UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
Delaware |
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(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol(s) |
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Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 |
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SGBX |
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The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Emerging growth company |
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Smaller reporting company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ ☒
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☒ No ☐
As of August 5, 2019, there were
SG BLOCKS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
SG BLOCKS, INC. AND SUBSIDIARIES
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June 30, 2019 |
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December 31, 2018 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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Total current liabilities |
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Commitments and contingencies (Note 12) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2 |
SG BLOCKS, INC. AND SUBSIDIARIES
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For the Three Months Ended June 30, |
For the Three Months Ended June 30, |
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For the Six Months Ended June 30, |
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For the Six Months Ended June 30, |
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2019 |
2018 |
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2019 |
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2018 |
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(Unaudited) | (Unaudited) |
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(Unaudited) |
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(Unaudited) |
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Revenue: |
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Block sales | $ | $ | $ | $ | ||||||||||||
Construction services |
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Engineering services |
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Total |
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Cost of revenue: |
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Block sales | ||||||||||||||||
Construction services |
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Engineering services |
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Total |
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Gross profit |
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Operating expenses: |
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Payroll and related expenses |
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General and administrative expenses |
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Marketing and business development expense |
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Pre-project expenses |
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Total |
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Operating loss |
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Other income (expense): |
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Interest income |
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Other income |
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Total |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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Net loss per share - basic and diluted: |
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Basic and diluted |
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Weighted average shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
SG BLOCKS, INC. AND SUBSIDIARIES
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$0.01 Par Value |
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Additional |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance – March 31, 2019 |
$ | $ | $ | ( |
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Stock-based compensation | — | — | — | |||||||||||||||||
Issuance of common stock, net of issuance costs | — | |||||||||||||||||||
Net loss | — | — | — | ( |
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Balance – June 30, 2019 | $ | $ | $ | ( |
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Balance – December 31, 2018 |
$ | $ | $ | ( |
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Stock-based compensation |
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— |
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— |
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— |
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Issuance of common stock, net of issuance costs | — | |||||||||||||||||||
Net loss |
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— |
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— |
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Balance – June 30, 2019 |
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$ |
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$ |
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$ |
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$0.01 Par Value |
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Additional |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance – March 31, 2018 | $ | $ | $ | ( |
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Stock-based compensation | — | — | — | |||||||||||||||||
Net loss | — | — | — | ( |
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Balance – June 30, 2018 |
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$ |
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$ |
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$ |
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Balance – December 31, 2017 |
$ | $ | $ | ( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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Balance – June 30, 2018 |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
SG BLOCKS, INC. AND SUBSIDIARIES
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For the Six Months Ended June 30, |
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For the Six Months Ended June 30, |
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(Unaudited) |
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(Unaudited) |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation expense |
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Amortization of intangible assets |
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Bad debt expense (benefit) | ( |
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Interest income on short-term investment |
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Stock-based compensation |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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Prepaid expenses and other current assets |
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Accounts payable and accrued expenses |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Proceeds from short-term investment |
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Purchase of property, plant and equipment |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from public stock offering, net of issuance costs | |||||||
Net cash provided by financing activities |
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Net decrease in cash and cash equivalents | ( |
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Cash and cash equivalents - beginning of period | |||||||
Cash and cash equivalents - end of period | $ | $ | |||||
Supplemental disclosure of non-cash operating activities: | |||||||
Non cash conversion of accrued salary to restricted stock units | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
SG BLOCKS, INC. AND SUBSIDIARIES
1. |
Description of Business |
SG Blocks, Inc. (collectively with its subsidiaries, the “Company,” “we”, “us” or “our”) was previously known as CDSI Holdings, Inc., a Delaware corporation incorporated on December 29, 1993. On November 4, 2011, CDSI Merger Sub, Inc., the Company’s wholly-owned subsidiary, was merged with and into SG Building Blocks, Inc. (“SG Building,” formerly SG Blocks Inc.) (the “Merger”), with SG Building surviving the Merger and becoming a wholly-owned subsidiary of the Company. The Merger was a reverse merger that was accounted for as a recapitalization of SG Building, as SG Building was the accounting acquirer. Accordingly, the historical financial statements presented are the financial statements of SG Building.
The Company provides two main products, both of which are used to meet the growing demand for safe and green commercial, industrial and residential building construction. The Company provides SGBlocksTM, code engineered cargo shipping containers that the Company modifies for use in construction. Rather than consuming new steel and lumber, SGBlocksTM capitalize on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. They offer the construction industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods. The Company also provides purpose-built modules (“SGPBMs” and, together with SGBlocksTM, “Modules”), which are prefabricated steel modular units created specifically for use in modular construction, unlike the shipping containers used to create SGBlocksTM.
The Company also provides engineering and project management services related to the use and modification of Modules in construction.
6 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
2. |
Liquidity |
The Company has prepared its condensed consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business. However, the Company has incurred net losses since its inception and has negative operating cash flows, which raise substantial doubt about its ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.
As of June 30, 2019, the Company had cash and cash equivalents of $
2019 |
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Within 1 year | $ | ||||
1 to 2 years |
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Thereafter |
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Total Backlog | $ |
The Company completed an equity offering in April 2019, which resulted in net proceeds of approximately $
On July 1, 2019, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $
Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted a grace period of 180 calendar days, or until December 30, 2019, to regain compliance with the minimum closing bid price requirement for continued listing. To regain compliance, the closing bid price of the Company’s shares of common stock must meet or exceed $
If the Company does not regain compliance with Rule 5550(a)(2) by December 30, 2019, the Company may be eligible for an additional 180-calendar day compliance period. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the minimum bid price, and provide written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that its common stock will be subject to delisting.
The Company intends to monitor the closing bid price of its common stock and consider its available options in the event that the closing bid price of its common stock remains below $
7 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
3. |
Summary of Significant Accounting Policies |
Basis of presentation and principals of consolidation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 29, 2019. In the opinion of management, all adjustments, consisting of normal accruals, considered necessary for a fair presentation of the interim financial statements have been included. Results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, SG Building Blocks, Inc. and SG Residential, Inc. All significant intercompany accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
Recently adopted accounting pronouncements – New accounting pronouncements implemented by the Company are discussed below or in the related notes, where appropriate.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The update’s principal objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing their right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than twelve months. The update is effective for fiscal years beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), which provides entities with an additional transition method. Under ASU 2018-11, entities have the option of recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB also issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), which clarifies how to apply certain aspects of ASU 2016-02. The Company adopted ASU 2016-02, ASU 2018-10 and ASU 2018-11 effective January 1, 2019. The Company had no operating or finance lease agreements as of June 30, 2019. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s financial statements and disclosures.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. Under ASC 718, the measurement date for equity-classified, share-based awards is generally the grant date of the award. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The Company adopted ASU 2018-07 effective January 1, 2019. The adoption provides administrative relief by fixing the remaining unamortized expense of the award and eliminating the requirement to quarterly re-measure the Company’s nonemployee awards. The adoption of ASU No. 2018-07 did not have a material impact on the Company’s financial statements and disclosures.
8 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
3. |
Summary of Significant Accounting Policies (continued) |
Recently issued accounting pronouncements not yet adopted – New accounting pronouncements requiring implementation in future periods are discussed below.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), to simplify the test for goodwill impairment by removing Step 2. An entity will, therefore, perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASU is on a prospective basis. Based on current evaluation, the Company does not expect that ASU No. 2017-04 will have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). This ASU amends ASC 820 to add, remove and modify certain disclosure requirements for fair value measurements. For example, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management does not expect the adoption of ASU 2018-13 to have a material impact on the Company’s financial position, results of operations or cash flow.
Accounting estimates – The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant areas that require the Company to make estimates include revenue recognition, stock-based compensation and allowance for doubtful accounts. Actual results could differ from those estimates.
Operating cycle – The length of the Company’s contracts varies, but is typically between six to twelve months. In some instances, the length of the contract may exceed twelve months. Assets and liabilities relating to current and long-term contracts are included in current assets and current liabilities, respectively, in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, which at times could exceed one year.
9 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
3. |
Summary of Significant Accounting Policies (continued) |
Revenue recognition – The Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e., percentage of completion). The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time—regardless of the length of contract or other factors. The recognition of revenue aligns with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with its revenue policy:
(1) Identify the contract with a customer;
(2) Identify the performance obligations in the contract;
(3) Determine the transaction price;
(4) Allocate the transaction price to performance obligations in the contract; and
(5) Recognize revenue as performance obligations are satisfied.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress toward complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.
Disaggregation of Revenues
The Company’s revenues are principally derived from construction and engineering contracts related to Modules. Our contracts are with many different customers in numerous industries.
The following tables provide further disaggregation of the Company’s revenues by categories:
Three Months Ended June 30, |
||||||||||||||||
Revenue by Customer Type |
2019 |
2018 |
||||||||||||||
Multi-Family |
$ |
|
|
% |
$ |
|
|
% | ||||||||
Office |
|
|
% |
|
|
% |
||||||||||
Retail |
|
|
% |
|
|
% |
||||||||||
School |
|
|
% |
|
|
% |
||||||||||
Special Use |
|
|
% |
|
|
% | ||||||||||
Other |
( |
) |
|
% |
|
|
% |
|||||||||
Total revenue by customer type |
$ |
|
|
% |
$ |
|
|
% |
Six Months Ended June 30, |
||||||||||||||||
Revenue by Customer Type |
2019 |
2018 |
||||||||||||||
Multi-Family |
$ |
|
|
% |
$ |
|
|
% | ||||||||
Office |
|
|
% |
|
|
% |
||||||||||
Retail |
|
|
% |
|
|
% |
||||||||||
School |
|
|
% |
|
|
% |
||||||||||
Special Use |
|
|
% |
|
|
% | ||||||||||
Other |
( |
) |
|
% |
|
|
% |
|||||||||
Total revenue by customer type |
$ |
|
|
% |
$ |
|
|
% |
10 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
3. |
Summary of Significant Accounting Policies (continued) |
Contract Assets and Contract Liabilities
Accounts receivable are recognized in the period when the Company’s right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.
The timing of revenue recognition may differ from the timing of invoicing to customers.
Contract assets include unbilled amounts from long-term construction services when revenue recognized under the cost-to-cost measure of progress exceeds the amounts invoiced to customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Contract assets are generally classified as current within the condensed consolidated balance sheets and labeled as “costs and estimated earnings in excess of billings on uncompleted contracts”.
Contract liabilities from construction and engineering contracts occur when amounts invoiced to customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contract liabilities are generally classified as current within the condensed consolidated balance sheet and labeled as “billings in excess of costs and estimated earnings on uncompleted contracts”.
Although the Company believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.
Cash and cash equivalents – The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less upon acquisition. Cash and cash equivalents totaled $
Short-term investment – The Company classifies any investment with a maturity greater than six months but less than one year as a short-term investment. The Company had short-term investments as of June 30, 2019 or December 31, 2018.
Accounts receivable and allowance for doubtful accounts – Accounts receivable are receivables generated from sales to customers and progress billings on performance type contracts. Amounts included in accounts receivable are deemed to be collectible within the Company’s operating cycle. The Company recognizes account receivable at invoiced amounts.
The allowance for doubtful accounts reflects the Company's best estimate of probable losses inherent in the accounts receivable balances. Management provides an allowance for doubtful accounts based on the Company’s historical losses, specific customer circumstances, and general economic conditions. Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have been exhausted and the prospects for recovery are remote. Recoveries are recognized when they are received. Actual collection losses may differ from the Company’s estimates and could be material to its consolidated financial position, result of operations, and cash flows.
Inventory – Raw construction materials (primarily shipping containers) are valued at the lower of cost (first-in, first-out method) or net realizable value. Finished goods and work-in-process inventories are valued at the lower of cost or net realizable value, using the specific identification method. There was
11 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
3. |
Summary of Significant Accounting Policies (continued) |
Goodwill – The Company performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying values. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, management performs the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. The Company’s evaluation of goodwill completed during the year ended December 31, 2018 resulted in
Intangible assets – The Company evaluated intangible assets for impairment during the year ended December 31, 2018, and determined that there were no impairment losses. The accumulated amortization as of June 30, 2019 and 2018 was $
|
For the year ended December 31, |
|
|
|
|
|
2019 |
|
$ |
|
|
|
2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
Property, plant and equipment – Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated lives of each asset. Estimated useful life for significant classes of assets are as follows: computer and software
Common stock purchase warrants and other derivative financial instruments – The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if any event occurs and if that event is outside the Company’s control) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.
Fair value measurements – Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are carried at cost, which the Company believes approximates fair value due to the short-term nature of these instruments.
The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
12 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
3. |
Summary of Significant Accounting Policies (continued) |
The Company uses three levels of inputs that may be used to measure fair value:
|
Level 1 |
Quoted prices in active markets for identical assets or liabilities. |
|
Level 2 |
Quoted prices for similar assets and liabilities in active markets or inputs that are observable. |
|
Level 3 |
Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions). |
Share-based payments – The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, including non-employee directors, the fair value of a stock option award is measured on the grant date. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. The Company recognizes stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award. Stock-based compensation expense to employees and all directors is reported within payroll and related expenses in the consolidated statements of operations. Stock-based compensation expense to non-employees is reported within marketing and business development expense in the consolidated statements of operations.
Income taxes – The Company accounts for income taxes utilizing the asset and liability approach. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the liabilities are no longer determined to be necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.
Concentrations of credit risk – Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. The Company has not experienced any losses in its account and believes that it is not exposed to any significant credit risk on the account.
With respect to receivables, concentrations of credit risk are limited to a few customers in the construction industry. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights. At June 30, 2019 and December 31, 2018,
Revenue relating to
Cost of revenue relating to
13 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
4. |
Accounts Receivable |
At June 30, 2019 and December 31, 2018, the Company’s accounts receivable consisted of the following:
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
|||
Billed: |
|
|
|
|
|
|
|||
Block sales |
|
$ |
|
|
|
$ |
|
|
|
Construction services |
|||||||||
Engineering services |
|
|
|
|
|
|
|
|
|
Retainage receivable |
|
|
|
|
|
|
|
|
|
Other receivable |
|||||||||
Total gross receivables |
|
|
|
|
|
|
|
|
|
Less: allowance for doubtful accounts (1) |
|
|
( |
) |
|
|
( |
) |
|
Total net receivables |
|
$ |
|
|
|
$ |
|
|
|
(1) The allowance for doubtful accounts is primarily due to unpaid billings on a contract that is currently in dispute. |
5. |
Contract Assets and Contract Liabilities |
Costs and estimated earnings on uncompleted contracts consisted of the following at June 30, 2019 and December 31, 2018:
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Costs incurred on uncompleted contracts |
|
$ |
|
|
|
$ |
|
|
|
Estimated earnings to date on uncompleted contracts |
|
|
|
|
|
|
|
|
|
Gross contract assets |
|
|
|
|
|
|
|
|
|
Less: billings to date |
|
|
( |
) |
|
|
( |
) |
|
Net contract assets (liabilities) |
|
$ |
( |
) |
|
$ |
( |
) |
The above amounts are included in the accompanying consolidated balance sheets under the following captions at June 30, 2019 and 2018:
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
$ |
|
|
|
$ |
|
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
|
( |
) |
|
|
( |
) |
|
Net contract assets (liabilities) |
|
$ |
( |
) |
|
$ |
( |
) |
Although management believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.
14 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
6. |
Property, Plant and Equipment |
Property, plant and equipment are stated at cost less accumulated depreciation and amortization and depreciated using the straight-line method over their useful lives. At June 30, 2019 and December 31, 2018, the Company’s property, plant and equipment, net consisted of the following:
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Computer equipment and software |
|
$ |
|
|
|
$ |
|
|
|
Furniture and other equipment |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
Depreciation expense for the six months ended June 30, 2019 and 2018 amounted to $
7. |
Net Income (Loss) Per Share |
Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive.
At June 30, 2019, there were options, including options granted to non-employees and non-directors, restricted stock units and warrants to purchase
15 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
8. |
Construction Backlog |
The following represents the backlog of signed construction and engineering contracts in existence at June 30, 2019 and December 31, 2018, which represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress and from contractual agreements in effect at June 30, 2019 and December 31, 2018, respectively, on which work has not yet begun:
June 30, 2019 |
December 31, 2018 |
||||||||
|
Balance - beginning of period |
|
$ |
|
|
|
$ |
|
|
|
New contracts and change orders during the period, net |
|
|
|
|
|
|
|
|
Adjustments and cancellations, net | ( |
) | ( |
) | |||||
|
Subtotal |
|
|
|
|
|
|
|
|
|
Less: contract revenue earned during the period |
|
|
( |
) |
|
|
( |
) |
|
Balance - end of period |
|
$ |
|
|
|
$ |
|
|
Backlog at June 30, 2019 included
The Company’s remaining backlog as of June 30, 2019 represents the remaining transaction price of firm contracts for which work has not been performed and excludes unexercised contract options. As of June 30, 2019, the aggregate amount of the transaction price allocated to backlog was $
The Company expects to satisfy its backlog which represents the remaining unsatisfied performance obligation on contracts as of June 30, 2019 over the following period:
2019 |
|||||
Within 1 year | $ | ||||
1 to 2 years |
|||||
Thereafter |
|||||
Total Backlog | $ |
Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost and project deferrals, as appropriate.
16 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
9. |
Stockholders’ Equity |
Public Offering – In June 2017, the Company issued
In July 2017, as permitted by the underwriting agreement entered into in connection with the Public Offering, the underwriters exercised their option to purchase an additional
In connection with and prior to the Public Offering, the Company issued
Securities Purchase Agreement – In April 2019, the Company issued
Decrease in Authorized Shares – On June 5, 2019, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to decrease the number of authorized shares of common stock from
10. |
Warrants |
In conjunction with the Public Offering, the Company issued to certain affiliates of the underwriters, as compensation, warrants to purchase an aggregate of
In conjunction with the Purchase Agreement in April 2019, the Company also sold warrants to purchase up to an aggregate of
17 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
11. |
Share-based Compensation |
On October 26, 2016, the Company’s Board of Directors approved the issuance of up to
Stock-Based Compensation Expense
Stock-based compensation expense is included in the consolidated statements of operations as follows:
Three Months Ended |
Six Months Ended June 30, |
|||||||||||||||
2019 |
2018 |
2019 | 2018 | |||||||||||||
|
Payroll and related expenses |
$ | $ |
|
$ |
|
|
|
$ |
|
|
|||||
Marketing and business development expenses | ||||||||||||||||
|
Total |
$ | $ |
|
$ |
|
|
|
$ |
|
|
The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations:
Three Months Ended |
Six Months Ended June 30, |
|||||||||||||||
2019 |
2018 |
2019 | 2018 | |||||||||||||
|
Stock options |
$ | $ |
|
$ |
|
|
|
$ |
|
|
|||||
|
Restricted stock units |
|
|
|
|
|
|
|
|
|||||||
Total | $ | $ | $ | $ |
Stock-Based Option Awards
The fair value of the stock-based option awards granted during the six months ended June 30, 2019 and 2018, were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:
|
|
|
2019 |
|
2018 |
||||
|
Expected dividend yield |
|
|
|
% |
% | |||
|
Expected stock volatility |
|
|
|
% |
% | |||
|
Risk-free interest rate |
|
|
|
% |
% | |||
|
Expected life |
|
|
|
|
18 |
SG BLOCKS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
11. |
Share-based Compensation (continued) |
Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards granted to employees. The simplified method is calculated by averaging the vesting period and contractual term of the options.
The following table summarizes stock-based option activities and changes during the six months ended June 30, 2019. The table includes options granted to employees and directors of the Company, as described below:
|
|
|
Shares |
|
|
Weighted Average Fair Value Per Share |
|
|
Weighted |
|
|
Weighted Average Remaining Terms (in years) |
|
|
Aggregate Intrinsic Value |
|
|||||
|
Outstanding – December 31, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding – June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Exercisable – December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable – June 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|