Restricted stock units granted to Mr. Galvin, Mr. Armstrong, Mr. Shetty, and an aggregate of six employees and one consultant of 122,785, 15,432, 114,575 and an aggregate of 61,266, respectively, vest in installments over either a one-year, two-year, three-year and four-year period and will fully vest by the end of December 31, 2022. The fair value of these units upon issuance amounted to $847,957. Intangible assets represent the preliminary assets identified upon emergence from bankruptcy and consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years and $1,113,000 of customer contracts which is being amortized over 2.5 years. In addition, included in intangible assets is $ 28,820 of trademarks and $5,300 of website which is being amortized over 5 years. These options vest in equal installments over a two-year and three-year period and will fully vest by the end of March 31, 2021. The length of the Company's contracts varies, but is typically between six to twelve months. false true Non-accelerated Filer 2019 Q2 --12-31 false 0001023994 0 false 0 false 954463937 0.82 0.85 The Warrant will be exercisable beginning six (6) months after the date of issuance and expire five (5) years after the date of the prospectus supplement filed in connection with the offering (the “Prospectus Supplement”). The Warrant will be exercisable at a price per share of $1.0625, which is equal to 125% of the initial public offering price of the shares sold in the offering. The Warrant may be exercised in whole or in part, and provides for “cashless” exercise, “piggyback” registration rights for two (2) years from the date of the initial exercise date of the Warrant, a one-time demand registration right on Form S-3 when available for five (5) years from the date of the Underwriting Agreement and customary anti-dilution protection in the event of stock splits, stock dividends, recapitalizations and the like. 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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, 2019

 

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

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

  

195 Montague Street,  14th Floor, Brooklyn, NY

 

11201

(Address of principal executive offices)

 

(Zip Code)

 

(646) 240-4235

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.01

 

SGBX

 

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.

Yes     No 

 

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


Accelerated filer

Non-accelerated filer


Emerging growth company

Smaller reporting company




 

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     No 

 




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 6,007,791 shares of the registrant’s common stock, $0.01 par value, outstanding.

 

 

 




SG BLOCKS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

 

TABLE OF CONTENTS

​​​

 

1


PART I. FINANCIAL INFORMATION


ITEM 1.     Financial Statements


SG BLOCKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


 

June 30,

2019

 

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

173,902

 

 

$

1,368,395

 

Accounts receivable, net

 

 

1,448,506

 

 

 

1,746,326

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

20,801

 

 

 

260,325

 

Prepaid expenses and other current assets

 

 

230,294

 

 

 

986,687

 

Total current assets

 

 

1,873,503

 

 

 

4,361,733

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

65,036

 

 

 

71,337

 

Goodwill

 

 

4,162,173

 

 

 

4,162,173

 

Intangible assets, net

 

 

2,371,367

 

 

 

2,443,929

 

Total Assets

 

$

8,472,079

 

 

$

11,039,172

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,669,328

 

 

$

2,624,218

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

184,429

 

 

 

1,334,887

 

Total current liabilities

 

 

1,853,757

 

 

 

3,959,105

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value, 5,405,010 shares authorized; none issued or outstanding 

 

 

 

 

 

 

Common stock, $0.01 par value, 25,000,000 shares authorized as of June 30, 2019 and 300,000,000 shares authorized as of December 31, 2018; 5,107,791 issued and outstanding as of June 30, 2019 and 4,260,041 issued and outstanding as of December 31, 2018

 

 

51,079

 

 

 

42,601

 

Additional paid-in capital

 

 

18,692,964

 

 

 

17,700,743

 

Accumulated deficit

 

 

(12,125,721

)

 

 

(10,663,277

)

Total stockholders’ equity

 

 

6,618,322

 

 

 

7,080,067

 

Total Liabilities and Stockholders’ Equity

 

$

8,472,079

 

 

$

11,039,172

 

 

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


2


SG BLOCKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 



For the

Three Months Ended

June 30,




For the

Three Months Ended

June 30,


 

For the

Six Months Ended

June 30,


 

For the

Six Months Ended

June 30,

 

 



2019



2018

 

2019


 

2018

 

 



(Unaudited) 


(Unaudited) 

 

(Unaudited) 


 

(Unaudited) 

 

Revenue:







 

 


 

 

 

Block sales
$

$ 42,799

$

$ 42,799

Construction services



675,170


2,262,998

 


2,333,244


 


3,806,526

 

Engineering services



52,738



 

 

129,788


 

 

 

Total  



727,908


2,305,797

 

 

2,463,032


 

 

3,849,325

 

 









 

 

 


 

 

 

 

Cost of revenue:









 

 

 


 

 

 

 

Block sales




33,084





33,084

Construction services



435,671


2,241,141

 

 

1,594,900


 

 

3,621,071

 

Engineering services



24,919



 

 

56,709


 

 

 

Total  



460,590


2,274,225

 

 

1,651,609


 

 

3,654,155

 

 









 

 

 


 

 

 

 

Gross profit



267,318


31,572

 

 

811,423


 

 

195,170

 

 









 

 

 


 

 

 

 

Operating expenses:









 

 

 


 

 

 

 

Payroll and related expenses



645,627


572,612

 

 

1,284,177


 

 

978,029

 

General and administrative expenses



506,664


555,087

 

 

839,664


 

 

981,362

 

Marketing and business development expense



84,216


97,541

 

 

131,575


 

 

178,588

 

Pre-project expenses



2,520


45,000

 

 

18,451


 

 

49,964

 

Total



1,239,027


1,270,240

 

 

2,273,867


 

 

2,187,943

 

 









 

 

 


 

 

 

 

Operating loss



(971,709 )

(1,238,668 )

 

 

(1,462,444)

  

 

(1,992,773

)

 









 

 

 


 

 

 

 

Other income (expense):









 

 

 


 

 

 

 

Interest income







 

 


 

 

4

 

Other income





5,764





5,764

Total






5,764

 

 


 

 

5,768


 









 

 

 


 

 

 

 

Loss before income taxes 



(971,709 )

(1,232,904 )

 

 

(1,462,444

)

  

 

(1,987,005

)

Income tax expens  







 

 


 

 

 

 









 

 

 


 

 

 

 

Net loss


$ (971,709 )
$ (1,232,904 )

 

$

(1,462,444

)

$

(1,987,005

)

 









 

 

 


 

 

 

 

Net loss per share - basic and diluted:









 

 

 


 

 

 

 

Basic and diluted


$ (0.20 )
$ (0.29 )

 

$

(0.32

)

  

$

(0.47

)

 









 

 

 


 

 

 

 

Weighted average shares outstanding:









 

 

 


 

 

 

 

Basic and diluted



4,837,629


4,260,041

 

 

4,552,004


 

 

4,260,041

 

 

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


3



SG BLOCKS, INC. AND SUBSIDIARIES  

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)


 

 

$0.01 Par Value
Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 


Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 


Equity

 

Balance – March 31, 2019


4,260,041

$ 42,601

$ 17,917,551

$ (11,154,012 )
$ 6,806,140
Stock-based compensation







231,182





231,182
Issuance of common stock, net of issuance costs

847,750


8,478


544,231





552,709
Net loss










(971,709 )

(971,709 )
Balance  June 30, 2019

5,107,791

$ 51,079

$ 18,692,964

$ (12,125,721 )
$ 6,618,322





















Balance – December 31, 2018


4,260,041

$ 42,601

$ 17,700,743

$ (10,663,277 )
$ 7,080,067

Stock-based compensation

 

 

 

 

 

 

 

 

447,990

 

 

 

 



447,990

 

Issuance of common stock, net of issuance costs

847,750


8,478


544,231





552,709

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,462,444

)

(1,462,444 )

Balance – June 30, 2019

 

 

5,107,791

 

 

$

51,079

 

 

$

18,692,964

 

 

$

(12,125,721

)
$ 6,618,322

 

 

 

 

$0.01 Par Value
Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 


Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 


Equity

 

Balance – March 31, 2018

4,260,041

$ 42,601

$ 17,384,518

$ (6,573,357 )
$ 10,853,762
Stock-based compensation







85,325





85,325
Net loss










(1,232,904 )

(1,232,904 )

Balance – June 30, 2018

 

 

4,260,041

 

 

$

42,601

 

 

$

17,469,843

 

 

$

(7,806,261

)
$ 9,706,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




 

Balance – December 31, 2017


4,260,041

$ 42,601

$ 17,304,529

$ (5,819,256 )
$ 11,527,874

Stock-based compensation

 

 

 

 

 

 

 

 

165,314

 

 

 

 



165,314

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,987,005

)

(1,987,005 )

Balance – June 30, 2018

 

 

4,260,041

 

 

$

42,601

 

 

$

17,469,843

 

 

$

(7,806,261

)
$ 9,706,183

 


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


4


SG BLOCKS, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

For the

Six Months Ended

June 30,
2019

 

For the

Six Months Ended

June 30,
2018

 

 

 

(Unaudited) 

 

(Unaudited) 

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(1,462,444

)

$

(1,987,005

)

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

 

 

 

 

 

 

 

Depreciation expense

 

 

6,301

 

 

1,879

 

Amortization of intangible assets

 

 

72,562

 

 

294,632

 

Bad debt expense (benefit)

(54,000 )

Interest income on short-term investment

 

 

 

 

(4

)

Stock-based compensation

 

 

339,361

 

 

165,314

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

351,820

 

 

778,191


Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

239,524

 

 

(70,217

)

Prepaid expenses and other current assets

 

 

756,393

 

 

(52,436

)

Accounts payable and accrued expenses

 

 

(846,261

)

 

(159,237

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

(1,150,458

)

 

(847,580

Net cash used in operating activities

 

 

(1,747,202

)

 

(1,876,463

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from short-term investment

 

 

 

 

30,037

 

Purchase of property, plant and equipment

 

 

 

 

(3,784

)

Net cash provided by investing activities

 

 

 

 

26,253


 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

    Proceeds from public stock offering, net of issuance costs

552,709


Net cash provided by financing activities

 

 

552,709

 

 

 

 

 

 
Net decrease in cash and cash equivalents

(1,194,493 )
(1,850,210 )








Cash and cash equivalents - beginning of period

1,368,395

4,870,824








Cash and cash equivalents - end of period
$ 173,902
$ 3,020,614







Supplemental disclosure of non-cash operating activities:






Non cash conversion of accrued salary to restricted stock units
$ 108,629
$


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


5



SG BLOCKS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)

 

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 $173,902 and a backlog of $70.8 million. See Note 8 for a discussion of construction backlog. Based on our conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period: 



   
2019


Within 1 year
$ 14,324,626

1 to 2 years


34,500,000

Thereafter


21,944,107


Total Backlog
$ 70,768,733


The Company completed an equity offering in April 2019, which resulted in net proceeds of approximately $552,709. See Note 9 for a discussion of the offering. The Company completed an equity offering in August 2019, which resulted in net proceeds of approximately $587,000. See Note 13 for a discussion of the offering. The Company believes that it has adequate cash balances to meet obligations and further intends to meet its capital needs by containing costs and entering into strategic alliances, as well as exploring other options, including the possibility of raising additional debt or equity capital as necessary. There is, however, no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive. The Company does not have any additional sources secured for future funding, and if it is unable to raise the necessary capital at the times it requires such funding, it may need to materially change its business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.


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 $1.00 for 30 consecutive business days, the Company no longer meets the minimum bid price requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share.


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 $1.00 per share for at least ten consecutive business days during this 180-day grace period.


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 $1.00 per share. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements.

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

$

41,319

6



$

210,814

9

%

Office

82,294

11



229,727

10


Retail

606,725

83



416,976

18


School



1,100,403

48


Special Use



330,965

14

%

Other

(2,430

)

%

16,912

1


Total revenue by customer type

$

727,908

100



$

2,305,797

100

%



Six Months Ended June 30,

Revenue by Customer Type

2019


2018


Multi-Family 

$

112,191

5



$

210,814

5

%

Office

1,207,897

49



593,356

15


Retail

1,137,384

46



531,920

14


School



1,860,238

48


Special Use

6,812



636,085

17

%

Other

(1,252

)

%

16,912

1


Total revenue by customer type 

$

2,463,032

100



$

3,849,325

100

%


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 $173,902 as of June 30, 2019 and $1,368,395 as of December 31, 2018.

 

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 no 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 no inventory as of June 30, 2019 or December 31, 2018.


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 no impairment losses.


Intangible assets Intangible assets represent the preliminary assets identified upon emergence from bankruptcy and consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years and $1,113,000 of customer contracts which was being amortized over 2.5 years. In addition, intangible assets include $28,820 of trademarks and $5,300 of website costs which are being amortized over 5 years. 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 $1,541,753 and $1,174,205, respectively. The amortization expense for the three months ended June 30, 2019 and 2018 was $36,281 and $147,316, respectively. The amortization expense for the six months ended June 30, 2019 and 2018 was $72,562 and $294,632, respectively. The estimated amortization expense for the successive five years is as follows: 

  

 

For the year ended December 31,

 

 

 

 

2019

 

$

72,562

 

 

2020

 

 

145,124

 

 

2021

 

 

145,124

 

 

2022

 

 

140,800

 

 

2023

 

 

139,007

 

 

Thereafter

 

 

1,728,750

 

 

 

 

$

2,371,367

 

 

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 3 to 5 years and equipment 5 to 7 years. Repairs and maintenance are charged to expense when incurred.

 

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 taxesThe 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, 89% and 76%, respectively, of the Company’s gross accounts receivable were due from two customers.

 

Revenue relating to two customers represented approximately 91% and 60% of the Company’s total revenue for the three months ended June 30, 2019 and 2018, respectively. Revenue relating to two and one customers represented approximately 87% and 48% of the Company’s total revenue for the six months ended June 30, 2019 and 2018, respectively.

 

Cost of revenue relating to three and two vendors represented approximately 92% and 73% of the Company’s total cost of revenue for the three months ended June 30, 2019 and 2018, respectively. Cost of revenue relating to three and two vendors represented approximately 92% and 60% of the Company’s total cost of revenue for the six months ended June 30, 2019 and 2018, respectively. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

 

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

 

$

 

 

$

14,723

 


Construction services


1,373,493


1,619,498

Engineering services

 

 

307,991

 

 

 

400,877

 


Retainage receivable

 

 

544,911

 

 

 

543,417

 


Other receivable


8,006


7,706

Total gross receivables

 

 

2,234,401

 

 

 

2,586,221

 


Less: allowance for doubtful accounts (1)

 

 

(785,895

)

 

 

(839,895

)


Total net receivables

 

$

1,448,506

 

 

$

1,746,326

 


(1) The allowance for doubtful accounts is primarily due to unpaid billings on a contract that is currently in dispute.


Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables. The allowance for doubtful accounts was $785,895 as of June 30, 2019. There was no provision for doubtful accounts, $54,000 collected for doubtful accounts and no write offs for the six months ended June 30, 2019. The provision for doubtful accounts was $810,580 and write offs were $4,920 for the year ended December 31, 2018.   

   

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

 

$

11,636,297

 

 

$

11,307,975

 

 

Estimated earnings to date on uncompleted contracts

 

 

1,299,731

 

 

 

838,615

 

 

Gross contract assets

 

 

12,936,028

 

 

 

12,146,590

 

 

Less: billings to date

 

 

(13,099,656

)

 

 

(13,221,152

)

 

    Net contract assets (liabilities)

 

$

(163,628

)

 

$

(1,074,562

)

 

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

 

$

20,801

 

 

$

260,325

 

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

(184,429

)

 

 

(1,334,887

)

 

    Net contract assets (liabilities)

 

$

(163,628

)

 

$

(1,074,562

)

 

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

 

$

39,193

 

 

$

39,193

 

 

Furniture and other equipment

 

 

63,479

 

 

 

63,479

 

 

      Property, plant and equipment

 

 

102,672

 

 

 

102,672

 

 

Less: accumulated depreciation

 

 

(37,636

)

 

 

(31,335

)

 

      Property, plant and equipment, net

 

$

65,036

 

 

$

71,337

 

 

Depreciation expense for the six months ended June 30, 2019 and 2018 amounted to $6,301 and $1,879, respectively. 

 

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 1,080,059, 530,712 and 1,018,775 shares of common stock, respectively, outstanding that could potentially dilute future net income (loss) per share. Because the Company had a net loss for the three and six months ended June 30, 2019, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, the Company has used the same number of shares outstanding to calculate both the basic and diluted loss per share. At June 30, 2018, there were options, including options to non-employees and non-directors, and warrants to purchase 1,188,392 and 86,250 shares of common stock, respectively, outstanding that could potentially dilute future net income (loss) per share.


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

 

$

97,657,379

 

 

$

76,659,029

 

 

New contracts and change orders during the period, net

 

 

145,745

 

 

58,805,877

 


Adjustments and cancellations, net 

(24,571,359 )

(29,616,815 )

 

Subtotal  

 

 

73,231,765

 

 

 

105,848,091

 

 

Less: contract revenue earned during the period

 

 

(2,463,032

)

 

 

(8,190,712

)

 

Balance - end of period

 

$

70,768,733

 

 

$

97,657,379

 

 

Backlog at June 30, 2019 included two large contracts entered into by the Company during the third quarter of 2017 in the amounts of approximately $55 million and $15 million, respectively. The Company expects that all of this revenue will be realized by June 30, 2022. During the fourth quarter of 2018, the Company moved a contract of $27.5 million out of backlog and into its pipeline until the customer completes a highest and best use analysis of the land. During the second quarter of 2019, the Company moved a $25.0 million contract out of backlog after receiving a cancellation notice from the customer. The customer has requested arbitration to resolve contractual issues related to pricing and scope of work performed on the contract. 


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 $70,768,733.


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
$ 14,324,626

1 to 2 years


34,500,000

Thereafter


21,944,107


Total Backlog
$ 70,768,733


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 1,500,000 shares of its common stock at $5.00 per share through a public offering (the “Public Offering”). The Company incurred $1,388,615 in issuance costs from the Public Offering and issued 75,000 warrants valued at $55,475 to the underwriters (as discussed in Note 10).

 

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 225,000 shares of common stock at $5.00 per share. The Company incurred $176,771 in issuance costs from this issuance. In connection with this exercise, certain affiliates of the underwriters were granted additional warrants to purchase 11,250 shares of common stock in the aggregate valued at $8,321 (as discussed in Note 10). 

 

In connection with and prior to the Public Offering, the Company issued 1,801,670 shares of its common stock upon conversion of all outstanding preferred stock and 516,667 shares of its common stock upon conversion of the previously outstanding convertible debentures.


Securities Purchase Agreement – In April 2019, the Company issued 847,750 shares of its common stock at $1.10 per share through a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors and accredited investors. Concurrently with the sale of the common stock, pursuant to the Purchase Agreement, the Company also sold common stock purchase warrants to such investors to purchase up to an aggregate of 847,750 shares of common stock.  The Company incurred $379,816 in issuance costs from the offering and issued 84,775 warrants to the underwriters. The warrants are further discussed in Note 10.


Decrease in Authorized Shares – On June 5, 2019, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to decrease the number of authorized shares of common stock from 300,000,000 to 25,000,000 shares. Following the meeting, on June 5, 2019, the Company filed a certificate of amendment to the amended and restated certificate of incorporation to decrease its authorized shares of common stock accordingly. There was no change to the number of authorized shares of preferred stock.  

 

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 86,250 shares of common stock at an exercise price of $6.25 per share. The warrants are exercisable at the option of the holder on or after June 21, 2018 and expire June 21, 2023. The fair value of warrants was calculated utilizing a Black-Scholes model and amounted to $63,796. The fair market value of the warrants as of the date of issuance has been included in issuance costs in additional paid-in capital. 


In conjunction with the Purchase Agreement in April 2019, the Company also sold warrants to purchase up to an aggregate of 847,750 shares of common stock at an initial exercise price of $1.375 per share. The warrants are exercisable at the option of the holder on or after October 29, 2019 and expire October 29, 2024. The Company issued to certain affiliates of the underwriters, as compensation, warrants to purchase an aggregate of 84,775 shares of common stock at an initial exercise price of $1.375 per share. The warrants are exercisable at the option of the holder on or after October 29, 2019 and expire April 24, 2024.  


  

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 500,000 shares of the Company’s common stock in the form of restricted stock or options (“2016 Stock Plan”). Effective January 20, 2017, the 2016 Stock Plan was amended and restated as the SG Blocks, Inc. Stock Incentive Plan, as further amended effective June 1, 2018 (the “Incentive Plan”). The Incentive Plan authorizes the issuance of up to 2,500,000 shares of common stock. It authorizes the issuance of equity-based awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards to non-employee directors and to officers, employees and consultants of the Company and its subsidiaries, except that incentive stock options may only be granted to the Company’s employees and its subsidiary’s employees. The Incentive Plan expires on October 26, 2026, and is administered by the Compensation Committee of the Board of Directors of the Company. Each of the Company’s employees, directors, and consultants are eligible to participate in the Incentive Plan. As of June 30, 2019, there were 836,426 shares of common stock available for issuance under the Incentive Plan.


Stock-Based Compensation Expense 


Stock-based compensation expense is included in the consolidated statements of operations as follows:  



 

Three Months Ended
June 30,



Six Months Ended

June 30,




2019


2018


2019
2018

   

Payroll and related expenses 

$ 170,118

$ 85,325

   

$

332,611

   

   

$

165,314

   


Marketing and business development expenses
6,750





6,750



 

       Total

$ 176,868

$ 85,325

   

$

339,361

   

 

$

165,314

   

 

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




Three Months Ended
June 30,



Six Months Ended

June 30,




2019


2018


 2019

2018

 

Stock options

$ 40,098

$ 85,325

   

$

72,196

  

  

$

165,314

   

 

Restricted stock units


136,770



   

 

267,165

  

  

 

   


Total $ 176,868

$ 85,325

$ 339,361

$ 165,314


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

 

 

68.35

%



25.70 %

 

Risk-free interest rate

 

 

2.44

%



2.56 %

 

Expected life

 

 

3.00

 



5.00

 

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
Average Exercise Price Per Share

 

 

Weighted Average Remaining Terms (in years)

 

 

Aggregate Intrinsic Value

 

 

Outstanding – December 31, 2018

 

 

1,105,059

 

 

$

1.24

 

 

$

4.06

 

 

 

8.41

 

 

$

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(25,000

)

 

 

 

 

 

 

 

 


 

 

 

 

 

 

Outstanding – June 30, 2019

 

 

1,080,059

 

 

 

1.24

 

 

 

4.05

 

 

 

7.90

 

 

$

 

 

Exercisable – December 31, 2018

 

 

949,355

 

 

 

1.23

 

 

 

4.00

 

 

 

8.30

 

 

 

 

 

Exercisable – June 30, 2019

 

 

997,273

 

 

$

1.24

 

 

$

4.03