What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-24 · 95 added, 45 removed, 234 unchanged (37% of the section changed)

73 unchanged sentences

Results of Operations

Our operations for the three months ended March 31, 2022 and 2021 may not be indicative of our future operations.

Three Months Ended March 31, 2022 and 2021:

For the Three Months Ended

March 31, 2022

For the Three Months Ended

March 31, 2021

Six Months Ended June 30, 2022 and 2021:

For the Six Months Ended June 30, 2022

For the Six Months Ended June 30, 2021

Total Revenue

Total Cost of revenue

Total Payroll and related expenses

Total Other Operating expenses

Total Operating loss

Total Other income

Total Loss before income tax

Net income attributable non-controlling interest

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

During the six months ended June 30, 2022, we derived revenue from the following three categories of sources:

construction services, engineering services and medical revenue.

Medical revenue was a new source of revenue which commenced during the fourth quarter of 2020 when Clarity Mobile Venture LLC commenced operations.

We continued to derive revenue from this source during the quarter ended June 30, 2022.

Total revenue for the six months ended June 30, 2022 was $16,159,569 compared to $21,041,614 for the six months ended June 30, 2021.

This decrease of $4,882,045 or approximately 23% was mainly driven by a decrease in medical revenue of $5,538,238, offset by an increase in construction services which consisted an increase in office projects of $ 4,282,289 , a decrease in government projects of $2,183,103 and a decrease of special use projects of $1,656,995.

Cost of Revenue and Gross Profit

Cost of revenue was $12,901,174 for the six months ended June 30, 2022, compared to $18,623,607 for the six months ended June 30, 2021.

The decrease of $5,722,433 or a decrease of approximately 31%, is primarily related to lower testing volumes resulting in a decrease in our medical cost of revenue as well as a decrease in cost of goods sold from construction services in the amount of $1,303,729.

Gross profit was $3,258,395 and $ 2,418,007 for the six months ended June 30, 2022 and 2021 , respectively.

Gross profit margin percentage increased to 20% for the six months ended June 30, 2022 compared to 11% for the six months ended June 30, 2021 primarily due to a legacy contract from the acquisition of SG Echo which incurred losses during the six months ended June 30, 2021 from escalations in material pricing related to COVID-19 and labor overages.

Payroll and Related Expenses

Payroll and related expenses for the six months ended June 30, 2022 were $2,355,696 compared to $1,629,186 for the six months ended June 30, 2021.

This increase was primarily caused by an increase of approximately $ 747,740 in stock-based compensation during the six months ended June 30, 2022.

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the six months ended June 30, 2022 were $ 1,811,663 compared to $ 1,874,345 for the six months ended June 30, 2021 .

Other Income (Expense)

Interest income for the six months ended June 30, 2022 was $23,762 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $31,267 of interest income for the six months ended June 30, 2021.

Other income for the six months ended June 30, 2022 was $ 491,309 primarily related to a return of escrow from the SG Echo acquisition.

T here was 61,024 other income for the six months ended June 30, 2021.

Interest expense for the six months ended June 30, 2022 and 2021 was $ 121,975 and $692, respectively.

The increase in interest expense resulted from the notes payable entered into during July 2021.

Income Tax Provision

A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and, accordingly, no income tax benefit was provided.

Impact of Inflation

Inflation has caused increases on some of the Company's estimated costs for construction projects in progress and completed during the past two fiscal years, which has affected the Company's revenue and income(loss) from continuing operations.

Our operations for the three months ended June 30, 2022 and 2021 may not be indicative of our future operations.

Three Months Ended June 30, 2022 and 2021:

For the Three Months Ended June 30, 2022

For the Three Months Ended June 30, 2021

Total Revenue

Total Cost of revenue

Total Payroll and related expenses

Total Operating expenses

1 unchanged sentence

Total Other income (expense)

Total Income (Loss) before income tax

Net profit attributable non-controlling interests

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

During the quarter ended March 31, 2022, we derived revenue from the following three categories of sources:

During the quarter ended June 30, 2022 , we derived revenue from the following three categories of sources:

construction services, engineering services and medical revenue .

The medical revenue source was a new source that commenced operations in the fourth quarter of 2020 and continued with strong revenue related to COVID-19 samples collected from our Clarity Mobile joint venture in the first quarter 2022.

Total revenue for the three months ended March 31, 2022 was $8,604,598 compared to $9,187,627 for the three months ended March 31, 2021.

This decrease of $583,029 or approximately 6 % was mainly driven by a decrease in revenue of approximately $ 1,512,894 in construction revenue partially offset by an increase in medical revenue of $ 929,865.

Total revenue for the three months ended June 30, 2022 was $7,554,971 compared to $ 11,853,987 for the three months ended June 30, 2021 .

This decrease of $4,299,016 or approximately 36% was mainly driven by a decrease in medical revenue of $6,468,104 offset by an increase in construction services which consisted of an increase in office projects of $3, 730,806 , and a decrease in government projects of $1,097,660.

Cost of Revenue and Gross Profit

Cost of revenue was $6,118,163 for the three months ended March 31, 2022, compared to $8,631,002 for the three months ended March 31, 2021.

The decrease of $2,512,839 or a decrease of approximately 29%, was due to lower procurement and manufacturing costs of modifying containers and wood modular units, due to a decrease in the number of construction jobs in progress during the period.

Partially offset by higher medical related testing volumes which required an increase in procurement of COVID-19 tests and testing supplies.

Gross profit was $ 2,486,435 and $ 556,625 for the three months ended March 31, 2022 and 2021, respectively.

Gross profit margin percentage increased to approximately 29% for the three months ended March 31, 2022 compared to approximately 6% for the three months ended March 31, 2021.

Cost of revenue was $6,783,011 for the three months ended June 30, 2022, compared to $9,842,606 for the three months ended June 30, 2021.

The decrease of $ 3,059,595 or a decrease of approximately 31%, is primarily related to lower testing volumes resulting in a decrease in our medical revenue as well as a decrease in cost of goods sold from construction services in the amount of $1,078,868.

Gross profit was $771,960 and $ 2,011,381 for the three months ended June 30, 2022 and 2021, respectively.

Gross profit margin percentage decreased to approximately 10% for the three months ended June 30, 2022 compared to approximately 17% for the three months ended June 30, 2021.

This decrease was primarily from a contract in the amount of $5,954,950 recognizing gross profit of $32,459 on $3,724,226 of revenue during the three months ended June 30, 2022.

Payroll and Related Expenses

Payroll and related expenses for the three months ended March 31, 2022 were $1,144,187 compared to $827,522 for the three months ended March 31, 2021.

This increase was primarily caused by an increase of approximately $362,904 in stock-based compensation expense partially offset by a $46,239 decrease in salaries.

Payroll and related expenses for the three months ended June 30, 2022 were $ 1,211,509 compared to $801,664 for the three months ended June 30, 2021.

This increase was primarily caused by an increase of approximately $384,840 in stock-based compensation expense.

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended March 31, 2022 were 923,356compared to 890,560for the three months ended March 31, 2021 .

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended June 30, 2022 were $ 888,307 c ompared to $1,133,784 for the three months ended June 30, 2021 .

The decrease resulted primarily from a decrease in contract labor costs of approximately $320,000.

Other Income (Expense)

Interest income for the three months ended March 31, 2022 was $12,783 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $17,470 of interest income for the three months ended March 31, 2021.

Interest expense for the three months ended March 31, 2022 and 2021 was $48,849 and $363, respectively.

Interest income for the three months ended June 30, 2022 was $10,979 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $13,797 of interest income for the three months ended June 30, 2021.

Interest expense for the three months ended June 30, 2022 and 2021 was $73,126 and $329, respectively.

Other income for the three months ended June 30, 2022 was $372,407 primarily related to a return of escrow from the SG Echo acquisition.

There was $61,024 other income for the three months ended June 30, 2021 .

Income Tax Provision

1 unchanged sentence

Impact of Inflation

The impact of inflation upon the Company’s revenue and income (loss) from continuing operations during each of the past two fiscal years has not been material to its financial position or results of operations for those years because the Company does not maintain any inventories whose costs are affected by inflation.

Impact of Coronavirus (COVID-19)

10 unchanged sentences

Liquidity and Capital Resources

As of March 31, 2022 and December 31, 2021 , we had an aggregate of $13,146,418 and $13,024,381, respectively, of cash and cash equivalents and short-term investments.

As of June 30, 2022 and December 31, 2021 we had an aggregate of $2,428,211 and $13,024,381, respectively, of cash and cash equivalents and short-term investments.

Historically, our operations have primarily been funded through proceeds from equity and debt financings, as well as revenue from operations.

6 unchanged sentences

In December 2019, we completed the public offering where we issued 857,500 shares of common stock at a public offering price of $3.00 per share resulting in net proceeds of approximately $2,117,948 after deducting underwriting discounts and commissions and other expenses.

In our November 2019 debt financing, we received a cash payment in the aggregate amount of $375,000 pursuant to a Securities Purchase Agreement that we entered into with RedDiamond Partners LLC (the “Lender”), and we issued to the Lender a Debenture (the "Debenture") in the aggregate principal amount of $480,770 (representing an original issue discount of 22%), which Debenture was secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions.

In our November 2019 debt financing, we received a cash payment in the aggregate amount of $375,000 pursuant to a Securities Purchase Agreement that we entered into with Red Diamond Partners LLC (the “Lender”), and we issued to the Lender a Debenture (the "Debenture") in the aggregate principal amount of $480,770 (representing an original issue discount of 22%), which Debenture was secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions.

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

6 unchanged sentences

In May 2020, we sold an aggregate of 6,900,000 shares of our common stock at a public offering price of $2.50 per share and on May 15, 2020, and received total net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $15,596,141.

In October 2021, we see we received aggregate gross proceeds of $11.55 million from our issuance to an investor (A) in a registered direct offering of (i) 975,000 shares of our common stock and (ii) pre-funded warrants to purchase an aggregate of 2,189,384 shares of common stock and (B) in a concurrent private placement Series A warrants to purchase up to 1,898,630 shares of Common Stock.

In October 2021, we received aggregate gross proceeds of $11.55 million from our issuance to an investor (A) in a registered direct offering of (i) 975,000 shares of our common stock and (ii) pre-funded warrants to purchase an aggregate of 2,189,384 shares of common stock and (B) in a concurrent private placement Series A warrants to purchase up to 1,898,630 shares of Common Stock.

We continue to generate losses from operations.

At March 31, 2022 and December 31, 2021 we had a cash balance and short-term investment of $13,146,418 and $13,024,381, respectively.

As of March 31, 2022, our stockholders’ equity was $21,632,603, compared to $21,715,789 as of December 31, 2021.

Our net loss for the three months ended March 31, 2022 was $717,177 and net cash provided by operating activities was $3,257,027.

At June 30, 2022 and December 31, 2021 we had a cash balance and short-term investment of $2,428,211 and $13,024,381, respectively.

As of June 30, 2022, our stockholders’ equity was $20,364,083 compared to $21,715,789 as of December 31, 2021.

Our net loss attributable to common stockholders of SG Blocks, Inc.

for the six months ended June 30, 2022 was $2,132,537 and net cash used in operating activities was $5,362,545.

We anticipate our cash balance is sufficient to last at least twelve months from the date of this Quarterly Report on Form 10-Q.

2 unchanged sentences

Cash Flow Summary

Three Months Ended

Net cash provided by (used in):

Six Months Ended

Net cash used in:

Operating activities

1 unchanged sentence

Financing activities

Net increase (decrease) in cash and cash equivalents

Operating activities provided net cash of $ 3,257,027 during the three months ended March 31, 2022, and used net cash of $2,183,116 during the three months ended March 31, 2021 .

Net decrease in cash and cash equivalents

Operating activities used net cash of $ 5,362,545 during the six months ended June 30, 2022, and used net cash of $ 1,307,944 during the six months ended June 30, 2021.

Generally, our net operating cash flows fluctuate primarily based on changes in our profitability and working capital.

Cash used in operating activities increased by approximately $4,054,601.

Investing activities used net cash of $ 1,860,990 during the three months ended March 31, 2022 , and $990,388 net cash in the three months ended March 31, 2021 an increase in cash used of $870,602.

Financing activities used net cash of $1,274,000 during the three months ended March 31, 2022.

Financing activities provided $703,438 net cash during the three months ended March 31, 2021.

Investing activities used net cash of $ 3,077,625 during the six months ended June 30, 2022, and $ 8,243,216 net cash in the six months ended June 30, 2021 a decrease in cash used of $5,165,591.

This change results primarily from a decrease of $2,941,009 of the purchase of property and equipment during the six months ended June 30, 2022 and $3,350,239 of an investment in and advances to equity affiliates during the six months ended June 30, 2021.

Financing activities used net cash of $2,156,000 during the six months ended June 30, 2022.

Financing activities used $ 1,135,597 net cash during the six months ended June 30, 2021.

This change of $1,020,403 results from the proceeds from conversion of warrants to common stock in the amount of $707,187 during the six months ended June 30, 2021 and an increase of $312,316 of distributions paid to non-controlling interest during the six months ended June 30, 2022.

We provide services to our construction and engineering customers in three separate phases:

2 unchanged sentences

These phases may be embodied in a single contract or in separate contracts, which is typical of a design build process model.

As of March 31, 2022, we had ten projects totaling $7,591,863 under contract.

As of June 30, 2022, we had ten projects totaling $4,183,116 under contract.

Of these contracts, all ten projects combine all three phases or parts thereof and including construction.

1 unchanged sentence

Backlog may fluctuate significantly due to the timing of orders or awards for large projects and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as revenue.

Our backlog increased by approximately $4,373,954 from December 31, 2021 to March 31, 2022.

Our backlog increased by approximately $965,000 from December 31, 2021 to June 30, 2022.

We expect that all of this revenue will be realized by December 31, 2022.

2 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2022 and December 31, 2021 , we had no material off-balance sheet arrangements to which we are a party.

As of June 30, 2022 and December 31, 2021, we had no material off-balance sheet arrangements to which we are a party.

In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector.

4 unchanged sentences

As a result, the estimated fair value of liabilities relating to these provisions is minimal.

Accordingly, we have no liabilities recorded for these provisions as of March 31, 2022 .

Accordingly, we have no liabilities recorded for these provisions as of June 30, 2022 .

Critical Accounting Policies and New Accounting Pronouncements

45 unchanged sentences

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

No revenue has been recognized under the ELA for the three months ended March 31, 2022.

No revenue has been recognized under the ELA for the six months ended June 30, 2022.

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

1 unchanged sentence

In addition, we formed Chicago Airport Testing, LLC which collects rental revenue Included in the consideration we expected to be entitled to receive, we estimate its contractual allowances, payer denials and price concessions.

During the three months ending March 31, 2022, we recognized $6,885,829 in revenue related to activities through the JV, which is included in medical revenue on the accompanying consolidated statements of operations.

During the six months ended June 30, 2022, we recognized $10,203,215 in revenue related to activities through the JV, which is included in medical revenue on the accompanying consolidated statements of operations.

Critical Accounting Policies (continued)

2 unchanged sentences

Our evaluation of goodwill completed during the year ended December 31, 2021, resulted in no impairment loss.

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

There was no impairment during the six months ended June 30, 2022.

Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years, $97,164 of trademarks which is being amortized over 5 years, $47,800 of website fees which is being amortized over 5 years.

Our evaluation of intangible assets for impairment during the year ended December 31, 2021, determined that there were no impairment losses.

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

There was no impairment during the six months ended June 30, 2022.

New Accounting Pronouncements

22 unchanged sentences

Three Months Ended

March 31, 2022

June 30, 2022

Three Months Ended

March 31, 2021

June 30, 2021

Six Months Ended

June 30, 2022

Six Months Ended

June 30, 2021

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

Addback interest expense

8 unchanged sentences

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 2. Management’s Discussion and Analysis