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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2018
Summary of Significant Accounting Policies [Abstract] |
Summary of Significant Accounting Policies |
2. | Summary of Significant Accounting Policies
Interim financial information – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting of normal accruals, considered necessary for a fair presentation of the interim financial statements have been included. Results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 1, 2018. Basis of consolidation – The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SG Building Blocks, Inc. and those entities in which it has a controlling interest. The Company consolidates entities that it controls due to ownership of a majority voting interest, and it consolidates variable interest entities “VIEs” when it has variable interests and is the primary beneficiary. The Company's share of earnings or losses of nonconsolidated affiliates is included in the Company's consolidated operating results using the equity method of accounting. All intercompany balances and transactions are eliminated. Certain prior period amounts have been reclassified to conform to the current period’s presentation. The Company conducts some of its operations through joint ventures, which operate through partnerships, corporations, undivided interest and other business forms and are principally accounted for using the equity method of accounting. The joint ventures are characterized by a 50% or less, noncontrolling ownership or participation interest, with decision making and distribution of expected gains and losses typically being proportionate to the ownership or participation interest. For unconsolidated partnerships and joint ventures, the Company generally recognizes its proportionate share of revenue, cost and profit in its Condensed Consolidated Statement of Operations and uses the one-line equity method of accounting on the Condensed Consolidated Balance Sheet. The Company’s investments in and advances to equity affiliates amounted to $6,956 and $0 as of September 30, 2018 and December 31, 2017, respectively, and are classified under “Investments in and advances to equity affiliates” on the Condensed Consolidated Balance Sheet. Sequential Modular Partners, LLC is a joint venture in which the Company has a 32% ownership interest. In accordance with Accounting Standards Update (“ASU”) No. 2015-02, “Consolidation” (Topic 810) (“ASC 810”), the Company assesses joint ventures at inception to determine if any meet the qualifications of a VIE. The Company considers a partnership or joint venture a VIE if it has any of the following characteristics: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the partnership or joint venture is a VIE. The Company also performs a qualitative assessment of each VIE to determine if the Company is its primary beneficiary, as required by ASC 810. The Company concludes that it is the primary beneficiary and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the Company is the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. As required by ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is continuously performed. In some cases, the Company is required to consolidate certain VIEs if it determines it is the primary beneficiary of the joint venture because it controls the activities that most significantly impact the economic performance of the entity. SG Residential, Inc. is a consolidated VIE because the total equity investment was nominal and not sufficient to permit the entity to finance its activities without additional subordinated financial support. The Company applies the provisions of ASC 810-10-45, which establishes accounting and reporting standards for ownership interests in subsidiaries held by owners other than the parent, the amount of consolidated net earnings attributable to the parent and to the noncontrolling interests, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. As required by ASC 810-10-45, the Company has separately disclosed on the face of the Condensed Consolidated Statement of Operations for all periods presented the amount of net income (loss) attributable to the Company and the amount of net income (loss) attributable to noncontrolling interests. For the three and nine months ended September 30, 2018, net loss attributable to noncontrolling interests was $52,445. For the three and nine months ended September 30, 2018, no distributions paid to or capital contributions were recorded for noncontrolling interests. Comprehensive Income The Company follows Financial Accounting Standards Board (“FASB”) ASC 220.10, "Reporting Comprehensive Income." Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income (loss). Since the Company has no items of other comprehensive income, comprehensive income (loss) is equal to net income (loss). Recently adopted accounting pronouncements New accounting pronouncements implemented by the Company during the nine month period ended September 30, 2018 are discussed below or in the related notes, where appropriate. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”). ASC 606 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)” (“ASC 605”) and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASC 606 as of January 1, 2018. In accordance with ASC 606, the Company applied the modified retrospective method to those contracts which were not completed as of January 1, 2018. Under the modified retrospective method, the cumulative effect of applying the standard is recognized at the date of initial application. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605. In implementing ASC 606, the Company was required to recalculate the revenue earned on any work in process at the implementation date and to restate the revenue and cost of revenues as if ASC 606 had been followed from the inception of the contract. In recalculating costs and revenue under ASC 606 guidelines, no material differences in the account balances were identified. Since material differences were not found, no retrospective analysis of account balance changes was required. See “Revenue recognition” below for further discussion regarding revenue from contracts with customers. Recently issued accounting pronouncements not yet adopted New accounting pronouncements requiring implementation in future periods are discussed below. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU No. 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. Early adoption is permitted for financial statements that have not been previously issued. 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. We expect to adopt ASU 2016-02, ASU 2018-10 and ASU 2018-11 beginning January 1, 2019. The Company is currently evaluating the effects of ASU 2016-02 on the consolidated financial statements. The Company has no operating lease agreements as of September 30, 2018. Based on the current evaluation, the Company does not expect that ASU No. 2016-02 will have a material impact on the Company’s financial statements. 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 February 2018, the FASB issued ASU No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”), and requires certain disclosures about stranded tax effects. ASU 2018-02 is effective for us beginning January 1, 2019 (with early adoption permitted), and shall be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the corporate income tax rate in the TCJA is recognized. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements. Based on the current evaluation, the Company does not expect that ASU 2018-02 will have a material impact on the Company’s financial statements. 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. 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. ASU 2018-07 is effective for the Company beginning December 1, 2019, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated 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 now 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. In August 2018, the Securities and Exchange Commission issued a final rule "Disclosure Update and Simplification". The final rule is intended to update existing disclosure requirements that have become redundant, duplicative, overlapping, outdated or superseded and to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Included in the final rule is a requirement to present changes in stockholders' equity in the Company's 10-Q filings. The final rule is effective for all filings made on or after November 5, 2018. The Securities and Exchange Commission is not objecting to filers deferring the presentation of changes in stockholders' equity in their quarterly reports on Form 10-Q until after the effective date. The presentation of stockholders' equity will be included in the Company's 2019 first quarter filing. Accounting estimates – The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant areas that require the Company to make estimates include revenue recognition, stock-based compensation, warrant liabilities and allowance for doubtful accounts. Actual results could differ from those estimates. Operating cycle – The length of the Company’s contracts varies but is typically between six to twelve months. In some instances, the length of the contracts may exceed twelve months. Assets and liabilities relating to contracts are included in current assets and current liabilities, respectively, in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, which at times could exceed one year. Revenue recognition – On January 1, 2018, the Company adopted the following ASUs: ASU 2014-09, “Revenue from Contracts with Customers” outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and represent separate performance obligations, how variable consideration (which may include change orders and claims) is recognized, whether revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction price. ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” clarifies the principal versus agent guidance in ASU 2014-09. ASU 2016-08 clarifies how an entity determines whether to report revenue gross or net based on whether it controls a specific good or service before it is transferred to a customer. ASU 2016-08 also reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. ASU 2016-10, “Identifying Performance Obligations and Licensing” amends certain aspects of ASU 2014-09. ASU 2016-10 amends how an entity should identify performance obligations for immaterial promised goods or services, shipping and handling activities and promises that may represent performance obligations. ASU 2016-10 also provides implementation guidance for determining the nature of licensing and royalties arrangements. ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” also clarifies certain aspects of ASU 2014-09, including the assessment of collectability, presentation of sales taxes, treatment of noncash consideration and accounting for completed contracts and contract modifications at transition. ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” allows an entity to determine the provision for loss contracts at either the contract level or the performance obligation level as an accounting policy election. The Company determines its provision for loss contracts at the contract level. ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” clarifies that the scope and application of ASC 610-20 on accounting for the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales, applies only when the asset (or asset group) does not meet the definition of a business. ASU 2017-13, “Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments” provides guidance related to the effective dates of the ASUs noted above. The adoption of ASC 606 represents a change in accounting principle that aligns revenue recognition with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with ASC 606: (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 The new revenue recognition standard requires the Company to determine, at contract inception, whether it 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 Company now applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e., percentage of completion). 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. For the nine months ended September 30, 2018 and 2017, there were no changes in total estimated costs that had a significant impact to our operating results. In addition, for the nine months ended September 30, 2018 and 2017, there were no significant losses recognized. Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations (“RUPO”) as of September 30, 2018 represent the remaining transaction price of firm contracts for which work has not been performed and excludes unexercised contract options. As of September 30, 2018, the aggregate amount of the transaction price allocated to RUPO was $102,839,646. The Company expects to satisfy its RUPO as of September 30, 2018 over the following period:
Within 1 year |  | $ | 19,302,904 |
1 to 2 years |  |  | 63,794,582 |
Thereafter |  |  | 19,742,160 |
Total Remaining Unsatisfied Performance Obligations |  | $ | 102,839,646 |
Although RUPO reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. RUPO is adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate. Disaggregation of Revenues The Company’s revenues are principally derived from construction and engineering contracts related to Modules. Our contracts are with many different customers in numerous industries. The following tables provide further disaggregation of the Company’s revenues by categories:
|  | Three Months Ended September 30, |
Revenue by Customer Type |  | 2018 |  |  | 2017 | (1)
Multi-Family |  | $ | 47,026 |  |  |  | 2 | % |  | $ | — |  |  |  | — |
Office |  |  | 445,992 |  |  |  | 22 | % |  |  | 137,889 |  |  |  | 10 | %
Retail |  |  | 955,667 |  |  |  | 46 | % |  |  | 92,535 |  |  |  | 7 | %
School |  |  | 602,641 |  |  |  | 29 | % |  |  | 1,157,453 |  |  |  | 83 | %
Special Use |  |  | 30,990 |  |  |  | 1 | % |  |  | 2,159 |  |  |  | — |
Other |  |  | 509 |  |  |  | — |  |  |  | 4,916 |  |  |  | — |
Total revenue by customer type |  | $ | 2,082,825 |  |  |  | 100 | % |  | $ | 1,394,952 |  |  |  | 100 | %
|  | Nine Months Ended September 30, |
Revenue by Customer Type |  | 2018 |  |  | 2017 | (1) |
Multi-Family |  | $ | 257,840 |  |  |  | 4 | % |  | $ | — |  |  |  | — |
Office |  |  | 1,039,348 |  |  |  | 18 | % |  |  | 1,111,171 |  |  |  | 38 | %
Retail |  |  | 1,487,587 |  |  |  | 25 | % |  |  | 312,999 |  |  |  | 10 | %
School |  |  | 2,462,880 |  |  |  | 42 | % |  |  | 1,525,168 |  |  |  | 51 | %
Special Use |  |  | 667,074 |  |  |  | 11 | % |  |  | 9,208 |  |  |  | — |
Other |  |  | 17,421 |  |  |  | — |  |  |  | 42,733 |  |  |  | 1 | %
Total revenue by customer type |  | $ | 5,932,150 |  |  |  | 100 | % |  | $ | 3,001,279 |  |  |  | 100 | %
| (1) | Prior period amounts have not been adjusted for the adoption of ASC 606 under the modified retrospective method.
Contract Assets and Contract Liabilities Accounts receivable are recognized in the period when the Company’s right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables. The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term construction services when revenue recognized under the cost-to-cost measure of progress exceeds the amounts invoiced to customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Contract assets are generally classified as current within the condensed consolidated balance sheets and labeled as “costs and estimated earnings in excess of billings on uncompleted contracts”. Contract liabilities from construction and engineering contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contract liabilities are generally classified as current within the condensed consolidated balance sheet and labeled as “billings in excess of costs and estimated earnings on uncompleted contracts”. Although the Company 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. Impact of the Adoption of ASC 606 on Financial Statements Prior to implementing ASC 606 on January 1, 2018, the Company’s methods for recognizing revenue were very similar to the current method under ASC 606. The actual cost as a percent of total expected cost at completion was used to estimate the percentage completed on fixed price jobs. Furthermore, the process for allocating transaction price to performance obligations is also substantially similar to prior years. As a result, no material modifications were required to be made to our method of revenue recognition. Cash and cash equivalents – The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less upon acquisition. Short-term investment – The Company classifies any investments with a maturity greater than three months but less than one year as short-term investment. Accounts receivable – Accounts receivable are receivables generated from sales to customers and progress billings on performance type contracts. Amounts included in accounts receivable are deemed to be collectible within the Company’s operating cycle. Management provides an allowance for doubtful accounts based on the Company’s historical losses, specific customer circumstances, and general economic conditions. Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have been exhausted and the prospects for recovery are remote. Goodwill – T he Company performs its 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 values. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, management conducts a two-step quantitative goodwill impairment test. The first step of the impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, management performs the second step of the goodwill impairment test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. The Company’s evaluation of goodwill completed during the year ended December 31, 2017 resulted in no impairment losses. Intangible assets – Intangible assets 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 is being amortized over 2.5 years. In addition, intangible assets include trademarks of $28,820 and website of $5,000, which are being amortized over 5 years. The Company evaluated intangible assets for impairment during the year ended December 31, 2017 and determined that there were no impairment losses. The accumulated amortization as of September 30, 2018 and 2017 was $1,321,604 and $732,257, respectively. The amortization expense for the three months ended September 30, 2018 and 2017 was $147,399 and $147,316, respectively. The amortization expense for the nine months ended September 30, 2018 and 2017 was $442,031 and $440,507, respectively. The estimated remaining amortization expense for the successive five years is as follows:
For the year ending December 31,: |  |  |
2018 |  | $ | 147,565 |
2019 |  |  | 145,064 |
2020 |  |  | 145,064 |
2021 |  |  | 145,064 |
2022 |  |  | 140,741 |
Thereafter |  |  | 1,867,717 |
Total estimated amortization expense |  | $ | 2,591,215 |
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:
Level 1 | Quoted prices in active markets for identical assets or liabilities.
Level 2 | Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
Level 3 | Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).
Financial assets and liabilities measured at fair value on a recurring basis are summarized below: Short-term investment: The Company had $30,033 in a short-term investment as of December 31, 2017, which was classified within Level 2 of the valuation hierarchy. During the nine months ended September 30, 2018, the investment was redeemed, and the proceeds are included in the cash balance at September 30, 2018. Conversion option liabilities: The conversion option liabilities are measured at fair value using the Black-Scholes model and are classified within Level 3 of the valuation hierarchy. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Chief Financial Officer, who reports to the Chief Executive Officer, determines the Company’s valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Chief Financial Officer and are approved by the Chief Executive Officer. The Company had no conversion option liabilities outstanding at September 30, 2018. The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2017 that are measured at fair value on a recurring basis:
|  | Nine Months Ended September 30, 2017 |
Beginning balance |  | $ | 384,461 |
Aggregate fair value of conversion option liabilities issued |  |  | — |
Change in fair value related to conversion of convertible debentures |  |  | (288,134 | )
Change in fair value of conversion option liabilities and warrants |  |  | (96,327 | )
Ending balance |  | $ | — |
The Company presented the conversion option liabilities at fair value on its condensed consolidated balance sheets, with the corresponding changes in fair value recorded in the Company’s condensed consolidated statements of operations for the applicable reporting periods. The calculation of the Black-Scholes model involved the use of the fair value of the Company’s common stock, estimated term, volatility, risk-free interest rates and dividend yield (if applicable). The Company developed the assumptions that were used as follows: the fair value of the Company’s common stock was obtained from the terms of the recapitalization of the Company, including the Exit Facility (defined below), which occurred concurrent with the Company’s emergence from bankruptcy protection, as well as publicly traded market prices of the Company’s common stock. The term represented the remaining contractual term of the derivative; the volatility rate was developed based on analysis of the Company’s historical stock price volatility and the historical volatility rates of several other similarly situated companies (using a number of observations that was at least equal to or exceeded the number of observations in the life of the derivative financial instrument at issue); the risk free interest rates were obtained from publicly available United States Treasury yield curve rates; and the dividend yield was zero because the Company has not historically paid dividends and does not expect to pay dividends in the foreseeable future. Share-based payments – The Company measures 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, the fair value of the award is measured on the grant date. 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. The Company recognizes 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 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. For the nine month period ended September 30, 2018, the Company did not have any stock-based compensation expense to non-employees. 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. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced. Impact of the Tax Cuts and Jobs Act The TCJA was enacted in the United States on December 22, 2017. Among other things, the TCJA lowered the corporate tax rate from 35.0% to 21.0% and imposed a one-time transition tax on unremitted earnings as of the end of 2017. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), to address the GAAP application of the TCJA. SAB 118 provides companies up to a year to finalize accounting for the impacts of the TCJA. The Company recognized the income tax effects of the TCJA in its consolidated financial statements for the year ended December 31, 2017. During the three and nine months ended September 30, 2018, the Company did not have any provisional tax expense for foreign withholding taxes associated with the TCJA. 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 September 30, 2018 and December 31, 2017, 67% and 81%, respectively, of the Company’s accounts receivable were due from two customers. Revenue relating to four customers represented approximately 11%, 14%, 29% and 26%, respectively, of the Company’s total revenue for the three months ended September 30, 2018. Revenue relating to one customer represented approximately 83% of the Company’s total revenue for the three months ended September 30, 2017. Revenue relating to one customer represented approximately 41% of the Company’s total revenue for the nine months ended September 30, 2018. Revenue relating to two customers represented approximately 51% and 25%, respectively, of the Company’s total revenue for the nine months ended September 30, 2017. Cost of revenue relating to four and one vendors represented approximately 85% and 59%, respectively, of the Company’s total cost of revenue for the three months ended September 30, 2018 and 2017. Cost of revenue relating to one and two vendors represented approximately 52% and 77%, respectively, of the Company’s total cost of revenue for the nine months ended September 30, 2018 and 2017. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

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