Business Wire | Aug 13, 2020 04:05PM EDT

SG Blocks Reports Second Quarter 2020 Financial Results

Aug. 13, 2020

BROOKLYN, N.Y.--(BUSINESS WIRE)--Aug. 13, 2020--SG Blocks, Inc. (Nasdaq: SGBX) ("SG Blocks" or the "Company"), a leading designer, innovator and fabricator of container-based structures, reported its financial results for the second quarter ended June 30, 2020.

Management Commentary

"Despite the challenges presented by the Covid 19 pandemic, in the second quarter SG Blocks was able to advance its core mission, raised a sufficient capital reserve for operations, and established a supply chain for the fabrication and distribution of container based medical laboratory services and diagnostic centers and the sale of Covid-19 tests," commented Paul Galvin, CEO of SG, Blocks.

"The receipt of the final planning approval for Monticello Mews is a significant milestone that will help launch SG Residential, the Company's licensee, which is also actively building in Puerto Rico," Galvin added. "These royalty streams represent recurring revenue with the potential to earn substantial revenues from the three phases of this 300+ unit project."

Galvin continued, "We continued to sign new business throughout the year, the most notable of which was a $4 million manufacturing contract in the south Florida hospitality market. This contract alone potentially represents a 300% increase in revenue over the trailing 4 quarters."

"The Distribution agreement with OSANG healthcare for its Covid 19 test, our product lines in the education and medical sectors with Grimshaw Architects and our ability to sell and distribute OSANG's Gene Finder tests throughout North America are all designed to create recurring revenue for the Company," Galvin continued. "Having access to Grimshaw's unparalleled global supply chain greatly increases the number of addressable markets for our products."

Galvin concluded, "We expect the efforts and progress in Q2 will serve as a catalyst for the rest of 2020 and into the new year."

Second Quarter 2020 Financial Highlights:

* Revenue of approximately $629,000, as compared to approximately $728,000 in Q2 2019. * Gross profit of approximately $374,000, as compared to approximately $267,000 in Q2 2019. * Net loss of approximately $838,000, or $(0.16) per basic and diluted share, as compared to a net loss of approximately $972,000, or $(4.02) per basic and diluted share, in Q2 2019. * Adjusted EBITDA loss of approximately $533,000, as compared to a loss of approximately $755,000 in Q2 2019. (See below for further discussion about the presentation of Adjusted EBITDA, a non-GAAP financial measurement). * Completed a public offering of 440,000 shares of common stock at an offering price of $4.25 per common share for aggregate net proceeds of approximately $1.5 million after deducting underwriting discounts and commissions and other expenses related to the offering. * Completed a public offering of 6,900,000 shares of common stock, including the exercise of the over-allotment option, at an offering price of $2.50 per common share for aggregate gross proceeds of approximately $15.6 million after deducting underwriting discounts and commissions and other expenses related to the offering.

Second Quarter 2020 and Subsequent Operational Highlights:

* Construction backlog decreased to approximately $17.3 million as of June 30, 2020, as compared to $17.6 million as of December 31, 2019. The decrease in backlog is primarily attributable to work in progress or completed contracts during the first six months of 2020. * 12 projects under contract, performed activity on 12 projects during Q2 2020. * Awarded a contract of approximately $4.0 million to manufacture a boutique, mixed-use hospitality project featuring 24 hospitality units in South Florida, subsequent to Q2 2020. * Monticello project received final site planning approval from the Village of Monticello and is now poised to begin excavation on the site. This project is expected to yield 302 units of workforce housing once completed by our licensee. * Entered into an agreement with Grimshaw Architects for the design and deployment of a variety of medical modules to allow for point-of-care testing, lab services and other medical procedures. * Completed US Customs import license and FDA registration process related to COVID-19 test kits. * Announced agreement with RhoHouse LLC, a technology-focused housing start up, to bring well-designed, affordable houses to market using RhoHouse's CORE modules. * Announced partnership with Grimshaw Architects to build prefabricated modular based education facilities. * Other business projects in process: Entered into agreement subsequent to Q2 2020 for completion of 40 office boxes in Puerto Rico under our license agreement. Executed purchase orders for two experiential pop-up containers for the University of West Virginia, subsequent to Q2 2020. Executed a design contract for a restaurant expansion in Georgia, subsequent to Q2 2020. "MoLiving" mobile hospitality prototype project for Arizona Investissements is on track to be completed in Q3 2020. "Planet Smoothie" project to be completed in Q3 2020, the project has reached its final construction phase, pending shipment to final destination in Djibouti, Africa. Previously announced Verizon store was completed in Denver area, subsequent to Q2 2020.

Second Quarter 2020 Financial Results

Revenue was approximately $629,000 compared to $728,000 in Q2 2019.

The Company's backlog decreased to approximately $17.3 million as of June 30, 2020, as compared to approximately $17.6 million at December 31, 2019. The decrease in backlog is primarily attributable to work in progress or completed contracts during the first six months of 2020.

Gross profit was approximately $374,000 as compared to approximately $267,000 in Q2 2019.

Operating expenses decreased by approximately $24,000 to approximately $1.21 million in Q2 2020 compared to approximately $1.24 million in Q2 2019. The decrease was driven by a reduction in payroll and related expenses of approximately $253,000 and a reduction in marketing and business development expense of approximately $53,000, which was partially offset by an increase in general and administrative expenses, primarily due to higher legal fees and consulting expenses, of $260,000.

Net loss totaled approximately $838,000, or $(0.16) per basic and diluted share, compared to a net loss of approximately $972,000, or $(4.02) per basic and diluted share, in Q2 2019.

Adjusted EBITDA loss was approximately $533,000 compared to an Adjusted EBITDA loss of approximately $755,000 in Q2 2019. See below under the heading "Use of Non-GAAP Financial Information" for a discussion of Adjusted EBITDA and a reconciliation of such measure to the most comparable measure calculated under U.S. generally accepted accounting principles ("GAAP").

Balance Sheet

Cash and cash equivalents at June 30, 2020 totaled approximately $16.1 million, as compared to approximately $1.6 million at December 31, 2019.

Further details about the Company's results will be available in its Quarterly Report on Form 10-Q, accessible in the investor relations section of the Company's website at www.sgblocks.com and through the U.S. Securities and Exchange Commission's website.

Conference Call Information

SG Blocks' CEO, Paul Galvin, and Acting CFO, Gerald Sheeran, will host a listen only conference call.

To access the call, please use the following information:

Date: Thursday, August 13, 2020

Time: 4:30 p.m. ET, 1:30 p.m. PT

Toll-free dial-in number: 1-844-407-9716

International dial-in number: 1-201-493-6779

Conference ID: 13708167



Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Hayden IR at (646) 755-7412 or james@haydenir.com.

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=141187 and via the investor relations section of the Company's website at www.sgblocks.com.

A replay of the conference call will be available on August 13, 2020, after 7:30 p.m. Eastern time, through August 27, 2020.

Toll-free replay number: 1-844-512-2921

International replay number: 1-412-317-6671

Replay ID: 13708167



Use of Non-GAAP Financial Information

In addition to its results under GAAP, the Company presents EBITDA and Adjusted EBITDA for historical periods. EBITDA and Adjusted EBITDA are non-GAAP financial measures and have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. The Company calculates EBITDA as net income (loss) before interest expense, income tax benefit (expense), depreciation and amortization. It calculates Adjusted EBITDA as EBITDA before certain non-recurring adjustments such stock-based compensation expense. EBITDA and Adjusted EBITDA are presented because they are important metrics used by management as one of the means by which it assesses the Company's financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company's industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing the Company and its results of operations.

EBITDA and Adjusted EBITDA have certain limitations. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income (loss), or any other measures of financial performance derived in accordance with GAAP. These measures also should not be construed as an inference that the Company's future results will be unaffected by unusual or non-recurring items for which these non-GAAP measures make adjustments. Additionally, EBITDA and Adjusted EBITDA are not intended to be liquidity measures because of certain limitations, including, but not limited to:

* They do not reflect the Company's cash outlays for capital expenditures; * They do not reflect changes in, or cash requirements for, working capital; and * Although depreciation and amortization are non-cash charges, the assets are being depreciated and amortized and may have to be replaced in the future, and these non-GAAP measures do not reflect cash requirements for such replacements.

The non-GAAP information should be read in conjunction with the Company's consolidated financial statements and related notes.

The following is a reconciliation of EBITDA and Adjusted EBITDA to the nearest GAAP measure, net loss:

Three Months Three Months Six Six Ended June Ended June 30, 2020 30, 2020 Months Ended Months Ended June 30, 2020 June 30, 2020

Net loss $ (837,973 ) $ (971,709 ) $ (1,585,400 ) $ (1,462,444 )

Addbackinterest 3,452 - 6,263 - expense

Addbackinterest (6,233 ) - (11,096 ) - income

Addbackdepreciation 47,401 39,417 94,802 78,863 andamortization

EBITDA (793,353 ) (932,292 ) (1,495,431 ) (1,383,581 )(non-GAAP)

AddbackLitigation 131,102 - 267,840 - Expense

Addback stockcompensation 129,750 176,868 168,514 339,361 expense

AdjustedEBITDA $ (532,501 ) $ (755,424 ) $ (1,059,077 ) $ (1,044,220 )(non-GAAP)



About SG Blocks, Inc.

SG Blocks, Inc. is a premier innovator in advancing and promoting the use of code-engineered cargo shipping containers for safe and sustainable construction. The firm offers a product that exceeds many standard building code requirements, and also supports developers, architects, builders and owners in achieving greener construction, faster execution, and stronger buildings of higher value. Each project starts with GreenSteel(tm), the structural core and shell of an SG Blocks building, and then customized to client specifications. For more information, visit www.sgblocks.com.

Safe Harbor Statement

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by terminology such as "may," "should," "potential," "continue," "expects," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions and includes statements such as the potential to earn substantial revenues from the three phases of the Monticello Mews 300+ unit project, the $4 million manufacturing contract in the south Florida hospitality market potentially representing a 300% increase in revenue over the trailing 4 quarters, the efforts and progress in Q2 serving as a catalyst for the rest of 2020 and into the new year, finishing construction of the Planet Smoothie container-based structure in Q3 2020, and the "MoLiving" mobile hospitality prototype project for Arizona Investissements being on track to be completed in Q3 2020. These forward-looking statements are based on management's expectations and assumptions as of the date of this press release and are subject to a number of risks and uncertainties, many of which are difficult to predict that could cause actual results to differ materially from current expectations and assumptions from those set forth or implied by any forward-looking statements. Important factors that could cause actual results to differ materially from current expectations include, among others, the Company's ability to generate revenues as expected from the three phases of the Monticello Mews 300+ unit project, the Company's ability to generate revenues as expected from the $4 million manufacturing contract in the south Florida hospitality market, the Company's ability to build on the efforts and progress in Q2 for the rest of 2020 and into the new year, the Company's ability to complete construction of the Planet Smoothie container-based structure as scheduled, the Company's ability to complete construction of the "MoLiving" mobile hospitality prototype project for Arizona Investissements as scheduled, the Company's ability to achieve positive outcomes from the license of its residential technology, the Company's ability to successfully distribute and generate revenue from the GeneFinder(tm) COVID-19 Plus RealAmp Kit(tm), the Company's ability to capitalize on new commercial and military opportunities, the Company's ability to maintain compliance with the NASDAQ listing requirements, and the other factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and the Company's subsequent filings with the SEC, including subsequent periodic reports on Forms 10-Q and 8-K. The information in this release is provided only as of the date of this release, and we undertake no obligation to update any forward-looking statements contained in this release on account of new information, future events, or otherwise, except as required by law.

SG BLOCKS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

June 30, December 31, 2020 2019

(Unaudited)

Assets

Current assets:

Cash and cash equivalents $ 16,112,907 $ 1,625,671

Accounts receivable, net 1,584,252 1,101,185

Contract assets 11,830 106,015

Prepaid expenses and other current assets 277,034 73,938

Total current assets 17,986,023 2,906,809



Property, plant and equipment, net 9,899 11,747

Goodwill 1,223,520 1,223,520

Long-term note receivable 661,096 -

Intangible assets, net 2,226,244 2,298,805

Deferred contract costs, net 173,337 193,730

Total Assets $ 22,280,119 $ 6,634,611



Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses $ 1,863,384 $ 2,105,505

Contract liabilities 148,851 168,957

Total current liabilities 2,012,235 2,274,462



Commitments and contingencies



Stockholders' equity:

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

Common stock, $0.01 par value, 25,000,000shares authorized; 8,596,189 issued andoutstanding as of June 30, 2020 and 1,157,890 85,962 11,579 issued and outstanding as of December 31,2019

Additional paid-in capital 39,351,139 21,932,387

Accumulated deficit (19,169,217 ) (17,583,817 )

Total stockholders' equity 20,267,884 4,360,149

Total Liabilities and Stockholders' Equity $ 22,280,119 $ 6,634,611



SG BLOCKS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

For the For the For the For the

Three Months Three Months Six Months Six Months Ended Ended Ended Ended

June 30, June 30, June 30, June 30,

2020 2019 2020 2019

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Revenue:

Construction $ 534,526 $ 675,170 $ 623,867 $ 2,333,244 services

Engineering 94,423 52,738 203,838 129,788 services

Total 628,949 727,908 827,705 2,463,032



Cost of revenue:

Construction 193,208 435,671 265,119 1,594,900 services

Engineering 61,508 24,919 142,372 56,709 services

Total 254,716 460,590 407,491 1,651,609



Gross profit 374,233 267,318 420,214 811,423



Operating expenses:

Payroll andrelated 392,338 645,627 664,146 1,284,177 expenses

General andadministrative 766,750 506,664 1,258,064 839,664 expenses

Marketing andbusiness 30,899 84,216 63,237 131,575 developmentexpense

Pre-project 25,000 2,520 25,000 18,451 expenses

Total 1,214,987 1,239,027 2,010,447 2,273,867



Operating loss (840,754 ) (971,709 ) (1,590,233 ) (1,462,444 )



Other income (expense):

Interest (3,452 ) - (6,263 ) - expense

Interest 6,233 - 11,096 - income

Total 2,781 - 4,833 -



Loss before (837,973 ) (971,709 ) (1,585,400 ) (1,462,444 )income taxes

Income tax - - - - expense



Net loss $ (837,973 ) $ (971,709 ) $ (1,585,400 ) $ (1,462,444 )



Net loss pershare - basic and diluted:

Basic and $ (0.16 ) $ (4.02 ) $ (0.48 ) $ (6.43 )diluted



Weightedaverage shares outstanding:

Basic and 5,369,132 241,881 3,278,913 227,602 diluted



SG BLOCKS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity(Unaudited)

$0.01 Par Value Additional Total Accumulated Common Stock Paid-in Stockholders'

Shares Amount Capital Deficit Equity

Balance atMarch 31, 1,170,524 $ 11,705 $ 21,970,903 $ (18,331,244 ) $ 3,651,364 2020

Stock-based - - 129,750 - 129,750 compensation

Conversionofrestricted 12,000 120 (120 ) - - stock unitsto commonstock

Conversionof debt 73,665 737 205,526 - 206,263 exchange tocommon stock

Issuance ofcommonstock, net 7,340,000 73,400 17,045,080 - 17,118,480 of issuancecosts

Net loss - - - (837,973 ) (837,973 )

Balance atJune 30, 8,596,189 $ 85,962 $ 39,351,139 $ (19,169,217 ) $ 20,267,884 2020



Balance atDecember 31, 1,157,890 $ 11,579 $ 21,932,387 $ (17,583,817 ) $ 4,360,149 2019

Stock-based - - 168,514 - 168,514 compensation

Conversionofrestricted 24,672 246 (246 ) - - stock unitsto commonstock

Reversestock split (38 ) - (122 ) - (122 )settlement

Conversionof debt 73,665 737 205,526 - 206,263 exchange tocommon stock

Issuance ofcommonstock, net 7,340,000 73,400 17,045,080 - 17,118,480 of issuancecosts

Net loss - - - (1,585,400 ) (1,585,400 )

Balance atJune 30, 8,596,189 $ 85,962 $ 39,351,139 $ (19,169,217 ) $ 20,267,884 2020

$0.01 Par Value Additional Total Accumulated Common Stock Paid-in Stockholders'

Shares Amount Capital Deficit Equity

Balance atMarch 31, 213,002 $ 2,130 $ 17,958,022 $ (11,154,012 ) $ 6,806,140 2019

Stock-based - - 231,182 - 231,182 compensation

Issuance ofcommonstock, net 42,388 424 552,285 - 552,709 of issuancecosts

Net loss - - - (971,709 ) (971,709 )

Balance atJune 30, 255,390 $ 2,554 $ 18,741,489 $ (12,125,721 ) $ 6,618,322 2019



Balance atDecember 31, 213,002 $ 2,130 $ 17,741,214 $ (10,663,277 ) $ 7,080,067 2018

Stock-based - - 447,990 - 447,990 compensation

Issuance ofcommonstock, net 42,388 424 552,285 - 552,709 of issuancecosts

Net loss - - - (1,462,444 ) (1,462,444 )

Balance atJune 30, 255,390 $ 2,554 $ 18,741,489 $ (12,125,721 ) $ 6,618,322 2019



SG BLOCKS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Six Months For the Six Months Ended June 30, Ended June 30, 2020 2019

(Unaudited) (Unaudited)

Cash flows from operating activities:

Net loss $ (1,585,400 ) $ (1,462,444 )

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

Depreciation expense 1,848 6,301

Amortization of intangible assets 72,561 72,562

Amortization of deferred license costs 20,393 -

Bad debt expense (benefit) - (54,000 )

Interest income on long-term note (11,096 ) - receivable

Stock-based compensation 168,514 339,361

Changes in operating assets and liabilities:

Accounts receivable (483,067 ) 351,820

Contract assets 94,185 239,524

Prepaid expenses and other current (203,096 ) 756,393 assets

Accounts payable and accrued expenses (235,858 ) (846,261 )

Contract liabilities (20,106 ) (1,150,458 )

Net cash used in operating activities (2,181,122 ) (1,747,202 )



Cash flows provided by investing activities:

Advances in note receivable (650,000 ) -

Net cash used in investing activities (650,000 ) -



Cash flows from financing activities:

Proceeds from public stock offering, 17,118,480 552,709 net of issuance costs

Proceeds from long-term note payable 200,000 -

Settlement of common stock from (122 ) - reverse stock split

Net cash provided by financing 17,318,358 552,709 activities



Net increase (decrease) in cash and 14,487,236 (1,194,493 )cash equivalents



Cash and cash equivalents - beginning 1,625,671 1,368,395 of period



Cash and cash equivalents - end of $ 16,112,907 $ 173,902 period





Supplemental disclosure of non-cash operating activities:

Non-cash conversion of long-term note $ 200,000 $ - payable to common stock

Non-cash conversion of accruedinterest of long-term note payable to 6,263 - common stock

Non-cash conversion of accrued salaryto restricted stock units to common - 108,629 stock

Total non-cash operating activities $ 206,263 $ 108,629



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