UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 001-38037 SG BLOCKS, INC. (Exact name of registrant as specified in its charter) | Delaware | 95-4463937 | | --- ...

SG Blocks, Inc. (NASDAQ:SGBX) Q2 2021 Earnings Conference Call August 16, 2021 4:30 AM ET Company Participants Stephen Swett - IR Paul Galvin - Chairman and CEO Gerald Sheeran - Acting CFO Conference Call Participants Operator Today and welcome to SG Blocks Second Quarter 2021 Earnings Conference Call and Webcast. Today's conference call is being recorded. At this time, I would like to turn the call over to Stephen Swett of investor relations. Thank you, you may begin. Stephen Swett Good afternoon. Thank yo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 001-38037 SG BLOCKS, INC. (Exact name of registrant as specified in its charter) | Delaware | 95-4463937 | | --- | -- ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) SG Blocks reported a significant revenue increase to $9.2 million, primarily from new medical services, despite a widened net loss of $2.0 million [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly increased to $27.2 million, with cash decreasing to $10.5 million, while total liabilities rose to $9.0 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2021 ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | **Current Assets** | | | | Cash and cash equivalents | 10,540,290 | 13,010,356 | | Accounts receivable, net | 3,216,907 | 2,635,608 | | Total current assets | 17,844,168 | 18,298,019 | | **Total Assets** | **27,248,284** | **26,882,098** | | **Current Liabilities** | | | | Accounts payable and accrued expenses | 6,024,738 | 3,961,961 | | Total current liabilities | 7,812,586 | 7,234,681 | | **Total Liabilities** | **8,965,187** | **8,444,275** | | **Total Stockholders' Equity** | **18,283,097** | **18,437,823** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenue surged to $9.2 million, driven by medical services, but increased operating expenses led to a widened net loss of $2.0 million Condensed Consolidated Statements of Operations (Unaudited) | Line Item | Three Months Ended Mar 31, 2021 ($) | Three Months Ended Mar 31, 2020 ($) | | :--- | :--- | :--- | | **Total Revenue** | **9,187,627** | **198,756** | | Construction services | 3,137,715 | 89,341 | | Medical revenue | 5,955,963 | — | | **Gross Profit** | **1,208,181** | **45,981** | | Total Operating Expenses | 2,369,638 | 795,460 | | **Operating Loss** | **(1,161,457)** | **(749,479)** | | **Net Loss** | **(1,144,350)** | **(747,427)** | | Net loss attributable to common stockholders | (2,033,877) | (747,427) | | **Net Loss Per Share (Basic & Diluted)** | **(0.23)** | **(0.64)** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to $2.2 million, leading to a $2.5 million decrease in cash, ending at $10.5 million Condensed Consolidated Statements of Cash Flows Summary (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2021 ($) | Three Months Ended Mar 31, 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (2,183,116) | (1,026,812) | | Net cash used in investing activities | (990,388) | (400,000) | | Net cash provided by financing activities | 703,438 | 199,878 | | **Net decrease in cash and cash equivalents** | **(2,470,066)** | **(1,226,934)** | | Cash and cash equivalents - end of period | 10,540,290 | 398,737 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business expansion into medical services and modular manufacturing, a $22.9 million construction backlog, ongoing legal proceedings, and a subsequent land acquisition - The company has diversified its business, adding a significant medical revenue stream through a joint venture with Clarity Lab Solutions for COVID-19 testing and forming Chicago Airport Testing LLC (CAT)[24](index=24&type=chunk)[25](index=25&type=chunk)[48](index=48&type=chunk) - The company's construction backlog was approximately **$22.9 million** as of March 31, 2021, with **$10.0 million** expected to convert to revenue within one year and **$12.9 million** within one to two years[31](index=31&type=chunk)[115](index=115&type=chunk)[118](index=118&type=chunk) Revenue by Customer Type (Q1 2021 vs Q1 2020) | Revenue Category | Q1 2021 ($) | Q1 2020 ($) | | :--- | :--- | :--- | | Construction and Engineering Services | 3,231,664 | 198,756 | | Medical Revenue (lab testing, kit sales) | 5,955,963 | — | | **Total Revenue** | **9,187,627** | **198,756** | - The company is involved in several legal proceedings, including litigation with Pizzarotti, Teton Buildings, HOLA Community Partners, and a former employee. The company is unable to predict the outcome or potential loss and has not recorded any provisions for these matters[151](index=151&type=chunk)[158](index=158&type=chunk)[164](index=164&type=chunk) - Subsequent to the quarter's end, the company acquired a **50-acre** site in Lago Vista, Texas for **$3.5 million** in cash, planning to develop a condominium project[181](index=181&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Result%20of%20Operations) Management attributes a **4,523%** revenue increase to the new medical segment, despite a gross profit margin decline to **13.2%** and an Adjusted EBITDA loss of **$1.5 million** - The company's business model has evolved to include a royalty fee model for residential construction, direct project-based construction, and a new, rapidly growing medical segment focused on COVID-19 diagnostic services[186](index=186&type=chunk)[187](index=187&type=chunk) - Total revenue for Q1 2021 was **$9,187,627**, an increase of **$8,988,871 (4523%)** from Q1 2020, primarily driven by approximately **$5.9 million** in new medical revenue[195](index=195&type=chunk) - Gross profit margin decreased to **13.2%** in Q1 2021 from **23.1%** in Q1 2020, primarily due to a **$1.0 million** loss on a legacy contract from the SG Echo acquisition[198](index=198&type=chunk) - The company had a cash balance of **$10,540,290** as of March 31, 2021, and management anticipates this is sufficient to fund operations for at least the next twelve months[214](index=214&type=chunk) Non-GAAP Reconciliation: Net Loss to Adjusted EBITDA | Metric | Three Months Ended Mar 31, 2021 ($) | Three Months Ended Mar 31, 2020 ($) | | :--- | :--- | :--- | | Net loss | (2,033,877) | (747,427) | | EBITDA (non-GAAP) | (1,909,191) | (702,078) | | **Adjusted EBITDA (non-GAAP)** | **(1,541,786)** | **(526,576)** | [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the company - Not applicable[244](index=244&type=chunk) [Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed ineffective due to a material weakness in financial reporting, with remediation efforts underway including hiring senior accounting personnel - Management concluded that disclosure controls and procedures were **not effective** as of the end of the period[245](index=245&type=chunk) - A material weakness was identified related to the timely closing of accounting records and technical accounting for complex transactions[247](index=247&type=chunk) - Remediation steps include hiring two additional senior accounting personnel to strengthen the financial closing process and oversight[249](index=249&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 16 of the financial statements - Information regarding legal proceedings is incorporated by reference from "Note 16 - Commitments and Contingencies" in the financial statements section of the report[253](index=253&type=chunk) [Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) Key risks include a going concern doubt due to historical losses, significant customer concentration, the non-guaranteed nature of the $22.9 million backlog, and potential stockholder dilution - The company's history of losses and cash usage raises substantial doubt about its ability to continue as a going concern if it cannot increase sales or raise additional capital[255](index=255&type=chunk)[256](index=256&type=chunk) - Significant customer concentration risk exists, as two customers generated approximately **80%** of total revenue for the three months ended March 31, 2021[257](index=257&type=chunk) - The construction backlog of **$22.9 million** as of March 31, 2021 is not necessarily indicative of future revenues, as contracts can be canceled, terminated, or suspended at the customer's discretion[259](index=259&type=chunk) - There is a risk of dilution for existing stockholders due to a significant number of outstanding options, warrants, and restricted stock units[261](index=261&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities have been reported that were not previously disclosed - None that have not been previously disclosed[263](index=263&type=chunk) [Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[264](index=264&type=chunk) [Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[265](index=265&type=chunk) [Other Information](index=53&type=section&id=Item%205.%20Other%20Information) No information was provided under this item [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications - The report includes certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[268](index=268&type=chunk)

SG Blocks, Inc. (NASDAQ:SGBX) Q1 2021 Results Earnings Conference Call May 17, 2021 4:30 PM ET Company Participants Stephen Swett - Investor Relations Paul Galvin - Chief Executive Officer Conference Call Participants Operator Good day and welcome to SG Blocks’ Incorporated First Quarter 2021 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Stephen Swett of Investor Relations. Please go ahead. Stephen Swett Good afternoon ...

SG Blocks, Inc. (NASDAQ:SGBX) Q4 2020 Earnings Conference Call April 15, 2021 4:30 PM ET Company Participants Stephen Swett - Investor Relations Gerald Sheeran - Chief Financial Officer Paul Galvin - Chief Executive Officer Conference Call Participants Operator Good day and welcome to SG Blocks’ Fourth Quarter and Full Year 2020 Earnings Conference Call and Webcast. Today's conference call is being recorded. At this time, I would like to turn the conference over to Mr. Stephen Swett of Investor Relations. T ...

PART I [Item 1. Business.](index=7&type=section&id=Item%201.%20Business.) SG Blocks provides modular facilities, evolving its business model to include residential royalty fees and healthcare solutions, leveraging GreenSteel™ technology and vertical integration [History and Company Overview](index=7&type=section&id=History%20and%20Company%20Overview) SG Blocks provides modular facilities, acquired Echo DCL for manufacturing control, and expanded into healthcare solutions, including COVID-19 testing - SG Blocks provides modular facilities ("Modules") for multi-family housing, military, and restaurant use, manufactured using proprietary technology and design expertise[25](index=25&type=chunk) - In September 2020, the company acquired Echo DCL, LLC, a key supply chain provider, to gain more control over manufacturing and expand product offerings to include wood containers[25](index=25&type=chunk)[28](index=28&type=chunk) - Since March 2020, the company increased its focus on providing Modules as healthcare facilities for deployable medical response solutions and partnered with Clarity Lab Solutions for laboratory testing services[25](index=25&type=chunk)[27](index=27&type=chunk) [License Agreement with CPF GP 2019-1 LLC](index=8&type=section&id=License%20Agreement%20with%20CPF%20GP%202019-1%20LLC) SG Blocks entered an exclusive five-year license agreement with CPF for GreenSteel™ technology in residential use, establishing a royalty-fee revenue model - In October 2019, SG Blocks entered into a five-year exclusive license agreement with CPF GP 2019-1 LLC (CPF) for its GreenSteel™ technology and intellectual property for residential use in the United States, excluding military housing[30](index=30&type=chunk) - Under this royalty fee model, SG Blocks' revenue for residential construction is generated from royalties based on CPF's gross revenue from sales of products utilizing the licensed technology[30](index=30&type=chunk) Minimum Cumulative Royalty Payments to SG Blocks from CPF | Year | Minimum Royalty Payment | | :--- | :---------------------- | | 1 | $500,000 | | 2 | $750,000 | | 3 | $1,500,000 | | 4 | $2,000,000 | | 5 | $2,500,000 | - No royalty payments were received under the License Agreement during the year ended December 31, 2020[31](index=31&type=chunk) [Distribution Agreement with Osang](index=9&type=section&id=Distribution%20Agreement%20with%20Osang) SG Blocks entered a non-exclusive distribution agreement with Osang for COVID-19 PCR tests, which did not yield anticipated benefits, leading to a breach of contract lawsuit - In April 2020, SG Blocks entered a non-exclusive distributorship agreement with Osang Healthcare Co Ltd for its GeneFinder™ COVID-19 Plus RealAmp Kit™ PCR tests in the United States[34](index=34&type=chunk) - The Distribution Agreement has not yielded anticipated benefits or generated significant revenue by the end of 2020[34](index=34&type=chunk) - On April 14, 2021, SG Blocks filed a lawsuit against Osang for breach of contract and fraud, seeking damages of **$12 to $15 million**[35](index=35&type=chunk) [Joint Development Agreement with Grimshaw](index=9&type=section&id=Joint%20Development%20Agreement%20with%20Grimshaw) SG Blocks partnered with Grimshaw Design to develop scalable medical and educational facilities, leading to a subcontract for COVID-19 PCR testing facilities - In May 2020, SG Blocks entered a Joint Development Agreement with Grimshaw Design, LLC to develop scalable, customizable, and rapidly deployable medical facilities with laboratory systems[36](index=36&type=chunk) - The partnership expanded in July 2020 to include the development of rapidly deployable educational facilities[37](index=37&type=chunk) - In November 2020, SG Blocks was engaged as a sub-contractor for Wayne County, Michigan, to deploy D-Tec Product Series prefabricated health facilities for COVID-19 PCR testing[38](index=38&type=chunk) [Joint Venture with Clarity Lab Solutions, LLC](index=10&type=section&id=Joint%20Venture%20with%20Clarity%20Lab%20Solutions%2C%20LLC) SG Blocks formed Clarity Mobile Venture with Clarity Labs to market lab testing products and services, securing contracts for COVID-19 testing at LAX and in Hawaii - In August 2020, SG Blocks formed Clarity Mobile Venture, a joint venture with Clarity Labs, a CLIA-certified laboratory, to jointly market, sell, and distribute lab testing products and services[40](index=40&type=chunk) - Clarity Mobile Venture secured a contract with the City of Los Angeles to operate a full-service modular COVID-19 PCR Test Laboratory at Los Angeles International Airport (LAX)[40](index=40&type=chunk) - The State of Hawaii selected Clarity Labs and Clarity Mobile Venture as a Trusted Testing Partner (TTP) for its COVID-19 travel testing program[40](index=40&type=chunk) [Acquisition of Echo DCL, LLC](index=10&type=section&id=Acquisition%20of%20Echo%20DCL%2C%20LLC) SG Blocks acquired Echo DCL, LLC for **$1,059,600** to vertically integrate manufacturing, expand product reach, and enhance margins and efficiency - In September 2020, SG Blocks acquired substantially all assets of Echo DCL, LLC, a container/modular manufacturer, for **$1,059,600** in cash[41](index=41&type=chunk)[42](index=42&type=chunk) - The acquisition aims to expand the reach of Modules, vertically integrate a large portion of cost of goods sold, and increase margins, productivity, and efficiency in design, estimating, manufacturing, and delivery[28](index=28&type=chunk)[41](index=41&type=chunk) [Recent Developments](index=10&type=section&id=Recent%20Developments) Recent developments include a new COO appointment, formation of SGB Development Corp. for real estate projects, a 225-apartment unit project in Austin, and the option to acquire Echo's 19-acre real estate holdings - William B. Rogers was appointed Chief Operations Officer effective December 7, 2020, with an annual salary of **$300,000** and an annual bonus of up to **50%** of his salary[43](index=43&type=chunk) - On February 17, 2021, SGB Development Corp. was formed for real property development utilizing company technologies, with SG Echo manufacturing the homes and apartments[44](index=44&type=chunk) - SGB Dev Co announced a 225-apartment unit project in Austin, Texas, with estimated manufacturing revenue of approximately **$30 million** and a profit share of **$5 to $7 million** over 36 months[45](index=45&type=chunk) - On February 24, 2021, the company executed its option to acquire Echo's 19-acre real estate holdings in Durant, OK, with closing expected in Q2 2021[46](index=46&type=chunk) [Products Produced with Our GreenSteel™ Modular Technology](index=11&type=section&id=Products%20Produced%20with%20Our%20GreenSteel%E2%84%A2%20Modular%20Technology) The company's proprietary GreenSteel™ technology modifies cargo shipping containers into sustainable, durable, and rapidly erectable building blocks, offering three core product types - The company's proprietary GreenSteel™ technology and expertise modify code-engineered cargo shipping containers into SGBlocks™, which are safe, green building blocks for commercial, industrial, and residential construction[26](index=26&type=chunk)[47](index=47&type=chunk) - Products developed with this technology are generally stronger, more durable, environmentally sensitive, and erected faster than traditional construction, typically providing **4-6 points** towards LEED certification[47](index=47&type=chunk) - Three core product offerings range from structural core and shell (GreenSteel Modules) to partially finished containers with selected materials, and completely fabricated and finished SG Blocks buildings ready for occupancy[48](index=48&type=chunk) [Other Modular Products](index=11&type=section&id=Other%20Modular%20Products) The Echo facility also produces pre-fabricated wood-based modular containers for residential and commercial use, accounting for approximately **65%** of recent Module sales - At its Echo facility, the company also produces pre-fabricated modular containers using wood as the base material, for both residential and commercial use[49](index=49&type=chunk) - Since the acquisition of Echo, approximately **65%** of the company's Module sales have been for wood-based modules[49](index=49&type=chunk) [ESR Approval](index=11&type=section&id=ESR%20Approval) SG Blocks received an Evaluation Service Report (ESR) for its structural building materials, confirming compliance with building codes and expediting project approvals - In April 2017, the company received an Evaluation Service Report (ESR) from ICC Evaluation Service, LLC (ICC-ES) for its SGBlocks structural building materials, believed to be the first modular building company to receive such certification[50](index=50&type=chunk) - The ESR indicates suitability and technical capabilities in compliance with International, California, and Florida Building Codes, expediting reviews and approvals[50](index=50&type=chunk) - The ESR is site-specific, with six of 18 facilities currently approved to place the ICC-ES medallion, undergoing annual inspections[51](index=51&type=chunk) [Target Markets](index=12&type=section&id=Target%20Markets) The company targets diverse markets including housing, military, healthcare, and education, with future expansion planned for data centers and medical facilities - Target markets for products utilizing the company's technology and expertise include single-family and multi-family housing, restaurants, military, education/student housing, healthcare, equipment enclosures, office, commercial, athletic facilities, and administration facilities[54](index=54&type=chunk)[56](index=56&type=chunk) - Future target markets for expansion include data centers, warehouse/public storage, reclamation/drop-off centers, and medical facilities[54](index=54&type=chunk) [Our Competitive Strengths](index=12&type=section&id=Our%20Competitive%20Strengths) Competitive strengths include ESR certification, cost and time savings, hurricane/tornado/earthquake resistance, design flexibility, and vertical integration through the Echo acquisition - The company distinguishes itself through its ESR, quality, cost, and construction time savings, with proprietary methods being less expensive and faster than traditional construction, especially in urban and multi-story projects[57](index=57&type=chunk) - SGBlocks are designed to be hurricane-, tornado-, and earthquake-resistant, and their flexibility and stackability allow for customized designs[57](index=57&type=chunk) - The acquisition of Echo has enabled vertical integration of the manufacturing process, reducing cost of goods sold and increasing productivity and efficiency[58](index=58&type=chunk) [Our Customers](index=13&type=section&id=Our%20Customers) The company markets to a broad customer base including contractors, government agencies, and individuals, with significant revenue concentration from a few key customers - The company markets its construction products to a broad customer base, including contractors, home builders, building owners, government agencies, the U.S. Military, and individuals requiring COVID-19 tests[59](index=59&type=chunk) Customer Concentration (as of December 31) | Metric | 2020 | 2019 | | :------------------------------------ | :--- | :--- | | % of gross accounts receivable from 3/1 customers | 79% (3 customers) | 92% (1 customer) | | % of total revenue from 3/2 customers | 61% (3 customers) | 78% (2 customers) | [Our Suppliers and Partners](index=13&type=section&id=Our%20Suppliers%20and%20Partners) The company utilizes standard construction material suppliers and has an exclusive 10-year agreement with ConGlobal Industries for certified shipping containers - The company uses standard materials and suppliers common in conventional construction for modifying container shell structures and finishing modules[60](index=60&type=chunk) - ConGlobal Industries, Inc. is an exclusive supplier of certified shipping containers for housing, office, and retail uses within a 50-mile radius of their sites in the continental United States, under a 10-year agreement through May 14, 2024[61](index=61&type=chunk) [Intellectual Property](index=14&type=section&id=Intellectual%20Property) The company operates under its registered trademarks "SGBlocks," "GreenSteel," and its "SG" logo - The company operates under its United States registered trademarks "SGBlocks" and "GreenSteel" and its trademarked "SG" logo[62](index=62&type=chunk) [Government Regulation and Approval](index=14&type=section&id=Government%20Regulation%20and%20Approval) The company's building design and construction adhere to local and state building codes and is subject to various federal, state, and local regulations - Building design and construction are controlled at the project level by local and state municipalities, adhering to published building codes and criteria[63](index=63&type=chunk) - The company is subject to various federal, state, and local government regulations applicable to its business, including laws related to employees, public health and safety, workplace safety, transportation, zoning, and fire codes[63](index=63&type=chunk) - The company believes it is in compliance in all material respects with existing applicable environmental laws and regulations, and its employment, health, and safety practices[63](index=63&type=chunk) [General Corporate Information](index=14&type=section&id=General%20Corporate%20Information) SG Blocks, Inc. was incorporated in Delaware on December 29, 1993, and its common stock trades on the Nasdaq Capital Market under "SGBX" - SG Blocks, Inc. was incorporated in Delaware on December 29, 1993, and its common stock currently trades on the Nasdaq Capital Market under the symbol "SGBX"[64](index=64&type=chunk) [Our Emergence from Bankruptcy](index=14&type=section&id=Our%20Emergence%20from%20Bankruptcy) The company emerged from Chapter 11 bankruptcy in June 2016 under a Plan of Reorganization, resulting in the issuance of new common stock - The company and its subsidiaries filed for Chapter 11 reorganization in October 2015 and emerged from bankruptcy on June 30, 2016, under a Plan of Reorganization[65](index=65&type=chunk) - Upon emergence, all previously issued and outstanding shares of Former Common Stock were discharged, cancelled, and extinguished, and new common stock was issued to holders[68](index=68&type=chunk) - Prior to its public offering in June 2017, all outstanding shares of preferred stock were converted into common stock, and no preferred stock remains outstanding[69](index=69&type=chunk) [Reverse Stock Split](index=15&type=section&id=Reverse%20Stock%20Split) On February 5, 2020, the company effected a 1-for-20 reverse stock split of its common stock, retroactively restating all share and per share amounts - On February 5, 2020, the company effected a 1-for-20 reverse stock split of its common stock[70](index=70&type=chunk) - All share and per share amounts presented in the Annual Report have been retroactively restated to reflect this split as if it had occurred as of the earliest period presented[70](index=70&type=chunk) [Recent Financing Developments](index=15&type=section&id=Recent%20Financing%20Developments) In April and May 2020, the company completed public offerings, raising approximately **$1.5 million** and **$15.6 million** in net proceeds, respectively - In April 2020, the company completed a public offering, selling 440,000 shares of common stock at **$4.25** per share, resulting in approximately **$1,522,339** in net proceeds[71](index=71&type=chunk) - In May 2020, the company completed another public offering, selling 6,900,000 shares of common stock (including over-allotment) at **$2.50** per share, resulting in approximately **$15,596,141** in net proceeds[72](index=72&type=chunk) [Human Capital](index=15&type=section&id=Human%20Capital) As of December 31, 2020, the company employed fifty full-time employees and implemented health and safety plans in response to the COVID-19 pandemic - As of December 31, 2020, SG Blocks directly employed thirteen full-time employees, and its subsidiary SG Echo directly employed thirty-seven full-time employees[73](index=73&type=chunk) - In response to the COVID-19 pandemic, the company implemented health and safety plans, including work-from-home flexibility, adjusted attendance policies, and increased cleaning protocols[74](index=74&type=chunk) [Available Information](index=16&type=section&id=Available%20Information) The company files reports with the SEC, including Forms 10-K, 10-Q, and 8-K, which are available on its website and the SEC's website - The company is subject to the informational requirements of the Securities Exchange Act of 1934 and files reports with the U.S. Securities and Exchange Commission (SEC)[76](index=76&type=chunk) - Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K are available on the company's website (www.sgblocks.com) and the SEC's website (www.sec.gov)[76](index=76&type=chunk) [Item 1A. Risk Factors.](index=16&type=section&id=Item%201A.%20Risk%20Factors.) The company faces significant risks related to its financial position, operations, and common stock, including capital raising challenges, dilution, historical losses, operational dependencies, internal control weaknesses, industry cyclicality, and market acceptance of modular construction [Risks Related to our Financial Position and Capital Requirements](index=16&type=section&id=Risks%20Related%20to%20our%20Financial%20Position%20and%20Capital%20Requirements) Risks include inability to raise capital, potential stock dilution, historical net losses, and the possibility of goodwill impairment adversely affecting financial condition - The company may be unable to raise needed capital if revenue remains flat or decreases, potentially forcing a reduction in operating expenses and adversely affecting operations[18](index=18&type=chunk)[78](index=78&type=chunk) - The issuance of common stock upon the exercise of outstanding options, warrants, and restricted stock units may dilute the percentage ownership of existing stockholders and make it more difficult to raise additional equity capital[18](index=18&type=chunk)[153](index=153&type=chunk) - The company has incurred net losses in prior periods (**$4.5 million** in 2020, **$6.9 million** in 2019) and cannot assure future income or successful achievement/maintenance of its growth strategy[18](index=18&type=chunk)[81](index=81&type=chunk) - An impairment of goodwill could materially adversely affect financial condition and results of operations; a **$2,938,653** impairment was recognized in 2019, with none in 2020[18](index=18&type=chunk)[82](index=82&type=chunk) [Risks Relating to the Company](index=17&type=section&id=Risks%20Relating%20to%20the%20Company) Company-specific risks include reliance on third-party licensees, limited operating history of new models, dependence on key personnel and major customers, and identified material weaknesses in internal controls - The residential construction business model relies on an independent third-party licensee (CPF), whose commercialization efforts and resource allocation are beyond the company's control, potentially affecting revenue generation[21](index=21&type=chunk)[83](index=83&type=chunk) - The new licensing business model for residential construction and the recent acquisition of Echo have limited operating history, making it difficult to evaluate their impact and assure anticipated cost savings or income[21](index=21&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - The company is dependent on the services of key personnel (Paul M. Galvin, Gerald Sheeran, Stevan Armstrong, William Rogers, Rockey Butler), and the unexpected loss of any could adversely affect operations[21](index=21&type=chunk)[99](index=99&type=chunk) - A few customers accounted for approximately **61%** of the company's total revenue in 2020, and the loss of business from a significant customer could have a material adverse effect[21](index=21&type=chunk)[100](index=100&type=chunk) - The company has identified material weaknesses in its internal controls over financial reporting, including insufficient accounting resources and lack of formal review procedures, which may not be effectively remediated[21](index=21&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) [Risks Relating to our Business and Industry](index=22&type=section&id=Risks%20Relating%20to%20our%20Business%20and%20Industry) Business and industry risks include the cyclical and seasonal nature of construction, reliance on private investment, potential supply chain disruptions, environmental regulations, and cybersecurity threats - The construction industry is highly cyclical and seasonal, influenced by economic factors, causing revenues and operating results to fluctuate, and potentially leading to operating losses during downturns[21](index=21&type=chunk)[115](index=115&type=chunk) - The business relies on private investment, and a slower economy or customers' inability to finance projects could adversely affect sales and financial results[21](index=21&type=chunk)[117](index=117&type=chunk) - Material disruptions at supplier or Echo facilities (e.g., natural disasters, global pandemics, labor difficulties) could prevent meeting customer demand, reduce sales, and negatively affect financial results[21](index=21&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[118](index=118&type=chunk) - The company is subject to environmental, health, and safety laws and regulations, which could lead to liabilities, increased operational costs, or sanctions for non-compliance[21](index=21&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - Cybersecurity risks, including security threats and breaches of information technology systems, could result in misappropriation of data, business disruptions, reputational damage, and financial consequences[21](index=21&type=chunk)[125](index=125&type=chunk)[127](index=127&type=chunk) [Risks Relating to the Construction Sector](index=27&type=section&id=Risks%20Relating%20to%20the%20Construction%20Sector) Construction sector risks include intense competition, uncertainty of modular construction market acceptance, regulatory delays, and inherent operational hazards - The construction industry is highly competitive, and increased competition or consolidation could adversely affect the company's market position and profitability[24](index=24&type=chunk)[132](index=132&type=chunk) - There is no assurance that Modules or modular construction techniques will achieve widespread market acceptance and growth, making the future of the business uncertain[24](index=24&type=chunk)[133](index=133&type=chunk) - Government regulations and legal challenges related to building, zoning, and land use can delay projects, increase expenses, or limit building activities[28](index=28&type=chunk)[135](index=135&type=chunk) - Construction operations involve inherent hazards (personal injury, property damage), and limits on insurance coverage could expose the company to significant liability costs[28](index=28&type=chunk)[136](index=136&type=chunk) [Risks Relating to the Clarity Mobile Venture Sector](index=28&type=section&id=Risks%20Relating%20to%20the%20Clarity%20Mobile%20Venture%20Sector) Risks in the Clarity Mobile Venture sector include uncertain demand for COVID-19 tests, intense competition, and reliance on third-party test suppliers - There is no assurance that the demand for COVID-19 tests conducted by Clarity Mobile Venture will continue at current rates or that existing tests will be effective for new variants of the virus[28](index=28&type=chunk)[137](index=137&type=chunk) - The market for COVID-19 testing facilities is highly competitive, with many competitors possessing substantially greater financial, technical, and other resources[29](index=29&type=chunk)[139](index=139&type=chunk) - Reliance on third-party vendors to supply COVID-19 tests means that an inability to obtain these tests in required volumes or at competitive prices could adversely affect the business[29](index=29&type=chunk)[140](index=140&type=chunk) [Risks Relating to our Common Stock](index=29&type=section&id=Risks%20Relating%20to%20our%20Common%20Stock) Risks related to common stock include potential Nasdaq delisting, price volatility, dilution from future sales, and anti-takeover provisions under Delaware law - Failure to meet Nasdaq Capital Market continued listing requirements (e.g., minimum bid price) could result in delisting, negatively affecting stock price and future capital raising ability[29](index=29&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - The company's stock price has been volatile and is expected to continue fluctuating due to factors beyond its control, potentially leading to investors losing all or part of their investment[30](index=30&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - Sales of a substantial number of common stock shares in the public market, or the perception of such sales, could cause the stock price to decline and dilute existing stockholders' ownership[30](index=30&type=chunk)[150](index=150&type=chunk)[153](index=153&type=chunk) - Certain provisions of Delaware law (Section 203) could discourage, delay, or prevent a merger or acquisition at a premium price[32](index=32&type=chunk)[158](index=158&type=chunk) [Item 1B. Unresolved Staff Comments.](index=33&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) There are no unresolved staff comments to report - The company has no unresolved staff comments[162](index=162&type=chunk) [Item 2. Properties.](index=33&type=section&id=Item%202.%20Properties.) The company maintains its headquarters in leased office space in Brooklyn, New York, and operates a manufacturing facility in Durant, Oklahoma, through its subsidiary Echo - The company leases office space in Brooklyn, New York, for its headquarters[163](index=163&type=chunk) - Echo, a subsidiary, operates a manufacturing facility located in Durant, Oklahoma[163](index=163&type=chunk) [Item 3. Legal Proceedings.](index=33&type=section&id=Item%203.%20Legal%20Proceedings.) The company is involved in various legal proceedings arising in the normal course of business, including a lawsuit filed against Osang Healthcare Company, Ltd. for breach of contract and fraud seeking **$12-$15 million** - The company is subject to certain claims and lawsuits arising in the normal course of business[102](index=102&type=chunk)[164](index=164&type=chunk) - On April 14, 2021, the company filed a lawsuit against Osang Healthcare Company, Ltd. for breach of contract and fraud, seeking damages in the amount of **$12 to $15 million**[35](index=35&type=chunk)[164](index=164&type=chunk) - The company is currently unable to predict the possible loss or range of loss for its ongoing litigations (Pizzarotti, Teton, HOLA, Shetty, Osang) and has made no provision related to these matters in the consolidated financial statements[432](index=432&type=chunk)[443](index=443&type=chunk)[445](index=445&type=chunk)[451](index=451&type=chunk)[453](index=453&type=chunk) [Item 4. Mine Safety Disclosures.](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - This item is not applicable[165](index=165&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.](index=34&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on Nasdaq under "SGBX" with 81 holders, has no dividend policy, and reported no unregistered security sales or share repurchases in 2020 [Market Information](index=34&type=section&id=Market%20Information) The company's common stock is listed and traded on the Nasdaq Capital Market under the symbol "SGBX" - The company's common stock is listed and traded on the Nasdaq Capital Market under the symbol "SGBX"[168](index=168&type=chunk) [Holders](index=34&type=section&id=Holders) As of April 9, 2021, there were approximately 81 holders of record of the company's common stock, with a closing sales price of **$4.10** - As of April 9, 2021, there were approximately 81 holders of record of the company's common stock[168](index=168&type=chunk) - The closing sales price of the common stock on the Nasdaq Capital Market on April 9, 2021, was **$4.10**[168](index=168&type=chunk) [Dividend Policy](index=34&type=section&id=Dividend%20Policy) The company has never paid cash dividends and does not anticipate doing so, intending to retain future earnings for business expansion - The company has never paid any cash dividends on its common stock and does not anticipate paying them in the foreseeable future[169](index=169&type=chunk) - Any future earnings are intended to be retained to finance the development and expansion of the business[156](index=156&type=chunk)[169](index=169&type=chunk) [Recent Sales of Unregistered Securities](index=34&type=section&id=Recent%20Sales%20of%20Unregistered%20Securities) The company did not sell any unregistered securities from January 1, 2020, through December 31, 2020, that were not previously disclosed - The company did not sell any unregistered securities from January 1, 2020, through December 31, 2020, that were not previously disclosed[170](index=170&type=chunk) [Issuer Purchases of Equity Securities](index=34&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) The company did not repurchase any of its outstanding shares during 2020 - The company did not repurchase any of its outstanding shares during 2020[171](index=171&type=chunk) [Performance Graph and Purchases of Equity Securities](index=34&type=section&id=Performance%20Graph%20and%20Purchases%20of%20Equity%20Securities) As a smaller reporting company, the company is not required to provide a performance graph or information on purchases of equity securities - As a smaller reporting company, the company is not required to provide the information for this item[172](index=172&type=chunk) [Transfer Agent and Registrar](index=34&type=section&id=Transfer%20Agent%20and%20Registrar) American Stock Transfer and Trust Company, LLC serves as the transfer agent and registrar for the company's common stock - The transfer agent and registrar for the company's common stock is American Stock Transfer and Trust Company, LLC[173](index=173&type=chunk) [Equity Compensation Plan Information](index=34&type=section&id=Equity%20Compensation%20Plan%20Information) Information regarding equity compensation plans will be provided in the "Equity Compensation Plan" section of the company's 2021 Proxy Statement - The information required by this section will be contained in the "Equity Compensation Plan" section of the company's 2021 Proxy Statement[174](index=174&type=chunk) [Item 6. Selected Financial Data.](index=34&type=section&id=Item%206.%20Selected%20Financial%20Data.) As a smaller reporting company, the company is not required to provide selected financial data - As a smaller reporting company, the company is not required to provide the information for this item[175](index=175&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=35&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section analyzes the company's financial condition and operational results, noting significant 2020 revenue growth from medical projects, business model shifts, improved liquidity from equity offerings, and the impact of COVID-19 [Introduction and Certain Cautionary Statements](index=35&type=section&id=Introduction%20and%20Certain%20Cautionary%20Statements) This discussion should be read with consolidated financial statements and contains forward-looking statements subject to risks and uncertainties - This discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes[176](index=176&type=chunk) - The discussion contains forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially[176](index=176&type=chunk) [Background](index=35&type=section&id=Background) The company uses proprietary technology for modular construction, shifted to a residential royalty model, expanded into healthcare facilities, and acquired Echo DCL for vertical integration - The company modifies cargo shipping containers and purpose-built modules using proprietary technology for safe and sustainable commercial, industrial, and residential building construction[177](index=177&type=chunk) - In October 2019, the residential building construction business model shifted to a royalty fee model through an exclusive license with CPF, where revenue is generated from royalties rather than direct sales[178](index=178&type=chunk) - Since March 2020, the company increased its focus on providing Modules as healthcare facilities for deployable medical response solutions, including a joint venture with Clarity Labs for testing services[181](index=181&type=chunk) - In September 2020, the company acquired substantially all assets of Echo DCL, LLC to vertically integrate manufacturing, expand product reach, and increase margins and efficiency[182](index=182&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) The results of operations detail revenue, cost of revenue, gross profit, operating expenses, and net loss, highlighting key changes between 2019 and 2020 Consolidated Statements of Operations Highlights | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :------------------------------------------ | :---------------------- | :---------------------- | | Total Revenue | $8,755,623 | $2,984,835 | | Total Cost of Revenue | $6,535,444 | $2,307,488 | | Gross Profit | $2,220,179 | $677,347 | | Total Operating Expenses | $6,803,011 | $7,381,359 | | Operating Loss | $(4,582,832) | $(6,704,012) | | Net Loss | $(4,508,162) | $(6,920,540) | | Net Loss Attributable to Common Stockholders | $(4,692,729) | $(6,920,540) | | Basic and Diluted EPS | $(0.79) | $(22.85) | | Weighted Average Shares Outstanding | 5,959,403 | 302,844 | [Revenue](index=38&type=section&id=Revenue) Total revenue significantly increased in 2020, primarily driven by growth in medical-related projects, including COVID-19 test samples and medical construction sales - Total revenue for the year ended December 31, 2020, increased by **$5,770,788** (**193%**) to **$8,755,623** from **$2,984,835** in 2019[187](index=187&type=chunk) - This increase was primarily due to growth in medical-related projects of approximately **$5,020,000**, including **$4,241,500** from COVID-19 test samples and kits, and **$778,500** from medical construction sales[187](index=187&type=chunk) - Revenue from construction services increased by **$1,295,936**, with increases in government, special use, and hospitality projects, partially offset by decreases in retail and office customer types[187](index=187&type=chunk) [Cost of Revenue and Gross Profit](index=38&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit) Cost of revenue increased due to higher procurement of medical supplies and manufacturing costs, leading to an increase in gross profit and gross profit percentage - Cost of revenue increased by **$4,227,956** (**183%**) to **$6,535,444** in 2020 from **$2,307,488** in 2019, mainly due to higher procurement of COVID-19 testing supplies and medical equipment, and increased manufacturing costs for modular units[188](index=188&type=chunk) - Gross profit increased to **$2,220,179** in 2020 from **$677,347** in 2019[189](index=189&type=chunk) - Gross profit percentage increased to **25%** in 2020 from **23%** in 2019, primarily due to higher margins on lab testing and other medical-related construction contracts[189](index=189&type=chunk) [Payroll and Related Expenses](index=38&type=section&id=Payroll%20and%20Related%20Expenses) Payroll and related expenses increased in 2020, primarily due to higher stock-based compensation expense and increased non-chargeable production salaries - Payroll and related expenses increased to **$2,992,207** in 2020 from **$2,392,587** in 2019[190](index=190&type=chunk) - This increase was primarily driven by an approximately **$488,000** increase in stock-based compensation expense and a **$102,000** increase in non-chargeable production salaries[190](index=190&type=chunk) [Other Operating Expenses](index=38&type=section&id=Other%20Operating%20Expenses) Other operating expenses decreased in 2020 due to no goodwill impairment loss, partially offset by increased general and administrative expenses - Other operating expenses decreased to **$3,810,804** in 2020 from **$4,988,722** in 2019[191](index=191&type=chunk) - The decrease was primarily due to no goodwill impairment loss recognized in 2020, compared to an impairment loss of approximately **$2,938,000** in 2019[191](index=191&type=chunk) - This decrease was partially offset by a **$1,661,573** increase in general and administrative expenses, including higher rent, depreciation, legal fees, insurance, supplies, IT, and consulting services[191](index=191&type=chunk) [Other Income (Expense)](index=39&type=section&id=Other%20Income%20%28Expense%29) Total other income significantly improved in 2020, driven by interest income from bank interest and notes receivable, and a decrease in interest expense - Total other income (expense) was **$74,670** in 2020, a significant improvement from **$(216,528)** in 2019[186](index=186&type=chunk) - Interest income was **$61,675** in 2020 (none in 2019), mainly derived from bank interest and an outstanding note receivable[193](index=193&type=chunk) - Interest expense decreased to **$9,275** in 2020 from **$178,995** in 2019[193](index=193&type=chunk) [Income Tax Provision](index=39&type=section&id=Income%20Tax%20Provision) A **100%** valuation allowance was provided against the deferred tax asset, resulting in no income tax benefit for 2020 and 2019 - A **100%** valuation allowance was provided against the deferred tax asset, resulting in no income tax benefit for the years ended December 31, 2020 and 2019[194](index=194&type=chunk) [Impact of Inflation](index=39&type=section&id=Impact%20of%20Inflation) The impact of inflation on the company's revenue and income (loss) has not been material due to the absence of inventories significantly affected by inflation - The impact of inflation on the company's revenue and income (loss) has not been material due to the absence of inventories whose costs are significantly affected by inflation[195](index=195&type=chunk) [Impact of Coronavirus (COVID-19)](index=39&type=section&id=Impact%20of%20Coronavirus%20%28COVID-19%29) The company implemented business continuity plans to mitigate COVID-19 impacts, but project delays are expected to affect revenue and operations, with unpredictable size and duration - The company implemented business continuity plans to address and mitigate the impact of the COVID-19 pandemic on its employees and business[196](index=196&type=chunk) - The company has experienced project delays due to COVID-19, which is expected to impact revenue and results of operations, with the size and duration currently unpredictable[196](index=196&type=chunk) - The pandemic could lead to an economic downturn, affecting customer financing, product demand, and potentially causing labor shortages or supplier disruptions[196](index=196&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved significantly in 2020 due to substantial equity offerings, supporting a growing construction backlog, despite historical operating losses Cash and Stockholders' Equity (2019-2020) | Metric | December 31, 2020 | December 31, 2019 | | :--------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $13,010,356 | $1,625,671 | | Stockholders' equity | $18,253,256 | $4,360,149 | | Net loss | $(4,508,162) | $(6,920,540) | | Net cash used in operating activities | $(2,887,950) | $(2,815,621) | - Historically, operations have been funded through equity and debt financings, and revenue; substantial cash was raised through public offerings in April and May 2020 (approximately **$1.5 million** and **$15.6 million** net proceeds, respectively)[198](index=198&type=chunk)[204](index=204&type=chunk)[206](index=206&type=chunk) - The company anticipates continued operating losses and may need additional revenues or financing (debt or equity) to fund future growth, which may not be available on favorable terms[207](index=207&type=chunk)[208](index=208&type=chunk) - As of December 31, 2020, the company had a backlog of 21 signed construction and engineering contracts totaling **$25,117,461**, expected to be realized by September 30, 2022[209](index=209&type=chunk)[210](index=210&type=chunk) [Off-Balance Sheet Arrangements](index=42&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no material off-balance sheet arrangements as of December 31, 2020 and 2019, but enters into ordinary course indemnification agreements - As of December 31, 2020 and 2019, the company had no material off-balance sheet arrangements[213](index=213&type=chunk) - The company enters into indemnification agreements in the ordinary course of business, with unlimited maximum potential future payments, but has not incurred material costs to date[214](index=214&type=chunk) [Critical Accounting Policies and New Accounting Pronouncements](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20New%20Accounting%20Pronouncements) This section outlines critical accounting policies, including share-based payments, convertible instruments, and revenue recognition, and discusses the adoption of new accounting pronouncements [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies include share-based payments, convertible instruments, revenue recognition (over time or point in time), goodwill impairment, and intangible asset amortization - Critical accounting policies include share-based payments, convertible instruments, and revenue recognition, which require significant assumptions and estimates[217](index=217&type=chunk)[218](index=218&type=chunk)[221](index=221&type=chunk) - Revenue recognition for construction and engineering contracts is applied over time using a cost-to-cost input method, while product or equipment sales revenue is recognized at a point in time[222](index=222&type=chunk)[223](index=223&type=chunk) - Goodwill is tested annually for impairment; no impairment loss was recognized in 2020, but **$2,938,653** was recognized in 2019 due to a deterioration in estimated future cash flows[230](index=230&type=chunk)[351](index=351&type=chunk) - Intangible assets, including proprietary knowledge and trademarks, are amortized over 5-20 years, with no impairment losses determined in 2020[231](index=231&type=chunk)[352](index=352&type=chunk) [New Accounting Pronouncements](index=45&type=section&id=New%20Accounting%20Pronouncements) The company adopted ASU 2018-13 and ASU 2016-13 effective January 1, 2020, with no material impact on its financial statements - The company adopted ASU 2018-13 (Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement) and ASU 2016-13 (Financial Instruments – Credit Losses) effective January 1, 2020, with no material impact on its financial position, results of operations, or cash flow[317](index=317&type=chunk)[318](index=318&type=chunk) [Non-GAAP Financial Information](index=45&type=section&id=Non-GAAP%20Financial%20Information) The company presents non-GAAP financial measures, EBITDA and Adjusted EBITDA, as supplemental performance indicators, acknowledging their limitations compared to GAAP - The company presents EBITDA and Adjusted EBITDA as supplemental non-GAAP financial measures to assess financial performance, acknowledging their limitations compared to GAAP measures[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) Reconciliation of Net Loss to EBITDA and Adjusted EBITDA | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :------------------------------------------ | :---------------------- | :---------------------- | | Net loss attributable to common stockholders | $(4,692,729) | $(6,920,540) | | Addback interest expense | 9,275 | 178,995 | | Addback interest income | (61,675) | — | | Addback depreciation and amortization | 239,982 | 164,941 | | **EBITDA (non-GAAP)** | **$(4,505,147)** | **$(6,576,604)** | | Addback goodwill impairment | — | 2,938,653 | | Addback loss on asset disposal | 1,012 | 52,039 | | Addback litigation expense | 461,613 | — | | Addback stock-based compensation expense | 1,261,215 | 729,404 | | **Adjusted EBITDA (non-GAAP)** | **$(2,781,307)** | **$(2,856,508)** | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk.](index=46&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This item is not applicable to the company - This item is not applicable[239](index=239&type=chunk) [Item 8. Financial Statements and Supplementary Data.](index=46&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) The company's financial statements and supplementary data, along with the independent auditor's report, are presented starting on page F-1 of this report - The company's financial statements and notes, along with the report of Whitley Penn LLP, appear beginning on page F-1 of this report[240](index=240&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.](index=47&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) There have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[242](index=242&type=chunk) [Item 9A. Controls and Procedures.](index=47&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2020, due to identified material weaknesses, including insufficient accounting resources and lack of formal review procedures - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2020[243](index=243&type=chunk) - Internal control over financial reporting was not effective as of December 31, 2020, based on criteria set forth by COSO, due to identified material weaknesses[246](index=246&type=chunk) - Material weaknesses include insufficient internal controls related to the timely closing of accounting records (due to insufficient accounting resources and lack of formal review procedures) and the application of technical accounting guidance to complex/new transactions[245](index=245&type=chunk) - There was no change in internal control over financial reporting during the fourth quarter of 2020[248](index=248&type=chunk) [Item 9B. Other Information](index=47&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - There is no other information to report under this item[249](index=249&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance.](index=48&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from specific sections of the company's 2021 Proxy Statement, including "Proposal 1 – Election of Directors" and "Information About Our Executive Officers"[251](index=251&type=chunk) [Item 11. Executive Compensation.](index=48&type=section&id=Item%2011.%20Executive%20Compensation.) Information regarding executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the "Executive Compensation" and "Director Compensation" sections of the company's 2021 Proxy Statement[252](index=252&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.](index=48&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan" sections of the company's 2021 Proxy Statement[253](index=253&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence.](index=48&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the "The Board and its Committees – Certain Relationships and Related Party Transactions" and "The Board and its Committees – Director Independence" sections of the company's 2021 Proxy Statement[254](index=254&type=chunk) [Item 14. Principal Accountant Fees and Services.](index=48&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Information regarding principal accountant fees and services is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the "Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm" and "The Board and its Committees – Board and Committee Responsibilities – Audit Committee" sections of the company's 2021 Proxy Statement[255](index=255&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules.](index=49&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists the exhibits filed as part of the Annual Report on Form 10-K and notes that all financial statement schedules are omitted because the required information is presented within the financial statements or their notes - The company's financial statements and notes are included starting on page F-1 of this Annual Report[258](index=258&type=chunk) - All financial statement schedules are omitted because they are not applicable, not material, or the required information is shown in the financial statements or notes thereto[259](index=259&type=chunk) - An Exhibit Index provides a list of the accompanying exhibits[260](index=260&type=chunk)[263](index=263&type=chunk) [Item 16. Form 10-K Summary.](index=50&type=section&id=Item%2016.%20Form%2010-K%20Summary.) This item is not applicable to the company - This item is not applicable[262](index=262&type=chunk) SIGNATURES [SIGNATURES](index=54&type=section&id=SIGNATURES) The Annual Report on Form 10-K was duly signed on behalf of SG Blocks, Inc. by its Chief Executive Officer and Chairman of the Board, Paul M. Galvin, its Acting Chief Financial Officer, Gerald A. Sheeran, and its Directors on April 15, 2021 - The Annual Report was signed by Paul M. Galvin (Chief Executive Officer and Chairman of the Board), Gerald A. Sheeran (Acting Chief Financial Officer), and Directors Yaniv Blumenfeld, Christopher Melton, and Margaret Coleman on April 15, 2021[272](index=272&type=chunk)[275](index=275&type=chunk) Consolidated Financial Statements [Report of Independent Registered Public Accounting Firm](index=56&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Whitley Penn LLP issued a fair opinion on the consolidated financial statements, highlighting critical audit matters regarding estimated contract costs and the fair value of assets acquired in the Echo DCL, LLC business combination - Whitley Penn LLP audited the consolidated financial statements of SG Blocks, Inc. and subsidiaries for December 31, 2020 and 2019, and expressed a fair opinion in conformity with accounting principles generally accepted in the United States of America (GAAP)[278](index=278&type=chunk) - Critical audit matters identified include the determination of estimated costs to complete for contracts recognized over time and the fair value of net assets acquired and contingent consideration in the Echo DCL, LLC business combination[282](index=282&type=chunk)[285](index=285&type=chunk)[289](index=289&type=chunk) - These critical audit matters involved especially challenging, subjective, or complex judgments, requiring a high degree of auditor judgment and increased effort[285](index=285&type=chunk)[291](index=291&type=chunk) [Consolidated Balance Sheets](index=59&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show a significant increase in total assets and stockholders' equity from December 31, 2019, to December 31, 2020, primarily driven by an increase in cash and cash equivalents and property, plant, and equipment Consolidated Balance Sheet Highlights | Metric | December 31, 2020 | December 31, 2019 | | :-------------------------------- | :---------------- | :---------------- | | Total Assets | $26,882,098 | $6,634,611 | | Total Current Assets | $18,298,019 | $2,906,809 | | Cash and cash equivalents | $13,010,356 | $1,625,671 | | Property, plant and equipment, net | $2,683,014 | $11,747 | | Goodwill | $1,309,330 | $1,223,520 | | Total Liabilities | $8,444,275 | $2,274,462 | | Total Stockholders' Equity | $18,437,823 | $4,360,149 | [Consolidated Statements of Operations](index=60&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations reflect a substantial increase in total revenue for 2020, primarily from medical services, leading to an improved gross profit Consolidated Statements of Operations Highlights | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :------------------------------------------ | :---------------------- | :---------------------- | | Total Revenue | $8,755,623 | $2,984,835 | | Total Cost of Revenue | $6,535,444 | $2,307,488 | | Gross Profit | $2,220,179 | $677,347 | | Total Operating Expenses | $6,803,011 | $7,381,359 | | Operating Loss | $(4,582,832) | $(6,704,012) | | Net Loss | $(4,508,162) | $(6,920,540) | | Net Loss Attributable to Common Stockholders | $(4,692,729) | $(6,920,540) | | Basic and Diluted EPS | $(0.79) | $(22.85) | | Weighted Average Shares Outstanding | 5,959,403 | 302,844 | [Consolidated Statements of Changes in Stockholders' Equity](index=61&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) The consolidated statements of changes in stockholders' equity show a substantial increase in total stockholders' equity in 2020, primarily driven by significant proceeds from public stock offerings, despite a net loss for the year - Total stockholders' equity increased from **$4,360,149** at December 31, 2019, to **$18,437,823** at December 31, 2020[300](index=300&type=chunk) - Additional paid-in capital saw a significant increase of **$17,045,080** in 2020, primarily from the issuance of common stock, net of issuance costs[300](index=300&type=chunk) - Net loss attributable to common stockholders was **$(4,692,729)** in 2020 and **$(6,920,540)** in 2019[300](index=300&type=chunk) - Stock-based compensation expense recognized was **$1,261,215** in 2020 and **$946,660** in 2019[300](index=300&type=chunk) [Consolidated Statements of Cash Flows](index=62&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows indicate a significant net increase in cash and cash equivalents in 2020, primarily driven by substantial proceeds from financing activities (public stock offerings), offsetting cash used in operating and investing activities Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :------------------------------------------ | :---------------------- | :---------------------- | | Net cash used in operating activities | $(2,887,950) | $(2,815,621) | | Net cash used in investing activities | $(3,045,723) | $(2,070) | | Net cash provided by financing activities | $17,318,358 | $3,074,967 | | Net increase in cash and cash equivalents | $11,384,685 | $257,276 | | Cash and cash equivalents - end of period | $13,010,356 | $1,625,671 | [Notes to Consolidated Financial Statements](index=64&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on the company's business, significant accounting policies, financial instruments, and other financial information, covering revenue, business combinations, fair value, goodwill, intangible assets, and share-based compensation [1. Description of Business](index=64&type=section&id=1.%20Description%20of%20Business) SG Blocks provides modular facilities using proprietary technology, formed SG Echo for manufacturing, and retroactively restated share amounts after a 1-for-20 reverse stock split - SG Blocks, Inc. provides modular facilities using proprietary technology to modify cargo shipping containers and purpose-built modules for commercial, industrial, and residential construction[304](index=304&type=chunk)[305](index=305&type=chunk) - In 2020, the company formed SG Echo, LLC to manufacture its core container and modular product offerings and began providing clinical lab testing and test kit sales through a joint venture and distributorship agreement[308](index=308&type=chunk) - On February 5, 2020, the company effected a 1-for-20 reverse stock split, with all share and per share amounts retroactively restated[309](index=309&type=chunk) [2. Liquidity](index=65&type=section&id=2.%20Liquidity) As of December 31, 2020, the company had **$13,010,356** in cash and a **$25.1 million** construction backlog, with liquidity boosted by equity offerings despite ongoing COVID-19 uncertainties - As of December 31, 2020, the company had cash and cash equivalents of **$13,010,356** and a construction backlog of approximately **$25.1 million**, with **$12,261,211** expected within 1 year and **$12,856,250** in 1 to 2 years[311](index=311&type=chunk) - Despite incurring losses and negative operating cash flows since inception, the company raised substantial cash through equity offerings in April and May 2020 (net proceeds of approximately **$1.5 million** and **$15.6 million**, respectively)[312](index=312&type=chunk) - The ongoing COVID-19 pandemic has caused project delays and is expected to impact revenue and results of operations, with uncertain size and duration, potentially affecting demand and supply chains[313](index=313&type=chunk) [3. Summary of Significant Accounting Policies](index=66&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines significant accounting policies, including revenue recognition, business combinations, fair value measurements, goodwill and intangible assets, share-based payments, income taxes, and concentrations of credit risk [Revenue Recognition](index=67&type=section&id=Revenue%20Recognition) Revenue is recognized over time for construction contracts and at a point in time for product sales, with royalty payments from the Exclusive License Agreement recognized over time - Revenue is recognized over time for construction and engineering contracts using a cost-to-cost input method, and at a point in time for product or equipment sales when the customer obtains control[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk) - Royalty payments from the Exclusive License Agreement (ELA) are recognized over time as the licensee recognizes revenue; no revenue was recognized under the ELA in 2020[325](index=325&type=chunk) Revenue by Recognition Method (2020) | Recognition Method | Amount | | :----------------- | :------------- | | Point in time | $4,057,086 | | Over time | $4,698,537 | Revenue by Customer Type (2020 vs. 2019) | Customer Type | 2020 Revenue | 2020 % | 2019 Revenue | 2019 % | | :------------------------------------ | :------------- | :----- | :------------- | :----- | | Government | $751,697 | 9% | — | —% | | Hospitality | $487,111 | 6% | — | —% | | Multi-Family | $126,222 | 1% | $94,178 | 3% | | Medical (lab testing, test kit sales, equipment) | $4,241,500 | 49% | — | —% | | Medical (construction services) | $778,883 | 9% | — | —% | | Office | $191,505 | 2% | $1,468,734 | 49% | | Retail | $427,444 | 5% | $1,413,669 | 48% | | School | $36,500 | —% | — | —% | | Special Use | $1,414,761 | 16% | $6,812 | —% | | Other | $300,000 | 3% | $1,442 | —% | | **Total Revenue** | **$8,755,623** | **100%** | **$2,984,835** | **100%** | [Business Combinations](index=71&type=section&id=Business%20Combinations) The company accounts for business acquisitions using the acquisition method, recognizing identifiable assets and liabilities at fair value, as applied to the Echo DCL, LLC acquisition in September 2020 - The company accounts for business acquisitions using the acquisition method (ASC 805), recognizing identifiable assets acquired and liabilities assumed at their fair value[343](index=343&type=chunk) - Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired[343](index=343&type=chunk) - The acquisition of Echo DCL, LLC in September 2020 was accounted for as a business combination, with a purchase consideration of **$964,620**[375](index=375&type=chunk)[376](index=376&type=chunk) Preliminary Allocation of Echo Acquisition Purchase Price | Asset/Liability | Amount | | :------------------------------------ | :------------- | | Cash and cash equivalents | $316,432 | | Accounts receivable | $252,557 | | Inventories | $130,799 | | Prepaid expenses and other current assets | $7,400 | | Property, plant and equipment | $1,154,818 | | Right-of-use assets | $57,120 | | Goodwill | $85,810 | | Intangible assets | $68,344 | | Accounts payable and accrued expenses | $(733,529) | | Assumed liability | $(285,204) | | Contract liabilities | $(32,807) | | Lease liability | $(57,120) | | **Total** | **$964,620** | [Fair Value Measurements](index=73&type=section&id=Fair%20Value%20Measurements) The company measures fair value using a three-level hierarchy based on input observability, with the earnout liability being the only recurring Level 3 financial liability as of December 31, 2020 - The company measures the fair value of financial assets and liabilities using a three-level hierarchy based on the observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[357](index=357&type=chunk) - The earnout liability was the only financial liability measured at fair value on a recurring basis as of December 31, 2020, classified as a Level 3 asset with an estimated value of zero[357](index=357&type=chunk) [Goodwill](index=72&type=section&id=Goodwill) The company performs an annual impairment test of goodwill at the reporting unit level, recognizing no impairment in 2020 but **$2,938,653** in 2019 - The company performs an annual impairment test of goodwill at the reporting u

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 001-38037 SG BLOCKS, INC. (Exact name of registrant as specified in its charter) | Delaware | 95-4463937 | | --- ...

SG Blocks, Inc. (NASDAQ:SGBX) Q2 2020 Earnings Conference Call August 13, 2020 4:30 PM ET Company Participants Gerald Sheeran - Chief Financial Officer Paul Galvin - Chief Executive Officer Conference Call Participants Operator Good day and welcome to SG Blocks’ Second Quarter 2020 Earnings Conference Call and Webcast. Today's conference call is being recorded. At this time, I would like to turn the conference over to Gerald Sheeran, Chief Financial Officer. Please go ahead. Gerald Sheeran Thank you and goo ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for SG Blocks, Inc [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of SG Blocks, Inc. and its subsidiaries, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with comprehensive notes detailing business operations, accounting policies, liquidity, and significant financial events for the periods ended June 30, 2020, and 2019 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets present the financial position of SG Blocks, Inc. and its subsidiaries as of June 30, 2020, and December 31, 2019, showing a significant increase in cash and total assets primarily from public offerings, while total liabilities slightly decreased Condensed Consolidated Balance Sheets | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $16,112,907 | $1,625,671 | | Total current assets | $17,986,023 | $2,906,809 | | Total Assets | $22,280,119 | $6,634,611 | | Total current liabilities | $2,012,235 | $2,274,462 | | Total stockholders' equity | $20,267,884 | $4,360,149 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The Condensed Consolidated Statements of Operations show decreased total revenue for both the three and six months ended June 30, 2020, due to a business model shift, yet gross profit percentage improved despite continued net losses Three Months Ended June 30: | Metric | 2020 (Unaudited) | 2019 (Unaudited) | Change | | :-------------------- | :--------------- | :--------------- | :----- | | Total Revenue | $628,949 | $727,908 | -13.6% | | Gross Profit | $374,233 | $267,318 | +40.0% | | Net Loss | $(837,973) | $(971,709) | -13.8% | | Basic and Diluted EPS | $(0.16) | $(4.02) | -96.0% | Six Months Ended June 30: | Metric | 2020 (Unaudited) | 2019 (Unaudited) | Change | | :-------------------- | :--------------- | :--------------- | :----- | | Total Revenue | $827,705 | $2,463,032 | -66.4% | | Gross Profit | $420,214 | $811,423 | -48.2% | | Net Loss | $(1,585,400) | $(1,462,444) | +8.4% | | Basic and Diluted EPS | $(0.48) | $(6.43) | -92.5% | - Gross profit percentage increased to approximately **51%** for the six months ended June 30, 2020, compared to approximately **33%** for the six months ended June 30, 2019, primarily due to a single contract of **$300,000** with no estimated costs[179](index=179&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) The Condensed Consolidated Statements of Changes in Stockholders' Equity show a substantial increase in total stockholders' equity from December 31, 2019, to June 30, 2020, primarily driven by significant common stock issuances from public offerings, despite ongoing net losses Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :-------------- | :---------------- | | Total Stockholders' Equity | $20,267,884 | $4,360,149 | | Common Stock Shares Outstanding | 8,596,189 | 1,157,890 | | Additional Paid-in Capital | $39,351,139 | $21,932,387 | | Accumulated Deficit | $(19,169,217) | $(17,583,817) | - Issuance of common stock, net of issuance costs, contributed **$17,118,480** for the six months ended June 30, 2020[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Condensed Consolidated Statements of Cash Flows indicate a significant net increase in cash and cash equivalents for the six months ended June 30, 2020, primarily due to substantial cash provided by financing activities, offsetting cash used in operating and investing activities Six Months Ended June 30: | Cash Flow Activity | 2020 (Unaudited) | 2019 (Unaudited) | | :-------------------------------- | :--------------- | :--------------- | | Net cash used in operating activities | $(2,181,122) | $(1,747,202) | | Net cash used in investing activities | $(650,000) | $0 | | Net cash provided by financing activities | $17,318,358 | $552,709 | | Net increase (decrease) in cash | $14,487,236 | $(1,194,493) | | Cash and cash equivalents - end of period | $16,112,907 | $173,902 | - Cash provided by financing activities increased by **$16,765,649**, primarily due to increased proceeds from public stock offerings and a long-term note payable[206](index=206&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's business, accounting policies, financial instruments, and significant events, including liquidity concerns, revenue recognition changes, and ongoing litigation, highlighting the shift to a royalty-based business model and recent capital raises [Note 1. Description of Business](index=8&type=section&id=Note%201.%20Description%20of%20Business) SG Blocks, Inc. specializes in modifying code-engineered cargo shipping containers and purpose-built modules for commercial, industrial, and residential construction, emphasizing sustainable building, and effected a 1-for-20 reverse stock split on February 5, 2020 - SG Blocks, Inc. modifies code-engineered cargo shipping containers and purpose-built modules (SGBlocks™ and SGPBMs) for safe and sustainable commercial, industrial, and residential building construction[20](index=20&type=chunk) - The company offers three core product offerings: GreenSteel™ modules (structural core and shell), pre-fabricated containers with selected materials/finishes, and completely fabricated/finished SGBlocks buildings ready for occupancy[21](index=21&type=chunk) - A **1-for-20** reverse stock split of its common stock was effected on February 5, 2020, with all share and per share amounts retroactively restated[23](index=23&type=chunk) [Note 2. Liquidity](index=9&type=section&id=Note%202.%20Liquidity) SG Blocks has incurred net losses and negative operating cash flows since inception, raising substantial doubt about its ability to continue as a going concern, but recent public offerings have significantly increased cash balances, and the company believes it has adequate cash for the next twelve months, while also facing project delays and economic uncertainty due to the COVID-19 pandemic - The company has incurred net losses and negative operating cash flows since its inception, raising substantial doubt about its ability to continue as a going concern[26](index=26&type=chunk) - As of June 30, 2020, the company had cash and cash equivalents of **$16,112,907** and a backlog of approximately **$17.3 million**, which is anticipated to convert to revenue over the next 1-2+ years[27](index=27&type=chunk) - The company completed public offerings in April and May 2020, resulting in net proceeds of approximately **$1.5 million** and **$15.6 million**, respectively, which are expected to meet obligations for the next twelve months[27](index=27&type=chunk) - The COVID-19 pandemic is causing project delays and is expected to impact the company's revenue and results of operations, with the size and duration currently unpredictable[28](index=28&type=chunk) [Note 3. Summary of Significant Accounting Policies](index=10&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's accounting policies, including the basis of presentation, recently adopted accounting pronouncements (ASU 2018-13 and ASU 2016-13 with no material impact), and key estimates, detailing the five-step revenue recognition process, the Exclusive License Agreement (ELA) for residential use, and the non-exclusive distributorship agreement for COVID-19 test kits, along with policies for cash, receivables, inventory, goodwill, intangible assets, property, plant and equipment, convertible instruments, share-based payments, income taxes, and concentrations of credit risk - The company applies a five-step process for revenue recognition, recognizing revenue over time, similar to the percentage of completion method[37](index=37&type=chunk) - An Exclusive License Agreement (ELA) was granted to CPF GP 2019-1 LLC for residential use of the company's technology, with royalty payments recognized over time as the licensee earns revenue, though no revenue was recognized under the ELA for the six months ended June 30, 2020[39](index=39&type=chunk) - A one-year non-exclusive distributorship agreement was signed with OSANG Healthcare Co., Ltd. in May 2020 to distribute GeneFinder COVID-19 Plus RealAmp Kit in the US, with no revenue recognized under this agreement for the six months ended June 30, 2020[43](index=43&type=chunk) Revenue by Customer Type (Six Months Ended June 30): | Customer Type | 2020 Revenue | 2020 % | 2019 Revenue | 2019 % | | :-------------------------- | :----------- | :----- | :----------- | :----- | | Hospitality | $42,799 | 5% | $(1,252) | 0% | | Medical (modular structures) | $58,532 | 7% | $0 | 0% | | Multi-Family (includes Single-Family) | $51,963 | 6% | $112,191 | 5% | | Office | $50,909 | 6% | $1,207,897 | 49% | | Retail | $323,502 | 39% | $1,137,384 | 46% | | Special Use | $0 | 0% | $6,812 | 0% | | Other (1) | $300,000 | 37% | $0 | 0% | | **Total Revenue** | **$827,705** | **100%** | **$2,463,032** | **100%** | - Goodwill impairment loss of **$2,938,653** was recognized in 2019 due to a deterioration in estimated future cash flows; no impairment occurred during the six months ended June 30, 2020[61](index=61&type=chunk) - At June 30, 2020, **88%** of gross accounts receivable were due from two customers, and **69%** of total revenue for the six months ended June 30, 2020, was from three customers, indicating significant customer concentration[76](index=76&type=chunk)[77](index=77&type=chunk) [Note 4. Accounts Receivable](index=17&type=section&id=Note%204.%20Accounts%20Receivable) Accounts receivable, net, increased from **$1,101,185** at December 31, 2019, to **$1,584,252** at June 30, 2020, with the allowance for doubtful accounts remaining unchanged at **$785,895** and no new provisions, recoveries, or write-offs during the period Accounts Receivable | Category | June 30, 2020 | December 31, 2019 | | :---------------------- | :-------------- | :---------------- | | Total gross receivables | $2,370,147 | $1,887,080 | | Less: allowance for doubtful accounts | $(785,895) | $(785,895) | | **Total net receivables** | **$1,584,252** | **$1,101,185** | - There was no provision for doubtful accounts, no recoveries collected, and no write-offs during the six months ended June 30, 2020[79](index=79&type=chunk) [Note 5. Contract Assets and Contract Liabilities](index=18&type=section&id=Note%205.%20Contract%20Assets%20and%20Contract%20Liabilities) Net contract liabilities increased from **$(62,942)** at December 31, 2019, to **$(137,021)** at June 30, 2020, indicating that billings to customers exceeded revenue recognized on uncompleted contracts, with contract assets decreasing while contract liabilities increased during the period Contract Assets and Contract Liabilities | Category | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :-------------- | :---------------- | | Costs incurred on uncompleted contracts | $622,745 | $513,558 | | Estimated earnings to date | $178,553 | $127,032 | | Gross contract assets | $801,298 | $640,590 | | Less: billings to date | $(938,319) | $(703,532) | | **Net contract liabilities** | **$(137,021)** | **$(62,942)** | - Contract assets decreased from **$106,015** to **$11,830**, and contract liabilities (as a negative balance) increased from **$(168,957)** to **$(148,851)** from December 31, 2019, to June 30, 2020[83](index=83&type=chunk) [Note 6. Property, plant and equipment](index=18&type=section&id=Note%206.%20Property,%20plant%20and%20equipment) Net property, plant and equipment decreased slightly from **$11,747** at December 31, 2019, to **$9,899** at June 30, 2020, due to ongoing depreciation, with depreciation expense for the six months ended June 30, 2020, being **$1,848**, down from **$6,301** in the prior year Property, plant and equipment, net | Category | June 30, 2020 | December 31, 2019 | | :-------------------------- | :-------------- | :---------------- | | Property, plant and equipment, net | $9,899 | $11,747 | - Depreciation expense for the six months ended June 30, 2020, was **$1,848**, compared to **$6,301** for the same period in 2019[84](index=84&type=chunk) [Note 7. Notes Receivable](index=19&type=section&id=Note%207.%20Notes%20Receivable) The company issued two promissory notes to CPF GP 2019-1 LLC totaling **$650,000** in January and April 2020, bearing **5%** annual interest and maturing on July 31, 2023, secured by CPF GP's membership interests in CPF MF 2019-1 LLC - Issued promissory notes to CPF GP 2019-1 LLC for **$400,000** (January 2020) and **$250,000** (April 2020), totaling **$650,000**[87](index=87&type=chunk)[88](index=88&type=chunk) - The notes bear interest at **five percent (5%)** per annum, payable with principal on the earlier of July 31, 2023, or upon liquidation/redemption of LLC interests in CPF MF 2019-1 LLC[87](index=87&type=chunk)[88](index=88&type=chunk) [Note 8. Notes Payable](index=19&type=section&id=Note%208.%20Notes%20Payable) In February 2020, the company issued a **$200,000** secured note bearing **9%** interest, due July 31, 2023, to an accredited investor, which, along with accrued interest, was converted into **73,665** shares of common stock during the three months ended June 30, 2020 - Issued a **$200,000** secured note to an accredited investor on February 4, 2020, bearing **9%** annual interest and due July 31, 2023[89](index=89&type=chunk) - The note and **$6,263** of unpaid accrued interest were converted into **73,665** shares of the company's common stock during the three months ended June 30, 2020[89](index=89&type=chunk) [Note 9. Net Income (Loss) Per Share](index=19&type=section&id=Note%209.%20Net%20Income%20(Loss)%20Per%20Share) Basic and diluted net loss per share for the three months ended June 30, 2020, was **$(0.16)**, a significant improvement from **$(4.02)** in 2019, despite a net loss, and for the six months, it was **$(0.48)** in 2020, compared to **$(6.43)** in 2019, with potentially dilutive common shares excluded from diluted EPS calculation due to the net loss Net Loss Per Share - Basic and Diluted: | Period | 2020 | 2019 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(0.16) | $(4.02) | | Six Months Ended June 30 | $(0.48) | $(6.43) | - Potentially dilutive common shares (options, restricted stock units, and warrants) were excluded from the calculation of diluted per share amounts due to the company's net loss, making basic and diluted EPS identical[91](index=91&type=chunk) [Note 10. Convertible Debentures](index=20&type=section&id=Note%2010.%20Convertible%20Debentures) In November 2019, the company issued a **$480,770** senior secured convertible debenture for **$375,000** in proceeds, which was fully repaid by December 13, 2019, and included warrants for the placement agent that were later surrendered - Issued a **$480,770** senior secured convertible debenture for **$375,000** in proceeds (**22%** original issue discount) in November 2019, which was fully repaid by December 13, 2019[92](index=92&type=chunk) - Warrants to purchase **5,404** shares of common stock, granted to the placement agent, were surrendered on December 10, 2019[94](index=94&type=chunk)[96](index=96&type=chunk) [Note 11. Construction Backlog](index=21&type=section&id=Note%2011.%20Construction%20Backlog) The construction backlog decreased slightly from **$17,634,261** at December 31, 2019, to **$17,293,227** at June 30, 2020, primarily due to revenue earned, offset by new contracts, with all current backlog revenue expected to be realized by September 30, 2022, though it is subject to cancellations and adjustments Construction Backlog: | Metric | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :-------------- | :---------------- | | Balance - beginning of period | $17,634,261 | $97,657,379 | | New contracts and change orders | $514,041 | $17,659,053 | | Adjustments and cancellations, net | $(27,370) | $(94,697,336) | | Less: contract revenue earned | $(827,705) | $(2,984,835) | | **Balance - end of period** | **$17,293,227** | **$17,634,261** | - The company expects to satisfy its backlog, representing unsatisfied performance obligations, over the following period: **$4,436,977** within 1 year, **$10,285,000** in 1 to 2 years, and **$2,571,250** thereafter[99](index=99&type=chunk) - Backlog does not include expected royalty fees to the company under the Exclusive License Agreement (ELA) from projects to be delivered by its licensee[98](index=98&type=chunk) [Note 12. Stockholders' Equity](index=22&type=section&id=Note%2012.%20Stockholders'%20Equity) The company significantly increased its stockholders' equity through multiple public offerings in December 2019, April 2020, and May 2020, raising substantial net proceeds, involving the sale of common stock and, in some cases, the issuance of warrants to underwriters, while the number of authorized common shares was decreased in June 2019 - Completed a public offering in December 2019, selling **857,500** shares of common stock for **$2,117,948** in net proceeds[105](index=105&type=chunk) - Completed a public offering in April 2020, selling **440,000** shares of common stock for approximately **$1,522,339** in net proceeds[106](index=106&type=chunk) - Completed a public offering in May 2020, selling **6,900,000** shares of common stock (including over-allotment option) for approximately **$15,596,141** in net proceeds, and issued warrants to purchase **300,000** shares[107](index=107&type=chunk) - The number of authorized shares of common stock was decreased from **300,000,000** to **25,000,000** on June 5, 2019[111](index=111&type=chunk) [Note 13. Warrants](index=23&type=section&id=Note%2013.%20Warrants) The company has issued various warrants in conjunction with public offerings and securities purchase agreements, including **300,000** warrants to underwriters in May 2020, which have different exercise prices and expiration dates, potentially diluting future net income per share - In May 2020, the company issued warrants to purchase an aggregate of **300,000** shares of common stock to the underwriter at an initial exercise price of **$3.14** per share, exercisable from November 6, 2020, to May 5, 2025[116](index=116&type=chunk) - As of June 30, 2020, there were warrants to purchase **353,190** shares of common stock outstanding that could potentially dilute future net income per share[91](index=91&type=chunk) [Note 14. Share-based Compensation](index=24&type=section&id=Note%2014.%20Share-based%20Compensation) Share-based compensation expense for the six months ended June 30, 2020, was **$168,514**, a decrease from **$339,361** in 2019, including expenses for stock options and restricted stock units (RSUs), with **47,331** RSUs granted in April 2020 to employees, consultants, and directors, with various vesting schedules Total Stock-Based Compensation Expense: | Period | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $2,667 | $40,098 | $5,333 | $72,196 | | Restricted Stock Units | $127,083 | $136,770 | $163,181 | $267,165 | | **Total** | **$129,750** | **$176,868** | **$168,514** | **$339,361** | - In April 2020, **35,331** restricted stock units were granted to Mr. Galvin, Mr. Armstrong, Mr. Sheeran, five employees, and two consultants, and **12,000** restricted stock units were granted to three non-employee directors, all at a fair value of **$4.76** per share[128](index=128&type=chunk)[129](index=129&type=chunk) - As of June 30, 2020, there was **$8,000** of total unrecognized compensation costs related to non-vested stock options, expected to be expensed over less than one year[124](index=124&type=chunk) [Note 15. Commitments and Contingencies](index=27&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) The company is involved in several legal proceedings, including the Pizzarotti Litigation, Vendor Litigation against Teton Buildings, and litigation with HOLA Community Partners and EDI International, as well as a former employee's suit for unpaid wages and retaliation, with the company vigorously defending these actions and unable to predict the outcome or potential loss, having made no related provisions in financial statements, and the CEO's employment agreement was amended in April 2020, extending the term and revising compensation structure - The company is a defendant in the Pizzarotti Litigation for alleged breach of contract; certain claims were dismissed in June 2020, but the breach of Assignment Agreement claim remains[134](index=134&type=chunk)[136](index=136&type=chunk) - The company filed suit against Teton Buildings, LLC for breach of contract damages of approximately **$2.1 million**, but Teton's Chapter 7 bankruptcy conversion makes recovery less likely[140](index=140&type=chunk)[141](index=141&type=chunk) - The company commenced an action against HOLA Community Partners and the City of Los Angeles for breach of contract, conversion, trade secret misappropriation, and negligence, seeking over **$1 million**, while HOLA filed a separate action against the company for negligence, product liability, and breach of contract, seeking over **$4 million**[143](index=143&type=chunk)[145](index=145&type=chunk) - A former President and CFO filed suit for **$372,638** in unpaid wages and bonuses and severance; the court dismissed the severance and FLSA unpaid wages claims but denied dismissal of FLSA retaliation and NY Labor Law unpaid wages claims[154](index=154&type=chunk) - The CEO's employment agreement was amended in April 2020, extending the term to December 31, 2021, setting an annual base salary of **$400,000**, and establishing a performance bonus structure based on EBITDA achievement[159](index=159&type=chunk) [Note 16. Subsequent Events](index=32&type=section&id=Note%2016.%20Subsequent%20Events) In July 2020, the company entered a Joint Development Agreement with Grimshaw Design, LLC to develop scalable education and medical facilities, and the 2020 Annual Meeting of Stockholders, held on July 30, 2020, resulted in the election of directors, ratification of auditors, approval of executive compensation, and an increase of **1,000,000** shares for the Stock Incentive Plan - In July 2020, the company entered into a Joint Development Agreement with Grimshaw Design, LLC to develop scalable, customizable, and rapidly deployable education facilities and pressurized **150** housing units for quarantine[160](index=160&type=chunk) - At the 2020 Annual Meeting of Stockholders on July 30, 2020, directors were elected, auditors ratified, executive compensation approved (advisory), and the Stock Incentive Plan was amended to increase authorized shares by **1,000,000**[161](index=161&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Result of Operations](index=33&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Result%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, detailing the shift to a royalty-based model, strategic partnerships, financing activities, COVID-19 impact, revenue and expense trends, liquidity, capital resources, and critical accounting policies [Introduction and Certain Cautionary Statements](index=33&type=section&id=Introduction%20and%20Certain%20Cautionary%20Statements) This section introduces the Management's Discussion and Analysis, emphasizing that it should be read with the unaudited condensed consolidated financial statements, and includes cautionary statements regarding forward-looking information, directing readers to the 'Risk Factors' section for potential material differences in actual results - The discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q[162](index=162&type=chunk) - It contains forward-looking statements that involve risks and uncertainties, and actual results could differ materially from those discussed[162](index=162&type=chunk) [Special note regarding forward-looking statements](index=33&type=section&id=Special%20note%20regarding%20forward-looking%20statements) This section provides a detailed disclaimer about forward-looking statements, outlining common terminology used and emphasizing that actual results may differ materially due to various factors, including economic conditions, financing ability, competition, supply chain disruptions, and the impact of COVID-19, cautioning readers not to place undue reliance on these statements, and stating the company does not undertake to update them - Forward-looking statements use terminology such as 'anticipates,' 'believes,' 'could,' 'estimates,' 'may,' 'plan,' 'expect,' 'intend,' 'should,' 'will,' or variations thereof[163](index=163&type=chunk) - Actual results could differ materially due to factors including general economic conditions, ability to obtain financing, competition, supply chain disruptions, customer loss, litigation, regulatory changes, and the impact of COVID-19[163](index=163&type=chunk) - The company cautions readers not to place undue reliance on forward-looking statements and does not undertake to update them[163](index=163&type=chunk) [Overview](index=35&type=section&id=Overview) SG Blocks specializes in modular construction using repurposed shipping containers and purpose-built modules for commercial, industrial, and residential projects, having shifted its residential construction business model in October 2019 from project-based construction to a royalty fee model through an exclusive license agreement with CPF GP 2019-1 LLC - The company modifies code-engineered cargo shipping containers and purpose-built modules (SGBlocks™ and SGPBMs) for safe and sustainable commercial, industrial, and residential building construction[164](index=164&type=chunk) - In October 2019, the business model for residential construction shifted to a royalty fee model through an exclusive license with CPF GP 2019-1 LLC, with revenue now generated from royalties based on CPF's gross revenue from products utilizing the company's technology[165](index=165&type=chunk) [Recent Business Developments](index=35&type=section&id=Recent%20Business%20Developments) SG Blocks entered into a Memorandum of Understanding with Transcend Onsite Care in March 2020 for joint products like modular medical and testing units, and a non-exclusive distributorship agreement with Osang Healthcare Co., Ltd. in April 2020 to distribute COVID-19 test kits in the US, followed by a Joint Development Agreement with Grimshaw Design, LLC in May 2020 to develop scalable medical facilities - Entered a non-binding Memorandum of Understanding with Transcend Onsite Care in March 2020 to provide joint products and services, including modular primary care medical units and COVID-19 diagnostic testing units[166](index=166&type=chunk) - Signed a one-year non-exclusive distributorship agreement with Osang Healthcare Co., Ltd. in April 2020 to distribute its GeneFinder COVID-19 Plus RealAmp Kit in the United States[167](index=167&type=chunk) - Entered into a Joint Development Agreement with Grimshaw Design, LLC in May 2020 to develop a prototype for scalable, customizable, and rapidly deployable medical facilities[170](index=170&type=chunk) [Recent Financing Developments](index=36&type=section&id=Recent%20Financing%20Developments) The company provided a **$750,000** loan to CPF GP in January and April 2020, secured by CPF GP's membership interests, and in February 2020, a **$200,000** secured note was issued to an accredited investor, which was later converted into common stock, with significant capital raised through public offerings in April and May 2020, generating approximately **$1.5 million** and **$15.6 million** in net proceeds, respectively - Loaned CPF GP **$750,000** in two installments (January and April 2020) at **5%** annual interest, secured by CPF GP's membership interests[171](index=171&type=chunk) - Issued a **$200,000** secured note at **9%** interest in February 2020, which was converted into **73,665** shares of common stock during the three months ending June 30, 2020[172](index=172&type=chunk) - Completed an underwritten public offering in April 2020, selling **440,000** shares for approximately **$1,522,339** in net proceeds[173](index=173&type=chunk) - Completed an underwritten public offering in May 2020, selling **6,900,000** shares (including over-allotment option) for approximately **$15,596,141** in net proceeds and issued warrants to purchase **300,000** shares[174](index=174&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) The company's results of operations for the six and three months ended June 30, 2020, reflect a significant decrease in total revenue compared to 2019, primarily due to the shift to a royalty business model and declines in retail and office customer types, but despite lower revenue, gross profit percentage improved due to a no-cost construction contract, while operating expenses saw mixed changes, leading to continued net losses [Six Months Ended June 30, 2020 and 2019](index=37&type=section&id=Six%20Months%20Ended%20June%2030,%202020%20and%202019) For the six months ended June 30, 2020, total revenue decreased by **66%** to **$827,705**, while cost of revenue decreased by **75%**, leading to a **48%** decline in gross profit, but the gross profit percentage increased to **51%** due to a no-cost construction contract, and despite an overall decrease in operating expenses, the net loss increased by **8.4%** to **$(1,585,400)** Financial Performance (Six Months Ended June 30): | Metric | 2020 | 2019 | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Total Revenue | $827,705 | $2,463,032 | -66.4% | | Total Cost of Revenue | $(407,491) | $(1,651,609) | -75.3% | | Gross Profit | $420,214 | $811,423 | -48.2% | | Gross Profit Percentage | 51% | 33% | +18 ppts | | Total Operating Expenses | $(2,010,447) | $(2,273,867) | -11.6% | | Net Loss | $(1,585,400) | $(1,462,444) | +8.4% | - The decrease in revenue was mainly driven by declines in retail (approximately **$814,000**) and office (approximately **$1,157,000**) customer types, alongside the shift to a royalty business model[177](index=177&type=chunk) - Payroll and related expenses decreased by approximately **$620,000**, primarily due to a decrease in stock-based compensation expense and reduced salaries/headcount[180](index=180&type=chunk) - Other operating expenses increased by approximately **$356,611**, mainly due to higher legal fees, consulting fees, marketing expense, and amortization, partially offset by decreases in audit fees, travel, and contract labor[181](index=181&type=chunk) [Three Months Ended June 30, 2020 and 2019](index=38&type=section&id=Three%20Months%20Ended%20June%2030,%202020%20and%202019) For the three months ended June 30, 2020, total revenue decreased by **14%** to **$628,949**, while cost of revenue decreased by **45%**, leading to a **40%** increase in gross profit and a gross profit percentage of **60%**, with the net loss improving by **13.8%** to **$(837,973)** compared to the prior year Financial Performance (Three Months Ended June 30): | Metric | 2020 | 2019 | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Total Revenue | $628,949 | $727,908 | -13.6% | | Total Cost of Revenue | $(254,716) | $(460,590) | -44.7% | | Gross Profit | $374,233 | $267,318 | +40.0% | | Gross Profit Percentage | 60% | 37% | +23 ppts | | Total Operating Expenses | $(1,214,987) | $(1,239,027) | -1.9% | | Net Loss | $(837,973) | $(971,709) | -13.8% | - The decrease in revenue was mainly driven by declines in retail (approximately **$404,000**) and office (approximately **$72,000**) customer types, offset by increases in other, medical, and hospitality customer types[184](index=184&type=chunk) - Payroll and related expenses decreased by approximately **$253,289**, primarily due to a decrease in stock-based compensation expense and reduced salaries/headcount[187](index=187&type=chunk) - Other operating expenses increased by approximately **$229,249**, driven by higher legal fees, pre-project expenses, and consulting expenses, partially offset by decreases in audit fees, contract labor, and travel expenses[188](index=188&type=chunk) [Income Tax Provision](index=39&type=section&id=Income%20Tax%20Provision) A **100%** valuation allowance was applied against the deferred tax asset from net operating loss carryforwards, resulting in no income tax benefit for the period - A **100%** valuation allowance was provided against the deferred tax asset consisting of available net operating loss carryforwards, resulting in no income tax benefit[190](index=190&type=chunk) [Impact of Inflation](index=39&type=section&id=Impact%20of%20Inflation) The impact of inflation on the company's revenue and income has not been material due to the absence of inventories whose costs are significantly affected by inflation - The impact of inflation on the company's revenue and income (loss) from continuing operations has not been material, as the company does not maintain inventories whose costs are affected by inflation[191](index=191&type=chunk) [Impact of Coronavirus (COVID-19)](index=39&type=section&id=Impact%20of%20Coronavirus%20(COVID-19)) The COVID-19 pandemic has caused project delays and is expected to impact revenue and operations, though the full extent is unpredictable, with the company implementing business continuity plans and considering alternative product sourcing to mitigate potential disruptions - The company is experiencing delays in projects due to the COVID-19 pandemic, which is expected to impact revenue and results of operations, with the size and duration currently unpredictable[192](index=192&type=chunk) - Business continuity plans have been implemented, and the company is considering alternative product sourcing to mitigate potential disruptions from quarantines, travel restrictions, labor shortages, and economic downturns[192](index=192&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash and cash equivalents significantly increased to **$16,112,907** at June 30, 2020, from **$1,625,671** at December 31, 2019, primarily due to substantial net proceeds from public offerings in April and May 2020, and despite ongoing net losses and cash used in operations, the company anticipates sufficient cash for at least the next twelve months but acknowledges the need for potential future financing to support growth, which may not be available on favorable terms - Cash and cash equivalents increased significantly from **$1,625,671** at December 31, 2019, to **$16,112,907** at June 30, 2020[194](index=194&type=chunk) - Recent public offerings in April 2020 (**$1,522,339** net proceeds) and May 2020 (**$15,596,141** net proceeds) were the primary drivers of increased liquidity[200](index=200&type=chunk)[201](index=201&type=chunk) - Despite anticipating continued losses, the company expects its cash balance to be sufficient for at least twelve months from August 13, 2020[202](index=202&type=chunk) - The company may need additional debt or equity financing for future growth, with no assurance that such funding will be available on favorable terms, potentially requiring material changes to its business plan[203](index=203&type=chunk) [Cash Flow Summary](index=41&type=section&id=Cash%20Flow%20Summary) For the six months ended June 30, 2020, net cash provided by financing activities significantly increased to **$17,318,358**, primarily from public stock offerings, leading to a net increase in cash and cash equivalents of **$14,487,236**, offsetting increased cash used in operating activities (**$2,181,122**) and investing activities (**$650,000**, mainly for a note receivable) Cash Flow Summary (Six Months Ended June 30): | Activity | 2020 | 2019 | | :-------------------------------- | :----------- | :----------- | | Operating activities | $(2,181,122) | $(1,747,202) | | Investing activities | $(650,000) | $0 | | Financing activities | $17,318,358 | $552,709 | | **Net increase (decrease) in cash** | **$14,487,236** | **$(1,194,493)** | - Cash used in operating activities increased by approximately **$433,920**, primarily due to a decrease in working capital, an increase in interest income, a decrease in stock-based compensation, an increase in amortization expense, an increase in overall net loss, and a decrease in bad debt benefits[204](index=204&type=chunk) - Cash used in investing activities was **$650,000**, primarily due to an advance in a note receivable[205](index=205&type=chunk) - Cash provided by financing activities increased by **$16,765,649**, driven by increased proceeds from public stock offerings and a long-term note payable[206](index=206&type=chunk) [Off-Balance Sheet Arrangements](index=42&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2020, and December 31, 2019, the company had no material off-balance sheet arrangements, and it enters into customary indemnification agreements in the ordinary course of business, for which no material costs have been incurred, and liabilities are considered minimal - The company had no material off-balance sheet arrangements as of June 30, 2020, and December 31, 2019[210](index=210&type=chunk) - Customary indemnification provisions are entered into with third parties, but no material costs have been incurred, and the estimated fair value of liabilities is minimal[211](index=211&type=chunk) [Critical Accounting Policies and New Accounting Pronouncements](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20New%20Accounting%20Pronouncements) This section highlights critical accounting policies, including share-based payments, other derivative financial instruments, convertible instruments, revenue recognition, goodwill, and intangible assets, reiterating the five-step revenue recognition process and the accounting for the Exclusive License Agreement, and refers to Note 3 for details on recently adopted and new accounting pronouncements, which had no material impact - Critical accounting policies include share-based payments, other derivative financial instruments, convertible instruments, revenue recognition, goodwill, and intangible assets[214](index=214&type=chunk)[215](index=215&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - Revenue recognition follows a five-step process, recognizing revenue over time, including royalty payments from the Exclusive License Agreement[219](index=219&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - Goodwill impairment of **$2,938,653** was recognized in 2019, but there was no impairment during the six months ended June 30, 2020, for either goodwill or intangible assets[223](index=223&type=chunk)[224](index=224&type=chunk) - Recently adopted accounting pronouncements (ASU 2018-13 and ASU 2016-13) did not have a material impact on the company's financial position, results of operations, or cash flow[32](index=32&type=chunk)[33](index=33&type=chunk)[225](index=225&type=chunk) [Non-GAAP Financial Information](index=44&type=section&id=Non-GAAP%20Financial%20Information) The company presents non-GAAP financial measures, EBITDA and Adjusted EBITDA, as supplemental performance indicators, with EBITDA being net income (loss) before interest, taxes, depreciation, and amortization, and Adjusted EBITDA further excluding non-recurring items like litigation expense and stock compensation, though these measures have limitations such as not reflecting cash outlays for capital expenditures or working capital - The company presents EBITDA and Adjusted EBITDA as supplemental non-GAAP financial measures to assess financial performance[226](index=226&type=chunk)[227](index=227&type=chunk) - EBITDA is calculated as net income (loss) before interest expense, income tax benefit (expense), depreciation, and amortization[226](index=226&type=chunk) - Adjusted EBITDA further excludes certain non-recurring adjustments such as loss on conversion of convertible debentures, change in fair value of financial instruments, and stock compensation expense[226](index=226&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (Six Months Ended June 30): | Metric | 2020 | 2019 | | :-------------------------- | :------------- | :------------- | | Net loss | $(1,585,400) | $(1,462,444) | | Addback interest expense | $6,263 | $0 | | Addback interest income | $(11,096) | $0 | | Addback depreciation and amortization | $94,802 | $78,863 | | **EBITDA (non-GAAP)** | **$(1,495,431)** | **$(1,386,581)** | | Addback litigation expense | $267,840 | $0 | | Addback stock compensation expense | $168,514 | $339,361 | | **Adjusted EBITDA (non-GAAP)** | **$(1,059,077)** | **$(1,044,220)** | - Limitations of these non-GAAP measures include not reflecting cash outlays for capital expenditures, changes in working capital, or cash requirements for asset replacements[229](index=229&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[232](index=232&type=chunk) [ITEM 4. Controls and Procedures](index=45&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, with the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter, other than personnel changes and allocation of work to outside vendors [Evaluation of Disclosure Controls and Procedures](index=45&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of June 30, 2020, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective in ensuring timely and accurate reporting of required information - Management, with the Principal Executive Officer and Principal Financial Officer, concluded that disclosure controls and procedures were effective as of June 30, 2020[233](index=233&type=chunk) - The condensed consolidated financial statements and other information in the report are believed to fairly present the company's business, financial condition, and results of operations[234](index=234&type=chunk) [Changes in Internal Control over Financial Reporting](index=45&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, other than personnel changes and the allocation of accounting work to outside vendors - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, other than personnel changes and the allocation of work to outside vendors[235](index=235&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, unregistered sales of equity securities, defaults on senior securities, mine safety disclosures, other information, and a list of exhibits [ITEM 1. Legal Proceedings](index=46&type=section&id=ITEM%201.%20Legal%20Proceedings) This section incorporates by reference the detailed information on legal proceedings from Note 15, 'Commitments and Contingencies,' of the condensed consolidated financial statements - Information regarding legal proceedings is incorporated by reference from Note 15 – Commitments and Contingencies[236](index=236&type=chunk) [ITEM 1A. Risk Factors](index=46&type=section&id=ITEM%201A.%20Risk%20Factors) This section updates and expands on the risks disclosed in the 2019 Form 10-K, highlighting significant concerns such as the company's ability to increase sales or raise capital to avoid cash shortfalls, the uncertainty of revenue generation from new collaborations (Transcend, Osang), product liability risks for medical kits, the adverse impact of the COVID-19 pandemic on operations and demand, potential dilution from outstanding equity instruments, reliance on a few key customers and vendors, and the inherent uncertainties of backlog realization and net operating loss utilization - There is a risk of cash shortfall over the next twelve months if the company is not successful in increasing sales or raising additional capital, despite recent public offerings[238](index=238&type=chunk)[239](index=239&type=chunk) - There is no assurance that collaborations with Transcend (modular medical units) or the Distributorship Agreement with Osang (COVID-19 test kits) will be successful or generate significant revenue[240](index=240&type=chunk)[241](index=241&type=chunk) - Product liability and other claims related to Osang's GeneFinder COVID-19 Plus RealAmp Kit may have material adverse effects on the business, despite indemnification agreements and insurance[242](index=242&type=chunk)[243](index=243&type=chunk) - The COVID-19 pandemic is expected to adversely impact the company's ability to source products, product pricing, customer financing, and cause project delays, with unpredictable size and duration[244](index=244&type=chunk) - The issuance of shares upon the exercise of outstanding options, warrants, and restricted stock units (totaling **445,545** shares as of August 10, 2020) may dilute the percentage ownership of existing stockholders[247](index=247&type=chunk) - The loss of one or a few significant customers (e.g., **69%** of H1 2020 revenue from three customers) could have a material adverse effect on the business[248](index=248&type=chunk) - Reliance on certain key vendors (e.g., **75%** of H1 2020 cost of revenue related to four vendors) for materials and products could adversely affect the business if supply is disrupted[249](index=249&type=chunk) - The company's backlog of approximately **$17.3 million** (June 30, 2020) is not necessarily indicative of future revenues or earnings, as contracts are subject to cancellation, termination, or scope adjustments[250](index=250&type=chunk) - The company could suffer adverse tax and other financial consequences if it is unable to utilize its net operating loss carryforwards (approximately **$12.9 million** at December 31, 2019)[252](index=252&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds that have not been previously disclosed - No unregistered sales of equity securities or use of proceeds have occurred that were not previously disclosed in SEC filings[253](index=253&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=49&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report - No defaults upon senior securities[254](index=254&type=chunk) [ITEM 4. Mine Safety Disclosures](index=49&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[255](index=255&type=chunk) [ITEM 5. Other Information](index=49&type=section&id=ITEM%205.%20Other%20Information) There is no other information to report under this item - No other information to report under this item[256](index=256&type=chunk) [ITEM 6. Exhibits](index=49&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including underwriting agreements, consulting agreements, distributorship agreements, and certifications - The exhibits include various agreements such as Underwriting Agreements, a Consulting Agreement, Distributorship Agreements, and certifications by the Chief Executive Officer and Chief Financial Officer[258](index=258&type=chunk) [SIGNATURES](index=51&type=section&id=SIGNATURES) The report is duly signed on behalf of SG Blocks, Inc. by Paul M. Galvin, Chief Executive Officer and Chairman of the Board, on August 13, 2020 - The report was signed by Paul M. Galvin, Chief Executive Officer and Chairman of the Board, on behalf of SG Blocks, Inc. on August 13, 2020[263](index=263&type=chunk)