0001213900-16-016073.txt : 20160815 0001213900-16-016073.hdr.sgml : 20160815 20160815172709 ACCESSION NUMBER: 0001213900-16-016073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160815 DATE AS OF CHANGE: 20160815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SG BLOCKS, INC. CENTRAL INDEX KEY: 0001023994 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-LUMBER & OTHER CONSTRUCTION MATERIALS [5030] IRS NUMBER: 954463937 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22563 FILM NUMBER: 161834093 BUSINESS ADDRESS: STREET 1: 3 COLUMBUS CIRCLE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: (212) 520-6218 MAIL ADDRESS: STREET 1: 3 COLUMBUS CIRCLE STREET 2: 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: CDSI HOLDINGS INC DATE OF NAME CHANGE: 19990114 FORMER COMPANY: FORMER CONFORMED NAME: PC411 INC DATE OF NAME CHANGE: 19961001 10-Q 1 f10q0316_sgblocksinc.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

Commission file number: 000-22563

 

SG BLOCKS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   95-4463937
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
912 Bluff Road, Brentwood TN   37027
(Address of principal executive offices)   (Zip Code)

 

(646) 240-4235

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☐    No  ☒

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐     No ☒

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☒   No ☐

 

As of August 3, 2016, there were 491,365 shares of the registrant’s common stock, $0.01 par value, outstanding.

 

 

 

 

 

 

EXPLANATORY NOTE

 

On October 15, 2015, SG Blocks, Inc. (“SGB”) and its subsidiaries SG Building Blocks, Inc. (“SG Building”) and Endaxi Infrastructure Group, Inc. (each a “Subsidiary,” together, the “Subsidiaries” and together with SGB, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors filed a motion with the Bankruptcy Court seeking joint administration of their Chapter 11 cases under the caption In re SG Blocks, Inc. et al. , Case No. 15-12790 (such proceeding, the “Bankruptcy Proceeding”). After filing such voluntary petitions the Debtors operated their businesses as “debtors-in-possession” under jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court until the Effective Date (as defined below). On February 29, 2016, the Debtors filed a Disclosure Statement (the “Disclosure Statement”), attaching a Plan of Reorganization (the “Plan”), along with a motion seeking approval of the Disclosure Statement by the Bankruptcy Court. On June 30, 2016 (the “Effective Date”), the Plan became effective and the Debtors emerged from bankruptcy.

 

On October 15, 2015, SGB, as borrower, and its subsidiaries, as guarantors, entered into a Debtor in Possession Credit Agreement (the “DIP Credit Agreement” and the loans thereunder, the “DIP Loan”) with Hillair Capital Investments L.P. (“HCI”), and, as condition to the making of the DIP Loan, SGB and its subsidiaries entered into that Senior Security Agreement (the “DIP Security Agreement” and together with the DIP Credit Agreement and the other documents entered into in connection therewith, the “DIP Facility”), also dated as of October 15, 2015, with Hillair Capital Management LLC (“HCM”) pursuant to which SGB and its subsidiaries granted HCM a first priority security interest in all of their respective assets for the benefit of HCI. The DIP Loan had a maximum principal amount of $600,000, bore interest at a rate of 12% and was due and payable upon the earlier to occur of April 15, 2016 or other dates specified in the DIP Credit Agreement, and required SGB to pay a collateral fee of $25,000. The DIP Loan became due on April 15, 2016 but was not repaid until the Effective Date as described below. The funds advanced under the DIP Facility were used by SGB to fund its operation during the Bankruptcy Proceeding, including payment of professional fees and expenses. On the Effective Date and in accordance with the Plan, the DIP Facility was repaid in full and the related DIP Credit Agreement was terminated.

 

On the Effective Date, and pursuant to the terms of the Plan, SGB entered into a Securities Purchase Agreement, dated June 30, 2016, (the “2016 SPA”), pursuant to which SGB sold for a subscription price of $2.0 million a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2.5 million, with a maturity date of June 30, 2018 (the “Exit Facility”). The Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock (as defined below) at a ratio of 1 share for every $1.25 of debt. Pursuant to that certain Subsidiary Guaranty Agreement, effective as of the Effective Date (the “Guarantee Agreement”), by SG Building in favor of HCI, SG Building unconditionally guaranteed (the “Guarantee”) the obligations and indebtedness owed to HCI under the Exit Facility and the Guarantee is secured by a first-priority lien and security interest on all of the Guarantor’s assets. The Exit Facility and SG Building’s obligations under the Guarantee are secured by a first-priority lien and security interest on all of the Company’s and SG Building’s assets pursuant to that certain Security Agreement, dated as of the Effective Date, by and between the Company, SG Building and HCI (the “Security Agreement”). The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of SGB.

 

Prior to the Effective Date, SGB was authorized to issue 300,000,000 shares of common stock, par value $0.01 (the “Former Common Stock”) of which 42,918,927 shares were issued and outstanding as of June 29, 2016. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to the Plan, SGB issued, in the aggregate, 491,365 shares of common stock, par value $0.01 (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options (as defined below) and conversion of the New Preferred Stock (as defined below) but prior to any conversion of the Exit Facility, as of the Effective Date. Further, under the Plan, upon the Effective Date certain members of SGB’s management were entitled to receive options (“Management Options”) to acquire an aggregate of 10%, or approximately 655,153 shares, of SGB’s New Common Stock, on a fully diluted basis, assuming conversion of all of the New Preferred Stock but not the Exit Facility. SGB has not yet issued the Management Options, but expects to issue them sometime in the third quarter of the 2016 fiscal year.

 

Prior to the Effective Date, SGB was authorized to issue 5,000,000 shares of preferred stock, par value $0.01 (the “Former Preferred Stock”) none of which was issued and outstanding prior to the Effective Date. On the Effective Date, pursuant to the terms of the Plan and SGB’s Amended and Restated Certificate of Incorporation, SGB filed with the Secretary of State of the State of Delaware a Certificate of Designations of Convertible Preferred Stock, designating 5,405,010 shares of preferred stock, par value $1.00 (the “New Preferred Stock”). As described in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (“SEC”) on July 7, 2016 (the “July 8-K”), on the Effective Date and pursuant to the Plan, each Prepetition Loan Document (as defined in the July 8-K) was cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by SGB thereunder. The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. On the Effective Date, HCI received 5,405,010 shares of the Company’s preferred stock which is convertible into shares of the Company’s common stock. Since each share of the Company’s preferred stock is able to vote on an as converted basis HCI effectively has a controlling interest in the Company of 51.17% on an as converted basis.

 

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date.

 

References herein to the pre-Effective Date common stock of SGB shall be deemed references to Former Common Stock and references herein to the post-Effective Date common stock of SGB shall be deemed references to New Common Stock. 

 

 

 

 

SG BLOCKS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

 

TABLE OF CONTENTS

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
  Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015 1
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (Unaudited) 2
     
  Condensed Consolidated Statement of Changes in Stockholders' Deficit for the Three Months Ended March 31, 2016 (Unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (Unaudited) 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
     
Item 4. Controls and Procedures 23
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 24
     
Item 1A. Risk Factors 24
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
     
Item 3. Defaults Upon Senior Securities 24
     
Item 4. Mine Safety Disclosures 24
     
Item 5. Other Information 24
     
Item 6. Exhibits 24
     
SIGNATURE 26

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,
2016
  

December 31,
2015

 
   (Unaudited)     
Assets        
         
Current assets:        
Cash and cash equivalents  $319,443   $466,997 
Short-term investment   30,006    30,003 
Accounts receivable, net   158,467    86,035 
Inventory   420,989    158,181 
Total current assets   928,905    741,216 
           
Equipment, net   6,379    7,229 
Security deposit   1,200    3,900 
Debt issuance costs, net   -    5,204 
           
Totals  $936,484   $757,549 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities:          
Accounts payable and accrued expenses  $184,335   $41,163 
Accounts payable and accrued expenses – subject to compromise   120,325    120,325 
Accrued interest, related party – subject to compromise   43,301    43,301 
Accrued interest   173,147    173,147 
Related party accounts payable and accrued expenses – subject to compromise   370,151    370,151 
Related party notes payable – secured claim   73,500    73,500 
Convertible debentures, net of discounts of $229,405 and $387,965   5,175,605    5,017,045 
Billings in excess of costs and estimated earnings on uncompleted contracts   29,916    28,024 
Deferred revenue   505,627    170,530 
Total current liabilities   6,675,907    6,037,186 
Debtor in possession financing   600,000    600,000 
Total liabilities   7,275,907    6,637,186 
           
Commitments and Contingencies          
           
Stockholders’ deficit:          
Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0 issued and outstanding at March 31, 2016 and December 31, 2015   -    - 
Common stock, $0.01 par value, 300,000,000 shares authorized; 42,918,927 issued and outstanding at March 31, 2016 and December 31, 2015   429,189    429,189 
Additional paid-in capital   7,218,581    7,171,683 
Accumulated deficit   (13,987,193)   (13,480,509)
Total stockholders’ deficit   (6,339,423)   (5,879,637)
           
Totals  $936,484   $757,549 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 1 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

  

For the Three Months Ended

March 31,

 
   2016   2015 
   (Unaudited)   (Unaudited) 
Revenue:        
Unit sales  $202,524   $376,513 
Engineering services   25,222    25,526 
    227,746    402,039 
           
Cost of revenue:          
Unit sales   151,228    337,155 
Engineering services   22,001    22,768 
    173,229    359,923 
           
Gross profit   54,517    42,116 
           
Operating expenses:          
Payroll and related expenses   166,936    311,223 
General and administrative expenses   124,820    218,020 
Marketing and business development expense   9,852    58,739 
Pre-project expenses   4,178    8,729 
Total   305,786    596,711 
           
Operating loss   (251,269)   (554,595)
           
Other income (expense):          
Interest expense   (163,764)   (188,347)
Interest income   3    6 
Change in fair value of financial instruments   -    385,891 
Total   (163,761)   197,550 
           
Net Loss before reorganization items   (415,030)   (357,045)
           
Reorganization items:          

Legal and professional fees

   91,654    - 
           
Net loss  $(506,684)  $(357,045)
           
Net loss per share - basic and diluted:          
Basic and diluted  $(0.01)  $(0.01)
           
Weighted average shares outstanding:          
Basic and Diluted   42,918,927    42,918,927 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 2 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS' DEFICIT

 

For the Three Months Ended March 31, 2016 (Unaudited)  $0.01 Par Value
Common Stock
   Additional
Paid-in
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
                     
Balance - December 31, 2015   42,918,927   $429,189   $7,171,683   $(13,480,509)  $(5,879,637)
                          
Stock-based compensation   -    -    46,898    -    46,898 
                          
Net loss   -    -    -    (506,684)   (506,684)
                          
Balance – March 31, 2016   42,918,927   $429,189   $7,218,581   $(13,987,193)  $(6,339,423)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 3 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

For the Three Months ended March 31,  2016   2015 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities:        
Net loss  $(506,684)  $(357,045)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   850    944 
Amortization of debt issuance costs   5,204    5,204 
Amortization of discount on convertible debentures   158,560    101,208 
Interest income on short-term investment   (3)   (6)
Change in fair value of financial instruments   -    (385,891)
Stock-based compensation   46,898    48,115 
Changes in operating assets and liabilities:          
Accounts receivable   (72,432)   (173,689)
Cost and estimated earnings in excess of billings on uncompleted contracts        - 
Inventory   (262,808)   (362,856)
Prepaid expenses and other current assets   -    (10,000)
Accounts payable and accrued expenses   143,172    63,625 
Accrued interest, related party   -    2,021 
Accrued interest   -    79,914 
Related party accounts payable and accrued expenses   -    165,099 
Billings in excess of costs and estimated earnings -on uncompleted contracts   1,892    (921)
Deferred revenue   335,097    518,682 
Net cash used in operating activities   (150,254)   (305,596)
           
Cash flows from investing activities          
Security deposit refund   2,700    - 
Net cash provided by investing activities   2,700    - 
           
Net decrease in cash and cash equivalents   (147,554)   (305,596)
           
Cash and cash equivalents - beginning of period   466,997    884,188 
           
Cash and cash equivalents - end of period  $319,443   $578,592 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $-   $- 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 4 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

1. Description of Business

 

SG Blocks, Inc. (the “Company”) was previously known as CDSI Holdings, Inc. (a Delaware corporation incorporated on December 29, 1993).  On November 4, 2011, 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 is a provider of code engineered cargo shipping containers that it modifies and delivers to meet the growing demand for safe and green for commercial, industrial and residential building construction. Rather than consuming new steel and lumber, it capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. It offers the construction industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods.

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

 

During 2011, the Company formed SG Blocks Sistema De Constucao Brasileiro LTDA. (“SG Brazil”), a wholly owned subsidiary of the Company. SG Brazil is currently inactive. In May 2015, the Company formed Endaxi Infrastructure Group, Inc. (“Endaxi”), which is currently inactive.

 

2. Liquidity and Financial Condition

 

Through March 31, 2016, the Company has incurred an accumulated deficit since inception of $13,987,193.  At March 31, 2016, the Company had a cash balance of $319,443.

 

On October 15, 2015, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On June 3, 2016, the United States Bankruptcy Court for the Southern District of New York confirmed the Company’s plan of reorganization (the "Plan"). The Plan became effective on June 30, 2016 (the “Effective Date”).

 

On the Effective Date, the Plan became effective and the Company emerged from bankruptcy.

 

On October 15, 2015, the Company, as borrower, and its subsidiaries, as guarantors, entered into a Debtor in Possession Credit Agreement (the “DIP Credit Agreement” and the loans thereunder, the “DIP Loan”) with Hillair Capital Investments L.P. (“HCI”), and, as condition to the making of the DIP Loan, the Company and its subsidiaries entered into that Senior Security Agreement (the “DIP Security Agreement” and together with the DIP Credit Agreement and the other documents entered into in connection therewith, the “DIP Facility”), also dated as of October 15, 2015, with Hillair Capital Management LLC (“HCM”) pursuant to which SGB and its subsidiaries granted HCM a first priority security interest in all of their respective assets for the benefit of HCI. The DIP Loan had a maximum principal amount of $600,000, bore interest at a rate of 12% and was due and payable upon the earlier to occur of April 15, 2016 or other dates specified in the DIP Credit Agreement, and required the Company to pay a collateral fee of $25,000. The DIP Loan became due on April 15, 2016 but was not repaid until the Effective Date as described below. The funds advanced under the DIP Facility were used by the Company to fund its operation during the Bankruptcy Proceeding, including payment of professional fees and expenses. On the Effective Date and in accordance with the Plan, the DIP Facility was repaid in full and the related DIP Credit Agreement was terminated.

 

On the Effective Date, and pursuant to the terms of the Plan, the Company entered into a Securities Purchase Agreement, dated June 30, 2016, (the “2016 SPA”), pursuant to which the Company sold for a subscription price of $2,000,000 a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2,500,000, with a maturity date of June 30, 2018 (the “Exit Facility”). The Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock (as defined below) at a ratio of 1 share for every $1.25 of debt. Pursuant to that certain Subsidiary Guaranty Agreement, effective as of the Effective Date (the “Guarantee Agreement”), by SG Building in favor of HCI, SG Building unconditionally guaranteed (the “Guarantee”) the obligations and indebtedness owed to HCI under the Exit Facility and the Guarantee is secured by a first-priority lien and security interest on all of the Guarantor’s assets. The Exit Facility and SG Building’s obligations under the Guarantee are secured by a first-priority lien and security interest on all of the Company’s and SG Building’s assets pursuant to that certain Security Agreement, dated as of the Effective Date, by and between the Company, SG Building and HCI (the “Security Agreement”). The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of the Company.

 

Prior to the Effective Date, the Company was authorized to issue 300,000,000 shares of common stock, par value $0.01 (the “Former Common Stock”) of which 42,918,927 shares were issued and outstanding as of June 29, 2016. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to the Plan, SGB issued, in the aggregate, 491,365 shares of common stock, par value $0.01 (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options (as defined below) and conversion of the New Preferred Stock (as defined below) but prior to any conversion of the Exit Facility, as of the Effective Date. Further, under the Plan, upon the Effective Date certain members of the Company’s management were entitled to receive options (“Management Options”) to acquire an aggregate of 10%, or approximately 655,153 shares, of SGB’s New Common Stock, on a fully diluted basis, assuming conversion of all of the New Preferred Stock but not the Exit Facility. The Company has not yet issued the Management Options, but expects to issue them sometime in the third quarter of the 2016 fiscal year.

 

 5 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

2. Liquidity and Financial Condition (continued)

 

Prior to the Effective Date, the Company was authorized to issue 5,000,000 shares of preferred stock, par value $0.01 (the “Former Preferred Stock”) none of which was issued and outstanding prior to the Effective Date. On the Effective Date, pursuant to the terms of the Plan and the Company’s Amended and Restated Certificate of Incorporation, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations of Convertible Preferred Stock, designating 5,405,010 shares of preferred stock, par value $1.00 (the “New Preferred Stock”). As described in the Current Report on Form 8-K filed by the Company with the SEC on July 7, 2016 (the “July 8-K”), on the Effective Date and pursuant to the Plan, each Prepetition Loan Document (as defined in the July 8-K) was cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by the Company thereunder. The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. On the Effective Date, HCI received 5,405,010 shares of the Company’s preferred stock which is convertible into shares of the Company’s common stock. Since each share of the Company’s preferred stock is able to vote on an as converted basis HCI effectively has a controlling interest in the Company of 51.17% on an as converted basis.

 

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date.

 

The current level of cash and operating margins is not enough to cover the existing fixed and variable obligations of the Company, so increased revenue performance and the addition of capital through issuances of securities are critical to the Company’s success. At August 10, 2016, the Company had a cash balance of approximately $772,000. The Company expects that through the next eighteen months, the capital requirements to fund the Company’s growth will consume all of the cash flows that it expects to generate from its operations, as well as any proceeds of any other issuances of senior convertible debt securities. The Company further believes that during this period, while the Company is focusing on the growth and expansion of its business, the gross profit that it expects to generate from operations will not generate sufficient funds to cover expected operating costs. Accordingly, the Company requires further external funding to sustain operations and to follow through on the execution of its business plan. There is no assurance that the Company’s plans will materialize and/or that the Company will be successful in funding estimated cash shortfalls through additional debt or equity capital and through the cash generated by the Company’s operations. Given these conditions, the Company’s ability to continue as a going concern is contingent upon it being able to secure an adequate amount of debt or equity capital to enable it to meet its cash requirements. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets, the competitive environment in which the Company operates and the current capital raising environment.

 

Since inception, the Company’s operations have primarily been funded through proceeds from equity and debt financings and sales activity. Although management believes that the Company has access to capital resources, there are currently no commitments in place for additional financing at this time, and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all.

 

These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

 

The Company’s financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern.

 

 6 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

3. 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 (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 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 three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission on July 21, 2016.

 

Basis of consolidation -   The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, SG Building, SG Brazil and Endaxi. All intercompany balances and transactions have been eliminated.

 

Accounting estimates -   The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles 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 which require the Company to make estimates include revenue recognition, stock-based compensation, warrant liabilities, allowance for doubtful accounts and a valuation for deferred tax assets.  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. Assets and liabilities relating to long-term contracts are included in current assets and current liabilities 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 - The Company accounts for its long-term contracts associated with the design, engineering, manufacture and project management of building projects and related services, using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract. The Company uses the cost to cost basis because management considers it to be the best available measure of progress on these contracts.

 

Contract costs include all direct material and labor costs and those indirect costs related to contract performance. General and administrative costs, marketing and business development expenses and pre-project expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

 

The asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billing in excess of revenue recognized.

 

The Company offers a one-year warranty on completed contracts.  For the three months ended March 31, 2016 and 2015, the warranty claims were not material. The Company does not anticipate that any additional claims are likely to occur for warranties that are currently outstanding. Accordingly, no warranty reserve is considered necessary for any of the periods presented.

 

The Company also supplies repurposed containers to its customers. In these cases, the Company serves as a supplier to its customers for standard and made to order products that it sells at fixed prices.  Revenue from these contracts is generally recognized when the products have been delivered to the customer, accepted by the customer and collection is reasonably assured.  Revenue is recognized upon completion of the following: an order for product is received from a customer; written approval for the payment schedule is received from the customer and the corresponding required deposit or payments are received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is delivered to the customer’s receiving point. The title and risk of loss passes to the customer at the customer’s receiving point.

 

Amounts billed to customers in a sales transaction for shipping and handling are classified as revenue.  Products sold are generally paid for based on schedules provided for in each individual customer contract including upfront deposits and progress payments as products are being manufactured.

 

Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue when they are earned.

 

 7 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

  

3. Summary of Significant Accounting Policies (continued)

 

Inventory - Raw construction materials (primarily shipping containers) are valued at the lower of costs (first-in, first-out method) or market. Finished goods and work-in-process inventories are valued at the lower of costs or market, using the specific identification method. As of March 31, 2016 and December 31, 2015, inventory consisted principally of work-in-process inventory which amounted to $420,989 and $158,181, respectively.

 

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 liabilities measured at fair value on a recurring basis are summarized below:

 

    

March 31,
2016

    

Quoted

prices in

active market

for identical

assets

(Level l)

    

Significant

other

observable

inputs

(Level 2)

    

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities  $-   $-   $-   $-(1)
Conversion Option Liabilities  $-   $-   $-   $-(1)

 

(1) Diminimus value at March 31, 2016.

 

   

December 31,

2015

   

Quoted

prices in

active market

for identical

assets

(Level l)

   

Significant

other

observable

inputs

(Level 2)

   

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $       -     $      -     $      -     $      -  (2)
Conversion Option Liabilities   $ -     $ -     $ -     $ -  (2)

 

(2) Diminimus value at December 31, 2015.

 

 8 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

3. Summary of Significant Accounting Policies (continued)

 

Warrant and 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 its 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 following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

    

For the

three month

ended
March 31,
2016

    

For the

three month

ended

March 31,
2015

 
Beginning balance  $-   $646,671 
Aggregate fair value of conversion option liabilities and warrants issued   -    - 
Change in fair value related to increase in warrants issued for anti-dilutive adjustment   -    - 
Change in fair value of conversion option liabilities and warrants   -    (385,891)
Ending balance  $-   $260,780 

 

The significant assumptions and valuation methods that the Company used to determine fair value and the change in fair value of the Company’s derivative financial instruments are discussed in Notes 6 and 8.

 

The Company presented warrant and 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. As disclosed in Notes 6 and 8, the Company computed the fair value of the warrant and conversion option liability at the date of issuance and the reporting dates of March 31, 2016 and December 31, 2015 using a Black-Scholes model..

 

The calculation of the Black-Scholes model involves 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 publicly quoted prices. The term represents 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 US Treasury yield curve rates; the dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.

 

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 such account and believes that it is not exposed to any significant credit risk on the account.

 

 9 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

3. Summary of Significant Accounting Policies (continued)

 

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, 2016 and December 31, 2015 71% and 74%, respectively, of the Company’s accounts receivable were due from three and two customers, respectively.

 

Revenue relating to two customers represented approximately 54% and 29% of the Company’s total revenue for the three months ended March 31, 2016. Revenue relating to two customers represented approximately 44% and 40% of the Company’s total revenue for the three months ended March 31, 2015.

 

Costs of revenue relating to one vendor, who is a related party and disclosed in Note 11, represented approximately 60% and 57% of the Company’s total cost of revenue for the three months ended March 31, 2016 and 2015. Costs of revenue relating to two unrelated vendors, represented approximately 37% of the Company’s total cost of revenue for the three months ended March 31, 2016. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers. 

 

Recent accounting pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition --Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs -- Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is permitted commencing January 1, 2017. The Company is currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on its financial position and results of operations.

 

In August 2014, the FASB issued ASU 2014 -15, Presentation of Financial Statements - Going Concern. The Update provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2013 -300 --Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity's Going Concern Presumption, which has been deleted. The Company is currently evaluating the effects of ASU 2014 -15 on the financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption permitted for financial statements that have not been previously issued. The adoption of this statement will impact future presentation and disclosures of the financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. The update requires inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2015-11 on the financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The updates principle 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 its 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. The Company is currently evaluating the effects of ASU 2016-02 on the financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). The update makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2016-09 on the financial statements.

 

 10 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

4. Accounts Receivable

 

At March 31, 2016 and December 31, 2015, the Company’s accounts receivable consisted of the following:

 

   2016   2015 
Billed:          
SG Block sales  $160,237   $82,200 
Engineering services   14,180    14,181 
Project management   8,796    14,400 
Total gross receivables   183,213    110,781 
Less: allowance for doubtful accounts   (24,746)   (24,746)
Total net receivables  $158,467   $86,035 

 

5. Costs and Estimated Earnings on Uncompleted Contracts

 

Costs and estimated earnings on uncompleted contracts consist of the following at March 31, 2016 and December 31, 2015:

 

   2016   2015 
Costs incurred on uncompleted contracts  $21,187   $18,363 
Provision for loss on uncompleted contracts   -    - 
Estimated income   7,872    6,786 
    29,059    25,149 
Less:  billings to date   (58,975)   (53,173)
           
   $(29,916)  $(28,024)

 

The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at March 31, 2016 and December 31, 2015.

 

   2016   2015 
Costs and estimated earnings in excess of billings on uncompleted contracts  $-   $- 
Billings in excess of cost and estimated earnings on uncompleted contracts   (29,916)   (28,024)
   $(29,916)   (28,024)

 

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.

 

 11 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

6. Convertible Debentures

 

On April 10, 2014, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Hillair Capital Investments L.P. (“Hillair”), Frank Casano (“Casano”) and Scott Masterson (“Masterson”) who held certain existing Senior Convertible Debentures (the “Existing Debentures”). Existing Debentures consisted of: (a) debentures issued and sold to Hillair in December 2012 (the “2012 Hillair Debentures”) and (b) debentures issued and sold to Casano and Masterson in April 2013 (the “April 2013 Debentures”).   Under the terms of the Exchange Agreement, Existing Debentures with a stated maturity value of $1,680,000 were surrendered in exchange for (i) new Senior Convertible Debentures with a stated interest rate of eight percent (8%) per year, a stated maturity value of $1,915,200, a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the “2014 Exchange Debentures”), and (ii) a five (5) year Common Stock purchase warrant to purchase up to 7,660,800 shares of the Company’s common stock at an exercise price of $0.275 (110% of the conversion price), subject to adjustment (the “2014 Exchange Warrants”). At April 10, 2014, the carrying value of Existing Debentures was $1,680,000 and the fair value of the conversion option liability was $2,366. The fair value of the conversion option liability of the 2014 Exchange Debentures was determined to be $380,744 and the fair value of the warrants issued was determined to be $490,601 upon issuance of the Exchange Debentures. The Company recognized a loss of $1,104,179 on this exchange transaction upon issuance of the Exchange Debentures. In connection with the Exchange Agreement, the Company incurred $20,763 in legal fees which are included in debt issuance costs in the accompanying condensed consolidated balance sheets at March 31, 2016 and December 31, 2015.

 

On April 10, 2014, the Company entered into a Securities Purchase Agreement (the “2014 SPA”) with four investors, including Hillair pursuant to which the Company issued and sold (i) $2,080,500 in 8% Original Discount Senior Secured Convertible Debentures, for $1,825,000, with a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the “2014 New Debentures” together with the 2014 Exchange Debentures, the “2014 Debentures”), and (ii) a five (5) year Common Stock purchase warrant to purchase up to 8,322,000 shares of the Company’s common stock at an exercise price of $0.275 (110% of the conversion price), subject to adjustment with a fair value of $532,944 at issuance, which has been recorded as a discount to the 2014 New Debentures. (As disclosed in Note 8) The Company recorded a discount of $255,500, which is being amortized over the term of the 2014 New Debentures, using the effective interest method. The initial conversion price for the 2014 New Debentures is $0.25 per share, subject to adjustments upon certain events, as set forth in the 2014 New Debentures. At the date of issuance the fair value of the conversion option liability was determined to be $413,606, which has been recorded as a discount to the 2014 New Debentures. In connection with the 2015 New Debentures, the Company incurred $20,000 in legal fees which are included in debt issuance costs in the accompanying condensed consolidated balance sheets at March 31, 2016 and December 31, 2015. As of March 31, 2016 and December 31, 2015, the discount related to the 2015 New Debentures amounted to $229,405 and $387,965, respectively.

 

The Exchange Agreement and the 2015 SPA triggered anti-dilution adjustments to the warrants issued on the Existing Debentures based on a $0.25 per share conversion price (adjusted from the original stated conversion price of $0.43 per share), which reduces the exercise price to $0.25 per share and increases the number of shares issuable upon the exercise of the Existing Warrants from 4,818,605 to 8,288,000 shares.

 

At any time after April 10, 2014, (the “Original Issue Date”) until the 2014 Debentures are no longer outstanding, the 2014 Debentures are convertible, in whole or in part, into shares of Common Stock at the option of the 2014 Debenture holders, subject to certain conversion limitations set forth in the 2014 Debentures.  The initial conversion price for the 2014 Debentures is $0.25 per share, subject to adjustments upon certain events, as set forth in the 2014 Debentures.  The Company will pay interest on the aggregate unconverted and then outstanding principal amount of the 2014 Debentures at the rate of 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on October  1, 2014. The holders of the Company’s convertible debt agreed to postpone interest payments (beginning with the July 1, 2015 payments) due on the convertible debt until September 1, 2015. Interest is payable in cash or at the Company’s option in shares of Common Stock, provided certain terms and conditions are met as more fully described in the 2014 Debentures.  On each of October 1, 2015 and January 1, 2016, the Company is obligated to redeem an amount equal to $998,925 and on April 1, 2016, an amount equal to $1,997,850, plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the 2014 Debentures (as to each of the forgoing periodic redemptions, each a “Periodic Redemption Amount”).  In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the 2014 Debentures, the Company may elect to pay the Periodic Redemption Amount in shares on the terms set forth in the 2014 Debentures. 

 

 12 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

6. Convertible Debentures (continued)

 

Upon any Event of Default (as defined in the 2014 Debentures), the outstanding principal amount of the 2014 Debentures, plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the debenture holders’ election, immediately due and payable in cash.  Commencing five days after the occurrence of any Event of Default, the interest rate on the 2014 Debentures shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The 2014 Debentures contain anti-dilution protective provisions as described therein. The Company is subject to compliance with certain covenants under the 2014 Debentures as set forth therein. On September 11, 2015, the Company failed to make a payment of interest that was due and payable on the 2014 Debentures and thus the outstanding principal amount increased by $1,247,310 to $5,405,010.

 

The 2014 Warrants may be exercised at any time on or after April 10, 2014 and on or prior to the close of business on April 10, 2019, at an exercise price of $0.275 per share, subject to adjustment upon certain events.  The 2014 Warrants contain anti-dilution protective provisions and limitations on exercise as described therein.

 

To secure the Company’s obligations under the 2014 Debentures, SG Building entered into a Subsidiary Guarantee, dated as of April 10, 2014 (the “Guarantee”), pursuant to which it unconditionally and irrevocably guaranteed the prompt and complete payment and performance when due of the obligations arising from the 2014 Debentures. The Company and SG Building have each granted the debenture holders a security interest in their assets to secure the payment, performance and discharge in full of all of the Company’s obligations under the 2014 Debentures and the guarantor’s obligations under the Guarantee, in accordance with that certain Security Agreement, dated as of April 10, 2014.On August 5, 2015, the Company issued and sold to Hillair a $162,000 Original Issue Discount Senior Secured Convertible Debenture due November 3, 2015 (the “Bridge Debenture”), for $150,000 (the “August 2015 Financing”). The sale and issuance of the Bridge Debenture was consummated pursuant to a Securities Purchase Agreement, dated August 5, 2015, between the Company and Hillair. At any time after August 5, 2015, until the Bridge Debenture is no longer outstanding, the Bridge Debenture is convertible, in whole or in part, into shares of Common Stock at the option of Hillair, subject to certain conversion limitations set forth in the Bridge Debenture. The initial conversion price for the Bridge Debenture is $0.10 per share, subject to adjustments upon certain events, as set forth in the Bridge Debenture. As the Bridge Debenture was issued at an original issue discount, interest does not accrue on the Bridge Debenture.

 

Due to the Company filing a voluntary petition for relief under Chapter 11 of Title 11 of the Bankruptcy Court, interest stopped accruing on October 15, 2015. Additional contractual interest through March 31, 2016 would have resulted in $146,509 of additional interest. Subsequent to March 31, 2016, in connection with the Plan, all of the outstanding debentures were converted into preferred stock in accordance with the Plan as disclosed in Note 12. 

 

A summary of the Company’s convertible debentures as of March 31, 2016 and December 31, 2015 is as follows:

 

   2016   2015 
2015 Exchange Debentures  $2,489,760   $2,489,760 
2015 New Debentures, net of $229,405 and $387,965 discount   2,475,245    2,316,685 
 Bridge Debenture   210,600    210,600 
           
Total debt   5,175,605    5,017,045 
           
Less current portion   -    - 
           
Long-term debt  $5,175,605   $5,017,045 

 

For the three months ended March 31, 2015, interest expense on the convertible debentures amounted to $79,914, and is included on the accompanying condensed consolidated statements of operations. For the three months ended March 31, 2016 and 2015, total amortization relating to the discount amounted to $158,560 and $101,208, respectively, and is included in interest expense on the accompanying condensed consolidated statements of operations.

 

 13 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

6. Convertible Debentures (continued)

 

The Company bifurcated the conversion option from its debt host. The fair value of the conversion option liabilities as of March 31, 2016 and December 31, 2015 was minimal.

 

In connection with the 2014 SPA, the Company is required to maintain compliance with a variety of contractual provisions which include certain affirmative and negative covenants. The requirements principally consist of a requirement to maintain timely filings with the SEC, reserve sufficient authorized shares to issue upon the exercise of the underlying conversion option, and permit the debenture holders to participate in future financing transactions. The Company is also restricted, among other things, from incurring new indebtedness, permitting additional liens, making material changes to its charter documents, repay or repurchase more than a de minimis number of shares of its common stock or common stock equivalents, repay or repurchase any indebtedness, pay cash dividends, enter into transactions with affiliates or use the proceeds of the convertible debentures to provide funding to its subsidiaries. The underlying securities purchase and debenture agreements also provide for the Company to pay liquidated damages in the event of its failure to (i) deliver shares upon the conversion of the debentures, in which case the liquidated damages would amount to a cash payment of $10 per trading day (increasing to $15 per trading day on the fifth trading day) for each $1,000 of principal amount being converted until such certificates are delivered  (ii) maintain timely required filings with the SEC, in which case the liquidated damages would amount to a cash payment of two percent (2.0%) of the aggregate subscription amount of such purchasers securities on the day of the failure to maintain timely filings with the SEC and on every thirtieth (30th) day thereafter until the required documents are filed with the SEC or is no longer required for the purchaser to transfer the underlying shares pursuant to Rule 144 and (iii) to compensate the debenture holder for a Buy-In (as defined in the debentures) of securities previously sold by the debenture holder on a failure to timely deliver certificates upon conversion by the debenture holder.  If the holder is subject to a Buy-In, then the Company will (A) pay in cash to the debenture holder (in addition to any other remedies available to or elected by the debenture holder) the amount, if any, by which (x) the debenture holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the debenture holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the debenture holder, either reissue (if surrendered) this debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the debenture holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements.

 

7. Net Income (Loss) Per Share

 

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.  Diluted income per share includes the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” method as applicable.  At March 31, 2016, there were options and warrants to purchase 15,425,001 and 25,572,059 shares of common stock, respectively, outstanding which could potentially dilute future net income (loss) per share. At March 31, 2016 the Company also has outstanding convertible debt which is initially convertible into 17,602,800 shares of common stock that could potentially dilute future net income (loss) per share. The number of shares the convertible debt could be converted into could potentially increase under certain circumstances related to the market price of the Company’s common stock at the time of conversion. At March 31, 2015, there were options and warrants to purchase 15,425,001 and 25,572,059 shares of common stock, respectively, outstanding which could potentially dilute future net income (loss) per share. March 31, 2015 the Company also had outstanding convertible debt which was initially convertible into 15,982,800 shares of common stock, which could potentially dilute future net income (loss) per share.  

 

 14 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

8. Warrants

 

A summary of warrant activity as of March 31, 2016 and changes during the three months then ended are presented below:

 

   Number of Warrants   Weighted Average Exercise Price Per Share   Weighted Average Remaining Terms (in years)   Aggregate Intrinsic Value 
                     
Outstanding - December 31, 2015   25,572,059   $0.27    3.89          - 
Issued   -    -           
Exercised   -    -           
Forfeited   -    -           
Outstanding – March 31, 2016   25,572,059   $0.27    2.66   $- 
                     
Exercisable – March 31, 2016   25,572,059   $0.27    2.66   $- 

 

9. Stock Options and Grants

 

A summary of stock option activity as of March 31, 2016 and changes during the nine months then ended are presented 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, 2015   15,425,001   $0.07   $0.30    7.00          - 
Granted   -    -    -           
Exercised   -    -    -           
Cancelled   -    -    -           
Outstanding – March 31, 2016   15,425,001   $0.07   $0.30    6.75   $- 
                          
Exercisable - December 31, 2015   13,729,168   $0.11   $0.31    6.80   $- 
Exercisable – March 31, 2016   13,729,168   $0.11   $0.31    6.55   $- 

 

For the three months March 31, 2016 and 2015, the Company recognized stock-based compensation expense of $46,898 and $48,115, respectively, which is included in payroll and related expenses in the accompanying condensed consolidated statements of operations.

 

As of March 31, 2016, there was $72,249 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of 0.39 years. The intrinsic value is calculated as the difference between the fair value as of the balance sheet date and the exercise price of each of the outstanding stock options. The fair value at March 31, 2016 and December 31, 2015 was $0 per share, as determined by the Market Approach. The Market Approach is based on the economic principle of competition and entails both the application of appropriate market-based multiples such as level of earnings, cash flow, revenues, invested capital or other financial factors that represent the company's future financial performance. This method is based on the idea of determination of the price at which the company will be exchanged in the public market. On October 15, 2015, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Court for the Southern District of New York, accordingly the fair value of the stock was deemed to have a nominal value.

 

 15 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

10. Commitments and Contingencies

 

Litigation - The Company is subject to periodic lawsuits, investigations and claims during the ordinary course of business. The Company is not a party to any material litigation as of March 31, 2016.

 

Operating lease - The Company leases office space in New York City to conduct its business. The Company’s previous lease began October 1, 2013 and expired March 31, 2015. Non-contingent rent increases were being amortized over the life of the lease on a straight line basis. Subsequent to March 31, 2015, the Company entered into a month-to-month lease for office space. The rental expense charged to operations for the three months ended March 31, 2016 and 2015 amounted to $3,600 and $18,347, respectively.

 

11. Related Party Transactions

 

On March 26, 2009, the Company entered into a $50,000 revolving credit promissory note (the “Revolver”) with Vector Group Ltd. (“Vector”), the former controlling stockholder of the Company. On January 26, 2011, the Company and Vector entered into an amendment to the Revolver increasing the amount that the Company may borrow from $50,000 to $100,000. The loan bears interest at 11% per annum and was due on December 31, 2013. During January 2014, the term of the Revolver was extended from December 31, 2013 to June 30, 2015. Prior to the Bankruptcy Proceeding the Revolver was in default but the Company obtained waivers from the Convertible Debenture holders waiving their respective rights and remedies pursuant to certain default provisions contained therein. As of March 31, 2016 and December 31, 2015, the balance due to Vector amounted to $73,500. As of March 31, 2016 and December 31, 2015, accrued interest related to the Revolver amounted to $43,301, and is included in accrued interest, related party on the accompanying condensed consolidated balance sheets. Due to the Company filing a voluntary petition for relief under Chapter 11 of Title 11 of the Bankruptcy Court, interest stopped accruing on October 15, 2015. Additional contractual interest through March 31, 2016 would have resulted in $3,773 of additional interest. Subsequent to March 31, 2016, in connection with the Plan, the Revolver was treated as an unsecured claim and paid in accordance with the Plan as disclosed in Note 12. Interest expense for other related party notes payable amounted to $2,021 for the three months ended March 31, 2015. 

 

ConGlobal Industries, Inc. is a minority stockholder of the Company and provides containers and labor on domestic projects.  The Company recognized Cost of Goods Sold of $103,361 and $206,449, for services ConGlobal Industries, Inc. rendered during the three months ended March 31, 2016 and 2015 respectively. As of March 31, 2016 and December 31, 2015, $317,468, of such expenses are included in related party accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

The Lawrence Group is a minority stockholder of the Company and is a building design, development and project delivery firm. As of March 31, 2016 and December 31, 2015, $32,389 of expenses were included in related party accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

An affiliated accounting firm of the Company’s former Chief Financial Officer provided accounting and consulting services to the Company. The Company recognized General and Administrative expenses in the amount of $32,000 for the three months ended March 31, 2015. 

 

 16 

 

 

SG BLOCKS, INC. AND SUBSIDIARIES

(Debtor-in-Possession)

 

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

12. Subsequent Events

 

On June 3, 2016, the United States Bankruptcy Court for the Southern District of New York confirmed the Company’s plan of reorganization (the "Plan"). The Plan became effective on June 30, 2016 (the “Effective Date”). On the Effective Date, and pursuant to the terms of the Plan, the Company entered into a Securities Purchase Agreement, dated June 30, 2016, (the “2016 SPA”), pursuant to which the Company sold for a subscription price of $2,000,000 a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2,500,000, with a maturity date of June 30, 2018 (the “Exit Facility”). The Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock (as defined below) at a ratio of 1 share for every $1.25 of debt. Pursuant to that certain Subsidiary Guaranty Agreement, effective as of the Effective Date (the “Guarantee Agreement”), by SG Building in favor of HCI, SG Building unconditionally guaranteed (the “Guarantee”) the obligations and indebtedness owed to HCI under the Exit Facility and the Guarantee is secured by a first-priority lien and security interest on all of the Guarantor’s assets. The Exit Facility and SG Building’s obligations under the Guarantee are secured by a first-priority lien and security interest on all of the Company’s and SG Building’s assets pursuant to that certain Security Agreement, dated as of the Effective Date, by and between the Company, SG Building and HCI (the “Security Agreement”). The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of the Company.

 

Prior to the Effective Date, the Company was authorized to issue 300,000,000 shares of common stock, par value $0.01 (the “Former Common Stock”) of which 42,918,927 shares were issued and outstanding as of June 29, 2016. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to the Plan, SGB issued, in the aggregate, 491,365 shares of common stock, par value $0.01 (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options (as defined below) and conversion of the New Preferred Stock (as defined below) but prior to any conversion of the Exit Facility, as of the Effective Date. Further, under the Plan, upon the Effective Date certain members of the Company’s management were entitled to receive options (“Management Options”) to acquire an aggregate of 10%, or approximately 655,153 shares, of SGB’s New Common Stock, on a fully diluted basis, assuming conversion of all of the New Preferred Stock but not the Exit Facility. The Company has not yet issued the Management Options, but expects to issue them sometime in the third quarter of the 2016 fiscal year.

 

Prior to the Effective Date, the Company was authorized to issue 5,000,000 shares of preferred stock, par value $0.01 (the “Former Preferred Stock”) none of which was issued and outstanding prior to the Effective Date. On the Effective Date, pursuant to the terms of the Plan and the Company’s Amended and Restated Certificate of Incorporation, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations of Convertible Preferred Stock, designating 5,405,010 shares of preferred stock, par value $1.00 (the “New Preferred Stock”). As described in the Current Report on Form 8-K filed by the Company with the SEC on July 7, 2016 (the “July 8-K”), on the Effective Date and pursuant to the Plan, each Prepetition Loan Document (as defined in the July 8-K) was cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by the Company thereunder. The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. On the Effective Date, HCI received 5,405,010 shares of the Company’s preferred stock which is convertible into shares of the Company’s common stock. Since each share of the Company’s preferred stock is able to vote on an as converted basis HCI effectively has a controlling interest in the Company of 51.17% on an as converted basis.

 

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date.

 

 17 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Introduction and Certain Cautionary Statements

 

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended December 31, 2015, which were included in our Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission.  Statements contained in this Quarterly Report on Form 10-Q may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and repurchase excess capital stock, future other-than-temporary impairment charges, future classification of securities, and housing reform legislation. These statements may involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings, capital expenditures, dividends, the capital structure and other financial items; statements of plans or objectives for future operations; expectations of future economic performance; and statements of assumptions underlying certain of the foregoing types of statements. All statements other than statements of historical facts are statements that could potentially be forward-looking. The Company cautions that forward-looking statements involve risks and uncertainties and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate or prediction is realized.  Factors that could cause or contribute to such differences include, but are not limited to, intensified competition and/or operating problems in the Company’s operating business projects and their impact on revenues and profit margins or additional factors, and those discussed in Part II, Item 1A “Risk Factors” and elsewhere this Quarterly Report on Form 10-Q.  In addition, certain information presented below is based on unaudited financial information. There can be no assurance that there will be no changes to this information once audited financial information is available. As a result, readers are cautioned not to place undue reliance on forward-looking statements. The Company will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Company.

 

General

 

SG Building Blocks, Inc. (“SG Building”), our wholly-owned subsidiary, offers the construction industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods. SG Building is a provider of code engineered cargo shipping containers that it modifies and delivers to meet the growing demand for safe and green for commercial, industrial and residential building construction. Rather than consuming new steel and lumber, it capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. It offers the construction industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods. SG Building is a provider of code engineered cargo shipping containers modified for use in “green” construction. SG Building also provides engineering and project management services related to the use of modified containers in construction. 

 

During 2011, the Company formed SG Blocks Sistema De Constucao Brasileiro LTDA. (“SG Brazil”), a wholly owned subsidiary of the Company. SG Brazil is currently inactive. In May 2015, the Company formed Endaxi Infrastructure Group, Inc., which is currently inactive.

 

Bankruptcy Proceedings

 

On October 15, 2015, SG Blocks, Inc. (“SGB”) and its subsidiaries SG Building and Endaxi Infrastructure Group, Inc. (each a “Subsidiary,” together, the “Subsidiaries” and together with SGB, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Debtors filed a motion with the Bankruptcy Court seeking joint administration of their Chapter 11 cases under the caption In re SG Blocks, Inc. et al. , Case No. 15-12790 (such proceeding, the “Bankruptcy Proceeding”). After filing such voluntary petitions, the Debtors operated their businesses as “debtors-in-possession” under jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court until the Effective Date (as defined below). On February 29, 2016, the Debtors filed a Disclosure Statement (the “Disclosure Statement”), attaching a Plan of Reorganization (the “Plan”), along with a motion seeking approval of the Disclosure Statement by the Bankruptcy Court. On June 30, 2016 (the “Effective Date”), the Plan became effective and the Debtors emerged from bankruptcy.

 

On October 15, 2015, SGB, as borrower, and its subsidiaries, as guarantors, entered into a Debtor in Possession Credit Agreement (the “DIP Credit Agreement” and the loans thereunder, the “DIP Loan”) with Hillair Capital Investments L.P. (“HCI”), and, as condition to making the DIP Loan, SGB and its subsidiaries entered into that Senior Security Agreement (the “DIP Security Agreement” and together with the DIP Credit Agreement and the other documents entered into in connection therewith, the “DIP Facility”), also dated as of October 15, 2015, with Hillair Capital Management LLC (“HCM”) pursuant to which SGB and its subsidiaries granted HCM a first priority security interest in all of their respective assets for the benefit of HCI. The DIP Loan had a maximum principal amount of $600,000, bore interest at a rate of 12% and was due and payable upon the earlier to occur of April 15, 2016 or other dates specified in the DIP Credit Agreement, and required SGB to pay a collateral fee of $25,000. The funds advanced under the DIP Facility were used by SGB to fund its operation during the Bankruptcy Proceeding, including payment of professional fees and expenses. On the Effective Date and in accordance with the Plan, the DIP Facility was repaid in full and the related DIP Credit Agreement was terminated.

 

 18 

 

 

On the Effective Date, and pursuant to the terms of the Plan, SGB entered into a Securities Purchase Agreement, dated June 30, 2016, (the “2016 SPA”), pursuant to which SGB sold for a subscription price of $2.0 million a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2.5 million, with a maturity date of June 30, 2018 (the “Exit Facility”). The Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock (as defined below) at a ratio of 1 share for every $1.25 of debt. Pursuant to that certain Subsidiary Guaranty Agreement, effective as of the Effective Date (the “Guarantee Agreement”), by SG Building in favor of HCI, SG Building unconditionally guaranteed (the “Guarantee”) the obligations and indebtedness owed to HCI under the Exit Facility and the Guarantee is secured by a first-priority lien and security interest on all of the Guarantor’s assets. The Exit Facility and SG Building’s obligations under the Guarantee are secured by a first-priority lien and security interest on all of the Company’s and SG Building’s assets pursuant to that certain Security Agreement, dated as of the Effective Date, by and between the Company, SG Building and HCI (the “Security Agreement”). The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of SGB.

 

Prior to the Effective Date, SGB was authorized to issue 300,000,000 shares of common stock, par value $0.01 (the “Former Common Stock”) of which approximately 42,918,927 shares were issued and outstanding as of June 29, 2016. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to the Plan, SGB issued, in the aggregate, 491,365 shares of common stock, par value $0.01 (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options (as defined below) and conversion of the New Preferred Stock (as defined below) but prior to any conversion of the Exit Facility, as of the Effective Date. Further, under the Plan, upon the Effective Date certain members of SGB’s management were entitled to receive options (“Management Options”) to acquire an aggregate of 10%, or approximately 655,153 shares, of SGB’s New Common Stock, on a fully diluted basis, assuming conversion of all of the New Preferred Stock but not the Exit Facility. SGB has not yet issued the Management Options, but expects to issue them sometime in the third quarter of the 2016 fiscal year.

 

Prior to the Effective Date, SGB was authorized to issue 5,000,000 shares of preferred stock, par value $0.01 (the “Former Preferred Stock”) none of which was issued and outstanding prior to the Effective Date. On the Effective Date, pursuant to the terms of the Plan and SGB’s Amended and Restated Certificate of Incorporation, SGB filed with the Secretary of State of the State of Delaware a Certificate of Designations of Convertible Preferred Stock, designating 5,405,010 shares of preferred stock, par value $1.00 (the “New Preferred Stock”). As described in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on July 7, 2016 (the “July 8-K”), on the Effective Date and pursuant to the Plan, each Prepetition Loan Document (as defined in the July 8-K) was cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by SGB thereunder. The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. On the Effective Date, HCI received 5,405,010 shares of the Company’s preferred stock which is convertible into shares of the Company’s common stock. Since each share of the Company’s preferred stock is able to vote on an as converted basis HCI effectively has a controlling interest in the Company of 51.17% on an as converted basis.

 

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date.

 

References herein to the pre-Effective Date common stock of SGB shall be deemed references to Former Common Stock and references herein to the post-Effective Date common stock of SGB shall be deemed references to New Common Stock.

 

Results of Operations

 

Three Months Ended March 31, 2016 and 2015:

 

    2016    2015 
Loss from operations  $(251,269)  $(554,595)
Other income (expense)   (163,761)   197,550 
Reorganization items   (91,654)   - 
Net Loss  $(506,684)  $(357,045)

 

Revenue

 

Revenue for the three months ended March 31, 2016 was $227,746 compared to $402,039 for the three months ended March 31, 2015. This decrease of $174,293 resulted mainly from a decrease of revenue from block “green steel” jobs. Revenue recognized from block “green steel” jobs decreased by $173,989 for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Revenue from block “green steel” jobs decreased primarily due to revenue being recognized on one nonrecurring job during the three months ended March 31, 2015 in the amount of $159,217.

 

Cost of Revenue and Gross Profit

 

Cost of revenue decreased by $186,694 to $173,229 for the three months ended March 31, 2016 from $359,923 for the three months ended March 31, 2015. The decrease in cost of revenue resulted primarily from a decrease of costs from block “green steel” jobs. Costs recognized from block “green steel” jobs decreased $185,297 for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Gross profit increased to $54,517 for the three months ended March 31, 2016 compared to $42,116 for the three months ended March 31, 2015. Gross profit percentage increased to 24% for the three months ended March 31, 2016 compared to 11% for the three months ended March 31, 2015.

 

 19 

 

 

Payroll and Related Expense

 

Payroll and related expense for the three months ended March 31, 2016 was $166,936 compared to $311,223 for the three months ended March 31, 2015. This decrease resulted from a decrease in salaries for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. This decrease was caused by a decrease in head count as well as reduction in salaries.

 

Other Operating Expenses

 

Other operating expense for the three months ended March 31, 2016 was $138,850 compared to $285,488 for the three months ended March 31, 2015. This decrease resulted primarily from a decrease in professional fees of $113,851 for the three months ended March 31, 2016 compared to the three month ended March 31, 2015.

 

Interest Expense

 

Interest expense for the three months ended March 31, 2016 was $163,764 compared to $188,347 for the three months ended March 31, 2015. This decrease was primarily due to the fact that when the Company filed the Bankruptcy Petition interest stopped accruing on October 15, 2015.

 

Other income (expense)

 

During the three months ended March 31, 2015, there was other income (expense) recognized due to a change in fair value of financial instruments of ($385,891). There was no other income (expense) recognized as a result of a change in fair value of financial instruments during the three months ended March 31, 2016, because the fair value of financial instruments was diminimus at December 31, 2015 and March 31, 2016.

 

Income Tax Provision

 

A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and accordingly no income tax benefit was provided.

 

Impact of Inflation

 

The impact of inflation upon the Company’s revenue and income(loss) from continuing operations during each of the past two fiscal years has not been material to its financial position or results of operations for those years because the Company does not maintain any inventories whose costs are affected by inflation. 

 

Liquidity and Capital Resources

 

Since SG Building’s inception in 2008, SG Building has generated losses from operations and the Company anticipates that it will continue to generate losses from operations for the foreseeable future. As of March 31, 2016 and December 31, 2015, the Company’s stockholders’ deficit was approximately $6,339,000 and $5,880,000, respectively. The Company’s net loss from operations for the three months ended March 31, 2016 was $506,684. Net cash used in operating activities was $150,254 for the three months ended March 31, 2016.

 

Through March 31, 2016, the Company has incurred an accumulated deficit since inception of $13,987,193. At March 31, 2016, the Company had a cash balance of $319,443.

 

The Company expects that through the next eighteen months, the capital requirements to fund the Company’s growth will consume all of the cash flows that it expects to generate from its operations, as well as any proceeds of any other issuances of senior convertible debt securities. The Company further believes that during this period, while it is focusing on the growth and expansion of its business, the gross profit that it expects to generate from operations will not generate sufficient funds to cover expected operating costs. Accordingly, the Company requires further external funding to sustain operations and to follow through on the execution of its business plan. However, there can be no assurance that the Company’s plans will materialize, or that the Company will be successful in funding estimated cash shortfalls through additional debt or equity capital and through the cash generated by the Company’s operations. Given these conditions, the Company’s ability to continue as a going concern is contingent upon it being able to secure an adequate amount of debt or equity capital to enable it to meet its cash requirements. In addition, the Company’s ability to continue as a going concern must be considered in light of the obstacles, expenses and complications frequently encountered by entrants into established markets, the competitive environment in which the Company operates and the current capital raising environment.

 

Since inception, the Company’s operations have primarily been funded through proceeds from equity and debt financings and sales activity. Although management believes that the Company has access to capital resources, there are currently no commitments in place for new financing at this time, and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all.

 

 20 

 

 

On April 10, 2014, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with certain of the holders of its existing Senior Convertible Debentures (the “Existing Debentures”).  Under the terms of the Exchange Agreement, Existing Debentures with a stated maturity value of $1,680,000 were surrendered in exchange for (a) new Senior Convertible Debentures with a stated interest rate of eight percent (8%) per year, a stated maturity value of $1,915,200, a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the “2014 Exchange Debentures”), and (b) five (5) year warrants to purchase up to 7,660,830 shares of the Company’s common stock at an exercise price of $.275 per share (110% of the conversion price), subject to adjustment (the “2014 Exchange Warrants”).  Existing Debentures with a maturity value of $392,000 were paid in accordance with the original terms.

 

On April 10, 2014, the Company entered into a Securities Purchase Agreement (the “2014 SPA”) pursuant to which it issued and sold (a) $2,080,500 (maturity value) in Senior Convertible Debentures for a subscription amount of $1,825,000, which had the same terms as the 2014 Exchange Debentures, including a stated interest rate of eight percent (8%) per year and a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the “2014 New Debentures” together with the 2014 Exchange Debentures, the “2014 Debentures”) and (b) five (5) year warrants to purchase up to 8,322,000 shares of the Company’s common stock at an exercise price of $0.275 per share (110% of the conversion price), subject to adjustment (the “2014 New Warrants” together with the 2014 Exchange Warrants, the “2014 Warrants”).  Holders of the 2014 Debentures are referred to in this Annual Report on Form 10-K as the “2014 Holders”.

 

On August 5, 2015, the Company issued and sold to Hillair a $162,000 Original Issue Discount Senior Secured Convertible Debenture due November 3, 2015 (the “Bridge Debenture”), for $150,000 (the “August 2015 Financing”). The sale and issuance of the Bridge Debenture was consummated pursuant to a Securities Purchase Agreement, dated August 5, 2015, between the Company and Hillair.

 

As described in the July 8-K, the Existing Debentures, the 2014 Debentures, the Bridge Debenture and each other Prepetition Loan Document (as defined in the July 8-K), were cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by SGB thereunder. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Bankruptcy Proceedings for additional detail regarding the conversion of debentures.

 

On September 11, 2015, the Company failed to make a payment of interest that was due and payable on its outstanding debentures, which, as a result, caused the Company to be in default under the debentures.  As a result of these defaults, the debenture holders had the right to demand repayment of the full outstanding amount, as adjusted pursuant to the terms of the debentures. The default caused the principal balance of its outstanding debentures to increase 130%.

 

On October 15, 2015, concurrent with filing the Bankruptcy Petitions, SGB, as borrower, and its subsidiaries, as guarantors, entered into the DIP Credit Agreement with HCI, and, as condition to the making of the DIP Loan, SGB and its subsidiaries entered into the DIP Security Agreement, also dated as of October 15, 2015, with HCM pursuant to which SGB and its subsidiaries granted HCM a first priority security interest in all of their respective assets for the benefit of HCI. The DIP Loan had a maximum principal amount of $600,000, bore interest at a rate of 12% and was due and payable upon the earlier to occur of April 15, 2016 or other dates specified in the DIP Credit Agreement, and required SGB to pay a collateral fee of $25,000. The DIP Loan became due on April 15, 2016 but was not repaid until the Effective Date as described below. The funds advanced under the DIP Facility were used by SGB to fund its operation during the Bankruptcy Proceeding, including payment of professional fees and expenses. On the Effective Date and in accordance with the Plan, the DIP Facility was repaid in full and the related DIP Credit Agreement was terminated.

 

On the Effective Date, and pursuant to the terms of the Plan, SGB entered into the 2016 SPA, pursuant to which SGB sold for a subscription price of $2.0 million a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2.5 million, with a maturity date of June 30, 2018 (the Exit Facility). As described below, the Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of Common Stock at a ratio of 1 share for every $1.25 of debt. The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of SGB.

 

On the Effective Date, all Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to our Plan, SGB issued, in the aggregate, 491,365 shares of New Common Stock to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options and conversion of the New Preferred Stock but prior to any conversion of the Exit Facility, as of the Effective Date. Under the Plan, upon the Effective Date certain members of SGB’s management were entitled to receive the Management Options to acquire an aggregate of 10%, or approximately 655,153 shares, of New Common Stock, on a fully diluted basis, assuming conversion of all of the Preferred Stock but not the Exit Facility. The Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. The Exit Facility, in principal amount of $2.5 million, is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock at a ratio of 1 share for every $1.25 of debt. Conversion of the full principal amount of the Exit Facility ($2.5 million) would result in the issuance of an additional 2,000,000 shares of New Common Stock, which will dilute the percentage ownership of then-existing stockholders.

 

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date. 

 

The Company intends to raise additional funds in the future through a private placement of its senior convertible debentures. The additional capital would be used to fund the Company’s operations, including the costs that it expects to incur as a public company. The current level of cash and operating margins is not enough to cover the existing fixed and variable obligations of the Company, so increased revenue performance and the addition of capital through issuances of securities are critical to the Company’s success. Assuming that the Company is successful in its growth plans and development efforts, the Company believes that it will be able to raise additional funds through sales of its stock. There is no guarantee that the Company will be able to raise such additional funds on acceptable terms, if at all.

 

These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

 

 21 

 

 

The Company’s financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern. 

 

Off-Balance Sheet Arrangements

 

As of March 31, 2016 and December 31, 2015, the Company had no material off-balance sheet arrangements other than operating leases to which SG Building is a party.

 

In the ordinary course of business, SG Building enters into agreements with third parties that include indemnification provisions which, in its judgment, are normal and customary for companies in its industry sector. These agreements are typically with consultants and vendors. Pursuant to these agreements, SG Building generally agrees to indemnify, hold harmless, and reimburse the other parties for losses suffered or incurred by such parties with respect to actions taken or omitted by SG Building. The maximum potential amount of future payments SG Building could be required to make under these indemnification provisions is unlimited. SG Building has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, the Company has no liabilities recorded for these provisions as of March 31, 2016.

 

Critical Accounting Policies and New Accounting Pronouncements

 

Critical Accounting Policies

 

Our condensed consolidated financial statements have been prepared with generally accepted accounting principles in the United States (“GAAP”), which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our condensed consolidated financial statements. A discussion of such critical accounting policies, which include share-based payments, derivative instruments, and revenue recognition can be found in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015. There have been no material changes to the policies noted above as of the Quarterly Report on Form 10-Q for the period ended March 31, 2016.

 

Related Party Transactions

 

Transactions with Vector

 

On March 26, 2009, the Company entered into a $50,000 revolving credit promissory note (the “Revolver”) with Vector Group Ltd. (“Vector”), the former controlling stockholder of the Company. On January 26, 2011, the Company and Vector entered into an amendment to the Revolver increasing the amount that the Company may borrow from $50,000 to $100,000. The loan bears interest at 11% per annum and was due on December 31, 2013. During January 2014, the term of the Revolver was extended from December 31, 2013 to June 30, 2015. Prior to the Bankruptcy Proceeding the Revolver was in default but the Company obtained waivers from the Convertible Debenture holders waiving their respective rights and remedies pursuant to certain default provisions contained therein. As of March 31, 2016 and December 31, 2015, the balance due to Vector amounted to $73,500. As of March 31, 2016 and December 31, 2015, accrued interest related to the Revolver amounted to $43,301, and is included in accrued interest, related party on the accompanying condensed consolidated balance sheets. Due to the Company filing a voluntary petition for relief under Chapter 11 of Title 11 of the Bankruptcy Court, interest stopped accruing on October 15, 2015. Additional contractual interest through March 31, 2016 would have resulted in $3,773 of additional interest. Subsequent to March 31, 2016, in connection with the Plan, the Revolver was treated as an unsecured claim and paid in accordance with the Plan as disclosed in Note 12. Interest expense for other related party notes payable amounted to $2,021 for the three months ended March 31, 2015.

 

ConGlobal Industries, Inc. is a minority stockholder of the Company and provides containers and labor on domestic projects.  The Company recognized Cost of Goods Sold of $103,361 and $206,449, for services ConGlobal Industries, Inc. rendered during the three months ended March 31, 2016 and 2015 respectively. As of March 31, 2016 and December 31, 2015, $317,468, of such expenses are included in related party accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

The Lawrence Group is a minority stockholder of the Company and is a building design, development and project delivery firm. As of March 31, 2016 and December 31, 2015, $32,389 of expenses were included in related party accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

An affiliated accounting firm of the Company’s former Chief Financial Officer provided accounting and consulting services to the Company. The Company recognized General and Administrative expenses in the amount of $32,000 for the three months ended March 31, 2015. 

 

 22 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

(a) Disclosure Controls and Procedures.

 

Management, with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report, the Principal Executive Officer and the Principal Financial Officer believe that the condensed consolidated financial statements and other information contained in this Quarterly Report present fairly, in all material respects, our business, financial condition and results of operations.

 

Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

In connection with the audit of our fiscal 2015 consolidated financial statements, our independent auditors identified certain significant deficiencies that together constitute a material weakness in our disclosure controls and procedures. These significant deficiencies primarily relate to our (i) difficulty in generating data in a form and format that facilitates the timely analysis of information needed to produce accurate financial reports, (ii) difficulty in applying complex accounting and financial reporting and disclosure rules required under GAAP and the SEC reporting regulations, and (iii) limited segregation of duties.  These significant deficiencies together constitute a material weakness in our disclosure controls and procedures.

 

We have taken certain steps in an effort to correct these material weaknesses, including retaining the Chief Financial Officer who has significant experience with publicly-held companies.  Although this is an important step towards improving the application of complex accounting principles, the preparation of financial reports and the segregation of duties, additional time is still required to fully implement additional internal controls procedures and test their operating effectiveness before we can definitively conclude that we have remediated our deficiencies.  Because these remediation steps have not yet been completed, we have performed additional analyses and other procedures to ensure that our consolidated financial statements contained in this Quarterly Report were prepared in accordance with GAAP and applicable SEC regulations.

 

We believe that our weaknesses in internal control over financial reporting and our disclosure controls relate in part to the fact that SG Building is a relatively small company with few employees.  Our internal controls are still in a state of transition as we work diligently to integrate and assimilate all of our operations and work to remedy the significant deficiencies that together constitute a material weakness in our internal control over financial reporting.

 

(b) Changes in Internal Control over Financial Reporting

 

Notwithstanding our remedial actions and integration of our financial reporting systems, there was no change in our internal control over financial reporting that occurred during the first quarter of 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 23 

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The description of our Bankruptcy Proceedings in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Bankruptcy Proceedings is incorporated by reference. 

 

Item 1A. Risk Factors

 

There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2015. 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None. 

 

Item 3. Defaults Upon Senior Securities

 

The Revolver has matured and is currently in default. The Revolver was treated as an unsecured claim and Vector was paid $100,000 in accordance with the Plan.

 

On September 11, 2015, the Company failed to make a payment of interest that was due and payable on the 2014 Debentures and thus the outstanding principal amount increased by $1,247,310 to $5,405,010. Subsequent to September 30, 2015, in connection with the Plan, all of the outstanding debentures were converted into preferred stock in accordance with the Plan as disclosed Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Bankruptcy Proceedings.

 

See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Bankruptcy Proceedings for a description of the Bankruptcy Proceedings and related transactions, including the cancellation of Prepetition Loan Documents (as defined in the July 8-K) and the issuance to holders of debt thereunder of one share of the New Preferred Stock for each dollar owed by the Company thereunder.

 

Item 4. Mine Safety Disclosures

 

Not applicable. 

 

Item 5. Other Information

 

None

 

Item 6.   Exhibits
     
4.1   Original Issue Discount Senior Secured Convertible Debenture due November 3, 2015. (Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed August 11, 2015)
10.1   License Agreement, dated April 21, 2015, by and between the Company and Red Cardinal Holdings, Inc.. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 27, 2015)
10.2   Securities Purchase Agreement, dated August 5, 2015, by and between the Company and Hillair Capital Investments, L.P.. (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 11, 2015)
10.3   Amendment Agreement, by and between the Company and the holders of the Company’s securities issued pursuant to the Securities Purchase Agreement dated as of December 27, 2012 and the holders of the Company’s securities issued pursuant to the Securities Purchase Agreement dated as of April 10, 2014., dated August 5, 2015. (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed August 11, 2015)
10.4   Subsidiary Guarantee, dated August 5, 2015, by and between the Company and all of the Subsidiaries of the Company. (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed August 11, 2015)
10.5   Security Agreement, dated August 5, 2015, by and between the Company, all of the Subsidiaries of the Company and the holders of the Company’s Senior Secured Original Issue Discount Convertible Debentures named therein. (Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed August 11, 2015)
31.1+   Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+   Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+   Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+   XBRL Instance Document.
101.SCH+   XBRL Taxonomy Extension Schema Document.
101.CAL+   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF+   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB+   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE+   XBRL Taxonomy Extension Presentation Linkbase Document.

    

+ Transmitted herewith.

 

 24 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  SG BLOCKS, INC.
  (Registrant)
     
Date: August 15, 2016 By: /s/ Mahesh Shetty
   

Mahesh Shetty

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Chief Accounting Officer)

 

 

26

 

EX-31.1 2 f10q0316ex31i_sgblocks.htm CERTIFICATION

Exhibit 31.1

 

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Paul M. Galvin, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of SG Blocks, Inc.;
   
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

August 15, 2016 /s/ Paul M. Galvin
  Name: Paul M. Galvin
  Title: Chief Executive Officer

 

EX-31.2 3 f10q0316ex31ii_sgblocks.htm CERTIFICATION

Exhibit 31.2

 

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Mahesh Shetty, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of SG Blocks, Inc.;
   
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

August 15, 2016 /s/ Mahesh Shetty
  Name: Mahesh Shetty
  Title: Chief Financial Officer
EX-32.1 4 f10q0316ex32i_sgblocks.htm CERTIFICATION

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report of SG Blocks, Inc., (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul M. Galvin, the Chief Executive Officer of the Company, and I, Brian Wasserman, the Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:

 

1.  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

August 15, 2016 /s/ Paul M. Galvin
  Name: Paul M. Galvin
  Title: Chief Executive Officer

 

August 15, 2016 /s/ Mahesh Shetty
  Name: Mahesh Shetty
  Title: Chief Financial Officer

 

This certification accompanies each Report pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for  purposes of Section 18 of the Securities Exchange Act of 1934, as  amended and, it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

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(&#8220;SG Brazil&#8221;), a wholly owned subsidiary of the Company. SG Brazil is currently inactive. In May 2015, the Company formed Endaxi Infrastructure Group, Inc. 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On June 3, 2016, the United States Bankruptcy Court for the Southern District of New York confirmed the Company&#8217;s plan of reorganization (the "Plan"). 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The funds advanced under the DIP Facility were used by the Company to fund its operation during the Bankruptcy Proceeding, including payment of professional fees and expenses. 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Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
Aug. 03, 2016
Document and Entity Information [Abstract]    
Entity Registrant Name SG BLOCKS, INC.  
Entity Central Index Key 0001023994  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   491,365
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 319,443 $ 466,997
Short-term investment 30,006 30,003
Accounts receivable, net 158,467 86,035
Inventory 420,989 158,181
Total current assets 928,905 741,216
Equipment, net 6,379 7,229
Security deposit 1,200 3,900
Debt issuance costs, net 5,204
Totals 936,484 757,549
Current liabilities:    
Accounts payable and accrued expenses 184,335 41,163
Accounts payable and accrued expenses - subject to compromise 120,325 120,325
Accrued interest, related party - subject to compromise 43,301 43,301
Accrued interest 173,147 173,147
Related party accounts payable and accrued expenses - subject to compromise 370,151 370,151
Related party notes payable - secured claim 73,500 73,500
Convertible debentures, net of discounts of $229,405 and $387,965 5,175,605 5,017,045
Billings in excess of costs and estimated earnings on uncompleted contracts 29,916 28,024
Deferred revenue 505,627 170,530
Total current liabilities 6,675,907 6,037,186
Debtor in possession financing 600,000 600,000
Total liabilities 7,275,907 6,637,186
Commitments and Contingencies
Stockholders' deficit:    
Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0 issued and outstanding at March 31, 2016 and December 31, 2015
Common stock, $0.01 par value, 300,000,000 shares authorized; 42,918,927 issued and outstanding at March 31, 2016 and December 31, 2015 429,189 429,189
Additional paid-in capital 7,218,581 7,171,683
Accumulated deficiency (13,987,193) (13,480,509)
Total stockholders' deficit (6,339,423) (5,879,637)
Totals $ 936,484 $ 757,549
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Balance Sheets [Abstract]    
Discount on convertible debt current $ 229,405 $ 387,965
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 300,000,000 300,000,000
Common stock, shares issued 42,918,927 42,918,927
Common stock, shares outstanding 42,918,927 42,918,927
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenue:    
Unit sales $ 202,524 $ 376,513
Engineering services 25,222 25,526
Total revenue 227,746 402,039
Cost of revenue:    
Unit sales 151,228 337,155
Engineering services 22,001 22,768
Total cost revenue 173,229 359,923
Gross profit 54,517 42,116
Operating expenses:    
Payroll and related expenses 166,936 311,223
General and administrative expenses 124,820 218,020
Marketing and business development expense 9,852 58,739
Pre-project expenses 4,178 8,729
Total 305,786 596,711
Operating loss (251,269) (554,595)
Other income (expense):    
Interest expense (163,764) (188,347)
Interest income 3 6
Change in fair value of financial instruments 385,891
Total (163,761) 197,550
Net Loss before reorganization items (415,030) (357,045)
Reorganization items:    
Legal and professional fees 91,654
Net loss $ (506,684) $ (357,045)
Net loss per share - basic and diluted:    
Basic and diluted $ (0.01) $ (0.01)
Weighted average shares outstanding:    
Basic and Diluted 42,918,927 42,918,927
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Statements of Changes in Stockholders' Equity Deficiency (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($)
Total
$0.01 Par Value Common Stock
Additional Paid-In Capital
Accumulated Deficiency
Beginning Balance at Dec. 31, 2015 $ (5,879,637) $ 429,189 $ 7,171,683 $ (13,480,509)
Beginning Balance, shares at Dec. 31, 2015   42,918,927    
Stock-based compensation 46,898 46,898
Net loss (506,684) (506,684)
Ending Balance at Mar. 31, 2016 $ (6,339,423) $ 429,189 $ 7,218,581 $ (13,987,193)
Ending Balance, shares at Mar. 31, 2016   42,918,927    
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.5.0.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:    
Net loss $ (506,684) $ (357,045)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 850 944
Amortization of debt issuance costs 5,204 5,204
Amortization of discount on convertible debentures 158,560 101,208
Interest income on short-term investment (3) (6)
Change in fair value of financial instruments (385,891)
Stock-based compensation 46,898 48,115
Changes in operating assets and liabilities:    
Accounts receivable (72,432) (173,689)
Cost and estimated earnings in excess of billings on uncompleted contracts  
Inventory (262,808) (362,856)
Prepaid expenses and other current assets (10,000)
Accounts payable and accrued expenses 143,172 63,625
Accrued interest, related party 2,021
Accrued interest 79,914
Related party accounts payable and accrued expenses 165,099
Billings in excess of costs and estimated earnings -on uncompleted contracts 1,892 (921)
Deferred revenue 335,097 518,682
Net cash used in operating activities (150,254) (305,596)
Cash flows from investing activities    
Security deposit refund 2,700
Net cash provided by investing activities 2,700
Net decrease in cash and cash equivalents (147,554) (305,596)
Cash and cash equivalents - beginning of period 466,997 884,188
Cash and cash equivalents - end of period 319,443 578,592
Cash paid during the period for:    
Interest
XML 17 R7.htm IDEA: XBRL DOCUMENT v3.5.0.2
Description of Business
3 Months Ended
Mar. 31, 2016
Description of Business [Abstract]  
Description of Business
1. Description of Business

 

SG Blocks, Inc. (the “Company”) was previously known as CDSI Holdings, Inc. (a Delaware corporation incorporated on December 29, 1993).  On November 4, 2011, 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 is a provider of code engineered cargo shipping containers that it modifies and delivers to meet the growing demand for safe and green for commercial, industrial and residential building construction. Rather than consuming new steel and lumber, it capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. It offers the construction industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods.

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

 

During 2011, the Company formed SG Blocks Sistema De Constucao Brasileiro LTDA. (“SG Brazil”), a wholly owned subsidiary of the Company. SG Brazil is currently inactive. In May 2015, the Company formed Endaxi Infrastructure Group, Inc. (“Endaxi”), which is currently inactive.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
Liquidity and Financial Condition
3 Months Ended
Mar. 31, 2016
Liquidity and Financial Condition [Abstract]  
Liquidity and Financial Condition
2. Liquidity and Financial Condition

 

Through March 31, 2016, the Company has incurred an accumulated deficit since inception of $13,987,193.  At March 31, 2016, the Company had a cash balance of $319,443.

 

On October 15, 2015, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). On June 3, 2016, the United States Bankruptcy Court for the Southern District of New York confirmed the Company’s plan of reorganization (the "Plan"). The Plan became effective on June 30, 2016 (the “Effective Date”).

 

On the Effective Date, the Plan became effective and the Company emerged from bankruptcy.

 

On October 15, 2015, the Company, as borrower, and its subsidiaries, as guarantors, entered into a Debtor in Possession Credit Agreement (the “DIP Credit Agreement” and the loans thereunder, the “DIP Loan”) with Hillair Capital Investments L.P. (“HCI”), and, as condition to the making of the DIP Loan, the Company and its subsidiaries entered into that Senior Security Agreement (the “DIP Security Agreement” and together with the DIP Credit Agreement and the other documents entered into in connection therewith, the “DIP Facility”), also dated as of October 15, 2015, with Hillair Capital Management LLC (“HCM”) pursuant to which SGB and its subsidiaries granted HCM a first priority security interest in all of their respective assets for the benefit of HCI. The DIP Loan had a maximum principal amount of $600,000, bore interest at a rate of 12% and was due and payable upon the earlier to occur of April 15, 2016 or other dates specified in the DIP Credit Agreement, and required the Company to pay a collateral fee of $25,000. The DIP Loan became due on April 15, 2016 but was not repaid until the Effective Date as described below. The funds advanced under the DIP Facility were used by the Company to fund its operation during the Bankruptcy Proceeding, including payment of professional fees and expenses. On the Effective Date and in accordance with the Plan, the DIP Facility was repaid in full and the related DIP Credit Agreement was terminated.

 

On the Effective Date, and pursuant to the terms of the Plan, the Company entered into a Securities Purchase Agreement, dated June 30, 2016, (the “2016 SPA”), pursuant to which the Company sold for a subscription price of $2,000,000 a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2,500,000, with a maturity date of June 30, 2018 (the “Exit Facility”). The Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock (as defined below) at a ratio of 1 share for every $1.25 of debt. Pursuant to that certain Subsidiary Guaranty Agreement, effective as of the Effective Date (the “Guarantee Agreement”), by SG Building in favor of HCI, SG Building unconditionally guaranteed (the “Guarantee”) the obligations and indebtedness owed to HCI under the Exit Facility and the Guarantee is secured by a first-priority lien and security interest on all of the Guarantor’s assets. The Exit Facility and SG Building’s obligations under the Guarantee are secured by a first-priority lien and security interest on all of the Company’s and SG Building’s assets pursuant to that certain Security Agreement, dated as of the Effective Date, by and between the Company, SG Building and HCI (the “Security Agreement”). The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of the Company.

 

Prior to the Effective Date, the Company was authorized to issue 300,000,000 shares of common stock, par value $0.01 (the “Former Common Stock”) of which 42,918,927 shares were issued and outstanding as of June 29, 2016. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to the Plan, SGB issued, in the aggregate, 491,365 shares of common stock, par value $0.01 (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options (as defined below) and conversion of the New Preferred Stock (as defined below) but prior to any conversion of the Exit Facility, as of the Effective Date. Further, under the Plan, upon the Effective Date certain members of the Company’s management were entitled to receive options (“Management Options”) to acquire an aggregate of 10%, or approximately 655,153 shares, of SGB’s New Common Stock, on a fully diluted basis, assuming conversion of all of the New Preferred Stock but not the Exit Facility. The Company has not yet issued the Management Options, but expects to issue them sometime in the third quarter of the 2016 fiscal year.

 

Prior to the Effective Date, the Company was authorized to issue 5,000,000 shares of preferred stock, par value $0.01 (the “Former Preferred Stock”) none of which was issued and outstanding prior to the Effective Date. On the Effective Date, pursuant to the terms of the Plan and the Company’s Amended and Restated Certificate of Incorporation, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations of Convertible Preferred Stock, designating 5,405,010 shares of preferred stock, par value $1.00 (the “New Preferred Stock”). As described in the Current Report on Form 8-K filed by the Company with the SEC on July 7, 2016 (the “July 8-K”), on the Effective Date and pursuant to the Plan, each Prepetition Loan Document (as defined in the July 8-K) was cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by the Company thereunder. The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. On the Effective Date, HCI received 5,405,010 shares of the Company’s preferred stock which is convertible into shares of the Company’s common stock. Since each share of the Company’s preferred stock is able to vote on an as converted basis HCI effectively has a controlling interest in the Company of 51.17% on an as converted basis.

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date.

 

The current level of cash and operating margins is not enough to cover the existing fixed and variable obligations of the Company, so increased revenue performance and the addition of capital through issuances of securities are critical to the Company’s success. At August 10, 2016, the Company had a cash balance of approximately $772,000. The Company expects that through the next eighteen months, the capital requirements to fund the Company’s growth will consume all of the cash flows that it expects to generate from its operations, as well as any proceeds of any other issuances of senior convertible debt securities. The Company further believes that during this period, while the Company is focusing on the growth and expansion of its business, the gross profit that it expects to generate from operations will not generate sufficient funds to cover expected operating costs. Accordingly, the Company requires further external funding to sustain operations and to follow through on the execution of its business plan. There is no assurance that the Company’s plans will materialize and/or that the Company will be successful in funding estimated cash shortfalls through additional debt or equity capital and through the cash generated by the Company’s operations. Given these conditions, the Company’s ability to continue as a going concern is contingent upon it being able to secure an adequate amount of debt or equity capital to enable it to meet its cash requirements. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets, the competitive environment in which the Company operates and the current capital raising environment.

 

Since inception, the Company’s operations have primarily been funded through proceeds from equity and debt financings and sales activity. Although management believes that the Company has access to capital resources, there are currently no commitments in place for additional financing at this time, and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all.

 

These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

 

The Company’s financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
3. 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 (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 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 three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission on July 21, 2016.

 

Basis of consolidation -   The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, SG Building, SG Brazil and Endaxi. All intercompany balances and transactions have been eliminated.

 

Accounting estimates -   The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles 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 which require the Company to make estimates include revenue recognition, stock-based compensation, warrant liabilities, allowance for doubtful accounts and a valuation for deferred tax assets.  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. Assets and liabilities relating to long-term contracts are included in current assets and current liabilities 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 - The Company accounts for its long-term contracts associated with the design, engineering, manufacture and project management of building projects and related services, using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract. The Company uses the cost to cost basis because management considers it to be the best available measure of progress on these contracts.

 

Contract costs include all direct material and labor costs and those indirect costs related to contract performance. General and administrative costs, marketing and business development expenses and pre-project expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

 

The asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billing in excess of revenue recognized.

 

The Company offers a one-year warranty on completed contracts.  For the three months ended March 31, 2016 and 2015, the warranty claims were not material. The Company does not anticipate that any additional claims are likely to occur for warranties that are currently outstanding. Accordingly, no warranty reserve is considered necessary for any of the periods presented.

 

The Company also supplies repurposed containers to its customers. In these cases, the Company serves as a supplier to its customers for standard and made to order products that it sells at fixed prices.  Revenue from these contracts is generally recognized when the products have been delivered to the customer, accepted by the customer and collection is reasonably assured.  Revenue is recognized upon completion of the following: an order for product is received from a customer; written approval for the payment schedule is received from the customer and the corresponding required deposit or payments are received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is delivered to the customer’s receiving point. The title and risk of loss passes to the customer at the customer’s receiving point.

 

Amounts billed to customers in a sales transaction for shipping and handling are classified as revenue.  Products sold are generally paid for based on schedules provided for in each individual customer contract including upfront deposits and progress payments as products are being manufactured.

 

Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue when they are earned.

Inventory - Raw construction materials (primarily shipping containers) are valued at the lower of costs (first-in, first-out method) or market. Finished goods and work-in-process inventories are valued at the lower of costs or market, using the specific identification method. As of March 31, 2016 and December 31, 2015, inventory consisted principally of work-in-process inventory which amounted to $420,989 and $158,181, respectively.

 

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 liabilities measured at fair value on a recurring basis are summarized below:

 

     

March 31,
2016

     

Quoted

prices in

active market

for identical

assets

(Level l)

     

Significant

other

observable

inputs

(Level 2)

     

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $ -     $ -     $ -     $ - (1)
Conversion Option Liabilities   $ -     $ -     $ -     $ - (1)

 

(1) Diminimus value at March 31, 2016.

 

   

December 31,

2015

   

Quoted

prices in

active market

for identical

assets

(Level l)

   

Significant

other

observable

inputs

(Level 2)

   

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $       -     $      -     $      -     $      -  (2)
Conversion Option Liabilities   $ -     $ -     $ -     $ -  (2)

 

(2) Diminimus value at December 31, 2015.

 

Warrant and 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 its 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 following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

     

For the

three month

ended
March 31,
2016

     

For the

three month

ended

March 31,
2015

 
Beginning balance   $ -     $ 646,671  
Aggregate fair value of conversion option liabilities and warrants issued     -       -  
Change in fair value related to increase in warrants issued for anti-dilutive adjustment     -       -  
Change in fair value of conversion option liabilities and warrants     -       (385,891 )
Ending balance   $ -     $ 260,780  

 

The significant assumptions and valuation methods that the Company used to determine fair value and the change in fair value of the Company’s derivative financial instruments are discussed in Notes 6 and 8.

 

The Company presented warrant and 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. As disclosed in Notes 6 and 8, the Company computed the fair value of the warrant and conversion option liability at the date of issuance and the reporting dates of March 31, 2016 and December 31, 2015 using a Black-Scholes model..

 

The calculation of the Black-Scholes model involves 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 publicly quoted prices. The term represents 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 US Treasury yield curve rates; the dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.

 

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 such 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, 2016 and December 31, 2015 71% and 74%, respectively, of the Company’s accounts receivable were due from three and two customers, respectively.

 

Revenue relating to two customers represented approximately 54% and 29% of the Company’s total revenue for the three months ended March 31, 2016. Revenue relating to two customers represented approximately 44% and 40% of the Company’s total revenue for the three months ended March 31, 2015.

 

Costs of revenue relating to one vendor, who is a related party and disclosed in Note 11, represented approximately 60% and 57% of the Company’s total cost of revenue for the three months ended March 31, 2016 and 2015. Costs of revenue relating to two unrelated vendors, represented approximately 37% of the Company’s total cost of revenue for the three months ended March 31, 2016. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers. 

 

Recent accounting pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition --Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs -- Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is permitted commencing January 1, 2017. The Company is currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on its financial position and results of operations.

 

In August 2014, the FASB issued ASU 2014 -15, Presentation of Financial Statements - Going Concern. The Update provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2013 -300 --Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity's Going Concern Presumption, which has been deleted. The Company is currently evaluating the effects of ASU 2014 -15 on the financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption permitted for financial statements that have not been previously issued. The adoption of this statement will impact future presentation and disclosures of the financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. The update requires inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2015-11 on the financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The updates principle 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 its 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. The Company is currently evaluating the effects of ASU 2016-02 on the financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). The update makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2016-09 on the financial statements.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accounts Receivable
3 Months Ended
Mar. 31, 2016
Accounts Receivable [Abstract]  
Accounts receivable
4. Accounts Receivable

 

At March 31, 2016 and December 31, 2015, the Company’s accounts receivable consisted of the following:

 

    2016     2015  
Billed:                
SG Block sales   $ 160,237     $ 82,200  
Engineering services     14,180       14,181  
Project management     8,796       14,400  
Total gross receivables     183,213       110,781  
Less: allowance for doubtful accounts     (24,746 )     (24,746 )
Total net receivables   $ 158,467     $ 86,035
XML 21 R11.htm IDEA: XBRL DOCUMENT v3.5.0.2
Costs and Estimated Earnings on Uncompleted Contracts
3 Months Ended
Mar. 31, 2016
Costs and Estimated Earnings on Uncompleted Contracts [Abstract]  
Costs and Estimated Earnings on Uncompleted Contracts
5. Costs and Estimated Earnings on Uncompleted Contracts

 

Costs and estimated earnings on uncompleted contracts consist of the following at March 31, 2016 and December 31, 2015:

 

    2016     2015  
Costs incurred on uncompleted contracts   $ 21,187     $ 18,363  
Provision for loss on uncompleted contracts     -       -  
Estimated income     7,872       6,786  
      29,059       25,149  
Less:  billings to date     (58,975 )     (53,173 )
                 
    $ (29,916 )   $ (28,024 )

 

The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at March 31, 2016 and December 31, 2015.

 

    2016     2015  
Costs and estimated earnings in excess of billings on uncompleted contracts   $ -     $ -  
Billings in excess of cost and estimated earnings on uncompleted contracts     (29,916 )     (28,024 )
    $ (29,916 )     (28,024 )

 

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.

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures
3 Months Ended
Mar. 31, 2016
Convertible Debentures [Abstract]  
Convertible Debentures
6. Convertible Debentures

 

On April 10, 2014, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Hillair Capital Investments L.P. (“Hillair”), Frank Casano (“Casano”) and Scott Masterson (“Masterson”) who held certain existing Senior Convertible Debentures (the “Existing Debentures”). Existing Debentures consisted of: (a) debentures issued and sold to Hillair in December 2012 (the “2012 Hillair Debentures”) and (b) debentures issued and sold to Casano and Masterson in April 2013 (the “April 2013 Debentures”).   Under the terms of the Exchange Agreement, Existing Debentures with a stated maturity value of $1,680,000 were surrendered in exchange for (i) new Senior Convertible Debentures with a stated interest rate of eight percent (8%) per year, a stated maturity value of $1,915,200, a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the “2014 Exchange Debentures”), and (ii) a five (5) year Common Stock purchase warrant to purchase up to 7,660,800 shares of the Company’s common stock at an exercise price of $0.275 (110% of the conversion price), subject to adjustment (the “2014 Exchange Warrants”). At April 10, 2014, the carrying value of Existing Debentures was $1,680,000 and the fair value of the conversion option liability was $2,366. The fair value of the conversion option liability of the 2014 Exchange Debentures was determined to be $380,744 and the fair value of the warrants issued was determined to be $490,601 upon issuance of the Exchange Debentures. The Company recognized a loss of $1,104,179 on this exchange transaction upon issuance of the Exchange Debentures. In connection with the Exchange Agreement, the Company incurred $20,763 in legal fees which are included in debt issuance costs in the accompanying condensed consolidated balance sheets at March 31, 2016 and December 31, 2015.

 

On April 10, 2014, the Company entered into a Securities Purchase Agreement (the “2014 SPA”) with four investors, including Hillair pursuant to which the Company issued and sold (i) $2,080,500 in 8% Original Discount Senior Secured Convertible Debentures, for $1,825,000, with a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the “2014 New Debentures” together with the 2014 Exchange Debentures, the “2014 Debentures”), and (ii) a five (5) year Common Stock purchase warrant to purchase up to 8,322,000 shares of the Company’s common stock at an exercise price of $0.275 (110% of the conversion price), subject to adjustment with a fair value of $532,944 at issuance, which has been recorded as a discount to the 2014 New Debentures. (As disclosed in Note 8) The Company recorded a discount of $255,500, which is being amortized over the term of the 2014 New Debentures, using the effective interest method. The initial conversion price for the 2014 New Debentures is $0.25 per share, subject to adjustments upon certain events, as set forth in the 2014 New Debentures. At the date of issuance the fair value of the conversion option liability was determined to be $413,606, which has been recorded as a discount to the 2014 New Debentures. In connection with the 2015 New Debentures, the Company incurred $20,000 in legal fees which are included in debt issuance costs in the accompanying condensed consolidated balance sheets at March 31, 2016 and December 31, 2015. As of March 31, 2016 and December 31, 2015, the discount related to the 2015 New Debentures amounted to $229,405 and $387,965, respectively.

 

The Exchange Agreement and the 2015 SPA triggered anti-dilution adjustments to the warrants issued on the Existing Debentures based on a $0.25 per share conversion price (adjusted from the original stated conversion price of $0.43 per share), which reduces the exercise price to $0.25 per share and increases the number of shares issuable upon the exercise of the Existing Warrants from 4,818,605 to 8,288,000 shares.

 

At any time after April 10, 2014, (the “Original Issue Date”) until the 2014 Debentures are no longer outstanding, the 2014 Debentures are convertible, in whole or in part, into shares of Common Stock at the option of the 2014 Debenture holders, subject to certain conversion limitations set forth in the 2014 Debentures.  The initial conversion price for the 2014 Debentures is $0.25 per share, subject to adjustments upon certain events, as set forth in the 2014 Debentures.  The Company will pay interest on the aggregate unconverted and then outstanding principal amount of the 2014 Debentures at the rate of 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on October  1, 2014. The holders of the Company’s convertible debt agreed to postpone interest payments (beginning with the July 1, 2015 payments) due on the convertible debt until September 1, 2015. Interest is payable in cash or at the Company’s option in shares of Common Stock, provided certain terms and conditions are met as more fully described in the 2014 Debentures.  On each of October 1, 2015 and January 1, 2016, the Company is obligated to redeem an amount equal to $998,925 and on April 1, 2016, an amount equal to $1,997,850, plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the 2014 Debentures (as to each of the forgoing periodic redemptions, each a “Periodic Redemption Amount”).  In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the 2014 Debentures, the Company may elect to pay the Periodic Redemption Amount in shares on the terms set forth in the 2014 Debentures. 

 

Upon any Event of Default (as defined in the 2014 Debentures), the outstanding principal amount of the 2014 Debentures, plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the debenture holders’ election, immediately due and payable in cash.  Commencing five days after the occurrence of any Event of Default, the interest rate on the 2014 Debentures shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The 2014 Debentures contain anti-dilution protective provisions as described therein. The Company is subject to compliance with certain covenants under the 2014 Debentures as set forth therein. On September 11, 2015, the Company failed to make a payment of interest that was due and payable on the 2014 Debentures and thus the outstanding principal amount increased by $1,247,310 to $5,405,010.

 

The 2014 Warrants may be exercised at any time on or after April 10, 2014 and on or prior to the close of business on April 10, 2019, at an exercise price of $0.275 per share, subject to adjustment upon certain events.  The 2014 Warrants contain anti-dilution protective provisions and limitations on exercise as described therein.

 

To secure the Company’s obligations under the 2014 Debentures, SG Building entered into a Subsidiary Guarantee, dated as of April 10, 2014 (the “Guarantee”), pursuant to which it unconditionally and irrevocably guaranteed the prompt and complete payment and performance when due of the obligations arising from the 2014 Debentures. The Company and SG Building have each granted the debenture holders a security interest in their assets to secure the payment, performance and discharge in full of all of the Company’s obligations under the 2014 Debentures and the guarantor’s obligations under the Guarantee, in accordance with that certain Security Agreement, dated as of April 10, 2014.On August 5, 2015, the Company issued and sold to Hillair a $162,000 Original Issue Discount Senior Secured Convertible Debenture due November 3, 2015 (the “Bridge Debenture”), for $150,000 (the “August 2015 Financing”). The sale and issuance of the Bridge Debenture was consummated pursuant to a Securities Purchase Agreement, dated August 5, 2015, between the Company and Hillair. At any time after August 5, 2015, until the Bridge Debenture is no longer outstanding, the Bridge Debenture is convertible, in whole or in part, into shares of Common Stock at the option of Hillair, subject to certain conversion limitations set forth in the Bridge Debenture. The initial conversion price for the Bridge Debenture is $0.10 per share, subject to adjustments upon certain events, as set forth in the Bridge Debenture. As the Bridge Debenture was issued at an original issue discount, interest does not accrue on the Bridge Debenture.

 

Due to the Company filing a voluntary petition for relief under Chapter 11 of Title 11 of the Bankruptcy Court, interest stopped accruing on October 15, 2015. Additional contractual interest through March 31, 2016 would have resulted in $146,509 of additional interest. Subsequent to March 31, 2016, in connection with the Plan, all of the outstanding debentures were converted into preferred stock in accordance with the Plan as disclosed in Note 12. 

 

A summary of the Company’s convertible debentures as of March 31, 2016 and December 31, 2015 is as follows:

 

    2016     2015  
2015 Exchange Debentures   $ 2,489,760     $ 2,489,760  
2015 New Debentures, net of $229,405 and $387,965 discount     2,475,245       2,316,685  
 Bridge Debenture     210,600       210,600  
                 
Total debt     5,175,605       5,017,045  
                 
Less current portion     -       -  
                 
Long-term debt   $ 5,175,605     $ 5,017,045  

 

For the three months ended March 31, 2015, interest expense on the convertible debentures amounted to $79,914, and is included on the accompanying condensed consolidated statements of operations. For the three months ended March 31, 2016 and 2015, total amortization relating to the discount amounted to $158,560 and $101,208, respectively, and is included in interest expense on the accompanying condensed consolidated statements of operations.

 

The Company bifurcated the conversion option from its debt host. The fair value of the conversion option liabilities as of March 31, 2016 and December 31, 2015 was minimal.

 

In connection with the 2014 SPA, the Company is required to maintain compliance with a variety of contractual provisions which include certain affirmative and negative covenants. The requirements principally consist of a requirement to maintain timely filings with the SEC, reserve sufficient authorized shares to issue upon the exercise of the underlying conversion option, and permit the debenture holders to participate in future financing transactions. The Company is also restricted, among other things, from incurring new indebtedness, permitting additional liens, making material changes to its charter documents, repay or repurchase more than a de minimis number of shares of its common stock or common stock equivalents, repay or repurchase any indebtedness, pay cash dividends, enter into transactions with affiliates or use the proceeds of the convertible debentures to provide funding to its subsidiaries. The underlying securities purchase and debenture agreements also provide for the Company to pay liquidated damages in the event of its failure to (i) deliver shares upon the conversion of the debentures, in which case the liquidated damages would amount to a cash payment of $10 per trading day (increasing to $15 per trading day on the fifth trading day) for each $1,000 of principal amount being converted until such certificates are delivered  (ii) maintain timely required filings with the SEC, in which case the liquidated damages would amount to a cash payment of two percent (2.0%) of the aggregate subscription amount of such purchasers securities on the day of the failure to maintain timely filings with the SEC and on every thirtieth (30th) day thereafter until the required documents are filed with the SEC or is no longer required for the purchaser to transfer the underlying shares pursuant to Rule 144 and (iii) to compensate the debenture holder for a Buy-In (as defined in the debentures) of securities previously sold by the debenture holder on a failure to timely deliver certificates upon conversion by the debenture holder.  If the holder is subject to a Buy-In, then the Company will (A) pay in cash to the debenture holder (in addition to any other remedies available to or elected by the debenture holder) the amount, if any, by which (x) the debenture holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the debenture holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the debenture holder, either reissue (if surrendered) this debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the debenture holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements.

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Net Income (Loss) Per Share
3 Months Ended
Mar. 31, 2016
Net Income (Loss) Per Share [Abstract]  
Net Income (Loss) Per Share
7. Net Income (Loss) Per Share

 

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.  Diluted income per share includes the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” method as applicable.  At March 31, 2016, there were options and warrants to purchase 15,425,001 and 25,572,059 shares of common stock, respectively, outstanding which could potentially dilute future net income (loss) per share. At March 31, 2016 the Company also has outstanding convertible debt which is initially convertible into 17,602,800 shares of common stock that could potentially dilute future net income (loss) per share. The number of shares the convertible debt could be converted into could potentially increase under certain circumstances related to the market price of the Company’s common stock at the time of conversion. At March 31, 2015, there were options and warrants to purchase 15,425,001 and 25,572,059 shares of common stock, respectively, outstanding which could potentially dilute future net income (loss) per share. March 31, 2015 the Company also had outstanding convertible debt which was initially convertible into 15,982,800 shares of common stock, which could potentially dilute future net income (loss) per share.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.5.0.2
Warrants
3 Months Ended
Mar. 31, 2016
Warrants [Abstract]  
Warrants
8. Warrants

 

A summary of warrant activity as of March 31, 2016 and changes during the three months then ended are presented below:

 

    Number of Warrants     Weighted Average Exercise Price Per Share     Weighted Average Remaining Terms (in years)     Aggregate Intrinsic Value  
                                 
Outstanding - December 31, 2015     25,572,059     $ 0.27       3.89             -  
Issued     -       -                  
Exercised     -       -                  
Forfeited     -       -                  
Outstanding – March 31, 2016     25,572,059     $ 0.27       2.66     $ -  
                                 
Exercisable – March 31, 2016     25,572,059     $ 0.27       2.66     $ -
XML 25 R15.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Grants
3 Months Ended
Mar. 31, 2016
Stock Options and Grants [Abstract]  
Stock Options and Grants
9. Stock Options and Grants

 

A summary of stock option activity as of March 31, 2016 and changes during the nine months then ended are presented 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, 2015     15,425,001     $ 0.07     $ 0.30       7.00             -  
Granted     -       -       -                  
Exercised     -       -       -                  
Cancelled     -       -       -                  
Outstanding – March 31, 2016     15,425,001     $ 0.07     $ 0.30       6.75     $ -  
                                         
Exercisable - December 31, 2015     13,729,168     $ 0.11     $ 0.31       6.80     $ -  
Exercisable – March 31, 2016     13,729,168     $ 0.11     $ 0.31       6.55     $ -  

 

For the three months March 31, 2016 and 2015, the Company recognized stock-based compensation expense of $46,898 and $48,115, respectively, which is included in payroll and related expenses in the accompanying condensed consolidated statements of operations.

 

As of March 31, 2016, there was $72,249 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of 0.39 years. The intrinsic value is calculated as the difference between the fair value as of the balance sheet date and the exercise price of each of the outstanding stock options. The fair value at March 31, 2016 and December 31, 2015 was $0 per share, as determined by the Market Approach. The Market Approach is based on the economic principle of competition and entails both the application of appropriate market-based multiples such as level of earnings, cash flow, revenues, invested capital or other financial factors that represent the company's future financial performance. This method is based on the idea of determination of the price at which the company will be exchanged in the public market. On October 15, 2015, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Court for the Southern District of New York, accordingly the fair value of the stock was deemed to have a nominal value.

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
10. Commitments and Contingencies

 

Litigation - The Company is subject to periodic lawsuits, investigations and claims during the ordinary course of business. The Company is not a party to any material litigation as of March 31, 2016.

 

Operating lease - The Company leases office space in New York City to conduct its business. The Company’s previous lease began October 1, 2013 and expired March 31, 2015. Non-contingent rent increases were being amortized over the life of the lease on a straight line basis. Subsequent to March 31, 2015, the Company entered into a month-to-month lease for office space. The rental expense charged to operations for the three months ended March 31, 2016 and 2015 amounted to $3,600 and $18,347, respectively.

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions
3 Months Ended
Mar. 31, 2016
Related Party Transactions [Abstract]  
Related Party Transactions
11. Related Party Transactions

 

On March 26, 2009, the Company entered into a $50,000 revolving credit promissory note (the “Revolver”) with Vector Group Ltd. (“Vector”), the former controlling stockholder of the Company. On January 26, 2011, the Company and Vector entered into an amendment to the Revolver increasing the amount that the Company may borrow from $50,000 to $100,000. The loan bears interest at 11% per annum and was due on December 31, 2013. During January 2014, the term of the Revolver was extended from December 31, 2013 to June 30, 2015. Prior to the Bankruptcy Proceeding the Revolver was in default but the Company obtained waivers from the Convertible Debenture holders waiving their respective rights and remedies pursuant to certain default provisions contained therein. As of March 31, 2016 and December 31, 2015, the balance due to Vector amounted to $73,500. As of March 31, 2016 and December 31, 2015, accrued interest related to the Revolver amounted to $43,301, and is included in accrued interest, related party on the accompanying condensed consolidated balance sheets. Due to the Company filing a voluntary petition for relief under Chapter 11 of Title 11 of the Bankruptcy Court, interest stopped accruing on October 15, 2015. Additional contractual interest through March 31, 2016 would have resulted in $3,773 of additional interest. Subsequent to March 31, 2016, in connection with the Plan, the Revolver was treated as an unsecured claim and paid in accordance with the Plan as disclosed in Note 12. Interest expense for other related party notes payable amounted to $2,021 for the three months ended March 31, 2015. 

 

ConGlobal Industries, Inc. is a minority stockholder of the Company and provides containers and labor on domestic projects.  The Company recognized Cost of Goods Sold of $103,361 and $206,449, for services ConGlobal Industries, Inc. rendered during the three months ended March 31, 2016 and 2015 respectively. As of March 31, 2016 and December 31, 2015, $317,468, of such expenses are included in related party accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

The Lawrence Group is a minority stockholder of the Company and is a building design, development and project delivery firm. As of March 31, 2016 and December 31, 2015, $32,389 of expenses were included in related party accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

 

An affiliated accounting firm of the Company’s former Chief Financial Officer provided accounting and consulting services to the Company. The Company recognized General and Administrative expenses in the amount of $32,000 for the three months ended March 31, 2015.

XML 28 R18.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events
3 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Subsequent Events
12. Subsequent Events

 

On June 3, 2016, the United States Bankruptcy Court for the Southern District of New York confirmed the Company’s plan of reorganization (the "Plan"). The Plan became effective on June 30, 2016 (the “Effective Date”). On the Effective Date, and pursuant to the terms of the Plan, the Company entered into a Securities Purchase Agreement, dated June 30, 2016, (the “2016 SPA”), pursuant to which the Company sold for a subscription price of $2,000,000 a 12% Original Issue Discount Senior Secured Convertible Debenture to HCI in the principal amount of $2,500,000, with a maturity date of June 30, 2018 (the “Exit Facility”). The Exit Facility is convertible at HCI’s option at any time in whole or in part into shares of New Common Stock (as defined below) at a ratio of 1 share for every $1.25 of debt. Pursuant to that certain Subsidiary Guaranty Agreement, effective as of the Effective Date (the “Guarantee Agreement”), by SG Building in favor of HCI, SG Building unconditionally guaranteed (the “Guarantee”) the obligations and indebtedness owed to HCI under the Exit Facility and the Guarantee is secured by a first-priority lien and security interest on all of the Guarantor’s assets. The Exit Facility and SG Building’s obligations under the Guarantee are secured by a first-priority lien and security interest on all of the Company’s and SG Building’s assets pursuant to that certain Security Agreement, dated as of the Effective Date, by and between the Company, SG Building and HCI (the “Security Agreement”). The Exit Facility will be used (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB’s Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of the Company.

 

Prior to the Effective Date, the Company was authorized to issue 300,000,000 shares of common stock, par value $0.01 (the “Former Common Stock”) of which 42,918,927 shares were issued and outstanding as of June 29, 2016. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were deemed discharged, cancelled and extinguished, and, pursuant to the Plan, SGB issued, in the aggregate, 491,365 shares of common stock, par value $0.01 (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock, after taking into account full exercise of the Management Options (as defined below) and conversion of the New Preferred Stock (as defined below) but prior to any conversion of the Exit Facility, as of the Effective Date. Further, under the Plan, upon the Effective Date certain members of the Company’s management were entitled to receive options (“Management Options”) to acquire an aggregate of 10%, or approximately 655,153 shares, of SGB’s New Common Stock, on a fully diluted basis, assuming conversion of all of the New Preferred Stock but not the Exit Facility. The Company has not yet issued the Management Options, but expects to issue them sometime in the third quarter of the 2016 fiscal year.

 

Prior to the Effective Date, the Company was authorized to issue 5,000,000 shares of preferred stock, par value $0.01 (the “Former Preferred Stock”) none of which was issued and outstanding prior to the Effective Date. On the Effective Date, pursuant to the terms of the Plan and the Company’s Amended and Restated Certificate of Incorporation, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations of Convertible Preferred Stock, designating 5,405,010 shares of preferred stock, par value $1.00 (the “New Preferred Stock”). As described in the Current Report on Form 8-K filed by the Company with the SEC on July 7, 2016 (the “July 8-K”), on the Effective Date and pursuant to the Plan, each Prepetition Loan Document (as defined in the July 8-K) was cancelled and the holders of debt thereunder received one share of the New Preferred Stock for each dollar owed by the Company thereunder. The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility. On the Effective Date, HCI received 5,405,010 shares of the Company’s preferred stock which is convertible into shares of the Company’s common stock. Since each share of the Company’s preferred stock is able to vote on an as converted basis HCI effectively has a controlling interest in the Company of 51.17% on an as converted basis.

 

Also as described in the July 8-K, all general unsecured claims shall receive a distribution of one hundred percent of its allowed claim, plus post-petition interest calculated at the Federal judgment rate, payable as follows: fifty percent on the Effective Date, twenty five percent at the conclusion of the next full fiscal quarter after the Effective Date and the remaining twenty five percent, plus any post-petition interest owed, at the conclusion of the second full fiscal quarter after the Effective Date.

XML 29 R19.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Summary of Significant Accounting Policies [Abstract]  
Interim financial information

Interim financial information - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 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 three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission on July 21, 2016.

Basis of consolidation

Basis of consolidation -   The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, SG Building, SG Brazil and Endaxi. All intercompany balances and transactions have been eliminated.

Accounting estimates

Accounting estimates -   The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles 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 which require the Company to make estimates include revenue recognition, stock-based compensation, warrant liabilities, allowance for doubtful accounts and a valuation for deferred tax assets.  Actual results could differ from those estimates.

Operating cycle

Operating cycle - The length of the Company’s contracts varies, but is typically between six to twelve months. Assets and liabilities relating to long-term contracts are included in current assets and current liabilities 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

Revenue recognition - The Company accounts for its long-term contracts associated with the design, engineering, manufacture and project management of building projects and related services, using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract. The Company uses the cost to cost basis because management considers it to be the best available measure of progress on these contracts.

 

Contract costs include all direct material and labor costs and those indirect costs related to contract performance. General and administrative costs, marketing and business development expenses and pre-project expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

 

The asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billing in excess of revenue recognized.

 

The Company offers a one-year warranty on completed contracts.  For the three months ended March 31, 2016 and 2015, the warranty claims were not material. The Company does not anticipate that any additional claims are likely to occur for warranties that are currently outstanding. Accordingly, no warranty reserve is considered necessary for any of the periods presented.

 

The Company also supplies repurposed containers to its customers. In these cases, the Company serves as a supplier to its customers for standard and made to order products that it sells at fixed prices.  Revenue from these contracts is generally recognized when the products have been delivered to the customer, accepted by the customer and collection is reasonably assured.  Revenue is recognized upon completion of the following: an order for product is received from a customer; written approval for the payment schedule is received from the customer and the corresponding required deposit or payments are received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is delivered to the customer’s receiving point. The title and risk of loss passes to the customer at the customer’s receiving point.

 

Amounts billed to customers in a sales transaction for shipping and handling are classified as revenue.  Products sold are generally paid for based on schedules provided for in each individual customer contract including upfront deposits and progress payments as products are being manufactured.

 

Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue when they are earned.

Inventory

Inventory - Raw construction materials (primarily shipping containers) are valued at the lower of costs (first-in, first-out method) or market. Finished goods and work-in-process inventories are valued at the lower of costs or market, using the specific identification method. As of March 31, 2016 and December 31, 2015, inventory consisted principally of work-in-process inventory which amounted to $420,989 and $158,181, respectively.

Fair value measurements

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 liabilities measured at fair value on a recurring basis are summarized below:

 

     

March 31,
2016

     

Quoted

prices in

active market

for identical

assets

(Level l)

     

Significant

other

observable

inputs

(Level 2)

     

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $ -     $ -     $ -     $ - (1)
Conversion Option Liabilities   $ -     $ -     $ -     $ - (1)

 

(1) Diminimus value at March 31, 2016.

 

   

December 31,

2015

   

Quoted

prices in

active market

for identical

assets

(Level l)

   

Significant

other

observable

inputs

(Level 2)

   

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $       -     $      -     $      -     $      -  (2)
Conversion Option Liabilities   $ -     $ -     $ -     $ -  (2)

 

(2) Diminimus value at December 31, 2015.

 

Warrant and 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 its 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 following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

     

For the

three month

ended
March 31,
2016

     

For the

three month

ended

March 31,
2015

 
Beginning balance   $ -     $ 646,671  
Aggregate fair value of conversion option liabilities and warrants issued     -       -  
Change in fair value related to increase in warrants issued for anti-dilutive adjustment     -       -  
Change in fair value of conversion option liabilities and warrants     -       (385,891 )
Ending balance   $ -     $ 260,780  

 

The significant assumptions and valuation methods that the Company used to determine fair value and the change in fair value of the Company’s derivative financial instruments are discussed in Notes 6 and 8.

 

The Company presented warrant and 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. As disclosed in Notes 6 and 8, the Company computed the fair value of the warrant and conversion option liability at the date of issuance and the reporting dates of March 31, 2016 and December 31, 2015 using a Black-Scholes model..

 

The calculation of the Black-Scholes model involves 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 publicly quoted prices. The term represents 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 US Treasury yield curve rates; the dividend yield is zero because the Company has not paid dividends and does not expect to pay dividends in the foreseeable future.

Concentrations of credit risk

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 such 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, 2016 and December 31, 2015 71% and 74%, respectively, of the Company’s accounts receivable were due from three and two customers, respectively.

 

Revenue relating to two customers represented approximately 54% and 29% of the Company’s total revenue for the three months ended March 31, 2016. Revenue relating to two customers represented approximately 44% and 40% of the Company’s total revenue for the three months ended March 31, 2015.

 

Costs of revenue relating to one vendor, who is a related party and disclosed in Note 11, represented approximately 60% and 57% of the Company’s total cost of revenue for the three months ended March 31, 2016 and 2015. Costs of revenue relating to two unrelated vendors, represented approximately 37% of the Company’s total cost of revenue for the three months ended March 31, 2016. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

Recent accounting pronouncements

Recent accounting pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition --Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs -- Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and early application is permitted commencing January 1, 2017. The Company is currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on its financial position and results of operations.

 

In August 2014, the FASB issued ASU 2014 -15, Presentation of Financial Statements - Going Concern. The Update provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2013 -300 --Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity's Going Concern Presumption, which has been deleted. The Company is currently evaluating the effects of ASU 2014 -15 on the financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. Early adoption permitted for financial statements that have not been previously issued. The adoption of this statement will impact future presentation and disclosures of the financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. The update requires inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. The update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2015-11 on the financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The updates principle 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 its 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. The Company is currently evaluating the effects of ASU 2016-02 on the financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). The update makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2016-09 on the financial statements.

XML 30 R20.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Summary of Significant Accounting Policies [Abstract]  
Summary of financial liabilities measured at fair value on a recurring basis
     

March 31,
2016

     

Quoted

prices in

active market

for identical

assets

(Level l)

     

Significant

other

observable

inputs

(Level 2)

     

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $ -     $ -     $ -     $ - (1)
Conversion Option Liabilities   $ -     $ -     $ -     $ - (1)

 

(1) Diminimus value at March 31, 2016.

 

   

December 31,

2015

   

Quoted

prices in

active market

for identical

assets

(Level l)

   

Significant

other

observable

inputs

(Level 2)

   

Significant

unobservable

inputs

(Level 3)

 
Warrant Liabilities   $       -     $      -     $      -     $      -  (2)
Conversion Option Liabilities   $ -     $ -     $ -     $ -  (2)

 

(2) Diminimus value at December 31, 2015.

Summary of the changes in the fair value of the Company's Level 3 financial liabilities measured on a recurring basis
     

For the

three month

ended
March 31,
2016

     

For the

three month

ended

March 31,
2015

 
Beginning balance   $ -     $ 646,671  
Aggregate fair value of conversion option liabilities and warrants issued     -       -  
Change in fair value related to increase in warrants issued for anti-dilutive adjustment     -       -  
Change in fair value of conversion option liabilities and warrants     -       (385,891 )
Ending balance   $ -     $ 260,780

 

XML 31 R21.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accounts Receivable (Tables)
3 Months Ended
Mar. 31, 2016
Accounts Receivable [Abstract]  
Summary of accounts receivable
    2016     2015  
Billed:                
SG Block sales   $ 160,237     $ 82,200  
Engineering services     14,180       14,181  
Project management     8,796       14,400  
Total gross receivables     183,213       110,781  
Less: allowance for doubtful accounts     (24,746 )     (24,746 )
Total net receivables   $ 158,467     $ 86,035

 

XML 32 R22.htm IDEA: XBRL DOCUMENT v3.5.0.2
Costs and Estimated Earnings on Uncompleted Contracts (Tables)
3 Months Ended
Mar. 31, 2016
Costs and Estimated Earnings on Uncompleted Contracts [Abstract]  
Summary of costs and estimated earnings on uncompleted contracts
    2016     2015  
Costs incurred on uncompleted contracts   $ 21,187     $ 18,363  
Provision for loss on uncompleted contracts     -       -  
Estimated income     7,872       6,786  
      29,059       25,149  
Less:  billings to date     (58,975 )     (53,173 )
                 
    $ (29,916 )   $ (28,024 )

 

Summary of costs and estimated earnings amounts on uncompleted contracts included in balance sheets
    2016     2015  
Costs and estimated earnings in excess of billings on uncompleted contracts   $ -     $ -  
Billings in excess of cost and estimated earnings on uncompleted contracts     (29,916 )     (28,024 )
    $ (29,916 )     (28,024 )
XML 33 R23.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Tables)
3 Months Ended
Mar. 31, 2016
Convertible Debentures [Member]  
Debt Instrument [Line Items]  
Summary of convertible debentures
    2016     2015  
2015 Exchange Debentures   $ 2,489,760     $ 2,489,760  
2015 New Debentures, net of $229,405 and $387,965 discount     2,475,245       2,316,685  
 Bridge Debenture     210,600       210,600  
                 
Total debt     5,175,605       5,017,045  
                 
Less current portion     -       -  
                 
Long-term debt   $ 5,175,605     $ 5,017,045

 

XML 34 R24.htm IDEA: XBRL DOCUMENT v3.5.0.2
Warrants (Tables)
3 Months Ended
Mar. 31, 2016
Warrant [Member]  
Share-Based Compensation Arrangement By Share-Based Payment Award [Line Items]  
Summary of warrant activity and changes
    Number of Warrants     Weighted Average Exercise Price Per Share     Weighted Average Remaining Terms (in years)     Aggregate Intrinsic Value  
                                 
Outstanding - December 31, 2015     25,572,059     $ 0.27       3.89             -  
Issued     -       -                  
Exercised     -       -                  
Forfeited     -       -                  
Outstanding – March 31, 2016     25,572,059     $ 0.27       2.66     $ -  
                                 
Exercisable – March 31, 2016     25,572,059     $ 0.27       2.66     $ -

 

XML 35 R25.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Grants (Tables)
3 Months Ended
Mar. 31, 2016
Stock Options [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Summary of stock option activity and changes
    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, 2015     15,425,001     $ 0.07     $ 0.30       7.00             -  
Granted     -       -       -                  
Exercised     -       -       -                  
Cancelled     -       -       -                  
Outstanding – March 31, 2016     15,425,001     $ 0.07     $ 0.30       6.75     $ -  
                                         
Exercisable - December 31, 2015     13,729,168     $ 0.11     $ 0.31       6.80     $ -  
Exercisable – March 31, 2016     13,729,168     $ 0.11     $ 0.31       6.55     $ -

 

XML 36 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Liquidity and Financial Condition (Details) - USD ($)
1 Months Ended 3 Months Ended
Jun. 30, 2016
Mar. 31, 2016
Aug. 10, 2016
Dec. 31, 2015
Aug. 08, 2015
Mar. 31, 2015
Dec. 31, 2014
Apr. 10, 2014
Liquidity and Financial Condition (Textual)                
Accumulated deficiency   $ (13,987,193)   $ (13,480,509)        
Conversion price               $ 0.25
Interest rate               8.00%
Common stock, shares authorized   300,000,000   300,000,000        
Common stock, par value   $ 0.01   $ 0.01        
Common stock, shares issued   42,918,927   42,918,927        
Common stock, shares outstanding   42,918,927   42,918,927        
Preferred stock shares authorized   5,000,000   5,000,000        
Preferred stock value per share   $ 0.01   $ 0.01        
Preferred stock shares issued   0   0        
Preferred stock shares outstanding   0   0        
Period for capital requirements fund   Eighteen months            
Cash balance   $ 319,443   $ 466,997   $ 578,592 $ 884,188  
Former Preferred Stock [Member]                
Liquidity and Financial Condition (Textual)                
Preferred stock shares issued              
Preferred stock shares outstanding              
HCI [Member]                
Liquidity and Financial Condition (Textual)                
Preferred stock shares convertible into common stock shares   5,405,010            
Noncontrolling interest percentage   51.17%            
Subsequent Event [Member]                
Liquidity and Financial Condition (Textual)                
Common stock, shares authorized 300,000,000              
Common stock, par value $ 0.01              
Common stock, shares issued 42,918,927              
Common stock, shares outstanding 42,918,927              
Cash balance     $ 772,000          
Subsequent Event [Member] | Former Preferred Stock [Member]                
Liquidity and Financial Condition (Textual)                
Preferred stock shares authorized 5,000,000              
Preferred stock value per share $ 0.01              
Subsequent Event [Member] | New Preferred Stock [Member]                
Liquidity and Financial Condition (Textual)                
Convertible preferred stock shares 5,405,010              
Convertible preferred stock designated par value $ 1.00              
Description of conversion shares and exercise of management options to exit facility The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility.              
Subsequent Event [Member] | Management Options [Member]                
Liquidity and Financial Condition (Textual)                
Common stock ratio shares 655,153              
Options to acquire aggregate percentage. 10.00%              
Subsequent Event [Member] | SGB [Member]                
Liquidity and Financial Condition (Textual)                
Common stock, par value $ 0.01              
Common stock, shares issued 491,365              
Common stock, shares outstanding 491,365              
Percentage of common stock former holders 7.50%              
Subsequent Event [Member] | HCI [Member]                
Liquidity and Financial Condition (Textual)                
Common stock ratio shares 1              
share price $ 1.25              
Subsequent Event [Member] | Exit Facility [Member]                
Liquidity and Financial Condition (Textual)                
Description of operational improvement plan (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB's Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of the Company.              
Subsequent Event [Member] | Senior Secured Convertible Debenture [Member]                
Liquidity and Financial Condition (Textual)                
Maximum principal amount $ 2,500,000              
Subscription price sales $ 2,000,000              
Percentage of OID secured convertible debenture 12.00%              
Subsequent Event [Member] | Senior Secured Convertible Debenture [Member] | Exit Facility [Member]                
Liquidity and Financial Condition (Textual)                
Maturity date Jun. 30, 2018              
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Summary of financial liabilities measured at fair value on a recurring basis    
Warrant Liabilities
Conversion Option Liabilities
Fair value measured on a recurring basis [Member] | Quoted prices in active market for identical assets (Level l) [Member]    
Summary of financial liabilities measured at fair value on a recurring basis    
Warrant Liabilities
Conversion Option Liabilities
Fair value measured on a recurring basis [Member] | Significant other observable inputs (Level 2) [Member]    
Summary of financial liabilities measured at fair value on a recurring basis    
Warrant Liabilities
Conversion Option Liabilities
Fair value measured on a recurring basis [Member] | Significant unobservable inputs (Level 3) [Member]    
Summary of financial liabilities measured at fair value on a recurring basis    
Warrant Liabilities [1] [2]
Conversion Option Liabilities [1] [2]
[1] Diminimus value at March 31, 2016.
[2] Diminimus value at December 31, 2015.
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Details 1) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Summary of the changes in the fair value of the Company's Level 3 financial liabilities measured on a recurring basis    
Beginning balance $ 646,671
Aggregate fair value of conversion option liabilities and warrants issued
Change in fair value related to increase in warrants issued for anti-dilutive adjustment
Change in fair value of conversion option liabilities and warrants (385,891)
Ending balance $ 260,780
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.5.0.2
Summary of Significant Accounting Policies (Details Textual)
3 Months Ended 12 Months Ended
Mar. 31, 2016
USD ($)
Customer
Vendor
unrelatedVendor
Mar. 31, 2015
Customer
Vendor
Dec. 31, 2015
USD ($)
Customer
Summary of significant accounting policies (Textual)      
Term of company's operating cycle The length of the Company's contracts varies, but is typically between six to twelve months.    
Dividend yield 0.00%    
Warranty offered on completed contracts by company 1 year    
Inventory work-in-process | $ $ 420,989   $ 158,181
Accounts Receivable [Member]      
Summary of significant accounting policies (Textual)      
Concentration risk, percentage 71.00%   74.00%
Number of customers 3   2
Revenue [Member] | Customer One [Member]      
Summary of significant accounting policies (Textual)      
Concentration risk, percentage 54.00% 44.00%  
Number of customers 2 2  
Revenue [Member] | Customer Two [Member]      
Summary of significant accounting policies (Textual)      
Concentration risk, percentage 29.00% 40.00%  
Number of customers 2 2  
Costs of Revenue [Member] | Vendor Related Party[Member]      
Summary of significant accounting policies (Textual)      
Concentration risk, percentage 60.00% 57.00%  
Number of vendors | Vendor 1 1  
Costs of Revenue [Member] | Vendors Unrelated Party [Member]      
Summary of significant accounting policies (Textual)      
Concentration risk, percentage 37.00%    
Number of vendors | unrelatedVendor 2    
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.5.0.2
Accounts Receivable (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Summary of accounts receivable    
Total gross receivables $ 183,213 $ 110,781
Less: allowance for doubtful accounts (24,746) (24,746)
Total net receivables 158,467 86,035
Billed SG Block sales [Member]    
Summary of accounts receivable    
Total gross receivables 160,237 82,200
Billed Engineering services [Member]    
Summary of accounts receivable    
Total gross receivables 14,180 14,181
Billed Project management [Member]    
Summary of accounts receivable    
Total gross receivables $ 8,796 $ 14,400
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.5.0.2
Costs and Estimated Earnings on Uncompleted Contracts (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Costs and estimated earnings on uncompleted contracts    
Costs incurred on uncompleted contracts $ 21,187 $ 18,363
Provision for loss on uncompleted contracts
Estimated income 7,872 6,786
Cost on uncompleted contracts, net 29,059 25,149
Less: billings to date (58,975) (53,173)
Cost in excess of billing on uncompleted contracts, net $ (29,916) $ (28,024)
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.5.0.2
Costs and Estimated Earnings on Uncompleted Contracts (Details 1) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Costs and estimated earnings amounts on uncompleted contracts included in balance sheets    
Costs and estimated earnings in excess of billings on uncompleted contracts
Billings in excess of cost and estimated earnings on uncompleted contracts (29,916) (28,024)
Cost in excess of billing on uncompleted contracts, net $ (29,916) $ (28,024)
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Details) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]    
Total debt $ 5,175,605 $ 5,017,045
Less current portion
Long-term debt 5,175,605 5,017,045
2015 Exchange Debentures [Member]    
Debt Instrument [Line Items]    
Total debt 2,489,760 2,489,760
2015 New Debentures [Member]    
Debt Instrument [Line Items]    
Total debt 2,475,245 2,316,685
Bridge Debenture [Member]    
Debt Instrument [Line Items]    
Total debt $ 210,600 $ 210,600
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.5.0.2
Convertible Debentures (Details Textual) - USD ($)
3 Months Ended 12 Months Ended
Aug. 05, 2015
Apr. 10, 2014
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Sep. 11, 2015
Convertible Debentures (Textual)            
Interest rate on convertible debenture   8.00%        
Amount of discount on debentures   $ 532,944        
Total amortization relating to the discount     $ 158,560 $ 101,208    
Conversion price   $ 0.25        
Legal fees     $ 20,763   $ 20,763  
Interest expense on the convertible debentures       79,914    
Covertible debentures maturity value   $ 1,915,200        
Converion price, description     The Exchange Agreement and the 2015 SPA triggered anti-dilution adjustments to the warrants issued on the Existing Debentures based on a $0.25 per share conversion price (adjusted from the original stated conversion price of $0.43 per share), which reduces the exercise price to $0.25 per share and increases the number of shares issuable upon the exercise of the Existing Warrants from 4,818,605 to 8,288,000 shares.      
Debt default description     Upon any Event of Default (as defined in the 2014 Debentures), the outstanding principal amount of the 2014 Debentures, plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the debenture holders' election, immediately due and payable in cash. Commencing five days after the occurrence of any Event of Default, the interest rate on the 2014 Debentures shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law.      
Default penalty on convertible debentures          
Fair value of warrants          
Additional contractual interest     146,509      
Maximum [Member]            
Convertible Debentures (Textual)            
Convertible debentures           $ 5,405,010
Minimum [Member]            
Convertible Debentures (Textual)            
Convertible debentures           $ 1,247,310
October 1, 2015 [Member]            
Convertible Debentures (Textual)            
Debt redemption amount     998,925      
January 1, 2016 [Member]            
Convertible Debentures (Textual)            
Debt redemption amount     998,925      
April 1, 2016 [Member]            
Convertible Debentures (Textual)            
Debt redemption amount     1,997,850      
Senior Convertible Debentures [Member]            
Convertible Debentures (Textual)            
Convertible debentures   $ 2,080,500        
Interest rate on convertible debenture   8.00%        
Maturity date   Apr. 01, 2016        
Proceeds from issuance of convertible debentures   $ 1,825,000        
Warrant to purchase company's common stock   8,322,000        
Amount of discount on debentures   $ 255,500        
Conversion price   $ 0.25        
Term of warrants   5 years        
Warrants exercise price   $ 0.275        
Percentage of conversion price   110.00%        
Fair value of conversion option liabilities   $ 413,606        
Converion price, description   The Company entered into a Securities Purchase Agreement (the "2014 SPA") with four investors, including Hillair pursuant to which the Company issued and sold (i) $2,080,500 in 8% Original Discount Senior Secured Convertible Debentures, for $1,825,000, with a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the "2014 New Debentures" together with the 2014 Exchange Debentures, the "2014 Debentures"), and (ii) a five (5) year Common Stock purchase warrant to purchase up to 8,322,000 shares of the Company's common stock at an exercise price of $0.275 (110% of the conversion price), subject to adjustment with a fair value of $532,944 at issuance, which has been recorded as a discount to the 2014 New Debentures.        
Existing Debentures [Member]            
Convertible Debentures (Textual)            
Conversion price   $ 0.25        
Fair value of conversion option liabilities   $ 2,366        
Covertible debentures maturity value   $ 1,680,000        
Converion price, description   Under the terms of the Exchange Agreement, Existing Debentures with a stated maturity value of $1,680,000 were surrendered in exchange for (i) new Senior Convertible Debentures with a stated interest rate of eight percent (8%) per year, a stated maturity value of $1,915,200, a conversion price of $0.25 per share, subject to adjustment, with a final maturity date of April 1, 2016 (the "2014 Exchange Debentures"), and (ii) a five (5) year Common Stock purchase warrant to purchase up to 7,660,800 shares of the Company's common stock at an exercise price of $0.275 (110% of the conversion price), subject to adjustment (the "2014 Exchange Warrants").        
Fair value of warrants   $ 490,601        
Bridge Debenture [Member]            
Convertible Debentures (Textual)            
Maturity date Nov. 03, 2015          
Conversion price $ 0.10          
2015 New Debentures [Member]            
Convertible Debentures (Textual)            
Amount of discount on debentures     229,405   387,965  
Legal fees     $ 20,000   $ 20,000  
Securities Purchase Agreement [Member]            
Convertible Debentures (Textual)            
Debt instrument, covenant description     The underlying securities purchase and debenture agreements also provide for the Company to pay liquidated damages in the event of its failure to (i) deliver shares upon the conversion of the debentures, in which case the liquidated damages would amount to a cash payment of $10 per trading day (increasing to $15 per trading day on the fifth trading day) for each $1,000 of principal amount being converted until such certificates are delivered (ii) maintain timely required filings with the SEC, in which case the liquidated damages would amount to a cash payment of two percent (2.0%) of the aggregate subscription amount of such purchasers securities on the day of the failure to maintain timely filings with the SEC and on every thirtieth (30th) day thereafter until the required documents are filed with the SEC or is no longer required for the purchaser to transfer the underlying shares pursuant to Rule 144 and (iii) to compensate the debenture holder for a Buy-In (as defined in the debentures) of securities previously sold by the debenture holder on a failure to timely deliver certificates upon conversion by the debenture holder.      
Securities Purchase Agreement [Member] | Hillair Capital Investments Lp [Member]            
Convertible Debentures (Textual)            
Convertible debentures $ 162,000          
Financing amount $ 150,000          
Exchange Agreement [Member]            
Convertible Debentures (Textual)            
Interest rate on convertible debenture   8.00%        
Warrant to purchase company's common stock   7,660,800        
Conversion price   $ 0.25        
Term of warrants   5 years        
Warrants exercise price   $ 0.275        
Loss of transaction   $ 1,104,179        
Percentage of conversion price   110.00%        
Fair value of conversion option liabilities   $ 380,744        
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.5.0.2
Net Income (Loss) Per Share (Details Textual) - shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Net income (loss) per share (Textual)    
Common shares attributable to conversion of debt securities 17,602,800 15,982,800
Stock Options [Member]    
Net income (loss) per share (Textual)    
Shares which were excluded from computation of earnings per share 15,425,001 15,425,001
Warrant [Member]    
Net income (loss) per share (Textual)    
Shares which were excluded from computation of earnings per share 25,572,059 25,572,059
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.5.0.2
Warrants (Details) - Warrant [Member]
3 Months Ended
Mar. 31, 2016
USD ($)
$ / shares
shares
Number of Warrants  
Beginning balance | shares 25,572,059
Issued | shares
Exercised | shares
Forfeited | shares
Ending balance | shares 25,572,059
Exercisable | shares 25,572,059
Weighted Average Exercise Price Per Share  
Beginning balance | $ / shares $ 0.27
Granted | $ / shares
Exercised | $ / shares
Forfeited | $ / shares
Ending balance | $ / shares 0.27
Exercisable | $ / shares $ 0.27
Weighted Average Remaining Terms (in years)  
Beginning balance 3 years 10 months 21 days
Ending balance 2 years 7 months 28 days
Exercisable 2 years 7 months 28 days
Aggregate Intrinsic Value  
Beginning Balance | $
Ending Balance | $
Exercisable | $
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Grants (Details) - Stock Options [Member] - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Shares    
Beginning balance 15,425,001  
Granted  
Exercised  
Cancelled  
Ending balance 15,425,001 15,425,001
Exercisable 13,729,168 13,729,168
Weighted Average Fair Value Per Share    
Beginning balance $ 0.07  
Granted  
Exercised  
Cancelled  
Ending balance 0.07 $ 0.07
Exercisable 0.11 0.11
Weighted Average Exercise Price Per Share    
Beginning balance 0.30  
Granted  
Exercised  
Forfeited  
Ending balance 0.30 0.30
Exercisable $ 0.31 $ 0.31
Weighted Average Remaining Terms (in years)    
Beginning balance 7 years  
Ending balance 6 years 9 months  
Exercisable 6 years 6 months 18 days 6 years 9 months 18 days
Aggregate Intrinsic Value    
Beginning Balance  
Ending Balance
Exercisable
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.5.0.2
Stock Options and Grants (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Stock Options and Grants (Textual)      
Stock-based compensation expense, recognized $ 46,898 $ 48,115  
Unrecognized compensation costs related to non-vested stock options $ 72,249    
Weighted average period for unrecognized compensation costs to be expensed 4 months 21 days    
Fair value of stock options $ 0   $ 0
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.5.0.2
Commitments and Contingencies (Details) - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Commitments (Textual)    
Lease inception date Began October 1, 2013.  
Lease expiration date Mar. 31, 2015  
Rental expense $ 3,600 $ 18,347
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.5.0.2
Related Party Transactions (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Apr. 10, 2014
Jan. 26, 2011
Mar. 26, 2009
Related Party Transactions (Textual)            
Interest rate       8.00%    
Interest expense to related party   $ 2,021        
Accrued interest, related party $ 43,301   $ 43,301      
General and administrative expenses 124,820 218,020        
Additional contractual interest 146,509          
Conglobal Industries Inc [Member]            
Related Party Transactions (Textual)            
Related party, cost of goods sold 103,361 206,449        
Related party accounts payable and accrued expenses 317,468   317,468      
Lawrence Group [Member]            
Related Party Transactions (Textual)            
Pre-project expenses included in related party accounts payable and accrued expenses 32,389   32,389      
Vector Group Ltd. [Member]            
Related Party Transactions (Textual)            
Notes payable $ 73,500   $ 73,500     $ 50,000
Interest rate 11.00%          
Maturity date Dec. 31, 2013          
Additional contractual interest $ 3,773          
Vector Group Ltd. [Member] | Maximum [Member]            
Related Party Transactions (Textual)            
Notes payable         $ 100,000  
Vector Group Ltd. [Member] | Minimum [Member]            
Related Party Transactions (Textual)            
Notes payable         $ 50,000  
Chief Financial Officer [Member]            
Related Party Transactions (Textual)            
General and administrative expenses   $ 32,000        
XML 51 R41.htm IDEA: XBRL DOCUMENT v3.5.0.2
Subsequent Events (Details) - USD ($)
1 Months Ended 3 Months Ended
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2015
Aug. 08, 2015
Apr. 10, 2014
Subsequent Event [Line Items]          
Interest rate         8.00%
Common stock, shares authorized   300,000,000 300,000,000    
Common stock, par value   $ 0.01 $ 0.01    
Common stock, shares issued   42,918,927 42,918,927    
Common stock, shares outstanding   42,918,927 42,918,927    
Preferred stock shares authorized   5,000,000 5,000,000    
Preferred stock value per share   $ 0.01 $ 0.01    
Preferred stock shares issued   0 0    
Preferred stock shares outstanding   0 0    
Former Preferred Stock [Member]          
Subsequent Event [Line Items]          
Preferred stock shares issued        
Preferred stock shares outstanding        
HCI [Member]          
Subsequent Event [Line Items]          
Preferred stock shares convertible into common stock shares   5,405,010      
Noncontrolling interest percentage   51.17%      
Subsequent Event [Member]          
Subsequent Event [Line Items]          
Common stock, shares authorized 300,000,000        
Common stock, par value $ 0.01        
Common stock, shares issued 42,918,927        
Common stock, shares outstanding 42,918,927        
Subsequent Event [Member] | Former Preferred Stock [Member]          
Subsequent Event [Line Items]          
Preferred stock shares authorized 5,000,000        
Preferred stock value per share $ 0.01        
Subsequent Event [Member] | New Preferred Stock [Member]          
Subsequent Event [Line Items]          
Convertible preferred stock shares 5,405,010        
Convertible preferred stock designated par value $ 1.00        
Description of conversion shares and exercise of management options to exit facility The New Preferred Stock is convertible into New Common Stock on a 1:1 basis and, if converted on the Effective Date, would convert into 82.5% of the New Common Stock issued and outstanding on the Effective Date, after taking into account shares of New Common Stock issued to holders of the Former Common Stock and the exercise of the Management Options but prior to any conversion of the Exit Facility.        
Subsequent Event [Member] | Management Options [Member]          
Subsequent Event [Line Items]          
Options to acquire aggregate percentage. 10.00%        
Common stock ratio shares 655,153        
Subsequent Event [Member] | SGB [Member]          
Subsequent Event [Line Items]          
Common stock, par value $ 0.01        
Common stock, shares issued 491,365        
Common stock, shares outstanding 491,365        
Percentage of common stock former holders 7.50%        
Subsequent Event [Member] | HCI [Member]          
Subsequent Event [Line Items]          
Common stock ratio shares 1        
share price $ 1.25        
Subsequent Event [Member] | Facility Closing [Member]          
Subsequent Event [Line Items]          
Description of operational improvement plan (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Plan, (ii) to pay all costs of the administration of SGB's Bankruptcy, (iii) to pay all amounts owed under the DIP Facility and (iv) for general working capital purposes of the Company.        
Subsequent Event [Member] | Senior Secured Convertible Debenture [Member]          
Subsequent Event [Line Items]          
Maximum principal amount $ 2,500,000        
Subscription price sales $ 2,000,000        
Percentage of OID secured convertible debenture 12.00%        
Subsequent Event [Member] | Senior Secured Convertible Debenture [Member] | Facility Closing [Member]          
Subsequent Event [Line Items]          
Maturity date Jun. 30, 2018        
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