering in October 2021, which resulted in net proceeds of approximately $ 10,488,000 .

15 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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 .

Reclassification – Certain prior year balances were reclassed to conform to current period presentation.

There was no impact to income (loss) or cash flows as a result of these reclassifications .

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.

14 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Summary of Significant Accounting Policies (continued)

4 unchanged sentences

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.

5 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 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 Agreement also provided 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 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 planning stage of the project was initially delayed due to COVID-19.

The Company is no longer participating on Ridge Avenue as CMC has decided to proceed with this project as a traditional construction build.

The Company previously reported this as a cancellation within the Company's backlog footnote, see Note 11 on this discussion.

No revenue has been recognized under the Agreement during the three months ended March 31, 2022 and 2021.

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 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.

For the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 6,885,828 and $ 5,863,358 related to activities through these two joint ventures, which is included in medical revenue on the accompanying consolidated statements of operations.

Disaggregation of Revenues

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

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

Revenue recognized at a point in time and recognized over time were $ 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.

Revenue recognized at a point in time and recognized over time were $ 6,885,828 and $ 1,718,770 , respectively, for the three months ending March 31, 2022.

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.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Summary of Significant Accounting Policies (continued)

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

Three Months Ended September 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

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue by Customer Type

Construction and Engineering Services:

Hotel/Hospitality

Medical - Construction

Medical - C onstruction

Multi-Family (includes Single Family)

2 unchanged sentences

Total revenue by customer type

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

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)

Contract Assets and Contract Liabilities

10 unchanged sentences

Contract liabilities are generally classified as current within the condensed consolidated balance sheet.

Although the Company 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.

A lthough the Company 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 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 was subject to the ELA.

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Summary of Significant Accounting Policies (continued)

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.

Upon entering into the ELA, the Company is no longer obliged to its Original Agreement.

Upon entering the ELA, the Company had an outstanding accounts receivable balance of $ 306,143 , which was forfeited and recognized this amount as deferred contract costs.

1 unchanged sentence

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 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 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.

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, 2022, accumulated amortization related to deferred contract costs amounted to $ 101,963 .

During the three months ended March 31, 2022 and 2021, amortization expense relating to the deferred contract costs amounted to $ 10,196 and $ 10,196 , 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 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.

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)

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).

In consideration for the License, during the initial term, the Licensee agreed to pay the Company a royalty of (x) five percent (5%) on the first $20,000,000 of gross revenues derived from the Licensee’s commercialization of the License (net of customary discounts, sales taxes, delivery charges, and amounts for returns) (the “Gross Revenues”), (y) four and one-half percent (4.5%) on the next $30,000,000 of Gross Revenues, and (z) five percent (5%) on all Gross Revenues thereafter (collectively, the “Royalty”) , subject to the following minimum royalty payments determined on a cumulative basis during the initial term:

8 unchanged sentences

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.

Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s condensed consolidated statements of operations.

Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations.

Costs that the Company incurs to complete the business combination are charged to general and administrative expenses as they are incurred.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Summary of Significant Accounting Policies (continued)

Variable Interest Entities – The Company accounts for certain legal entities as variable interest entities (“VIE").

5 unchanged sentences

This determination is evaluated periodically as facts and circumstances change.

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)

On August 27, 2020 the Company entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”).

2 unchanged sentences

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.

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

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

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.

As of December 31, 2021, $ 502,958 was due to Clarity Labs for expenses paid on behalf of Clarity Mobile Venture, and is included in Due to Affiliates, Accounts Payable and Accrued Expenses on the accompanying consolidated balance sheets.

In addition, during the year ended December 31, 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 December 31, 2021.

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

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

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

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

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

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

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 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 $ 135,238 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 its condensed consolidated financial statements.

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

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

1 unchanged sentence

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 its condensed consolidated financial statements.

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

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

On February 24, 2022 the Company made a $ 500,000 capital investment for a 1.2 % ownership in Moliving, a nomadic hospitality solution company.

The Company also executed a side agreement to build the first sixty Moliving units and an additional ninety units after the first sixty units are manufactured.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (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 $ 3,290,702 as of September 30, 2021 and $ 13,010,356 as of December 31, 2020.

Cash and cash equivalents totaled $ 13,146,418 and $ 13,024,381 as of March 31, 2022 and December 31, 2021, respectively.

Short-term investment – The Company classifies investments consisting of a certificate of deposit with a maturity greater than three months but less than one year as short-term investment.

The Company had no short-term investment as of September 30, 2021 or December 31, 2020, respectively.

The Company had no short-term investment as of March 31, 2022 or 2021, respectively.

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

5 unchanged sentences

Recoveries are recognized when they are received.

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

Summary of Significant Accounting Policies (continued)

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

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 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 March 31, 2022 there was inventory of $ 336,586 for construction materials, and $ 717,756 of medical equipment and COVID-19 test and testing supplies.

As of December 31, 2021 there was inventory of $ 516,731 for construction materials, and $ 757,094 of medical equipment and COVID-19 test and testing supplies.

Goodwill – The Company performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying values.

Goodwill – The Company performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely tha n not reduce the fair value of its reporting unit below its carrying values.

The Company performs a goodwill impairment test by comparing the fair value of the reporting unit with its carrying value and recognizes an impairment charge for the amount by which the carrying value exceeds the fair value, not to exceed the total amount of goodwill .

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 nine months ended September 30, 2021 and 2020.

There were no impairments during the three months ended March 31, 2022 or 2021.

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, 2021, and determined that there were no impairment losses.

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.

There was no impairment during the three months ended March 31, 2022.

The accumulated amortization as of March 31, 2022 and 2021 was $ 857,554 and $ 690,262 , respectively.

The amortization expense for the three months ended March 31, 2022 and 2021 was $ 41,823 and $ 40,407 , respectively.

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Summary of Significant Accounting Policies (continued)

For the year ending December 31,:

4 unchanged sentences

Repairs and maintenance are charged to expense when incurred.

Held For Sale Assets – On May 10, 2021 the Company's subsidiary, SG DevCo acquired the Lago Vista, Texas property for $ 3,576,130 .

Management has implemented a plan to sell this property, which meets all of the criteria required to classify it as Held for Sale.

Including the project development costs associated with Lago Vista of $ 816,410 , the book value is now $ 4,392,541 .

Convertible instruments – The Company bifurcates conversion options from their host instruments and accounts for them as free standing derivative financial instruments according to certain criteria.

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.

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)

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.

4 unchanged sentences

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Summary of Significant Accounting Policies (continued)

The Company uses three levels of inputs that may be used to measure fair value:

17 unchanged sentences

If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

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)

Concentrations of credit risk – Financial instruments, that potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents.

4 unchanged sentences

The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights.

At September 30, 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.

At March 31, 2022 and December 31, 2021, 75 % and 78 %, respectively, of the Company’s gross accounts receivable were due from two and four customers.

Revenue relating to two and two customers represented approximately 90 % and 80 % of the Company's total revenue for the three months ended March 31, 2022 and 2021, respectively.

Cost of revenue relating to two and two vendors represented approximately 28 % and 28 % of the Company’s total cost of revenue for the three months ended March 31, 2022 and 2021, respectively.

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Accounts Receivable

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

At March 31, 2022 and December 31, 2021 , 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 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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

The allowance of doubtful accounts was $ 963,116 as of March 31, 2022 and December 31, 2021.

There was $ 7,024 in bad debt expense during the three months ended March 31, 2022.

There were no write offs for the year ended December 31, 2021.

Contract Assets and Contract Liabilities

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

Costs and estimated earnings on uncompleted contracts, which represent contract assets and contract liabilities, consisted of the following at March 31, 2022 and December 31, 2021 :

Costs incurred on uncompleted contracts

Provision for loss on uncompleted contracts

Estimated earnings (losses) to date on uncompleted contracts

Estimated earnings to date on uncompleted contracts

Gross contract assets

billings to date

Net contract liabilities on uncompleted contracts

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

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, 2022 and December 31, 2021 .

Contract assets

Contract liabilities

Net contract liabilities

Net contract assets (liabilities)

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

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.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021(Unaudited)

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

At March 31, 2022 and December 31, 2021, 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 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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Depreciation expense for the three months ended March 31, 2022 and 2021 amounted to $ 104,825 and $ 91,190 respectively.

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.

During the period ended March 31, 2022, the Galvin Note was assigned to the Company and the principal amount of $ 100,000 was returned to Mr.

The Company has a promissory note in the principal amount of $ 100,000 (the "Company Note 3") and the assignment occurred in January 2022.

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.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Notes Payable

2 unchanged sentences

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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Business Combination

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

The Echo Acquisition closed on September 23, 2020.

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

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

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

The purchase consideration amounted to:

Earnout liability

Settlement of accounts receivable and net contract liabilities

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

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

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property, plant and equipment

Right-of-use assets

Intangible assets

Accounts payable and accrued expenses

Assumed liabilities

Contract liabilities

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

The Company capitalized $ 20,000 in interest charges and $ 4,314 in debt issuance costs as of March 31, 2022 related to the Lago Vista project in accordance with ASC 835-20.

The Company capitalized $ 112,348 in interest charges and $ 23,727 in debt issuance costs as of December 31, 2021 related to the Lago Vista project in accordance with ASC 835-20.

On October 29, 2021, SG Echo, a subsidiary of the Company, 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 renovation improvements related to the Company's second manufacturing facility 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.

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

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

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

In addition, CAT 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.

The leases have remaining lease terms ranging from one year to ten years .

Supplemental balance sheet information related to leases is as follows:

Balance Sheet Location

September 30, 2021

March 31, 2022

Operating Leases

21 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Leases (continued)

12 unchanged sentences

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

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.

At March 31, 2022, there were restricted stock units, options and warrants of 2,245,186 , 36,436 and 2,025,520 respectively, outstanding that could potentially dilute future net income per share .

Because the Company had a net loss as of March 31, 2022, it is prohibited from including potential common shares in the computation of diluted per share amounts.

Accordingly, the Company has used the same number of shares outstanding to calculate both the basic and diluted loss per share.

At September 30, 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.

At March 31, 2021 , there were options , including options 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.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021(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:

The following represents the backlog of signed construction and engineering contracts in existence at March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, respectively, on which work has not yet begun:

Balance - beginning of period

1 unchanged sentence

Adjustments and cancellations, net

( 18,297,197 )

contract revenue earned during the period

Balance - end of period

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.

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 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:

Backlog at December 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.

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 $ 0.87 million and had one large partial contract cancellation to an existing contract of approximately ($ 1.3 ) million.

The Company executed one large contract in the fourth quarter of 2021 in the amount of approximately $ 0.78 million and had one contract cancellation in the amount of approximately $ 16.9 million.

On March 29, 2022, the Company entered into a contract with ATCO Structures & Logistics (USA) Inc.

for $ 5,954,950 that is reflected in the March 31, 2022 backlog.

The Company expects that all of this revenue will be realized by December 31, 2022.

The Company’s remaining backlog as of March 31, 2022 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, 2022 over the following period:

Within 1 year

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021(Unaudited)

Stockholders’ Equity

Public Offerings –

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

In connection with the April Public Offering, the Company sold 440,000 shares of common stock at a public offering price of $ 4.25 per share, resulting in aggregate net proceeds of approximately $ 1,522,339 after deducting underwriting discounts and commissions and other expenses related to the offering.

The Company incurred a total of approximately $ 347,661 in issuance costs in connection with the offering and no warrants to purchase were issued to the underwriters.

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

In connection with the May Public Offering, the Company sold 6,000,000 shares of common stock at a public offering price of $ 2.50 per share.

Pursuant to the terms of the related Underwriting Agreement dated May 6, 2020 by and among the Company and ThinkEquity, a division of Fordham Financial Management, Inc., as representatives of several underwriters named therein ("ThinkEquity"), ThinkEquity was granted an over-allotment option to purchase up to an additional 900,000 shares of the Company's common stock, par value $ 0.01 per share (the "Common Stock"), in connection with the previously announced public offering.

On May 15, 2020, ThinkEquity exercised in full such option with respect to all 900,000 shares of the Company's Common Stock (the "Option Shares").

After giving effect to the full exercise of the over-allotment option, the total number of shares of Common Stock sold by the Company in the May Public Offering was 6,900,000 shares of Common Stock and total net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were approximately $ 15,596,141 .

The Company incurred a total of approximately $ 1,653,859 in issuance costs in connection with the offering and issued warrants to purchase 300,000 shares of common stock to the underwriters.

In October 2021, the Company closed a registered direct offering and concurrent private placement of its common stock (the "October Offering") that the Company effected pursuant to the Securities Purchase Agreement that it entered into on October 25, 2021 with an institutional investor and received gross proceeds of $ 11.55 million.

Pursuant to the terms of the Purchase Agreement, the Company issued to the investor (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 Gross Proceeds 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.

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

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

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

The warrants are further discussed in Note 14.

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

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

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

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

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

The warrants are further discussed in Note 14.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Segments and Disaggregated Revenue

Corporate and

Fiscal Quarter Ended March 31, 2022

Cost of revenue

Operating expenses

Operating gain/loss

Other income (expense)

Income before income taxes

Net income attributable to non-controlling interest

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

Depreciation and amortization

Capital expenditures

Inter-segment revenue elimination

Corporate and

Fiscal Quarter Ended March 31, 2021

Cost of revenue

Operating expenses

Operating gain/loss

Other income (expense)

Income before income taxes

Net income attributable to non-controlling interest

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

Depreciation and amortization

Capital expenditures

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (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 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.

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.

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 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.

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.

The warrants are exercisable at the option of the holder on or after November 6, 2021 and expire May 5, 2025 .

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 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.

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.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

In conjunction with the Purchase Agreement in October 2021, the Company also issued Series A warrants to purchase up to 1,898,630 shares of Common Stock in a concurrent private placement.

The warrants have an exercise price of $ 4.80 per share, exercisable at the option of the holder on or after October 26, 2021 and will expire five years from the date of issuance.

Share-based Compensation

3 unchanged sentences

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

It authorizes the issuance of equity-based awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards to non-employee directors and to officers, emplo yees and consultants of the Company and its subsidiary, except that incentive stock options may only be granted to the Company’s employees and its subsidiary’s employees.

It authorizes the issuance of equity-based awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards to non-employee directors and to officers, employees and consultants of the Company and its subsidiary, except that incentive stock options may only be granted to the Company’s employees and its subsidiary’s employees.

The Incentive Plan expires on October 26, 2026, and is administered by the Company’s Compensation Committee of the Boa rd of Directors.

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

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

As of March 31, 2022, there were 1,343,377 shares of common stock available for issuance under the Incentive Plan .

Stock-Based Compensation Expense

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Payroll and related expenses

General and administrative expenses

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Share-based Compensation (continued)

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Stock options

1 unchanged sentence

Stock-Based Option Awards

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

The Company has issued no stock-based options during the three months ended March 31, 2022 and 2021.

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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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 nine months ended September 30, 2021 as described below:

The following table summarizes stock-based option activities and changes during the three months ended March 31, 2022 as described below:

Weighted Average Fair Value Per Share

3 unchanged sentences

Outstanding – December 31, 2021

Outstanding – September 30, 2021

Outstanding – March 31, 2022

Exercisable – December 31, 2021

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.

Exercisable – March 31, 2022

For the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ 0 and $ 2,666 , respectively , related to stock options.

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

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

As of March 31, 2022, there was no unrecognized compensation costs related to non-vested stock options and all options have been expensed.

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

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

The fair value of the stock price at March 31, 2022 was $ 1.95 per share.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Share-based Compensation (continued)

Restricted Stock Units

12 unchanged sentences

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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

Share-based Compensation (continued)

On April 14, 2020, a total of 35,331 of restricted stock units were granted to Mr.

15 unchanged sentences

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

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Share-based Compensation (continued)

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

6 unchanged sentences

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

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.

On October 1, 2021, a total of 1,214,500 of restricted stock units were granted to Mr.

Armstrong, Mr.

Sheeran, thirteen employees and three consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $ 3.38 per share, which represents the closing price of the Company's common stock on October 1, 2021.

Restricted stock units granted to Mr.

Armstrong, Mr.

Sheeran, and an aggregate of thirteen employees and two consultant of 350,000 , 40,000 , 100,000 and an aggregate of 475,000 , respectively, vesting quarterly over two years from the anniversary of the grant date.

Restricted stock units granted to Mr.

Rogers and one consultant of 37,500 and 12,000 vest upon issuance date.

Restricted stock units granted to Mr.

Rogers of 200,000 vest monthly over a two -year period.

The fair value of these units upon issuance amounted to $ 4,105,010 .

On October 1, 2021, a total of 59,170 of restricted stock units were granted to five of the Company's non-employee directors, under the Company's stock-based compensation plan, at the fair value of $ 3.38 per share, which represents the closing price of the Company's common stock on October 1, 2021.

The restricted stock units granted October 1, 2021 vesting monthly over one year and, if earlier, in full on the date of the Company’s 2022 Annual Meeting of Stockholders.

On December 7, 2021, a total of 62,500 of restricted stock units were granted to five of the Company's non-employee advisory directors, under the Company's stock-based compensation plan, at the fair value of $ 2.36 per share, which represents the closing price of the Company's common stock on December 7, 2021.

The restricted stock units granted vest in equal monthly installments over one year period.

For the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation of $ 649,090 and $ 283,520 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 nine months ended September 30, 2021:

The following table summarized restricted stock unit activities during the three months ended March 31, 2022:

Number of Shares

1 unchanged sentence

Forfeited/Expired

Non-vested balance at September 30, 2021

Non-vested balance at March 31, 2022

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Commitm ents and Contingencies

37 unchanged sentences

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.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Commitments and Contingencies (continued)

2.) ICON Construction Inc.

SG Blocks, Inc.

SG Blocks, Inc, et.

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

5 unchanged sentences

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.

The parties are currently engaged in discovery.

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

Vendor Litigation

1.) 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”) entered into on or about June 2, 2017.

(i) On January 1, 2019, SG Blocks commenced an action against Teton Buildings, LLC (“Teton”) in Harris County, Texas (“ Teton Texas 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”) entered into on or about June 2, 2017.

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

In or about February 2022 SG Blocks dismissed without prejudice the Teton Texas Action.

(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.”).

3 unchanged sentences

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

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

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

5 unchanged sentences

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.

Teton has been served with the First Amended Third-Party Complaint and on or about February 11, 2022, Teton filed an answer and affirmative defenses.

The parties in the HOLA Action are currently conducting discovery.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Commitm ents and Contingencies (continued)

1 unchanged sentence

v HOLA Community Partners, et.

On April 13, 2020, the Company, as plaintiff filed a Complaint against HOLA Community Partners (“HCP”), Heart of Los Angeles Youth, Inc.

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.

(“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.

7 unchanged sentences

and (6) intentional interference with contractual relations.

29 SG BLOCKS, INC.

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;

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;

30 unchanged sentences

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

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.

5 unchanged sentences

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.

On February 7, 2022, the Company filed a request for entry of a Clerk’s default against the following defendants:

American Home Building and Masonry Corp., Avesi Construction, Marne Construction, Inc., Firstform, Inc., Dowell & Bradley Construction, Inc, Saddleback Roofing, Inc., and US Smoke and Fire Corp.

On February 9, 2022, the court entered a clerk’s default pursuant to Federal Rule 55 against the following defendants:

American Home Building and Masonry Corp.

Avesi Construction, Dowel & Bradley Construction, Inc., Saddleback Roofing Inc.

and US smoke and Fire Corp.

The parties that have answered and appeared in the case are currently engaged in discovery.

The cut-off for fact discovery has been extended to September 12, 2022, and a trial has been set for January 31, 2023.

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.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021(Unaudited)

Commitments and Contingencies (continued)

12 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.

The parties are in engaged in the discovery and a trial date has been set for September 6, 2022.

The parties have agreed to mediate their dispute.

Mediation has been scheduled to take place on or about May 17, 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 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

1.) Shetty v.

SG Blocks, In c .

al., - Case No.

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

9 unchanged sentences

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

By order dated February 8, 2022, the court approved the settlement.

On February 9, 2022 the court closed the case.

SG BLOCKS, INC.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

For the Three Months Ended March 31, 2022 and 2021(Unaudited)

Commitments and Contingencies (continued)

9 unchanged sentences

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

On January 10, 2022 the court entered an order staying discovery pending its ruling on the defendant’s motion to dismiss.

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.

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

Galvin is terminated without cause.

At the Company’s option, up to fifty (50%) percent of the EBITDA performance bonuses may be paid in restricted stock units if then available for grant under the Company’s Stock Incentive Plan.All other terms of the employment agreement remain in full force and effect.

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.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

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.

Su bsequent to March 31, 2022, SG Echo, a subsidiary of SG Blocks, has broadened its relationship with a private client and received a purchase order for its largest contract to date.

The purchase order is for more than 100 units and the Company expects to generate approximately $ 6 million dollars of revenue from this contract.

The units are scheduled to be completed by the end of Q2 2022.

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