SAFE & GREEN HOLDINGS CORP. - Quarter Report: 2019 March (Form 10-Q)

 

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Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, par value $0.01		SGBX		The Nasdaq Stock Market LLC

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		March 31, 2019				December 31, 2018
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	250,464			$	1,368,395
Accounts receivable, net			2,956,614				1,746,326
Costs and estimated earnings in excess of billings on uncompleted contracts			12,424				260,325
Prepaid expenses and other current assets			781,046				986,687
Total current assets			4,000,548				4,361,733
Property, plant and equipment, net			68,172				71,337
Goodwill			4,162,173				4,162,173
Intangible assets, net			2,407,648				2,443,929
Total Assets		$	10,638,541			$	11,039,172
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	2,251,920			$	2,624,218
Billings in excess of costs and estimated earnings on uncompleted contracts			1,580,481				1,334,887
Total current liabilities			3,832,401				3,959,105
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $1.00 par value, 5,405,010 shares authorized; none issued or outstanding			—				—
Common stock, $0.01 par value, 300,000,000 shares authorized; 4,260,041 issued and outstanding as of March 31, 2019 and December 31, 2018			42,601				42,601
Additional paid-in capital			17,917,551				17,700,743
Accumulated deficit			(11,154,012	)			(10,663,277	)
Total stockholders’ equity			6,806,140				7,080,067
Total Liabilities and Stockholders’ Equity		$	10,638,541			$	11,039,172

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		For the Three Months Ended March 31,				For the Three Months Ended March 31,
		2019				2018
		(Unaudited)				(Unaudited)
Revenue:
Construction services		$	1,658,074			$	1,543,526
Engineering services			77,050				—
Total			1,735,124				1,543,526
Cost of revenue:
Construction services			1,159,229				1,379,930
Engineering services			31,790				—
Total			1,191,019				1,379,930
Gross profit			544,105				163,596
Operating expenses:
Payroll and related expenses			638,550				405,418
General and administrative expenses			333,000				426,275
Marketing and business development expense			47,359				81,047
Pre-project expenses			15,931				4,964
Total			1,034,840				917,704
Operating loss			(490,735	)			(754,108	)
Other income (expense):
Interest income			—				4
Total			—				4
Loss before income taxes			(490,735	)			(754,104	)
Income tax expense			—				—
Net loss		$	(490,735	)		$	(754,104	)
Net loss per share - basic and diluted:
Basic and diluted		$	(0.12	)		$	(0.18	)
Weighted average shares outstanding:
Basic and diluted			4,260,041				4,260,041

		$0.01 Par Value Common Stock								Additional Paid-in				Accumulated				Total Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Balance – December 31, 2017			4,260,041			$	42,601			$	17,304,529			$	(5,819,256	)		$	11,527,874
Stock-based compensation			—				—				79,989				—				79,989
Net loss			—				—				—				(754,104	)			(754,104	)
Balance – March 31, 2018			4,260,041			$	42,601			$	17,384,518			$	(6,573,360	)		$	10,853,759
Balance – December 31, 2018			4,260,041			$	42,601			$	17,700,743			$	(10,663,277	)		$	7,080,067
Stock-based compensation			—				—				216,808				—				216,808
Net loss			—				—				—				(490,735	)			(490,735	)
Balance – March 31, 2019			4,260,041			$	42,601			$	17,917,551			$	(11,154,012	)		$	6,806,140

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		For the Three Months Ended March 31, 2019			For the Three Months Ended March 31, 2018
		(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss		$	(490,735	)	$	(754,104	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			3,165			931
Amortization of intangible assets			36,281			147,316
Interest income on short-term investment			—			(4	)
Stock-based compensation			162,493			79,989
Changes in operating assets and liabilities:
Accounts receivable			(1,210,288	)		1,576,243
Cost and estimated earnings in excess of billings on uncompleted contracts			247,901			59,763
Prepaid expenses and other current assets			205,641			(442,192	)
Accounts payable and accrued expenses			(317,983	)		(542,879	)
Billings in excess of costs and estimated earnings on uncompleted contracts			245,594			(509,846	)
Net cash used in operating activities			(1,117,931	)		(384,783	)
Cash flows from investing activities:
Proceeds from short-term investment			—			30,037
Purchase of property, plant and equipment			—			(3,184	)
Net cash provided by investing activities			—			26,853
Cash flows from financing activities:
Net cash provided by financing activities			—			—
Net decrease in cash and cash equivalents			(1,117,931	)		(357,930	)
Cash and cash equivalents - beginning of period			1,368,395			4,870,824
Cash and cash equivalents - end of period		$	250,464		$	4,512,894
Supplemental disclosure of non-cash investing and financing activities:
Non cash conversion of salary liability to restricted stock units		$	54,315		$	—

 

SG Blocks, Inc. (collectively with its subsidiaries, the “Company,” “we”, “us” or “our”) was previously known as CDSI Holdings, Inc., a Delaware corporation incorporated on December 29, 1993. On November 4, 2011, CDSI Merger Sub, Inc., the Company’s wholly-owned subsidiary, was merged with and into SG Building Blocks, Inc. (“SG Building,” formerly SG Blocks Inc.) (the “Merger”), with SG Building surviving the Merger and becoming a wholly-owned subsidiary of the Company. The Merger was a reverse merger that was accounted for as a recapitalization of SG Building, as SG Building was the accounting acquirer. Accordingly, the historical financial statements presented are the financial statements of SG Building.

 

The Company provides two main products, both of which are used to meet the growing demand for safe and green commercial, industrial and residential building construction. The Company provides SGBlocks_^TM, code engineered cargo shipping containers that the Company modifies for use in construction. Rather than consuming new steel and lumber, SGBlocks^TM capitalize on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. They offer the construction industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods. The Company also provides purpose-built modules (“SGPBMs” and, together with SGBlocks^TM, “Modules”), which are prefabricated steel modular units created specifically for use in modular construction, unlike the shipping containers used to create SGBlocks_^TM.  

 

The Company also provides engineering and project management services related to the use and modification of Modules in construction. 

 

Recently adopted accounting pronouncements – New accounting pronouncements implemented by the Company are discussed below or in the related notes, where appropriate.

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The update’s principal objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing their right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than twelve months. The update is effective for fiscal years beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), which provides entities with an additional transition method. Under ASU 2018-11, entities have the option of recognizing the cumulative effect of applying the new standard as an adjustment to beginning retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB also issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), which clarifies how to apply certain aspects of ASU 2016-02. The Company adopted ASU 2016-02, ASU 2018-10 and ASU 2018-11 effective January 1, 2019. The Company had no operating or finance lease agreements as of March 31, 2019. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s financial statements and disclosures. 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. Under ASC 718, the measurement date for equity-classified, share-based awards is generally the grant date of the award. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The Company adopted ASU 2018-07 effective January 1, 2019. The adoption provides administrative relief by fixing the remaining unamortized expense of the award and eliminating the requirement to quarterly re-measure the Company’s nonemployee awards. The adoption of ASU No. 2018-07 did not have a material impact on the Company’s financial statements and disclosures.

SG BLOCKS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

Recently issued accounting pronouncements not yet adopted – New accounting pronouncements requiring implementation in future periods are discussed below. 

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), to simplify the test for goodwill impairment by removing Step 2. An entity will, therefore, perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Adoption of the ASU is on a prospective basis. Based on current evaluation, the Company does not expect that ASU No. 2017-04 will have a material impact on the Company’s financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). This ASU amends ASC 820 to add, remove and modify certain disclosure requirements for fair value measurements. For example, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management does not expect the adoption of ASU 2018-13 to have a material impact on the Company’s financial position, results of operations or cash flow.

 

SG BLOCKS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

   

 

 

Intangible assets – Intangible assets represent the preliminary assets identified upon emergence from bankruptcy and consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years and $1,113,000 of customer contracts which was being amortized over 2.5 years. In addition, intangible assets include $28,820 of trademarks and $5,300 of website costs which are being amortized over 5 years. The Company evaluated intangible assets for impairment during the year ended December 31, 2018, and determined that there were no impairment losses. The accumulated amortization as of March 31, 2019 and 2018 was $1,505,472 and $1,026,889, respectively. The amortization expense for the three months ended March 31, 2019 and 2018 was $36,281 and $147,316, respectively. The estimated amortization expense for the successive five years is as follows:

  

	For the year ended December 31,
	2019		$	108,843
	2020			145,124
	2021			145,124
	2022			140,801
	2023			139,007
	Thereafter			1,728,749
			$	2,407,648

 

 

Common stock purchase warrants and other derivative financial instruments – The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if any event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement shares (physical settlement or net-cash settlement). The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required.

SG BLOCKS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

 

Fair value measurements – Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are carried at cost, which the Company believes approximates fair value due to the short-term nature of these instruments.

 

The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

 

The Company uses three levels of inputs that may be used to measure fair value: 

Income taxes – The Company accounts for income taxes utilizing the asset and liability approach. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted.

 

The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the liabilities are no longer determined to be necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

 

Concentrations of credit risk – Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. The Company has not experienced any losses in its account and believes that it is not exposed to any significant credit risk on the account.

 

With respect to receivables, concentrations of credit risk are limited to a few customers in the construction industry. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights. At March 31, 2019 and December 31, 2018, 72% and 76%, respectively, of the Company’s accounts receivable were due from two customers.

 

Revenue relating to two and three customers represented approximately 89% and 80% of the Company’s total revenue for the three months ended March 31, 2019 and 2018, respectively.

 

Cost of revenue relating to two and three vendors represented approximately 95% and 75% of the Company’s total cost of revenue for the three months ended March 31, 2019 and 2018, respectively. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

SG BLOCKS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

 

Costs and estimated earnings on uncompleted contracts consisted of the following at March 31, 2019 and December 31, 2018:

 

			March 31,  2019				December 31, 2018
	Costs incurred on uncompleted contracts		$	11,175,706			$	11,307,975
	Estimated earnings to date on uncompleted contracts			1,032,413				838,615
	Gross contract assets			12,208,119				12,146,590
	Less: billings to date			(13,776,176	)			(13,221,152	)
	Net contract assets (liabilities)		$	(1,568,057	)		$	(1,074,562	)

 

The above amounts are included in the accompanying consolidated balance sheets under the following captions at March 31, 2019 and 2018:

 

			March 31,  2019				December 31, 2018
	Costs and estimated earnings in excess of billings on uncompleted contracts		$	12,424			$	260,325
	Billings in excess of costs and estimated earnings on uncompleted contracts			(1,580,481	)			(1,334,887	)
	Net contract assets (liabilities)		$	(1,568,057	)		$	(1,074,562	)

 

Although management believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.

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6.	Property, Plant and Equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and amortization and depreciated using the straight-line method over their useful lives. At March 31, 2019 and December 31, 2018, the Company’s property, plant and equipment, net consisted of the following:

 

 

Depreciation expense for the three months ended March 31, 2019 and 2018 amounted to $3,165 and $931, respectively. 

 

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. 

  

At March 31, 2019, there were options, including options granted to non-employees and non-directors, restricted stock units and warrants to purchase 1,080,059, 346,936 and 86,250 shares of common stock, respectively, outstanding that could potentially dilute future net income (loss) per share. Because the Company had a net loss for the three months ended March 31, 2019, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, the Company has used the same number of shares outstanding to calculate both the basic and diluted loss per share. At March 31, 2018, there were options, including options to non-employees and non-directors, and warrants to purchase 1,188,392 and 86,250 shares of common stock, respectively, outstanding that could potentially dilute future net income (loss) per share.

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The following represents the backlog of signed construction and engineering contracts in existence at March 31, 2019 and December 31, 2018, which represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress and from contractual agreements in effect at March 31, 2019 and December 31, 2018, respectively, on which work has not yet begun:

			March 31, 2019				December 31, 2018
	Balance - beginning of period		$	97,657,379			$	76,659,029
	New contracts and change orders during the period			(82,415	)			29,189,062
	Subtotal			97,574,964				105,848,091
	Less: contract revenue earned during the period			(1,735,124	)			(8,190,712	)
	Balance - end of period		$	95,839,840			$	97,657,379

 

Backlog at March 31, 2019 included two large contracts entered into by the Company during the third quarter of 2017 and one contract during the last quarter of 2018 in the amounts of approximately $55 million, $15 million and $25 million, respectively. The Company expects that all of this revenue will be realized by June 30, 2021. During the fourth quarter of 2018, the Company moved a contract of $27.5 million out of backlog and into its pipeline until the customer completes a highest and best use analysis of the land. 

The Company’s remaining backlog as of March 31, 2019 represents the remaining transaction price of firm contracts for which work has not been performed and excludes unexercised contract options.  As of March 31, 2019, the aggregate amount of the transaction price allocated to backlog was $95,839,840.

The Company expects to satisfy its backlog which represents the remaining unsatisfied performance obligation on contracts as of March 31, 2019 over the following period:

			2019
	Within 1 year		$	20,847,051
	1 to 2 years			54,546,876
	Thereafter			20,445,913
	Total Backlog		$	95,839,840

Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost and project deferrals, as appropriate.

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SG BLOCKS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

Public Offering – In June 2017, the Company issued 1,500,000 shares of its common stock at $5.00 per share through a public offering (the “Public Offering”). The Company incurred $1,388,615 in issuance costs from the Public Offering and issued 75,000 warrants valued at $55,475 to the underwriters (as discussed in Note 10).

 

In July 2017, as permitted by the underwriting agreement entered into in connection with the Public Offering, the underwriters exercised their option to purchase an additional 225,000 shares of common stock at $5.00 per share. The Company incurred $176,771 in issuance costs from this issuance. In connection with this exercise, certain affiliates of the underwriters were granted additional warrants to purchase 11,250 shares of common stock in the aggregate valued at $8,321 (as discussed in Note 10). 

 

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

Issuance of Common Stock – In accordance with the Advisory Agreement (as defined below), a consultant was issued 50,000 shares of the Company’s common stock for services that were required to be performed by November 30, 2017. The fair market value of these shares amounted to $254,500 as of November 30, 2017, which was expensed as general and administrative expenses.  

 

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

On October 26, 2016, the Company’s Board of Directors approved the issuance of up to 500,000 shares of the Company’s common stock in the form of restricted stock or options (“2016 Stock Plan”). Effective January 20, 2017, the 2016 Stock Plan was amended and restated as the SG Blocks, Inc. Stock Incentive Plan, as further amended effective June 1, 2018 (the “Incentive Plan”). The Incentive Plan authorizes the issuance of up to 2,500,000 shares of common stock. It authorizes the issuance of equity-based awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards  to non-employee directors and to officers, employees and consultants of the Company and its subsidiaries, except that incentive stock options may only be granted to the Company’s employees and its subsidiary’s employees. The Incentive Plan expires on October 26, 2026, and is administered by the Compensation Committee of the Board of Directors of the Company. Each of the Company’s employees, directors, and consultants are eligible to participate in the Incentive Plan. As of March 31, 2019, there were 1,020,202 shares of common stock available for issuance under the Incentive Plan.

Stock-Based Compensation Expense 

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

 

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

Stock-Based Option Awards 

The fair value of the stock-based option awards granted during the three months ended March 31, 2019 and 2018, were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions: 

 

 

 

Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards granted to employees. The simplified method is calculated by averaging the vesting period and contractual term of the options.

The following table summarizes stock-based option activities and changes during the three months ended March 31, 2019. The table includes options granted to employees and directors of the Company, as described below: 

 

			Shares				Weighted Average Fair Value Per Share				Weighted Average Exercise Price Per Share				Weighted Average Remaining Terms (in years)				Aggregate Intrinsic Value
	Outstanding – December 31, 2018			1,105,059			$	1.24			$	4.06				8.41			$	—
	Granted			—				—				—
	Exercised			—				—				—
	Cancelled			(25,000	)			—				—
	Outstanding – March 31, 2019			1,080,059				1.24				4.05				8.15			$	—
	Exercisable – December 31, 2018			949,355				1.23				4.00				8.30				—
	Exercisable – March 31, 2019			970,190			$	1.23			$	4.01				8.07			$	—

  

For the three months ended March 31, 2019 and 2018, the Company recognized stock-based compensation expense of $32,098 and $79,989, respectively, related to stock options. This expense is included in payroll and related expenses in the accompanying consolidated statements of operations.

 

As of March 31, 2019, there was $131,815 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of one year. The intrinsic value is calculated as the difference between the fair value of the stock price at year end and the exercise price of each of the outstanding stock options. The fair value of the stock price at March 31, 2019 was $1.84 per share.

In March 2018, the Company granted Mr. Galvin, Mr. Shetty and six employees of the Company options to purchase 82,154, 81,342 and an aggregate of 86,504, respectively, shares of the Company’s common stock with an exercise price of $4.61 per share. These options vest in equal quarterly installments over either a two-year and three-year period and will fully vest by the end of March 31, 2021. The options with a two-year period, which includes those granted to Mr. Galvin and Mr. Shetty, will vest in full by December 31, 2019; the options with a three-year vesting period will vest in full by March 31, 2021. The fair value of these options upon issuance amounted to $320,000.

Non-Employee Stock Options 

In September 2017, in connection with an advisory agreement entered into by the Company (the “Advisory Agreement”), a consultant was granted options to purchase 50,000 shares of the Company’s common stock, with an exercise price of $6.25. The options were scheduled to vest when certain performance conditions were met. These performance conditions consisted of the purchase of fifty modular units from the Company by qualified customers. As of March 31, 2019, the required performance conditions were not met, and the options expired. 

 

Restricted Stock Units 

Effective July 26, 2018, a total of 27,955 of restricted stock units were granted to the Company’s non-employee directors, under the Company’s stock-based compensation plan, at the calculated fair value of $5.36 per share, which represents the average closing price of the Company’s common stock for the ten trading days immediately preceding and including the grant date. Restricted stock units granted to directors in 2018 vest on the earlier of (A) the first anniversary of the date of the grant or (B) the date of the annual meeting of the Company’s stockholders that occurs in the year immediately following the date of the grant; and are payable six months after the termination of the director from the Board or death or disability.

On March 22, 2019, a total of 314,058 of restricted stock units were granted to Mr. Galvin, Mr. Armstrong, Mr. Shetty, six employees and one consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $2.70 per share, which represents the closing price of the Company's common stock on February 26, 2019. Restricted stock units granted to Mr. Galvin, Mr. Armstrong, Mr. Shetty, and an aggregate of six employees and one consultant of 122,785, 15,432, 114,575 and an aggregate of 61,266, respectively, vest in installments over either a one-year, two-year, three-year and four-year period and will fully vest by the end of December 31, 2022. The fair value of these units upon issuance amounted to $847,957.  

On January 15, 2019 and February 26, 2019, a total of 10,514 of restricted stock units were granted to two of the Company’s non-employee directors, under the Incentive Plan, at the calculated fair value of $2.94 and $2.76 per share, which represents the average closing price of the Company’s common stock for the ten trading days immediately preceding and including the grant date. The restricted stock units granted on January 15, 2019 will vest on January 15, 2020, subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Company’s Board of Directors or death or disability. The restricted stock units granted on February 26, 2019 vest on the earlier of (A) the first anniversary of the date of the grant or (B) the date of the 2019 annual meeting of the Company’s stockholders subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Board of Directors or death or disability.

 

For the three months ended March 31, 2019 and 2018, the Company recognized stock-based compensation expense of $130,395 and $0 related to restricted stock units. This expense is included in the payroll and related expenses in the accompanying condensed consolidated statement of operations. For the three months ended March 31, 2019 and 2018, the Company recognized $54,315 and $0 related to restricted stock units in lieu of accrued compensation. 

The following table summarizes restricted stock unit activities during the three months ended March 31, 2019: