What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-19 compared with 2020-08-13 · 113 added, 117 removed, 225 unchanged (51% of the section changed)

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our ability to utilize our net operating loss carryforwards and the impact of changes in the United States' tax rules and regulations;

dangers inherent in our operations, such as natural or man-made disruptions to our facilities and project sites, the impact of COVID-19, and the adequacy of our insurance coverage;

dangers inherent in our operations, such as natural or man-made disruptions to our facilities and project sites, the impact of COVID-19, and related government “shelter-in-place” mandates and other restrictions on business and commercial activity and the adequacy of our insurance coverage;

our ability to comply with the requirements of being a public company;

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Now, in the United States with respect to residential construction (other than residential construction for the military) we are no longer responsible for constructing the Modules that are based on our technology or the related costs and instead that service is performed by CPF and its subcontractors and our revenue for such residential construction is no longer generated from sales of products direct to the end customer but instead is generated from royalties received from CPF based on the gross revenue that CPF receives from sales of products that are based upon our technology.

Recent Business Developments

On March 30, 2020, we entered into a Memorandum of Understanding with Transcend Onsite Care ("Transcend"), a provider of on-site point of contact medical care, to provide joint products and services, such as modular primary care medical units, COVID-19 diagnostic testing units, quarantine living units, and drive-through testing units.

The first joint project planned was for two (2) Transcend Medical and Testing Units to be built by us and operated by Transcend.

The two units have been built by us but have not yet been delivered to Transcend.

There can be no assurance that the Memorandum of Understanding with Transcend will yield the anticipated benefits or generate significant revenue.

See "Risk Factors" below.

On April 30, 2020, we entered in a Distributorship Agreement (the "Distributorship Agreement") with Osang Healthcare Co., Ltd., a Republic of Korea company ("Osang"), effective as of April 28, 2020, for its GeneFinder TM COVID-19 Plus RealAmp Kit TM , designed to detect SARS-CoV-2 (Severe Acute Respiratory Syndrome-Coronavirus 2), the virus that causes COVID-19, through gene-based reverse transcription reaction and real-time polymerase chain reaction (PCR) testing process.

The Distributorship Agreement is Osang's standard form of distributorship agreement and provides us 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, we are required to make payment for 100% of any purchase order prior to shipment of the product from Osang, though we do not expect to make any cash outlays with respect to any product that we distribute and expect instead to require any third-party purchasers to make the necessary cash outlays as part of a purchase order entered into with us.

The Distributorship Agreement does not guarantee us 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.

To date, we have never sold any medical devices or kits and there can be no guarantee that we will be able to establish a sales force, establish distribution channels or solicit customers for the kits.

An import license from the U.S.

government will be required to import and distribute the Osang test kits, and we do not expect any issues in obtaining the license.

There can be no assurance that the Distribution Agreement will continue, that it will yield the anticipated benefits or generate significant revenue, if any.

See "Risk Factors" below.

R ecent Business Developments (continued)

On April 30, 2020, the Distributorship Agreement was amended to provide us with certain additional warranties from Osang.

We believe that we have the ability to address logistical challenges concerning the distribution of these kits utilizing our modular construction expertise, particularly our entry into the production of modular primary care medical units and COVID-19 diagnostic testing units.

On May 1, 2020, in connection with the entry into the Distributorship Agreement and subject to certain pre-existing participation rights of other investors, we entered into an agreement with an affiliate of Osang granting the right to participate in up to 19.9% of any offering effected by us during the next six months, provided that Osang or its affiliates provides customer referrals to us for the purchase under the Distributorship Agreement of kits resulting in at least $5 million of revenues to us.

On May 27, 2020, we entered into a Joint Development Agreement with Grimshaw Design, LLC ("Grimshaw").

Grimshaw is a global leader in architecture, planning and industrial design.

Our joint agreement is to develop a prototype and "proof of concept" for a scalable, customizable and rapidly deployable medical facility with laboratory systems, testing booths, spaces for in-patient and out-patient care and/or other medical care units, based upon Grimshaw's deisgns and utilizing our container-based or other modular structures, or pre-fabricated modular structures jointly developed by us and Grimshaw.

Recent Financing Developments

On October 3, 2019, we entered into a Loan Agreement and Promissory Note (the “ Loan Agreement ”) with CPF GP, pursuant to which we agreed to loan CPF GP a principal amount of $750,000 at an annual interest rate of five percent (5%), with a maturity date of July 31, 2023.

Under the Loan Agreement, as amended we advanced to CPF GP the first installment of the principal amount, equal to $500,000, on January 31, 2020 and the second installment of the principal amount, equal to $250,000, on April 15, 2020.

As security for this loan, we received a security interest in all of CPF GP’s membership interests in the Licensee.

If we fail to fund either principal installment, such failure will constitute a default under the Loan Agreement and a cross default under the License Agreement.

On January 21, 2020, pursuant to the Loan Agreement, CPF GP issued to us a promissory note in the principal amount of $400,000 (the “Company Note”) and issued to Paul Galvin, our Chairman and CEO, a promissory note in the principal amount of $100,000 (the “ Galvin Note ”).

The transaction closed on January 22, 2020, on which date we loaned CPF GP $400,000 and Mr.

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

The Company Note and Galvin Note 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;

provided, that the terms of the Galvin Note 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.

On February 4, 2020, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited investor, pursuant to which we issued to the investor a secured note in the aggregate principal amount of $200,000 (the “Note”).

The Note is one of a series of up to $400,000 of notes that may be issued by us, bears interest at a rate of nine percent (9%) per annum, is due on July 31, 2023, and is secured under a Pledge Agreement, dated February 4, 2020, entered into with the investor (the “Pledge Agreement”) by a security interest in the royalty payable to us under that certain Exclusive License Agreement, dated October 3, 2019, with CPF GP 2019-1 LLC.

We have the right to prepay the Note, in whole or in part, at any time and from time to time, without premium or penalty.

On April 3, 2020, we completed an underwritten public offering of our common stock (the "April 2020 Offering").

In connection with the April 2020 Offering, we sold 440,000 shares of our 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 April 2020 Offering.

We issued no warrants to purchase shares of common stock to the underwriter.

On May 11, 2020, we completed an underwritten public offering of our common stock (the "May 2020 Offering").

In connection with the May 2020 Offering, we sold 6,000,000 shares of our common stock at a public offering price of $2.50 per share and on May 15, 2020, the underwriter's exercised their over-allotment option and acquired an additional 900,000 shares of our common stock, which combined together with the sale of the 6,000,000 shares of common stock resulted in net proceeds to us of approximately $15,596,141, after deducting underwriting discounts and commissions and other offering expenses payable by us.

We issued warrants to purchase 300,000 shares of common stock to the underwriter.

In April 2020, we expanded our product offerings and began focusing on the medical projects when we entered into the COVID-19 diagnostic market through a collaboration for our distribution of COVID-19 diagnostic tests manufactured by Osang Healthcare Co., Ltd., ("Osang").

We have subsequently entered into additional collaborations for the distribution of Osang’s diagnostic tests as well as collaborations for the use of our modular technology for the building of medical test centers that will include COVID-19 testing.

R ecent Business Developments

On July 6, 2020, we entered into a Joint Development Agreement with Grimshaw Design, LLC ("Grimshaw").

Our joint agreement is to develop a prototype and "proof of concept" for a scalable, customizable and rapidly deployable educational facility with classrooms, spaces for teaching, workshops, dining, recreation, sports and/or other education-related purposes, based upon Grimshaw's designs and utilizing our container-cased or other modular structures, or pre-fabricated modular structures jointly developed by us and Grimshaw.

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

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, we, along with Clarity Labs will jointly market, sell, and distributed certain products and services (“Clarity Mobile Venture”).

As of September 30, 2020, the only activity of Clarity Mobile Venture was a cash transfer from the Company and is included in the condensed consolidated financial statements.

On November 16, 2020, we announced that the State of Hawaii had selected Clarity Labs and Clarity Mobile Venture to provide COVID-19 testing and clinical laboratory at Los Angeles International Airport (“LAX”) for testing of passengers travelling between Los Angeles and Hawaii.

On September 17, 2020, we, through our wholly owned subsidiary SG Echo LLC (“SG Echo”), entered into an Asset Purchase Agreement (“Asset Purchase Agreement”) with Echo DCL, LLC, a Texas limited liability company (“Echo”) a container/modular manufacturer that had been a supplier of ours, to acquire substantially all the assets of Echo, except for Echo’s real estate holdings, for which SG Echo has obtained a right of first refusal to acquire same.

On September 23, 2020, we, SG Echo and Echo completed the transactions as contemplated by the Asset Purchase Agreement (the “Closing ”).

Pursuant to the terms of the Asset Purchase Agreement, at the Closing we paid to Echo an aggregate of $1,059,600 in cash, subject to the escrow of certain of the purchase price funds, and SG Echo agreed to pay certain of Echo’s indebtedness, including the obligation to (i) satisfy a Guidance Line of Credit loan (“GLOC Loan”) in the principal amount of approximately $616,000 ($316,432 of which payoff proceeds was delivered by Echo to SG Echo at the closing), (ii) pay the debt service on certain of Echo’s indebtedness in the approximate principal amount of $1.7 million for 12 months following the closing, (iii) payoff at maturity a certain line of credit of Echo with BTH Bank in the principal amount of $500,000, and (iv) pay earn out payments equal to the net income received from the acquired business during the 3-month period beginning on the first day of the first full month that is 3 months after the closing date, the 3-month period following the first earn out period and the 3-month period following the second earn out period, payable in 50% in cash and 50% in shares of our common stock to be valued a $2.50 per share;

provided, that up to approximately $300,000 of any amounts paid in respect of the GLOC Loan, and any amounts paid in respect of the debt service on Echo’s indebtedness and line of credit with BTH Bank, as described in subparagraphs (i), (ii) or (iii) above, shall be offset against and reduce the earnout payments due to Echo.

In no event may the number of shares of common stock to be issued to Echo exceed 19.99% of our outstanding shares on the date of the execution of the Asset Purchase Agreement.

On October 12, 2020, we and Osang, the manufacturer and supplier of the GeneFinder TM COVID-19 Plus RealAmp Kit TM that we distribute, entered into a Managed Supply Agreement (the “Supply Agreement”) which memorialized of our obligations and Osang's obligations as it relates to the consignment (the “Consignment”) to us of two (2) million units of Osang's flagship Genefinder Plus RealAmp Covid-19 PCR Test (the “Product”) from Osang for the cold-chain storage and distribution of Product in the United States of America and Canada by us on behalf of ourself, as well as for Osang to other distributors in Territory as well as for direct sales by Osang worldwide where permissible for a period of 180 days thereafter.

The Supply Agreement included confirmation by Osang that we have no payment obligation for the Consignment until we sell the Product and any unsold product remains the responsibility of Osang except that we are responsible for the sold-storage fees and Osang’s agreement to use best efforts that all sales of Products will be drawn from the Consignment with priority.

On November 12, 2020, our joint venture partnership in Clarity Mobile Venture entered into a contract with the City of Los Angeles for the operations of a COVID-19 PCR Test Laboratory at Los Angeles International Airport to provide a full-service modular COVID-19 laboratory and testing facility onsite at Los Angeles International Airport .

The facility will be located across from Terminal 6 and is expected to open in December 2020.

The facility will administer PCR tests with results available within 3 hours for passengers and airline crew, and no later than 24 hours for LAWA airport employees.

Additionally, other rapid coronavirus tests including antigen tests will be provided.

Clarity Mobile Venture will be the primary operator of the facility and will deploy the GeneFinder™ test for COVID-19, produced by OSANG Healthcare Co., Ltd.

On November 19, 2020, we and Memorial Hospital, of Michigan (“Memorial), entered into a Professional Services and Capital Support Contract (“PSCSC”) with Wayne County, Michigan to appoint Memorial the primary contractor for the construction of portable on-site laboratory facilities for COVID-19 testing.

The PSCCS engages the Company as a sub-contractor to render services and support to Memorial in connection with the fulfillment of statements of work submitted from Wayne County to Memorial.

The program deploys the D-Tec Product Series, including D-Tec 1 and D-Tec 5 facilities, designed by Grimshaw Architects and developed by SG Blocks, to deliver highly accurate PCR testing and on-site CLIA lab services directly into high risk and underserved areas.

The D-Tec 1 units are expected to be deployed throughout Wayne County and will provide sample extraction and lab services.

The D-Tec 5 will serve as the main CLIA lab and have the capacity to process 7,000 tests per day in a single eight-hour shift.

The facilities will be used to test residents for COVID-19 using the OSANG GeneFinder™ test, which is able to deliver medical grade results in approximately 3 hours.

Clarity Mobile Venture will be the primary operator of the facility.

Results of Operations

As a result of our new licensing model that commenced in October 2019, our operations for the six months ended June 30, 2020 and 2019 may not be indicative of our future operations.

Six Months Ended June 30, 2020 and 2019:

June 30, 2020

June 30, 2019

As a result of our new licensing model that commenced in October 2019, our operations for the nine months ended September 30, 2020 and 2019 may not be indicative of our future operations.

Nine Months Ended September 30, 2020 and 2019:

For the Nine Months Ended September 30, 2020

For the Nine Months Ended September 30, 2019

Total Revenue

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Total Other income (expense)

Total revenue for the six months ended June 30, 2020 was $827,705 compared to $2,463,032 for the six months ended June 30, 2019.

This decrease of $1,635,327 or approximately 66% was mainly driven by a decline in revenue of approximately $814,000 in retail, a decline in revenue of approximately $1,157,000 in office, a decline in revenue of approximately $60,000 in multi-family/single-family, offset by an increase of approximately $300,000 in other, an increase of approximately $58,500 in medical and an increase of approximately $44,000 in hospitality customer types for the six months ended June 30, 2020, as well as the Company shifting to its royalty business model, as compared to June 30, 2019

Total revenue for the nine months ended September 30, 2020 was $1,404,265 compared to $2,647,558 for the nine months ended September 30, 2019.

This decrease of $1,243,293 or approximately 47% was mainly driven by a decline in revenue of approximately $968,000 in retail projects, a decline in revenue of approximately $1,038,000 in office projects, a decline in revenue of approximately $ 37,000 in multi-family/single-family projects, offset by an increase of approximately $ 300,000 in other projects, an increase of approximately $ 58,500 in medical projects, an increase of approximately $ 65,000 in special use projects and an increase of approximately $340,000 in hospitality projects for the nine months ended September 30, 2020, as compared to September 30, 2019

Cost of Revenue and Gross Profit

Cost of revenue was $407,491 for the six months ended June 30, 2020, compared to $ 1,651,609 for the six months ended June 30, 2019 .

The decrease of $1,244,118 or a decrease of approximately 75%, is primarily related to lower revenues and the lower procurement and manufacturing costs of modifying containers as well as $300,000 of construction revenue earned during the three months ending June 30, 2020 with no costs of revenue.

Gross profit was $ 420,214 and $ 811,423 for the six months ended June 30, 2020 and 2019, respectively.

Gross profit percentage increased to approximately 51% for the six months ended June 30, 2020 compared to approximately 33% for the six months ended June 30, 2019 primarily due to a single contract in the amount of $300,000 with no estimated costs.

Cost of revenue was $789,445 for the nine months ended September 30, 2020, compared to $ 2,018,392 for the nine months ended September 30, 2019 .

The decrease of $ 1,228,947 or a decrease of approximately 61%, is primarily related to lower revenues and the lower procurement and manufacturing costs of modifying containers as well as $ 300,000 of construction revenue earned during the nine months ending September 30, 2020 with no costs of revenue.

Gross profit was $ 614,820 and $ 629,166 for the nine months ended September 30, 2020 and 2019, respectively.

G ross profit percentage increased to approximately 44% for the nine months ended September 30, 2020 compared to approximately 24% for the nine months ended September 30, 2019 primarily due to a single contract in the amount of $300,000 with no estimated costs.

Payroll and Related Expenses

Payroll and related expenses for the six months ended June 30, 2020 were $664,146 compared to $1,284,177 for the six months ended June 30, 2019.

This decrease was primarily caused by a decrease of approximately $221,217 in stock-based compensation expense, as well as a decrease in salaries and additional head count of approximately $408,800 recognized during the year ended June 30, 2020 compared to the six months ended June 30, 2019.

We recognized $111,394 in stock-based compensation expense related to payroll and related expenses for the six months ended June 30, 2020 , compared to $332,611 for June 30, 2019 .

Payroll and related expenses for the nine months ended September 30, 2020 were $1,344,009 compared to $1,832,333 for the nine months ended September 30, 2019.

This decrease was primarily caused by a decrease of approximately $57,000 in stock-based compensation expense, as well as a decrease in salaries and additional head count of approximately $417,000 recognized during the year ended September 30, 2020 compared to the nine months ended September 30, 2019.

We recognized $414,563 in stock-based compensation expense related to payroll and related expenses for the nine months ended September 30, 2020, compared to $472,013 for September 30, 2019.

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the six months ended June 30, 2020 were $1,346,301 compared to $989,690 for the six months ended June 30, 2019.

The increase resulted primarily from an increase in legal fees of approximately $312,910, an increase in insurance expenses by approximately $16,192, an increase in consulting fees by approximately $115,000, an increase in marketing expense by approximately $31,640, an increase in amortization expense by approximately $20,393, and an increase in accounting fees by approximately $19,639, offset by a decrease in audit fees by approximately $32,644, a decrease in travel expenses by approximately $92,273, and a decrease contract labor expenses of approximately $71,985.

We recognized $57,120 in stock-based compensation expense related to legal expenses for the six months ended June 30, 2020.

We recognized $6,750 in stock-based compensation expense related to marketing expenses for the six months ended June 30, 2019.

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the nine months ended September 30, 2020 were $2,386,374 compared to $1,532,707 for the nine months ended September 30, 2019.

The increase resulted primarily from an increase in legal fees of approximately $455,000, an increase in insurance expenses by approximately $37,500, an increase in advisory service fees by approximately $434,000, an increase in marketing expense by approximately $46,000, an increase in amortization expense by approximately $30,590, and an increase in accounting fees by approximately $53,000, offset by a decrease in travel expenses by approximately $120,000, and a decrease contract labor expenses of approximately $120,000.

We recognized $57,120 in stock-based compensation expense related to legal expenses for the nine months ended September 30, 2020.

We recognized $10,125 in stock-based compensation expense related to marketing expenses for the nine months ended September 30, 2019.

Results of Operations (continued)

Other Income (Expense)

Interest income for the six months ended June 30, 2020 was $11,096 and related to the outstanding note receivable.

There was no interest income for the six months ended June 30, 2019.

Interest expense for the six months en ded June 30, 2020 was $ 6,263 and related to the Securities Purchase Agreement entered into on February 4, 2020 with an accredited investor.

There was n o interest expense for the six months ended June 30, 2019.

Three Months Ended J une 30, 2020 and 2019 :

For the Three

June 30, 2020

For the Three

June 30, 2019

Interest income for the nine months ended September 30, 2020 was $38,497 and related to the outstanding note receivable.

There was no interest income for the nine months ended September 30, 2019.

Interest expense for the nine months ended September 30, 2020 of $ 8,877 was mainly related to the Securities Purchase Agreement entered into on February 4, 2020 with an accredited investor.

There was n o interest expense for the nine months ended September 30, 2019.

Other income for the nine months ended September 30, 2020 was $23,282 and there was no other income for the nine months ended September 30, 2019.

Loss on asset disposal for the nine months ended September 30, 2020 and 2019 was $1,012 and $52,039, respectively.

Three Months Ended September 30, 2020 and 2019 :

For the Three Months Ended September 30, 2020

For the Three Months Ended September 30, 2019

Total Revenue

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Total Other income (expense)

Total revenue for the three months ended June 30, 2020 was $628,949 compared to $727,908 for the three months ended June 30, 2019 .

This decrease of $98,959 or approximately 14 % was mainly driven by a decline of approximately $404,000 and $72,000 in retail and office customer types for the three months ended June 30, 2020, as well as shifting to our royalty business model, as compared to June 30, 2019 which was offset by an increase in revenue of approximately $300,000 in other, an increase in revenue of approximately $57,000 in medical, an increase in revenue of approximately $41,000 in hospitality customer types.

Total revenue for the three months ended September 30, 2020 was $576,560 compared to $184,526 for the three months ended September 30, 2019 .

This in crease of $392,034 or approximately 211 % was mainly d riven by an increase of approximately $296,000 in hospitality projects, an increase of approximately $119,000 in office projects, an increase of approximately $72,000 in special use projects offset by a decline of approximately $ 154,000 in retail projects for the three months ended September 30, 2020, as compared to September 30, 2019.

Cost of Revenue and Gross Profit

Cost of revenue was $254,716 for the three months ended June 30, 2020 , compared to $460,590 for the three months ended June 30, 2019 .

The decrease of $205,874 or a decrease of approximately 45%, is primarily related to lower revenues and the lower procurement and manufacturing costs of modifying containers as well as $300,000 of construction revenue earned during the three months ending June 30, 2020 with no costs of revenue.

Gross profit was $374,233 and $267,318 for the three months ended June 30, 2020 and 2019 , respectively.

Gross profit percentage increased to approximately 60% for the three months ended June 30, 2020 compared to approximately 37 % for the three months ended June 30, 2019 primarily due to a single contract in the amount of $300,000 with no estimated costs.

Cost of revenue was $381,954 for the three months ended September 30, 2020 , compared to $366,783 for the three months ended September 30, 2019 .

The increase of $15,171 or a increase of approximately 4%, is primarily related to higher revenues earned during the three months ending September 30, 2020, as compared to September 30, 2019.

Gross profit was $194,606 for the three months ended September 30, 2020 and gross loss was $182,257 for the three months ended September 30, 2019 .

Gross profit percentage increased to approximately 34% for the three months ended September 30, 2020 compared to gross loss percentage increased to approximately 99 % for the three months ended September 30, 2019 primarily due to higher site installation in the three months ended September 30, 2019 from a retail project.

Payroll and Related Expenses

Payroll and related expenses for the three months ended June 30, 2020 were $392,338 compared to $645,627 for the three months ended June 30, 2019 .

This decrease was primarily caused by a decrease of approximately $97,488 in stock-based compensation expense, as well as a decrease in salaries and additional head count of approximately $154,590 recognized during the year ended June 30, 2020 compared to the three months ended June 30, 2019 .

We recognized $72,630 in stock-based compensation expense related to payroll and related expenses for the three months ended June 30, 2020 , compared to $ 170,118 for June 30, 2019 .

Payroll and related expenses for the three months ended September 30, 2020 were $679,863 compared to $548,156 for the three months ended September 30, 2019 .

This increase was primarily caused by an increase of approximately $164,000 in stock-based compensation expense offset by a decrease in salaries and additional head count of approximately $23,000 recognized during the year ended September 30, 2020 compared to the three months ended September 30, 2019.

We recognized $303,169 in stock-based compensation expense related to payroll and related expenses for the three months ended September 30, 2020 , compared to $ 139,402 for September 30, 2019 .

Results of Operations (continued)

Other Operating Expenses (General and administrative expenses, Marketing and business development expense, and Pre-project expenses)

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended June 30, 2020 were $822,649 compared to $593,400 for the three months ended June 30, 2019 .

The increase resulted primarily from an increase in legal fees of approximately $174,460, an increase in pre-project expenses of approximately $22,480, and an increase in consulting expenses by approximately $115,000 , offset by a decrease in audit fees of approximately $34,603, contract labor expenses of approximately $37,382, and travel expenses of approximately $50,514 .

We recognized $57,120 in stock-based compensation expense related to legal expenses for the three months ended June 30, 2020.

We recognized $6,750 in stock-based compensation expense related to marketing expenses for the three months ended June 30, 2019 .

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended September 30, 2020 were $1,040,073 compared to $543,017 for the three months ended September 30, 2019 .

The increase resulted primarily from an increase in special meeting fees of approximately $19,800, an increase in rent expense of approximately $17,600, an increase in legal fees of approximately $142,700, an increase in advisory service fees of approximately $319,100, an increase in promotions and marketing expense of approximately $14,300, offset by a decrease in employee travel by approximately $28,200 and a decrease in contract labor of approximately $48,400.

We recognized no stock-based compensation expense related to legal expenses for the three months ended September 30, 2020.

We recognized $3,375 in stock-based compensation expense related to marketing expenses for the three months ended September 30, 2019 .

Other Income (Expense)

Interest income for the three months ended June 30, 2020 was $6,233 and related to the outstanding note receivable.

There was no interest income for the three months ended June 30, 2019 .

Interest expense for the three months en ded June 30, 2020 was $3,452 and related to the Securities Purchase Agreement entered into on February 4, 2020 with an accredited investor.

There was n o interest expense for the three months ended June 30, 2019 .

Interest income for the three months ended September 30, 2020 was $27,401 and related to the outstanding note receivable.

There was no interest income for the three months ended September 30, 2019 .

Interest expense for the three months ended September 30, 2020 was $2,614.

There was n o interest expense for the three months ended September 30, 2019 .

Other income for the three months ended September 30, 2020 was $ 23,282 and there was no other income for the three months ended September 30, 2019.

Loss on asset disposal for the three months ended September 30, 2020 and 2019 was $1,012, and $52,039, respectively.

Income Tax Provision

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

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

Impact of Inflation

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Impact of Coronavirus (COVID-19)

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during the first six months of 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.

With the global spread of the ongoing novel coronavirus ("COVID-19") pandemic during the first nine months of 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.

T he worldwide spread of the COVID-19 virus is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including from our customers, while also resulting in delays in projects due to labor shortages and supplier disruptions for an unknown period of time until the disease is contained.

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Liquidity and Capital Resources

As of June 30, 2020 and December 31, 2019, we had an aggregate of $16,112,907 and $1,625,671, respectively, of cash and cash equivalents and short-term investments.

As of September 30, 2020 and December 31, 2019, we had an aggregate of $13,047,565 and $1,625,671, respectively, of cash and cash equivalents and short-term investments.

Historically, our operations have primarily been funded through proceeds from equity and debt financings, as well as revenue from operations.

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We incurred a total of $454,552 i n issuance costs in connection with the public offering.

In our November 2019 debt financing, we received a cash payment in the aggregate amount of $375,000 pursuant to a Securities Purchase Agreement that we entered into with RedDiamond Partners LLC (the “Lender”), and we issued to the Lender the Debenture in the aggregate principal amount of $480,770 (representing an original issue discount of 22%), which Debenture was secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions.

In our November 2019 debt financing, we received a cash payment in the aggregate amount of $375,000 pursuant to a Securities Purchase Agreement that we entered into with RedDiamond Partners LLC (the “Lender”), and we issued to the Lender a Debenture (the "Debenture") in the aggregate principal amount of $480,770 (representing an original issue discount of 22%), which Debenture was secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions.

We received net proceeds of approximately $ 326,250 after deducting certain fees due to the placement agent and certain transaction expenses.

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We have the right to prepay the Note, in whole or in part, at any time and from time to time, without premium or penalty.

During the three months ending June 30, 2020, the Note to investor of $200,000 and unpaid accrued interest of $86,263 was converted into 73,665 shares of common stock.

In April 2020, we completed the public offering where we issued 440,000 shares of common stock at a public offering price of $4.25 per share which resulted in net proceeds of approximately $1,522,339 after deducting underwriting discounts and commissions and other expenses related to the offering.

During the three months ending September 30, 2020, the Note to investor of $200,000 and unpaid accrued interest of $86,263 was converted into 73,665 shares of common stock.

In April 2020, we completed a public offering where we pursuant to which we 440,000 shares of common stock at a public offering price of $4.25 per share which resulted in net proceeds of approximately $1,522,339 after deducting underwriting discounts and commissions and other expenses related to the offering.

We incurred a total of approximately $347,661 i n issuance costs in connection with the offering and issued no warrants to purchase shares of common stock to the underwriter.

In May 2020, we sold 6,000,000 shares of our common stock at a public offering price of $ 2.50 per share and on May 15, 2020, pursuant to the terms of the Underwriting Agreement dated May 6, 2020 by and among us and ThinkEquity, a division of Fordham Financial Management, Inc., as representatives of several underwriters named therein ("ThinkEquity"), ThinkEquity was granted an over-allotment option to purchase up to an additional 900,000 shares of our common stock, par value $0.01 per share (the "Common Stock"), in connection with the previously announced public offering.

On May 15, 2020, ThinkEquity exercised in full such option with respect to all 900,000 shares of our Common Stock (the "Option Shares").

In May 2020, we sold 6,000,000 shares of our common stock at a public offering price of $ 2.50 per share and on May 15, 2020, pursuant to the terms of the Underwriting Agreement dated May 6, 2020 by and among us and ThinkEquity, a division of Fordham Financial Management, Inc., as representatives of several underwriters named therein ("ThinkEquity"), ThinkEquity was granted an over-allotment option to purchase up to an additional 900,000 shares of our common stock, in connection with the previously announced public offering.

On May 15, 2020, ThinkEquity exercised in full such option with respect to all 900,000 shares of our common stock.

After giving effect to the full exercise of the over-allotment option, the total number of shares of common stock sold by us in the public offering was 6,900,000 shares of common stock and total net proceeds to us, after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $15,596,141.

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We anticipate that we will continue to generate losses from operations for the foreseeable future.

At June 30, 2020 and December 31, 2019 we had a cash balance and short-term investment of $16,112,907 and $1,625,671, respectively.

As of June 30, 2020, our stockholders’ equity was $20,267,884, compared to $4,360,149 as of December 31, 2019.

Our net loss for the six months ended June 30, 2020 was $1,585,400 and net cash used in operating activities was $2,181,122.

We anticipate our cash balance is sufficient to last at least twelve months from August 13, 2020.

At September 30, 2020 and December 31, 2019 we had a cash balance and short-term investment of $13,047,565 and $1,625,671, respectively.

As of September 30, 2020, our stockholders’ equity was $19,092,780, compared to $4,360,149 as of December 31, 2019.

Our net loss for the nine months ended September 30, 2020 was $3,063,673 and net cash used in operating activities was $4,453,862.

We anticipate our cash balance is sufficient to last at least twelve months from November 19, 2020.

We may ne ed to generate additional revenues or secure additional financing sources, such as debt or equity capital, to fund future growth, which financing may not be available on favorable terms or at all.

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Cash Flow Summary

S ix Months Ended

Nine Months Ended

September 30,

Net cash provided by (used in):

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Net increase (decrease) in cash and cash equivalents

Operating activities used net cash of $2,181,122 during the six months ended June 30, 2020, and $1,747,202 in the six months ended June 30, 2019.

Operating activities used net cash of $4,453,862 during the nine months ended September 30, 2020, and $2,500,387 during the nine months ended September 30, 2019.

Generally, our net operating cash flows fluctuate primarily based on changes in our profitability and working capital.

Cash used in operating activities increased by approximately $433,920 primarily due to an decrease in working capital of approximately $198,959, an increase of approximately $11,096 in interest income, a decrease of approximately $170,847 in stock-based compensation, an increase of approximately $20,393 in amortization expense, an increase in the overall net loss of approximately $122,956, and a decrease of approximately $54,000 in bad debt benefits in the six months ended June 30, 2020 compared to six months ended June 30, 2019.

Investing activities used net cash of $650,000 during the six months ended June 30, 2020, and no net cash the six months ended June 30, 2019.

Cash used in investing activities decrease from the corresponding period of the prior year primarily due to an advance in note receivable of $650,000.

Financing activities provided net cash of $17,318,358 during the six months ended June 30, 2020, and $552,709 net cash in six months ended June 30, 2019.

Cash provided by financing activities increased by $16,765,649 due to an increase in proceeds from public stock offerings, and an increase in proceeds from long-term note payable.

We provide services to our customers in three separate phases:

Cash used in operating activities increased by approximately $1,953,4 75 primarily due to an decrease in working capital of approximately $1,671,797, an increase of approximately $23,185 in interest income, a decrease of approximately $10,457 in stock-based compensation, an increase of approximately $30,588 in amortization expense, an increase in the overall net loss of approximately $275,760, a decrease in loss on asset disposals of approximately $51,027 and a decrease of approximately $54,000 in bad debt benefits in the nine months ended September 30, 2020 compared to nine months ended September 30, 2019.

Investing activities used net cash of $1,442,602 during the nine months ended September 30, 2020, and $2,070 net cash the nine months ended September 30, 2019.

Cash used in investing activities increase from the corresponding period of the prior year primarily due to an advance in note receivable of approximately $650,000, purchase of Echo DCL, LLC assets of approximately $743,168, and the purchase of property, plant and equipment of approximately, $49,434.

Financing activities provided net cash of $17,318,358 during the nine months ended September 30, 2020, and $1,136,015 net cash during the nine months ended September 30, 2019.

Cash provided by financing activities increased by $ 16,182,343 primarily due to an increase in proceeds from public stock offerings, and to a lesser extent, an increase in proceeds from long-term note payable.

We provide services to our customers in three separate p hases:

the design phase, the architectural and engineering phase and the construction phase.

Each phase is independent of the other, but builds through a progression of concept through delivery of a completed structure.

These phases may be embodied in a single contract or in separate contracts, which is typical of a design build process model.

As of June 30, 2020, we had 12 projects tota ling $17,293,227 under contract, w hich, if they all proceed to construction, will result in our constructing approximately 174,810 square feet of container space.

Of these contracts, all twelve projects combine all three phases or parts thereof and including construction.

These phases may be embodied in a single contract or in separate contracts, which is typical of a design build process mod el .

As of September 30, 2020, we had 17 projects totaling $24,865,499 under contract, which , if they all proceed to construction, will result in our constructing approximately 210,550 square feet of container and modular space.

Of these contracts, all seventeen projects combine all three phases or parts thereof and including construction.

We expect that all of this revenue will be realized by September 30, 2022.

Backlog may fluctuate significantly due to the timing of orders or awards for large projects and is not necessarily indicative of future backlog levels or the rate at which backlog will be recognized as revenue.

The decrease in backlog at June 30, 2020 from the prior year is primarily attributable to work in progress or completed contracts during the first six months of 2020 for approximately $827,705.

The increase in backlog of approximately $8,660,000 from December 31, 2019 is primarily attributable to two new contracts we entered into during the third quarter of 2020 for approximately $4,000,000 and $2,950,000 and offset by work in progress or completed contracts during the first nine months of 2020 for approximately $1,400,000.

There can be no assurance that our customers will decide to and/or be able to proceed with these construction projects, or that we will ultimately recognize revenue from these projects in a timely manner or at all.

Off-Balance Sheet Arrangements

As of June 30, 2020 and December 31, 2019, we had no material off-balance sheet arrangements to which we are a party.

As of September 30, 2020 and December 31, 2019, we had no material off-balance sheet arrangements to which we are a party.

In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector.

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As a result, the estimated fair value of liabilities relating to these provisions is minimal.

Accordingly, we have no liabilities recorded for these provisions as of June 30, 2020 .

Accordingly, we have no liabilities recorded for these provisions as of September 30, 2020 .

Critical Accounting Policies and New Accounting Pronouncements

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Our evaluation of goodwill completed during the year ended December 31, 2019, resulted in an impairment loss of $2,938,653.

There was no impairment during the six months ended June 30, 2020.

Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years, $1,113,000 of customer contracts which has been amortized over 2.5 years and is fully amortized, $28,820 of trademarks which is being amortized over 5 years and $5,300 of website fees which is being amortized over 5 years.

There was no impairment during the nine months ended September 30, 2020.

Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years, $18,848 of customer contracts which is being amortized over 1 year, $105,762 of trademarks which is being amortized over 5 years, $7,928 of non-compete agreement which is being amortized over 5 years and $5,300 of website fees which is being amortized over 5 years.

Our evaluation of intangible assets for impairment during the year ended December 31, 2019, and determined that there were no impairment losses.

There was no impairment during the six months ended June 30, 2020.

There was no impairment during the nine months ended September 30, 2020.

New Accounting Pronouncements

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Three Months Ended

September 30, 2020

Three Months Ended

Six Months Ended

September 30, 2019

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2019

Addback interest expense

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EBITDA (non-GAAP)

Addback loss on asset disposal

Addback litigation expense

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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-Q

Item 2. Management’s Discussion and Analysis