Share-based Compensation

9 Months Ended

Sep. 30, 2020

16.	Share-based Compensation

On October 26, 2016, the Company’s Board of Directors approved the issuance of up to 25,000 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 and as further amended on July 30, 2020 (the “Incentive Plan”). The Incentive Plan authorizes the issuance of up to 1,125,000 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 subsidiary, 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 Company’s Compensation Committee of the Board of Directors. Each of the Company’s employees, directors, and consultants are eligible to participate in the Incentive Plan. As of September 30, 2020, there were 582,473 shares of common stock available for issuance under the Incentive Plan.

Stock-Based Compensation Expense

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

	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019	2020		2019
Payroll and related expenses	$	303,169	$	139,402	$	414,563	$	472,014
General and administrative expenses		—		—		57,120		—
Marketing and business development expenses		—		3,375		—		10,125
Total	$	303,169	$	142,777	$	471,683	$	482,139

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

	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019	2020		2019
Stock options	$	2,667	$	40,098	$	8,000	$	112,293
Restricted Stock Units		300,502		102,679		463,683		369,846
Total	$	303,169	$	142,777	$	471,683	$	482,139

Stock-Based Option Awards

The Company has issued no stock-based options during the nine months ended September 30, 2020 and 2019. The fair value of the stock-based option awards granted during the nine months ended September 30,2020 and 2019 were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

	2019
Expected dividend yield	—	%
Expected stock volatility	68.35	%
Risk-free interest rate	2.44	%
Expected life	3.00

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 nine months ended September 30, 2020 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, 2019		53,170		$	24.80	$	81.20		7.40	$	—
Granted		—			—		—		—		—
Exercised		—			—		—		—		—
Cancelled		(833	)		—		—		—		—
Outstanding – September 30, 2020		52,337			24.75		81.60		6.65	$	—
Exercisable – December 31, 2019		52,649			24.80		81.20		7.39		—
Exercisable – September 30, 2020		52,128		$	24.74	$	81.56		6.64	$	—

For the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $2,667 and $40,098, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $8,000 and $112,293, respectively, related to stock options. This expense is included in payroll and related expenses, in the accompanying condensed consolidated statements of operations.

As of September 30, 2020, there was $5,335 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of less than 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 September 30, 2020 was $1.81 per share.

Restricted Stock Units

On March 22, 2019, a total of 15,703 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 $54.00 per share, which represents the closing price of the Company's common stock on February 26, 2019, as adjusted for stock splits. Restricted stock units granted to Mr. Galvin, Mr. Armstrong, Mr. Shetty, and an aggregate of six employees and one consultant of 6,139, 772, 5,729 and an aggregate of 3,063, 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 526 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 $58.80 and $55.20 per share, respectively, which represents the average closing price of the Company’s common stock for the ten trading days immediately preceding and including the grant date, as adjusted for stock splits. The restricted stock units granted on January 15, 2019 vested 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 vested 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.

On April 14, 2020, a total of 35,331 of restricted stock units were granted to Mr. Galvin, Mr. Armstrong, Mr. Sheeran, five employees and two consultants of the Company, under the Company's stock-based compensation plan, at the fair value of $4.76 per share, which represents the closing price of the Company's common stock on April 14, 2020. Restricted stock units granted to Mr. Galvin, Mr. Armstrong, Mr. Sheeran, and an aggregate of five employees and one consultant of 11,331, 1,000, 3,000 and an aggregate of 8,000, respectively, will vest in full on the first anniversary of the vesting commencement date and one consultant received 12,000 restricted stock units that vested immediately on April 15, 2020. The fair value of these units upon issuance amounted to $168,176.

On April 14, 2020, a total of 12,000 of restricted stock units were granted to three of the Company’s non-employee directors, under the Incentive Plan, at the calculated fair value of $4.76 per share, which represents the closing price of the Company’s common stock on April 14, 2020. The restricted stock units granted on April 14, 2020 will fully vest on April 14, 2021, 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 fair value of these units upon issuance amounted to $57,120.

On September 23, 2020, a total of 425,000 of restricted stock units were granted to Mr. Armstrong, Mr. Sheeran, seven employees and one consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $1.81 per share, which represents the closing price of the Company's common stock on September 23, 2020. Restricted stock units granted to Mr. Armstrong, Mr. Sheeran, and an aggregate of seven employees and one consultant of 50,000, 75,000 and an aggregate of 300,000, respectively, and 1/3 will vest on September 23, 2020, 1/3 on the one year anniversary of the grant date and 1/3 on the two year anniversary of the grant date. The fair value of these units upon issuance amounted to $769,250.

For the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $300,502 and $102,679 related to restricted stock units. For the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation of $463,683 and $369,846 related to restricted stock units. This expense is included in the payroll and related expenses, general and administrative expenses, and marketing and business development expense in the accompanying condensed consolidated statement of operations. For the nine months ended September 30, 2020 and 2019, the Company recognized $0 and $162,941, respectively, related to restricted stock units in lieu of accrued compensation.

The following table summarized restricted stock unit activities during the nine months ended September 30, 2020:

	Number of Shares
Non-vested balance at January 1, 2020		8,938
Granted		472,331
Vested		(17,512	)
Forfeited/Expired		(4,000	)
Non-vested balance at September 30, 2020		459,757