S-1/A 1 fs12016a2_sgblocksinc.htm AMENDED REGISTRATION STATEMENT

As filed with the Securities and Exchange Commission on April 13, 2017

Registration No. 333-215922

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

_________________

Commission file number: 000-22563

 

SG BLOCKS, INC.
(Exact name of registrant as specified in its charter)

Delaware

 

5030

 

95-4463937

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification No.)

195 Montague Street, 14th Floor, Brooklyn, NY 11201
(Address of registrant’s principal executive offices, including zip code)

(646) 240-4235
(Registrant’s telephone number, including area code)

_________________

Paul M. Galvin
SG Blocks, Inc.
195 Montague Street, 14
th Floor
Brooklyn, NY 11201
(646) 240-4235
(Name, address, including zip code and telephone number, including area code, of agent for service)

_________________

Copies to:

David D. Watson
Thompson Hine LLP
3900 Key Center, 127 Public Square
Cleveland, Ohio 44114-1291
(216) 566-5598

 

Barry I. Grossman, Esq.
Sarah Williams, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas, 11
th Floor
New York, New York 10105
(212) 370-1300

_________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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. (Check one):

Large accelerated filer ¨

 

Accelerated filer ¨

Non-accelerated filer ¨

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered

 

Proposed
maximum
offering price(1)

 

Amount of
registration
fee(2)(3)

Common Stock, par value $0.01 per share

 

$

13,800,000

 

$

1,599.42

Representative’s Warrant(4)

 

 

 

 

Common Stock, par value $0.01 per share, underlying
Representative’s Warrant(5)

 

$

862,500

 

$

99.96

Total

 

$

14,662,500

 

$

1,699.38

____________

(1)      Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of additional shares that the underwriter has the option to purchase.

(2)      Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

(3)      Includes offering price of shares of common stock that may be sold if the over-allotment option granted to the underwriter is exercised.

(4)      No fee pursuant to Rule 457(g) of the Securities Act of 1933, as amended.

(5)      Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g). The proposed maximum aggregate offering price of the shares underlying the representative’s warrant is $862,500, which is equal to 125% of $690,000 (5% of $13,800,000).

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the Registration Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION

 

DATED APRIL 13, 2017

        Shares
Common Stock

SG Blocks, Inc.

This is a public offering of shares of common stock of SG Blocks, Inc.

We are offering       shares of common stock $0.01 par value per share. It is currently estimated that the public offering price per share will be between $        and $       . We intend to list our common stock on The Nasdaq Capital Market under the symbol “SGBX.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” on page 8 to read about factors you should consider before buying shares of our common stock.

Neither the U.S. Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

Price to
Public

 

Underwriting
Discounts and
Commissions
(1)

 

Proceeds to
SG Blocks

Per Share

 

$

 

 

$

 

 

$

 

Total

 

$

 

 

$

 

 

$

 

____________

(1)      See “Underwriting” for additional information regarding total underwriter compensation.

We have granted the underwriter a 45-day option to purchase up to        additional shares of common stock at the public offering price less the underwriting discount solely to cover over-allotments, if any. If the underwriter exercises this option in full, the total underwriting discounts and commissions will be $       , and the additional proceeds to us, before expenses, from the over-allotment option exercise will be $        .

Delivery of the shares of common stock will be made on or about        , 2017.

Joseph Gunnar & Co.

Prospectus dated       , 2017

 

Table of Contents

 

 

Page

PROSPECTUS SUMMARY

 

1

RISK FACTORS

 

8

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

19

USE OF PROCEEDS

 

20

DIVIDEND POLICY

 

21

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

22

CAPITALIZATION

 

28

DILUTION

 

29

OUR EMERGENCE FROM BANKRUPTCY

 

30

DESCRIPTION OF BUSINESS

 

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

37

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

45

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

46

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

53

EXECUTIVE COMPENSATION

 

55

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

60

DESCRIPTION OF CAPITAL STOCK

 

62

SHARES ELIGIBLE FOR FUTURE SALE

 

65

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

 

67

UNDERWRITING

 

70

LEGAL MATTERS

 

74

EXPERTS

 

74

INTEREST OF NAMED EXPERTS AND COUNSEL

 

74

WHERE YOU CAN FIND MORE INFORMATION

 

75

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-1

Through and including       , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for and can provide no assurance as to the reliability of any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

For investors outside the United States: Neither we nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering and the distribution of this prospectus outside of the United States.

i

This prospectus includes statistical and other industry and market data that we obtained from our own internal estimates, industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys, and studies are reliable, we have not independently verified such data. Accordingly, you are cautioned not to give undue weight to such information.

Our registered trademarks include SGBlocks®. All other registered trademarks or service marks appearing in this prospectus are trademarks or service marks of others.

ii

 

 

 

 

 

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.

As used in this prospectus, unless the context otherwise requires, references to “SGB,” “the Company,” “we,” “us,” and “our” refer to SG Blocks, Inc. and its subsidiaries, as the context requires.

Description of Business

SGB is in the business of modifying cargo shipping containers for use in construction. SGB takes existing steel shipping containers and repurposes them into modules that can be stacked, arranged, or configured to fit any construction application. The use of these repurposed shipping containers, which we refer to as “SG BlocksTM,” allows owners design flexibility and greater construction efficiency than traditional methods of construction. SG BlocksTM also have a particular application in meeting safe and sustainable housing needs, especially in hurricane- and earthquake-prone areas.

Once retained for a construction project, SGB selects shipping containers it determines to be appropriate for the customer’s application, and then redesigns and re-engineers the shipping containers to be configured for that particular use. These configurations often require structural changes, such as wall reconfigurations, the addition of door and window openings, and ceiling operations. Configurations can also include interior pre-finish modularization.

We only use containers which bear an approval plate from the International Convention for Safe Containers (the “CSC”) when creating an SG BlockTM. The CSC approval plate confirms that the containers were originally fabricated in compliance with  the CSC, and have been demonstrably maintained to that standard. Using solely CSC certified containers provides us with an assurance that the specific containers that we use will be strong enough for use in construction applications. In addition to ensuring that all of our containers have a CSC approval plate, before selection as an SG BlockTM, every container is inspected for structural damage, out-of-plane dents, warping, water tightness, and overall condition.

Our use of SG BlocksTM is consistent with sustainable or “green” building practices intended to conserve natural resources and reduce impact on the environment. As a repurposed shipping container, an SG BlockTM reuses existing materials in a way that is more efficient than construction made of new steel or wood. It also saves the energy that would otherwise be used to recycle the container into new steel products. SGB considers being a “green” construction option one of the many competitive advantages it offers over traditional construction methods and practices.

SGB’s products have been featured in reports by several leading media outlets, including Fortune, NY Times, NY Post, USA Today, CNN, Washington Post, ABC World News, NBC Nightly News, and Bob Vila. SGB has completed projects for: the United States (“U.S.”) Army, U.S. Navy, U.S. Department of Veteran Affairs, U.S. Southern Command, The City of Santa Monica, The City of Jacksonville, Port of Houston Authority, Aman Resorts, BareBurger, Equinox, HGTV, Lacoste, Marriott Hotels & Resorts, Mini Cooper, Oracle Team USA, Puma, Schneider Electric, Starbucks Coffee, Taco Bell, and Youngwoo & Assoc. LLC.

Target Markets

SGB sells its product throughout the United States. The market for new construction in North America in 2015 was $136 billion. The Modular Building Institute estimated that, in 2015, new permanent modular

1

buildings accounted for $3.7 billion, or 2.7%, of this market.1 SGB believes that SG BlocksTM have a particular application in a number of segments, including:

      Multi-Family Housing

We believe the use of SG BlocksTM can be an attractive option in the market for construction of multi-family housing units.

      Restaurants/Quick Service Restaurants

With our previous experience, we believe that we have the opportunity of leveraging our advantages in cost and speed of construction to build revenue in the restaurant sector.

      Military

We have been able to capture a portion of military construction spending with both permanent build and mobile units. We will continue to expand our relationship with the military, as we believe SG BlocksTM present a practical logistics solution to a large number of military construction needs both in the U.S. and abroad.

      Education

We believe our product can capture a portion of education construction due to our ability to rapidly construct new educational buildings, including student housing, and expand existing educational buildings with minimal site disruption.

      Other markets for expansion

Below are additional sectors we believe have great growth potential for the SG BlocksTM product:

o     Electrical and Systems Enclosures

o     Office/Commercial

o     Hospitality and Entertainment

o     Warehouse/Public Storage

o     Shopping/Retail Centers

o     Athletic Facilities and Support Structures

o     Reclamation/Drop Off Centers

o     Medical

Our Competitive Strengths

The construction industry is highly competitive. However, SGB believes in the benefits of its technology and views the SG BlocksTM product as complementary to traditional construction methods and not necessarily as competition. There are applications in the construction industry which uniquely lend themselves to the use of SGB’s products, and SGB intends to compete vigorously in those areas.

SGB distinguishes itself on the basis of cost and construction time. The use of SG BlocksTM as a construction method can be less expensive than traditional construction methods, particularly in urban locations and multi-story projects, and construction time can also be reduced. The flexibility of SG BlocksTM construction allows architects, developers, and owners to be more creative and efficient.

In addition, SG BlocksTM are designed to be more durable than traditional construction methods in hurricane, tornado, and blast conditions, and to withstand harsh climates. SGB’s primary focus is on structural integrity and engineering, while still allowing clients to achieve their architectural design.

____________

1        http://www.modular.org/documents/Modular_Advantage/ModularAdvantage_Pub_3-Q_DIGITAL.pdf#28

2

ESR Approval

Effective April 2017, the ICC Evaluation Service, LLC (“ICC-ES”), a subsidiary of the International Code Council (“ICC”), granted SGB an Evaluation Service Report (“ESR”) for the SG Blocks structural building materials. The ICC-ES publishes ESRs to inform the consumer, commercial and residential markets that the specific product listed in the report complies with certain code requirements and indicates, among other things, the requirements or acceptance criteria used to evaluate the product, how the product should be installed to meet the requirements, and how to identify the product. We believe SGB’s ESR will significantly expedite reviews and approvals by building departments and help the SG Blocks™ concept become mainstream and more widely accepted in the construction industry. We also believe the ESR will make it more difficult for other companies in the industry to compete with us because the quality control and design acceptance criteria are specific to SGB and our associated facilities and partners.

Risks Associated with Our Business and this Offering

Since our inception, we have incurred substantial losses. Our business and our ability to execute our business strategy are subject to a number of risks of which you should be aware before making an investment decision. Among these important risks are the following:

         The Company emerged from bankruptcy on June 30, 2016. In connection with the emergence, the Company issued debentures in the principal amount of $2.5 million. In November 2016, the Company issued additional debentures in the principal amount of $937,500. If the Company is unable to generate sufficient funds or obtain replacement financing in order to repay the debentures, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. 50% of the Company issued debentures will convert into 458,334 shares of common stock to be issued to Hillair Capital Investments L.P. (“HCI”) simultaneously with the effective date of the Company’s offering. In addition, the Company expects to use a portion of the proceeds from the offering to pay off the balance of the remaining debt to HCI.

         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. If we are unable to secure additional financing, further reductions in operating expenses might need to be substantial in order for us to ensure enough liquidity to sustain our operations.

         We have incurred net losses in prior periods, and as we execute our growth strategy in the future, there can be no assurance that we will generate income. The Company’s net loss from operations for the six months ended December 31, 2016 since emergence from bankruptcy was $(1,306,576) and for the six months ended June 30, 2016 before emergence from bankruptcy was $(664,737). We are unable to predict the extent of any future losses or if or when we will become profitable.

         We have a significant concentration of stock ownership. As of April 7, 2017, our directors and officers collectively owned approximately 68.6% of our common stock. These stockholders have significant influence over the outcome of corporate actions requiring stockholder approval and the interests of our majority stockholders may not be the same as or may even conflict with investors’ interests.

For a more detailed discussion of these risks, please see the section entitled “Risk Factors” of this prospectus.

3

Corporate Information

Our principal executive office is located at 195 Montague Street, 14th Floor, Brooklyn, NY 11201, and our telephone number is (646) 240-4235. We maintain a website at www.sgblocks.com. We do not incorporate the information contained on, or accessible through, our website into this prospectus, and you should not consider it part of this prospectus.

We operate under our United States registered trademark “SGBlocks®.” This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear with or without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship by us of or of us by, any such companies.

4

The Offering

Common stock offered by us

 

       shares (or       shares if the underwriter exercises its option to purchase additional shares in full).

 

 

 

Common stock to be outstanding immediately after this offering

 


       shares (or       shares if the underwriter exercises its option to purchase additional shares in full).

 

 

 

Over-allotment option

 

We have granted the underwriters a 45-day option to purchase up to an additional       offered securities at the public offering price to cover over-allotments, if any.

 

 

 

Use of proceeds

 

We estimate that the net proceeds to us from this offering, after deducting the underwriting discount and estimated expenses, will be approximately $       million, assuming a public offering price of $       per share, the midpoint of the estimated price range set forth on the cover of this prospectus.
 

We intend to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures, such as manufacturing integration and product expansion into new markets, and to repay the remaining portion of the Company’s outstanding debt to HCI. See “Use of Proceeds.”

 

 

 

Dividend policy

 

We currently expect to retain future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of any dividends in the future will be at the discretion of our Board of Directors and will depend on a number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions. See “Dividend Policy.”

 

 

 

Proposed symbol for trading on the Nasdaq Capital Market

 


“SGBX”

 

 

 

Risk Factors

 

See “Risk Factors” elsewhere in this prospectus for a discussion of risks you should carefully consider before deciding whether to invest in our common stock.

The number of shares of common stock that will be outstanding after this offering is based on shares of our common stock outstanding as of April   , 2017 (including 458,334 shares that we will issue upon effectiveness of this Registration Statement to HCI upon conversion of certain outstanding indebtedness) and excludes (i) 893,599 shares of common stock issuable upon the exercise of options outstanding as of April   , 2017 under the SG Blocks, Inc. Stock Incentive Plan and (ii) 458,333 shares of common stock issuable upon conversion of outstanding indebtedness as of April   , 2017, which indebtedness will be repaid with proceeds from the offering.

Unless otherwise indicated, the information in this prospectus assumes:

      a 1-for-3 reverse stock split of our common stock and preferred stock, effected on February 28, 2017;

      the conversion of all preferred shares into 1,801,670 shares of common stock, which will occur prior to this offering;

      the conversion of 50% of outstanding convertible debentures into 458,334 shares of common stock to be issued to HCI;

      a public offering price of $        per share of common stock, the midpoint of the estimated price range set forth on the cover of this prospectus; and

      no exercise by the underwriter of its option to purchase up to         additional shares of common stock to cover over-allotments, if any.

5

Summary Consolidated Financial and Other Data

The following table presents summary consolidated financial and other data for the periods and at the dates indicated. The consolidated statement of operations for the two fiscal years ended December 31, 2016 and December 31, 2015 and the consolidated balance sheet data as of December 31, 2016 and December 31, 2015 have been derived from audited consolidated financial statements included elsewhere in this prospectus.

The historical results presented below are not necessarily indicative of the results to be expected for any future period. The following summaries of our consolidated financial and operating data for the periods presented should be read in conjunction with “Risk Factors,” “Selected Consolidated Financial and Operating Data,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes, which are included elsewhere in this prospectus.

 

 

Predecessor – Year Ended
December 31,
2015

 

Predecessor –
Six Months
Ended
June 30,
2016

 

Successor –
Six Months
Ended
December 31,
2016

Statements of Operations Data(2)

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,405,784

 

 

$

1,056,223

 

 

$

868,166

 

Costs and expenses

 

 

3,851,106

 

 

 

1,833,437

 

 

 

1,915,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,445,322

)

 

 

(777,214

)

 

 

(1,047,608

)

Loss on extinguishment

 

 

 

 

 

 

 

 

 

Change in fair value of financial instruments

 

 

646,671

 

 

 

 

 

 

119,510

 

Interest expense

 

 

(1,944,487

)

 

 

(429,017

)

 

 

(267,517

)

Interest income

 

 

22

 

 

 

8

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reorganization items

 

 

 

 

 

541,486

 

 

 

(110,768

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,743,116

)

 

$

(664,737

)

 

$

(1,306,576

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.06

)

 

$

(0.01

)

 

$

(7.97

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted(1)(3)

 

 

42,918,927

 

 

 

42,918,927

 

 

 

163,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

3,728

 

 

$

1,629

 

 

$

293,184

 

6

 

 

Predecessor –
Year Ended
December 31,
2015

 

Successor –
December 31,
2016

Balance Sheet Data

 

 

 

 

 

 

 

Cash and cash equivalents and short-term investments

 

$

497,000

 

 

$

579,117

Total current assets

 

 

741,216

 

 

 

981,149

Equipment, net

 

 

7,229

 

 

 

5,559

Total assets

 

 

752,345

 

 

 

8,736,131

Total debt(4)

 

 

5,611,841

 

 

 

2,446,337

Total stockholders’ equity (deficiency)

 

 

(5,879,637

)

 

 

5,433,295

____________

(1)      SGB emerged from Chapter 11 bankruptcy on June 30, 2016 (the “Effective Date”). 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 (as defined below), SGB issued, in the aggregate, 163,786 shares of common stock, par value $0.01, on a post-reverse stock split basis (the “New Common Stock”), to the holders of Former Common Stock, representing 7.5% of SGB’s issued and outstanding New Common Stock (on a fully diluted basis taking into account the preferred shares and the options issued to management pursuant to SGB’s bankruptcy plan of reorganization (the “Plan”)). We have adjusted our historical financial statements to retroactively reflect the common stock authorized and outstanding following the Effective Date.

(2)      Upon our emergence from bankruptcy, we adopted fresh start accounting in accordance with the requirements of FASB ASC 852, “Reorganizations”. This resulted in our becoming a new entity for financial reporting purposes. At that time, our assets and liabilities were recorded at their fair values as of the Effective Date. The effects of the Plan and our application of fresh start accounting are reflected in our consolidated financial statements as of December 31, 2016. The related adjustments were recorded as reorganization items on June 30, 2016, resulting in a lack of comparability with the consolidated financial statements prior to that date.

(3)      Shares outstanding are reflected to give effect to the reverse stock split (excluding 115 additional shares issued to current stockholders as a result of rounding of fractional shares in connection with the reverse stock split).

(4)      The December 31, 2015 debt balance includes a $1,247,310 default penalty on convertible debentures and debtor in possession financing of $600,000 and is net of $393,169 discount, which is the fair value of the conversion option in the debenture. The December 31, 2016 debt balance is net of $991,163 discount, which is the fair value of the conversion option in the debenture.

7

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before making an investment decision. If any of the following risks or uncertainties occur, our business, prospects, financial condition, or operating results could be materially adversely affected, the trading price of our common stock could decline, and you may lose all or part of your investment. In assessing the risks described below, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes and schedules, before deciding to purchase any shares of our common stock.

We recently emerged from bankruptcy. We refer to the date we emerged from bankruptcy as the “Effective Date.” We refer to the pre-Effective Date common stock of SGB as the “Former Common Stock” and the post-Effective Date common stock of SGB, after giving effect to a recent 1-for-3 reverse stock split, as the “New Common Stock.” The shares outstanding presented throughout this prospectus exclude 115 additional shares issued to current stockholders as a result of rounding of fractional shares in connection with the reverse stock split.

Risks Related to our Emergence from Bankruptcy

Despite having emerged from bankruptcy on June 30, 2016, SGB continues to be subject to the risks and uncertainties associated with residual Chapter 11 bankruptcy proceedings.

SGB emerged from Chapter 11 bankruptcy on June 30, 2016. The ultimate impact this will have on SGB’s business, financial condition, and results of operations cannot be accurately predicted or quantified. During bankruptcy, SGB operated without interruption and paid all creditors in full. However, we cannot assure you that our recent bankruptcy will not adversely affect SGB’s operations going forward.

Risks Relating to SGB

If we are not successful in our efforts to increase sales or raise capital, we will experience a shortfall in cash over the next twelve months, and our ability to raise capital may be limited.

On December 31, 2016, we had cash and cash equivalents of $549,100. On June 30, 2016, prior to our emergence from bankruptcy, we had cash and cash equivalents of $955,803. For the six months ended December 31, 2016, we reported a net loss of $(1,306,576) and for the six months ended June 30, 2016, we reported a net loss of $(664,737). If we are not successful with our efforts to increase sales, we will experience a shortfall in cash over the next twelve months. If there is a shortfall, we may be forced to reduce operating expenses, among other steps, all of which would have a material adverse effect on our operations going forward.

We may also seek to obtain debt or additional equity financing to meet any cash shortfalls. The type, timing, and terms of any financing we may select will depend on, among other things, our cash needs, the availability of other financing sources, and prevailing conditions in the financial markets. However, there can be no assurance that we would be able to secure additional funds if needed and that, if such funds are available, whether the terms or conditions would be acceptable to us. Moreover, the terms of the secured convertible debentures issued to certain investors, which we expect to repay with proceeds from this offering, require that we obtain the consent of such investors prior to our entering into subsequent financing arrangements. If we are unable to secure additional financing, further reduction in operating expenses might need to be substantial in order for us to ensure enough liquidity to sustain our operations. Any equity financing would be dilutive to our stockholders. If we incur additional debt, we will likely be subject to restrictive covenants that significantly limit our operating flexibility and require us to encumber our assets. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, or otherwise respond to competitive pressures will be significantly limited. Any of the above limitations could force us to significantly curtail or cease our operations, and you could lose all of your investment in our common stock. These circumstances raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

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While we expect to use the proceeds from this offering to repay our secured convertible debentures, if we are unable to make such repayment, we may be restricted in our ability to obtain additional financing.

We issued secured convertible debentures on June 30, 2016 and November 17, 2016 that are convertible into shares of our common stock to HCI. See “Our Emergence From Bankruptcy — Exit Financing” and “Certain Relationships and Related Transactions, and Director Independence — Transactions with Hillair Capital Investments L.P.” While we expect that 50% of the outstanding principal amount of the indebtedness will be converted into common stock upon consummation of the offering and that the remaining 50% will be repaid with the proceeds of this offering, we cannot guarantee that this will occur. Under the terms of the secured debentures, we are restricted in our ability to issue additional shares of common stock as long as any portion of the principal or interest on the secured debentures remains outstanding. Specifically, we may not, without the prior consent of the holders of the secured debentures, sell or grant any option to purchase or sell any common stock (or equivalents thereof) entitling a person to acquire shares of common stock at an effective price per share that is lower than the conversion price for such debentures. We are also precluded under the terms of the secured debentures from, among other things, incurring additional indebtedness (other than permitted indebtedness) or granting any third party a security interest in our assets. Our inability, without the secured debenture holders’ consent, to provide a discount on our stock or to grant a security interest could make it difficult to find parties willing to make additional investments in us or to loan us money and therefore could adversely affect our ability to raise additional funds. See “Use of Proceeds” and elsewhere in this prospectus for a description of the Company’s plans with respect to the repayment of part of the HCI debentures and the conversion of the balance into common stock.

The issuance of shares of our common stock upon conversion of the secured convertible debentures or the conversion of our preferred stock will cause immediate and substantial dilution to our existing stockholders.

As discussed elsewhere in this prospectus, prior to this offering, 458,334 shares of common stock will be issued to HCI upon conversion of the outstanding secured convertible debentures and 1,801,670 shares of common stock will be issued upon the conversion of our preferred shares. The issuance of these shares will result in substantial dilution to the interests and voting power of other stockholders.

While we expect to use the proceeds from this offering to repay our secured convertible debentures, if we are unable to make such repayment, and if we are required for any reason to repay our outstanding secured convertible debentures in the future, we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the secured convertible debentures, if required, could result in legal action against us, which could require the sale of substantially all of our assets, currently pledged under a uniform commercial code filing in the state of Delaware.

We expect to use the proceeds from this offering to repay the outstanding secured convertible debentures. If we are unable to repay the outstanding secured convertible debentures from the proceeds of this offering, any event of default in our obligations to the holders of the secured convertible debentures, such as our failure to repay the principal when due, our failure to issue shares of common stock upon conversion by the holder, breach of any covenant, representation, or warranty in the securities purchase agreements for such secured convertible debentures or in the secured convertible debentures, or the commencement of a bankruptcy, insolvency, reorganization, or liquidation proceeding against us, could require the early repayment of the secured convertible debentures. If we are required to repay the secured convertible debentures, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the secured debentures when required, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due, which could cause a severe limit on our operations.

We have incurred net losses in prior periods, and there can be no assurance that we will generate income in the future.

Our ability to achieve profitability will depend upon our ability to generate and sustain substantially increased revenues. We may incur operating losses in the future as we execute our growth strategy. We intend to make significant expenditures related to marketing, expansion of our website, hiring of additional personnel, and development of our technology and infrastructure. The likelihood that we will generate net income in the future must be considered in light of the difficulties facing the construction industry as a whole, economic conditions, and the competitive environment in which we operate. In addition, although we plan to continue increasing our sales and production capacity as part of our growth strategy, projects may not advance beyond the plan design and approval phase due to reasons beyond our control.

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Our operating results for future periods are subject to numerous uncertainties, and we may not achieve sufficient revenues to sustain or increase profitability.

The Company’s ability to continue as a going concern is contingent upon securing additional capital.

The Company’s independent registered public accounting firm, Whitley Penn LLP, issued a going concern opinion of the Company’s audited financial statements for the year ended December 31, 2016. The Company expects that through the next 10 to 16 months, the capital requirements to fund the Company’s growth and to cover the operating costs of a public company will consume substantially all of the cash flows that it expects to generate from its operations. 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 may not generate sufficient funds to cover these anticipated operating costs. Accordingly, the Company believes that it will require 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 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.

The exercise of outstanding options will dilute the percentage ownership of the then-existing stockholders.

As of April 7, 2017, there are outstanding options to purchase 893,599 shares of common stock. The exercise of such options would dilute the then-existing stockholders’ percentage ownership of our stock, and any sales in the public market of common stock underlying such securities could adversely affect prevailing market prices for the common stock. Moreover, the terms upon which we would be able to obtain additional equity capital could be adversely affected because the holders of such securities can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than those provided by such securities. See “Executive Compensation — Narrative Disclosure to Summary Compensation Table — Stock Options.”

We are dependent on the services of key personnel, and the unexpected loss of their services may adversely affect our operations.

Our success depends highly upon the personal efforts and abilities of our senior management team, specifically the efforts of Paul Galvin, our Chief Executive Officer; Mahesh Shetty, our Chief Financial Officer; Stevan Armstrong, our President and Chief Operating Officer; and David Cross, our Vice President of Business Development. The Company has entered into employment agreements with Messrs. Galvin, Armstrong, Cross and Shetty. The employment agreements with Messrs. Galvin, Shetty and Armstrong each provide for two year terms. The loss of the services of one or more of these individuals could have a material adverse effect on our business. Our ability to achieve profitability and generate increased revenue will depend upon our ability to retain and, if necessary, attract experienced management personnel.

The loss of one or a few customers could have a material adverse effect on us.

A few customers have in the past, and may in the future, account for a significant portion of our revenues in any one year or over a period of several consecutive years. For example, in 2016, approximately 69% of our revenue was generated from three customers. Although we have contractual relationships with many of our significant customers, our customers may unilaterally reduce or discontinue their contracts with us

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at any time. The loss of business from a significant customer could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We rely on certain vendors to supply us with materials and products that, if we were unable to obtain, could adversely affect our business.

We have relationships with key materials vendors, including ConGlobal Industries, Inc. (“ConGlobal”), PVE Sheffler, Teton Buildings, and NRB (USA), Inc., and we rely on suppliers for our purchases of products from them. Any inability to obtain materials or services in the volumes required and at competitive prices from our major trading partners, the loss of any major trading partner, or the discontinuation of vendor financing (if any) may seriously harm our business because we may not be able to meet the demands of our customers on a timely basis in sufficient quantities or at all. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors’ ability to provide products in a timely manner or at competitive prices. We also rely on other vendors for critical services such as transportation, supply chain, and professional services. Any negative impacts to our business or liquidity could adversely impact our ability to establish or maintain these relationships.

Risks Relating to our Business

We depend on the availability and skill of subcontractors, their willingness to work with us, and their selection of suitable and quality building materials.

We rely on subcontractors to perform the actual construction of our building projects and, in many cases, to select and obtain raw materials. Despite our detailed specifications and quality control procedures, in some cases, improper construction processes or defective materials may be used to finish construction of our building projects. We may need to spend money to remediate such problems when they are discovered. Defective products widely used by the construction industry can result in the need to perform extensive repairs to large numbers of buildings. Though subcontracts are written to protect us from substandard performance or materials, pervasive problems could adversely affect our business. The cost to us in complying with our warranty obligations in these cases may be significant if we are unable to recover the cost of repair from subcontractors, materials suppliers, and insurers. Further, the timing and quality of our construction depends on the availability and skill of subcontractors. Although we believe that our relationships with our suppliers and subcontractors are good, there can be no assurance that skilled subcontractors will continue to be available at reasonable rates and in the areas in which we conduct our operations. The inability to contract with skilled subcontractors or general contractors at reasonable costs and on a timely basis could limit our ability to construct and deliver buildings and could erode our profit margins and adversely affect our results of operations and cash flows.

We may have difficulty protecting our proprietary manufacturing processes, which could affect our ability to compete.

The Company uses a proprietary manufacturing process which allows us to be code-compliant in our SG BlocksTM product. Such manufacturing process is unique within the construction industry and is important to ensure SGB’s continued success, and we cannot assure you that our efforts to protect our proprietary rights will be sufficient or effective. If other companies replicate our methodology, SGB could lose its competitive advantage. In addition, we currently have one patent application pending for the system and method for conversion of intermodal shipping containers to universal building modules. Specifically, the present invention (Universal Box) relates to prefabricated modular construction of a structure utilizing converted shipping containers. Any pending or future patent or trademark applications may not lead to issued patents and registered trademarks in all instances. The Company also cannot be assured that the scope of any patents issued in the future will be sufficiently broad to offer meaningful protection. Others may develop or patent similar or superior technologies, products, or services, and our intellectual property rights may be challenged, invalidated, misappropriated, or infringed by others. If we are unable to protect and maintain our intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against us, our business and revenue could be materially and adversely affected.

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Expansion of our operations may strain resources, and our failure to manage growth effectively could harm our ability to attract and retain key personnel and adversely impact our operating results.

Increased orders for our product, SG BlocksTM, have placed, and may continue to place, a strain on our operational, financial, and managerial resources and personnel. In addition, execution of our growth strategy will require further substantial capital and effective planning. Significant rapid growth on top of our current operations could greatly strain our internal resources, leading to a lower quality of customer service, reporting problems, and delays, resulting in a loss of market share and other problems that could adversely affect our financial performance. Our efforts to grow could place an additional strain on our personnel, management systems, liquidity, and other resources. If we do not manage our growth effectively, our operations could be adversely affected, resulting in slower, no, or negative growth, critical shortages of cash, and a failure to achieve or sustain profitability.

Our liability for estimated warranties may be inadequate, which could materially adversely affect our business, financial condition, and results of operations.

We are subject to construction defect and warranty claims arising in the ordinary course of business. These claims are common in the construction industry and can be costly. At this time, our third-party providers offer guarantees and warranties in accordance with industry standards that flow through to our clients. A large number of warranty claims could have a material adverse effect on our results of operations.

We can be adversely affected by failures of persons who act on our behalf to comply with applicable regulations and guidelines.

Although we expect all of our associates (i.e., employees), officers, and directors to comply at all times with all applicable laws, rules, and regulations, there are instances in which subcontractors or others through whom we do business may engage in practices that do not comply with applicable regulations or guidelines. It is possible that our associates may become aware of these practices, but do not take steps to prevent them. If we learn of practices relating to buildings constructed on our behalf that do not comply with applicable regulations or guidelines, we will move actively to stop the non-complying practices as soon as possible, and we will take disciplinary action with regard to our associates who were aware of the practices, including, in some instances, terminating their employment. However, regardless of the steps we take, we may be subject to fines or other governmental penalties, and our reputation may be injured.

The cyclical and seasonal nature of the construction industry causes our revenues and operating results to fluctuate, and we expect this cyclicality and seasonality to continue in the future.

The construction industry is highly cyclical and seasonal and is influenced by many international, national, and regional economic factors, including the availability of consumer and wholesale financing, seasonality of demand, consumer confidence, interest rates, income levels, and general economic conditions, including inflation and recessions. As a result of the foregoing factors, our revenues and operating results fluctuate, and we currently expect them to continue to fluctuate in the future. Moreover, we have and may continue to experience operating losses during cyclical downturns in the construction market. These and other economic factors could have a material adverse effect on demand for our products and our financial condition and operating results.

Cyber security risks related to the technology used in our operations and other business processes, as well as security breaches of company, customer, employee, and vendor information, could adversely affect our business.

We rely on various information technology systems to capture, process, store, and report data and interact with customers, vendors, and employees. Despite careful security and controls design, our information technology systems, and those of our third-party providers, could become subject to cyber-attacks. Network, system, and data breaches could result in misappropriation of sensitive data or operational disruptions, including interruption to systems availability and denial of access to and misuse of applications required by our customers to conduct business with us. In addition, sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture,

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including “bugs” and other problems that could unexpectedly interfere with the operation of the systems. Misuse of internal applications, theft of intellectual property, trade secrets, or other corporate assets, and inappropriate disclosure of confidential information could stem from such incidents. Delayed sales, slowed production, or other repercussions resulting from these disruptions could result in lost sales, business delays, and negative publicity and could have a material adverse effect on our operations, financial condition, or cash flows.

Risks Relating to the Construction Sector

Our customers may be dependent upon third-party financing, and our financial condition and results of operations could be negatively affected if additional third-party financing for our customers does not become available.

Our business and earnings depend substantially on our clients’ ability to obtain financing for the development of their construction projects. The availability and cost of such financing is further dependent on the number of financial institutions participating in the industry, the departure of financial institutions from the industry, the financial institutions’ lending practices, the strength of the domestic and international credit markets generally, governmental policies, and other conditions, all of which are beyond our control. In light of the current economic climate, some of our projects may not be successful in obtaining additional funds in a timely manner, on favorable terms, or at all. The availability of borrowed funds, especially for construction financing, has been greatly reduced, and lenders may require project developers to invest increased amounts of equity in a project in connection with both new loans and the extension of existing loans. Unfavorable changes in the availability and terms of financing in the industry will have a material adverse effect on certain privately financed projects.

Our results of operations also depend on the ability of any potential privately financed customers to obtain loans for the purchase of new buildings. Over the past few years, lenders have tightened the credit underwriting standards, which have reduced lending volumes. If this trend continues, it would negatively impact our sales, which depend in large part on the availability and cost of financing. In addition, where our potential customers must sell their existing buildings or real estate in order to develop new buildings, increases in mortgage costs and/or lack of availability of mortgages could prevent buyers of potential customers’ existing buildings from obtaining the mortgages they need to complete their purchases, which would result in our potential customers’ inability to make purchases from us. If our potential customers cannot obtain suitable financing, our sales and results of operations would be adversely affected.

The construction industry is highly competitive, and such competition may increase the adverse effects of industry conditions.

We operate in a very competitive environment characterized by competition from numerous local, regional, and national builders. We may compete for financing, raw materials, and skilled management and labor resources. A decline in construction starts could adversely affect demand for our buildings and our results of operations. Increased competition could require us to further increase our selling incentives and/or reduce our prices, which could negatively affect our profits.

There can be no assurance that SG BlocksTM or modular construction techniques will achieve market acceptance and grow; thus, the future of our business and the modular construction industry as a whole is uncertain.

There can be no assurance that we will achieve market acceptance for our SG BlocksTM or that the modular construction market will grow. Our business may be disrupted by the introduction of new products and services and is subject to changing consumer preferences and industry trends, which may adversely affect our ability to plan for the future development and marketing of our products. Although SG BlocksTM have particular applications in a wide variety of market segments, there is no assurance that we will be able to expand our relationship within such market segments or, even if we do, that general market acceptance for SG BlocksTM will continue to increase.

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Government regulations and legal challenges may delay the start or completion of our projects, increase our expenses, or limit our building activities, which could have a negative impact on our operations.

Various domestic and international rules and regulations concerning building, zoning, sales, and similar matters apply to and/or affect the construction industry. Governmental regulation affects construction activities as well as sales activities, mortgage lending activities, and other dealings with consumers. These industries also have experienced an increase in U.S. state and local legislation and regulations that limit the availability or use of land. Municipalities may also restrict or place moratoriums on the availability of utilities, such as water and sewer taps. In some areas, municipalities may enact growth control initiatives, which restrict the number of building permits available in a given year. In addition, we may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law. If governments in locations in which we operate take actions like the ones described, they could adversely affect our business by causing delays, increasing our costs, or limiting our ability to operate in those areas. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed projects, whether brought by governmental authorities or private parties. Failure to comply with laws or regulations applicable to or affecting us, or the passage in the future of new and more stringent laws affecting us, may adversely affect our financial condition or results of operations.

The dangers inherent in our operations and the limits on insurance coverage could expose us to potentially significant liability costs and materially interfere with the performance of our operations.

While we believe our insurance coverage is adequate and in line with our industry’s standards, all construction, including modular construction, involves operating hazards that can cause personal injury or loss of life, severe damage to and destruction of property and equipment, and suspension of operations. The failure of such structures during and after installation can result in similar injuries and damages. Although we believe that our insurance coverage is adequate, there can be no assurance that we will be able to maintain adequate insurance in the future at rates we consider reasonable, or that our insurance coverage will be adequate to cover future claims that may arise. Claims for which we are not fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. The availability of insurance that covers risks we and our competitors typically insure against may decrease, and the insurance that we are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms.

Risks Relating to our Common Stock

There has historically been a limited trading market for our common stock, and we cannot assure you that an active trading market will develop for such stock.

Our Former Common Stock was quoted on the Over-The-Counter (“OTC”) Bulletin Board since 1999, but it no longer trades, as such stock no longer exists. Our New Common Stock has not been listed on any exchange and does not trade. We cannot assure you that an active trading market for our common stock will develop or be sustained after this offering. The public offering price for our common stock will be determined by negotiations between the representatives of the underwriters and us. The public offering price may not correspond to the price at which our common stock will trade in the public market subsequent to this offering, and the price of our common stock available in the public market may not reflect our actual financial performance.

Our stock price may be volatile.

After this offering, the market price for our common stock is likely to be volatile, in part because our shares are not currently traded publicly. In addition, the market price of our common stock may fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

      economic and market conditions or trends in our industry or the economy as a whole and, in particular, in the construction industry;

      additions or departures of key personnel;

      sales of our common stock;

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      operating results that fall below expectations;

      industry developments;

      new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

      material litigation or government disputes;

      the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

      changes in financial estimates or recommendations by any securities analysts who follow our common stock;

      future sales of our common stock by our officers, directors, and significant stockholders; and

      period-to-period fluctuations in our financial results.

In addition, the securities markets have, from time to time, experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market after this offering. The sales, or the perception that these sales might occur, could depress the market price. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of this offering, we will have         shares of common stock outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares of common stock that may be held or acquired by our directors, executive officers and other affiliates, the sale of which will be restricted under the Securities Act. In addition, shares subject to outstanding options under the SG Blocks, Inc. Stock Incentive Plan (the “Incentive Plan”) will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.

In connection with, and prior to consummation of, this offering, we and our executive officers, directors, and holders of approximately          shares of our common stock, on an as-converted basis, will have each agreed to lock-up restrictions, meaning that we and they and their permitted transferees will not be permitted to sell any shares of our common stock for 180 days (and, in the case of our directors and officers, 365 days) after the date of this prospectus, subject to the exceptions discussed in “Shares Eligible for Future Sale,” without the prior consent of Joseph Gunnar & Co., LLC. Joseph Gunnar & Co., LLC may, in its sole discretion, release all or any portion of the shares of our common stock from the restrictions in any of the lock-up agreements described above. See “Underwriting.”

Also, in the future, we may issue shares of our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.

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Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Our directors, executive officers, and each of our stockholders who, as of April 7, 2017, owned greater than 5% of our outstanding common stock, beneficially own approximately 89.8% of our common stock. Accordingly, these stockholders will continue to have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, merger, consolidation, or sale of all or substantially all of our assets, or any other significant corporate transaction. The interests of these stockholders may not be the same as or may even conflict with investors’ interests. For example, these stockholders could delay or prevent a change in control of us, even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company or our assets and might affect the prevailing price of our common stock. The significant concentration of stock ownership may negatively impact the price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

The issuance of additional securities by our Board of Directors (the “Board” or “Board of Directors”) will dilute the ownership interests of our current stockholders and could discourage the acquisition of SGB.

Our Board, without any action by our stockholders, is authorized to designate and issue additional classes or series of capital stock (including classes or series of preferred stock) as it deems appropriate and to establish the rights, preferences, and privileges of such classes or series. The issuance of any new class or series of capital stock would not only dilute the ownership interest of our current stockholders, but may also adversely affect the voting power and other rights of holders of common stock. The rights of holders of preferred stock and other classes of common stock that may be issued may be superior to the rights of the holders of the existing class of common stock in terms of the payment of ordinary and liquidating dividends and voting rights.

In addition, the ability of the Board to designate and issue such undesignated shares could impede or deter an unsolicited tender offer or takeover proposal regarding SGB, and the issuance of additional shares having preferential rights could adversely affect the voting power and other rights of holders of common stock and render more difficult the removal of current management, even if such removal may be in the stockholders’ best interests.

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

Rules adopted by the U.S. Securities and Exchange Commission (the “SEC”) pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”) require an annual assessment of internal control over financial reporting and, for certain issuers (but not us), an attestation of this assessment by the issuer’s independent registered public accounting firm. During the course of our assessment, we may identify deficiencies that we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. We also expect the regulations to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our Board of Directors, particularly to serve on the Audit Committee of our Board (the “Audit Committee”), and make some activities more difficult, time consuming, and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of remediation actions and testing or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy.

In connection with its audit report of the Company’s financial statements for the year ended December 31, 2015, Marcum LLP, our former independent registered public accounting firm, communicated to the Company that we did not maintain effective internal controls over financial reporting. Since the date of Marcum’s report, the Company has remedied the deficiencies originally cited by Marcum LLP and will continue to take steps to improve our internal controls to ensure such internal controls are satisfactory.

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If we are unable to conclude that we have effective internal control over financial reporting, our independent auditors are unable to provide us with an unqualified report as required by Section 404, or we are required to restate our financial statements, we may fail to meet our public reporting obligations and investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, restrictions imposed by applicable law, and other factors our Board of Directors deems relevant. In addition, the 2016 OID Debentures (defined herein), which we expect to repay with the proceeds from this offering, require that HCI be entitled to participate in any dividend or other distribution during the time such debentures remain outstanding, as long as HCI would be deemed to be a holder of common shares on an as-converted basis on the record date for such dividend or distribution. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

If securities or industry analysts do not publish research or reports about our business or our industry, or publish negative reports about our business or our industry, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us, our business, our industry, or our competitors. If one or more of the analysts who cover us change their recommendation regarding our stock adversely, change their opinion of the prospects for our company in a negative manner, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $         per share because the public offering price of $         is substantially higher than the pro forma net tangible book value per share of our outstanding common stock. This dilution is due in large part to the fact that our earlier investors paid substantially less than the public offering price when they purchased their shares. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our directors, management personnel and consultants under our Incentive Plan. See “Dilution.”

Certain provisions of Delaware law could discourage, delay, or prevent a merger or acquisition at a premium price.

Certain provisions of Delaware law could discourage potential acquisition proposals, delay or prevent a change in control of our company, or limit the price that investors may be willing to pay in the future for shares of our common stock. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Such provisions may discourage, delay, or prevent a merger or acquisition of the Company, including a transaction in which the acquirer may offer a premium price for our common stock.

17

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not enhance the value of our common stock. The failure by our management to apply these funds effectively could delay the development of our product candidates, have a material adverse effect on our business, or cause the price of our common stock to decline. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. See “Use of Proceeds.”

We intend to apply for listing of our common stock on the Nasdaq Capital Market. If approved for listing, we will be required to meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our common stock, which could make it more difficult for us to sell securities in a future financing or for you to sell your common stock.

If we are approved for the listing of our common stock on the Nasdaq Capital Market, we will be required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common stock of $1.00 per share. If we do not meet these continued listing requirements, our common stock could be delisted. Delisting from the Nasdaq Capital Market would cause us to pursue eligibility for trading of these securities on other markets or exchanges, or on an OTC market. In such case, our stockholders’ ability to trade or obtain quotations of the market value of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices of these securities. There can be no assurance that the offered securities, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service, or the OTC markets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of the offered securities, decrease securities analysts’ coverage of us, or diminish investor, supplier, and employee confidence.

If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on the Nasdaq Capital Market and if the price of our shares of common stock is less than $5.00, our common stock will be deemed a penny stock (meaning that our shares may be considered highly speculative and may trade infrequently, which can make them difficult to accurately price or sell). The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that, before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

18

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made in this prospectus are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of our limited operations, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date on which such statements are made. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth in this prospectus under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We do not undertake to update any forward-looking statement that may be made from time to time on our behalf.

19

USE OF PROCEEDS

Assuming a public offering price of $_____ per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), we estimate that we will receive net proceeds from this offering of approximately $_____ million after deducting the underwriting discount and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed public offering price of $______ per share would increase (decrease) the net proceeds to us from this offering by approximately $______ million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering to finance the repayment of the remaining portion of outstanding debt to HCI and for general corporate purposes, including working capital and capital expenditures, such as manufacturing integration and product expansion into new markets. As described elsewhere in this prospectus, in June 2016 and November 2016, the Company sold to HCI two OID debentures in the principal amounts of $2,500,000 and $937,500, respectively. Each of the 2016 OID Debentures have a maturity date of June 30, 2018 and have an interest rate of 12%. The Company used the proceeds from the June 2016 OID (i) to make a one hundred percent (100%) distribution for payment of unsecured claims in accordance with the Company’s plan of reorganization, (ii) to pay all costs of the administration of SGB’s bankruptcy, (iii) to pay all amounts owed under the 2015 debtor-in-possession loan and (iv) for general working capital purposes. The Company used the proceeds from the November 2016 OID for general working capital purposes.

20

DIVIDEND POLICY

We have never declared or paid regular cash dividends on our common stock. We currently expect to retain all future earnings for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. The declaration and payment of any dividends in the future will be determined by our Board of Directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions.

21

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Former Common Stock was quoted on the OTC Bulletin Board since 1999, but no longer trades, as such stock no longer exists. Our New Common Stock has not been listed on any exchange and does not trade.

Stockholders

As of April 7, 2017, there were 163,901 shares of common stock outstanding, held by 105 holders of record.

Equity Compensation Plan Information

As of December 31, 2016, the following equity compensation options were outstanding:

 

 

(a)

 

(b)

 

(c)

Plan category

 

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants,
and rights

 

Weighted-average
price of
outstanding
options, warrants,
and rights

 

Number of securities
remaining available
for issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))

Equity compensation plans approved
by security holders

 

 

 

 

Equity compensation plans not approved
by security holders

 

295,051

 

$

3.00

 

204,949

On November 1, 2016, the Board entered into a Non-Qualified Stock Option Agreement with Messrs. Galvin, Armstrong, and Shetty, pursuant to which they were each granted an option to purchase 98,273, 43,677, and 21,839 shares of common stock, respectively. The non-qualified stock options have an exercise price per share of $3.00. For the vesting schedules with respect to these option grants, see “Executive Compensation — Outstanding Equity Awards at Fiscal Year End.”

On November 1, 2016, the Board also entered into an Incentive Stock Option Agreement with each of the directors of SGB who also serves as an executive officer, pursuant to which both Messrs. Galvin and Shetty were granted options to purchase 13,334 shares of common stock. The incentive stock options have an exercise price per share of $3.00. The incentive stock options vest and become exercisable in equal quarterly installments of 3,334 shares on the last day of each fiscal quarter following the date of grant until such options are 100% vested.

On November 1, 2016, the Board entered into Non-Qualified Stock Option Agreements with David Cross and Kevin King to purchase 43,677 and 10,920 shares of common stock, respectively. The non-qualified stock options have an exercise price per share of $3.00. With respect to Mr. Cross’s non-qualified stock option, 21,839 common shares vested on the Effective Date of the Plan and the remaining 21,838 options will vest and become exercisable in two equal annual installments of 10,919 options on the first and second anniversaries of the grant date. With respect to Mr. King’s non-qualified stock option, all shares granted under the option vested on the Effective Date of SGB’s Plan.

On November 1, 2016, SGB also granted each of Sean McAvoy, Neal Kaufman, and Christopher Melton options to purchase 16,667 shares of common stock in connection with their service on the Board of Directors. The non-qualified stock options have an exercise price per share of $3.00. Messrs. Kaufman and McAvoy subsequently assigned all of their 33,334 of such options to HCI in December 2016. These options vest and become exercisable in equal quarterly installments on the last day of each fiscal quarter following the grant date.

SGB Stock Incentive Plan

Effective as of October 26, 2016, our Board of Directors adopted the SG Blocks, Inc. Stock Option Plan (subject to stockholder approval to authorize the issuance of “incentive stock options” thereunder). Effective January 30, 2017, the SG Blocks, Inc. Stock Option Plan was amended and restated as the SG Blocks, Inc.

22

Stock Incentive Plan. Our stockholders approved the Incentive Plan on January 31, 2017 and it became effective on February 28, 2017. The following summary describes the material terms of the Incentive Plan. This summary is not a complete description of all provisions of the Incentive Plan and is qualified in its entirety by reference to the text of the Incentive Plan, which is attached as Exhibit 10.10 to this Registration Statement.

Types of Awards

The Incentive Plan authorizes the issuance of awards in the form of stock options (which may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code or non-qualified stock options), stock appreciation rights (“SARs”), restricted shares, restricted share units, other share-based awards, and cash-based awards.

Administration

The Incentive Plan will be administered by our Compensation Committee of the Board of Directors (the “Compensation Committee”) or by such other committee or subcommittee as may be appointed by our Board of Directors, and, to the extent required by applicable law or stock exchange listing standards, will consist entirely of two or more individuals who are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code, “non-employee directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), and “independent directors” within the meaning of the applicable rules of any securities exchange on which the shares are listed. The Compensation Committee can make rules and regulations and establish such procedures for the administration of the Incentive Plan as it deems appropriate and may delegate any of its authority to one or more directors or executive officers of the Company, to the extent permitted by applicable laws. However, our Board of Directors reserves the authority to administer and issue awards under the Incentive Plan.

Eligibility

The Incentive Plan provides for awards to our non-employee directors and to officers, employees, and consultants of the Company and our subsidiaries, except that incentive stock options may only be granted to our employees and employees of our subsidiaries.

Shares Available

The maximum number of shares of our common stock that may be issued or transferred with respect to awards under the Incentive Plan is 1.5 million shares (all of which may be granted as incentive stock options), on a post-reverse stock split basis, subject to adjustment as provided below. Of the 1.5 million shares, 893,599 have been issued pursuant to options previously granted, leaving 606,401 shares that may be issued as future awards. Shares issued under the Incentive Plan may include authorized but unissued shares, treasury shares, shares purchased in the open market, or a combination of the foregoing.

Shares underlying awards that are settled in cash or that terminate or are forfeited, cancelled, or surrendered without the issuance of shares or the release of a substantial risk of forfeiture will again be available for issuance under the Incentive Plan, as will shares tendered in payment of the exercise price of a stock option, shares withheld to satisfy a tax withholding obligation with respect to any award, and shares that are repurchased by the Company with stock option proceeds. Shares granted through awards that are granted in assumption of, or in substitution or exchange for, outstanding awards previously granted by an entity acquired directly or indirectly by the Company or with which the Company directly or indirectly combines will not count against the share limit above, except as may be required by the rules and regulations of any applicable stock exchange or trading market.

Non-Employee Director Award Limit

The Incentive Plan provides that the aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all awards granted to any non-employee director under the Incentive Plan during any single calendar year, taken together with any cash fees paid to that person during the calendar year, may not exceed $150,000.

23

Individual Award Limits under Section 162(m)

The Compensation Committee may, but is not required to, grant awards under the Incentive Plan that are intended to qualify for the “performance-based compensation” exemption from limitations on our tax deduction of certain executive compensation under Section 162(m) of the Internal Revenue Code. Therefore, the Incentive Plan imposes the following additional individual sub-limits on awards granted under the Incentive Plan that are intended to satisfy that exemption:

         the maximum aggregate number of shares that may be subject to stock options or SARs granted in any calendar year to any one participant will be 1,000,000 shares, on a post-reverse stock split basis;

         the maximum aggregate number of restricted shares and shares subject to restricted share units and other share-based awards granted in any calendar year to any one participant will be 1,000,000 shares, on a post-reverse stock split basis; and

         the maximum aggregate cash compensation that can be paid pursuant to cash-based awards or other share-based awards granted in any calendar year to any one participant will be $1,000,000.

Stock Options

Subject to the terms and provisions of the Incentive Plan, options to purchase shares may be granted to eligible individuals at any time and from time to time as determined by the Compensation Committee. Options may be granted as incentive stock options (all of the shares available for issuance under the Incentive Plan may be issued pursuant to incentive stock options) or as non-qualified stock options. Subject to the limits provided in the Incentive Plan, the Compensation Committee or its delegate determines the number of options granted to each recipient. Each option grant will be evidenced by a stock option agreement that specifies whether the options are intended to be incentive stock options or non-qualified stock options and such additional limitations, terms, and conditions as the Compensation Committee may determine.

The exercise price for each option may not be less than 100% of the fair market value of a share on the date of grant.

All options granted under the Incentive Plan will expire no later than 10 years from the date of grant. The method of exercising an option granted under the Incentive Plan will be set forth in the stock option agreement for that particular option and may include payment of cash or cash equivalent, tender of previously acquired shares with a fair market value equal to the exercise price, a cashless exercise (including withholding of shares otherwise deliverable on exercise or a broker-assisted arrangement as permitted by applicable laws), a combination of the foregoing methods, or any other method approved by the Compensation Committee in its discretion.

Stock Appreciation Rights

The Compensation Committee in its discretion may grant SARs under the Incentive Plan. A SAR entitles the holder to receive from the Company, upon exercise, an amount equal to the excess, if any, of the aggregate fair market value of a specified number of shares that are the subject of such SAR, over the aggregate exercise price for the underlying shares.

The exercise price for each SAR may not be less than 100% of the fair market value of a share on the date of grant.

We may make payment of the amount to which the participant exercising SARs is entitled by delivering shares, cash, or a combination of stock and cash as set forth in the applicable award agreement. Each SAR will be evidenced by an award agreement that specifies the date and terms of the award and such additional limitations, terms, and conditions as the Compensation Committee may determine.

24

Restricted Shares

Under the Incentive Plan, the Compensation Committee may grant or sell to plan participants shares that are subject to forfeiture and restrictions on transferability. Except for these restrictions and any others imposed by the Compensation Committee, upon the grant of restricted shares, the recipient will have the rights of a stockholder with respect to the restricted shares, including the right to vote the restricted shares and to receive all dividends and other distributions paid or made with respect to the restricted shares. During the applicable restriction period, the recipient may not sell, transfer, pledge, exchange, or otherwise encumber the restricted shares. Each restricted shares award will be evidenced by an award agreement that specifies the terms of the award and such additional limitations, terms, and conditions, which may include restrictions based upon the achievement of performance objectives, as the Compensation Committee may determine.

Restricted Share Units

Under the Incentive Plan, the Compensation Committee may grant or sell to plan participants restricted share units, which constitute an agreement to deliver shares to the participant in the future at the end of a restriction period and subject to such other terms and conditions as the Compensation Committee may specify. Restricted share units are not shares and do not entitle the recipients to the rights of a stockholder. Restricted share units granted under the Incentive Plan may or may not be subject to performance conditions. Restricted share units will be settled in cash or shares, in an amount based on the fair market value of a share on the settlement date. Each restricted share unit award will be evidenced by an award agreement that specifies the terms of the award and such additional limitations, terms, and conditions as the Compensation Committee may determine, which may include restrictions based upon the achievement of performance objectives.

Other Share-Based Awards

The Incentive Plan also provides for grants of other share-based awards under the Incentive Plan, which may include unrestricted shares or time-based or performance-based unit awards that are settled in shares or cash. Each other share-based award will be evidenced by an award agreement that specifies the terms of the award and such additional limitations, terms, and conditions as the Compensation Committee may determine.

Dividend Equivalents

Awards may provide the participant with dividend equivalents, on any of a current, deferred, or contingent basis, and either in cash or in additional shares, as determined by the Compensation Committee in its sole discretion and set forth in the related award agreement. However, no dividend equivalents shall be granted with respect to shares underlying a stock option or SAR.

Performance Objectives

The plan provides that performance objectives may be established by the Compensation Committee in connection with any award granted under the Incentive Plan. Performance objectives may relate to performance of the Company or one or more of our subsidiaries, divisions, departments, units, functions, partnerships, joint ventures, or minority investments, product lines or products, or the performance of an individual participant, and performance objectives may be made relative to the performance of a group of companies or a special index of companies.

The Compensation Committee may, in its discretion, grant awards under the Incentive Plan that are intended to qualify for the “performance-based compensation” exemption from Section 162(m) of the Internal Revenue Code. In the case of an award intended to qualify for that exemption, such goals shall be based on the attainment of specified levels of one or more of the following measures: revenues, weighted average revenue per unit, earnings from operations, operating income, earnings before or after interest and taxes, operating income before or after interest and taxes, net income, cash flow, earnings per share, debt to capital ratio, increase in market capitalization, economic value added, return on total capital, return on invested capital, return on equity, return on assets, total return to stockholders, earnings before or after interest, taxes,

25

depreciation, amortization, or extraordinary or special items, operating income before or after interest, taxes, depreciation, amortization, or extraordinary or special items, return on investment, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, cash flow in excess of cost of capital, operating margin, profit margin, contribution margin, stock price, and/or strategic business criteria consisting of one or more objectives based on meeting specified product development, strategic partnering, research and development, market penetration, geographic business expansion goals, cost targets, customer satisfaction, gross or net additional customers, average customer life, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates, and joint ventures.

Performance objectives related to an award intended to qualify for the performance-based compensation exception of Section 162(m) of the Internal Revenue Code will be set by the Compensation Committee within the time period and will be subject to other requirements prescribed by Section 162(m) of the Internal Revenue Code.

Change in Control

In the event of a change in control of the Company, the Compensation Committee, in its sole discretion, may take such actions, if any, as it deems necessary or desirable with respect to any outstanding award, without the consent of any affected participant. Those actions may include, without limitation: (a) acceleration of the vesting, settlement, and/or exercisability of an award; (b) payment of a cash amount in exchange for the cancellation of an award; (c) cancellation of stock options or SARs without any payment if the fair market value per share on the date of the change in control does not exceed the exercise price per share of the applicable award; or (d) issuance of substitute awards that substantially preserve the value, rights, and benefits of any affected awards.

For purposes of the Incentive Plan, a change in control generally means (except as otherwise provided in the applicable award agreement): (a) the acquisition of effective control of more than 50% of the voting securities of the Company (other than by means of conversion or exercise of convertible debt or equity securities of the Company); (b) the Company merges into or consolidates with any other person, or any person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction; or (c) the Company sells or transfers all or substantially all of its assets to another person and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction.

Forfeiture of Awards

Awards granted under the Incentive Plan also may be subject to forfeiture or repayment to us as provided pursuant to any compensation recovery policy that we may adopt.

Adjustments

In the event of any equity restructuring, such as a stock dividend, stock split, spin off, rights offering, or recapitalization through a large, nonrecurring cash dividend, the Compensation Committee will adjust the number and kind of shares that may be delivered under the Incentive Plan, the individual award limits, and, with respect to outstanding awards, the number and kind of shares subject to outstanding awards and the exercise price or other price of shares subject to outstanding awards, to prevent dilution or enlargement of rights. In the event of any other change in corporate capitalization, such as a merger, consolidation, or liquidation, the Compensation Committee may, in its discretion, make such equitable adjustment as described in the foregoing sentence to prevent dilution or enlargement of rights. However, unless otherwise determined by the Compensation Committee, we will always round down to a whole number of shares subject to any award. Moreover, in the event of any such transaction or event, the Compensation Committee, in its discretion, may provide in substitution for any or all outstanding awards such alternative

26

consideration (including cash) as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced.

Transferability

Except as the Compensation Committee otherwise determines, awards granted under the Incentive Plan will not be transferable by a participant other than by will or the laws of descent and distribution. Except as otherwise determined by the Compensation Committee, stock options and SARs will be exercisable during a participant’s lifetime only by him or her or, in the event of the participant’s incapacity, by his or her guardian or legal representative. Any award made under the Incentive Plan may provide that any shares issued as a result of the award will be subject to further restrictions on transfer.

Term of Plan and Amendment

Unless earlier terminated by our Board of Directors, the Incentive Plan will expire on October 25, 2026, and no further awards may be made under the Incentive Plan after that date. However, any awards granted under the Incentive Plan prior to its termination will remain outstanding thereafter in accordance with their terms.

Our Board of Directors may amend, alter, or discontinue the Incentive Plan at any time, with stockholder approval to the extent required by applicable law (including applicable stock exchange rules). No such amendment or termination, however, may adversely affect in any material way any holder of outstanding awards without his or her consent, except for amendments made to cause the plan to comply with applicable law, stock exchange rules, or accounting rules, and no award may be amended or otherwise subject to any action that would be treated as a “repricing” of such award, unless such action is approved by our stockholders.

27

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2016 on:

         an actual basis; and

         an as adjusted basis to give effect to the sale of shares of common stock by SGB in this offering, after deducting the underwriting discount and estimated offering expenses payable by SGB and the application of a portion of the net proceeds therefrom to pay offering-related expenses, as described under “Other Expenses of Issuance and Distribution,” and as adjusted to give effect to the conversion of the outstanding shares of preferred stock prior to the offering.

You should read this table together with “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

 

December 31, 2016

 

 

Actual

 

As Adjusted

 

 

(in thousands
except per share data)

Cash and cash equivalents and short term investments

 

$

579,117

 

 

$

 

Long-term debt, net of discounts of $991,163, and $495,582 as
adjusted

 

 

2,446,337

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

New preferred stock, $1.00 par value, 5,405,010 shares authorized; 1,801,670 shares issued and outstanding and 0 shares issued and outstanding as adjusted(1)

 

 

1,801,670

 

 

 

New Common Stock, $0.01 par value, 300,000,000 shares authorized; 163,786 issued and outstanding,       issued and outstanding as adjusted

 

 

1,638

 

 

 

 

Successor additional paid-in capital

 

 

4,936,563

 

 

 

 

Accumulated deficit

 

 

(1,306,576

)

 

 

 

Total stockholders’ equity

 

 

5,433,295

 

 

 

 

Total capitalization

 

$

8,458,749

 

 

$

 

____________

(1)      Converted prior to this offering.

The number of shares of common stock outstanding set forth in the table above excludes shares issuable upon exercise of outstanding options.

28

DILUTION

If you invest in shares of our common stock in this offering, you will experience immediate dilution to the extent of the difference between the public offering price per share you pay in this offering and the pro forma as adjusted net tangible book value per share of our common stock upon completion of this offering. After giving effect to      , SGB’s net tangible book deficiency as of        , 2017, would have been $     million, or $     per share of common stock. SGB calculates net tangible book value or deficiency per share of its common stock by subtracting its total liabilities from its total tangible assets and dividing the result by the number of outstanding shares of common stock.

After giving further effect to this offering, assuming a public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and SGB’s estimated offering expenses, SGB’s pro forma as adjusted net tangible book deficiency as of       , 2017 would have been approximately $       million, or $     per share of our common stock. This represents an immediate decrease in as adjusted net tangible book deficiency to the Company’s existing stockholders of $     per share and an immediate dilution of $     per share to new investors who purchase shares of our common stock in this offering.

The following table illustrates the per share dilution to new investors purchasing shares of the Company’s common stock in the offering:

Assumed public offering price per share (based on the midpoint of the price range set forth on the cover page of this prospectus)

 

$

 

 

Net tangible book deficiency per share as of       , 2017

 

$

(    

)

Increase in net tangible book value per share attributable to new investors purchasing shares in the offering

 

 

 

 

 

 

 

Pro forma as adjusted net tangible book deficiency per share after the offering

 

 

 

 

 

 

 

 

 

Dilution per share to new investors

 

$

 

 

 

 

 

 

 

A $1.00 increase (decrease) in the assumed public offering price per share would increase (decrease) our pro forma as adjusted net tangible book deficiency by approximately $    , or $     per share, and would increase (decrease) dilution to investors in this offering by $     per share, assuming that the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book deficiency by approximately $    , or $     per share, and would increase (decrease) dilution to investors in this offering by $     per share, assuming the public offering price per share remains the same.

A $1.00 increase (decrease) in the assumed public offering price per share would increase (decrease) total consideration paid by investors in this offering, total consideration paid by all stockholders, and the average price per share paid by all stockholders by $    , $    , and $    , respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of      in the number of shares we are offering would increase (decrease) the total consideration paid by investors in this offering, total consideration paid by all stockholders, and the average price per share paid by all stockholders of $    , $    , and $    , respectively, assuming the public offering price per share remains the same.

The above does not reflect any exercise of the underwriter’s option to purchase additional shares. If the underwriter exercises in full its option to purchase additional shares, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, and the assumed public offering price remain the same, our existing stockholders would own      shares, or     %, in the aggregate and investors in this offering would own      shares,      or     %, in the aggregate of the total number of shares of our common stock outstanding upon completion of this offering (excluding (i) 893,599 shares of common stock issuable upon the exercise of options outstanding as of April   , 2017 under the Incentive Plan, with a weighted average exercise price of $3.00 per share, and (ii) 458,333 shares of common stock issuable upon conversion of outstanding indebtedness as of April   , 2017).

29

OUR EMERGENCE FROM BANKRUPTCY

On October 15, 2015 (the “Petition Date”), SGB and its subsidiaries voluntarily filed for reorganization under Chapter 11 of the Bankruptcy Code, in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Company made the Chapter 11 filing because approximately $5,404,010 in secured debt was due and owing, and the Company was unable to repay or refinance this debt. After the Petition Date, the Company continued to operate in the ordinary course of business as a debtor in possession. On April 12, 2016, the Company filed a disclosure statement and the Plan, along with a motion seeking approval of the disclosure statement by the Bankruptcy Court. Among other things, the Plan provided that: (i) all administrative and priority claims would be paid in full in cash, (ii) all of the Company’s trade creditors would be paid in cash, 50% at closing and the remaining 50% in two installments, with interest, (iii) all of the Company’s existing secured debt would be converted into 5,405,010 shares of preferred stock, and (iv) holders of the Company’s Former Common Stock would receive 163,786 shares of New Common Stock. In accordance with the Plan, notice was given to those persons entitled to vote on the Plan, and the Plan was unanimously approved by all persons who voted on it. The Plan was confirmed by order of the Bankruptcy Court dated June 21, 2016. The Plan became effective on June 30, 2016 (the “Effective Date”), whereupon SGB emerged from bankruptcy and the terms of the Plan were implemented. The Company operated in the ordinary course of business between the Petition Date and the Effective Date, and was able to pay all of its trade creditors in full and convert $5,405,010 of secured debt into equity. Accordingly, the Company emerged from the bankruptcy without damage to its relationships with its vendors and other suppliers, and with a stronger balance sheet.

Exit Financing

On the Effective Date, and pursuant to the terms of the Plan, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold 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, for a subscription price of $2.0 million (the “Exit Facility” or the “June 2016 OID”). The Exit Facility is convertible at HCI’s option, at any time, in whole or in part, into shares of New Common Stock at a ratio of one share for every $3.75 of debt, subject to adjustment. The Exit Facility is secured by a first-priority lien and a security interest on all of the Company’s assets pursuant to a Security Agreement by and among the Company and its subsidiaries and HCI, dated as of the Effective Date (the “Security Agreement”). We may not prepay the Exit Facility without the prior written consent of HCI. Also on the Effective Date, SG Building Blocks, Inc., SGB’s subsidiary (“SG Building”), entered into a Subsidiary Guarantee (the “Guarantee Agreement”) in favor of HCI, in which SG Building unconditionally guaranteed the obligations and indebtedness owed to HCI under the Exit Facility. The Guarantee Agreement is secured by a first-priority lien and security interest on all of SG Building’s assets. The Exit Facility was used: (i) to make a 100% distribution for payment of unsecured claims in accordance with the Plan; (ii) to pay all costs of the administration of the Company’s bankruptcy; (iii) to pay all amounts owed under the DIP Facility; and (iv) for the Company’s general working capital purposes.

Prior to the Effective Date of the Company’s Plan, the Company was authorized to issue 300,000,000 shares of common stock, of which 42,918,927 Former Common Stock shares were issued and outstanding. On the Effective Date, all previously issued and outstanding shares of the Former Common Stock were cancelled, and, pursuant to the Plan, the Company issued, in the aggregate, 163,786 shares of New Common Stock, on a post-reverse stock split basis, par value $0.01, to the holders of Former Common Stock. Pursuant to the terms of the Plan, certain members of SGB’s management were also entitled to receive options to acquire an aggregate of 10% of the New Common Stock, on a fully diluted basis, assuming conversion of all preferred stock but not the Exit Facility. On November 1, 2016, SGB issued various options to management, as described under “Market for Common Equity and Related Stockholder Matters — Equity Compensation Plan Information.”

30

DESCRIPTION OF BUSINESS

SGB is in the business of modifying cargo shipping containers for use in construction. SGB takes existing steel shipping containers and repurposes them into modules that can be stacked, arranged, or configured to fit any construction application. The use of these repurposed shipping containers, now called “SG BlocksTM,” allows architects, builders, and owners more design flexibility and greater construction efficiency than traditional methods of construction. SG BlocksTM also have a particular application in meeting safe and sustainable housing needs, especially in hurricane- and earthquake-prone areas.

Rather than using new steel and lumber, SGB capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. Offering a product that typically exceeds building code requirements, SGB enables developers, architects, builders, and owners to achieve more efficient construction, faster execution, and stronger buildings of higher value and extended life. Since inception, SGB has developed and implemented the technology to provide an alternative to traditional site-based construction at reduced cost and is committed to providing a construction methodology that will lessen the global carbon footprint.

SGB does not simply recycle old shipping containers (which requires additional energy consumption to break down material and then reform it for another purposes) — it utilizes existing steel shipping container structures and repurposes them into modules that can be put to a higher and better use with significantly less energy input. Each container is a building block module that can be arranged in virtually any stacking configuration to create the spaces and volumes needed. Architectural creativity combined with engineering expertise is used in stacking and arranging the blocks, which can be interconnected and modified to suit specific building space requirements. The SG BlocksTM system affords architects, owners, and builders flexibility and creative opportunities.

SGB offers three core products. First, we offer GreenSteel, which is the structural core and shell of an SG BlocksTM building. We procure the container, create any required openings and structural steel enforcements and paint the SG BlockTM, then deliver it on-site, where a local general contractor will finish the building. In our second deliverable, we provide partial prefabrication, where we install selected materials, finishes and systems at an SGB facility and then deliver the partially completed SG BlocksTM to the site for a local general contractor to complete the overall structure. Finally, we supply clients with completely fabricated SG BlocksTM buildings, including erecting the final unit on site and completing any other final steps.

In offering such products, we also provide a variety of services, from pre-development to completing turnkey projects that include delivering a finished building. Before building begins, we offer pre-development services, including zoning, site plans, engineering specs and budgeting and assist with builder selection and obtaining construction permits. During the building process, we can provide complete project management and architectural, engineering and design support for the SG BlocksTM structure, as well as co-development or support for existing buildings. We can oversee the erection, cladding and finishes of the SG BlocksTM building.

SGB first selects shipping containers appropriate for a given project, which are then redesigned to customer specifications. These durable steel containers are modified or manufactured into SG BlocksTM. A combination of engineering and architecture is used to make the containers adaptable for a wide variety of commercial and residential uses. Criteria and testing processes have been developed to evaluate each container. Conversion and assembly is subjected to quality control, making the containers “code-ready.”

Only containers bearing an approval plate from the CSC may be reconfigured into an SG BlockTM. The CSC approval plate confirms that the containers were tested and certified as strong enough to withstand the extreme pressures and lateral forces involved in shipping. In addition, before selection as an SG BlockTM, every container is inspected for structural damage, out-of-plane dents, warping, water tightness, and overall condition. These steps assure SGB that the specific container will be strong enough for use in construction applications.

SG BlocksTM can be used to build virtually any style of construction, from traditional to modern, and can be delivered with a highly durable surface finish or ready to be clad with any type of standard or green technology-friendly building skin.

SGB uses an outsource model, whereby we maintain low overhead costs and partner with third parties to reduce risks along the supply chain. Specifically, SGB outsources some or all of the following: architectural and engineering services, fabrication services, modular services, installation services, erection services, and logistics services. This allows us to operate with low fixed costs and gives us flexibility to scale our business response to fluctuating demand.

31

SGB’s products have been featured in reports by several leading media outlets, including Fortune, NY Times, NY Post, USA Today, CNN, Washington Post, ABC World News, NBC Nightly News, and Bob Vila. SGB has completed projects for: the U.S. Army, U.S. Navy, U.S. Department of Veteran Affairs, U.S Southern Command, The City of Santa Monica, The City of Jacksonville, Port of Houston Authority, Aman Resorts, BareBurger, Equinox, Graybar, HGTV, Lacoste, Marriott Hotels & Resorts, Mini Cooper, Oracle Team USA, Puma, Schneider Electric, Starbucks Coffee, Taco Bell, and Youngwoo & Assoc. LLC.

Environmentally Responsible Building

Environmentally friendly building is the practice of designing, constructing, operating, maintaining, and removing buildings in ways that conserve natural resources and reduce their impact on the environment. Builders are increasingly incorporating “green” components in all projects as they adopt the Leadership in Energy and Environmental Design (“LEED”) system, a third-party certification program and the nationally accepted benchmark for the design, construction, and operation of high performance green buildings. We believe the SG BlocksTM system contributes significantly towards LEED certification for completed projects by using a repurposed product and through geographic proximity to the construction site and helping minimize the wasteful practices of traditional construction methods.

The use of the SG BlocksTM system on a building provides between four to six points towards the LEED certification levels. The areas in the LEED checklist that are typically associated with the Company’s building structure are as follows:

         Reduced site disturbance;

         Resource reuse;

         Recycled content;

         Innovation in design; and

         Local and regional materials.

The above list represents almost 20% of the base certification points required to obtain LEED certification for completed projects. Therefore, because SG BlocksTM satisfy such requirements, we believe the LEED certification program considers SG BlocksTM to be a positive factor when certifying the building as LEED.

The Process of the SG Blocks™ Conversion

The robust structure of a shipping container is the beginning of the SG BlocksTM system. Our intermodal framing system allows us to customize the dimensions of a modular unit by expanding the ceilings or walls to client needs, while maintaining the strength and ease of stacking that a shipping container provides. Various combinations of siding, brick, and stucco can be added and the interior finished as any conventional structure would be. Upon completion, structures look and feel as if they were erected using traditional construction methods. However, the SGB product is generally stronger, more durable, environmentally sensitive, and erected in less time than traditional construction methods.

SGB starts by selecting containers that are approved by the CSC. All CSC approved containers bear a CSC approval plate that is used to track their movement in trade. The CSC approval plate is also used to verify that the container has been tested and is considered to be able to withstand all of the lateral forces and pressures it could potentially experience while in use. The presence of the CSC plate confirms that the containers were built in compliance with rigorous international standards. Prior to being used as an SG BlockTM, each container is recertified as meeting these original standards of strength and rigidity.

SGB then provides specific and detailed engineering and fabrication details to qualified contractors and subcontractors who proceed to modify the containers in various configurations, which often requires structural changes, wall reconfigurations, the creation of window and door openings, and ceiling alterations to allow sheetrock hanging. The exterior walls and roof structure are then insulated with a high-tech waterproof ceramic insulation. Next, the SG BlocksTM are either shipped directly to the building site or are run through a modular factory and then delivered to the site. The builder, generally under contract with SGB, places the SG BlocksTM into position on their foundation and connects them together by welding. The builder may add roof trusses or other roof systems, quickly creating an insulated structure under roof. The potential for savings in building time can be significant, particularly if interior pre-finish modularization is introduced at this step.

32

ESR Approval

Effective April 2017, the ICC-ES published an ESR for the SG BlocksTM structural building materials, which we believe is the first time the ICC-ES codified a recycled material as an approved and recognized construction material. The ICC-ES uses ESRs to indicate that the specific product indicated on the ESR complies with applicable standards in building codes, such as the International Building Code or specific state building codes. The ESR uses certain acceptance criteria, including minimum testing, quality assessment, and quality control requirements, developed with input from industry experts and building officials in public hearings, as well as in consultation with the report applicant. Each ESR indicates that the quality control and design acceptance criteria of the ESR are specific to that product and applicant, and therefore is proprietary in that sense. Once the ICC-ES approves an ESR for a product, an ICC-ES mark may then be placed on the product, creating an easy method of identification. Members of the ICC (approximately 50,000 building professionals) and the construction industry in general are accustomed to looking for ICC-ES marks. The Company anticipates that its ICC-ES mark will increase SGB’s market exposure and support the growth of its customer base.

We believe the ESR provides SGB with a competitive advantage, as we believe we are the only container-based building company that has received such certification to date. We also believe the ESR will significantly expedite approvals from local and state officials for building projects using SG BlocksTM. The ESR indicates the ICC-ES recognizes the suitability and technical capabilities of the SG BlocksTM structural building materials for use in compliance with the 2015 International Building Code and Residential Code, the 2016 California Building Code and Residential Code, and the 2014 Florida Building Code—Building and Residential.

SGB’s ESR is site-specific; therefore, only the inspected and approved facilities can place the ICC-ES mark on the containers. We currently source our SG BlocksTM from 18 facilities located throughout the continental United States. The ICC-ES has approved six of these facilities to place the ICC-ES mark. SGB will submit additional facilities for approval by the ICC-ES on an as needed basis.

Our Industry

The building industry has a reputation for resistance to change. By and large, the industry still erects structures using materials such as concrete, lumber, and steel as they have for centuries. The deployment of those materials also takes readily recognizable forms. Concrete may be pre-cast or poured in place. Low-rise development may use block-and-plank construction that is little different from 19th-century techniques. High-rise steel frame and curtain wall buildings have been around since the first generation of skyscrapers.

Off-site construction—prefabricated or modular building—is working through its growing pains. Factory-built housing has been around for some time, but adapting the concept to high-rise projects is a newer process. Quality control and the ability to scale up modular construction remain issues, but in the past two years alone, modular building has made large strides towards adapting its concept to high-rise projects.

The Modular Building Institute estimated that in 2015, $3.71 billion in new permanent modular building was put in place. The total value of new construction in North America in 2015 was $136 billion, giving modular building a market share of 2.72%.2

Fabricating whole segments of buildings in a facility and shipping the completed units to the site provides both cost and speed advantages. According to a recent case study comparing modular construction and traditional construction, modular building reduced the overall construction time by an average of 45% and showed average cost savings of 16%.3 Weather is also less of a factor in our modular construction process.

Other benefits to modular construction include more efficient workplace supervision and better training. The controlled construction environment and assembly line techniques remove many of the problems encountered during traditional construction, such as theft, vandalism, damage to building products and materials, and unskilled labor. Factory employees are trained and managed more effectively and efficiently than on-site contract labor, resulting in better quality and better project management with the trades. This is especially significant because of the country-wide decline in the number of skilled laborers.

Finally, our methods also benefit the greater community by reducing congestion, noise, and dust at the site — a not-insignificant advantage for project sponsors.

____________

2        http://www.modular.org/documents/Modular_Advantage/ModularAdvantage_Pub_3-Q_DIGITAL.pdf#28

3        http://greenzone.bdcnetwork.com/2015/pdf/PMC_Process-Practice-Perf_Report.pdf

33

Target Markets

SGB sells into a multi-billion dollar market for new construction in the United States. SGB believes that SG BlocksTM have a particular application in a number of segments, including:

         Multi-Family Housing

We believe the use of SG BlocksTM can be an attractive option in the market for construction of multi-family housing units, as total construction spending on private multi-family residential units has increased in recent years.

         Restaurants/Quick Service Restaurants

With our previous experience, we believe that we have the opportunity of leveraging our advantages in cost and speed of construction to build revenue in the restaurant sector, a multi-billion market with a high concentration of fast-food and fast-casual restaurants.

         Military

We have been able to capture a portion of military construction spending with both permanent build and mobile units. For example, we have delivered a permanent military administration building in Fort Bragg, North Carolina, administration units in Panama, a Veterans Affairs clinic, reconfigurable and scalable multi-story temporary office buildings in Portsmouth, Virginia, a temporary office on barge in Charleston, South Carolina, containerized housing units, mobile workshops, and mobile command and control units. We will continue to expand our relationship with the military, as we believe SG BlocksTM present a practical logistics solution to a large number of military construction needs both in the U.S. and abroad.

         Education/Student Housing

Public education construction spending has been on the rise. For instance, colleges and universities are seeking quick and affordable student housing options in light of the growing number of students in recent years. We believe our product can capture a portion of such construction due to our ability to rapidly construct new educational buildings and expand existing educational buildings, including student housing, with minimal site disruption.

         Other markets for expansion

Below are additional sectors we believe have great growth potential for the SG BlocksTM product:

o     Electrical and Systems Enclosures

o     Office/Commercial

o     Hospitality & Entertainment

o     Warehouse/Public Storage

o     Shopping/Retail Centers

o     Athletic Facilities and Support Structures

o     Reclamation/Drop Off Centers

o     Medical

Our Competitive Strengths

The construction industry is highly competitive. SGB competes against numerous local, regional, national, and international builders around the world. SGB is committed to educating the building community on the benefits of its technology and positioning SG BlocksTM as complementary to their strategy, rather than as competition. SGB may compete for building opportunities with entities that possess greater financial, marketing and other resources than it does. Competition may increase if there is future consolidation in the land development and construction industry or from new building technologies that could arise.

34

We believe SGB can distinguish itself from its competitors on the basis of quality, cost, and construction time. SGB’s buildings are constructed through the connection of heavy gauge steel shipping containers that exceed traditional construction quality. SGB’s construction method is typically less expensive than traditional construction methods, particularly in urban locations and multi-story projects. Construction time is also generally reduced by using SGB’s construction method, reducing both construction and soft costs substantially. The SG BlocksTM are designed to be hurricane-, tornado-, and earthquake-resistant, and able to withstand harsh climate conditions. Their flexibility of construction allows architects, developers, and owners to design SG BlocksTM to meet their needs.

SGB is one of the few nationwide providers of container-based construction products, and we are routinely called upon by large companies to provide container-based modular construction solutions. We have successfully delivered structures for a number of Fortune 500 companies. SGB’s management team has a breadth of knowledge in the container-based industry with a combined 60 years of experience. Our experience in a wide range of construction applications, including office, enclosures, residential, commercial, QSR, experiential, and restaurant applications, gives us an advantage over our competition through the use of market-based prototypes.

Backlog

SGB provides services to its customers in three separate phases: the design phase, the architectural and engineering phase and the construction phase. Each phase is independent of the other, but builds through a progression of concept through delivery of a completed structure. As of April 11, 2017, we had design, architectural and engineering projects of $1,004,160 under contract. We expect that all of this revenue will be realized by December 31, 2017. While it is our expectation that the design, architectural and engineering projects currently under contract will lead to future contractual commitments for actual construction, the third and significantly larger phase of the our product delivery cycle, there can be no assurance on the realization or the timing of such construction projects.

Customer Business Cycle

Our business model follows three separate phases. In the initial design phase, customers engage us to design a structure using SG BlocksTM. In the second engineering phase, we prepare detailed engineering drawings, which are then submitted to local zoning, permitting, and building authorities. In the third and final phase, we oversee the manufacture, transportation, and erection of the modules.

Based on the nature of our business and the construction industry in general, we believe that customers who contract with us for both the design and engineering phases are likely, though not obligated, to follow through to construction of a project. A customer who engages us for design and engineering services has already decided to, or at least is seriously considering, building a structure using shipping containers. The engineering drawings we create in the engineering phase can only be used to build a structure from shipping containers. We believe this gives us a significant competitive advantage once the decision has been made to engage us for design and engineering services. Upon completion of the design and engineering phase, a customer will have typically invested between 5% and 10% of its total construction budget and approximately 90-150 days of time with SGB.

We have been successful in marketing our services this year and, as discussed under “Backlog,” we have signed design and engineering engagements of $1,004,160 which will be realized this year. For the reasons described above, it is our expectation that each of these design and engineering engagements, representing seven different projects currently in progress, will eventually result in a third and final phase of construction using SG BlocksTM. This could translate into seven construction projects ranging in revenue by project from $172,000 to $4,850,000, or an average of $2,672,457, which could result in revenue from construction projects in excess of $10 million over the next 18 months. However, there can be no assurance that our customers will decide to and/or be able to proceed with these construction projects, or that we will ultimately recognize revenue from these projects in a timely manner or at all.

Our Customers

We market to a broad customer base, which includes existing clients as well as new ones. However, concentrations of credit risk are limited to a few customers. At December 31, 2016 and 2015, 63% and 74%, respectively, of the Company’s accounts receivable were due from three and two customers, respectively. Revenue relating to three and two customers represented approximately 69% and 70% of the Company’s total revenue for the years ended December 31, 2016 and 2015, respectively.

35

Our Suppliers

Although the use of the shipping container is quite unique and different, the materials used for finishing out the modules are very standard. We utilize the same suppliers and materials normally used by conventional construction. No special materials are required for the SG BlocksTM product due to our underlying shipping container shell structure. Items such as windows, doors, insulation mechanical systems, electrical systems and other such supplies are all off-the-shelf materials and equipment commonly available and used in the industry.

SGB has an exclusive 10-year Collaboration and Supply Agreement through May 14, 2024 with ConGlobal, one of the largest depot operators in the U.S. This arrangement provides SGB with a reliable source of supply and prevents competitors from sourcing shipping containers from ConGlobal. The ConGlobal Agreement provides that ConGlobal will not supply shipping containers modified for building purposes to any entity competing with SGB during the term of the agreement. The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

Formation and Emergence from Bankruptcy

SGB was incorporated in 1993. SGB emerged from voluntary bankruptcy in 2016. See “Our Emergence from Bankruptcy” above for more information.

Intellectual Property

We operate under our United States registered trademark “SGBlocks®”. The Company has also applied for trademarks of our logo “S G” and “GreenSteel” with the United States Patent and Trademark Office, which have not yet been examined.

In addition, SGB has one United States patent application pending directed to a system and method for conversion of intermodal shipping containers to universal building modules. Specifically, the present invention (Universal Box) relates to prefabricated modular construction of a structure utilizing converted shipping containers. When using shipping containers for the construction of structures such as office buildings, each container must be analyzed for structural code compliance with international shipping and building standards. In order to expedite this compliance review process, SGBlocks® offer pre-approved universal standardized modules and modifications as well as interchangeable infill panels that reduce the time for obtaining approvals and provide a consistent design and fabrication approach. By expediting the review process, our code-compliant modules also typically lead to reduced design and construction times and errors.

The application has not yet been examined by the United States Patent and Trademark Office. Furthermore, there can be no assurances that the application will mature into an issued patent or, if it does mature into an issued patent, that any claims that may be allowed will provide sufficient protection to exclude competitors from the market.

Government Regulation and Approval

The design and construction of buildings is controlled at the project level, with local and state municipalities having jurisdiction in most cases. All buildings, conventionally built or modularly built, are subject to published building codes and criteria that must be achieved during the architectural and engineering phase in order to be approved for construction. There are no specific regulations that impact our products. Rather, they are subject to published criteria on a case-by-case basis at the project level, like all other types of construction.

Research and Development Costs

SGB has spent immaterial amounts on research and development during the past two years, as our research needs were largely met in-house by a professional engineer.

Employees

SGB directly employs six full-time employees and one part-time employee and uses outside professional firms and sub-contractors to deliver projects to customers.

Description of Property

SGB leases its executive offices at 195 Montague Street, 14th Floor, Brooklyn, NY 11201.

36

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 consolidated financial statements and related notes and schedules included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, intensified competition and operating problems in our operating business projects and their impact on revenues and profit margins or additional factors, including those discussed in the section entitled “Risk Factors” of this prospectus. In addition, certain information presented below is based on unaudited financial information. There can be no assurance that there will not be changes to this information once audited financial information is available. All share numbers presented throughout this Management’s Discussion and Analysis are presented on a post-reverse stock split basis. As discussed below, although the historical financials of SGB prior to and post-emergence from bankruptcy are not comparable, the following discussion throughout this Management’s Discussion and Analysis provides year over year numbers for the Predecessor Company and Successor Company to facilitate review.

Basis of Presentation

Upon our emergence from bankruptcy, we adopted fresh start accounting in accordance with the requirements of FASB ASC 852, “Reorganizations”. This resulted in our becoming a new entity for financial reporting purposes. At that time, our assets and liabilities were recorded at their fair values as of the Effective Date. The effects of the Plan and our application of fresh start accounting are reflected in our consolidated financial statements as of December 31, 2016. The related adjustments were recorded as reorganization items on June 30, 2016, resulting in a lack of comparability with the consolidated financial statements prior to that date.

All references made to “Successor” or “Successor Company” relate to the Company on and subsequent to the Effective Date. References to “Predecessor” or “Predecessor Company” refer to SGB prior to the Effective Date. The consolidated financial statements of the Successor have been prepared with the assumption that SGB will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. For more information regarding the adoption of Fresh Start accounting, see “Note 2 — Liquidity and Financial Condition” of the notes to our consolidated financial statements included elsewhere in this prospectus.

Background

We offer the construction industry a safer, greener, faster, longer-lasting, and more economical alternative to conventional construction methods. We redesign, repurpose, and convert heavy-gauge steel cargo shipping containers into safe, green building blocks for commercial, industrial, and residential building construction.

We provide code engineered cargo shipping containers that we modify and deliver to meet the growing demand for safe and green construction. Rather than consuming new steel and lumber, we capitalize on the structural engineering and design parameters a shipping container must meet and repurpose them for use in building.

37

Results of Operations

Years Ended December 31, 2016 and 2015:

 

 

Successor – Six
Months Ended
December,
2016

 

Predecessor – Six
Months Ended
June 30,
2016

 

Predecessor –
Year ended
December 31,
2015

Revenue

 

$

 868,166

 

 

$

 1,056,223

 

 

$

 2,405,784

 

Cost of Revenue

 

 

(750,486

)

 

 

(859,974

)

 

 

(1,897,862

)

Operating Expenses

 

 

(1,165,288

)

 

 

(973,463

)

 

 

(1,953,244

)

Operating loss

 

 

(1,047,608

)

 

 

(777,214

)

 

 

(1,445,322

)

Other expense

 

 

(148,200

)

 

 

(429,009

)

 

 

(1,297,794

)

Reorganization items

 

 

(110,768

)

 

 

541,486

 

 

 

 

Net Loss

 

$

 (1,306,576

)

 

$

 (664,737

)

 

$

 (2,743,116

)

Revenue

Revenue for the year ended December 31, 2016 was $1,924,389 compared to $2,405,784 for the year ended December 31, 2015. This decrease of $481,395 resulted mainly from a decrease of revenue from modified reinforced containers without any interior fit-out (“block green steel jobs”), offset by an increase in engineering jobs. Revenue recognized from block green steel jobs decreased by $768,587 for the year ended December 31, 2016 compared to the year ended December 31, 2015. The decrease was offset by revenue recognized from engineering jobs, which increased by $307,192 for the year ended December 31, 2016 compared to the year ended December 31, 2015. Revenue from block green steel jobs decreased primarily due to the fact that various jobs are not recurring in nature.

Cost of Revenue and Gross Profit

Cost of revenue was $750,486 for the six months ended December 31, 2016, primarily related to the cost of modifying containers. Gross profit was $117,680 for the same period.

Cost of revenue was $859,974 for the six months ended June 30, 2016, primarily related to the cost of modifying containers. Gross profit was $196,249 for the same period.

Cost of revenue was $1,897,862 for the year ended December 31, 2015, primarily related to the cost of modifying containers. Gross profit was $507,922 for the same period.

Payroll and Related Expense

Payroll and related expense for the six months ended December 31, 2016 was $493,844 and includes $188,343 in stock compensation expense.

Payroll and related expense for the six months ended June 30, 2016 was $367,254 and includes $119,146 in stock compensation expense.

Payroll and related expense for the year ended December 31, 2015 was $1,003,699 and includes $192,776 in stock compensation expense.

Other Operating Expenses

Other operating expense for the six months ended December 31, 2016 was $671,444 and includes $293,184 in depreciation and amortization expense, $85,488 in marketing and business development expense, $225,808 in professional fees and $11,856 in insurance expense.

Other operating expense for the six months ended June 30, 2016 was $606,209 and includes $6,833 in depreciation and amortization expense, $22,729 in marketing and business development expense, $381,502 in professional fees and $127,138 in insurance expense.

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Other operating expense for the year ended December 31, 2015 was $949,545 and includes $24,543 in depreciation and amortization expense, $123,852 in marketing and business development expense, $432,376 in professional fees and $204,321 in insurance expense.

Interest Expense

Interest expense for the six months ended December 31, 2016 was $267,717, mainly due to $250,308 discount on convertible debentures.

Interest expense for the six months ended June 30, 2016 was $429,017, mainly due to $387,965 discount on convertible debentures.

Interest expense for the year ended December 31, 2015 was $1,944,487, mainly due to $416,833 discount on convertible debentures and a default penalty of $1,247,310 due to failure of the company to repay its debentures on maturity.

Other Income (Expense)

During the six months ended December 31, 2016, there was other income (expense) recognized due to a change in fair value of financial instruments of $119,510.

During the six months ended June 30, 2016, there was no other income (expense) recognized as a result of a change in fair value of financial instruments because the fair value of financial instruments was de minimis at June 30, 2016.

During the twelve months ended December 31, 2015, there was other income (expense) recognized due to a change in fair value of financial instruments of $646,671.

Reorganization Items

Reorganization items represent amounts incurred subsequent to the bankruptcy filing as a direct result of the filing of the Chapter 11 cases.

During the six months ended December 31, 2016, legal and professional fees related to the reorganization were $110,768.

During the six months ended June 30, 2016, the Company recognized $541,486 in reorganization items, representing $171,893 in legal and professional fees related to the reorganization, offset by gain on reorganization items of $713,379. Gain on reorganization items includes $424,276 from change in common stock and $289,103 from forgiveness of interest and accounts payable.

The Company incurred no reorganization items during the twelve months ended December 31, 2015.

Income Tax Provision

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

Impact of Inflation

The impact of inflation upon our revenue and income (loss) from continuing operations during each of the past two fiscal years has not been material to our financial position or results of operations for those years because we do not maintain any inventories that have costs affected by inflation.

Liquidity and Capital Resources

SGB sustained losses prior to its bankruptcy and continues to sustain losses from operations after its emergence from bankruptcy in June 2016. SGB anticipates that it will continue to generate losses from operations for the foreseeable future.

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The Company’s net loss before reorganization items for the six months ended December 31, 2016 was $1,195,808. Net cash used in operating activities was $1,033,010 for the six months ended December 31, 2016. At December 31, 2016, the Company had a cash balance of $579,117.

The Company’s net loss before reorganization items for the six months ended June 30, 2016 was $1,206,223. Net cash used in operating activities was $832,895 for the six months ended June 30, 2016. At June 30, 2016, the Company had a cash balance of $985,814.

The Company’s net loss before reorganization items for the year ended December 31, 2015 was $2,743,116. Net cash used in operating activities was $1,188,609 for the year ended December 31, 2015. At December 31, 2015, the Company had a cash balance of $497,000. Historically, SGB’s operations have primarily been funded through proceeds from equity and debt financings, as well as revenue from operations.

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, the Company’s independent registered public accounting firm, Whitley Penn, LLP, issued a report stating that the Company’s significant operating losses and current level of cash raise substantial doubt about the Company’s ability to continue as a going concern. The current level of cash and operating margins are not enough to cover the existing fixed and variable obligations of the Company. In addition, the Company’s current liquidity is not sufficient to fund general expansion. To fund our anticipated growth, including a projected expansion in existing and targeted market areas, SGB will either need to generate additional revenues or secure additional financing sources, such as raising funds through debt or equity offerings.

There is 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. Even if financing is available, it may not be on terms that are favorable or acceptable to us. Other than the proceeds from this offering, we do not have any additional sources secured for future funding. If we are unable to raise the necessary capital at the times we require such funding, we may need to materially change our business plan, including delaying implementation of aspects of our business plan or curtailing or abandoning our business plan altogether.

Off-Balance Sheet Arrangements

As of December 31, 2016 and 2015, SGB had no material off-balance sheet arrangements other than operating leases to which SGB or its subsidiaries is a party.

In the ordinary course of business, SGB 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 certain vendors. Pursuant to these agreements, SGB generally agrees to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by SGB. The maximum potential amount of future payments SGB could be required to make under these indemnification provisions is unlimited. SGB 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, SGB has no liabilities recorded for these provisions as of December 31, 2016.

Critical Accounting Policies and New Accounting Pronouncements

Critical Accounting Policies

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In connection with the preparation of the financial statements, we are required to make assumptions and estimates and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that we believe to be relevant at the time the consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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Our significant accounting policies are discussed in “Note 3 — Summary of Significant Accounting Policies” of the notes to our consolidated financial statements included elsewhere in this prospectus. We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results.

Share-based payments. SGB measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date. For non-employees, the fair value of the award is generally re-measured on interim financial reporting dates and vesting dates until the service period is complete. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. SGB recognizes stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award. Stock-based compensation expense is reported within payroll and related expenses in the consolidated statements of operations.

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

SGB’s free-standing derivatives consist of warrants to purchase common stock that were issued to a placement agent involved with the private offering memorandum as well as issuances of convertible debentures. SGB evaluated the common stock purchase warrants to assess their proper classification in the consolidated balance sheet and determined that the common stock purchase warrants feature a characteristic permitting cash settlement at the option of the holder. Accordingly, these instruments have been classified as warrant liabilities. Upon emergence from bankruptcy, all common stock purchase warrants of the Company were cancelled and are no longer included on the Company’s balance sheet.

Convertible instruments. SGB bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract; (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP measures with changes in fair value reported in earnings as they occur; and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

SGB has determined that the embedded conversion options included in the outstanding convertible debentures should be bifurcated from their host and a portion of the proceeds received upon the issuance of the hybrid contract has been allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Revenue recognition. SGB 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.

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

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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.

SGB offers a one-year warranty on completed contracts. SGB has not incurred any losses to date, nor does it anticipate incurring any losses for warranties that are currently outstanding. Accordingly, no warranty reserve is considered necessary for any of the periods presented.

SGB also supplies repurposed containers to its customers. In these cases, SGB 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 and accepted by the customer and collection is reasonably assured. Revenue is recognized upon completion of the following: an order for a 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 shipping 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.

SGB’s revenue is classed into two components: block sales and engineering services. All block sales require value add services from our suppliers before delivery. Revenues are recognized on a percentage-of-completion accounting method that is common in the industry. Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue when they are earned.

The amount of deferred revenue (as a percentage of total revenues) for 2015 and 2016 was approximately 7% and 4%, respectively.

Goodwill. Goodwill represents the excess of reorganization value over the fair value of identified net assets upon emergence from bankruptcy. In accordance with the accounting guidance on goodwill, SGB performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting units below their carrying values. The Company has one company-wide reporting unit that has goodwill. In performing its goodwill impairment testing, the Company uses the following significant assumptions: there has not been a deterioration in general economic conditions or any limitations on accessing capital, industry and market conditions have remained relatively the same, cost factors have remained the same, overall financial performance has been as expected, and there have been no other entity-specific events. The Company’s evaluation of goodwill completed during the year ended December 31, 2016 resulted in no impairment losses.

Reorganization Value. A discounted cash flow (“DCF”) analysis was performed based on budgeted performance for Q3 and Q4 of 2016, and forecasted performance for 2017 through 2020. The DCF analysis also included a terminal value at the end of the forecast period (e.g., after 3.5 years). The terminal value was derived using a Gordon Growth model, which capitalizes the terminal year cash flow at a rate of 5%. The DCF included a 40% tax rate and the use of the company’s exiting net operating loss carry-forward.

The discount rate employed in the DCF model was approximately 36.73%. This discount rate is within the range of discount rates cited in the relevant accounting guidance for second- and third-stage venture companies.

The identified separable intangible assets included proprietary technology and knowledge, and customer contacts. These were valued through identification of the specific cash flows attributable to each asset,

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and using a discount rate of 30% in each case. The proprietary technology and knowledge was valued at $2,766,000 using a royalty savings method over the expected 20-year life of the asset. This method recognizes that ownership of intellectual property relieves the owner from having to pay a royalty to another party for its use. The customer relationships were valued in aggregate at $1,113,000 using a multi-period excess earnings method (“MPEEM”) over a period of 2.5 years. In this analysis, signed customer contracts, probability-weighted renewals, and the gross margins of each contract were identified. Other operating expenses, and charges for the use of contributory assets, were applied to derive the expected cash flows due to these contracts.

The residual goodwill amount is the result of the aforementioned enterprise value, less the value of these identified intangible assets, less the value of net working capital and fixed assets, and as adjusted for deferred taxes resulting from the fresh start accounting.

Intangible assets. Intangible assets represent the preliminary assets identified upon emergence from bankruptcy and consist of $2,766,000 of proprietary knowledge and technology, which is being amortized over 20 years, and $1,113,000 of customer contracts, which is being amortized over 2.5 years. The accumulated amortization and amortization expense for the year ended December 31, 2016 was $291,750. The Company reviews the recoverability of its intangible assets upon a triggering event. Such review involves the Company estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment, measured by comparing an asset’s carrying value to its fair value, must be recognized when the carrying value of the asset exceeds these cash flows. The Company conducts a review of the financial performance of its intangible assets in connection with the preparation of its financial statements for each reported period and determines whether any triggering events are indicated. The Company evaluated intangible assets for impairment during the year ended December 31, 2016 and determined that there are no impairment losses.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), 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 No. 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 2015-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), providing additional guidance surrounding the disclosure of going concern uncertainties in the financial statements and implementing requirements for management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The update is effective on a prospective basis for fiscal years ending after December 15, 2016 and for interim periods thereafter. The Company adopted ASU 2014-15 for the fiscal 2016 reporting period, which had no impact on its disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 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. As a result, capitalized debt issuance costs are

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now presented as a reduction in the carrying amount of convertible debentures. The change resulted in a reclassification of $5,204 of debt issuance costs in the accompanying consolidated balance sheet as of December 31, 2015. Consequently, this reduced the total assets, total current liabilities and total liabilities as of December 31, 2015.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 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 does not believe implementation of ASU 2015-11 will have a material impact on future presentation and disclosures of the financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The update’s principal objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. ASU 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing 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): Improvements to Employee Share-Based Payment Accounting (“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.

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On August 2, 2016, SGB disclosed in a Current Report on Form 8-K that SGB dismissed its independent registered public accounting firm, Marcum LLP (“Marcum”), and subsequently engaged Whitley Penn LLP (“Whitley Penn”). The decision to dismiss Marcum and engage Whitley Penn was approved by the Company’s full Board and the Audit Committee.

The audit reports of Marcum on the consolidated financial statements of the Company for the fiscal year ended December 31, 2015 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to audit scope or accounting principles; however, Marcum’s report on the Company’s financial statements for the year ended December 31, 2015 contained a provision concerning uncertainty as to the Company’s ability to continue as a going concern. The financial statements did not include any adjustments that might have resulted from the outcome of this uncertainty.

During the Company’s fiscal year ended December 31, 2015, and any subsequent interim period through the date of Marcum’s dismissal, there were no: (1) disagreements with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to Marcum’s satisfaction, would have caused Marcum to make reference to the subject matter of the disagreement in connection with its reports on the Company’s consolidated financial statements; or (2) except for the matter relating to internal control over financial reporting described below, there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K of the rules and regulations of the SEC (“Regulation S-K”), during the year ended December 31, 2015 or in any subsequent interim period.

Marcum has communicated to the Company that we did not maintain effective internal controls over financial reporting. Specifically, (i) we have experienced difficulty in generating data in a form and format that facilitates the timely analysis of information needed to produce accurate financial reports; (ii) we have experienced difficulty in applying complex accounting and financial reporting and disclosure rules required under GAAP and the SEC reporting regulations; and (iii) we have limited segregation of duties.

The Company provided Marcum with a copy of the disclosures in the August 2, 2016 Form 8-K prior to filing with the SEC. Pursuant to the Company’s request, on July 28, 2016, Marcum furnished to the Company a letter addressed to the SEC regarding the statements contained in that report.

On July 29, 2016, the Audit Committee engaged Whitley Penn as the Company’s independent registered public accounting firm for the year ending December 31, 2016. In deciding to select Whitley Penn, the Audit Committee reviewed auditor independence issues and existing commercial relationships with Whitley Penn and concluded that Whitley Penn has no commercial relationship with the Company which would impair its independence for the fiscal year ended December 31, 2015.

During the Company’s fiscal year ended December 31, 2015 and the subsequent interim period preceding the engagement of Whitley Penn, neither the Company nor anyone on its behalf consulted with Whitley Penn with respect to: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and no written or oral advice of Whitley Penn was provided to the Company that was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions related thereto), or any “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S-K).

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, the significant deficiencies that together constituted a material weakness in our internal control over financial reporting have, in management’s opinion, been remedied, and the Company will continue to take steps to ensure its internal controls are satisfactory.

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DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The following table sets forth information regarding the Company’s members of the Board of Directors and executive officers. Our directors are elected to serve until the next annual meeting of stockholders and until their respective successors have been duly elected and qualified. Additional information regarding our directors and executive officers, including their business experience for the past five years (and in some instances for prior years) and the key attributes, experience, and skills that led the Board to conclude that each person should serve as a director is set forth below. Pursuant to the Plan, HCI was entitled to designate three directors to serve on the Board and designated Messrs. Kaufman, McAvoy, and Shetty to serve on the Board, who were each elected to the Board on July 1, 2016. In addition, on July 1, 2016, Paul Galvin and Christopher Melton were re-elected to the Board and Stevan Armstrong, Joseph Tacopina, J. Scott Magrane, Brian Wasserman, and Jennifer Strumingher were either removed or resigned in order to effectuate the Plan. Mr. Kirkland and Mr. Bell resigned from the Board on September 28, 2015. There were no disagreements between any of the members of the Board being removed or resigning and the Company.

Balan R. Ayyar and A. Richard Moore, Jr. joined our Board in January 2017 and February 2017, respectively.

Current Directors and Executive Officers

Name

 

Age

 

Year First
Elected or
Appointed

 

Position

Paul Galvin

 

54

 

2011

 

Chairman of the Board and Chief Executive Officer

Mahesh Shetty

 

57

 

2016

 

Chief Financial Officer, Secretary and Director

Stevan Armstrong

 

69

 

2011

 

President and Chief Operating Officer

Sean McAvoy(2)

 

52

 

2016

 

Director

Christopher Melton(1)(2)

 

45

 

2011

 

Independent Director

Neal Kaufman(2)

 

48

 

2016

 

Director

Balan R. Ayyar(1)

 

51

 

2017

 

Independent Director

A. Richard Moore, Jr.(1)(2)

 

71

 

2017

 

Independent Director

____________

(1)      Member of Audit Committee

(2)      Member of Compensation Committee

Our executive officers are elected by and serve at the discretion of our Board. There are no family relationships among any of our directors and executive officers.

Paul M. Galvin was appointed as a director and the Company’s Chief Executive Officer upon consummation of the reverse merger among CDSI Holdings Inc., CDSI Merger Sub, Inc., SGB, and certain stockholders of SGB on November 4, 2011 (the “Merger”). Mr. Galvin is a founder of SG Blocks, LLC, the predecessor entity of SGB. He has served as the Chief Executive Officer of SGB and its predecessor entity since April 2009 and as a director of such since January 2007. Mr. Galvin has been a managing member of TAG Partners, LLC (“TAG”), an investment partnership formed for the purpose of investing in SGB, since October 2007. Mr. Galvin brings over 20 years of experience developing and managing real estate, including residential condominiums, luxury sales, and market rate and affordable rental projects. Prior to his involvement in real estate, he founded a non-profit organization that focused on public health, housing, and child survival, where he served for over a decade in a leadership position. During that period, Mr. Galvin designed, developed, and managed emergency food and shelter programs through New York City’s Human Resources Administration and other federal and state entities. From November 2005 to June 2007, Mr. Galvin was Chief Operating Officer of a subsidiary of Yucaipa Investments, where he worked with religious institutions that needed to monetize underperforming assets. While there, he designed and managed systems that produced highest and best use analyses for hundreds of religious assets and used them to acquire and re-develop properties across the U.S. Mr. Galvin holds a Bachelor of Science in Accounting from LeMoyne College and a Master’s Degree in Social Policy from Fordham University. He was formerly an adjunct professor at Fordham University’s Graduate School of Welfare. Mr. Galvin previously served for 10 years on the Sisters of Charity Healthcare System Advisory Board

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and six years on the board of directors of SentiCare, Inc. In 2011, the Council of Churches of New York recognized Mr. Galvin with an Outstanding Business Leadership Award. Mr. Galvin’s pertinent experience, qualifications, attributes, and skills include his managerial experience and the knowledge and experience he has attained in the real estate industry.

Mahesh Shetty was appointed as a director of the Company on July 1, 2016 by HCI and as Chief Financial Officer on July 29, 2016. From December 2015 to December 2016, Mr. Shetty served as the Chief Restructuring Officer and Chief Financial Officer for PFO Global, Inc., an innovative manufacturer and commercial provider of advanced prescription lenses. From 2008 to 2015, Mr. Shetty served as the Partner, Chief Operating Officer, and Chief Financial Officer at Encore Enterprises, a private equity real estate firm with over $750 million in assets. He had management oversight and responsibility for all of Encore Enterprise’s finance, risk management, human resources, and technology. Prior to joining Encore Enterprises, Mr. Shetty was the Chief Financial Officer of North American Technologies Group, Inc., a Nasdaq-listed manufacturing company focused on the transportation industry. Mr. Shetty began his career at PricewaterhouseCoopers LLP and has served in executive finance and operational leadership roles with Fortune 500 and mid-size private and public companies in the manufacturing, technology, and service industries. He earned a bachelor’s degree majoring in banking, economics, and accounting and a French minor from Osmania University, India and received his Master of Business Administration (“MBA”), summa cum laude, from the University of Texas at Dallas. He is a Certified Public Accountant (“CPA”), a Certified Information Technology Professional, a Chartered Global Management Accountant, and a Fellow Chartered Accountant (“FCA”). Mr. Shetty serves on the board and is the treasurer of Mothers Against Drunk Driving, serves on the Board of Financial Executives International, Dallas Chapter, the largest chapter in the U.S., and as chairman of the U.S. India Chamber of Commerce, Dallas-Fort Worth. He also serves on the board of EZlytix, a private cloud-based business intelligence software company, and on the board of BIG Logistics, a private logistics company. Mr. Shetty’s pertinent experience, qualifications, attributes, and skills include expertise in finance, strategy, technology and operations.

Stevan Armstrong was appointed as the Company’s President and Chief Operating Officer upon consummation of the Merger on November 4, 2011. Mr. Armstrong served as a director of the Company from November 4, 2011 until July 1, 2016. Mr. Armstrong is a founder of SGBlocks, LLC. Mr. Armstrong has served as the President and Chief Operating Officer of SGB and its predecessor entity since April 2009 and as a director of SGB and its predecessor entity since January 2007. From 2003 until fully phasing out in March 2010, he was a minority partner (owner) and Chief Construction Officer for Stratford Companies, a large senior housing development group, where he had complete responsibility for all engineering, design construction, and commissioning of over $250,000,000 of facilities over a three-year period. Prior to that, he was the Executive Vice President for Operations of Hospital Affiliates Development Corp., a proprietary health care company specializing in the development of healthcare and senior care projects both domestically and internationally. Mr. Armstrong managed the design and construction of healthcare and elderly care housing projects in 40 states and 16 foreign countries with overall responsibility for operations. His background includes structural design engineering for large-scale healthcare projects, project scheduling, and management of development of construction budgets. He spent much of his early career working on-site as a field engineer and construction specialist. Mr. Armstrong served 30 years on active and reserve duty as a Civil Engineering Corps Officer for the U.S. Navy, retiring as Assistant Chief of Staff for Operations for the Atlantic Seabees (Navy Construction Battalions) both Active and Reserve based out of Norfolk, Virginia, with 8,000 engineering and construction troops reporting to headquarters. Mr. Armstrong was responsible for their operations both in the U.S. and worldwide. Mr. Armstrong holds a Bachelor of Architectural Engineering from Pennsylvania State University and a Master’s in Engineering from George Washington University. Mr. Armstrong brings extensive design, construction, and engineering expertise to the Company and his pertinent experience, qualifications, attributes, and skills include real estate and development expertise.

Sean McAvoy was appointed as a director of the Company on July 1, 2016 by HCI. Sean is a founding member of Hillair Capital Management, LLC (“HCM”) and its affiliated funds since 2010. He has over 20 years of experience in structuring and negotiating transactions, primarily in the public markets. Between 1996 and 2008, Mr. McAvoy was a member of the mergers and acquisitions, private equity, and corporate finance practices at Jones Day, an international law firm, where he served as a founding partner of the firm’s Silicon Valley office from 2002 to 2008. At Jones Day, Mr. McAvoy represented public companies

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and their boards of directors, as well as financial sponsors, in domestic and cross-border mergers and acquisitions, auctioned dispositions, unsolicited and negotiated tender offers, leveraged buyouts, including going-private transactions, and leveraged recapitalizations. Mr. McAvoy also counseled boards of directors and senior management regarding corporate governance, fiduciary duty, takeover preparedness, and disclosure obligations. Prior to his corporate legal career, Mr. McAvoy served as a legislative aide to Senator William S. Cohen and as a Professional Staff Member of the U.S. Senate Governmental Affairs Committee. Mr. McAvoy also served as a special counsel and senior staff member on Senator John McCain’s 2008 presidential campaign. Currently, Mr. McAvoy serves on the board of The Orvis Company, Inc., a specialty retailer and sporting goods company, and on the board of the Pacific Research Institute, a California-based free-market think tank. Mr. McAvoy is an honors graduate of Williams College and earned advanced degrees at the London School of Economics and Political Science, where he was an Alumni and Friends of the London School of Economics Scholar, and Georgetown University Law School. Mr. McAvoy’s pertinent experience, qualifications, attributes, and skills include expertise in finance, strategy, and corporate law.

Christopher Melton was appointed as a director of the Company upon consummation of the Merger on November 4, 2011. Mr. Melton is Principal and co-founder of Callegro Investments. Callegro Investments is a specialist land investor investing in the southeastern U.S. Mr. Melton has served on the board of directors of World Education and Development Fund, a non-profit organization that focuses on education for underprivileged children in Latin America, since 2008. From 2000 to 2008, Mr. Melton was a Portfolio Manager for Kingdon Capital Management (“Kingdon”) in New York City, where he ran an $800 million book in media, telecom, and Japanese investment. Mr. Melton opened Kingdon’s office in Japan, where he set up a Japanese research company. From 1997 to 2000, Mr. Melton served as a Vice President at JPMorgan Investment Management as an equity research analyst, where he helped manage $500 million in REIT funds under management. Mr. Melton was a Senior Real Estate Equity Analyst at RREEF Funds in Chicago from 1995 to 1997. RREEF Funds is the real estate investment management business of Deutsche Bank’s Asset Management division. Mr. Melton earned a Bachelor of Arts (“B.A.”) in Political Economy of Industrial Societies from the University of California, Berkeley in 1995. Mr. Melton earned Certification from University of California, Los Angeles’s Anderson Director Education Program in 2014. Mr. Melton’s pertinent experience, qualifications, attributes, and skills include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through his services as a director of various companies and his personal real estate investment and development activities.

Neal Kaufman was appointed as a director of the Company on July 1, 2016 by HCI. Mr. Kaufman is a founding member of HCM since 2010. He has over 15 years of operating experience with large and small publicly-traded companies and also has significant experience supporting financing activities. Mr. Kaufman opened the West Coast operations for Ardour Capital Investments, LLC, an investment bank wholly focused on the clean technology sector. Before that, he was the Chief Executive Officer of American TieTek LLC. Mr. Kaufman also held various senior management positions at 3Com Corporation and worked for the internet arm of NBC Television. He began his career at McKinsey & Co., working in the U.S., Europe, and South America. Mr. Kaufman has a B.A. in economics, magna cum laude, from Harvard College, a Master’s from Stanford University, and an MBA from Harvard Business School, where he was a Baker Scholar. Mr. Kaufman’s pertinent experience, qualifications, attributes, and skills include expertise in finance, strategy, and operations.

Balan R. Ayyar was appointed as a director of the Company on January 30, 2017. General Ayyar is the founder and CEO of Percipient.ai, a Silicon Valley advanced analytics firm providing artificial intelligence, machine learning, and computer vision for U.S. national security missions since January 2017. In 2016, he was named the President and Chief Executive Officer of Sevatec, Inc., an IT solutions firm specializing in cyber, data science, cloud engineering, and system integration across national security missions, where he had worked as the Chief Operating Officer since 2014. Before joining the private sector, General Ayyar served as the Commanding General of Combined Joined Interagency Task Force 435 in Kabul, Afghanistan, beginning in 2013. Prior to that, General Ayyar led the U.S. Air Force Recruiting Service. He served in four combatant commands, as the military assistant to the Secretary of Defense, and as a White House Fellow. General Ayyar has received a number of awards and decorations for his service, including a Bronze Star, an Air Force Commendation Medal, and a Presidential Service Badge. He is a member of the Council on Foreign Relations and serves on the board of directors of Fairfax Futures, an early childhood education non-profit partnership. General Ayyar has a Bachelor of Science in international affairs from the U.S. Air

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Force Academy, Master’s degrees from Maxwell Air Force Base, Alabama, Auburn University, and the Industrial College of the Armed Forces, National Defense University in Washington, D.C. General Ayyar’s pertinent experience, qualifications, attributes, and skills include his extensive leadership experience and technology background.

A. Richard Moore, Jr. joined the Board on February 2, 2017. Mr. Moore is an independent management consultant. From February 2013 through September 2016, he was managing director for non-bank activities of Strategic Growth Bank Incorporated (“Strategic Growth”) in El Paso, Texas, focusing on Strategic Growth’s mortgage activities and new business initiatives. From November 2004 through December 2012, prior to joining Strategic Growth, Mr. Moore held various positions with Verde Realty, a Maryland REIT with headquarters in El Paso and Houston, including Executive Vice President, Chief Financial Officer, and Corporate Secretary. Prior to that, Mr. Moore spent 16 years in the Real Estate Department of the Investment Banking Division of Goldman, Sachs & Co., where he developed and led the firm’s sale/leaseback business and later headed the firm’s REIT banking activities. Mr. Moore has been a guest lecturer on real estate finance and the REIT structure at Columbia University, New York University, and Southern Methodist University. He currently serves as director and chairman of the Audit Committee of Guardian Mortgage Company, Inc., in Dallas, Texas, and an advisory trustee of Borderplex Realty Trust. He is also a director and chairman of the Investment Committee for the Paso del Norte Health Foundation and a director of the Paso del Norte Charitable Foundation. Mr. Moore holds a B.A. and Master of Divinity from Southern Methodist University and an MBA from the Harvard Business School. Mr. Moore’s pertinent experience, qualifications, attributes, and skills include his extensive background in real estate development.

Board of Directors

We currently have seven directors. Our Amended and Restated By-laws (the “By-laws”) provide that the authorized number of directors shall be fixed, from time to time, by resolution of the directors.

Each executive officer is elected by and serves at the discretion of the Board. Each of our executive officers and directors, other than non-employee directors, devotes all or substantially all of his or her full time to our affairs. There are no family relationships among any of our directors or officers.

Our Board has considered the relationships of all directors and, where applicable, the transactions involving them described below under “Certain Relationships and Related Person Transactions.” Based upon this consideration, our board of directors determined that each of Mr. Melton, General Ayyar, and Mr. Moore does not have any relationship which would interfere with the exercise of independent judgment in carrying out his or her responsibility as a director and that each of them qualifies as an independent director under the applicable rules of the Nasdaq Stock Market.

Board Representation and Board Observer Rights

In connection with the Plan, Frank Casano and Marc Nuccitelli entered into letter agreements with the Company, pursuant to which each of Messrs. Casano and Nuccitelli is entitled to invite a single representative to attend all meetings of the Board in a nonvoting observer capacity. These board observer rights for each individual terminate and become of no further force or effect upon the earlier of (i) the date when such individual no longer owns, together with certain affiliates, at least 10% of voting equity of the Company on a fully diluted basis (excluding the Exit Financing (as defined in the Plan), unless and until converted into equity), or (ii) upon a Change of Control (as defined in the board observer letter agreements). See “Transactions with Related Persons — Transactions with Frank Casano” and “Transactions with Related Persons — Transactions with Dillon Hill Capital, LLC.”

Board Leadership Structure and Board’s Role in Risk Oversight

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including those described under “Risk Factors.” Our Board is actively involved in oversight of risks that could affect us. This oversight is conducted primarily through Board committees, as disclosed in the descriptions of each of the committees below, but the full Board of Directors has retained responsibility for general oversight of risks. Our Board satisfies this responsibility through reports by each committee regarding the committee’s considerations and actions, as well as through regular

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reports directly from officers responsible for oversight of particular risks within the Company. Our Board believes that full and open communication between management and the Board of Directors is essential for effective risk management and oversight.

Board Committees

Our Board has established the Audit Committee and the Compensation Committee, each of which operates pursuant to a separate charter adopted by our Board of Directors. Following the completion of this offering, a copy of each committee’s charter will be posted on the Corporate Governance section of our website, which is located at www.sgblocks.com. Such documents will also be available, without charge, upon written request to our corporate secretary at SG Blocks, Inc., 195 Montague Street, 14th Floor, Brooklyn, NY 11201.

The composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, the Nasdaq Stock Market, and SEC rules and regulations, except that, with respect to the majority independent board and compensation committee independence requirements, we will rely upon the phase-in rules of the Nasdaq Stock Market and the SEC, based on our status as a company emerging from bankruptcy, as further described below.

Audit Committee

Mr. Melton, General Ayyar, and Mr. Moore currently serve on our Audit Committee. Mr. Melton serves as the chair of the Audit Committee. Our Board has determined that each member of the Audit Committee is independent under the rules of the Nasdaq Stock Market and Rule 10A-3 of the Exchange Act. Mr. Melton qualifies as an “audit committee financial expert” for purposes of the Exchange Act.

Our Audit Committee oversees our corporate accounting and financial reporting process. Among other matters, our Audit Committee:

      is responsible for the appointment, compensation, and retention of our independent auditors and reviews and evaluates the auditors’ qualifications, independence, and performance;

      oversees our auditors’ audit work and reviews and pre-approves all audit and non-audit services that may be performed by them;

      reviews and approves the planned scope of our annual audit and discusses with the auditors those matters required to be discussed by Auditing Standard No. 16 — Communications with Audit Committees;

      monitors the rotation of partners of the independent auditors on our engagement team as required by law;

      reviews our financial statements and discusses with management and our independent auditors the results of the annual audit and the review of our quarterly financial statements;

      reviews our critical accounting policies and estimates;

      oversees the adequacy of our accounting and financial controls;

      annually reviews the Audit Committee charter and the Audit Committee’s performance;

      reviews and approves all related-party transactions; and

      establishes and oversees procedures for the receipt, retention, and treatment of complaints regarding accounting, internal controls, or auditing matters and oversees enforcement, compliance, and remedial measures under our Code of Ethics.

Compensation Committee

Messrs. McAvoy, Kaufman, Melton and Moore currently serve on our Compensation Committee. Mr. Moore serves as the chair of the Compensation Committee.

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Under the applicable rules of the Nasdaq Stock Market, a company listing following its emergence from bankruptcy is permitted to phase-in its compliance with the independent compensation committee requirements, such that (1) the committee has one independent member at the time of listing, (2) a majority of independent members within 90 days of listing, and (3) all independent members within one year of listing.

The Compensation Committee’s responsibilities include:

         annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer and evaluating the performance of our chief executive officer in light of such corporate goals and objectives;

         determining the compensation of our chief executive officer and reviewing and approving the compensation of our other executive officers;

         appointing, compensating, and overseeing the work of any compensation consultant, legal counsel, or other advisor retained by the Compensation Committee;

         conducting the independence assessment outlined in Nasdaq rules with respect to any compensation consultant, legal counsel, or other advisor retained by the Compensation Committee;

         annually reviewing and reassessing the adequacy of the Compensation Committee charter in compliance with the listing requirements of the Nasdaq Stock Market;

         reviewing and establishing our overall management compensation, philosophy, and policy;

         reviewing and approving our policies and procedures for the grant of equity-based awards;

         reviewing and discussing with management the compensation discussion and analysis that may be required from time to time to be included in our annual proxy statement or Annual Report on Form 10-K, if applicable;

         reviewing and discussing with the Board of Directors corporate succession plans for the chief executive officer and other key officers;

         overseeing and administering our employment agreements, severance arrangements, compensation, welfare, benefit, and pension plans and similar plans; and

         reviewing and making recommendations to the Board of Directors with respect to director compensation.

Compensation Committee Interlocks and Insider Participation

During 2016, no officer or employee served as a member of our Compensation Committee. None of our executive officers currently serve, or in the past year has served, as a member of the compensation committee of any entity that has one or more executive officers serving on our Board of Directors or Compensation Committee or as a director of any entity that has one or more executive officers serving on our Compensation Committee.

Nominating and Corporate Governance Committee

We do not have a standing nominating and corporate governance committee. In accordance with Rule 5605(e)(2) of the Nasdaq Rules, a majority of the Company’s independent directors may recommend a director nominee for selection by the Board. The Board believes that the independent directors can sufficiently carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. As there is no standing nominating committee, we do not have a nominating committee charter in place.

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The Board will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to the Board should follow the procedures set forth in our By-laws.

We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the Board considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.

Code of Ethics

We have adopted a Code of Ethics that applies to our employees, our President, Vice President, Chief Executive Officer, and Chief Financial Officer. We will provide, without charge, a copy of the Code of Ethics on the written request of any person addressed to our Chief Financial Officer at SG Blocks, Inc., 195 Montague Street, 14th Floor, Brooklyn, NY 11201. Following the completion of this offering, a current copy of the Code of Ethics will be posted on the Corporate Governance section of our website, which is located at www.sgblocks.com. If we make any substantive amendments to or grant any waivers from the Code of Ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

Transactions with Related Persons

Transactions with Frank Casano

On April 10, 2014, the Company entered into an Exchange Agreement with certain of the holders of its existing Senior Convertible Debentures, including Mr. Casano. Under the terms of the Exchange Agreement, $448,000 in an 8% Original Issue Discount Senior Secured Convertible Debenture (“OID Debenture”), due July 1, 2014 and purchased by Mr. Casano for a subscription price of $400,000, was exchanged for (a) a new 8% OID Debenture due April 1, 2016, in the principal amount of $510,720 (the “Casano 2014 Debenture”) and (b) a common stock purchase warrant to purchase up to 2,042,880 shares of Common Stock for $0.275 per share, subject to adjustments upon certain events (the “2014 Warrant”). The initial conversion price for the Casano 2014 Debenture is $0.25 per share, subject to adjustments upon certain events, as set forth in the Casano 2014 Debenture. Mr. Casano also owned a common stock purchase warrant (the “2013 Warrant”) to purchase up to 1,041,861 shares of Common Stock for $0.4488 per share, subject to adjustments upon certain events. Entry into the Exchange Agreement triggered the anti-dilution provisions in the 2013 Warrant, which reset the exercise price under the 2013 Warrant at $0.25 per share and increased the number of shares issuable upon exercise of the 2013 Warrant to 1,792,000 shares. All warrants and debentures owned by Mr. Casano were cancelled upon the Company’s emergence from bankruptcy and all outstanding debt was converted into preferred stock. Mr. Casano’s preferred stock will be converted into common stock prior to this offering.

Effective March 27, 2015, Mr. Casano resigned as a member of the Board of Directors of the Company. As of April 7, 2017, he owns 8.4% of our common stock.

Mr. Casano is a current board observer. See “Directors, Executive Officers, and Corporate Governance — Board Representation and Board Observer Rights.”

Transactions with Dillon Hill Capital, LLC

As of April 7, 2017, Dillon Hill Capital, LLC (“Dillon Hill”) owns 14.0% of our common stock. On April 10, 2014, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold, for a subscription price of $825,000, an OID Debenture to Dillon Hill in the principal amount of $1,140,000, with a maturity date of April 1, 2016. This OID Debenture was cancelled upon the Company’s emergence from bankruptcy, and all outstanding debt was converted into preferred stock. Dillon Hill’s preferred stock will be converted into common stock prior to this offering.

Dillon Hill has appointed Marc Nuccitelli as a board observer. See “Directors, Executive Officers, and Corporate Governance — Board Representation and Board Observer Rights.”

Transactions with Hillair Capital Investments L.P.

On June 30, 2016, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold to HCI, for a subscription price of $2,000,000, the June 2016 OID in the principal amount of $2,500,000, with a maturity date of June 30, 2018.

On November 17, 2016, the Company entered into a Securities Purchase Agreement, pursuant to which the Company sold for a subscription price of $750,000 an OID Debenture to HCI in the principal amount of $937,500, with a maturity date of June 30, 2018 (the “November 2016 OID” and, together with the June 2016 OID, the “2016 OID Debentures”).

The 2016 OID Debentures are convertible at HCI’s option at any time in whole or in part into shares of New Common Stock at a ratio of one share for every $3.75 of debt. Simultaneously with the effective date of the Company’s offering, 50% of the 2016 OID Debentures will convert into 458,334 shares of common stock to be issued to HCI. These shares will be subject to lock-up restrictions for 180 days after the date of this prospectus as described elsewhere herein.

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Upon a payment default, a breach of a representation, warranty, or covenant, a change in control transaction, a fundamental transaction, or any other event of default, at HCI’s election, the entire amount of the 2016 OID Debentures at the mandatory default amount will become due and, until paid in full, any outstanding amounts will bear interest at the lesser of 18% or the maximum rate permitted by law. The “mandatory default amount” is the greater of 130% of the outstanding principal amount of the 2016 OID Debentures or a formula price reflecting the fair market value of the number of shares of common stock of the Company into which the outstanding principal amount of the 2016 OID Debentures could be converted, in either case plus all other amounts, costs, expenses, and liquidated damages due in respect of the 2016 OID Debenture. The 2016 OID Debentures are secured by a first-priority lien and security interest on all of the Company’s assets pursuant to the Security Agreement, dated as of the Effective Date. The Guarantee Agreement entered into by SG Building on the Effective Date in favor of HCI also unconditionally guarantees the obligations and indebtedness owed to HCI under the 2016 OID Debentures. The Company may not prepay any portion of the principal amount of the 2016 OID Debentures without the prior written consent of HCI. In February 2017, HCI agreed to the prepayment of the remaining balance of the 2016 OID Debentures from the proceeds of the Company’s offering of common stock pursuant to this Registration Statement.

As of April 7, 2017, HCI owns 60.4% of our common stock (assuming conversion of 50% of the 2016 OID Debentures).

For transactions with HCI related to the Bankruptcy Proceedings, see “Our Emergence From Bankruptcy.”

Indemnification of Officers and Directors

We have entered into indemnification agreements with each of our current executive officers and directors. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us and to advance expenses reasonably incurred as a result of any proceeding against them as to which they could be indemnified. Additionally, we may enter into indemnification agreements with any future directors or executive officers.

Policies and Procedures for Related Party Transactions

Our Board of Directors will adopt a formal written policy, to be in effect upon the completion of this offering, providing that our Audit Committee will be responsible for reviewing “related party transactions,” which are transactions in which: (i) we are or will be a participant; (ii) the aggregate amount involved exceeds or may be expected to exceed $120,000 or such lower threshold as our Audit Committee may determine; and (iii) a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, nominee for director, executive officer, or greater than 5% beneficial owner of our common stock and their immediate family members. Under this policy, all related party transactions may be consummated or continued only if approved or ratified by our Audit Committee. In reviewing and approving any such transactions, our Audit Committee will be tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction.

Director Independence

See “Directors, Executive Officers, and Corporate Governance” for a discussion of our independent directors and their committee memberships.

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EXECUTIVE COMPENSATION

This section discusses the material components of the executive compensation program offered to our named executive officers. For 2016, our named executive officers were:

         Paul M. Galvin, our Chief Executive Officer;

         Stevan Armstrong, our President and Chief Operating Officer; and

         Mahesh Shetty, our Chief Financial Officer.

Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2016 and 2015.

Name and Principal Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Option
Awards
($)(1)

 

All Other
Compensation
($)

 

Total
($)

Paul M. Galvin

 

2016

 

155,000

 

 

 

139,285

 

 

294,285

Chief Executive Officer

 

2015

 

216,333

 

 

 

 

 

216,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stevan Armstrong
President and Chief

 

2016

 

114,167

 

 

 

54,509

 

 

168,676

Operating Officer

 

2015

 

102,167

 

 

 

 

 

102,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mahesh Shetty

 

2016

 

97,500

(2)

 

 

43,894

 

 

141,394

Chief Financial Officer

 

2015

 

 

 

 

 

 

____________

(1)      Represents the aggregate grant date fair value of stock options granted to the named executive officers in the applicable year computed in accordance with Accounting Standards Codification “Topic 718 — Compensation — Stock Compensation” (“ASC Topic 718”), excluding the effect of estimated forfeitures. For a description of the assumptions used in valuing these awards, see “Note 3 — Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus. For Messrs. Galvin and Shetty, a portion of the amount listed in the Option Awards column for 2016 relates to options to purchase 13,334 shares, which were received as compensation for serving on the Board of Directors.

(2)      Amount reflects payments of $97,500 to RSM Advisors, Inc. (“RSM”), a financial consulting business of which Mr. Shetty is the principal.

Narrative Disclosure to Summary Compensation Table

Following is a brief summary of each core element of the compensation program for our named executive officers.

Base Salary

We provide competitive base salaries that are intended to attract and retain key executive talent. Base salary levels depend on the executive’s position, responsibilities, experience, market factors, recruitment and retention factors, internal equity factors, and our overall compensation philosophy. In 2014, the Board approved and set an annual base salary for Messrs. Galvin and Armstrong at $216,333 and $102,167, respectively, for the fiscal year ending December 31, 2015. In 2015, the Board set an annual base salary for Messrs. Galvin, Armstrong, and Shetty at $155,000, $114,167 and $97,500, respectively, for the fiscal year ending December 31, 2016.

Stock Options

We generally offer stock options to our key employees, including our named executive officers, as the long-term incentive component of our compensation program. Our stock options generally allow key employees to purchase shares of our common stock at a price per share equal to the fair market value of

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our common stock on the date of grant, as determined by our Board of Directors, and may be intended to qualify as “incentive stock options” under the Internal Revenue Code.

No stock options were granted during the year ending December 31, 2015. On November 1, 2016, our Board of Directors granted Messrs. Galvin, Armstrong, and Shetty options to purchase 98,273, 43,677 and 21,839 shares of our post-reverse stock split common stock, respectively. With respect to Mr. Galvin, these options vested as to 43,676 of the shares on the grant date, and the remainder will vest as to 18,199 shares on each of the first, second, and third anniversaries of the grant date. With respect to Mr. Armstrong, these options vested as to 21,839 of the shares on the grant date, with the remainder to vest as to 10,919 shares on each of the first and second anniversaries of the grant date. With respect to Mr. Shetty’s option grant, 10,919 of the options vested on the grant date and the remaining 10,920 options vested on the filing date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

On November 1, 2016, our Board of Directors granted Messrs. Galvin and Shetty options to purchase 13,334 shares of the Company’s common stock as part of their compensation for serving on the Board of Directors. Each of these options vest and become exercisable in equal quarterly installments of 3,334 shares on the last day of each fiscal quarter following the grant date until such options are 100% vested.

On November 1, 2016, SGB also granted each of Messrs. McAvoy, Kaufman, and Melton options to purchase 16,667 shares of common stock in connection with their service on the Board of Directors. Each of these options vests and becomes exercisable in equal quarterly installments of 4,167 shares on the last day of each fiscal quarter following the grant date until such options are 100% vested. Messrs. Kaufman and McAvoy subsequently assigned 33,334 of such options to HCI in December 2016.

On January 30, 2017, the Board granted 186,309 shares of common stock to certain key employees, which options vest in equal quarterly installments over a period of two years after the grant date. In addition, the Board granted these individuals options to purchase, in the aggregate, 61,034 shares of common stock in connection with the Company’s emergence from bankruptcy in 2016, which options vested in full on the grant date.

On March 10, 2017, we granted each of A. Richard Moore and Balan Ayyar options to purchase 16,667 shares of common stock in connection with their service on the Board of Directors. Each of these options vests and becomes exercisable in equal quarterly installments of 4,167 shares on the last day of each fiscal quarter following the grant date until such options are 100% vested.

On March 10, 2017, our Board of Directors granted Messrs. Galvin and Shetty options to purchase an aggregate of 317,871 shares of common stock in connection with the public offering of common shares pursuant to this Registration Statement on Form S-1 (the “Offering Options”). Each of the options vest and become exercisable based on the achievement of certain performance thresholds.

The stock options vest on an accelerated basis in the event of (i) death or disability or (ii) a termination without cause or a resignation for good reason, in either case within two years after a change in control. In addition, all of the options granted to Messrs. Galvin and Shetty on or before January 30, 2017 vest on an accelerated basis in the event that either Mr. Galvin or Mr. Shetty is terminated by the Company without “Cause”, as defined in each of their employment agreements.

In accordance with the Plan, all stock options granted prior to June 30, 2016 were cancelled. See “Market for Common Equity and Related Stockholder Matters — SGB Stock Incentive Plan.”

Employment Agreements

The following discussion relates to compensation arrangements on behalf of, and compensation paid by our Company to, Messrs. Galvin, Armstrong and Shetty pursuant to the terms of their employment agreements with the Company:

Paul M. Galvin

We employ Mr. Galvin, our Chief Executive Officer and Chairman of the Board of Directors, pursuant to a two-year employment agreement, effective January 1, 2017, which provides for base compensation in

56

the amount of $240,000 per year and incentive compensation at the discretion of our Board of Directors. Mr. Galvin was granted 77,014 options in connection with his employment and 19,800 options in connection with his performance and the Company’s performance since our emergence from bankruptcy in June 2016. Mr. Galvin is also eligible to receive options to purchase 185,425 shares of common stock granted in connection with the public offering of common shares pursuant to this Registration Statement on Form S-1. The agreement further provides for the payment of severance compensation in the amount of equal to the greater of (i) the remainder of his base annual salary or (ii) one year of the his base annual salary if terminated by the Company other than for “Cause,” as defined therein. In addition, Mr. Galvin’s outstanding options granted on or before January 30, 2017 become immediately vested and exercisable in full if his employment is terminated by the Company without Cause (as defined therein).

Stevan Armstrong

We employ Mr. Armstrong, our President and Chief Operating Officer, pursuant to a two-year employment agreement, effective January 1, 2017, which provides for base compensation in the amount of $140,000 per year and incentive compensation at the discretion of our Board of Directors. Mr. Armstrong was granted 21,281 options in connection with his employment and 13,200 options in connection with his performance and the Company’s performance since our emergence from bankruptcy in June 2016. The agreement further provides for the payment of severance compensation equal to one year of his base annual salary if terminated by the Company during the initial term of his employment agreement other than for “Cause,” as defined therein. In addition, Mr. Armstrong’s outstanding options become immediately vested and exercisable in full if his employment is terminated by the Company without Cause or by Mr. Armstrong for “Good Reason,” as defined therein, within two years after a “Change in Control” (as defined in the Company’s Stock Incentive Plan).

Mahesh Shetty

We employ Mr. Shetty, our Chief Financial Officer, pursuant to a two-year employment agreement, effective January 1, 2017, which provides for base compensation in the amount of $180,000 per year and incentive compensation at the discretion of our Board of Directors. Mr. Shetty was granted 55,838 options in connection with his employment and 13,200 options in connection with his performance and the Company’s performance since our emergence from bankruptcy in June 2016. Mr. Shetty is also eligible to receive options to purchase 132,446 shares of common stock granted in connection with the public offering of common shares pursuant to this Registration Statement on Form S-1. The agreement further provides for the payment of severance compensation equal to one year of his base annual salary if terminated by the Company other than for “Cause,” as defined therein. In addition, Mr. Shetty’s outstanding options granted on or before January 30, 2017 become immediately vested and exercisable in full if his employment is terminated by the Company without Cause (as defined therein).

Shetty Consulting Agreement

Effective July 1, 2016, we entered into a consulting agreement (the “Shetty Agreement”) with Mr. Shetty and RSM, which provides for certain consulting services to be provided by RSM and for Mr. Shetty to serve as our Chief Financial Officer from July 27, 2016 unless the Shetty Agreement is terminated for “Cause” (as defined in the Shetty Agreement). The Shetty Agreement provides that Mr. Shetty will be paid $10,000 per month and for Mr. Shetty will receive options to purchase 21,839 shares of Company common stock at fair market value on the grant date ($3.00), one-half of which vested on the grant date and the remaining one-half of which vested upon the filing the Company’s Annual Report for the year ended December 31, 2016 on February 21, 2017. The Shetty Agreement terminated in connection with the 2017 employment agreement between Mr. Shetty and the Company, as described above.

Retirement, Health, Welfare, and Additional Benefits

Messrs. Galvin, Shetty and Armstrong are eligible to participate in our employee benefit plans and programs, including medical benefits, flexible spending accounts, short- and long-term disability and life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans. Messrs. Galvin, Shetty and Armstrong are also eligible to participate in a tax-qualified 401(k)

57

defined contribution plan to the same extent as our other full-time employees. Currently, we do not match contributions made by participants in the 401(k) plan or make other contributions to participant accounts.

Outstanding Equity Awards at Fiscal Year End

Name

 

Grant Date

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

Paul M. Galvin

 

11/1/2016

 

43,676

 

54,597

(1)

 

3.00

 

10/31/2026

 

 

11/1/2016

 

3,334

 

10,000

(2)

 

3.00

 

10/31/2026

 

 

 

 

 

 

 

 

 

 

 

 

Stevan Armstrong

 

11/1/2016

 

21,839

 

21,838

(1)

 

3.00

 

10/31/2026

 

 

 

 

 

 

 

 

 

 

 

 

Mahesh Shetty

 

11/1/2016

 

10,919

 

10,920

(1)

 

3.00

 

10/31/2026

 

 

11/1/2016

 

3,334

 

10,000

(2)

 

3.00

 

10/31/2026

____________

(1)      With respect to Mr. Galvin, 18,199 of the remaining option shares vest on each of the first, second, and third anniversaries of the grant date. With respect to Mr. Armstrong, 10,919 of the remaining option shares vest on the first and second anniversaries of the grant date. With respect to Mr. Shetty, 10,920 option shares vested on February 21, 2017, the filing date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

(2)      These option shares vest in equal quarterly installments on the last day of each fiscal quarter following the date of grant.

Compensation of Directors

Our director compensation program is designed to attract and retain highly qualified directors and align their interests with the long-term interests of our shareholders.

Director Compensation Table

The table below summarizes the compensation paid by us to directors for the fiscal year ended December 31, 2016.

Name

 

Option
Awards
($)(1)

 

Fees Earned or
Paid in Cash
($)

 

Total
($)

 

J. Scott Magrane+

 

 

 

 

Christopher Melton

 

50,000

 

 

50,000

 

Joseph Tacopina+

 

 

 

 

Paul M. Galvin

 

 

 

 

 

(2)

Stevan Armstrong+

 

 

 

 

 

(2) 

Brian Wasserman+

 

 

 

 

Jennifer Strumingher+

 

 

 

 

Mahesh Shetty

 

 

 

 

 

(2)

Neal Kaufman

 

50,000

 

 

 

50,000

 

Sean McAvoy

 

50,000

 

 

 

50,000

 

____________

+        Resigned as a member of the Board of Directors effective July 1, 2016.

(1)      Represents the aggregate grant-date fair value of stock options granted to the non-employee directors in 2016 computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. For a description of the assumptions used in valuing these awards, see “Note 3 — Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this prospectus. As of December 31, 2016, each of Messrs. Melton, Kaufman and McAvoy held options to purchase 16,667 shares of our post-reverse stock split common stock. These option shares vest in equal quarterly installments on the last day of each fiscal quarter following the date of grant. Messrs. Kaufman and McAvoy assigned each of their options to purchase 16,667 shares of post-reverse split common stock to HCI in December 2016.

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(2)      The compensation arrangements for Messrs. Galvin, Armstrong and Shetty are disclosed in the Summary Compensation Table above in “— Summary Compensation Table.”

We also reimburse the directors for reasonable travel expenses incurred in connection with their activities on the Company’s behalf.

Risk Oversight

Management is responsible for the day-to-day management of risks the Company faces, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk management oversight role, the Board has the responsibility to satisfy itself that the risk management processes implemented by management are adequate and functioning as designed. As a critical part of this risk management oversight role, the Board encourages full and open communication between management and the Board. The Company’s Chairman and CEO meets periodically with the President and other members of management to discuss strategy and risks facing the Company. Senior management attends Board meetings and is available to address any questions or concerns raised by the Board on risk management-related and other matters. The Board periodically receives presentations and reports from senior management on strategic matters involving the Company’s operations to enable it to understand the Company’s risk identification, management, and mitigation strategies.

The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk management in areas of financial risk, internal controls, and compliance with legal and regulatory requirements. The Compensation Committee assists the Board in overseeing risk management in the areas of compensation policies and programs.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth the number of shares of common stock beneficially owned as of April 7, 2017 by (i) those persons or groups known to beneficially own more than 5% of Company common stock; (ii) each current director and executive officer of the Company; and (iii) all executive officers and directors as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act. Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares. Except as otherwise indicated in the table below, the business address of each individual or entity is 195 Montague Street, 14th Floor, Brooklyn, NY 11201.

Name of Beneficial Owner

 

Number of
Shares
Beneficially
Owned Prior
to This
Offering(1)

 

Number of
Shares
Beneficially
Owned After
This Offering(1)

 

Percentage of
Shares
Beneficially
Owned Prior
to This
Offering(2)

 

Percentage of
Shares
Beneficially
Owned After
This Offering(2)

5% or Greater Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hillair Capital Investments LP(8)

 

1,600,953

 

[ ]

 

60.4

%

 

[ ]

%

 

Frank Casano(9)

 

221,312

 

[ ]

 

8.4

%

 

[ ]

%

 

Dillon Hill Capital LLC(10)

 

370,500

 

[ ]

 

14.0

%

 

[ ]

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors and Named Executive Officers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Galvin(3)(5)

 

80,288

 

[ ]

 

3.0

%

 

[ ]

%

 

Christopher Melton(3)(7)

 

9,924

 

[ ]

 

*

%

 

[ ]

%

 

Neal Kaufman(3)

 

 

[ ]

 

*

%

 

[ ]

%

 

Mahesh Shetty(3)(4)

 

41,705