What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-16 compared with 2022-08-15 · 84 added, 72 removed, 257 unchanged (38% of the section changed)

14 unchanged sentences

Factors that could cause or contribute to such differences include, but are not limited to:

general economic, political and financial conditions, both in the United States and internationally;

general economic, political and financial conditions, includ ing inflatio n, b oth in the United States and internationally;

our ability to obtain additional financing on acceptable terms, if at all, or to obtain additional capital in other ways;

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The Company will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Company.

We operate in the following four segments:

(i) manufacturing;

(ii) medical;

(ii) real estate development;

and (iv) environmental.

The manufacturing segment designs and constructs modular structures built in our factories.

In the medical segment we use our modular technology to provide turnkey solutions to medical testing and treatment and generates revenue from the medical testing.

Our real estate development segment builds innovative and green single or multifamily projects in underserved regions nationally using modules built in one of our vertically integrated factories.

The environmental segment, the newest segment, is a sustainable medical and waste management solution that collects waste and treats waste for safe disposal.

We are a provider of Modular (as defined below) facilities.

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We have supplied our building modular coronavirus testing centers and provide testing services for Los Angeles International Airport (LAX), Memorial in Wayne County, Michigan and have been selected as a Trusted Testing Partner (TTP) for Hawaii’s COVID-19 travel testing program.

Due to the ongoing lower affects of COVID-19 restrictions, our joint venture with Clarity Labs is being wound down during the fourth quarter of 2022.

In September 2020, we acquired substantially all the assets of Echo, a Texas limited liability com pany, except for Echo's real estate holdings for which we obtained a right of first refusal.

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This acquisition has allowed us to expand our reach for our Modules and has offered us an opportunity to vertically integrate a large portion of our cost of goods sold, as well as increase margins, productivity and efficiency in the areas of design, estimating, manufacturing and delivery.

In addition, during 2021 , we formed SGB Development Corp.

(“SG DevCorp”), which is our wholly-owned subsidiary.

SG DevCorp was formed with the purpose of real property development utilizing our technologies.

SG DevCorp develops, co-develops builds and finances single and multi family homes in underserved regions nationally using modules built in one of our vertically integrated factories .

SG DevCorp has a minority interest in Norman Berry II Owners LLC and JDI-Cumberland Inlet LLC.

Results of Operations

Six Months Ended June 30, 2022 and 2021:

For the Six Months Ended June 30, 2022

For the Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 and 2021:

For the Nine Months Ended September 30, 2022

For the Nine Months Ended September 30, 2021

Total Revenue

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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:

During the nine months ended September 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.

Total revenue for the nine months ended September 30, 2022 was $20,289,826 compared to $29,889,104 for the nine months ended September 30, 2021.

This decrease of $9,599,278 or approximately 32.1% was mainly driven by a decrease in medical revenue of $12,265,124, offset by an increase in construction services which consisted an increase in office projects of $5,591,942, a decrease in government projects of $2,257,154 and a decrease of special use projects of $1,809,838.

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.

Cost of revenue was $17,196,605 for the nine months ended September 30, 2022, compared to $27,797,993 for the nine months ended September 30, 2021.

The decrease of $10,601,388 or a decrease of approximately 38%, 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 $ 1,780,066.

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.

Gross profit was $3,093,221 and $ 2,091,111 for the nine months ended September 30, 2022 and 2021 , respectively.

Gross profit margin percentage increased to 15.25% for the nine months ended September 30, 2022 compared to 7% for the nine months ended September 30, 2021 primarily due to a legacy contract from the acquisition of SG Echo which incurred losses during the nine months ended September 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.

Payroll and related expenses for the nine months ended September 30, 2022 were $3,650,553 compared to $2,665,097 for the nine months ended September 30, 2021.

This increase was primarily caused by an increase of approximately $1,096,200 in stock-based compensation during the nine months ended September 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 operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the nine months ended September 30, 2022 were $ 2,853,818 compared to $ 3,238,146 for the nine months ended September 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.

Interest income for the nine months ended September 30, 2022 was $33,518 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $41,240 of interest income for the nine months ended September 30, 2021.

Other income for the nine months ended September 30, 2022 was $ 488,346 primarily related to a return of escrow from the SG Echo acquisition.

T here was $61,477 of other income for the nine months ended September 30, 2021.

Interest expense for the nine months ended September 30, 2022 and 2021 was $174,733 and $985, respectively.

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

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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

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

Three Months Ended September 30, 2022 and 2021:

For the Three Months Ended September 30, 2022

For the Three Months Ended September 30, 2021

Total Revenue

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Total Payroll and related expenses

Total Operating expenses

Total Operating profit (loss)

Total Other Operating expenses

Total Operating loss

Total Other income (expense)

Total Income (Loss) before income tax

Net profit attributable non-controlling interests

Total Loss before income tax

Net profit (loss) attributable non-controlling interests

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

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

During the quarter ended September 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 second quarter 2022.

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

Total revenue for the three months ended September 30, 2022 was $4,130,257 compared to $ 8,847,490 for the three months ended September 30, 2021 .

This decrease of $4,717,233 or approximately 53% was mainly driven by a decrease in medical revenue of $6,726,886 offset by an increase in construction services which consisted of an increase in hotel projects of $ 1,006,707 and in increase in office projects of $1,316,885 .

Cost of Revenue and Gross Profit (Loss)

Cost of revenue was $4,295,431 for the three months ended September 30, 2022, compared to $9,454,311 for the three months ended September 30, 2021.

The decrease of $5,158,880 or a decrease of approximately 55%, 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 $445,762.

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.

Gross profit (loss) was $(165,174) and $( 606,821 )for the three months ended September 30, 2022 and 2021, respectively.

Gross profit margin percentage in creased to approximately -4% for the three months ended September 30, 2022 compared to approximately -7% for the three months ended September 30, 2021.

This increase was mainly caused by the ability to lower indirect cost of job in production during the three months ended September 30, 2022.

Payroll and Related Expenses

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.

Payroll and related expenses for the three months ended September 30, 2022 were $ 1,294,857 compared to $1,066,486 for the three months ended September 30, 2021.

This increase was primarily caused by an increase of approximately $348,000 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 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 operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended September 30, 2022 were $ 1,042,155 c ompared to $1,053,301 for the three months ended September 30, 2021 .

Other Income (Expense)

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 .

Interest income for the three months ended September 30, 2022 was $9,756 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $9,973 of interest income for the three months ended September 30, 2021.

Interest expense for the three months ended September 30, 2022 and 2021 was $52,758 and $293, respectively.

Other income (expense) for the three months ended September 30, 20 22 and 2021 was $( 2,963) and $453, respectively .

Income Tax Provision

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Liquidity and Capital Resources

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.

As of September 30, 2022 and December 31, 2021 we had an aggregate of $ 2,118,169 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.

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Liquidity and Capital Resources (continued)

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 December 2019, we completed a 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 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.

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We continue to generate losses from operations.

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.

At September 30, 2022 and December 31, 2021 we had a cash balance and short-term investment of $2,118,169 and $13,024,381, respectively.

As of September 30, 2022, our stockholders’ equity was $18,312,626 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.

for the nine months ended September 30, 2022 was $4,568,120 and net cash used in operating activities was $ 5,553,160 .

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

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Cash Flow Summary

Six Months Ended

Nine Months Ended

September 30,

Net cash used in:

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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.

Operating activities used net cash of $ 5,553,160 during the nine months ended September 30, 2022, and used net cash of $ 1,032,417 during the nine months ended September 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 $ 4,5 20,743 .

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.

Investing activities used net cash of $ 3,549,372 during the nine months ended September 30, 2022, and $ 8,283,525 net cash during th e nine months ended September 30, 2021 a decrease in cash used of $ 4,734,153 .

This change results primarily from a decrease of $2,810,094 of the purchase of property and equipment during the nine months ended September 30, 2022 and $3,350,239 of an investment in and advances to equity affiliates during the nine months ended September 30, 2021.

Financing activities used net cash of $1,803,680 during the nine months ended September 30, 2022.

Financing activities used $ 403,712 net cash during the nine months ended September 30, 2021.

This change of $ 1,399,968 results from the proceeds from conversion of warrants to common st ock having a value of $707,188 durin g the nine months ended September 30, 20 21 and a decrease of $805,134 of distributions paid to non-controlling interest during the nine months ended September 30, 2022.

In addition, during the nine months ended September 30, 2022 we received $500,000 from proceeds of short-term notes payable.

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

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

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.

As of September 30, 2022, we ha d eleven projects totaling $2,585,012 under contract .

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

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

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 $965,000 from December 31, 2021 to June 30, 2022.

Our backlog decreased by approximately $633,000 from December 31, 2021 to September 30, 2022.

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

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Off-Balance Sheet Arrangements

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

As of September 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.

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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 June 30, 2022 .

Critical Accounting Policies and New Accounting Pronouncements

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

Critical Accounting Estimates

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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 six months ended June 30, 2022.

No revenue has been recognized under the ELA for the nine months ended September 30, 2022.

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

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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 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.

During the nine months ended September 30, 2022, we recognized $11,640,953 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)

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

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

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

There was no impairment during the nine months ended September 30, 2022.

New Accounting Pronouncements

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Three Months Ended

June 30, 2022

September 30, 2022

Three Months Ended

June 30, 2021

Six Months Ended

June 30, 2022

Six Months Ended

June 30, 2021

September 30, 2021

Nine Months Ended

September 30, 2022

Nine Months Ended

September 30, 2021

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

3 unchanged sentences

EBITDA (non-GAAP)

Addback loss on asset disposal

Addback litigation expense

4 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