SG Blocks Reports Third Quarter 2020 Financial Results

- Advances Significant Project Activity Across Residential, Health Care and Commercial Verticals -

- Major Vertical Integration Through A Purchase Agreement of ECHO DCL -

- Management to Host Conference Call Today at 4:30 p.m. ET -

BROOKLYN, N.Y.--()--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 third quarter ending September 30, 2020.

“The third quarter was a strong quarter for SG Blocks, as we accelerated our momentum from the first half of the year,” stated Paul Galvin, SG Blocks’ Chairman and Chief Executive Officer. “Importantly, in addition to a growing pipeline of active and pending projects, we were extremely pleased to execute our agreement to acquire the assets of ECHO DCL, with the right of first refusal to acquire the building and land. ECHO DCL—re-named SG Echo—offers us an opportunity to vertically integrate a large portion of our supply chain, giving us better control of inventory and production, while allowing for better margins, productivity and efficiency for design, engineering, manufacturing and delivery.

“We announced strong activity across all of our major verticals during the quarter. Major announcements included our partnership with Clarity Lab Solutions to deliver CLIA-certified laboratories to facilitate on site COVID testing utilizing our exclusive distribution rights to OSANG's GeneFinderTM test kits. Demand for these facilities is booming, and we have announced projects to deliver modular labs in Boca Raton, Florida, at Los Angeles Airport, and to Memorial Healthcare in Wayne County, Michigan. Additionally, our joint venture partnership, Clarity Mobile Venture, was one of the approved TTP providers for state mandated testing and diagnostic services in order to by-pass the 14-day quarantine for passengers arriving in Hawaii. In our commercial vertical, we partnered with Grimshaw to create and deliver modular units for educational systems to help alleviate the current strain on existing space due to the impact of COVID-19, and subsequent to quarter end, we announced a partnership with Blink, a leader in electric vehicle charging equipment, to deploy charging stations nationwide.”

Mr. Galvin concluded, “Amid great uncertainty in 2020, we are thriving because of the durability and innovative design of our products, and the speed and efficiency with which we can deploy our finished boxes. We have spent many years building a strong foundation, and I believe we are now positioned to benefit from growing project activity that should drive increased earnings and cash flow through year end and into 2021. I would like to thank the entire SG Blocks team for all of your hard work and dedication this year.”

Third Quarter 2020 and Subsequent Operational Highlights:

At September 30, 2020, the Company had 17 projects under contract, compared to 12 projects under contract at June 30, 2020. At September 30, 2020, the construction backlog was approximately $24.9 million, as compared to $17.3 million as of June 30, 2020.

In the health care vertical:

  • On August 27th, the Company formed a joint venture with Clarity Lab Solutions, based in Boca Raton, Florida.
  • On September 23rd, in a substantial vertical integration, SG Blocks acquired the assets of modular factory Echo DCL. The Company also has the right of first refusal to acquire the factory building and 19-acre parcel located in Durant, Oklahoma. This facility will provide the ability to build the majority of the medical structures, and represents a significant step in vertical integration to better control cost of goods sold and provide better efficiency.
  • On September 25th, SG Blocks announced it would partner with the Los Angeles World Airport (“LAWA”) to establish an operational Covid D Tec Lab at Los Angeles Airport (“LAX”). On October 16th, testing services began inside three terminals at LAX.

Subsequent to quarter end, the Company announced:

  • On October 19th, SG Blocks and OSANG Healthcare announced a Managed Covid Test Supply Agreement and Purchase Order for 2 million Covid PCR tests being stored in Southern California.
  • On October 30th, SG Blocks and Grimshaw announced its D Tec product was selected by CBS’s coveted “New York by Design” competition commencing in November 2020.
  • On November 16th, SG Blocks’ subsidiary, Clarity Mobile Venture announced it had been selected as a Trusted Testing Partner approved by the State of Hawaii for their comprehensive Travel Testing program to and from California.
  • On November 19, SG Blocks announced that the Company has been selected by Memorial Healthcare, in Wayne County, Michigan, to provide a full service modular testing and lab facility network aimed at reducing the spread of COVID-19. Under the contract, Wayne County will provide a capital grant of $2.7mm million to SG Blocks deliver 4 D-Tec 1 units and a central scalable D-Tec 5 hub. The D-Tec 1 units will be deployed throughout the county and will provide sample extraction and lab services, with the capacity to process up to 7,000 tests per eight-hour shift.

Within the Commercial and Residential verticals, the Company:

  • Advanced a contract worth approximately $4.0 million for a hospitality project in the Everglades, anticipated to be completed by second quarter 2021.
  • Executed a $2.9 million contract for a series of buildings in New Mexico, which will be substantially complete in calendar year 2020.
  • Commenced the site work by SG Residential on Monticello Mews which is 6 buildings and 300 units of workforce housing, under license agreement in the Catskills, New York.
  • Advanced its “Mo Living” prototype in the mobile hospitality vertical, to build affordable homes through a partnership with RhoHouse.

Subsequent to quarter end, the Company announced:

  • An agreement with BLINK for the design and delivery of unique electric vehicle charging solutions.

Third Quarter 2020 Financial Results:

  • Revenue of approximately $575,000 in the third quarter, as compared to approximately $184,000 in the third quarter 2019.
  • Gross profit of approximately $194,000 in the third quarter 2020, as compared to gross loss of approximately $182,000 in the third quarter 2019. Gross profit margin was 34% for the third quarter 2020.
  • Operating expenses of approximately $1,720,000 in the third quarter 2020, as compared to approximately $1,091,000 in the third quarter 2019. The increase in operating expenses was primarily driven by higher payroll and related expenses, and higher G&A expenses related to legal and consulting expenses, , partially offset by lower marketing and business development expenses.
  • Net loss of approximately $1,478,000 in the third quarter 2020, or $(0.17) per basic and diluted share, as compared to a net loss of approximately $1,325,000, or $(4.66) per basic and diluted share, in the third quarter 2019.
  • Adjusted EBITDA loss of approximately $1,024,000 in the third quarter 2020, as compared to a loss of approximately $1,092,000 in the third quarter 2019. (See below for further discussion about the presentation of Adjusted EBITDA, a non-GAAP financial measurement).
  • Total assets at September 30, 2020 were approximately $26.3 million, as compared to approximately $6.6 million at December 31, 2019.
  • Cash and cash equivalents at September 30, 2020 totaled approximately $13.0 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’ Chief Executive Officer, Paul Galvin, and Acting Chief Financial Officer, Gerald Sheeran, will host a listen-only conference call today, November 19, 2020, at 4:30 p.m. eastern time. The conference call will be broadcast live and available for replay at the investor relations section of the Company’s website at www.sgblocks.com. Please call the conference telephone number 5-10 minutes prior to the start time; an operator will register your name and organization.

To access the call, please use the following information:

   

Date:

 

November 19, 2020

   

Time:

 

4:30 p.m. ET

   

Toll-free dial-in number:

 

1-855-327-6837

   

International dial-in number:

 

1-631-891-4304

   

Conference ID:

 

10011924

To access the replay, please use the following information

   

Toll-free replay number:

 

1-844-512-2921

   

International replay number:

 

1-412-317-6671

   

Replay ID:

 

10011924

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: i) 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:

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
September 30, 2020

Three Months Ended
September 30, 2019

 

Nine Months Ended
September 30, 2020

 

 

Nine Months Ended
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

)

About SG Blocks:

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 GreenSteelTM, 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 being positioned to benefit from growing project activity that should drive increased earnings and cash flow through year end and into 2021, completing a $4.0 million hospitality project in the Everglades by second quarter 2021 and substantially completing a $2.9 million contract for a series of buildings in Pueblo, Colorado.. 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 benefit from growing project activity and drive increased earnings and cash flow through year end and into 2021, the Company’s ability to complete its $4.0 million hospitality project in the Everglades as scheduled, the Company’s ability to substantially completing its $2.9 million contract for a series of buildings in Pueblo, Colorado as scheduled, the Company’s ability to position itself for future profitability, 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

 

 

 

September 30,
2020

 

 

December 31,
2019

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,047,565

 

 

$

1,625,671

 

Accounts receivable, net

 

 

4,337,020

 

 

 

1,101,185

 

Contract assets

 

 

151,230

 

 

 

106,015

 

Inventories

812,320

Prepaid expenses and other current assets

 

 

270,481

 

 

 

73,938

 

Total current assets

 

 

18,618,616

 

 

 

2,906,809

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

1,729,920

 

 

 

11,747

 

Goodwill

 

 

1,223,520

 

 

 

1,223,520

 

Right-of-use asset

1,624,194

Long-term note receivable

673,185

Intangible assets, net

 

 

2,293,681

 

 

 

2,298,805

 

Deferred contract costs, net

163,140

193,730

Total Assets

 

$

26,326,256

 

 

$

6,634,611

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,990,993

 

 

$

2,105,505

 

Contract liabilities

 

 

2,860,730

 

 

 

168,957

 

Earnout liability

752,559

Lease liability, current maturities

331,905

Other current liabilities

5,000

Total current liabilities

 

 

5,941,187

 

 

 

2,274,462

 

 

Lease liability, net of current maturities

1,292,289

Total liabilities

7,233,476

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, 25,000,000 shares authorized; 8,596,189 issued and outstanding as of September 30, 2020 and 1,157,890 issued and outstanding as of December 31, 2019

 

 

85,962

 

 

 

11,579

 

Additional paid-in capital

 

 

39,654,308

 

 

 

21,932,387

 

Accumulated deficit

 

 

(20,647,490

)

 

 

(17,583,817

)

Total stockholders’ equity

 

 

19,092,780

 

 

 

4,360,149

 

Total Liabilities and Stockholders’ Equity

 

$

26,326,256

 

 

$

6,634,611

 

SG BLOCKS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

 

 

For the
Three
Months Ended
September 30,

For the
Three
Months Ended
September 30,

 

For the
Nine Months Ended
September 30,

 

For the
Nine Months Ended
September 30,

 

 

2020

2019

 

2020

 

2019

 

 

(Unaudited)

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Revenue:

 

 

 

 

 

Construction services

$

494,330

$

187,895

$

1,118,197

$

2,521,139

Engineering services

82,230

(3,369

)

 

286,068

 

 

126,419

 

Total

576,560

184,526

 

 

1,404,265

 

 

2,647,558

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

Construction services

311,002

391,494

 

 

576,121

 

 

1,986,394

 

Engineering services

70,952

(24,711

)

 

213,324

 

 

31,998

 

Total

381,954

366,783

 

 

789,445

 

 

2,018,392

 

 

 

 

 

 

 

 

 

Gross profit (loss)

194,606

(182,257

)

 

614,820

 

 

629,166

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Payroll and related expenses

679,863

548,156

 

 

1,344,009

 

 

1,832,333

 

General and administrative expenses

980,773

478,726

 

 

2,238,837

 

 

1,318,390

 

Marketing and business development expense

46,650

63,016

 

 

109,887

 

 

194,591

 

Pre-project expenses

12,650

1,275

 

 

37,650

 

 

19,726

 

Total

1,719,936

1,091,173

 

 

3,730,383

 

 

3,365,040

 

 

 

 

 

 

 

 

 

Operating loss

(1,525,330

)

(1,273,430

)

 

(3,115,563

)

 

(2,735,874

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Loss on asset disposal

(1,012

)

(52,039

)

(1,012

)

(52,039

)

Interest expense

(2,614

)

 

 

(8,877

)

 

Interest income

27,401

 

 

38,497

 

 

 

Other income

23,282

23,282

Total

47,057

(52,039

)

 

51,890

 

(52,039

)

 

 

 

 

 

 

 

 

Loss before income taxes

(1,478,273

)

(1,325,469

)

 

(3,063,673

)

 

(2,787,913

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(1,478,273

)

$

(1,325,469

)

$

(3,063,673

)

$

(2,787,913

)

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted:

 

 

 

 

 

 

 

Basic and diluted

$

(0.17

)

$

(4.66

)

$

(0.60

)

$

(11.29

)

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

8,596,189

284,737

 

 

5,070,816

 

 

246,927

 

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 at June 30, 2020

 

8,596,189

 

$

85,962

 

$

39,351,139

 

$

(19,169,217

)

$

20,267,884

 

Stock-based compensation

 

 

 

 

303,169

 

 

 

303,169

 

Conversion of restricted stock units to common stock

Conversion of debt exchange to common stock

Issuance of common stock, net of issuance costs

Net loss

 

 

 

 

 

 

(1,478,273

)

(1,478,273

)

Balance at September 30, 2020

8,596,189

$

85,962

$

39,654,308

$

(20,647,490

)

$

19,092,780

 

Balance at December 31, 2019

 

1,157,890

 

$

11,579

 

$

21,932,387

 

$

(17,583,817

)

$

4,360,149

 

Stock-based compensation

471,683

471,683

Conversion of restricted stock units to common stock

 

24,672

 

246

 

 

(246

)

 

 

 

Reverse stock split settlement

 

(38

)

 

 

(122

)

 

 

(122

)

Conversion of debt exchange to common stock

73,665

737

205,526

206,263

Issuance of common stock, net of issuance costs

7,340,000

73,400

17,045,080

17,118,480

Net loss

 

 

 

 

 

 

(3,063,673

)

(3,063,673

)

Balance at September 30, 2020

 

8,596,189

 

$

85,962

 

$

39,654,308

 

$

(20,647,490

)

$

19,092,780

 

 

$0.01 Par Value
Common Stock

 

 

Additional
Paid-in

 

Accumulated

 

Total
Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balance at June 30, 2019

 

255,390

 

$

2,554

 

$

18,741,489

 

$

(12,125,721

)

$

6,618,322

 

Stock-based compensation

 

 

 

 

197,090

 

 

 

197,090

 

Issuance of common stock, net of issuance costs

45,000

450

582,856

583,306

Net loss

 

 

 

 

 

 

(1,325,469

)

(1,325,469

)

Balance at September 30, 2019

300,390

$

3,004

$

19,521,435

$

(13,451,190

)

$

6,073,249

 

Balance at December 31, 2018

 

213,002

 

$

2,130

 

$

17,741,214

 

$

(10,663,277

)

$

7,080,067

 

Stock-based compensation

645,080

645,080

Issuance of common stock, net of issuance costs

 

87,388

874

 

 

1,135,141

 

 

1,136,015

Net loss

 

 

 

 

 

 

(2,787,913

)

(2,787,913

)

Balance at September 30, 2019

 

300,390

 

$

3,004

 

$

19,521,435

 

$

(13,451,190

)

$

6,073,249

SG BLOCKS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

 

 

 

For the
Nine Months Ended
September 30,
2020

 

For the
Nine Months Ended

September 30,
2019

 

 

 

(Unaudited)

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(3,063,673

)

$

(2,787,913

)

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

 

 

 

 

 

 

 

Depreciation expense

 

 

2,858

 

 

8,697

 

Amortization of intangible assets

 

 

108,842

 

 

108,843

 

Amortization of deferred license costs

30,590

Bad debt expense (benefit)

(54,000

)

Interest income on long-term note receivable

 

 

(23,185

)

 

Stock-based compensation

 

 

471,683

 

 

482,139

 

Loss on asset disposal

1,012

52,039

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,581,925

)

 

363,987

Contract assets

 

 

(14,786

)

 

251,636

Inventories

(681,521

)

Prepaid expenses and other current assets

 

 

(189,143

)

 

821,802

Accounts payable and accrued expenses

 

 

(841,778

)

 

(653,821

)

Contract liabilities

2,322,164

 

(1,093,796

)

Other current liabilities

5,000

Net cash used in operating activities

 

 

(4,453,862

)

 

(2,500,387

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Advances in note receivable

(650,000

)

Purchase of Echo DCL, LLC, net of cash acquired

(743,168

)

Purchase of property, plant and equipment

(49,434

)

(2,070

)

Net cash used in investing activities

 

 

(1,442,602

)

 

(2,070

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from public stock offering, net of issuance costs

 

 

17,118,480

 

 

1,136,015

 

Proceeds from long-term note payable

200,000

Settlement of common stock from reverse stock split

(122

)

Net cash provided by financing activities

 

 

17,318,358

 

 

1,136,015

 

 

 

 

Net increase (decrease) in cash and cash equivalents

11,421,894

(1,366,442

)

 

Cash and cash equivalents - beginning of period

1,625,671

1,368,395

 

Cash and cash equivalents - end of period

$

13,047,565

$

1,953

 

Supplemental disclosure of non-cash investing and financing activities:

Non-cash conversion of accrued interest of long-term note payable to common stock

$

6,263

$

Non-cash conversion of long-term note payable to common stock

200,000

Non-cash conversion of accrued salary to restricted stock units to common stock

162,941

Total non-cash investing and financing activities

$

206,263

$

162,941

 

Contacts

Media:
Rubenstein Public Relations
Christina Levin
Account Director
212-805-3029
clevin@rubensteinpr.com

Investors:
Stephen Swett
(203) 682-8377
investors@sgblocks.com

Contacts

Media:
Rubenstein Public Relations
Christina Levin
Account Director
212-805-3029
clevin@rubensteinpr.com

Investors:
Stephen Swett
(203) 682-8377
investors@sgblocks.com