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Item 9A. Controls and Procedures

2022-04-18 compared with 2021-04-15 · 1102 added, 348 removed, 960 unchanged (60% of the section changed)

2 unchanged sentences

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this Annual Report (the “Evaluation Date”).

Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Principal Executive Officer and the Principal Financial Officer believe that the consolidated financial statements and other information contained in this Annual Report present fairly, in all material respects, our business, financial condition and results of operations.

4 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

The Company does not have sufficient internal controls related to the timely closing of their accounting records, caused by insufficient accounting resources and a lack of formal review procedures.

In addition, the Company does not have sufficient internal controls related to the application of technical accounting guidance to complex and/or new transactions.

To assist in internal control over financial reporting two resources have been hired.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) .

Based on our assessment, we concluded that, as of December 31, 2020, our internal control over financial reporting was not effective based on those criteria.

Based on our assessment, we concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

1 unchanged sentence

There was no change in our internal control over financial reporting that occurred during the fourth quarter of 2020.

There were changes made to our internal control process that improved the timely closing of our accounting records and added additional steps within our review process for complex and new transactions over financial reporting that occurred during the fourth quarter of 2021.

OTHER INFORMATION.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this item will be contained in the “Proposal 1 – Election of Directors,” “Information About Our Executive Officers,” “The Board and its Committees – Director Independence,” “Delinquent Section 16(a) Reports,” “Code of Ethics,” and “The Board and its Committees – Board and Committee Responsibilities – Audit Committee” sections of the 2021 Proxy Statement that we expect to file with the SEC no later than April 30, 2021 (120 days after December 31, 2020), and is incorporated herein by reference in response to this Item 10.

Below is certain information regarding our directors and executive officers.

Name of Director or Executive Officer

Served as an Officer and/or Director Since

Chairman of the Board and Chief Executive Officer

November 2011

Yaniv Blumenfeld

Maggie Coleman (1)(3)(6)

Christopher Melton (2)(5)

November 2011

Joseph Safina (1)(3)

David Villarreal (4)(5)(7)

William Rogers

Chief Operating Officer

December 2020

Gerald Sheeran

Acting Chief Financial Officer

Audit Committee Member.

Audit Committee Chairman.

Compensation Committee Member.

Compensation Committee Chairman.

Nominating and Corporate Governance Committee Member.

Nominating and Corporate Governance Committee Chair

Lead Independent Director.

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., the Company, and certain stockholders of the Company on November 4, 2011 (the “Merger”).

Galvin is a founder of SG Blocks, LLC, the predecessor entity of the Company.

He has served as the Chief Executive Officer of the Company since April 2009 and as a director of the Company since January 2007.

Galvin has been a managing member of TAG Partners, LLC (“TAG”), an investment partnership formed for the purpose of investing in the Company, since October 2007.

Galvin brings over 30 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.

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.

Galvin previously served for 10 years on the Sisters of Charity Healthcare System Advisory Board and six years on the board of SentiCare, Inc.

In 2011, the Council of Churches of New York recognized Mr.

Galvin with an Outstanding Business Leadership Award.

We selected Mr.

Galvin to serve on our Board because he brings extensive knowledge of the real estate and finance industries and managements experience.

Galvin’s pertinent experience, qualifications, attributes and skills include his expertise in real estate development and management and finance.

Yaniv Blumenfeld joined the Board of Directors in April 2018.

He founded Glacier Global Partners LLC in 2009 and is responsible for its strategic direction and oversees its investments and day-to-day management, including origination, underwriting, closing, investor relations and asset management functions.

Blumenfeld has over 20 years of real estate experience, 13 years of which have been with leading Wall Street firms, where he was responsible for structuring, underwriting, pricing, securitizing and syndicating over $16 billion of commercial real estate loans and equity transactions.

Prior to founding Glacier Global Partners LLC, Mr.

Blumenfeld was a Managing Director at The Bear Stearns Companies, Inc.

and JPMorgan Chase & Co., and, in such role, was responsible for structuring and closing over $2 billion in real estate debt and equity transactions for institutional clientele.

Prior to that, Mr.

Blumenfeld was a Managing Director and Head of the CMBS Capital Markets Group for the U.S.

at EuroHypo AG, then world’s largest real estate investment bank.

In that capacity, Mr.

Blumenfeld expanded the large loan CMBS group and oversaw the structuring, pricing, securitization and syndication functions and served on the bank’s investment committee in charge of approving all transactions.

He designed and implemented risk-control measures, standardized underwriting and pricing models and structured over $4 billion of real estate loans.

Other positions previously held by Mr.

Blumenfeld include Senior Vice President at Lehman Brothers, PaineWebber/UBS and Daiwa Securities.

Prior to joining the banking industry, Mr.

Blumenfeld worked as a real estate consultant at Ernst & Young real estate consulting group, advising real estate owners and operators, and various investment banks.

Blumenfeld received a Bachelor of Science in real estate finance from Cornell University School of Hotel Administration.

He is a member of the CRE Finance Council, was a guest lecturer at Columbia University, and was a recipient of the Young Jewish Professional NYC Real Estate Entrepreneur & Achievement Award in 2013.

He is also involved with various philanthropic organizations, including The American Israel Public Affairs Committee, White Plains Hospital, American Friends of Rabin Medical Center and is on the board of directors of Arts Westchester and the White Plains Business Improvement District.

We selected Mr.

Blumenfeld to serve on our Board because he brings extensive knowledge of the real estate finance industry.

Blumenfeld’s pertinent experience, qualifications, attributes and skills include expertise in real estate finance, risk-control, developments, investment banking and capital raising.

Maggie Coleman was appointed as a director of the Company in June of 2020.

She is Managing Partner as Sera Global where she leads the Private Capital Advisory practice for real estate and is reponsible for advising leading general partners, operating companies and managers of real assets on capital formation and fund strategy including capital raising.

Additional, she oversees Sera Global's investor coverage across institutional relationships, private equity and private capital groups.

Prior to joining Sera Global, she was a Senior Managing Director and Co-Head of International Capital, Americas at Jones Lang LaSalle Incorporated (NYSE:

JLL), a Fortune 500 company.

In this role, Ms.

Coleman led a team that was primarily focused on cross-border capital deployment from global investors across Canada, EMEA and Asia Pacific.

Coleman was responsible for placing capital from international investors into JLL’s direct transactions, structuring recapitalizations and joint ventures, while also helping offshore capital acquire and finance JLL’s global investment portfolios and large single asset sales.

Coleman has been involved in over $20 billion in transactions and has directed the JLL platform that has executed over $53 billion in transactions since 2011, including over $10 billion in loan sales in the US, Europe and Asia.

Coleman was responsible for business development, client management and the execution of global transactions and is a frequent speaker on global capital flows in the real estate sector.

Coleman also served in various other positions at JLL including as Executive Vice President at JLL form 2013-209 and Managing Director for, 2016-2019.

Prior to its merger with JLL in 2008, Ms.

Coleman worked as a Director within the M&A Advisory Services group of Staubach Capital Markets specializing in real estate structured financial solutions and investment banking.

Coleman earned a master’s degree from the University of Chicago in Political Economy and a bachelor’s degree in business economics & public policy (BEPP) and international business from Indiana University’s Kelley School of Business.

Coleman is a council member of the Urban Development/Mixed-Use Council (UDMUC) at the Urban Land Institute.

Commercial Property Executive named Ms.

Coleman as a recipient of the “Rising Leader Award” for 2012.

Coleman also received the Catalyst Award from JLL for her achievements in team management.

Coleman is affiliated with the Guild Board of the Boys & Girls Clubs of Chicago and is a member of the Board of Directors of the Jackson Chance Foundation.

We selected Ms.

Coleman to serve on our Board because she brings extensive real estate investment knowledge.

Coleman’s pertinent experience, qualifications, attributes and skills include expertise in real estate investment and financial literacy.

Christopher Melton was appointed as a director of the Company upon consummation of the Merger on November 4, 2011.

Melton is a licensed real estate salesperson in the State of South Carolina and until June 2019 was a principal of Callegro Investments, LLC, a specialist land investor investing in the southeastern U.S., which he founded 2012.

Since June 2019 he has served as a specialist Land Advisor with SVN.

Melton also serves on several public and private boards, including Jupiter Wellness, Inc.

since August 2019 and has served since February 2018 as chief investment officer and analyst at TNT Capital Advisors, a capital advisory firm based in Florida.

He also served as a sales agent as MSK Commercial Services, a commercial real estate company, from February 2018 to June 2019.

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.

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.

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.

Melton earned a Bachelor of Arts in Political Economy of Industrial Societies from the University of California, Berkeley in 1995.

Melton earned Certification from University of California, Los Angeles’s Anderson Director Education Program in 2014.

We selected Mr.

Melton to serve on our Board because he brings extensive knowledge of finance and the real estate industry.

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 real estate investment and development activities.

Joseph Safina was appointed as a director of the Company on May 28, 2021.

Safina is a serial entrepreneur with over thirty years of experience in investment banking working with public and privately held small to mid-cap companies.

Since 1997, Mr.

Safina has been the principal of Safina Capital, an “all-stage” investment firm which offers its portfolio companies investment capital, strategic insight, global relationships and operational support.

He has been instrumental in helping his clients with large-scale fund-raising, merger & acquisitions, business development, marketing and financial management.

In 1988, Joseph Safina joined NYSE Member firm, Gruntal & Co., as a Senior Vice President.

He was a top producer and was tasked with building Gruntal’s Corporate Finance Department.

He left Gruntal & Co.

in 1993 and founded Nichols, Safina, Lerner & Co.

(NSL) - a New York-based broker dealer.

As the C.E.O.

of NSL, he navigated the firm from a start-up into a 200 employee, multi-location company.

Safina also headed up NSL’s trading desk, making markets in hundreds of stocks and was profiled as one of the top ten Bankers in the country in R.J.

Shook’s “The Winners Circle”.

Safina has raced cars professionally for over ten years and has competed at the prestigious 24 Hours at Daytona, The 12 Hours of Sebring and The 24 Hours of Dubai representing BMW, Ford and Porsche with several IMSA podium finishes.

He is also a pilot, scuba diver and competitive cyclist.

We selected Mr.

Safina to serve on our Board because he brings extensive knowledge of finance industry.

Safina’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through his investment activities.

David Villarreal was appointed as a director of the Company on May 28, 2021.

Villarreal’s career spans over 40 years in various management, business and leadership capacities, beginning in 1977 when he served as Deputy Mayor and Senior Deputy Economic Development Advisor, under Mayor Tom Bradley in the City of Los Angeles.

He has served since August 2014 as the Chief Administrative Officer of Affinity Partnerships, LLC, a Costco national mortgage services platform provider, with annual closed loan production of $8+ billion through a network of ten national mortgage lenders.

From March 2011 to August 2014, he served as the President -Corporate Business Development, of Prime Source Mortgage, Inc.

From September 2008 to September 2012, he served as a Consultant to the International Brotherhood of Teamsters.

We selected Mr.

Villarreal to serve on our Board because he brings extensive knowledge of mortgage and real estate industry.

Villarreal’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through his real estate investment activities.

William Rogers has served as the Company’s Chief Operating Officer since December 2020.

Rogers has over 30 years of professional construction experience as lead superintendent.

From April 2007 through December 2020, Mr.

Rogers acted as the Construction Superintendent at Plaza Construction Corp.

based out of New York City.

As the Construction Superintendent, Mr.

Rogers supervised and directed subcontractors while demonstrating strong leadership, communication, organizational and time management skills.

As part of his responsibilities, Mr.

Rogers monitored costs including labor and material, project schedule and progress, and coordinated the sequence of construction details.

Gerald Sheeran has served as the Controller of the Company since March of 2018 and Acting Chief Financial Officer since August 22, 2019.

Sheeran brings to our Company extensive experience and expertise in areas of finance and accounting.

Prior to joining the Company, Mr.

Sheeran was a Senior Accounting Manager for Lucid Energy Group from March of 2013 to March of 2018.

Before his time at Lucid Energy Group, Mr.

Sheeran worked for several different companies in connection with their accounting, reporting, and financial operations.

Sheeran holds a Bachelor of Business Administration in Accounting from the University of Texas at Arlington.

Board Leadership Structure

The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management.

Our Board is currently led by a Chairman of the Board who also serves as our Chief Executive Officer.

The Board understands that the right Board leadership structure may vary depending on the circumstances, and our independent directors periodically assess these roles and the Board leadership to ensure the leadership structure best serves the interests of the Company and stockholders.

Galvin currently holds the Chairman and Chief Executive Officer roles.

Villarreal currently serves as the Lead Independent Director appointed by the majority of the Board.

The responsibilities of the Lead Independent Director include, among others:

(i) serving as primary intermediary between non-employee directors and management;

(ii) approving the agenda and meeting schedules for the Board;

(iii) advising the Chairman of the Board as to the quality, quantity and timeliness of the information submitted by management to directors;

(iv) recommending director candidates and selections for the membership and chairman position for each committee of the Board;

(v) calling meetings of independent directors;

and (vi) serving as liaison for consultation and communication with stockholders.

We believe the current leadership structure, with combined Chairman and Chief Executive Officer roles and a Lead Independent Director, best serves the Company and its stockholders at this time.

Galvin possesses detailed and in-depth knowledge of the Company and the industry and the issues, opportunities and challenges we face, and is best positioned to ensure the most critical business issues are brought for consideration by the Board.

In addition, having one leader serving as both the Chairman and Chief Executive Officer provides decisive, consistent and effective leadership, as well as clear accountability to our stockholders and customers.

This enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and suppliers, particularly during times of turbulent economic and industry conditions.

The Board believes the appointment of a strong Lead Independent Director and the use of regular executive sessions of the non-management directors, along with a majority the Board being composed of independent directors, allow it to maintain effective oversight of management.

We believe that the combination of the Chairman and Chief Executive Officer roles is appropriate in the current circumstances and, based on the relevant facts and circumstances, separation of these offices would not serve our best interests and the best interests of our stockholders at this time.

Director Independence

Nasdaq Listing Rule 5605 requires a majority of a listed company’s board to be comprised of independent directors.

In addition, the Nasdaq Listing Rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Members of the Audit Committee and Compensation Committee must also satisfy the independence criteria set forth in Rules 10A-3 and 10C-1 under the Exchange Act, respectively.

Under Nasdaq Listing Rule 5605(a)(2), a director will only qualify as an “independent director” if, in the opinion of the Board, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered independent for purposes of Exchange Act Rule 10A-3, an Audit Committee member may not, other than in his or her capacity as a member of the Audit Committee, the Board or any other committee of the Board, accept, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, or otherwise be affiliated with the Company or any of its subsidiaries.

In order for Compensation Committee members to be considered independent for purposes of Exchange Act Rule 10C-1, the Board must consider all factors specifically relevant to determining whether a director has a relationship to the Company that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including, but not limited to:

(1) the source of compensation of the director, including any consulting advisory or other compensatory fee paid by the Company to the director;

and (2) whether the director is affiliated with the Company or any of its subsidiaries or affiliates.

The Board has reviewed the materiality of any relationship that each of our directors has with the Company and has determined that each of Messrs.

Villarreal, Melton and Safina, and Ms.

Coleman, is “independent” in accordance with the Nasdaq Listing Rules.

Galvin is not considered “independent” due to his executive position.

Blumenfeld is also not considered "independent" due to compensation he received from certain business relationships he has with us.

As such independent directors comprise a majority of our Board and the members of our Audit, Compensation, and Nominating, Environmental, Social and Corporate Governance Committees are fully independent.

Board and Committee Responsibilities

The Board is the ultimate decision-making body of the Company, except with respect to those matters to be decided by the stockholders.

It selects the Chief Executive Officer and other members of the senior management team, which is charged with the conduct of the Company’s day-to-day business.

The Board acts as an advisor and counselor to senior management and ultimately monitors its performance.

The function of the Board to monitor the performance of senior management is facilitated by the presence of non-employee directors who have substantive knowledge of the Company’s business.

Our Board has established a separate standing Audit Committee, Compensation Committee and Nominating, Environmental, Social and Corporate Governance Committee.

Each of the Audit Committee, Compensation Committee and Nominating, Environmental, Social and Corporate Governance Committee operates pursuant to a written charter, a copy of which may be viewed on the Company’s website at https://www.sgblocks.com under the “Investors — Corporate Governance” tab.

Audit Committee

The members of our Audit Committee are Mr.

Melton, who serves as chairperson, Mr.

Safina and Ms.

The Audit Committee Charter requires that the Audit Committee consist of at least three members of the Board, each of whom is required to be independent as defined by Nasdaq and SEC rules.

The Board has determined that each member of the Audit Committee is independent, as defined by Rule 10A-3 of the Exchange Act and Nasdaq Marketplace Rule 5605(a)(2).

The Board has also determined that Mr.

Melton is an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K under the Exchange Act.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm.

Functions of the Audit Committee include, but are not limited to, reviewing the results and scope of the audit performed, and the financial recommendations provided by, our independent registered public accounting firm and coordinating the Board’s oversight of our internal financing and accounting processes.

All audit services to be provided to the Company by our independent public accounting firm, Whitley Penn, are pre-approved by the Audit Committee prior to the initiation of such services (except for items exempt from pre-approval requirements under applicable laws and rules).

The Audit Committee approved all services provided by Whitley Penn to us during 2021.

Compensation Committee

The members of our Compensation Committee are Mr.

Villarreal, who serves as chairperson, Ms.

Coleman and Mr.

The Compensation Committee Charter requires that the Compensation Committee consist of at least two members of the Board, each of whom is required to be independent as defined by Nasdaq rules.

The Board has determined that each member of the Compensation Committee is independent, as defined in Nasdaq Marketplace Rule 5605(a)(2).

Functions of the Compensation Committee, include, but are not limited to:

reviewing and approving, or recommending the Board approve, compensation arrangements for our executive officers, including salary and payments under the Company’s equity-based plans;

reviewing compensation for non-employee directors and recommending changes to the Board;

and administering our stock compensation plans.

Our principal executive officer annually reviews the performance of each of the named executive officers and other officers and makes recommendations regarding the named executive officers and other officers and managers of the company, while the Compensation Committee reviews the performance of our principal executive officer.

The conclusions and recommendations resulting from our principal executive officer’s review are then presented to the Compensation Committee for its consideration and approval.

The Compensation Committee can exercise its discretion in modifying any of our principal executive officer’s recommendations.

The Compensation Committee may delegate its authority to a subcommittee of its members.

In performing its functions, the Compensation Committee may retain or obtain the advice of such compensation consultants, legal counsel and other advisors.

In September 2020, the Compensation Committee engaged Haigh & Company as its independent compensation consultant.

With the assistance of Haigh & Company, the Compensation Committee developed and implemented an organizational framework covering salary, annual bonus and equity ownership, with the goal of attracting and retaining talented individuals who are critical to the Company’s long-term success and aligning pay with performance.

Based on the information received from the consultant, the Compensation Committee believes that the work Haigh & Company performed in 2020 did not raise a conflict of interest and that it was fully independent.

The Compensation Committee had previously engaged Haigh & Company in February 2018 as its independent compensation consultant.

Nominating, Environmental, Social and Corporate Governance Committee

The members of our Nominating, Environmental, Social and Corporate Governance Committee are Ms.

Coleman, who serves as the chairperson, Mr.

Melton and Mr.

The Nominating, Environmental, Social and Corporate Governance Committee Charter requires that the Nominating, Environmental, Social and Corporate Governance Committee consist of at least two members of the Board, each of whom is required to be independent as defined by Nasdaq rules.

The Board has determined that each member of the Nominating, Environmental, Social and Corporate Governance Committee is independent, as defined in Nasdaq Marketplace Rule 5605(a)(2).

Specific responsibilities of the Nominating, Environmental, Social and Corporate Governance Committee include:

(i) considering and recommending to the Board, candidates for election to the Board;

(ii) considering recommendations and proposals submitted by stockholders in respect of Board nominees, establishing policies in respect of such recommendations and proposals (including stockholder communications with the board of directors), and recommending any action to the Board in respect of such stockholder recommendations and proposals;

(iii) identifying, evaluating and recommending to the board of directors, candidates to serve on committees of the Board;

(iv) assessing the performance of the Board;

(v) reviewing the Company’s sustainability and societal impact and (vi) reviewing risk governance structure, risk assessment and risk management practices and guidelines, policies and processes for risk assessment and risk management, including cyber security measures.

Role of the Board in Risk Oversight

Our executive officers are responsible for the day-to-day management of risks the Company faces, while our Board has an advisory role in the Company’s risk management process, as a whole and at the committee level, and, in particular, the Board is responsible for monitoring and assessing strategic and operational risk exposures, including cybersecurity risk.

The Board and committees rely on the representations of management, the external audit of our financial and operating results, our systems of internal control and our historic practices when assessing the Company’s risks.

The Audit Committee oversees management of financial risk exposures and the steps management has taken to monitor and control these exposures, and additionally provides oversight of internal controls.

The Compensation Committee, in conjunction with the Audit Committee, assesses and monitors whether any of the Company’s compensation policies and programs have the potential to encourage excessive risk-taking.

While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed about such risks by committee reports, as well as advice and counsel from expert advisors.

Family Relationships

There are no family relationships between the directors of the Board or any of the executive officers of the Company.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10 percent of a registered class of SG Blocks, Inc.

equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock.

Such officers, directors and persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file with the SEC.

Based solely on a review of the copies of such forms that were received by us, or written representations from certain reporting persons that no Forms 5 were required for those persons, we are not aware of any failures to file reports or report transactions in a timely manner during the year ended December 31, 2021.

Code of Business Conduct and Ethics

Our Board has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including our principal executive officer, principal financial officer and principal accounting officer.

The Code of Business Conduct and Ethics is posted on our website at https://www.sgblocks.com under the “Investors — Corporate Governance” tab, and is available free of charge, upon request to our Corporate Secretary at SG Blocks, Inc., 5011 Gate Parkway, Building 100, Suite 100, Jacksonville, Florida 32256 ;

telephone number:

(646) 240-4235.

Any substantive amendment of the Code of Business Conduct and Ethics, and any waiver of the Code of Business Conduct and Ethics for executive officers or directors, will be made only after approval by the Board or a committee of the Board and will be disclosed on our website.

In addition, any such waiver will be disclosed within four days on a Form 8-K filed with the SEC if then required by applicable rules and regulations.

EXECUTIVE COMPENSATION.

The information required by this item will be contained in the “Executive Compensation” and “Director Compensation” sections of our 2021 Proxy Statement for that we expect to file with the SEC no later than April 30, 2021 (120 days after December 31, 2020), and is incorporated herein by reference in response to Item 11.

We are a “smaller reporting company” and the following compensation disclosure is intended to comply with the requirements applicable to smaller reporting companies.

Although the rules allow us to provide less detail about its executive compensation program, the Compensation Committee is committed to providing the information necessary to help stockholders understand its executive compensation-related decisions.

Accordingly, this section includes supplemental narratives that describe the 2020 executive compensation program for our named executive officers.

The following discussion and table relates to compensation arrangements on behalf of, and compensation paid by our Company to, our “named executive officers”:

Galvin, Gerald Sheeran, and William Rogers.

Summary Compensation Table

The following table sets forth all compensation awarded to, paid to or earned by the following named executive officers for the fiscal years ended December 31, 2021 and 2020:

Name and Principal Position

Chairman and Chief Executive Officer

Gerald Sheeran,

Acting Chief Financial Officer and Controller

William Rogers

Chief Operating Officer

On October 1, 2021, the Compensation Committee granted RSUs with a value of $1,183,000 to Mr.

Galvin, $802,750 to Mr.

Rogers and $338,000 to Mr.

On April 14, 2020, the Compensation Committee granted RSUs with a value of $53,935 to Mr.

Galvin and $14,280 to Mr.

On September 23, 2020 the Compensation Committee awarded, RSUs with a value of $135,750 to Mr.

On December 9, 2020, the Compensation Committee awarded RSUs with a value of $1,220,161 to Mr.

This column indicates the aggregate grant date fair value, as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”).

See “Note 19 — Share-based Compensation” of the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021 for an explanation of the assumptions made in valuing these awards.

For 2021, all other compensation consisted of:

Galvin — automobile allowance of $9,600, medical insurance allowance of $29,257 and phone allowance of $1,800;

Sheeran — phone allowance of $1,500, automobile allowance of $1,500, $5,125 matching contributions under the Company's 401(k) plan, medical insurance allowance of $9,404;

Rogers — medical insurance allowance of $8,278 and $1,625 phone allowance.

For 2020 , all other compensation consisted of:

Galvin — automobile allowance of $ 10,400 , medical insurance allowance of $ 24,474 and phone allowance of $ 1,800 ;

Rogers — other allowances of $5,769 Mr.

Sheeran — phone allowance of $ 1,500 , medical insurance allowance of $ 7,894 , other allowances of $ 22,500 and $ 1,800 matching contributions under the Company’s qualified 401 (k) plan.

Narrative Disclosure to Summary Compensation Table

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

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.

Effective January 1, 2017, we entered into an employment agreement with Mr.

Galvin as described further below under “Employment Agreements.” On July 24, 2018, the Compensation Committee approved an increase to the annual base salary of Mr.

Galvin, the Company’s President, retroactive to January 1, 2018.

Galvin’s salary increased from $240,000 to $370,000.

Such increases were based on a competitive market assessment provided by Haigh & Company, the Compensation Committee’s independent compensation consultant.

On December 1, 2019, the annual base salary for Mr.

Galvin decreased from $ 370,000 to $ 180,000 .

On April 24, 2020, the annual base salary for Mr.

Galvin increased from $ 180,000 to $ 400,000 .

On August 22, 2019, the Board appointed Gerald Sheeran, the former Controller of the Company, as the acting Chief Financial Officer of the Company.

Effective on August 21, 2019, the annual base salary of Mr.

Sheeran increased from $120,000 to $180,000 as a result of his appointment to Acting Chief Financial Officer.

The annual base salary for Mr.

Sheeran decreased from $ 180,000 to $ 120,000 effective December 1, 2019.

On May 15, 2020, the annual base salary for Mr.

Sheeran increased from $ 120,000 to $ 180,000 .

On September 30, 2021, we entered into an employment agreement with Mr.

Sheeran as described further below under “Employment Agreements” pursuant to which the annual base salary for Mr.

Sheeran increased from $180,000 to $225,000.

On December 7, 2020, the Company appointed William Rogers to serve as the Company’s Chief Operations Officer with an annual base salary of $300,000 per year.

On September 27, 2021, we entered into an employment agreement with William Rogers as described further below under “Employment Agreements”.

Pursuant to the terms of the Rogers Employment Agreement, October 1, 2021, Mr.

Rogers was issued a restricted stock grant under our Stock Incentive Plan, as amended (the “Plan”), of 37,500 shares of the Company’s common stock, vesting upon issuance, and the grant to Mr.

Rogers of a restricted stock grant under the Plan of 200,000 shares of our common stock, vesting monthly over two years.

Bonus Payments

No bonuses were earned by any named executive officer for 2020.

Bonus were accrued in 2021 for Mr.

Galvin for $100,000, Mr.

Rogers for $75,000 and Mr.

Sheeran for $56,250 and subsequently paid in 2022.

Sheeran had a bonus of $8,000 in 2021 that was approved by management prior to Mr.

Sheeran entering into the executive employment agreement.

Stock Options

In the past, we generally offered stock options to our key employees, including our named executive officers, as the long-term incentive component of our compensation program.

Our stock options allow key employees to purchase shares of our Common Stock at a price per share equal to the fair market value of our common stock on the date of grant, and may be intended to qualify as “incentive stock options” under the Internal Revenue Code.

No stock options were granted to any named executive officer for 2021 or 2020.

Employment Agreements

The following discussion relates to compensation arrangements on behalf of, and compensation paid by the Company to, Messrs.

Galvin, and Armstrong pursuant to the terms of their employment/consulting agreements with the Company.

We employ Mr.

Galvin, our Chief Executive Officer and Chairman of the Board, pursuant to employment agreement, effective January 1, 2017.

The employment agreement provided for an initial term of two years, with automatic renewals unless earlier terminated pursuant to the provisions of the employment agreement.

The employment agreement originally provided for base compensation in the amount of $240,000 per year, which was increased to $370,000 in early 2019, but subsequently reduced to $180,000 in December 2019.

The employment agreement also provides for incentive compensation at the discretion of our Board.

The agreement provides for the payment of severance compensation in an amount equal to one year of his base annual salary, if his employment is terminated by the Company other than for “Cause,” as defined therein.

In April 2020, we entered into an amendment to Mr.

Galvin’s employment agreement, dated January 1, 2017, to extend the term of employment to December 31, 2021 and increased the annual base salary to $400,000, provide for a performance bonus structure for a bonus of up to 50% of base salary upon the Company’s achievement of $2,000,000 EBITDA and additional performance bonus payments for the achievement of EBITDA in excess of $2,000,000 based on a percentage of the incremental increase in EBITDA (ranging from 10% of the incremental increase in EBITDA if the Company achieves over $2,000,000 and up to $7,000,000 in EBITDA, 8% of the incremental increase in EBITDA if the Company achieves over $7,000,000 and up to $12,000,000 in EBITDA and 3% of the incremental increase in EBITDA over $12,000,000), provide for a profits-based additional bonus of up to $250,000 in certain limited circumstances, and provide for one (1) year severance, plus a pro-rated amount of any unpaid bonus earned by him during the year as verified by the Company’s principal financial officer, if Mr.

Galvin is terminated without cause.

At the Company’s option, up to fifty (50%) percent of the EBITDA performance bonuses may be paid in restricted stock units if then available for grant under the Company’s Stock Incentive Plan.

All other terms of the employment agreement remain in full force and effect.

William Rogers

On September 27, 2021, we entered into an executive employment agreement with William Rogers to employ Mr.

Rogers as the Company’s Chief Operating Officer for an initial term of two (2) years, which provides for an annual base salary of $300,000, a discretionary bonus of up to 25% of his base salary upon achievement of objectives as may be determined by the Company’s board of directors, term life insurance coverage equal to two (2) times annual base salary, three weeks’ vacation and severance in the event of a termination without cause in amount equal to one year’s annual base salary and benefits.

Pursuant to the terms of the Rogers Employment Agreement, October 1, 2021, Mr.

Rogers was issued a restricted stock grant under our Stock Incentive Plan, as amended (the "Plan"), of 37,500 shares of the Company’s common stock, vesting upon issuance, and a restricted stock grant under the Plan of 200,000 shares of our common stock, vesting monthly over two years.

Rogers is subject to a one-year post-termination non-compete and non-solicit of employees and clients.

He is also bound by confidentiality provisions.

Gerald Sheeran

On September 30, 2021, we entered into an executive employment agreement with Gerald Sheeran to employ Mr.

Sheeran as the Company’s Acting Chief Financial Officer for an initial term of two (2) years, which provides for an annual base salary of $225,000, a discretionary bonus of up to 25% of his base salary upon achievement of objectives as may be determined by the Company’s board of directors, a car allowance and severance in the event of a termination without cause in amount equal to equal to one year’s annual base salary and benefits.

Pursuant to the terms of the employment agreement, we issued a restricted stock grant under the Plan of 100,000 shares of common stock, vesting quarterly over two (2) years.

Sheeran is subject to a one-year post-termination non-compete and non-solicit of employees and clients.

He is also bound by confidentiality provisions.

On October 1, 2021, the Company's Compensation Committee (the “Compensation Committee”) of the Board of Directors of SG Blocks, Inc.

granted the following awards of restricted stock units (RSUs) under the Plan:

(i) Paul Galvin, the Company’s Chairman and CEO, 350,000 RSUs under the Plan vesting quarterly over two years, (ii) William Rogers, the Company’s Chief Operating Officer, 37,500 RSUs under the Plan vesting upon issuance and 200,000 RSU’s under the Plan vesting monthly over two years, (iii) Gerald Sheeran, the Company’s Acting Chief Financial Officer, 100,000 RSUs under the Plan vesting quarterly over two years.

Retirement, Health, Welfare, and Additional Benefits

Our executive officers 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.

Our executive officers are also eligible to participate in a tax-qualified 401(k) defined contribution plan to the same extent as our other full-time employees.

Currently, we do match contributions made by participants in the 401(k) plan or make other contributions to participant accounts.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding the outstanding option awards held by the named executive officers as of December 31, 2021:

Options Awards

Unexercisable

units of stock

that have not

units of stock

that have not

William Rogers

Gerald Sheeran

In connection with a public offering by the Company, completed in June 2017, Mr.

Galvin was granted performance-based option awards, to vest upon the completion of certain conditions.

A portion of the shares were granted at an exercise price to equal the price per share at which the public purchased shares in the offering ($100.00 per share), while the remainder were granted at an exercise price equal to 120% of such price per share ($120.00 per share).

In September 2017, the Compensation Committee determined that each of Mr.

Galvin met his respective performance conditions, and the option awards vested in full.

With respect to Mr.

Galvin, 990 options vested on the grant date, while the remaining 3,851 vested in equal quarterly installments on the last day of each fiscal quarter following the date of grant over a two-year period.

All options vested in full as of December 31, 2018.

Of these options, 2,184 vested on the grant date, while the remainder vest in three equal installments of 910 on the three anniversaries following the grant date.

Such options vested in full as of November 1, 2019.

Galvin received these options in connection with their service as directors of the Company.

The options vested in equal quarterly installments on the last day of each fiscal quarter following the date of grant and vested in full as of September 30, 2017.

These options vest in equal quarterly installments over a two year period, beginning March 31, 2018, and vested in full as of December 31, 2019.

These options vest in equal quarterly installments over a three year period, beginning March 30, 2018, and vest in full as of March 31, 2021.

The shares subject to these restricted stock units vest in three equal installments over a three year period, beginning December 31, 2020, and vest in full as of December 31, 2022.

The shares subject to these restricted stock units vest over a two year period with 1/3 due at grant, 1/3 on the one year anniversary of the grant date and 1/3 on the two year anniversary of the grant date, beginning September 23,2020, and vest in full as of September 23, 2022.

The shares subject to these restricted stock units vest in quarterly installments over a two year period, beginning October 1, 2021, and vest in full as of September 30, 2023.

The shares subject to these restricted stock units vest in equal monthly installments over a two year period, beginning October 1, 2021, and vest in full as of September 30, 2023.

DIRECTOR COMPENSATION

Compensation Program

Our director compensation program is designed to attract and retain highly qualified directors and align their interests with those of our stockholders.

We compensate directors who are not employed by the Company with a combination of cash and equity awards.

Galvin did not receive any compensation for serving on our Board in 2021.

The Compensation Committee reviews the director compensation program and recommends proposed changes for approval by the Board.

As part of this review, the Compensation Committee considers the significant amount of time expended, and the skill level required, by each director not employed by the Company in fulfilling his or her duties on the Board, each director’s role and involvement on the Board and its committees and the market compensation practices and levels of our peer companies.

During its annual review of the director compensation program in 2020, the Compensation Committee considered an analysis prepared by its independent consultant, Haigh & Company, which summarized director compensation trends for independent directors and pay levels at the same peer companies used to evaluate the compensation of our named executive officers.

Following this review, and after considering the advice of Haigh & Company about market practices and pay levels, the Compensation Committee recommended, and the Board approved, the new compensation program for non-employee directors described below, which remained in effect during 2021.

The following table sets forth the cash fee schedule for compensating non-employee directors from January 2021 through December 2021:

Annual Board Retainer

Lead Independent Director

Audit Committee Chair

Compensation Committee Chair

Nominating, Environmental, Social and Corporate Governance Committee Chair

The above fees are to be paid quarterly in four equal installments, to each person serving as a non-employee director at the time when such payment is made.

Non-employee directors may choose to receive the annual Board retainer as equity in restricted stock units (“RSUs”), in, effective January 15 of the year in which the annual cash retainer is otherwise earned.

Among other things, each RSU granted represents the right to receive one share of Common Stock;

vests one year after grant, subject to the recipient’s continued service as a director of the Company through such date;

and is payable six months after the termination of the director from the Board or death or disability.

Directors receive no additional per-meeting fee for Board or committee meeting attendance.

Annual Equity Awards

In addition, pursuant to the Plan, during 2021 non-employee directors received an annual grant of 11,834 RSUs (the “Equity Awards”), with a grant date value of approximately $40,000.

The RSUs were issued on October 1, 2021 and vest monthly over one year from the date of grant and, if earlier, in full on the date of the 2022 Annual Meeting of Shareholders.

Additional Compensation

In connection with special committees that the Board may form from time to time in connection with various transactions or undertakings, the Board may award additional compensation to the directors, in its discretion, for membership on such special committees.

The Board may, from time to time, grant additional merit-based cash or equity compensation to non-employee directors for extraordinary service.

All directors are reimbursed for expenses incurred in connection with each Board and committee meeting attended.

DIRECTOR COMPENSATION TABLE

The following table sets forth information regarding all forms of compensation that were both earned by and paid to our non-employee directors during the year ended December 31, 2021.

The compensation arrangements for Mr.

Galvin is disclosed in the Summary Compensation Table set forth in the “Executive Compensation” section of this Annual Report on Form 10-K.

Galvin did not receive compensation for his services as a director during the year ended December 31, 2021.

Fees Earned or

Yaniv Blumenfeld

Maggie Coleman

Christopher Melton

Joseph Safina

David Villarreal

Does not include $66,295.53 paid to a company controlled by Mr.

Blumenfeld for development work related to the Company’s Lago Vista project and $75,000 in consulting fees paid to Mr.

Blumenfeld’s spouse $75,000 in connection with the Company’s Covid 19 testing program.

Safina and Mr.

Villarreal joined the Board in May 2021.

The aggregate number of option and stock awards outstanding (including exercisable and unexercised stock options and vested and unvested RSUs) as of December 31, 2021 for each non-employee director was as follows:

Option Awards

Yaniv Blumenfeld

Maggie Coleman

Christopher Melton

Joseph Safina

David Villareal

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

The information required by this item will be contained in the “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan” sections of our 2021 Proxy Statement that we expect to file with the SEC no later than April 30, 2021 (120 days after December 31, 2020), and is incorporated herein by reference in response to Item 12.

Unless otherwise indicated the mailing address of each of the stockholders below is c/o SG Blocks, Inc., 5011 Gate Parkway, Building 100 , Suite 100 , Jacksonville, Florida 32256 .

Except as otherwise indicated, and subject to applicable community property laws, except to the extent authority is shared by both spouses under applicable law, the Company believes the persons named in the table have sole voting and investment power with respect to all shares of common stock held by them.

The following table sets forth certain information, as of April 11, 2022, with respect to the beneficial ownership of our common stock by each of the following:

· each person who is known by us to be the beneficial owner of more than 5% of our outstanding stock;

· each of our directors;

· each of our named executive officers;

· all of our directors and executive officers as a group.

As of April 11, 2021, we had 12,006,873 shares of common stock outstanding.

We have determined beneficial ownership in accordance with the rules of the SEC.

These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities.

Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws .

Shares subject to Options &

Total Number of Shares

Name of Beneficial Owner(1)

Executive Officers & Directors

Galvin, Chairman and Chief Executive Officer (2)

Yaniv Blumenfeld, Director (3)

Christopher Melton, Director (4)

Maggie Coleman, Director (5)

William Rogers (6)

Gerald Sheeran, Acting Chief Financial Officer (7)

Joseph Safina, Director (8\)

David Villarreal, Director (9)

All Current Executive Officers and Directors, as a group (9 persons)

5% or Greater Stockholders

Bran Bagley (10)

Less than 1% ownership interest.

The number of shares and the percent beneficially owned by each entity or individual are based upon 12,006,873 shares of common stock outstanding and assume the exercise of all exercisable options and vesting of all outstanding time-based restricted stock units (including those that would be exercisable or vested within 60 days of April 11, 2022).

The percent beneficially owned is a fraction, the numerator of which is the number of shares of common stock beneficially owned by each entity or individual (including any exercisable options, as described herein) and the denominator of which is the number of outstanding shares of common stock plus the number of shares of common stock which would be issued upon (i) exercise by the subject entity or individual of such entity or individual’s own options and warrants and (ii) vesting of outstanding time-based restricted stock units.

This method of computing the percent beneficially owned results in the aggregate ownership percentages of all owners exceeding 100%.

Includes 5,663 shares of common stock held directly by Mr.

Galvin and 507 shares held by TAG Partners, LLC (“TAG”), an investment partnership formed for the purpose of investing in the Company.

Galvin is a managing member of and has a controlling interest in TAG and may be deemed to beneficially own the share of common stock held by TAG, over which he has shared voting and dispositive power.

Galvin disclaims beneficial ownership of the shares of common stock held by TAG except to the extent of his pecuniary interest therein.

Also includes 23,800 options to purchase our common shares presently exercisable or exercisable within 60 days of April 11, 2022.

Includes 472,602 in vested RSUs and does not include 263,090 unvested RSUs that will not vest within 60 days of April 11, 2022.

Includes 1,556 shares of common stock directly held by Mr.

Includes 26,679 in vested RSUs and does not include 3,946 unvested RSUs that will not vest within 60 days of April 11, 2022.

Includes 20 shares of common stock held in Mr.

Melton’s retirement account, which Mr.

Melton indirectly owns, and 537 shares of common stock held directly by Mr.

Includes 833 options held by Mr.

Melton to purchase our common stock presently exercisable or exercisable within 60 days of April 11, 2022.

Includes 26,679 in vested RSUs and does not include 3,946 unvested RSUs that will not vest within 60 days of April 11, 2022.

Includes 28,808 in vested RSUs and does not include 3,946 unvested RSUs that will not vest within 60 days of April 11, 2022.

Includes 104,167 in vested RSUs and does not include 133,333 unvested RSUs that will not vest within 60 days of April 11, 2022.

Includes 417 shares of common stock held by Mr.

Also includes 1,250 options to purchase common stock presently exercisable or exercisable within 60 days of April 11, 2022.

Includes 78,000 in vested RSUs and does not include 100,000 unvested RSUs that will not vest within 60 days of April 11, 2022.

Includes 7,888 in vested RSUs and does not include 3,946 unvested RSUs that will not vest within 60 days of April 11, 2022.

Share ownership information is based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on November 29, 2021 by E.

Bryan Bagley.

Bryan Bagley has sole voting and dispositive power with regard to 316,500 shares of our common stock and shares voting and shares dispositive power with respect to 310,000 shares of our common stock.

The principal business address for, E..Bryan Bagley is 1470 Arlington Drive, Salt Lake City, Utah 84103.

Equity Compensation Plan Information

See Part I, Item 5— Equity Compensation Plan Information for certain information regarding our equity compensation plans.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this item will be contained in the “The Board and its Committees – Certain Relationships and Related Party Transactions” and “The Board and its Committees – Director Independence” sections of our 2021 Proxy Statement that we expect to file with the SEC no later than April 30, 2021 (120 days after December 31, 2020), and is incorporated herein by reference in response to Item 13.

Related Party Transactions

The following is a summary of transactions since January 1, 2020 to which we have been a party in which the amount involved exceeded $120,000 and in which any of our executive officers, directors or beneficial holders of more than five percent of our capital stock had or will have a direct or indirect material interest, other than compensation arrangements and equity awards granted to our executive officers and directors during 2020 and 2021 that are described under the sections of this proxy statement entitled “Executive Compensation” and “Director Compensation”.

On January 21, 2020, CPF GP 2019-1 LLC (“CPF GP”) issued to the Company a promissory note in the principal amount of $400,000 (the “Company Note”) and issued to Paul Galvin, the Company’s Chairman and CEO, a promissory note in the principal amount of $100,000 (the “Galvin Note”).

The transaction closed on January 22, 2019, on which date the Company loaned CPF GP 2019-1 LLC $400,000 and Mr.

Galvin personally loaned CPF GP $100,000 on behalf of the Company.

The Company Note and Galvin Note were issued pursuant to the Loan Agreement and Promissory Note, dated October 3, 2019, as amended on October 15, 2019 and November 7, 2019 by and between the CPF GP and the Company, and bear interest at five percent (5%) per annum, payable, together with the unpaid principal amount of the promissory notes, on the earlier of the July 31, 2023 maturity date or upon the liquidation, redemption sale or issuance of a dividend upon the LLC interests in CPF MF 2019-1 LLC, a Texas limited liability company of which CPF GP is the general partner.

The terms of the Galvin Note, however, provide that all interest payments due to Mr.

Galvin under the Galvin Note shall be paid directly to, and for the benefit of, the Company.

In connection with the issuance of the Company Note and the Galvin Note, CPF GP, the Company and Mr.

Galvin entered into a Security Agreement, dated January 21, 2020, pursuant to which CPF GP granted a security interest in its LLC interests in CPF MF 2019-1 LLC to the Company and Mr.

Galvin to secure its obligations thereunder.

Subsequent to the year ended December 31, 2021, the Galvin Note was assigned to the Company and the principal amount of $ 100,000 was returned to Mr.

The Company has a promissory note in the principal amount of $ 100,000 and the assignment of the promissory note occurred in January 2022.

On January 31, 2020, Mahesh Shetty, the Company’s former President and Chief Financial Officer (“Former Employee”), filed suit against the Company and its Chairman and Chief Executive Officer, Paul Galvin, claiming (i) $372,638 in unpaid wages and bonuses and (ii) $300,000 due in severance (hereafter the “Action”).

On March 25, 2020, the Former Employee filed an amended complaint raising additional claims of retaliation under the Fair Labor Standards Act, 29 U.S.C.

(“FLSA”), and contractual indemnification.

On April 27, 2020, the Company filed a motion to dismiss the Action.

The Company asserted that the Former Employee agreed to accept (and did receive) restricted stock units of the Company’s common stock in full satisfaction and payment of all alleged unpaid wages and bonuses that are claimed in the Action, and/or has otherwise been paid in full for all amounts claimed.

The Company further maintained that the Former Employee’s employment agreement precludes any entitlement to or liability for severance.

On June 15, 2020, the Court entered a decision granting in part and denying in part the Company’s motion to dismiss.

Specifically, the Court dismissed the Former Employee’s claim (i) for severance (in the amount of $300,000) and unpaid wages pursuant to the FLSA, but denied dismissal of the Former Employee’s claims for retaliation under the FLSA or unpaid wages allegedly due under the New York Labor Law.

On or about September 14, 2021, the Company and Former Employee entered into a settlement and release agreement resolving their respective claims.

On September 14, 2021, the parties filed a joint motion seeking court approval of the settlement.

The motion to approve the settlement remains pending before the court.

During 2021, the Company paid a company controlled by Yaniv Blumenfeld $66,296 for development work related to the Company’s Lago Vista project and paid Mr.

Blumenfeld’s spouse $75,642 in consulting fees in connection with the Company’s COVID-19 testing program.

Related Party Review Procedures

Pursuant to our Audit Committee charter, our Audit Committee reviews on an on-going basis our policies and procedures for reviewing and approving or ratifying all “Related Party Transactions” (defined as transactions required to be disclosed pursuant to Item 404 of Regulation S-K), including the Company’s Related Person Transaction Policy, and recommend any changes to the Board.

In accordance with our Related Person Transaction Policy and Nasdaq Rule 4350 (h), the Audit Committee conducts appropriate review and oversight of all related person transactions for potential conflict of interest situations on an ongoing basis.

Any transaction with a related person is subject to our written policy for transactions with related persons.

Pursuant to such policy, our Audit Committee reviews in advance all related person transactions.

The Audit Committee approves only those related person transactions that are determined to be in, or not inconsistent with, the best interests of the Company and its stockholders, taking into account all available facts and circumstances as the Audit Committee determines in good faith to be necessary.

These facts and circumstances will typically include, but not be limited to:

whether the transaction was undertaken in the ordinary course of business of the Company;

the purpose and potential benefits of the transaction to the Company;

the terms of the transaction and of comparable transactions that would be available to unrelated third parties or to employees generally;

and the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer.

In reviewing and approving such transactions, the Audit Committee obtains, or will direct management to obtain on its behalf, all information that the Audit Committee believes to be relevant and important to a review of the transaction prior to its approval.

The Audit Committee may adopt any further policies and procedures relating to the approval of related person transactions that it deems necessary or advisable from time to time.

Director Independence

The information included under the heading “Director Independence” in Part III, Item 10 is hereby incorporated by reference into this Item 13.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item will be contained in the “Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” and “The Board and its Committees – Board and Committee Responsibilities – Audit Committee” sections of our 2021 Proxy Statement that we expect to file with the SEC no later than April 30, 2021 (120 days after December 31, 2020), and is incorporated herein by reference in response to Item 14.

Whitley Penn LLP serves as our independent registered public accounting firm.

Independent Registered Public Accounting Firm Fees

The following table sets forth the aggregate fees for professional service rendered by Whitley Penn for each of the last two fiscal years:

Audit fees (1)

Audit-related fees (2)

All other fees (4)

Audit fees include fees paid to Whitley Penn for professional services rendered for the audit for our annual financial statements and reviews of the financial statements included in our Quarterly Reports on Form 10-Q and fees related to securities registration statements and related comfort letter procedures.

Audit-related fees principally involve other assurance and related services.

Tax services include tax compliance and tax planning consulting services.

No tax services were performed for us by Whitley Penn in 2021 or 2020 .

No other services were performed for us by Whitley Penn in 2021 or 2020 .

The Audit Committee has implemented pre-approval procedures consistent with the rules adopted by the SEC.

The Audit Committee has determined that the provision of the services by Whitley Penn reported hereunder had no impact on its independence.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

9 unchanged sentences

Exhibit Index

Underwriting Agreement, dated April 1, 2020, by and between SG Blocks, Inc.

and ThinkEquity, a division of Fordham Financial Management, Inc.

(Incorporated herein by reference to Exhibit 1.1 to the Current Report on Form 8-K as filed by SG Blocks , Inc.

with the Securities and Exchange Commission on April 3, 2020 (File No.

Underwriting Agreement, dated May 6, 2020, by and between SG Blocks, Inc.

and ThinkEquity, a division of Fordham Financial Management, Inc.

(incorporated herein by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 11, 2020 (File No.

Order Confirming Debtors’ Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

19 unchanged sentences

with the Securities and Exchange Commission on June 5, 2019 (File No.

Form of Certificate of Designation of the Series B Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.7 to the Registration Statement on Form S-1/A (File No.

333-235295) as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on December 9, 2019).

Form of Certificate of Designation of the Series B Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.7 to the Registration Statement on Form S-1/A as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on December 9, 2019 (File No.

Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as amended, of SG Blocks, Inc.

1 unchanged sentence

with the Securities and Exchange Commission on February 5, 2020 (File No.

Debtor in Possession Credit Agreement, dated as of October 15, 2015, by and among SG Blocks, Inc., as Borrower, SG Building Blocks, Inc.

and Endaxi Infrastructure Group, Inc., as Guarantors, Hillair Capital Investments L.P., as Lender, and Hillair Capital Management LLC, as Collateral Agent (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on July 7, 2016 (File No.

Amended and Restated Bylaws of SG Blocks, Inc.

dated June 4, 2021 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on June 7, 2021 (File No.

Form of Warrant to Purchase Common Stock (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on July 14, 2017 (File No.

Form of Indenture (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (File No.

333-228882) as filed by SG Blocks, Inc .

with the Securities and Exchange Commission on December 18, 2018).

Form of Indenture (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-3 as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on December 18, 2018 (File No.

333-228882)).

Form of Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

4 unchanged sentences

with the Securities and Exchange Commission on July 31, 2019 (File No.

Senior Secured Convertible Debenture, in the principal amount of $480,770, dated November 12, 2019 (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 13, 2019 (File No.

Form of Placement Agent Warrant (incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 13, 2019 (File No.

Form of 9% Secured Note (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

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Description of Capital Stock

Collaboration and Supply Agreement, dated July 23, 2007, by and between SG Building, Inc.

(fka SGBlocks, LLC) and ConGlobal Industries, Inc.

(incorporated herein by reference to Exhibit 10.07 to the Current Report on Form 8-K/A as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on January 13, 2012 (File No.

000-22563 )).

Securities Purchase Agreement, dated as of June 30, 2016, by and between SG Blocks, Inc.

and Hillair Capital Investments L.P.

(incorporated herein by reference to Exhibit 4.4 to the Current Report on Form 8-K/A as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on August 8, 2016 (File No.

Subsidiary Guarantee, dated as of June 30, 2016, by SG Building Blocks, Inc.

(incorporated herein by reference to Exhibit 4.5 to the Current Report on Form 8-K/A as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on August 8, 2016 (File No.

Security Agreement, dated as of June 30, 2016, by and between SG Blocks Inc., SG Building Blocks, Inc.

and Hillair Capital Investments L.P.

(incorporated herein by reference to Exhibit 4.6 to the Current Report on Form 8-K/A as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on August 8, 2016 (File No.

Form of SG Blocks, Inc.

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with the Securities and Exchange Commission on November 1, 2016 (File No.

Securities Purchase Agreement, dated as of November 17, 2016, by and between SG Blocks, Inc.

and Hillair Capital Investments L.P.

(incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 22, 2016 (File No.

Form of Director Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-1 (File No.

333-215922) as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on February 6, 2017).

Form of Director Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-1 as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on February 6, 2017 (File No.

333-215922)).

SG Blocks, Inc.

Stock Incentive Plan (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-1 (File No.

333-215922) as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on February 6, 2017).

Stock Incentive Plan (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on Form S-1 as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on February 6, 2017 (File No.

333-215922)).

Executive Employment Agreement, effective as of January 1, 2017, between Paul M.

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with the Securities and Exchange Commission on March 14, 2017 (File No.

Executive Employment Agreement, effective as of January 1, 2017, between Mahesh S.

Shetty and SG Blocks, Inc.

(incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on March 14, 2017 (File No.

Executive Employment Agreement, effective as of January 1, 2017, between Stevan Armstrong and SG Blocks, Inc.

(incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on March 14, 2017 (File No.

Amendment to collaboration and Supply Agreement, dated May 14, 2014, between SG Blocks, Inc.

(fka SG Blocks LLC) and ConGlobal Industries, LLC (fka ConGlobal Industries, Inc.) (incorportated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-10/A (File No.

333-215922) as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on March 15, 2017).

Amendment No.

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with the Securities and Exchange Commission on July 30, 2018 (File No.

Securities Purchase Agreement, dated April 25, 2019, between SG Blocks, Inc.

and the purchasers thereto (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on April 26, 2019 (File No.

Form of Restricted Share Unit Agreement (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q as filed by SG Blocks, Inc.

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with the Securities and Exchange Commission on November 13, 2019 (File No.

Securities Purchase Agreement, by and between SG Blocks, Inc.

and RedDiamond Partners LLC, dated November 12, 2019 (incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 13, 2019 (File No.

Security Agreement, by and between SG Blocks, Inc.

and RedDiamond Partners LLC, dated November 12, 2019 (incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 13, 2019 (File No.

Placement Agency Agreement, by and between SG Blocks, Inc.

and ThinkEquity, a division of Fordham Financial Management, Inc., dated November 12, 2019 (incorporated herein by reference to Exhibit 10.4 of the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 13, 2019 (File No.

Amendment No.

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2 to the SG Blocks, Inc.

Stock Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on June 25, 2020)

Stock Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on June 25, 2020 (File No.

Asset Purchase Agreement by and between SG Echo, LLC and Echo DCL, LLC, dated September 17, 2020 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 22, 2020 (File No.

Offer Letter dated November 11, 202 between SG Blocks, Inc.

Unimproved Property Contract, dated February 25, 2021, by and between SG Blocks, Inc.

and Northport Harbor LLC (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on May 11, 2021 (File No.

Settlement and Mutual Release Agreement, dated June 15, 2021, by and among CPF GP 2019-1 LLC, Capital Plus Financial, LLC and SG Blocks, Inc.

(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on June 21, 2021 (File No.

Termination of Exclusive License Agreement, effective June 15, 2021 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on June 21, 2021 (File No.

Assignment of Limited Rights Under Membership Interest Redemption Agreement, dated June 15, 2021, by and among Capital Plus Financial, LLC, SG Blocks, Inc.

and CPF GP 2019-1 LLC (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on June 21, 2021 (File No.

Operating Agreement by and between SGB Development Corp., Jacoby Development, Inc.

and JDI-Cumberland Inlet.

LLC, dated June 24, 2021 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on June 28, 2021 (File No.

Fabrication and Building Services Agreement by and between JDI-Cumberland Inlet, LLC and SG Echo, LLC, dated June 24, 2021 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on June 28, 2021 (File No.

Real Estate Lien Note, dated July 14, 2021, in the principal amount of $2,000,000 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on July 19, 2021 (File No.

Deed of Trust, dated July 14, 2021 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on July 19, 2021 (File No.

Assignment of Leases and Rents, dated July 8, 2021 (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on July 19, 2021 (File No.

Amendment No.

3 to the SG Blocks, Inc.

Stock Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on July 14, 2021 (File No.

001-38087)) .

Employment Agreement, dated September 27, 2021, between SG Blocks, Inc.

and William Rogers (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on December 10, 2020 (File No.

with the Securities and Exchange Commission on October 1, 2021 (File No.

Employment Agreement, dated September 30, 2021, between SG Blocks, Inc.

and Gerald Sheeran (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on October 1, 2021 (File No.

Placement Agency Agreement, dated as of October 25, 2021, by and between the Company and the Placement Agent (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on October 26, 2021 (File No.

Form of Securities Purchase Agreement, dated as of October 25, 2021 by and between the Company and the Purchaser named therein (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on October 26, 2021 (File No.

Lease Agreement by and between SG Echo LLC and May Properties, LLC, dated October 28, 2021 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 2, 2021 (File No.

Guaranty by SG Blocks, Inc.

dated October 28, 2021 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 2, 2021 (File No.

Loan Agreement by and among SG Echo LLC, The Durant Industrial Authority and SG Blocks, Inc., as guarantor, dated October 29, 2021 (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 2, 2021 (File No.

Forgivable Promissory Note, dated October 29, 2021, issued by SG Echo LLC (incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K as filed by SG Blocks, Inc.

with the Securities and Exchange Commission on November 2, 2021 (File No.

List of Subsidiaries*

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April 15, 2022

/s/ David Villarreal

April 15, 2022

David Villarreal

/s/ Yaniv Blumenfeld

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Margaret Coleman

/s/ Joseph Safina

April 15, 2022

Joseph Safina

SG BLOCKS, INC.

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Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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We observed and inspected the projects in process and inquired of project managers to gain an understanding of the progress on significant projects in process.

We selected a sample of project costs incurred to ensure accuracy of costs incurred during the year.

We also verified that project costs, both direct and indirect, were applied to the correct project.

We evaluated and tested management’s process to estimate future costs to complete contracts recognized over time.

This evaluation included the consistency of management’s process and policies regarding change orders and timely costs revisions.

• We evaluated management’s ability to accurately estimate future costs to complete contracts recognized over time by performing a retrospective review of prior estimates to actual results.

Acquisition of Echo DCL, LLC – Fair Value of Net Assets Acquired and Contingent Consideration

This evaluation included ensuring the consistency of management’s process and policies regarding change orders and timely costs revisions;

performing a retrospective review of prior estimates to actual results;

and analyzing actual costs incurred subsequent to December 31, 2021 as compared to the estimated future costs to complete as of December 31, 2021.

Goodwill Impairment Analysis

Description of the Matter

As discussed in Note 9 to the financial statements, the Company acquired substantially all of the assets of Echo DCL, LLC (Echo) for a purchase price cash and contingent consideration, which resulted in the acquisition of property, plant and equipment and a tradename intangible asset.

Management estimated the fair value of the tradename using the relief from royalty method which required management to estimate discounted cash flows with subjective assumptions of the appropriate discount rate, an appropriate royalty rate, and future revenues.

The property, plant and equipment is largely comprised of equipment and buildings held for lease.

The equipment was valued using a market approach, which estimates value using third-party transactions.

The buildings held for lease were valued using the cost to replicate adjusted for the condition of each building.

The contingent consideration was valued using a Monte Carlo Simulation, which required management to estimate future revenues, expenses, and net income.

We identified the fair value of net assets acquired and contingent consideration in the Echo business combination to be a critical audit matter due to the significant judgments made by management to estimate the fair value of intangible assets, property, plant and equipment, and contingent consideration.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of discount and royalty rates, forecasts of future revenues and cash flows, as well as estimates of the cost to replicate buildings acquired.

The Company’s evaluation of goodwill for impairment involves the comparison of the estimated fair value of each reporting unit to its carrying value.

The annual impairment test of goodwill at a reporting unit level is performed annually during the fourth quarter, or more frequently if events or circumstances indicate the fair value of a reporting unit may be below its respective carrying value.

The Company uses a discounted cash flow model (income approach) and several market approaches to estimate the fair value of the reporting unit.

The discounted cash flow model requires management to make significant estimates and assumptions related to discount rates and forecasts of future revenues and reporting unit profit margins.

The market approach requires management to make significant estimates and assumptions related to identifying comparable public companies and determining an appropriate revenue multiple to calculate fair value.

Changes in these assumptions could have a significant impact on the fair value and the amount of any goodwill impairment charge.

The Company performed its annual impairment test of goodwill during the fourth quarter.

No impairment was recorded, because the estimated fair values of each of the Company’s reporting units exceeded their carrying values.

Given that forecasted revenues and reporting unit profit margins are sensitive to changes in demand and efficiency of operations, auditing management’s assumptions involved subjective judgment.

As a result, we identified the Company’s evaluations of goodwill impairment as a critical audit matter due to the high degree of auditor judgment and the increased extent of effort that was required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of revenue and profit margins, the selection of discount rates, and the selection of appropriate revenue multiples, including the need to involve our fair value specialists.

How We Addressed the Matter in Our Audit

Our audit procedures related to the assumptions and forecasts used by management to estimate the fair value of intangible assets, property, plant and equipment, and contingent consideration acquired in the Echo business combination included the following, among others:

• We read the executed purchase agreement and reviewed historical financial data of Echo to verify that management had identified all acquired assets and liabilities, as well as any contingent consideration.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) discount rates, (3) the royalty rate, and (4) future revenue, expenses, and growth rates, including testing the source information underlying the determination of the discount rates and the royalty rate and testing the mathematical accuracy of the calculations.

• We evaluated management’s ability to accurately forecast future revenues and cash flows by considering the past financial performance of Echo and current economic factors.

• We visited the Echo plant and inspected the property, plant and equipment acquired to validate existence and working condition.

We reviewed online sales and auction prices to independently validate the reasonableness of the fair values assigned to acquired equipment.

We performed an independent calculation to estimate the cost to replicate the buildings held for lease and compared our calculation to management’s fair value.

We have served as the Company’s auditor since 2016.

Our audit procedures related to forecasts of future revenues and operating unit profit margins (“forecasts”), the selection of discount rates, and the determination of appropriate revenue multiples included the following, among others:

We evaluated the reasonableness of management’s forecasts by evaluating the reasonableness of management’s future operating plans, which include expanding production capacity and gaining operating efficiencies.

We evaluated the reasonableness of management’s forecasts by performing a sensitivity analysis on the forecasts used in the discounted cash flow model to determine the impact to fair value as various assumptions are changed.

We evaluated the reasonableness of the revenue multiples used in the market approach to determine the impact to fair value as various assumptions are changed.

With the assistance of our fair value specialists, we evaluated the reasonableness of management’s fair value estimate by:

Testing the Company’s process to develop the estimates, which included evaluating the methods, data, and significant assumptions used in developing the estimate.

Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

/s/ Whitley Penn LLP

We have served as the Company’s auditor since 2016.

Dallas, Texas

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Contract assets

Prepaid expenses and other current assets

Prepaid expenses

Total current assets

Property, plant and equipment, net

Right-of-use asset

Project development costs and other non-current assets

Right-of-use asset, net

Long-term notes receivable

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Deferred contract costs, net

Investment in non-marketable securities

Investment in and advances to equity affiliates

Liabilities and Stockholders’ Equity

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Assumed liability

Short term note payable, net

Other current liabilities

Total current liabilities

Long-term note payable

Lease liability, net of current maturities

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Pre-project expenses

Goodwill impairment

Operating loss

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Loss on asset disposal

Loss from equity affiliates

Loss before income taxes

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Consolidated Statements of Changes in Stockholders’ Equity

For the Year Ended December 31, 2020 and 2019

$ 0.01 Par Value

Stockholders’

SG Blocks Stockholders'

Noncontrolling

Total Stockholders'

Stockholders’

Balance at January 1, 2020

Stock-based compensation

Issuance of common stock, net of issuance costs

Balance at December 31, 2019

Stock-based compensation

Conversion of restricted stock units to common stock

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Issuance of common stock, net of issuance costs

Net income (loss)

Balance at December 31, 2020

Balance at January 1, 2021

Stock-based compensation

Conversion of warrants to common stock

Issuance of common stock, net of issuance costs

Noncontrolling interest distribution

Net income (loss)

Balance at December 31, 2021

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

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For the Year Ended

Cash flows from operating activities:

( 4,508,162 )

Adjustments to reconcile net loss to net cash used in operating activities:

Impairment of goodwill

C ash flows from operating activitie s:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation expense

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Amortization of deferred license costs

Accretion of debt discount

Amortization of debt issuance costs

Bad debt expense and recoveries

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Loss on asset disposal

Loss on equity affiliates

Changes in operating assets and liabilities:

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Other current liability

Long term lease liability

Deferred long-term asset charge

Lease liability

Net cash used in operating activities

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Purchase of Echo DCL, LLC, net of cash acquired

Purchase of intangible asset

Proceeds from sale of equipment

Advances in notes receivable

Payment on assumed liability of acquired assets

Project development costs

Payment on security deposit

Investment in non-marketable securities

Investment in and advances to equity affiliates

Net cash used in investing activities

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Proceeds from public stock offering and other private placements, net of issuance costs

Proceeds from conversion of warrants to common stock

Proceeds from short-term note payable

Proceeds from long term debt

Payment of note issuance costs

Proceeds from long-term note payable

Distribution paid to noncontrolling interest

Settlement of common stock from reverse stock split

Payments on short-term note debt

Payments on debt issuance costs

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

Cash and cash equivalents - end of period

Cash and cash equivalents - beginning of year

Cash and cash equivalents - end of year

Supplemental disclosure of cash flow information:

Cash paid during the period for Interest

Cash paid during the year for Interest

Supplemental disclosure of non-cash operating activities:

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Non-cash conversion of interest expense of long term debt

Non-cash conversion of accrued salary to restricted stock units

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

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The first product offering involves GreenSteel™ modules, which are the structural core and shell of an SGBlocks building.

We procure the containers, engineer required openings with structural steel enforcements, paint the SGBlocks and then delivers them on-site, where the customer or a customer’s general contractor will complete the entire finish out and installation.

We procure the containers, engineer required openings with structural steel enforcements, paint the SGBlocks and then deliver them on-site, where the customer or a customer’s general contractor will complete the entire finish out and installation.

The second product offering involves replicating the process to create the GreenSteel product and, in addition, installing selected materials, finishes and systems (including, but not limited to floors, windows, doors, interior painting, electrical wiring and fixtures, plumbing outlets and bathrooms, roofing system) and delivering SGBlocks pre-fabricated containers to the site for a third party licensed general contractor to complete the final finish out and installation.

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

The Company is now focusing on entering into licensing agreements across the Company’s construction opportunity verticals.

During 2020, the Company formed, SG Echo, LLC, a wholly owned subsidiary of the Company.

SG Echo, LLC was formed to complete the business acquisition as disclosed in Note 9 , and to become the manufacturer of the Company's core container and modular product offerings.

Also during 2020, the Company entered into a joint venture, as described below and has begun to provide clinical lab testing, as well as test kit sales related to a separate distributer agreement.

Reverse Stock Split

On February 28, 2017, the Company effected a 1 -for- 3 reverse stock split of its New Common Stock and preferred stock, which has since been converted into common stock.

On February 5, 2020, the Company effected a 1 -for- 20 reverse stock split of its then-outstanding common stock, which has since been converted.

All share and per share amounts set forth in the consolidated financial statements of the Company have been retroactively restated to reflect the 1 -for- 20 reverse stock split as if it had occurred as of the earliest period presented and unless otherwise stated, all other share and per share amounts for all periods presented in this Annual Report have been adjusted to reflect the reverse stock split effected in February 2020.

As of December 31, 2020, the Company had 8,596,189 shares of common stock issued and outstanding.

SG Echo, LLC was formed to complete the business acquisition as disclosed in Note 11.

The Company acquired substantially all the assets of Echo DCL, a Texas limited liability company, except for Echo's real estate holdings for which the Company obtained a right of first refusal.

Echo is a container/modular manufacturer based in Durant, Oklahoma specializing in the design and construction of permanent modular and temporary modular buildings and was one of the Company's key supply chain partners.

Echo caters to the military, education, administration facilities, healthcare, government, commercial and residential customers.

This acquisition has allowed the Company to expand its reach for the Modules and offer an opportunity to vertically integrate a large portion of the Company's cost of goods sold, as well as increase margins, productivity and efficiency in the areas of design, estimating, manufacturing and delivery and to become the manufacturer of the Company's core container and modular product offerings.

T he Company also entered into a joint venture with Clarity Lab Solutions LLC., to provide clinical lab testing related to COVID-19.

As of January 2021, the Company’s consolidated financial statements include the accounts of Chicago Airport Testing LLC (“CAT”).

The Company has a variable interest in CAT as described further below.

CAT is in the business of marketing, selling, distributing, leasing and otherwise commercially exploiting certain products and services in the COVID-19 testing and other medical industry.

In addition, during 2021, the Company formed SGB Development Corp.

(“SG DevCorp”), which is wholly-owned by the Company.

SG DevCorp was formed with the purpose of real property development utilizing the Company's technologies.

SG DevCorp has a minority interest in Norman Berry II Owners LLC and JDI-Cumberland Inlet LLC as described further below.

SG BLOCKS, INC.

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For the Years Ended December 31, 2021 and 2020

Description of Business (continued)

Reverse Stock Split

On February 5, 2020, the Company effected a 1-for- 20 reverse stock split of its then-outstanding common stock, which has since been converted.

All share and per share amounts set forth in the consolidated financial statements of the Company have been retroactively restated to reflect the 1-for-20 reverse stock split as if it had occurred as of the earliest period presented and unless otherwise stated, all other share and per share amounts for all periods presented in these consolidated financial statements have been adjusted to reflect the reverse stock split effected in February 2020.

As of December 31, 2021, the Company had 11,986,873 shares of common stock issued and outstanding.

As of December 31, 2021, the Company had cash and cash equivalents of $ 13,024,381 and a backlog of approximately $ 3.2 million.

See Note 13 for a discussion of construction backlog.

Based on our conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period:

Based on the Company's conversations with key customers, the Company anticipates its backlog to convert to revenue over the following period:

Within 1 year

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Management has taken several actions to ensure that the Company will continue as a going concern.

As described below, the Company has recently been able to raise substantial cash through equity offerings.

As described below, the Company has been able to raise substantial cash through equity offerings.

In addition, as further described in these consolidated financial statements, the Company has begun to recognize revenue from new revenue streams.

Management believes that these actions will enable the Company to continue as a going concern.

The Company completed an equity offering in April 2019 and in August 2019, which resulted in net proceeds of approximately $ 1,136,015 .

See Note 15 for a discussion of these offerings.

The Company completed a Securities Purchase Agreement in November 2019, which resulted in net proceeds of approximately $ 326,000 .

See Note 11 for a discussion on this Securities Purchase Agreement.

The Company completed a public offering in December 2019 , which resulted in net proceeds of approximately $ 2,117,948 .

The Company completed a public offering in April and May 2020, which resulted in net proceeds of approximately $ 1,522,339 , and $ 15,596,141 , respectively.

S ee Note 15 for a discussion on this public offering.

The Company believes that it has adequate cash balances to meet obligations coming due in the next twelve months and further intends to meet its capital needs by containing costs, entering into strategic alliances, as well as exploring other options, including the possibility of raising additional debt or equity capital as necessary.

See Note 17 for a discussion on these public offerings.

The Company completed a public and concurrent private offering in October 2021, which resulted in net proceeds of approximately $10,488,000.

See Note 17 for a discussion on the public and concurrent private offering.

The Company believes that it has adequate cash balances to meet obligations coming due in the next twelve months and further intends to meet its capital needs from revenue generated from operations and by containing costs, entering into strategic alliances, as well as exploring other options, including the possibility of raising additional debt or equity capital as necessary.

There is, however, no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive.

We do not have any additional sources secured for future funding, and 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 such business plan or curtailing or abandoning such business plan altogether.

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during 2020, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and business.

The Company is experiencing delays in projects due to the COVID-19.

The Company does not have any additional sources secured for future funding, and if it is unable to raise the necessary capital at the times it requires such funding, it may need to materially change its business plan, including delaying implementation of aspects of such business plan or curtailing or abandoning such business plan altogether.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Liquidity (continued)

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during 2020, the Company implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and business.

Any quarantines, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to the Company's suppliers and contract manufacturers or customers would likely adversely impact the Company's sales and operating results and result in further project delays.

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In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company's business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2020 and 2019

The Company has been impacted by COVID-19 with supply chain distributions, absenteeism by infected workers and skilled labor shortages which has caused delays in projects and the Company could be further impacted if the COVID-19 pandemic continues.

Summary of Significant Accounting Policies

Basis of presentation and principals of consolidation – The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”) and include the accounts of the Company and its wholly owned subsidiaries, SG Building Blocks, Inc., SG Residential, Inc., SG Echo, LLC and SG Blocks Puerto Rico, Inc.

and SG Echo, LLC.

All intercompany balances and transactions are eliminated.

Investments in 50 % or less owned partnerships and affiliates are accounted for using the equity method unless it is determined that we have effective control of the entity, in which case we would consolidate the entity.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Recently adopted accounting pronouncements - New accounting pronouncements implemented by the Company are discussed below or in the related notes, where appropriate.

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).

This ASU amends ASC 820 to add, remove and modify certain disclosure requirements for fair value measurements.

For example, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop for Level 3 fair value measurements.

The Company adopted ASU 2018-13 effective January 1, 2020.

The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flow.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This update will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years.

In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates,” which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those years.

Early adoption is permitted.

The Company adopted ASU 2016-13 effective January 1, 2020.

The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flow.

Accounting estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

Significant areas that require the Company to make estimates include revenue recognition, stock-based compensation, warrant liabilities and allowance for doubtful accounts.

Actual results could differ from those estimates.

Accounting estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period, together with amounts disclosed in the related notes to the financial statements.

The Company's estimates used in these financial statements include, but are not limited to, revenue recognition, stock-based compensation, accounts receivable reserves, inventory valuations, goodwill, the valuation allowance related to the Company’s deferred tax assets, the carrying amount of intangible assets, right of use assets and the recoverability and useful lives of long-lived assets.

Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions.

It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates.

Operating cycle – The length of the Company’s contracts varies, but is typically between six to twelve months.

In some instances, the length of the contract may exceed twelve months.

Assets and liabilities relating to current and long-term contracts are included in current assets and current liabilities, respectively, in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, which at times could exceed one year .

Assets and liabilities relating to contracts are included in current assets and current liabilities, respectively, in the accompanying balance sheets as they will be liquidated in the normal course of contract completion, which at times could exceed one year .

SG BLOCKS, INC.

19 unchanged sentences

The ELA is described below.

Under the ELA, the Company will receive royalty payments based upon gross revenues earned by the licensee for commercialize products within the field of design and project management platforms for residential use, including single-family residences and multi-family residences, but excluding military housing.

The Company has determined that the ELA grants the licensee a right to access the Company’s intellectual property throughout the license period (or its remaining economic life, if shorter), and thus recognizes revenue over time as the licensee recognizes revenue and the Company has the right to payment of royalties.

Under the ELA, the Company was to receive royalty payments based upon gross revenues earned by the licensee for commercialized products within the field of design and project management platforms for residential use, including single-family residences and multi-family residences, but excluding military housing.

The Company has determined that the ELA granted the licensee a right to access the Company’s intellectual property throughout the license period (or its remaining economic life, if shorter), and thus recognizes revenue over time as the licensee recognized revenue and the Company has the right to payment of royalties.

No revenue has been recognized under the ELA for the year ended December 31, 2021.

CMC Right of First Refusal Agreement – On October 9, 2019, the Company entered into a Right of First Refusal Agreement (the “ Agreement ”) with CMC Development LLC (“ CMC ”), which has a term of two (2) years.

Under the Agreement, the Company has a right of first refusal with respect to being engaged as a designer and builder of any real estate projects for which CMC has secured the rights to develop and in which CMC has a greater than fifty percent ( 50 %) interest in the owner or developer entity and has the right to select the builder for such real estate project (the “ ROFR Rights ”).

In exchange for such ROFR Rights, the Company agreed to issue to CMC 2,500 shares of restricted stock of the Company’s common stock, of which 1,250 shares will vest and be issued on September 30, 2020 and the remaining 1,250 shares will vest and be issued on September 30, 2021, unless the Agreement is earlier terminated.

In the event that the Agreement is earlier terminated, CMC will still be entitled to receive the entire amount of such restricted stock that has vested as of such earlier termination date, but in no event less than 1,250 shares of such restricted stock.

The Agreement also provides for customary indemnification and confidentiality obligations between the parties.

On June 15, 2021, the Company terminated the ELA that was executed on October 3, 2019 which is discussed below.

Under the Agreement, the Company had a right of first refusal with respect to being engaged as a designer and builder of any real estate projects for which CMC has secured the rights to develop and in which CMC has a greater than fifty percent ( 50 %) interest in the owner or developer entity and has the right to select the builder for such real estate project (the “ ROFR Rights ”).

In exchange for such ROFR Rights, the Company agreed to issue to CMC 2,500 shares of restricted stock of the Company’s common stock, of which 1,250 shares vested on March 31, 2021 and the remaining 1,250 shares was to vest and be issued on September 30, 2021, unless the Agreement is earlier terminated.

In the event that the Agreement was earlier terminated, CMC was entitled to receive the entire amount of such restricted stock that had vested as of such earlier termination date, but in no event less than 1,250 shares of such restricted stock.

The Agreement also provided for customary indemnification and confidentiality obligations between the parties.

The 2,500 shares of restricted stock of the Company's common stock has yet to be issued to CMC.

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Summary of Significant Accounting Policies (continued)

The Agreement also provides that CMC has engaged the Company to build and design, in the aggregate, approximately 100 residential and commercial units at 1100 Ridge Avenue, Atlanta, Georgia, which is known as the “Ridge Avenue, Atlanta Project.” The total cost of the project is $ 16,900,000 .

The project is a residential project but not subject to the Company’s Exclusive License Agreement, dated October 3, 2019.

In May 2020, the Company and Osang Healthcare Co., Ltd.

("Osang"), a South Korea based global manufacturer and distributor of medical grade diagnostic tests and equipment, announced the signing of a one year, non-exclusive distributorship agreement for the United States, for OHC's "GeneFinder COVID-19 Plus RealAmp Kit." This is a test designed to detect SARS-CoV-2, the virus that causes COVID-19.

The Distributorship Agreement is Osang's standard form of distributorship agreement and provides the Company with the non-exclusive right to distribute Osang's GeneFinder COVID-19 Plus RealAmp Kit in the United States for a stated term of one (1) year.

Pursuant to the terms of the Distributorship Agreement, the Company is required to make payment for 100 % of any purchase order prior to shipment of the product from Osang, though it does not expect to make any cash outlays with respect to any product that it distributes and expects instead to require any third-party purchasers to make the necessary cash outlays as part of a purchase order entered into with the Company.

The Distributorship Agreement does not guarantee the Company a specific quantity of kits to sell or a customer list, and may be terminated by either party at any time on thirty (30) days' notice.

An import license from the U.S.

government has been issued to import and distribute the Osang test kits.

There can be no assurance that the Distribution Agreement will continue, and it has not yielded the anticipated benefits or generated significant revenue, if any.

The revenue from these product sales is recognized upon the transfer of control, which is at a point in time, and is generally upon shipment, Provisions for any discounts, rebates, sales concessions and returns are provided for in the period the related sale is recorded.

During the year ending December 31, 2020, the Company recognized $ 250,000 in revenue related to such products, which is included in medical revenue on the accompanying consolidated statements of operations.

As described below, the Company entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”).

Revenue from the activities of the JV is related to clinical testing services and is recognized when services have bene rendered, which is at a point in time.

The Agreement also provided that CMC has engaged the Company to build and design, in the aggregate, approximately 100 residential and commercial units at 1100 Ridge Avenue, Atlanta, Georgia, which is known as the “Ridge Avenue, Atlanta Project.” The total expected gross revenue to the Company for the project to be derived by CMC is approximately $ 16,900,000 .

The project is a residential project but it was not subject to the recently terminated ELA.

The planning stage of the project was initially delayed due to COVID-19.

The Company is no longer participating on Ridge Avenue as CMC has decided to proceed with this project as a traditional construction build.

The Company has reported this as a cancellation within the Company's backlog footnote, see Note 13 on this discussion.

No revenue has been recognized under the Agreement during the year ending December 31, 2021.

The Company entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”) in the fourth quarter of 2020 .

Revenue from the activities of the JV is related to clinical testing services and is recognized when services have been rendered, which is at a point in time.

Included in the consideration the Company expected to be entitled to receive, the Company estimates its contractual allowances, payer denials and price concessions.

During the year ending December 31, 2020, the Company recognized $ 2,150,323 in revenue related to activities through the JV, which is included in medical revenue on the accompanying consolidated statements of operations.

In addition, the Company formed Chicago Airport Testing, LLC which collected rental revenue from subleasing to a consortium of government entities assisting in COVID-19 testing.

For the year ended December 31, 2021 , the Company recognized approximately $ 31.4 million related to activities through these two joint ventures, which is included in medical revenue on the accompanying consolidated statements of operations.

Disaggregation of Revenues

The Company’s revenues are principally derived from construction and engineering contracts related to Modules, and medical revenue derived from lab testing and test kit sales.

Our contracts are with customers in various industries.

Revenue recognized at a point in time and recognized over time were $ 4,057,086 and $ 4,698,537 , respectively, for the year ending December 31, 2020.

All revenue recognized for the year ending December 31, 2019 was over time.

The Company’s revenues are primarily derived from two segments, construction related to Modules projects and medical revenue derived from lab testing and test kit sales.

The Company's contracts are with customers in various industries.

Revenue recognized at a point in time and recognized over time were $30,744,769 and $7,596,933, respectively, for the year ended December 31, 2021.

Revenue recognized at a point in time and recognized over time were $ 4,057,086 and $ 4,698,537 , respectively, for the year ended December 31, 2020.

SG BLOCKS, INC.

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Twelve Months Ended December 31,

Revenue by Customer Type

Medical (lab testing, test kit sales and equipment)

Revenue by Segments and Customer Type

Construction Segment:

Hotel/Hospitality

Multi-Family (includes Single Family)

Medical (construction services)

Total revenue by customer type

Total Construction Revenue Segment (includes engineering service revenue)

Medical Revenue Segment (includes lab testing, kit sales and equipment)

Total Revenue by Segments and Customer Type

(1) Construction fee of $ 300,000 with no cost of revenue during 2020 .

Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when the Company’s right to consideration is unconditional and billed to the customer.

Accounts receivable are recognized net of an allowance for doubtful accounts.

Accounts receivable are recognized in the period when the Company’s right to consideration is unconditional.

Accounts receivable are recognized net of an allowance for credit losses.

A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

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Summary of Significant Accounting Policies (continued)

Deferred Contract Costs - Prior to entering into the ELA, the Company was subject to an agreement to construct and develop a certain property (“Original Agreement”), which now is subject to the ELA.

Deferred Contract Costs - Prior to entering into the ELA, the Company was subject to an agreement to construct and develop a certain property (“Original Agreement”), which now was subject to the ELA.

Because of this, the Company is no longer obliged to its Original Agreement.

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This amount was offset by $ 102,217 , which was reimbursement from the licensee for project costs on this project.

The Company incurred a total deferred contract costs of $ 203,926 .

The Company considered this amount an incremental cost of obtaining that ELA, because the Company expects to recover those costs through future royalty payments.

The Company amortizes the asset over sixty months, which is the initial term of the ELA because the asset relates to the services transferred to the customer during the contract term.

The Company incurred total deferred contract costs of $ 203,926 .

The Company considered this amount an incremental cost of obtaining that ELA, because the Company expected to recover those costs through future royalty payments.

The Company initially planned to amortize the asset over sixty months, which is the initial term of the ELA because the asset relates to the services transferred to the customer during the contract term.

As of December 31, 2021 , accumulated amortization related to deferred contract costs amounted to $ 91,765 .

During the year ended December 31, 2020 , amortization expense relating to the deferred contract costs amounted to $ 40,786 and is included in general and administrative expenses on the accompanying consolidated statements of operations.

During the years ended December 31, 2021 and 2020, amortization expense relating to the deferred contract costs amounted to $ 40,785 and $ 40,786 and is included in general and administrative expenses on the accompanying consolidated statements of operations.

As previously mentioned, the ELA was terminated on June 15, 2021 but the Company expects to recover the deferred contract costs from the Assignment of Limited Rights Under Membership Interest Redemption Agreement, dated June 15, 2021 as described below.

Exclusive License Agreement – On October 3, 2019, as amended on October 17, 2019, the Company entered into the ELA with CPF GP 2019-1 LLC (the “Licensee”), pursuant to which the Company granted the Licensee an exclusive license (the “License”) solely within the United States and its legal territories to the Company’s technology, intellectual property, any improvements thereto, and any related permits, in order to develop and commercialize products within the field of design and project management platforms for residential use, including single-family residences and multi-family residences, but excluding military housing.

The License Agreement has an initial term of five (5) years and will automatically renew for subsequent five (5) year periods.

The License Agreement provides for customary terminating provisions, including the right by the Company to terminate if the Licensee fails to make minimum royalty payments (as described below).

In consideration for the License, during the initial term, the Licensee agreed to pay the Company a royalty of (x) five percent ( 5 %) on the first $ 20,000,000 of gross revenues derived from the Licensee’s commercialization of the License (net of customary discounts, sales taxes, delivery charges, and amounts for returns) (the “Gross Revenues”), (y) four and one -half percent ( 4.5 %) on the next $ 30,000,000 of Gross Revenues, and (z) five percent ( 5 %) on all Gross Revenues thereafter (collectively, the “Royalty”), subject to the following minimum royalty payments determined on a cumulative basis during the initial term:

The Ridge Avenue Project has also been excluded from the License.

The ELA had an initial term of five (5) years and was to automatically renew for subsequent five (5) year periods.

The ELA provided for customary terminating provisions, including the right by the Company to terminate if the Licensee failed to make minimum royalty payments (as described below).

In consideration for the License, during the initial term, the Licensee agreed to pay the Company a royalty of (x) five percent (5%) on the first $20,000,000 of gross revenues derived from the Licensee’s com mercialization of the License (net of customary discounts, sales taxes, delivery charges, and amounts for returns) (the “Gross Revenues”), (y) four and one-half percent (4.5%) on the next $30,000,000 of Gross Revenues, and (z) five percent (5%) on all Gross Revenues thereafter (collectively, the “Royalty”), subject to the following minimum royalty payments determined on a cumulative basis during the initial term:

$500,000 in year 1, $750,000 in year 2, $1,500,000 in year 3, $2,000,000 in year 4, and $2,500,000 in year 5.

If the License Agreement is extended beyond the initial term, then the parties will negotiate in good faith the royalty rate and the minimum royalty payments for the renewal term(s).

In addition, to the extent the Licensee sublicenses any aspect of the License to a sub-licensee, the Licensee will pay to the Company fifty percent ( 50 %) of all payments received by the Licensee from such sublicensee.

The Company may also provide the Licensee with professional services with respect to the License, and the Licensee will reimburse the Company for employees’ time, materials, and expenses incurred in providing such professional services.

The Licensee also separately agreed to reimburse the Company for any third-party expenses incurred by the Company in developing the Company’s remaining and future residential projects.

The License Agreement provides for customary indemnification obligations between the parties and further provides that the Licensee will indemnify the Company for any claims arising out of the commercialization of the License by the Licensee or any of its subsidiaries, contractors, or sublicensees.

In addition, the License Agreement provides that the Company will provide the Licensee with cost estimates for the fabrication and manufacturing of residential projects in the Company’s existing pipeline as of the date of the License Agreement, and if such projects cannot be reasonably constructed and installed at or below such estimates, then the Licensee may withhold payment of any royalty due to the Company under the License Agreement on a dollar-for-dollar basis to offset the costs above the originally estimated amounts.

In addition, to the extent the Licensee sublicensed any aspect of the License to a sub-licensee, the Licensee was obligated to pay to the Company fifty percent ( 50 %) of all payments received by the Licensee from such sublicensee.

The ELA provided for customary indemnification obligations between the parties and further provides that the Licensee will indemnify the Company for any claims arising out of the commercialization of the License by the Licensee or any of its subsidiaries, contractors, or sublicensees.

On June 15, 2021, the Company terminated the ELA.

In connection with the termination, the Company entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with CPF, the general partner (the “Licensee”) of CPF MF 2019 - 1 LLC (“CPF MF”), and Capital Plus Financial, LLC, a limited partner of the Licensee (“Capital Plus”) and an Assignment of Limited Rights Under Membership Interest Redemption Agreement, dated June 15, 2021, with Capital Plus and the Licensee.

Pursuant to the Settlement Agreement with CPF and Capital Plus, the ELA was terminated, the Company released CPF and CPF MF for any claims in exchange for releases from CPF and Capital Plus and the Company received an assignment of CPF’s right under certain circumstances to a $ 1.25 million redemption distribution from CPF MF under its Operating Agreement.

SG BLOCKS, INC.

6 unchanged sentences

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.

Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s condensed consolidated statements of operations.

Subsequent adjustments to fair value of any contingent consideration are recorded to the Company’s consolidated statements of operations.

Costs that the Company incurs to complete the business combination are charged to general and administrative expenses as they are incurred.

6 unchanged sentences

This determination is evaluated periodically as facts and circumstances change.

On August 27, 2020 the Company entered into a joint venture agreement with Clarity Labs.

In consideration and subject to Clarity Lab’s services and commitments and provided the agreement remains valid and in force, and is not terminated, SGB shall issue 200,000 restricted shares of SGB common stock to be earned over a defined vesting period starting in December 1, 2020.

As of December 31, 2020, no shares were issued.

On August 27, 2020 the Company entered into a joint venture agreement with Clarity Lab Solutions, LLC (“Clarity Labs”) (the “JV”).

In consideration and subject to Clarity Lab’s services and commitments and provided the agreement remains valid and in force, and is not terminated, the Company agreed to issue 200,000 restricted shares of SGB common stock over a defined vesting period starting in December 1, 2020.

The restricted shares of SGB common stock were not issued to Clarity Labs as certain capital commitments were not met.

Clarity Labs is a licensed clinical laboratory that uses specialized molecular testing equipment and that focuses on the diagnosis and treatment of critical diseases, including COVID- 19 .

Clarity Labs is also engaged in the business of manufacturing, importing and distributions various medical tests.

Under the JV, the Company and Clarity Labs will jointly market, sell, and distributed certain products and services (“Clarity Mobile Venture”).

Clarity Labs is also engaged in the business of manufacturing, importing and distributing various medical tests.

Under the JV, the Company and Clarity Labs will jointly market, sell, and distribute certain products and services (“Clarity Mobile Venture”).

As of December 31, 2021 , $502,958 was due to Clarity Labs for expenses paid on behalf of Clarity Mobile Venture, and is included in Due to Affiliates, Accounts Payable and Accrued Expenses on the accompanying consolidated balance sheets.

In addition, during the year ended December 31, 2021, the Company recognized revenue of $60,110 and other income of $ 60,000 to Clarity Labs, of which none is included in accounts receivable as of December 31, 2021.

As of December 31, 2020, $ 965,561 was due to Clarity Labs for expenses paid on behalf of Clarity Mobile Venture, and is included in Due to Affiliates on the accompanying consolidated balance sheets.

In addition, during the year ended December 31, 2020, the Company recognized revenue of $ 641,178 to Clarity Labs, of which $ 420,773 is included in accounts receivable as of December 31, 2020.

The Company has determined it is the primary beneficiary of Clarity Mobile Venture and has thus consolidated the activities in its consolidated financial statements.

On January 18, 2021 the Company entered into an operating agreement to form CAT.

The purpose of CAT is to market , sell, distribute, lease and otherwise commercially exploit certain products and services in the COVID- 19 testing industry.

The Company has determined it is the primary beneficiary of CAT and has thus consolidated the activities in its consolidated financial statements.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Summary of Significant Accounting Policies (continued)

Investment Entities – On May 31, 2021, the Company's subsidiary SG DevCorp agreed to contribute $ 600,000 to acquire a 50 % membership interest in Norman Berry II Owner LLC.

The Company contributed $ 350,329 and $ 114,433 of the initial $ 600,000 in the second quarter and third quarter of 2021 respectively, with the remaining $ 135,238 funded in the fourth quarter of 2021.

The purpose of Norman Berry II Owner LLC is to develop and provide affordable housing in the Atlanta, Georgia metropolitan area.

The Company has determined it is not the primary beneficiary of "Norman Berry" and thus will not consolidate the activities in its consolidated financial statements.

The Company will use the equity method to report the activities as an investment in its consolidated financial statements.

On June 24, 2021, the Company's subsidiary, SG DevCorp, entered into an operating agreement with Jacoby Development for a 10 % non-dilutable equity interest for JDI-Cumberland Inlet, LLC.

The Company contributed $ 3,000,000 for its 10 % equity interest.

The purpose of JDI-Cumberland Inlet, LLC is to develop a waterfront parcel in a mixed-use destination community.

The Company has determined it is not the primary beneficiary of JDI-Cumberland Inlet, LLC and thus will not consolidate the activities in its consolidated financial statements.

The Company will use the equity method to report the activities as an investment in its consolidated financial statements.

Cash and cash equivalents – The Company considers cash and cash equivalents to include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less upon acquisition.

Cash and cash equivalents totaled $ 13,010,356 and $ 1,625,671 for the years ended December 31, 2020 and 2019, respectively.

Short-term investment – The Company classifies its investment consisting of a certificate of deposit with a maturity greater than three months but less than one year as short-term investment.

Cash and cash equivalents totaled $ 13,024,381 and $ 13,010,356 as of December 31, 2021 and 2020, respectively.

Short-term investment – The Company classifies investments consisting of a certificate of deposit with a maturity greater than three months but less than one year as short-term investment.

The Company had no short-term investment as of December 31, 2021 or 2020, respectively.

Accounts receivable and allowance for doubtful accounts – Accounts receivable are receivables generated from sales to customers and progress billings on performance type contracts.

Accounts receivable and allowance for credit losses – Accounts receivable are receivables generated from sales to customers and progress billings on performance type contracts.

Amounts included in accounts receivable are deemed to be collectible within the Company’s operating cycle.

The Company recognizes account receivable at invoiced amounts.

The allowance for doubtful accounts reflects the Company's best estimate of probable losses inherent in the accounts receivable balances.

Management provides an allowance for doubtful accounts based on the Company’s historical losses, specific customer circumstances, and general economic conditions.

The Company recognizes accounts receivable at invoiced amounts.

The allowance for credit losses reflects the Company's best estimate of expected losses inherent in the accounts receivable balances.

Management provides an allowance for credit losses based on the Company’s historical losses, specific customer circumstances, and general economic conditions.

Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have been exhausted and the prospects for recovery are remote.

5 unchanged sentences

As of December 31, 2021 there was inventory of $ 516,731 for construction materials, and $ 757,094 of medical equipment and COVID-19 test and testing supplies.

There was no inventory for December 31, 2019.

As of December 31, 2020 there was inventory of $ 4,429 for construction materials, and $ 773,715 of medical equipment and COVID-19 test and testing supplies.

SG BLOCKS, INC.

6 unchanged sentences

The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss.

The Company's evaluation of goodwill completed during the year ended December 31, 2019 resulted in impairment loss of $ 2,938,653 , which represents the total goodwill impairment loss to date.

The impairment loss was due to a deterioration in the Company's estimated future cash flows.

There were no impairments during the year ended December 31, 2020 .

There were no impairments during the years ended December 31, 2021 or 2020.

The Company has taken the recent COVID-19 pandemic into consideration when determining impairment.

1 unchanged sentence

In addition, included in intangible assets is $97,164 of trademarks, and $47,800 of website costs that are being amortized over 5 years.

The Company evaluated intangible assets for impairment during the year ended December 31, 2020, and determined that there are no impairment losses.

The accumulated amortization and amortization expense as of and for the year ended December 31, 2020 was $ 649,855 and $ 148,541 , respectively.

The Company evaluated intangible assets for impairment during the year ended December 31, 2021 and 2020 and determined that there are no impairment losses.

The accumulated amortization and amortization expense as of and for the year ended December 31, 2021 was $ 815,732 and $ 165,877 , respectively.

The accumulated amortization and amortization expense for the years ended December 31, 2020 was $ 649,855 and $ 148,541 respectively.

The estimated amortization expense for the successive five years is as follows:

22 unchanged sentences

Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

The earnout liability represents the only financial liability measured at fair value on a recurring basis as of December 31, 2020 and was a level 3 asset.

As of December 31, 2020, the estimated value of the earnout liability was zero.

The earnout liability on SG Echo represents the only financial liability measured at fair value on a recurring basis as of December 31, 2021 and 2020 and was a level 3 asset.

As of December 31, 2021 and 2020, the estimated value of the earnout liability was zero.

Transfer into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period.

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The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights.

At December 31, 2020 and 2019, 79 % and 92 %, respectively, of the Company’s gross accounts receivable were due from three and one customers.

Revenue relating to three and two customers represented approximately 61 % and 78 % of the Company’s total revenue for the years ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2020, there were no vendors which represented 10 % or more of our cost of revenue.

For the year ended December 31, 2019, 74 % of our cost of revenue related to three vendors .

The Company believes it has access to alternative suppliers, with limited disruption to the business, should circ umstances change with its existing suppliers.

At December 31, 2021 and 2020, 78 % and 79 %, respectively, of the Company’s gross accounts receivable were due from four and three customers.

Revenue in excess of 10 % relating to one and three customers represented approximately 80 % and 61 % of the Company's total revenue for the year ended December 31, 2021 and 2020, respectively.

For the year ending December 31, 2021 and 2020, there were no vendors that represented 10 % or more of our cost of revenue.

The Company believes it has access to alternative suppliers, with limited disruption to the business, should circumstances change with its existing suppliers.

Accounts Receivable

6 unchanged sentences

Total gross receivables

allowance for doubtful accounts

allowance for credit losses

Total net receivables

Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables.

The allowance for doubtful accounts was $ 795,914 as of December 31, 2020.

There was a provision for doubtful accounts of $ 10,018 , and no write offs for the year ended December 31, 2020.

There was no provision for doubtful accounts and write offs were $ 54,000 for the year ended December 31, 2019.

The allowance for credit losses was $ 963,116 and $ 795,914 as of December 31, 2021 and 2020, respectively.

There was a provision of $ 167,202 for credit losses, no recoveries collected for credit losses and no write offs during the year ended December 31, 2021.

There was a provision for credit losses of $ 10,018 , and no write offs for the year ended December 31, 2020.

The total net receivables as of January 1, 2020 was $1,101,185.

SG BLOCKS, INC.

5 unchanged sentences

Costs incurred on uncompleted contracts

Estimated earnings to date on uncompleted contracts

Provision for loss on uncompleted contracts

Estimated earnings (losses) to date on uncompleted contracts

Gross contract assets

billings to date

Net contract assets (liabilities)

The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at December 31, 2020 and 2019.

Net contract liabilities on uncompleted contracts

The above amounts are included in the accompanying consolidated balance sheets under the following captions at December 31, 2021 and 2020.

Contract assets

Contract liabilities

Net contract assets (liabilities)

Net contract liabilities

Although management believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion.

The Company peri odically evaluates and revises its estimates and makes adjustments when they are considered necessary.

The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary.

The Company has experienced accrued losses on legacy contract commitments from the acquisition of SG ECHO due to escalations in material pricing related to COVID- 19 and labor overa ges.

Project Development Costs and Other Non-Current Assets

Project development costs and other non-current assets are stated at costs.

At December 31, 2021, the Company’s project development costs related mainly to its development segment totaled $ 719,610 and other non-current assets which includes security deposits totaled $ 203,562 .

There were no costs related to project development costs or other non-current assets as of December 31, 2020.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Property, plant and equipment

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Laboratory and temporary units

Construction in process

Property, plant and equipment

2 unchanged sentences

Depreciation expense for the years ended December 31, 2021 and 2020 amounted to $ 398,744 and $ 50,655 , respectively.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2020 and 2019

F or the year ended December 31, 2021, a total of $204,482 of depreciation was classified as an indirect costs to cost of goods sold.

No depreciation expense was reclassified to cost of goods sold in 2020.

Notes Receivable

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The Company Note was issued pursuant to that certain Loan Agreement and Promissory Note, dated October 3, 2019 (the “Loan Agreement 2”), as amended on October 15, 2019 and November 7, 2019 by and between the CPF GP and the Company, and bear interest at five percent ( 5 %) per annum, payable, together with the unpaid principal amount of the promissory notes, on the earlier of the July 31, 2023 maturity date or upon the liquidation, redemption sale or issuance of a dividend upon the LLC interests in CPF MF 2019-1 LLC, a Texas limited liability company of which CPF GP is the general partner.

Interest income recognized for the years ended December 31, 2021 and 2020 amounted to $ 37,500 and $ 32,637 , respectively.

Subsequent to the year ended December 31, 2021, the Galvin Note was assigned to the Company and the principal amount of $ 100,000 was returned to Mr.

The Company has a promissory note in the principal amount of $ 100,000 (the "Company Note 3") and the assignment occurred in January 2022.

The promissory notes are unaffected by the Settlement and Mutual Release Agreement and remain in effect and outstanding in accordance with the terms of the notes evidencing such loans.

See Note 3 for a discussion on the Settlement and Mutual Release Agreement and termination of the ELA with CPF.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Accounts Payables and Accrued Liabilities

The Company's accounts payables and accrued liabilities at December 31, 2021 and 2020, consisted of the following:

Accounts payable (1)

Accrued public fees (2)

Accrued construction cost of goods sold

Accrued losses (3)

Accrued medical cost of goods sold

Accrued project development costs

Accrued payroll and benefits (4)

Accrued interest

Accrued non-income taxes (5)

Total Accounts Payable and Accrued Liabilities

(1) Payables also includes insurance financing payable and construction retainage payable balances along with the Company's normal account payable balances.

(2) Public fees include accruals for accounting, legal, and SEC compliance expenses.

(3) Losses for on-going construction projects related to the Construction segment.

(4) Accrued wages, salaries, PTO, benefits, taxes, and other incentive plan expenses.

(5) Non-income taxes includes property taxes, franchise taxes and other.

Notes Payable

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During the year ended December 31, 2020, the Note to investor of $ 200,000 and unpaid accrued interest of $ 6,263 was converted into 73,665 shares of the Company's common stock.

On July 14, 2021, SG DevCorp, a subsidiary of the Company, issued a Real Estate Lien Note, in the principal amount of $ 2,000,000 (the “Short-Term Note”), secured by a Deed of Trust, dated July 14, 2021 (the “Deed of Trust”), on the Company's 50 + acre Lake Travis project site in Lago Vista, Texas and a related Assignment of Leases and Rents, dated July 8, 2021 (“Assignment of Rents”), for net loan proceeds of approximately $ 1,948,234 after fees.

The Short-Term Note has a term of one (1) year, provides for payments of interest only at a rate of twelve percent ( 12 %) per annum and may be prepaid without penalty commencing nine (9) months after its issuance date.

If the Short-Term Note is prepaid prior to nine (9) months after its issuance date, a 0.5 % prepayment penalty is due.

The Company capitalized $ 112,348 in interest charges and $ 23,727 in debt issuance costs as of December 31, 2021 related to the Lago Vista project in accordance with ASC 835-20.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Notes Payable (continued)

On October 29, 2021, SG Echo, a subsidiary of the Company, entered into a Loan Agreement (“Loan Agreement”) with the Durant Industrial Authority (the “Authority”) pursuant to which it received $ 750,000 to be used for renovation improvements related to the Company's second manufacturing facility and issued to the Authority a non-interest bearing Forgivable Promissory Note in the principal amount of $ 750,000 (the “Forgivable Note”).

The Forgivable Note is due on April 29, 2029 and guaranteed by the Company, provided, if no event of default has occurred under the Forgivable Note or Loan Agreement, one -third ( 1 / 3 ) of the balance of the Forgivable Note will be forgiven on April 29, 2027, one -half ( 1 / 2 ) of the balance of the Forgivable Note will be forgiven on April 29, 2028, and the remainder of the balance of the Forgivable Note will be forgiven on April 29, 2029.

The Loan Agreement includes a covenant by SG Echo to employ a minimum of 75 full-time employees in Durant Oklahoma and pay them no less than 1.5 times the federal minimum wage, and provides SG Echo 24 months to comply with the provision.

Business Combination

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The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed for the Echo Acquisition:

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

For the Years Ended December 31, 2020 and 2019

Business Combination (continued)

Cash and cash equivalents

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Lease liability

As part of the Echo Acquisition, the Company recorded an earnout liability for additional payments due to the sellers of Echo.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Business Combination (continued)

As part of the Echo Acquisition, the Company recorded a contingent consideration liability for additional payments due to the sellers of Echo.

These payments are due in accordance with the APA and are based upon the net income obtained from the Echo business during certain earnout periods.

The initial earnout liability of $ 0 was based on the fair value of the earnout liability at the acquisition date, and would be payable in cash and shares of restricted common stock of the Company.

The Company leases an office, a plant and certain equipment under non-cancelable operating lease agreements.

The leases have remaining lease terms of two and a half years to five years.

The earnout periods concluded as of September 30, 2021.

The initial contingent consideration liability of $ 0 was based on the fair value of the contingent consideration liability at the acquisition date, and is payable in cash and shares of restricted common stock of the Company.

Any contingent liability would be paid out in the period after the earn out period, once additional advances are paid in full.

As of December 31, 2021, the liability is $ 0 , and no payment has been paid out.

The Company leases an office, a plant and certain equipment under non-cancelable operating and finance lease agreements.

The leases have remaining lease terms of one and a half years to four years.

The plant lease includes an option to extend the lease for up to five years.

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AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

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Present value of lease liabilities

Operating leases for office space and the plant, with total lease payments of $ 1,683,000 , has been leased from an affiliate of the sellers of Echo.

Co nvertible Debentur es

On November 12, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an investor, pursuant to which the Company issued to the investor a senior secured convertible debenture in the principal amount of $ 480,770 (the “Debenture”) for proceeds of $ 375,000 (representing an original issue discount of 22 %).

The Company received net proceeds of approximately $ 326,250 after deducting certain fees due to the placement agent and certain transaction expenses.

The Debenture was due 110 days after issuance and was secured under a Security Agreement, dated November 12, 2019, entered into with the investor (the “Security Agreement”) by a security interest in all of the Company’s existing and future assets, subject to existing security interests and exceptions.

The Company had the right to redeem all or a portion of the outstanding principal of the Debenture (i) prior to the maturity date without interest and with no conversion by the investor and (ii) after the maturity date at a premium of 120 %, and with interest accruing at 24 % from the maturity date.

As of December 13, 2019 the Debenture was paid back in full to the investor.

Chicago Airport Testing has subleased its leased vacant area for a period of one year , the sublessee has the option to terminate at any time after the first six months.

The sublessee elected to terminate the Agreement, effective as of July 31, 2021 and the Company has no remaining lease revenue from the sublessee.

Construction Backlog

The following represents the backlog of signed construction and engineering contracts in existence at December 31, 2021 and 2020, which represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress and from contractual agreements in effect at December 31, 2021 and December 31, 2020, respectively, on which work has not yet begun:

Balance - beginning of period

New contracts and change orders during the period

Adjustments and cancellations, net

contract revenue earned during the period

Balance - end of period

SG BLOCKS, INC.

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For the Years Ended December 31, 2021 and 2020

The Debenture was convertible into shares of the Company’s common stock only upon (i) the occurrence of an Event of Default (as defined in the Debenture) or (ii) at maturity in the event any principal remains outstanding, at a conversion price equal to the lower of (x) 67.5% of the lowest daily VWAPs of the common stock during the five consecutive trading days immediately preceding the Event of Default or date of maturity or (y) if the Debenture was not fully paid as of the Maturity, the lowest daily VWAP during the ten (10) consecutive trading days immediately preceding the date of the applicable Conversion, and based on a conversion amount determined by the product of (x) the portion of the principal and accrued interest to be converted and (y) 120% or (y) if the Debenture was not fully paid as of the Maturity Date and no conversions have been effected under the Debenture, the lowest daily VWAP during the ten (10) consecutive Trading Days immediately preceding the date of the applicable Conversion;

provided, however, that the Company will not issue any shares of common stock upon conversion of the Debenture if the investor would exceed the aggregate number of shares of common stock which the Company may issue upon conversion or exercise (as the case may be) of the Debenture without breaching the Company’s obligations under the rules or regulations of the Nasdaq Stock Market, including rules related to the aggregate of offerings under NASDAQ Listing Rule 5635(d) (which currently limit such issuance to 60,048 shares, which is 19.99% of the Company’s outstanding shares as of the date hereof).

In addition, subject to limited exceptions, the investor did not have the right to convert any portion of the Debenture if the investor, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion and under no circumstances could convert the Debenture if the investor, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.

In connection with this transaction, the Company entered into a Placement Agency Agreement (the “ Placement Agency Agreement ”) with ThinkEquity, a division of Fordham Financial Management, Inc.

(the “ Placement Agent ”), pursuant to which the Company agreed to pay the Placement Agent a cash fee equal to 9 % of the gross proceeds received by the Company from the investor in this transaction, as well as a one-time expense fee of $ 15,000 for aggregate out-of-pocket expenses incurred collectively in this transaction.

Pursuant to the Placement Agency Agreement, the Company also agreed to grant to the Placement Agent or its designees warrants to purchase up to 9 % of the aggregate number of shares of common stock underlying the Debenture, which equals 5,404 shares of common stock, at an exercise price of 110 % of the closing price of the Company’s common stock on the closing date (the “ Placement Agent Warrants ”).

The Placement Agent Warrants wereexercisable, in whole or in part, commencing on the issuance date and have an exercise period of five years.

In the event that there was not an effective registration statement permitting for the resale of the shares underlying the Placement Agent Warrants, the Placement Agent Warrant’s were exercisable on a cashless basis.

There were significant restrictions pursuant to FINRA Rule 5110 against transferring the Placement Agent’s Warrants and the shares issuable upon exercise of the Placement Agent Warrants during the one hundred eighty (180) days after the closing date.

On December 10, 2019, the Company and ThinkEquity entered into a waiver agreement (“Waiver of Warrant”) pursuant to which ThinkEquity surrendered its rights to a warrant previously issued to ThinkEquity on November 12, 2019 to purchase 5,404 shares of the Company’s common stock as compensation for acting as placement agent for the private placement of the Debenture.

Construction Backlog (continued)

Backlog at December 31, 2021 included two contracts entered into during the third quarter of 2020 in the amount of approximately $4 million and approximately $2.95 million along with three contracts during the fourth quarter of 2020 in the amount of approximately $ 2.7 million, $ 0.80 million, and $ 0.70 million.

The Company executed one large contract in the first quarter of 2021 in the amount of approximately $ 1.3 million, one large contract in the third quarter of 2021 of approximately of $ 0.87 million and had one large partial contract cancellation to an existing contract of approximately ($ 1.3 ) million.

The Company executed one large contract in the fourth quarter of 2021 in the amount of approximately $ 0.78 million and had one contract cancellation in t he amount of approximately $ 16.9 million.

The Company expects that all of this revenue will be realized by December, 2022.

As previously discussed in Note 3, the ELA was terminated and in connection with the termination a Settlement and Mutual Release Agreement was executed.

The Company is receiving an assignment of CPF's right to a $ 1.25 million redemption distribution for one such project.

The Company does not expect to receive any royalties from the terminated ELA and Backlog does not include the redemption distribution fee.

The Company’s remaining backlog as of December 31, 2021 represents the remaining transaction price of firm contracts for which work has not been performed and excludes unexercised contract options.

The Company expects to satisfy its backlog which represents the remaining unsatisfied performance obligation on contracts as of December 31, 2021 over the following period:

Within 1 year

Total Backlog

Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur.

Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost and project deferrals, as appropriate.

Segment Reporting

We have organized our operations into three segments:

Construction, Medical, and Development.

We allocate to segment results the operating expenses “Payroll and related expenses,” “General and administrative,” “Marketing and business development,” and “Pre-project” based on usage, which is generally reflected in the segment in which the costs are incurred.

These segments reflect the way our executive team evaluates the Company’s business performance and manages its operations.

The Construction segment includes the Company's manufacturing unit SG ECHO and other modules projects.

The Medical segment mainly consists of the Company's joint venture COVID-19 laboratory operations.

The Development segment includes real property development utilizing our technology and our manufacturing facility.

Corporate and support consists of general corporate expenses such as our executive office;

the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups;

corporate overhead and other items not allocated to any of the Company's segments.

From time to time, the Company revises the measurement of each segment's cost of revenue and operating expenses, including any corporate overhead allocations, as determined by the information regularly reviewed by its executive team.

Information for the Company's segments, as well as for Corporate and support, is provided in the following table:

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Segment Reporting (continued)

Corporate/Support

Fiscal Year Ended December 31, 2021

Operating income (loss)

( 7,143,792 )

Other income (expense)

Income (loss) before income taxes

( 7,064,544 )

Net income (loss) attributable to non-controlling interest

Net income (loss) attributable to common stockholders of SG Blocks, Inc.

( 7,064,544 )

Depreciation and amortization

Capital expenditures

Fiscal Year Ended December 31, 2020

Operating income (loss)

Other income (expense)

Income (loss) before income taxes

Net income (loss) attributable to non-controlling interest

Net income (loss) attributable to common stockholders of SG Blocks, Inc .

Depreciation and amortization

Capital expenditure

The Company’s provision (benefit) for income taxes consists of the following for the year ended December 31, 2021 and 2020:

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Income tax provision

A reconciliation of the federal statutory rate to 0 % for the year ended December 31, 2020 and 2019 to the effective rate for income from operations before income taxes is as follows:

SG BLOCKS, INC.

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Income Taxes (continued)

A reconciliation of the federal statutory rate to 0.0 % for the year ended December 31, 2021 and 2020 to the effective rate for income from operations before income taxes is as follows:

Benefit for income taxes at federal statutory rate

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At December 31, 2020, there were options , including options to non-employees and non-directors, restricted stock units and warrants to purchase 36,436 , 884,343 and 353,190 shares of common stock, respectively, outstanding that could potentially dilute future net income per share.

Construction Backlog

The following represents the backlog of signed construction and engineering contracts in existence at December 31, 2020 and 2019, which represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress and from contractual agreements in effect at December 31, 2020 and December 31, 2019, respectively, on which work has not yet begun:

Balance - beginning of period

New contracts and change orders during the period

Adjustments and cancellations, net

contract revenue earned during the period

Balance - end of period

Backlog at December 31, 2020 included one large contract entered into by the Company during the third quarter of 2019 in the amount of approximately $ 17 million, and entered into two contracts during the third quarter of 2020 in the amount of approximately $ 4 million and approximately $ 2.95 million.

The Company expects that all of this revenue will be realized by September 30, 2022.

During the second quarter of 2019 , the Company moved a $ 25 .0 million contract out of backlog after receiving a cancellation notice from the customer.

During the third quarter of 2019 , the Company removed two contracts in the amount of $ 55 million and $ 15 million out of backlog due to the fact that these projects fall under the exclusive license agreement (“ELA”) executed during the fourth quarter of 2019 .

Under the ELA, the Company cannot guarantee, but expects to receive, approximately $ 2.4 million in royalties for one such project.

The Company expects to receive these royalties for this one such project through June 30, 2022.

Backlog does not include expected royalty fees to the Company under the ELA from projects to be delivered by our licensee.

The Company entered into three contracts during the fourth quarter of 2020 in the amount of approximately $ 2.7 million, $ 0.80 million, and $ 0.70 million.

The Company’s remaining backlog as of December 31, 2020 represents the remaining transaction price of firm contracts for which work has not been performed and excludes unexercised contract options.

The Company expects to satisfy its backlog which represents the remaining unsatisfied performance obligation on contracts as of December 31, 2020 over the following period:

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2020 and 2019

Within 1 year

Total Backlog

Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur.

Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost and project deferrals, as appropriate.

Stockholders’ Equity

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In connection with the April Public Offering, the Company sold 440,000 shares of common stock at a public offering price of $ 4.25 per share, resulting in aggregate net proceeds of approximately $ 1,522,339 after deducting underwriting discounts and commissions and other expenses related to the offering.

The Company incurred a total of approximately $ 347,661 in issuance costs in connection with the offering and no warrants to purchase were issued to the underwriters.

The Company incurred a total of approximately $ 347,661 in issuance costs in connection with the offering and n o warrants to purchase were issued to the underwriters.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Stockholders’ Equity (continued)

In May 2020, the Company completed a public offering of its common stock (the "May Public Offering").

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The Company incurred a total of approximately $ 1,653,859 in issuance costs in connection with the offering and issued warrants to purchase 300,000 shares of common stock to the underwriters.

In October 2021, the Company closed a registered direct offering and concurrent private placement of its common stock (the "October Offering") that the Company effected pursuant to the Securities Purchase Agreement that it entered into on October 25, 2021 with an institutional investor and received gross proceeds of $ 11.55 million.

Pursuant to the terms of the Purchase Agreement, the Company issued to the investor (A) in a registered direct offering (i) 975,000 shares (the “Public Shares”) of its Common Stock, par value $0.01 per share (the “Common Stock”), and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 2,189,384 shares (the “Pre-Funded Warrant Shares”) of Common Stock and (B) in a concurrent private placement, Series A warrants to purchase up to 1,898,630 shares (the “Common Stock Warrant Shares”) of Common Stock (the “Common Stock Warrants,” and together with the Public Shares and the Pre-Funded Warrants, the “Securities”) (the “Offering The Pre-Funded Warrants were immediately exercisable at a nominal exercise price of $0.001 and all Pre-Funded Warrants sold have been exercised.

The Common Stock Warrants have an exercise price of $4.80 per share, are exercisable upon issuance and will expire five years from the date of issuance.

A.G.P./Alliance Global Partners (the “Placement Agent”) acted as the exclusive placement agent for the transaction pursuant to that certain Placement Agency Agreement, dated as of October 25, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”), the Placement Agent received (i) a cash fee equal to seven percent (7.0%) of the gross proceeds from the placement of the Securities sold by the Placement Agent in the Offering and (ii) a non-accountable expense allowance of one half of one percent (0.5%) of the gross proceeds from the placement of theGross Proceeds Securities sold by the Placement Agent in the Offering.

The Company also reimbursed the Placement Agent’s expenses up to $50,000 upon closing the Offering.

The net proceeds to the Company after deducting the Placement Agent’s fees and the Company’s estimated offering expenses was approximately $ 10.5 million.

Securities Purchase Agreement – In April 2019 , the Company issued 42,388 shares of its common stock at $ 22.00 per share through a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors and accredited investors.

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For the Years Ended December 31, 2021 and 2020

Stockholders’ Equity (continued)

Decrease in Authorized Shares – On June 5, 2019 , at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to decrease the number of authorized shares of common stock from 300,000,000 to 25,000,000 shares.

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The warrants are exercisable at the option of the holder on or after November 6, 2020 and expire May 5, 2025 .

During the year ended December 31, 2021, 226,300 warrants were exercised and converted into common stock of the Company.

The Company has received proceeds of approximately $ 707,000 from the exercise of the warrants.

In conjunction with the Purchase Agreement in October 2021, the Company also issued Series A warrants to purchase up to 1,898,630 shares of Common Stock in a concurrent private placement.

The warrants are have an exercise price of $ 4.80 per share, exercisable at the option of the holder on or after October 26, 2021 and will expire five years from the date of issuance.

SG BLOCKS, INC.

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Share-based Compensation

On October 26, 2016, the Company’s Board of Directors approved the Company’s 2016 Stock Incentive Plan which authorized the issuance of up to 25,000 shares of the Company’s common stock in the form of restricted stock or options (“ 2016 Stock Plan”).

On October 26, 2016, the Company’s Board of Directors approved the issuance of up to 25,000 shares of the Company’s common stock in the form of restricted stock or options (“ 2016 Stock Plan”).

Effective January 20, 2017, the 2016 Stock Plan was amended and restated as the SG Blocks, Inc .

Stock Incentive Plan, as further amended eff ective June 1, 2018 and further amended July 30, 2020 (the “Incentive Plan”).

Stock Incentive Plan, as further amended eff ective June 1, 2018 and as further amended on July 30, 2020 and as further amended on August 18, 2021, (the “Incentive Plan”).

The Incentive Plan authorizes the issuance of up to 3,625,000 shares of common stock.

It authorizes the issuance of equity-based awards in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards to non-employee directors and to officers, employees and consultants of the Company and its subsidiary, except that incentive stock options may only be granted to the Company’s employees and its subsidiary’s employees.

The Incentive Plan expires on October 26, 2026, and is administered by the Company’s Compensation Committee of the Board of Directors.

The Incentive Plan expires on October 26, 2026, and is administered by the Company’s Compensation Committee of the Boa rd of Directors.

Each of the Company’s employees, directors, and consultants are eligible to participate in the Incentive Plan.

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Payroll and related expenses

Marketing and business development expenses

General and administrative expenses

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

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This expense is included in payroll and related expenses in the accompanying consolidated statements of operations.

As of December 31, 2020, there was $ 2,667 of total unrecognized compensation costs related to non-vested stock options, which will be expensed over a weighted average period of less than 1 year.

As of December 31, 2021, there was no unrecognized compensation costs related to non-vested stock options and all options have been expensed .

The intrinsic value is calculated as the difference between the fair value of the stock price at year end and the exercise price of each of the outstanding stock options.

44 unchanged sentences

The fair value of these units upon issuance amounted to $ 1,220,160 .

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Share-based Compensation (continued)

On October 1, 2021, a total of 1,214,500 of restricted stock units were granted to Mr.

Armstrong, Mr.

Sheeran, thirteen employees and three consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $ 3.38 per share, which represents the closing price of the Company's common stock on October 1, 2021.

Restricted stock units granted to Mr.

Armstrong, Mr.

Sheeran, and an aggregate of thirteen employees and two consultant of 350,000 , 40,000 , 100,000 and an aggregate of 475,000 , respectively, vesting quarterly over two years from the anniversary of the grant date.

Restricted stock units granted to Mr.

Rogers and one consultant of 37,500 and 12,000 vest upon issuance date.

Restricted stock units granted to Mr.

Rogers of 200,000 vest monthly over a two-year period.

The fair value of these units upon issuance amounted to $ 4,105,010 .

On October 1, 2021, a total of 59,170 of restricted stock units were granted to five of the Company's non-employee directors, under the Company's stock-based compensation plan, at the fair value of $ 3.38 per share, which represents the closing price of the Company's common stock on October 1, 2021.

The restricted stock units granted October 1, 2021 vesting monthly over one year and, if earlier, in full on the date of the Company’s 2022 Annual Meeting of Stockholders.

On December 7, 2021, a total of 62,500 of restricted stock units were granted to five of the Company's non-employee advisory directors, under the Company's stock-based compensation plan, at the fair value of $ 2.36 per share, which represents the closing price of the Company's common stock on December 7, 2021.

The restricted stock units granted vest in equal monthly installments over one year period.

For the year ended December 31, 2021 and 2020 , the Company recognized stock-based compensation of $ 1,644,725 and $ 1,250,548 related to restricted stock units.

This expense is included in the payroll and related expenses and marketing and business development expense in the accompanying condensed consolidated statement of operations.

For the year ended December 31, 2020 and 2019, the Company recognized $ 0 and $ 217,256 , respectively, related to restricted stock units in lieu of accrued compensation.

This expense is included in the payroll and related expenses and general and administrative expenses in the accompanying consolidated statement of operations.

The Company capitalized project development costs of $89,140 related to restricted stock units for the year ended December 31, 2021.

As of December 31, 2021, there was a total of $ 3,955,323 in unrecognized compensation costs related to non-vested restricted stock units.

The following table summarized restricted stock unit activities during the year ended December 31, 2021 :

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The Company maintains that the Assignment Agreement, to the extent valid and enforceable, was properly terminated and/or there are no damages, and, consequently, that the claims brought against the Company are without merit.

The Company intends to vigorously defend the litigation.

The Company intends to continue to vigorously defend the litigation.

The parties have engaged in written discovery but no depositions have been conducted as of yet.

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Phipps cross moved to consolidate the two actions.

The Company has opposed both motions and the Court has yet to rule on the same.

Pending the Court’s ruling on said motions discovery in the matter has been temporarily stayed.

The Company opposed both motions.

On April 26, 2021, the court denied both motions and directed the parties to meet and confer concerning the scheduling of depositions.

On May 10, 2021, the parties jointly filed with the court a proposed order providing the completion of depositions of all parties and nonparties by September 30, 2021.

The court has not entered the proposed discovery order and no action has been taken by the plaintiff Pizzarotti nor the defendant-cross claimant Phipps since the proposed order was submitted.

There are no scheduled hearings or conferences before the court at this time.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

The Company is currently unable to predict the possible loss or range of loss, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

SG BLOCKS, INC.

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Commitm ents and Contingencies (continued)

2.) ICON Construction Inc.

SG Blocks, Inc.

On or about June 8, 2021 ICON Construction Inc.

(“ICON”) filed a complaint against the Company and Echo DCL LLC (“Echo DCL”), seeking unspecified damages, arising out of a certain asset purchase agreement entered into between ICON and Echo DCL on or about February 20, 2020 (the “ICON-Echo Asset Agreement”) whereby, inter alia , Echo DCL acquired all of the assets of ICON.

On or about September 17, 2020, Echo DCL and SG Echo LLC entered into a certain asset purchase agreement (the “Echo Asset Agreement”) whereby, inter alia , SG Echo acquired all of the assets of Echo DCL.

In the Echo Asset Agreement Echo DCL represented and warranted to SG Echo that it had good and marketable title to the assets, had full right and power to transfer same, and that the same were free and clear of any encumbrances except for a certain permitted lien held by BTH Bank.

ICON alleges that ECHO DCL breached the terms of the ICON-Echo Asset Agreement and that the Company agreed to assume Echo DCL’s liabilities obligations under the ICON-Echo Asset Agreement .

Icon also claims a security interest in the assets conveyed to SG Echo by Echo DCL.

The Company has filed an answer to the ICON complaint denying the allegations and raised eleven affirmative defenses and that it is entitled to indemnification and/or contribution from Echo DCL and its principal Michael Ames.

The parties are currently engaged in discovery.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

Vendor Litigation

1.) Teton Buildings, LLC

(i) On January 1, 2019, SG Blocks commenced an action against Teton Buildings, LLC (“Teton”) in Harris County, Texas (“Teton Action”) to recover approximately $ 2,100,000 arising from defendant’s breach of the operative contract related to Heart of Los Angeles construction project in Los Angeles (the “HOLA Project”).

(i) On January 1, 2019, SG Blocks commenced an action against Teton Buildings, LLC (“Teton”) in Harris County, Texas (“Teton Texas Action”) to recover approximately $ 2,100,000 arising from defendant’s breach of the operative contract related to Heart of Los Angeles construction project in Los Angeles (the “HOLA Project”) entered into on or about June 2, 2017.

The Petition brought claims of breach of contract, negligence, and breach of express warranty.

The Firm did not represent the Company in connection with the Teton Action.

In or about February 2022 SG Blocks dismissed without prejudice the Teton Texas Action.

(ii) On or about September 12, 2018, the Company entered into a Firm Price Quote and Purchase (the “GVL Contract”) with Teton to govern the manufacture and provision of 23 shipping containers and modular units (the “Teton GVL Modules”) for the Four Oaks Gather GVL project in South Carolina (the “GVL Project.”).

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Teton Buildings, LLC and bearing the case number 19-35811.

The Firm was engaged to file a proof of claim in the Teton Bankruptcy.

On February 11, 2020, the Company filed a proof of claim again Teton in the amount of $ 2,861,401.66 arising from the HOLA Project and the GVL Contract.

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As such, there is no prospect of any recovery against Teton.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Commitm ents and Contingencies (continued)

On January 22, 2021, the Company filed a third-party complaint against Teton in the United States District Court for the Central District of California, Case No.

2:20-cv-03432 (“Teton Action”), seeking to determine Teton’s liability in its capacity as a bankruptcy debtor in order to collect any damages payable from Teton’s liability insurance carrier or carriers.

2:20−cv−03432 in the HOLA Action (described below), seeking to determine Teton’s liability in its capacity as a bankruptcy debtor in order to collect any damages payable from Teton’s liability insurance carrier or carriers.

On July 23, 2021, the Company filed a First Amended Third-Party Complaint against Teton and other named third party defendants (see #2 below).

Teton has been served with the First Amended Third-Party Complaint and on or about February 11, 2022, Teton filed an answer and affirmative defenses.

The parties in the HOLA Action are currently conducting discovery.

2 .) SG Blocks, Inc.

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On April 13, 2020, Plaintiff SG Blocks, Inc.

(“SG Blocks”) filed a Complaint against HOLA Community Partners (“HCP”), Heart of Los Angeles Youth, Inc.

(“SG Blocks” or the “Company”) filed a Complaint against HOLA Community Partners (“HCP”), Heart of Los Angeles Youth, Inc.

(“HOLA”) (HCP and HOLA are collectively referred to as the “HOLA Defendants”), and the City of Los Angeles (“City”) in the United States District Court for the Central District of California, Case No.

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On January 22, 2021, the Company filed a Third-Party Complaint in the HOLA Action against Third-Party Defendants Teton Buildings, LLC, Avesi Construction, LLC, and American Home Building and Masonry Corp (“AHB”) for indemnity and contribution with respect to HOLA’s claims.

The Company has also notified its general liability carrier Sompo International regarding coverage concerning HOLA’s claims

On February 25, 2021, the Court entered an order dismissing the Company’s claims for (1) breach of contract;

The Company has also notified its general liability carrier Sompo International regarding coverage concerning HOLA’s claims On February 25, 2021, the Court entered an order dismissing the Company’s claims for (1) breach of contract;

(2) conversion;

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The Court also denied the Company’s motion to dismiss HOLA’s claims.

The case is currently entering the discovery stage and a trial date has been set for March 22, 2022.

On March 12, 2021, the HOLA Defendants filed an answer to the Company’s complaint against it denying liability and asserting affirmative defenses.

On March 12, 2021, the Company filed an answer to the HOLA Defendants’ First Amended Consolidated Complaint against it, denying liability and asserting affirmative defenses.

On April 26, 2021, the Company and the HOLA Defendants filed a Joint Stipulation to Dismiss HOLA Community Partners’ Sixth Claim for Relief (violation of California Business and Professions Code §7031(b)), with prejudice, pursuant to Fed.

41(a)(1)(A)(ii).

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Commitm ents and Contingencies (continued)

On July 23, 2021, the Company filed a First Amended Third-Party Complaint adding the following additional third party defendants seeking, inter alia , contractual indemnity, equitable indemnity;

and contribution :

American Home Building and Masonry Corp.

(“American Home”), Anderson Air Conditioning, L.P.

(“Anderson”).

Broadway Glass and Mirror, Inc.

(“Broadway”), Marne Construction, Inc.

(“Marne”), The McIntyre Company (“McIntrye”), Dowell & Bradley Construction, Inc.

dba J R Construction (“JR Construction”) Junior Steel Co.

(“Junior Steel”) Saddleback Roofing, Inc.

(“Saddleback”) Schindler Elevator Corporation (“Schindler”) U.S.

Smoke & Fire Corp.

Smoke”) and FirstForm, Inc.

(“FirstForm”) (collectively the “Additional Third Party Defendants”).

On September 2, 2021, Schindler Elevator Corp.

filed its answer to the First Amended Third-Party Complaint.

On September 3, 2021, Junior Steel Co.

filed its answer to the First Amended Third-Party Complaint.

On September 7, 2021, Anderson Air Conditioning, L.P.

filed its answer to the First Amended Third-Party Complaint.

On October 6, 2021, the McIntyre Group filed its answer to the First Amended Third-Party Complaint.

On February 7, 2022, the Company filed a request for entry of a Clerk’s default against the following defendants:

American Home Building and Masonry Corp., Avesi Construction, Marne Construction, Inc., Firstform, Inc., Dowell & Bradley Construction, Inc, Saddleback Roofing, Inc., and US Smoke and Fire Corp.

On February 9, 2022, the court entered a clerk’s default pursuant to Federal Rule 55 against the following defendants:

American Home Building and Masonry Corp.

Avesi Construction, Dowel & Bradley Construction, Inc., Saddleback Roofing Inc.

and US smoke and Fire Corp.

The parties that have answered and appeared in the case are currently engaged in discovery.

The cut-off for fact discovery has been extended to September 12, 2022, and a trial has been set for January 31, 2023.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

The Company is currently unable to predict the outcome or possible recovery or loss or range of loss, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

3.) SG Blocks, Inc.

EDI International, PC .-

On June 21, 2019, SG Blocks filed a lawsuit against EDI International, PC, a New Jersey corporation, in connection with the parties' consulting agreement, dated June 29, 2016, pursuant to which EDI International, PC, was to provide, for a fee, certain architectural and design services for the HOLA Project.

On June 21, 2019, SG Blocks filed a lawsuit against EDI International, PC, a New Jersey corporation, in the Superior Court of the State of California, County of Los Angeles, Central District, in connection with the parties' consulting agreement, dated June 29, 2016, pursuant to which EDI International, PC, was to provide, for a fee, certain architectural and design services for the HOLA Project.

SG Blocks, Inc.

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The case is currently in the discovery stage and a trial date has been set for May 2, 2022.

On May 14, 2021, EDI accepted the Company’s Statutory Offer of Compromise, pursuant to California Code of Civil Procedures §998, to settle EDI’s cross-claims.

On July 26, 2021, the Company and EDI entered into a certain General Release agreement whereby in exchange for payment by the Company in the amount of $ 67,125.83 EDI released SG Blocks from all liabilities and damages related to EDI’s cross-claims.

The Company continues to prosecute its claim against EDI for tortious interference with the Company’s economic relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc.

The parties are in engaged in the discovery and a trial date has been set for September 6, 2022.

The parties have agreed to mediate their dispute.

Mediation has been scheduled to take place on or about May 17, 2022.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

SG BLOCKS, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Commitm ents and Contingencies (continued)

Other Litigation

1.) Shetty v.

SG Blocks, Inc.

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Specifically, the Court dismissed the Former Employee’s claim (i) for severance (in the amount of $ 300,000 ) and unpaid wages pursuant to the FLSA, but denied dismissal of the Former Employee’s claims for retaliation under the FLSA or unpaid wages allegedly due under the New York Labor Law.

The parties are in the middle of pre-trial discovery, having served discovery requests upon each other but have yet to respond to same or to schedule depositions of the parties (and/or third party witnesses).

No trial date has been set.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

On or about September 14, 2021, the Company and Former Employee entered into a settlement and release agreement resolving their respective claims.

On September 14, 2021, the parties filed a joint motion seeking court approval of the settlement.

By order dated February 8, 2022, the court approved the settlement.

On February 9, 2022 the court closed the case.

2.) SG Blocks, Inc.

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The Company has also asserted that Osang breached the covenant of good faith and fair dealing, fraudulently induced it to enter into the MSA, and violated §349 of the New York General Business Law’s prohibition of deceptive business practices.

On June 18, 2021, Osang served a motion to dismiss the Osang Action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

On July 30, 2021, the Company served its opposition to the motion to dismiss.

The motion has been fully briefed and submitted to the court and the parties are awaiting a ruling thereon.

On January 10, 2022 the court entered an order staying discovery pending its ruling on the defendant’s motion to dismiss.

Litigation is subject to many uncertainties, and the outcome of this action is not predicted with assurance.

The Company is currently unable to predict the outcome or possible recovery, if any, associated with the resolution of this litigation, and, accordingly, the Company has made no provision related to this matter in the condensed consolidated financial statements.

In April 2020, the Company entered into an amendment to its employment agreement, dated January 1, 2017, with Paul Gavin (the "Amendment"), to extend the term of employment to December 31, 2021, provide for an annual base salary of $400,000, provide for a performance bonus structure for a bonus of up to 50% of base salary upon the Company’s achievement of $2,000,000 EBITDA and additional performance bonus payments for the achievement of EBITDA in excess of $2,000,000 based on a percentage of the incremental increase in EBITDA (ranging from 10% of the incremental increase in EBITDA if the Company achieves over $2,000,000 and up to $7,000,000 in EBITDA, 8% of the incremental increase in EBITDA if the Company achieves over $7,000,000 and up to $12,000,000 in EBITDA and 3% of the incremental increase in EBITDA over $12,000,000), provide for a profits-based additional bonus of up to $250,000 in certain limited circumstances, and provide for one (1) year severance, plus a pro-rated amount of any unpaid bonus earned by him during the year as verified by the Company’s principal financial officer, if Mr.

Galvin is terminated without cause.

At the Company’s option, up to fifty (50%) percent of the EBITDA performance bonuses may be paid in restricted stock units if then available for grant under the Company’s Stock Incentive Plan.

All other terms of the employment agreement remain in full force and effect.

SG BLOCKS, INC.

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For the Years Ended December 31, 2021 and 2020

Commitm ents and Contingencies (continued)

Galvin is terminated without cause.

At the Company’s option, up to fifty (50%) percent of the EBITDA performance bonuses may be paid in restricted stock units if then available for grant under the Company’s Stock Incentive Plan.

All other terms of the employment agreement remain in full force and effect.

Subsequent Events

Subsequent to December 31, 2020, the Company has received $ 703,437 in proceeds from the exercise of warrants to purchase an aggregate of 225,100 shares of its common stock.

In addition, subsequent to December 31, 2020, the Company has formed SGB Development Corp.

(“Development”).

Development will provide real property development to low and moderate income housing.

The projects for Development will be built by SG Echo.

In addition, Development has entered into a contract to acquire and develop an approximately 7-acre site in Austin, Texas, which is expected to yield a maximum of 225 condo units.

The Company executed our option to acquire Echo’s real estate holdings in Durant, OK, consisting of a 19 -acre site and all of its structures and we expect to close on the Echo site in the second quarter of 2021 .

Subsequent to December 31, 2021, the Company acquired an approximately 114 -acre “McLean mixed-use” site in Durant, Oklahoma for approximately $ 870,000 .

With this space, the Company plans to build approximately 300 residential units, and up-to 680,000 square feet of industrial manufacturing space on this mixed-use property.

Subsequent to December 31, 2021, the lease commencement date for SG Echo's second manufacturing facility became effective on February 7, 2022.

The leased property is currently under renovation and located in Durant, Oklahoma.

Subsequent to December 31, 2021, the Company made a capital investment in Moliving , a nomadic hospitality solution company on February 24, 2022.

The Company also executed a side agreement to build the first sixty Moliving units and an additional ninety units after the first sixty units are manufactured.

Subsequent to December 31, 2021, Paul Galvin, Company's Chairman and CEO assigned a promissory note ( the “Galvin Note”) in the principal amount of $ 100,000 (the "Company Note 3 ") over to the Company in the first quarter of 2022.

The original promissory note was issued to Mr.

Galvin o n January 21, 2020, from CPF GP 2019 - 1 LLC (“CPF GP”) in the amount of $ 100,000 .

Since inception of the Galvin note, all interest associated with the promissory note was assigned to the Company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures