Introduction and Certain Cautionary Statements





As used in this Quarterly Report, unless the context requires otherwise,
references to the "Company," "we," "us," and "our" refer to SG Blocks, Inc. and
its subsidiaries. The following discussion and analysis of the financial
condition and results of our operations should be read in conjunction with our
unaudited condensed consolidated financial statements and related notes and
schedules included elsewhere in this Quarterly Report on Form 10-Q and with our
audited condensed consolidated financial statements and notes for the year ended
December 31, 2019, which were included in our Annual Report for the year then
ended December 31, 2019, as filed with the Securities and Exchange Commission
(the "SEC") on March 30, 2020 and Amendment No. 1 thereto filed with the SEC on
April 15, 2020 (the "2019 Form 10-K"). This discussion, particularly information
with respect to our future operations, includes forward-looking statements that
involve risks and uncertainties as described under the heading "Special note
regarding forward-looking statements" in this Quarterly Report on Form10-Q. You
should review the disclosure under the heading "Risk Factors" in this Quarterly
Report on Form 10-Q for a discussion for important factors that could cause our
actual results to differ materially from those anticipated in these
forward-looking statements.

Special note regarding forward-looking statements



               This Quarterly Report on Form-10Q contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed in the forward-looking statements. The
statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements
contained in this Quarterly Report on Form 10-Q may use forward-looking
terminology, such as "anticipates," "believes," "could," "would," "estimates,"
"may," "might," "plan," "expect," "intend," "should," "will," or other
variations on these terms or their negatives. All statements other than
statements of historical facts are statements that could potentially be
forward-looking. The Company cautions that forward-looking statements involve
risks and uncertainties and actual results could differ materially from those
expressed or implied in these forward-looking statements or could affect the
extent to which a particular objective, projection, estimate or prediction is
realized. Factors that could cause or contribute to such differences include,
but are not limited to: general economic, political and financial conditions,
both in the United States and internationally; our ability to obtain additional
financing on acceptable terms, if at all, or to obtain additional capital in
other ways; our ability to increase sales, generate income, effectively manage
our growth and realize our backlog; competition in the markets in which we
operate, including the consolidation of our industry, our ability to expand into
and compete in new geographic markets and our ability to compete by protecting
our proprietary manufacturing process; a disruption or cybersecurity breach in
our or third-party suppliers' information technology systems; our ability to
adapt our products and services to industry standards and consumer preferences
and obtain general market acceptance of our products; product shortages and the
availability of raw materials, and potential loss of relationships with key
vendors, suppliers or subcontractors; the seasonality of the construction
industry in general, and the commercial and residential construction markets in
particular; a disruption or limited availability with our third party
transportation vendors; the loss or potential loss of any significant customers;
exposure to product liability, including the possibility that our liability for
estimated warranties may be inadequate, and various other claims and litigation;
our ability to attract and retain key employees; our ability to attract private
investment for sales of product; the credit risk from our customers and our
customers' ability to obtaining third-party financing if and as needed; an
impairment of goodwill; the impact of federal, state and local regulations,
including changes to international trade and tariff policies, and the impact of
any failure of any person acting on our behalf to comply with applicable
regulations and guidelines; costs incurred relating to current and future legal
proceedings or investigations; the cost of compliance with environmental, health
and safety laws and other local building regulations; our ability to utilize our
net operating loss carryforwards and the impact of changes in the United States'
tax rules and regulations; dangers inherent in our operations, such as natural
or man-made disruptions to our facilities and project sites, the impact of
COVID-19, and related government "shelter-in-place" mandates and other
restrictions on business and commercial activity and the adequacy of our
insurance coverage; our ability to comply with the requirements of being a
public company; fluctuations in the price of our common stock, including
decreases in price due to sales of significant amounts of stock; potential
dilution of the ownership of our current stockholders due to, among other
things, public offerings or private placements by the Company or issuances upon
the exercise of outstanding options or warrants and the vesting of restricted
stock units; the ability of our principal stockholders, management and directors
to potentially exert control due to their ownership interest; any ability to pay
dividends in the future; potential negative reports by securities or industry
analysts regarding our business or the construction industry in general;
Delaware law provisions discouraging, delaying or preventing a merger or
acquisition at a premium price; our ability to remain listed on the
Nasdaq Capital Market and the possibility that our stock will be subject to
penny stock rules; our classification as a smaller reporting company resulting
in, among other things, a potential reduction in active trading of our common
stock or increased volatility in our stock price; and any factors discussed in
"Part II - Item 1A. Risk Factors" to this Quarterly Report on Form 10-Q as well
as our 2019 Form 10-K and other filings with the Securities Exchange Commission.
In addition, certain information presented below is based on unaudited financial
information. There can be no assurance that there will be no changes to this
information once audited financial information is available. As a result,
readers are cautioned not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date of this report. The Company
will not undertake to update any forward-looking statement herein or that may be
made from time to time on behalf of the Company.

33

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Overview





Using our proprietary technology and design and engineering expertise, we modify
code-engineered cargo shipping containers and purpose-built modules for use for
safe and sustainable commercial, industrial and residential building
construction. Rather than consuming new steel and lumber, our proprietary
technology and design and engineering expertise allows for the redesign,
repurpose and conversion of heavy-gauge steel cargo shipping containers into
SGBlocks™, which are safe green building blocks for commercial, industrial, and
residential building construction. Our technology and expertise is also used to
purpose-build modules, or prefabricated steel modular units customized for use
in modular construction ("SGPBMs" and, together with SGBlocks™, "Modules"),
primarily to augment or complement an SGBlocks™ structure. Our core customer
base is comprised of architects, landowners, builders and developers who use our
Modules in commercial and residential structures. Our operating model combines
product design and outsourcing of the modifications and finish out of Modules
using proprietary algorithms developed by the Company to produce and deliver
Modules across the country. We believe this combination enables us to generate
economies of scale while maintaining high customer service levels in the
environmentally-friendly construction space.



Prior to October 2019, our business model was solely a project-based
construction model pursuant to which we were responsible for the design and
construction of finished products that incorporated our technology primarily to
customers in the multi-family housing, restaurant, military and education
industries throughout the United States. In October 2019, we changed our
business model for our residential building construction to a royalty fee model
when we entered into a five year exclusive license with CPF GP 2019-1 LLC
("CPF") pursuant to which CPF licensed on an exclusive bases our proprietary
technology, intellectual property, any improvements thereto, and any related
permits, with the right to develop and commercialize products in the United
States and its territories within the field of design and project management
platforms for residential use, including, without limitation, single-family
residences and multi-family residences, but specifically excluding military
housing. CPF, at the time the License Agreement was entered into, was already a
significant customer for our Modules and had completed a $5.0 million equity
financing to develop a 302-unit multifamily project in Sullivan County, New
York. Now, in the United States with respect to residential construction (other
than residential construction for the military) we are no longer responsible for
constructing the Modules that are based on our technology or the related costs
and instead that service is performed by CPF and its subcontractors and our
revenue for such residential construction is no longer generated from sales of
products direct to the end customer but instead is generated from royalties
received from CPF based on the gross revenue that CPF receives from sales of
products that are based upon our technology.


In April 2020, we expanded our product offerings and began focusing on the
medical projects when we entered into the COVID-19 diagnostic market through a
collaboration for our distribution of COVID-19 diagnostic tests manufactured by
Osang Healthcare Co., Ltd., ("Osang").  We have subsequently entered into
additional collaborations for the distribution of Osang's diagnostic tests  as
well as collaborations for the use of our modular technology for the building

of medical test centers that will include COVID-19 testing.

34

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Recent Business Developments




           On July 6, 2020, we entered into a Joint Development Agreement

with

Grimshaw Design, LLC ("Grimshaw"). Our joint agreement is to develop a prototype
and "proof of concept" for a scalable, customizable and rapidly deployable
educational facility with classrooms, spaces for teaching, workshops, dining,
recreation, sports and/or other education-related purposes, based upon
Grimshaw's designs and utilizing our container-cased or other modular
structures, or pre-fabricated modular structures jointly developed by us and
Grimshaw.


On August 27, 2020, we entered into a joint venture agreement with Clarity Lab
Solutions, LLC ("Clarity Labs") (the "JV"). Clarity Labs is a licensed clinical
laboratory that uses specialized molecular testing equipment and that focuses on
the diagnosis and treatment of critical diseases, including COVID-19. Clarity
Labs is also engaged in the business of manufacturing, importing and
distributions various medical tests. Under the JV, we, along with Clarity Labs
will jointly market, sell, and distributed certain products and services
("Clarity Mobile Venture"). As of September 30, 2020, the only activity of
Clarity Mobile Venture was a cash transfer from the Company and is included in
the condensed consolidated financial statements. On November 16, 2020, we
announced that the State of Hawaii had selected Clarity Labs and Clarity Mobile
Venture to provide COVID-19 testing and clinical laboratory at Los Angeles
International Airport ("LAX") for testing of passengers travelling
between Los Angeles and Hawaii.


On September 17, 2020, we, through our wholly owned subsidiary SG Echo LLC ("SG
Echo"), entered into an Asset Purchase Agreement ("Asset Purchase Agreement")
with Echo DCL, LLC, a Texas limited liability company ("Echo") a
container/modular manufacturer that had been a supplier of ours, to acquire
substantially all the assets of Echo, except for Echo's real estate holdings,
for which SG Echo has obtained a right of first refusal to acquire same. On
September 23, 2020, we, SG Echo and Echo completed the transactions as
contemplated by the Asset Purchase Agreement (the "Closing").


Pursuant to the terms of the Asset Purchase Agreement, at the Closing we paid to
Echo an aggregate of $1,059,600 in cash, subject to the escrow of certain of the
purchase price funds, and SG Echo agreed to pay certain of Echo's indebtedness,
including the obligation to (i) satisfy a Guidance Line of Credit loan ("GLOC
Loan") in the principal amount of approximately $616,000 ($316,432 of which
payoff proceeds was delivered by Echo to SG Echo at the closing), (ii) pay the
debt service on certain of Echo's indebtedness in the approximate principal
amount of $1.7 million for 12 months following the closing, (iii) payoff at
maturity a certain line of credit of Echo with BTH Bank in the principal amount
of $500,000, and (iv) pay earn out payments equal to the net income received
from the acquired business during the 3-month period beginning on the first day
of the first full month that is 3 months after the closing date, the 3-month
period following the first earn out period and the 3-month period following the
second earn out period, payable in 50% in cash and 50% in shares of our common
stock to be valued a $2.50 per share; provided, that up to approximately
$300,000 of any amounts paid in respect of the GLOC Loan, and any amounts paid
in respect of the debt service on Echo's indebtedness and line of credit with
BTH Bank, as described in subparagraphs (i), (ii) or (iii) above, shall be
offset against and reduce the earnout payments due to Echo. In no event may the
number of shares of common stock to be issued to Echo exceed 19.99% of our
outstanding shares on the date of the execution of the Asset Purchase
Agreement.


On October 12, 2020, we and Osang, the manufacturer and supplier of the
GeneFinderTM COVID-19 Plus RealAmp KitTM that we distribute, entered into a
Managed Supply Agreement (the "Supply Agreement") which memorialized of our
obligations and Osang's obligations as it relates to the consignment (the
"Consignment") to us of two (2) million units of Osang's flagship
Genefinder Plus RealAmp Covid-19 PCR Test (the "Product") from Osang for the
cold-chain storage and distribution of Product in the United States of America
and Canada by us on behalf of ourself, as well as for Osang to other
distributors in Territory as well as for direct sales by Osang worldwide where
permissible for a period of 180 days thereafter. The Supply Agreement included
confirmation by Osang  that we have no payment obligation for the Consignment
until we sell the Product and any unsold product remains the responsibility of
Osang except that we are responsible for the sold-storage fees and  Osang's
agreement to use best efforts that all sales of Products will be drawn from the
Consignment with priority.


On November 12, 2020, our joint venture partnership in Clarity Mobile Venture
entered into a contract with the City of Los Angeles for the operations of a
COVID-19 PCR Test Laboratory at Los Angeles International Airport to provide a
full-service modular COVID-19 laboratory and testing facility onsite at Los
Angeles International Airport. The facility will be located across from Terminal
6 and is expected to open in December 2020. The facility will administer PCR
tests with results available within 3 hours for passengers and airline crew, and
no later than 24 hours for LAWA airport employees. Additionally, other rapid
coronavirus tests including antigen tests will be provided. Clarity Mobile
Venture will be the primary operator of the facility and will deploy the
GeneFinder™ test for COVID-19, produced by OSANG Healthcare Co., Ltd.


On November 19, 2020, we and Memorial Hospital, of Michigan ("Memorial), entered
into a Professional Services and Capital Support Contract ("PSCSC") with Wayne
County, Michigan to appoint Memorial the primary contractor for the construction
of portable on-site laboratory facilities for COVID-19 testing. The PSCCS
engages the Company as a sub-contractor to render services and support to
Memorial in connection with the fulfillment of statements of work submitted from
Wayne County to Memorial. The program deploys the D-Tec Product Series,
including D-Tec 1 and D-Tec 5 facilities, designed by Grimshaw Architects and
developed by SG Blocks, to deliver highly accurate PCR testing and on-site CLIA
lab services directly into high risk and underserved areas.  The D-Tec 1 units
are expected to be deployed throughout Wayne County and will provide sample
extraction and lab services.  The D-Tec 5 will serve as the main CLIA lab and
have the capacity to process 7,000 tests per day in a single eight-hour shift.
The facilities will be used to test residents for COVID-19 using the OSANG
GeneFinder™ test, which is able to deliver medical grade results in
approximately 3 hours. Clarity Mobile Venture will be the primary operator of
the facility.



35

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Results of Operations

As a result of our new licensing model that commenced in October 2019, our operations for the nine months ended September 30, 2020 and 2019 may not be indicative of our future operations.

Nine Months Ended September 30, 2020 and 2019:




                                                              For the Nine        For the Nine
                                                              Months Ended        Months Ended
                                                              September 30,       September 30,
                                                                  2020                2019
Total Revenue                                                $     1,404,265     $     2,647,558
Total Cost of revenue                                               (789,445 )        (2,018,392 )
Total Operating expenses                                          (3,730,383 )        (3,365,040 )
Total Operating loss

(3,115,563 ) (2,735,874 )


     Total Other income (expense)                                     51,890             (52,039 )
Net loss                                                     $

(3,063,673 ) $ (2,787,913 )






Revenue


Total revenue for the nine months ended September 30, 2020 was
$1,404,265 compared to $2,647,558 for the nine months ended September 30, 2019.
This decrease of $1,243,293 or approximately 47% was mainly driven by a decline
in revenue of approximately $968,000 in retail projects, a decline in revenue of
approximately $1,038,000 in office projects, a decline in revenue of
approximately $37,000 in multi-family/single-family projects, offset by an
increase of approximately $300,000 in other projects, an increase of
approximately $58,500 in medical projects, an increase of approximately $65,000
in special use projects and an increase of approximately $340,000 in hospitality
projects for the nine months ended September 30, 2020, as compared to September
30, 2019

Cost of Revenue and Gross Profit





Cost of revenue was $789,445 for the nine months ended September 30, 2020,
compared to $2,018,392 for the nine months ended September 30, 2019. The
decrease of $1,228,947 or a decrease of approximately 61%, is primarily related
to lower revenues and the lower procurement and manufacturing costs of modifying
containers as well as $300,000 of construction revenue earned during the
nine months ending September 30, 2020 with no costs of revenue.

Gross profit was $614,820 and $629,166 for the nine months ended September 30, 2020 and 2019, respectively.




Gross profit percentage increased to approximately 44% for the nine months
ended September 30, 2020 compared to approximately 24% for the nine months ended
September 30, 2019 primarily due to a single contract in the amount of $300,000
with no estimated costs.



Payroll and Related Expenses



Payroll and related expenses for the nine months ended September 30, 2020 were
$1,344,009 compared to $1,832,333 for the nine months ended September 30, 2019.
This decrease was primarily caused by a decrease of approximately $57,000 in
stock-based compensation expense, as well as a decrease in salaries and
additional head count of approximately $417,000 recognized during the year ended
September 30, 2020 compared to the nine months ended September 30, 2019. We
recognized $414,563 in stock-based compensation expense related to payroll and
related expenses for the nine months ended September 30, 2020, compared
to $472,013 for September 30, 2019.

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)




Other operating expenses (general and administrative expenses, marketing and
business development expenses, pre-project expenses) for the nine months ended
September 30, 2020 were $2,386,374 compared to $1,532,707 for the nine months
ended September 30, 2019. The increase resulted primarily from an increase in
legal fees of approximately $455,000, an increase in insurance expenses by
approximately $37,500, an increase in advisory service fees by approximately
$434,000, an increase in marketing expense by approximately $46,000, an increase
in amortization expense by approximately $30,590, and an increase in accounting
fees by approximately $53,000, offset by a decrease in travel expenses by
approximately $120,000, and a decrease contract labor expenses of approximately
$120,000. We recognized $57,120 in stock-based compensation expense related to
legal expenses for the nine months ended September 30, 2020. We recognized
$10,125 in stock-based compensation expense related to marketing expenses for
the nine months ended September 30, 2019.

36

--------------------------------------------------------------------------------

Results of Operations (continued)

Other Income (Expense)




Interest income for the nine months ended September 30, 2020 was $38,497 and
related to the outstanding note receivable. There was no interest income for the
nine months ended September 30, 2019. Interest expense for the nine
months ended September 30, 2020 of $8,877 was mainly related to the Securities
Purchase Agreement entered into on February 4, 2020 with an accredited investor.
There was no interest expense for the nine months ended September 30, 2019.
Other income for the nine months ended September 30, 2020 was $23,282 and there
was no other income for the nine months ended September 30, 2019. Loss on asset
disposal for the nine months ended September 30, 2020 and 2019 was $1,012 and
$52,039, respectively.

Three Months Ended September 30, 2020 and 2019:




                                                                For the Three     For the Three
                                                                Months Ended      Months Ended
                                                                September 30,     September 30,
                                                                    2020              2019
Total Revenue                                                 $

576,560 $ 184,526


     Total Cost of revenue

(381,954 ) (366,783 )


     Total Operating expenses                                      (1,719,936 )      (1,091,173 )
Total Operating loss

(1,525,330 ) (1,273,430 )


     Total Other income (expense)                                      47,057           (52,039 )
Net loss                                                      $    (1,478,273 ) $    (1,325,469 )



Revenue



Total revenue for the three months ended September 30, 2020 was $576,560
compared to $184,526 for the three months ended September 30, 2019. This
increase of $392,034 or approximately 211% was mainly driven by an increase of
approximately $296,000 in hospitality projects, an increase of approximately
$119,000 in office projects, an increase of approximately $72,000 in special use
projects offset by a decline of approximately $154,000 in retail projects for
the three months ended September 30, 2020, as compared to September 30, 2019.

Cost of Revenue and Gross Profit





Cost of revenue was $381,954 for the three months ended September 30, 2020,
compared to $366,783 for the three months ended September 30, 2019. The increase
of $15,171 or a increase of approximately 4%, is primarily related to higher
revenues earned during the three months ending September 30, 2020, as compared
to September 30, 2019.

Gross profit was $194,606 for the three months ended September 30, 2020 and gross loss was $182,257 for the three months ended September 30, 2019.




Gross profit percentage increased to approximately 34% for the three months
ended September 30, 2020 compared to gross loss percentage increased to
approximately 99% for the three months ended September 30, 2019 primarily due
to higher site installation in the three months ended September 30, 2019 from a
retail project.

Payroll and Related Expenses





Payroll and related expenses for the three months ended September 30, 2020 were
$679,863 compared to $548,156 for the three months ended September 30, 2019.
This increase was primarily caused by an increase of approximately $164,000 in
stock-based compensation expense offset by a decrease in salaries and additional
head count of approximately $23,000 recognized during the year ended September
30, 2020 compared to the three months ended September 30, 2019. We
recognized $303,169 in stock-based compensation expense related to payroll and
related expenses for the three months ended September 30, 2020, compared
to $139,402 for September 30, 2019.



37

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Results of Operations (continued)

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)




Other operating expenses (general and administrative expenses, marketing and
business development expenses, pre-project expenses) for the three months
ended September 30, 2020 were $1,040,073 compared to $543,017 for the three
months ended September 30, 2019. The increase resulted primarily from an
increase in special meeting fees of approximately $19,800, an increase in rent
expense of approximately $17,600, an increase in legal fees of approximately
$142,700, an increase in advisory service fees of approximately $319,100, an
increase in promotions and marketing expense of approximately $14,300, offset
by a decrease in employee travel by approximately $28,200 and a decrease in
contract labor of approximately $48,400. We recognized no stock-based
compensation expense related to legal expenses for the three months
ended September 30, 2020. We recognized $3,375 in stock-based compensation
expense related to marketing expenses for the three months ended September 30,
2019.



Other Income (Expense)


Interest income for the three months ended September 30, 2020 was $27,401 and
related to the outstanding note receivable. There was no interest income for the
three months ended September 30, 2019. Interest expense for the three months
ended September 30, 2020 was $2,614.  There was no interest expense for the
three months ended September 30, 2019. Other income for the three months
ended September 30, 2020 was $23,282 and there was no other income for the three
months ended September 30, 2019. Loss on asset disposal for the three months
ended September 30, 2020 and 2019 was $1,012, and $52,039, respectively.



Income Tax Provision

A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and, accordingly, no income tax benefit was provided.





Impact of Inflation

The impact of inflation upon the Company's revenue and income (loss) from continuing operations during each of the past two fiscal years has not been material to its financial position or results of operations for those years because the Company does not maintain any inventories whose costs are affected by inflation.

Impact of Coronavirus (COVID-19)





              With the global spread of the ongoing novel coronavirus
("COVID-19") pandemic during the first nine months of 2020, the Company has
implemented business continuity plans designed to address and mitigate the
impact of the COVID-19 pandemic on its employees and business. The worldwide
spread of the COVID-19 virus is expected to result in a global slowdown of
economic activity which is likely to decrease demand for a broad variety of
goods and services, including from our customers, while also resulting in delays
in projects due to labor shortages and supplier disruptions for an unknown
period of time until the disease is contained.  To date, we have experienced
some delays in projects due to COVID-19 which we expect to have an impact on our
revenue and our results of operations, the size and duration of which we are
currently unable to predict. Any quarantines, the timing and length of
containment and eradication solutions, travel restrictions, absenteeism by
infected workers, labor shortages or other disruptions to the Company's
suppliers and contract manufacturers or customers would likely adversely impact
the Company's sales and operating results and result in further project delays.
In addition, the pandemic could result in an economic downturn that could affect
the ability of the Company's customers and licensees to obtain financing and
therefore impact demand for the Company's products. Order lead times could be
extended or delayed and pricing could increase. Some products or services may
become unavailable if the regional or global spread were significant enough to
prevent alternative sourcing. Accordingly, the Company is considering
alternative product sourcing in the event that product supply becomes
problematic. The Company expects this global pandemic to have an impact on the
Company's revenue and results of operations, the size and duration of which the
Company is currently unable to predict. In addition, to the extent the ongoing
COVID-19 pandemic adversely affects the Company's business and results of
operations, it may also have the effect of heightening many of the other risks
and uncertainties which the Company faces. While the Company expects to derive
revenue from its newly entered into distributorship agreement discussed below,
the Company cannot at this time estimate the impact that sales under the
agreement will have on its revenue.



38

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Liquidity and Capital Resources

As of September 30, 2020 and December 31, 2019, we had an aggregate of $13,047,565 and $1,625,671, respectively, of cash and cash equivalents and short-term investments.

Historically, our operations have primarily been funded through proceeds from equity and debt financings, as well as revenue from operations.





In June 2017, we completed a public offering, resulting in net proceeds of
approximately $6,800,000 after deducting underwriting discounts and commissions
and other expenses. In July 2017, in connection with a public offering, the
underwriters exercised their option to purchase 11,250 additional shares of
common stock from us in full at a price to the public of $100.00 per share. As a
result of the exercise and closing of the option to purchase additional shares,
total net proceeds from the public offering were approximately $7,900,000 after
deducting underwriting discounts and commissions and related expenses. We
incurred a total of $1,565,386 in issuance costs in connection with the Public
Offering.


In April 2019, we issued 42,388 shares of our common stock at a price of $22.00
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, we also sold
common stock purchase warrants to such investors to purchase up to an aggregate
of 42,388 shares of common stock. We incurred $379,816 in issuance costs from
the offering and issued 4,239 warrants to the underwriters.


In August 2019, we issued 45,000 shares of our common stock at a price of $17.00
per share pursuant to the terms of an Underwriting Agreement to the public. We
incurred $181,695 in issuance costs from the offering and issued warrants to
purchase 2,250 shares of common stock to the underwriter.


In December 2019, we completed the public offering where we issued
857,500 shares of common stock at a public offering price of $3.00 per
share resulting in net proceeds of approximately $2,117,948 after deducting
underwriting discounts and commissions and other expenses. We incurred a total
of $454,552 in issuance costs in connection with the public offering. In our
November 2019 debt financing, we received a cash payment in the aggregate amount
of $375,000 pursuant to a Securities Purchase Agreement that we entered into
with RedDiamond Partners LLC (the "Lender"), and we issued to the
Lender a Debenture (the "Debenture") in the aggregate principal amount of
$480,770 (representing an original issue discount of 22%), which
Debenture was secured by a security interest in all of our existing and future
assets, subject to existing security interests and exceptions. We received net
proceeds of approximately $326,250 after deducting certain fees due to the
placement agent and certain transaction expenses. The Debenture was repaid in
full out of the proceeds of our December 2019 public offering.



On February 4, 2020, we entered into a Securities Purchase Agreement with an
accredited investor, pursuant to which we issued to the investor a secured note
in the aggregate principal amount of $200,000 (the "Note"). The Note bears
interest at a rate of nine percent (9%) per annum, is due on July 31, 2023, and
is secured under a Pledge Agreement, dated February 4, 2020, entered into with
the investor (the "Pledge Agreement") by a security interest in the royalty
payable to us under that certain Exclusive License Agreement, dated October 3,
2019, with CPF GP 2019-1 LLC. We have the right to prepay the Note, in whole or
in part, at any time and from time to time, without premium or penalty. During
the three months ending September 30, 2020, the Note to investor of $200,000 and
unpaid accrued interest of $86,263 was converted into 73,665 shares of common
stock.


In April 2020, we completed a public offering where we pursuant to which
we 440,000 shares of common stock at a public offering price of $4.25 per share
which resulted in net proceeds of approximately $1,522,339 after deducting
underwriting discounts and commissions and other expenses related to the
offering. We incurred a total of approximately $347,661 in issuance costs in
connection with the offering and issued no warrants to purchase shares of common
stock to the underwriter.


In May 2020, we sold 6,000,000 shares of our common stock at a public offering
price of $2.50 per share and on May 15, 2020,  pursuant to the terms of the
Underwriting Agreement dated May 6, 2020 by and among us and ThinkEquity, a
division of Fordham Financial Management, Inc., as representatives of several
underwriters named therein ("ThinkEquity"), ThinkEquity was granted an
over-allotment option to purchase up to an additional 900,000 shares of our
common stock, in connection with the previously announced public offering. On
May 15, 2020, ThinkEquity exercised in full such option with respect to all
900,000 shares of our common stock. After giving effect to the full exercise of
the over-allotment option, the total number of shares of common stock sold by us
in the public offering was 6,900,000 shares of common stock and total net
proceeds to us, after deducting underwriting discounts and commissions and other
offering expenses payable by us, were approximately $15,596,141. We incurred a
total of approximately $1,653,859 in issuance costs in connection with the
offering and issued warrants to purchase 300,000 shares of common stock to the
underwriter.


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Liquidity and Capital Resources (continued)




We anticipate that we will continue to generate losses from operations for the
foreseeable future. At September 30, 2020 and December 31, 2019 we had a cash
balance and short-term investment of $13,047,565 and $1,625,671, respectively.
As of September 30, 2020, our stockholders' equity was $19,092,780, compared to
$4,360,149 as of December 31, 2019. Our net loss for the nine months
ended September 30, 2020 was $3,063,673 and net cash used in operating
activities was $4,453,862. We anticipate our cash balance is sufficient to last
at least twelve months from November 19, 2020.


We may need to generate additional revenues or secure additional financing
sources, such as debt or equity capital, to fund future growth, which financing
may not be available on favorable terms or at all. We do not have any additional
sources secured for future funding, and if we are unable to raise the necessary
capital at the times we require such funding, we may need to materially change
our business plan, including delaying implementation of aspects of such business
plan or curtailing or abandoning such business plan altogether.


Cash Flow Summary


                                                           Nine Months Ended
                                                             September 30,
                                                           2020           2019
Net cash provided by (used in):
Operating activities                                  $ (4,453,862 ) $ (2,500,387 )
Investing activities                                    (1,442,602 )       (2,070 )
Financing activities                                    17,318,358      1,136,015

Net increase (decrease) in cash and cash equivalents $ 11,421,894 $ (1,366,442 )





Operating activities used net cash of $4,453,862 during the nine months ended
September 30, 2020, and $2,500,387 during the nine months ended September 30,
2019. Generally, our net operating cash flows fluctuate primarily based on
changes in our profitability and working capital. Cash used in operating
activities increased by approximately $1,953,475 primarily due to an decrease in
working capital of approximately $1,671,797, an increase of approximately
$23,185 in interest income, a decrease of approximately $10,457 in stock-based
compensation, an increase of approximately $30,588 in amortization expense, an
increase in the overall net loss of approximately $275,760, a decrease in loss
on asset disposals of approximately $51,027 and a decrease of approximately
$54,000 in bad debt benefits in the nine months ended September 30,
2020 compared to nine months ended September 30, 2019.


Investing activities used net cash of $1,442,602 during the nine months ended
September 30, 2020, and $2,070 net cash the nine months ended September 30,
2019. Cash used in investing activities increase from the corresponding period
of the prior year primarily due to an advance in note receivable of
approximately $650,000, purchase of Echo DCL, LLC assets of approximately
$743,168, and the purchase of property, plant and equipment of approximately,
$49,434.


Financing activities provided net cash of $17,318,358 during the nine months
ended September 30, 2020, and $1,136,015 net cash during the nine months ended
September 30, 2019.  Cash provided by financing activities increased by
$16,182,343 primarily due to an increase in proceeds from public stock
offerings, and to a lesser extent, an increase in proceeds from long-term note
payable.


We provide services to our customers in three separate phases: the design phase,
the architectural and engineering phase and the construction phase. Each phase
is independent of the other, but builds through a progression of concept through
delivery of a completed structure. These phases may be embodied in a single
contract or in separate contracts, which is typical of a design build process
model. As of September 30, 2020, we had 17 projects totaling $24,865,499 under
contract, which, if they all proceed to construction, will result in our
constructing approximately 210,550 square feet of container and modular space.
Of these contracts, all seventeen projects combine all three phases or parts
thereof and including construction. We expect that all of this revenue will be
realized by September 30, 2022.



Backlog may fluctuate significantly due to the timing of orders or awards for
large projects and is not necessarily indicative of future backlog levels or the
rate at which backlog will be recognized as revenue. The increase in backlog of
approximately $8,660,000 from December 31, 2019 is primarily attributable to two
new contracts we entered into during the third quarter of 2020 for approximately
$4,000,000 and $2,950,000 and offset by work in progress or completed contracts
during the first nine months of 2020 for approximately $1,400,000.


There can be no assurance that our customers will decide to and/or be able to
proceed with these construction projects, or that we will ultimately recognize
revenue from these projects in a timely manner or at all.

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Off-Balance Sheet Arrangements

As of September 30, 2020 and December 31, 2019, we had no material off-balance sheet arrangements to which we are a party.





In the ordinary course of business, we enter into agreements with third parties
that include indemnification provisions which, in our judgment, are normal and
customary for companies in our industry sector. These agreements are typically
with consultants and certain vendors. Pursuant to these agreements, we generally
agree to indemnify, hold harmless, and reimburse indemnified parties for losses
suffered or incurred by the indemnified parties with respect to actions taken or
omitted by us. The maximum potential amount of future payments we could be
required to make under these indemnification provisions is unlimited. We have
not incurred material costs to defend lawsuits or settle claims related to these
indemnification provisions. As a result, the estimated fair value of liabilities
relating to these provisions is minimal. Accordingly, we have no liabilities
recorded for these provisions as of September 30, 2020.

Critical Accounting Policies and New Accounting Pronouncements





Critical Accounting Policies



Our condensed consolidated financial statements have been prepared using
generally accepted accounting principles in the United States of America
("GAAP"). In connection with the preparation of the financial statements, we are
required to make assumptions and estimates and apply judgments that affect the
reported amounts of assets, liabilities, revenue, and expenses, and the related
disclosures. We base our assumptions, estimates, and judgments on historical
experience, current trends, and other factors that we believe to be relevant at
the time the consolidated financial statements are prepared. On a regular basis,
we review the accounting policies, assumptions, estimates, and judgments to
ensure that our financial statements are presented fairly and in accordance with
GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates, and
such differences could be material.

Our significant accounting policies are discussed in "Note 3- Summary of Significant Accounting Policies" of the notes to our condensed consolidated financial statements included elsewhere in this report. We believe that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results.





Share-based payments. We measure 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 the
award is measured on the grant date. For non-employees, the fair value of the
award is generally re-measured on interim financial reporting dates and vesting
dates until the service period is complete. 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. We recognize 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.



Other derivative financial instruments. SGB 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 SGB's own shares (physical
settlement or net-share settlement), provided that such contracts are indexed to
SGB's own stock. SGB 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 SGB's control) or (ii)
give the counterparty a choice of net-cash settlement or settlement shares
(physical settlement or net-cash settlement). SGB 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.

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Critical Accounting Policies (continued)




Convertible instruments. SGB bifurcates conversion options from their host
instruments and accounts for them as free-standing derivative financial
instruments according to certain criteria. The criteria include circumstances in
which (i) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics
and risks of the host contract; (ii) the hybrid instrument that embodies both
the embedded derivative instrument and the host contract is not re-measured at
fair value under otherwise applicable GAAP measures with changes in fair value
reported in earnings as they occur; and (iii) a separate instrument with the
same terms as the embedded derivative instrument would be considered a
derivative instrument.



SGB determined that the embedded conversion options that were included in the
previously outstanding convertible debentures should be bifurcated from their
host and a portion of the proceeds received upon the issuance of the hybrid
contract has been allocated to the fair value of the derivative. The derivative
was subsequently marked to market at each reporting date based on current fair
value, with the changes in fair value reported in results of operations.



Revenue recognition. We apply recognition of revenue over time, which is similar
to the method we applied under previous guidance (i.e., percentage of
completion). We determine, at contract inception, whether we 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 we expect to be entitled
in exchange for those goods or services. To achieve this core principle, we
apply the following five steps in accordance with our 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



                (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.


On October 3, 2019, we entered into an Exclusive License Agreement ("ELA" )
pursuant to which we granted an exclusive license for our technology as outlined
in the ELA. See Note 3 to the accompanying consolidated financial statements for
a discussion on the ELA. Under the ELA, we will receive royalty payments based
upon gross revenues earned by the licensee for commercialize products within the
field of design and project management platforms for residential use, including
single-family residences and multi-family residences, but excluding military
housing. We determined that the ELA grants the licensee a right to access our
intellectual property throughout the license period (or its remaining economic
life, if shorter), and thus recognizes revenue over time as the licensee
recognizes revenue and we have the right to payment of royalties.

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Critical Accounting Policies (continued)

Goodwill - Goodwill represents the excess of reorganization value over the fair
value of identified net assets upon emergence from bankruptcy. In accordance
with the accounting guidance on goodwill, we perform our 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 value. Our evaluation of goodwill
completed during the year ended December 31, 2019, resulted in an impairment
loss of $2,938,653. There was no impairment during the nine months ended
September 30, 2020.



Intangible assets - Intangible assets consist of $2,766,000 of proprietary
knowledge and technology which is being amortized over 20 years, $18,848 of
customer contracts which is being amortized over 1 year, $105,762 of trademarks
which is being amortized over 5 years, $7,928 of non-compete agreement which is
being amortized over 5 years and $5,300 of website fees which is being amortized
over 5 years. Our evaluation of intangible assets for impairment during the year
ended December 31, 2019, and determined that there were no impairment losses.
There was no impairment during the nine months ended September 30, 2020.

New Accounting Pronouncements

See Note 3 to the accompanying consolidated financial statements for all recently adopted and new accounting pronouncements.

Non-GAAP Financial Information





In addition to our results under GAAP, we also present 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. We
calculate EBITDA as net income (loss) before interest expense, income tax
benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA
as EBITDA before certain non-recurring adjustments such as loss on conversion of
convertible debentures, change in fair value of financial instruments and stock
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 our financial
performance. EBITDA and Adjusted EBITDA are also frequently used by analysts,
investors and other interested parties to evaluate companies in our 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 us and our 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 our 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 our 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.




Other companies, including other companies in our industry, may not use such
measures or may calculate one or more of the measures differently than as
presented in this Quarterly Report on Form 10-Q, limiting their usefulness as a
comparative measure.



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Non-GAAP Financial Information (continued)




In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future
we will incur expenses that are the same or similar to some of the adjustments
made in our calculations, and our presentation of EBITDA and Adjusted EBITDA
should not be construed to mean that our future results will be unaffected by
such adjustment. Management compensates for these limitations by using EBITDA
and Adjusted EBITDA as supplemental financial metrics and in conjunction with
our results prepared in accordance with GAAP. The non-GAAP information should be
read in conjunction with our 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 Ended        Three Months Ended        Nine Months Ended           Nine Months Ended
                                            September 30, 2020

September 30, 2019 September 30, 2020 September 30, 2019 Net loss

                                   $          (1,478,273 )   $          (1,325,469 )   $         (3,063,673 )   $                (2,787,913 )
    Addback interest expense                               2,614                         -                    8,877                               -
    Addback interest income                              (27,401 )                       -                  (38,497 )                             -
   Addback depreciation and amortization                  47,488                    38,677                  142,290                         117,540
EBITDA (non-GAAP)                                     (1,455,572 )              (1,286,792 )             (2,951,003 )                    (2,670,373 )
    Addback loss on asset disposal                         1,012                    52,039                    1,012                          52,039
    Addback litigation expense                           127,205                         -                  395,045                               -
   Addback stock compensation expense                    303,169                   142,777                  471,683                         482,139
Adjusted EBITDA (non-GAAP)                 $          (1,024,186 )   $          (1,091,976 )   $         (2,083,263 )   $                (2,136,195 )

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