13.	Share-based Compensation

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 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 December 31, 2018, there were 1,258,691 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:

	Year Ended December 31,
	2018		2017
Payroll and related expenses	$	396,214	$	701,402
Total	$	396,214	$	701,402

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

	Year Ended December 31,
	2018		2017
Stock options	$	332,662	$	701,402
RSUs		63,552		—
Total	$	396,214	$	701,402

Stock-Based Option Awards

The fair value of the stock-based option awards granted during the years ended December 31, 2018 and 2017, were estimated at the date of grant using the Black-Scholes option valuation model with the following assumptions:

	2018			2017
Expected dividend yield		0	%		0	%
Expected stock volatility		25.7	%		25.5-44	%
Risk-free interest rate		2.56	%		1.78-2.11	%
Expected life		5.00			5.5

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 years ended December 31, 2018 and 2017. The table includes options granted to employees and directors of the Company and does not include 50,000 options granted to a consultant during 2017, 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, 2016 - Successor		295,051		$	1.25	$	3.00		—	$	—
Granted		598,552			1.22		4.28
Exercised		(2,803	)		—		—
Cancelled		(2,408	)		—		—
Outstanding – December 31, 2017		888,392		$	1.23	$	3.86		9.15	$	1,881,869
Granted		250,000			1.28		4.61
Exercised		—			—		—
Cancelled		(33,333	)		—		—
Outstanding – December 31, 2018		1,105,059			1.24		4.06		8.41	$	—
Exercisable – December 31, 2017		738,608			1.22		4.04		9.19		1,435,515
Exercisable – December 31, 2018		949,355		$	1.23	$	4.00		8.30	$	—

For the years ended December 31, 2018 and December 31, 2017, the Company recognized stock-based compensation expense of $332,662 and $701,402, respectively, related to stock options. This expense is included in payroll and related expenses in the accompanying consolidated statements of operations.

As of December 31, 2018, there was $195,914 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of 1.28 years. 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 December 31, 2018 was $2.71 per share.

On January 30, 2017, the Company granted Mr. Galvin, Mr. Armstrong, Mr. Shetty, and three employees of the Company options to purchase 96,814, 34,481, 69,038 and an aggregate of 47,010, respectively, shares of the Company’s common stock with an exercise price of $3.00 per share. These options were granted pursuant to the 2016 Stock Plan. These options vested in equal quarterly installments over a two year period and were vested in full by the end of December 31, 2018, in accordance with the underlying agreement. The fair value of these options upon issuance amounted to $316,599.

In March 2017, Mr. Galvin and Mr. Shetty were granted options to purchase 185,425 and 132,446 shares of the Company’s common stock, respectively. The exercise price of such options was contingent on the offering price of the Public Offering and based on the $5.00 Public Offering Price; as such, 185,425 of such options have an exercise price of $5.00 per share and 132,446 have an exercise price of $6.00 per share. These options vested during the three months ended September 30, 2017, when certain performance conditions were met. The fair value of these options upon issuance amounted to $370,558.

Also in March 2017, the Company issued options to purchase an aggregate of 33,334 shares of the Company’s common stock to two directors. Such options have an exercise price of $3.00 per share, and vest in quarterly installments, in accordance with the underlying agreement. These options vested in full by December 31, 2017. The fair value of these options upon issuance amounted to $42,934.

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 vest when certain performance conditions are met. These performance conditions consist of the purchase of fifty modular units from the Company by qualified customers. As of December 31, 2018, these options have not vested.

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. For the year ended December 31, 2018, the Company recognized stock-based compensation of $63,552 related to restricted stock units. This expense is included in the payroll and related expenses in the accompanying condensed consolidated statement of operations.

The following table summarized restricted stock unit activities during the year ended December 31, 2018:

	Number of Shares
Non-vested balance at January 1, 2018		—
Granted		27,955
Vested		—
Forfeited/Expired		(5,591	)
Non-vested balance at December 31, 2018		22,364