OLENOX INDUSTRIES INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. 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. 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. (b) Management’s Annual Report on Internal Control over Financial Reporting Our management is also responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of the inherent limitations of internal control systems, our internal control over financial reporting may not prevent or detect misstatements. 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, 2020. 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. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act. (c) Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting that occurred during the fourth quarter of 2020. ITEM 9B. OTHER INFORMATION. None. 43 PART III ITEM 10. 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. ITEM 11. 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. ITEM 12. 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. ITEM 13. 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. ITEM 14. 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. 44 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)(1) INDEX TO 2020 CONSOLIDATED FINANCIAL STATEMENTS: Our financial statements and the notes thereto, together with the report thereon of Whitley Penn LLP, our registered public accounting firm, dated April 15, 2021, appear beginning on page F-1 of this Annual Report. See Table of Contents of the Consolidated Financial Statements included in this Annual Report. (a)(2) FINANCIAL STATEMENT SCHEDULES All financial statement schedules are omitted because they are not applicable, not material or the required information is shown in the financial statements or notes thereto. (a)( 3 ) EXHIBITS The information required by this Item is listed in the accompanying Exhibit Index below. 45 ITEM 16. FORM 10-K SUMMARY. Not applicable. Exhibit Index Exhibit No. Description 1.1 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. 001-38037)). 1.2 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. 001-38037). 2.1 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. with the Securities and Exchange Commission on July 7, 2016 (File No. 000-22563). 2.2 Disclosure Statement for Amended Plan of Reorganization for SG Blocks, Inc., et al . under Chapter 11 of the Bankruptcy Code (incorporated herein by reference to Exhibit 2.2 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. 000-22563)). 2.3 Order of the Bankruptcy Court for the Southern District of New York Approving the Disclosure Statement and Setting Plan of Reorganization Confirmation Deadlines (incorporated herein by reference to Exhibit 2.3 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. 000-22563)). 3.1 Amended and Restated Certificate of Incorporation of SG Blocks, Inc. (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 July 7, 2016 (File No. 000-22563)). 3.2 Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.2 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. 000-22563)). 3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of SG Blocks, Inc. (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 February 28, 2017 (File No. 000-22563)). 3.4 Certificate of Amendment to Certificate of Designation, dated May 11, 2017 (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 May 12, 2017 (File No. 001-38037)). 3.5 Certificate of Elimination of Series A Convertible Preferred Stock, dated December 13, 2018 (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 December 17, 2018 (File No. 001-38037)). 3.6 Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated June 5, 2019 (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 5, 2019 (File No. 001-38037)). 3.7 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). 3.8 Certificate of Amendment to the Amended and Restated Certificate of Incorporation, as amended, of SG Blocks, Inc. (incorporated herein by reference to Exhibit 34.1 to the Current Report on Form 8-K as filed by SG Blocks, Inc. with the Securities and Exchange Commission on February 5, 2020 (File No. 001-38037)). 4.1 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. 000-22563)). 4.2 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. 001-38037)). 46 4.3 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). 4.4 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. with the Securities and Exchange Commission on May 1, 2019 (File No. 001-38037)). 4.5 Form of Series A Common Stock Purchase Warrant (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 May 1, 2019 (File No. 001-38037)). 4.6 Form of Representative’s Warrant Agreement (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 July 31, 2019 (File No. 001-38037)). 4.7 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. 001-38037)). 4.8 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. 001-38037)). 4.9 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. with the Securities and Exchange Commission on February 6, 2020 (File No. 001-38037) 4.10 Form of Representative’s Warrant (incorporated herein by reference to Exhibit 4.14 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on May 5, 2020 (File No. 333-237682)). 4.11 Form of Pre-Funded Warrant ( incorporated herein by reference to Exhibit 4.15 to the Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on May 5, 2020 (File No. 333-237682)). 4.12* Description of Capital Stock 10.1 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 )). 10.2 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. 000-22563)). 10.3 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. 000-22563)). 10.4 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. 000-22563)). 10.5# Form of SG Blocks, Inc. Incentive Stock Option Agreement (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 1, 2016 (File No. 000-22563)). 10.6# Form of SG Blocks, Inc. Nonqualified Stock Option Agreement (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 1, 2016 (File No. 000-22563)). 10.7 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. 000-22563)). 10.8# 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). 10.9# 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). 10.10 # Executive Employment Agreement, effective as of January 1, 2017, between Paul M. Galvin 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 March 14, 2017 (File No. 000-22563)). 10.11 # 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. 000-22563)). 10.12 # 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. 000-22563)). 47 10.13 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). 10.14# Amendment No. 1 to the SG Blocks, Inc. Stock Incentive Plan (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 5, 2018 (File No. 001-38037)). 10.15# Form of SG Blocks, Inc. Restricted Share Unit Agreement (Non-Employee Directors) (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 30, 2018 (File No. 001-38037)). 10.16 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. 001-38037)). 10.17 # 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. with the Securities and Exchange Commission on August 14, 2019 (File No. 001-38037)). 10.18 # Form of Restricted Share Unit Agreement (Special Bonus) (incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q as filed by SG Blocks, Inc. with the Securities and Exchange Commission on August 14, 2019 (File No. 001-38037)). 10.19 Exclusive License Agreement, entered into as of October 3, 2019 by and between SG Blocks, Inc. and CPF MF 2019-1 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 October 9, 2019 (File No. 001-38037)) 10.20 Loan Agreement and Promissory Note, dated effective October 3, 2019, between SG Blocks, Inc., as lender, and CPF GP 2019-1 LLC, as borrower (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 9, 2019 (File No. 001-38037)) 10.21 Right of First Refusal Agreement, entered into as of October 9, 2019 by and between SG Blocks, Inc. and CMC Development 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 October 15, 2019 (File No. 001-38037)) 10.22 Amendment to Loan Agreement and Promissory Note between SG Blocks, Inc. and CPF GP 2019-LLC (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 October 15, 2019 (File No. 001-38037)) 10.23 Second Amendment to Loan Agreement and Promissory Note dated November 7, 2019 between CPF GP 2019-1 LLC and SG Blocks, Inc (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 November 13, 2019 (File No. 001-38037)). 10.24 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. 001-38037)). 10.25 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. 001-38037)). 10.26 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. 001-38037)). 10.27 Amendment No. 1 to Exclusive License Agreement, entered into as of October 3, 2019 by and between SG Blocks, Inc. and CPF MF 2019-1 LLC (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q as filed by SG Blocks, Inc. with the Securities and Exchange Commission on November 14, 2019 (File No. 001-38037)) 10.28 Waiver of Warrant (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 December 13, 2019 (File No. 001-38037)). 10.29 Promissory Note, dated January 21, 2020, issued by CPF GP 2019-1 LLC to SG Blocks, Inc. (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 January 23, 2020 (File No. 001-38037) 48 10.30 Promissory Note, dated January 21, 2020, issued by CPF GP 2019 -1 LLC to Paul Galvin (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 January 23, 2020 (File No. 001-38037) 10.31 Security Agreement, by and among CPF GP 2019-1 LLC, SG Blocks, Inc. and Paul Galvin, dated January 21, 2020 (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 January 23, 2020 (File No. 001-38037) 10.32 Form of Securities Purchase Agreement (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 February 6, 2020 (File No. 001-38037) 10.33 Form of Pledge Agreement (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 February 6, 2020 (File No. 001-38037) 10.34 Distributorship Agreement between Osang Healthcare Co., Ltd. and SG Blocks, Inc., effective as of April 28, 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 May 5, 2020 (File No. 001-38037)) 10.35 Amendment to Distributorship Agreement between Osang Healthcare Co., Ltd. and SG Blocks, Inc., dated April 30, 2020 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2020 (File No. 001-38037)). 10.36 Agreement between Osang Group Co. Ltd. and SG Blocks, Inc., dated May 1, 2020 (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2020 (File No. 001-38037)). 10.37# Amendment No. 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) 10.38# 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. 001-38037)). 10.39# Offer Letter dated November 11, 202 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. 001-38037)) 21.1* List of Subsidiaries* 23.1* Consent of Whitley Penn LLP, Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on signature page). 31.1* Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document - the instance document does not appear in the Interactive Data File as the XBRL tags are embedded within the Inline XBRL document. 101.SCH* XBRL Taxonomy Extension Schema Document. 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document. * Filed herewith. # Management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this report. 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SG BLOCKS, INC. By: /s/ Paul M. Galvin Date: April 15, 2021 Paul M. Galvin Chief Executive Offic er and Chairman of the Board (Principal Executive Officer) POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Paul M. Galvin and Gerald A. Sheeran, and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K and any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated. Signature Title Date /s/ Paul M. Galvin Chief Executive Officer and Chairman of the Board ( Principal Executive Officer) April 15, 2021 Paul M. Galvin /s/ Gerald A. Sheeran Acting Chief Financial Officer ( Principal Financial Officer and Principal Accounting Officer) April 15, 2021 Gerald A. Sheeran /s/ Yaniv Blumenfeld Director April 15, 2021 Yaniv Blumenfeld /s/ Christopher Melton Director April 15, 2021 Christopher Melton /s/ Margaret Coleman Director April 15, 2021 Margaret Coleman 50 SG BLOCKS, INC. AND SUBSIDIARIES Consolidated Financial Statements December 31, 2020 and 2019 Table of Contents Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Changes in Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders SG Blocks, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SG Blocks, Inc. and subsidiaries (the “Company”), as of December 31, 2020 and 2019, and the related consolidated statements of operations , changes in stockholders’ equity, and cash flows for the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company, as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Determination of Estimated Costs to Complete for Contracts Recognized Over Time Description of the Matter The Company’s construction and engineering contracts generally recognize revenue over time as there is a continuous transfer of control to the customer. Approximately 54% of the Company’s revenue during the year ended December 31, 2020 was for construction and engineering contracts whereby revenue was recorded over time. F-1 The Company uses the amount of cost incurred under the contract as a measure of progress towards completion, and revenue recognized is measured principally by the costs incurred and accrued to date for each contract as a percentage of the estimated total cost for each contract at completion. Contract costs include all direct material, labor, and indirect costs related to contract performance. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income, and the effects of these revisions are recognized prospectively in the period in which the revisions are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates include subjective assessments and judgments. We identified the Company’s estimation of the costs to complete each contract 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 estimate of costs to complete contracts recognized over time. How We Addressed the Matter in Our Audit Our audit procedures related to forecasts of estimated costs to complete contracts recognized over time included the following, among others: • We selected a sample of contracts and obtained and inspected the executed contract and change orders to validate existence and understand the scope of each contract. • We performed a site visit near the end of the reporting period. 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 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 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. F-2 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. 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. /s/ Whitley Penn LLP Dallas, Texas April 15, 2021 F-3 SG BLOCKS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 13,010,356 $ 1,625,671 Accounts receivable, net 2,635,608 1,101,185 Contract assets 1,303,136 106,015 Inventories 778,144 — Prepaid expenses and other current assets 570,775 73,938 Total current assets 18,298,019 2,906,809 Property, plant and equipment, net 2,683,014 11,747 Goodwill 1,309,330 1,223,520 Right-of-use asset 1,537,545 — Long-term notes receivable 682,637 — Intangible assets, net 2,218,609 2,298,805 Deferred contract costs, net 152,944 193,730 Total Assets $ 26,882,098 $ 6,634,611 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 3,961,961 $ 2,105,505 Contract liabilities 1,774,740 168,957 Lease liability, current maturities 326,654 — Due to affiliates 965,561 — Assumed liability 200,765 — Other current liabilities 5,000 — Total current liabilities 7,234,681 2,274,462 Lease liability, net of current maturities 1,209,594 — Total liabilities 8,444,275 2,274,462 Stockholders’ equity: Preferred stock, $ 0.00 par value, 5,405,010 shares authorized; none issued or outstanding. — — Common stock, $ 0.01 par value, 25,000,000 shares authorized; 8,596,189 issued and outstanding as of December 31, 2020 and 1,157,890 issued and outstanding as of December 31, 2019. 85,962 11,579 Additional paid-in capital 40,443,840 21,932,387 Accumulated deficit ( 22,276,546 ) ( 17,583,817 ) Total SG Blocks, Inc. stockholders’ equity 18,253,256 4,360,149 Non-controlling interests 184,567 — Total Stockholders' equity 18,437,823 4,360,149 Total Liabilities and Stockholders’ Equity $ 26,882,098 $ 6,634,611 The accompanying notes are an integral part of these consolidated financial statements. F-4 SG BLOCKS, INC. AND SUBSIDIAR IES Consolidated Statements of Operations For the Years Ended December 31, 2020 2019 Revenue: Construction services $ 4,104,917 $ 2,808,981 Engineering services 409,206 175,854 Medical revenue 4,241,500 — Total 8,755,623 2,984,835 Cost of revenue: Construction services 3,224,457 2,238,535 Engineering services 322,853 68,953 Medical revenue 2,988,134 — Total 6,535,444 2,307,488 Gross profit 2,220,179 677,347 Operating expenses: Payroll and related expenses 2,992,207 2,392,587 General and administrative expenses 3,449,849 1,788,276 Marketing and business development expense 230,248 240,557 Pre-project expenses 130,707 21,286 Goodwill impairment — 2,938,653 Total 6,803,011 7,381,359 Operating loss ( 4,582,832 ) ( 6,704,012 ) Other income (expense): Interest expense ( 9,275 ) ( 178,995 ) Interest income 61,675 — Other income 23,282 14,506 Loss on asset disposal ( 1,012 ) ( 52,039 ) Total 74,670 ( 216,528 ) Loss before income taxes ( 4,508,162 ) ( 6,920,540 ) Income tax expense — — Net loss ( 4,508,162 ) ( 6,920,540 ) Add: net profit attributable to noncontrolling interests 184,567 — Net loss attributable to common stockholders of SG Blocks, Inc. $ ( 4,692,729 ) $ ( 6,920,540 ) Net loss per share attributable to SG Blocks, Inc. - basic and diluted: Basic and diluted $ ( 0.79 ) $ ( 22.85 ) Weighted average shares outstanding: Basic and diluted 5,959,403 302,844 The accompanying notes are an integral part of these consolidated financial statements. F-5 SG BLOCKS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity For the Year Ended December 31, 2020 and 2019 $0.01 Par Value Common Stock Preferred Additional Paid-in Accumulated SG Blocks Stockholders’ Noncontrolling Total Stockholders' Shares Amount Stock Capital Deficit Equity Interests Equity Balance at January 1, 2019 213,002 $ 2,130 $ — $ 17,741,214 $ ( 10,663,277 ) $ 7,080,067 — $ 7,080,067 Stock-based compensation — — — 946,660 — 946,660 — 946,660 Issuance of common stock, net of issuance costs 944,888 9,449 — 3,244,513 — 3,253,962 — 3,253,962 Net loss — — — — ( 6,920,540 ) ( 6,920,540 ) — ( 6,920,540 ) Balance at December 31, 2019 1,157,890 $ 11,579 $ — $ 21,932,387 $ ( 17,583,817 ) $ 4,360,149 $ — $ 4,360,149 Balance at December 31, 2019 1,157,890 $ 11,579 $ — $ 21,932,387 $ ( 17,583,817 ) $ 4,360,149 — $ 4,360,149 Stock-based compensation — — — 1,261,215 — 1,261,215 — 1,261,215 Conversion of restricted stock units to common stock 24,672 246 — ( 246 ) — — — — Reverse stock split settlement ( 38 ) — — ( 122 ) — ( 122 ) — ( 122 ) Conversion of debt exchange to common stock 73,665 737 — 205,526 — 206,263 — 206,263 Issuance of common stock, net of issuance costs 7,340,000 73,400 — 17,045,080 — 17,118,480 — 17,118,480 Net loss — — — — ( 4,692,729 ) ( 4,692,729 ) 184,567 ( 4,508,162 ) Balance at December 31, 2020 8,596,189 $ 85,962 $ — $ 40,443,840 $ ( 22,276,546 ) $ 18,253,256 $ 184,567 $ 18,437,823 The accompanying notes are an integral part of these consolidated financial statements. F-6 SG BLOCKS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Year Ended December 31, 2020 For the Year Ended December 31, 2019 Cash flows from operating activities: Net loss $ ( 4,508,162 ) $ ( 6,920,540 ) Adjustments to reconcile net loss to net cash used in operating activities: Impairment of goodwill — 2,938,653 Depreciation expense 50,655 9,621 Amortization of intangible assets 148,541 145,124 Amortization of deferred license costs 40,786 10,196 Accretion of debt discount — 105,770 Amortization of debt issuance costs — 73,225 Bad debt expense and recoveries 10,018 ( 54,000 ) Interest income on notes receivable ( 32,637 ) — Stock-based compensation 1,261,215 729,404 Loss on asset disposal 1,012 52,039 Changes in operating assets and liabilities: Accounts receivable ( 890,531 ) 699,141 Contract assets ( 1,166,692 ) 154,310 Inventories ( 647,345 ) — Prepaid expenses and other current assets ( 489,437 ) 912,749 Right of use asset 81,256 — Accounts payable and accrued expenses 1,129,189 ( 301,457 ) Contract liabilities 1,236,174 ( 1,165,930 ) Due to affiliates 965,561 — Other current liability 5,000 — Long term lease liability ( 82,553 ) — Deferred long-term asset charge — ( 203,926 ) Net cash used in operating activities ( 2,887,950 ) ( 2,815,621 ) Cash flows used in investing activities: Purchase of property, plant and equipment ( 1,568,115 ) ( 2,070 ) Purchase of Echo DCL, LLC, net of cash acquired ( 743,168 ) — Advances in notes receivable ( 650,000 ) — Payment on assumed liability of acquired assets ( 84,440 ) — Net cash used in investing activities ( 3,045,723 ) ( 2,070 ) Cash flows provided by financing activities: Proceeds from public stock offering and other private placements, net of issuance costs 17,118,480 3,253,962 Proceeds from short-term note payable — 375,000 Proceeds from long term debt 200,000 — Settlement of common stock from reverse stock split ( 122 ) — Payments on short-term note debt — ( 480,770 ) Payments on debt issuance costs — ( 73,225 ) Net cash provided by financing activities 17,318,358 3,074,967 Net increase in cash and cash equivalents 11,384,685 257,276 Cash and cash equivalents - beginning of period 1,625,671 1,368,395 Cash and cash equivalents - end of period $ 13,010,356 $ 1,625,671 Supplemental disclosure of cash flow information: Cash paid during the period for Interest $ 2,614 $ 105,770 Supplemental disclosure of non-cash operating activities: Non-cash conversion of long term debt $ 200,000 $ — Non-cash conversion of interest expense of long term debt $ 6,263 $ — Non-cash conversion of accrued salary to restricted stock units $ — $ 217,256 The accompanying notes are an integral part of these consolidated financial statements. F-7 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 1. Description of Business SG Blocks, Inc. (collectively with its subsidiaries, the “Company,” “we”, “us” or “our”) was previously known as CDSI Holdings, Inc., a Delaware corporation incorporated on December 29, 1993. On November 4, 2011, CDSI Merger Sub, Inc., the Company’s wholly-owned subsidiary, was merged with and into SG Building Blocks, Inc. (“SG Building,” formerly SG Blocks Inc.) (the “Merger”), with SG Building surviving the Merger and becoming a wholly-owned subsidiary of the Company. The Merger was a reverse merger that was accounted for as a recapitalization of SG Building, as SG Building was the accounting acquirer. Accordingly, the historical financial statements presented are the financial statements of SG Building. The building products developed with our proprietary technology and design and engineering expertise are generally stronger, more durable, environmentally sensitive, and erected in less time than traditional construction methods. The use of the SGBlocks building structure typically provides between four to six points towards the Leadership in Energy and Environmental Design (“LEED”) certification levels, including reduced site disturbance, resource reuse, recycled content, innovation in design and use of local and regional materials. Due to the ability of SGBlocks to satisfy such requirements, we believe the products produced utilizing our technology and expertise is a leader in environmentally sustainable construction. There are three core product offerings that utilize our technology and engineering expertise. 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. 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. Finally, the third product offering is the completely fabricated and finished SGBlocks building (including but not limited to floors, windows, doors, interior painting, electrical wiring and fixtures, plumbing outlets and bathrooms, roofing systems), including erecting the final unit on site and completing any other final steps. The building is ready for occupancy and/or use as soon as installation is completed. Construction administration and/or project management services are typically included in our product offerings. 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. F-8 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 2. Liquidity As of December 31, 2020, the Company had cash and cash equivalents of $ 13,010,356 and a backlog of approximately $25.1 million. See note 14 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: 2020 Within 1 year $ 12,261,211 1 to 2 years 12,856,250 Thereafter — Total Backlog $ 25,117,461 The Company has incurred losses since its inception and has negative operating cash flows. 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. 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. 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. 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. In addition, the pandemic could result in an economic downturn that could affect the demand for the Company's products. Order lead times could be extended or delayed and pricing could increase. Some products or services may become unavailable if the regional or global spread were significant enough to prevent alternative sourcing. Accordingly, the Company is considering alternative product sourcing in the event that product supply becomes problematic. The Company expects this global pandemic to have an impact on the Company's revenue and results of operations, the size and duration of which the Company is currently unable to predict. 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. F-9 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. 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. All intercompany balances and transactions are eliminated. 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. 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 . F-10 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. Summary of Significant Accounting Policies (continued) Revenue recognition – The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time, regardless of the length of contract or other factors. The recognition of revenue aligns with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with its revenue policy: ( 1 ) Identify the contract with a customer ( 2 ) Identify the performance obligations in the contract ( 3 ) Determine the transaction price ( 4 ) Allocate the transaction price to performance obligations in the contract ( 5 ) Recognize revenue as performance obligations are satisfied On certain contracts, the Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e. percentage of completion). Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress toward complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. For product or equipment sales, the Company applies recognition of revenue when the customer obtains control over such goods, which is at a point in time. On October 3, 2019, the Company entered into an Exclusive License Agreement (“ELA” ) pursuant to which it granted an exclusive license for its technology as outlined in the ELA. 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. No revenue has been recognized under the ELA for the year ended December 31, 2020. 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. The 2,500 shares of restricted stock of the Company's common stock has yet to be issued to CMC. F- 11 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. 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. 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. 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. F- 12 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. Summary of Significant Accounting Policies (continued) The following tables provide further disaggregation of the Company’s revenues by categories: Twelve Months Ended December 31, Revenue by Customer Type 2020 2019 Government $ 751,697 9 % $ — — % Hospitality 487,111 6 % — — % Multi-Family 126,222 1 % 94,178 3 % Medical (lab testing, test kit sales and equipment) 4,241,500 49 % — — % Medical (construction services) 778,883 9 % — — % Office 191,505 2 % 1,468,734 49 % Retail 427,444 5 % 1,413,669 48 % School 36,500 — % — — % Special Use 1,414,761 16 % 6,812 — % Other (1) 300,000 3 % 1,442 — % Total revenue by customer type $ 8,755,623 100 % $ 2,984,835 100 % (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. A considerable amount of judgment is required in assessing the likelihood of realization of receivables. The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from long-term construction services when revenue recognized under the cost-to-cost measure of progress exceeds the amounts invoiced to customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Contract assets are generally classified as current within the consolidated balance sheets. Contract liabilities from construction and engineering contracts occur when amounts invoiced to customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contract liabilities are generally classified as current within the consolidated balance sheet. Although the Company believes it has established adequate procedures for estimating costs to complete on open contracts, it is at least reasonably possible that additional significant costs could occur on contracts prior to completion. The Company periodically evaluates and revises its estimates and makes adjustments when they are considered necessary. F- 13 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. 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. Because of this, the Company is no longer obliged to its Original Agreement. Upon entering the ELA, the Company had an outstanding accounts receivable balance of $ 306,143 which was forfeited and recognized this amount as deferred contract costs. 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. As of December 31, 2020 , accumulated amortization related to deferred contract costs amounted to $ 50,981 . 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. 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: $500,000 in year 1, $750,000 in year 2, $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. F-14 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. Summary of Significant Accounting Policies (continued) Business Combinations - The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. 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. Costs that the Company incurs to complete the business combination are charged to general and administrative expenses as they are incurred. V ariable Interest Entities – The Company accounts for certain legal entities as variable interest entities (“VIE"). When evaluating a VIE for consolidation, the Company must determine whether or not there is a variable interest in the entity. Variable interests are investments or other interests that absorb portions of an entity’s expected losses or receive portions of the entity’s expected returns. If it is determined that the Company does not have a variable interest in the VIE, no further analysis is required and the VIE is not consolidated. If the Company holds a variable interest in a VIE, the Company consolidates the VIE when there is a controlling financial interest in the VIE and therefore are deemed to be the primary beneficiary. The Company is determined to have a controlling financial interest in a VIE when it has both the power to direct the activities of the VIE that most significantly impact the VIE economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to that VIE. 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. 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”). 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. 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. The Company had no short-term investment as of December 31, 2020 or 2019, respectively. Accounts receivable and allowance for doubtful accounts – 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. 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. Recoveries are recognized when they are received. Actual collection losses may differ from our estimates and could be material to our consolidated financial position, results of operations, and cash flows. Inventory – Raw construction materials (primarily shipping containers and fabrication materials) are valued at the lower of cost (first-in, first-out method) or net realizable value. Finished goods and work-in-process inventories are valued at the lower of cost or net realizable value, using the specific identification method. Medical equipment and COVID-19 test and testing supplies are valued at the lower of cost, (first-in, first-out method) or net realizable value. 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. There was no inventory for December 31, 2019. F- 15 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. Summary of Significant Accounting Policies (continued) Goodwill – The Company performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying values. The Company performs a goodwill impairment test by comparing the fair value of the reporting unit with its carrying value and recognizes an impairment charge for the amount by which the carrying value exceeds the fair value, not to exceed the total amount of goodwill . The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. The Company's evaluation of goodwill completed during the year ended December 31, 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 . The Company has taken the recent COVID-19 pandemic into consideration when determining impairment. Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology, which is being amortized over 20 years. In addition, included in intangible assets is $97,164 of trademarks, and $5,300 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 accumulated amortization and amortization expense as of and for the year ended December 31, 2019 was $ 1,614,315 and $ 145,124 respectively. The estimated amortization expense for the successive five years is as follows: For the year ending December 31,: 2021 $ 158,793 2022 154,470 2023 152,676 2024 151,969 2025 148,551 Thereafter 1,452,150 $ 2,218,609 Property, plant and equipment – Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated lives of each asset. Estimated useful lives for significant classes of assets are as follows: computer and software 3 to 5 years, furniture and other equipment 5 to 7 years, automobiles 2 to 5 years, buildings held for lease 5 to 7 years, and equipment 5 to 29 years. Repairs and maintenance are charged to expense when incurred. Convertible instruments – The Company bifurcates conversion options from their host instruments and accounts for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Common stock purchase warrants and other derivative financial instruments – The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if any event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement shares (physical settlement or net-cash settlement). The Company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required. F-16 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. Summary of Significant Accounting Policies (continued) Fair value measurements – Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which the Company believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company uses three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Level 3 Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions). 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. Transfer into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period. There were no transfers into or out of the hierarchy levels during the year ended December 31, 2020 or 2019, besides the transfer in of the earnout liability. Share-based payments – The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, including non-employee directors, the fair value of a stock option award is measured on the grant date. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. The Company recognizes stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award. Stock-based compensation expense to employees and all directors are reported within payroll and related expenses in the consolidated statements of operations. Stock-based compensation expense to non-employees is reported within marketing and business development expense in the consolidated statements of operations. Income taxes – The Company accounts for income taxes utilizing the asset and liability approach. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the liabilities are no longer determined to be necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. F-17 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 3. Summary of Significant Accounting Policies (continued) Concentrations of credit risk – Financial instruments, that potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. The Company has not experienced any losses in such account and believes that it is not exposed to any significant credit risk on the account. With respect to receivables, concentrations of credit risk are limited to a few customers in the construction industry. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers other than normal lien rights. At 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. 4. Accounts Receivable At December 31, 2020 and 2019, the Company’s accounts receivable consisted of the following: 2020 2019 Billed: Construction services $ 1,391,555 $ 1,321,575 Engineering services 86,264 14,594 Medical revenue 1,157,819 — Retainage receivable 615,136 544,911 Other receivable 180,748 6,000 Total gross receivables 3,431,522 1,887,080 Less: allowance for doubtful accounts ( 795,914 ) ( 785,895 ) Total net receivables $ 2,635,608 $ 1,101,185 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. F-18 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 5. Contract Assets and Contract Liabilities Costs and estimated earnings on uncompleted contracts, which represent contract assets and contract liabilities, consisted of the following at December 31, 2020 and 2019: 2020 2019 Costs incurred on uncompleted contracts $ 4,572,581 $ 513,558 Estimated earnings to date on uncompleted contracts 872,302 127,032 Gross contract assets 5,444,883 640,590 Less: billings to date ( 5,916,487 ) ( 703,532 ) Net contract assets (liabilities) $ ( 471,604 ) $ ( 62,942 ) The above amounts are included in the accompanying condensed consolidated balance sheets under the following captions at December 31, 2020 and 2019. 2020 2019 Contract assets $ 1,303,136 $ 106,015 Contract liabilities ( 1,774,740 ) ( 168,957 ) Net contract assets (liabilities) $ ( 471,604 ) $ ( 62,942 ) 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. 6. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization and depreciated using the straight-line method over their useful lives. At December 31, 2020 and 2019, the Company’s property, plant and equipment, net consisted of the following: 2020 2019 Computer equipment and software $ 73,991 $ 18,862 Furniture and other equipment 11,593 1,885 Leasehold improvements 6,071 — Equipment and machinery 1,127,647 — Automobiles 4,638 — Building held for lease 501,336 — Laboratory and temporary units 1,016,238 — Property, plant and equipment 2,741,514 20,747 Less: accumulated depreciation ( 58,500 ) ( 9,000 ) Property, plant and equipment, net $ 2,683,014 $ 11,747 Depreciation expense for the years ended December 31, 2020 and 2019 amounted to $ 50,655 and $ 9,621 , respectively. F-19 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 7. Notes Receivable 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, 2020, 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 that certain Loan Agreement and Promissory Note, dated October 3, 2019 (the “Loan Agreement”), 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; 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. In April 2020, CPF GP issued to the Company a promissory note in the principal amount of $ 250,000 (the “Company Note 2”). The transaction closed on April 15, 2020, on which date the Company loaned CPF GP 2019-1 LLC $ 250,000 . 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. 8. Notes Payable On February 4, 2020, the Company entered into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company issued to the investor a secured note in the aggregate principal amount of $ 200,000 (“Note”) that bears interest at a rate of nine percent ( 9 %) per annum, due on July 31, 2023 , that is secured under a Pledge Agreement, dated February 4, 2020, entered into with the investor by a security interest in the royalty payable to the Company under that certain Exclusive License Agreement, dated October 3, 2019, with CPF GP 2019-1 LLC. The Company had 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 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. 9. Business Combination On September 17, 2020, the Company, through SG Echo, LLC (its wholly owned subsidiary), entered into an Asset Purchase Agreement (“APA " ) to acquire substantially all of the assets of Echo DCL, LLC (“Echo”) for $ 1,059,600 in cash (the “Echo Acquisition”), except for ECHO DCL's real estate holdings. The Echo Acquisition closed on September 23, 2020. In addition, the sellers of Echo have the potential of additional consideration based upon the APA. In accordance with ASC 805, the Echo Acquisition is accounted for as a business combination. The Echo Acquisition was made for the purpose of expanding the Company’s footprint into the modular manufacturing business. The purchase consideration amounted to: Cash $ 1,059,600 Earnout liability — Settlement of accounts receivable and net contract liabilities ( 94,980 ) $ 964,620 The settlement of accounts receivable and net contract liabilities represents amounts effectively settled upon the purchase of Echo, which originated from contacts between the Company and Echo prior to the purchase date. The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed for the Echo Acquisition: F-20 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 9 . Business Combination (continued) Cash and cash equivalents $ 316,432 Accounts receivable 252,557 Inventories 130,799 Prepaid expenses and other current assets 7,400 Property, plant and equipment 1,154,818 Right-of-use assets 57,120 Goodwill 85,810 Intangible assets 68,344 Accounts payable and accrued expenses ( 733,529 ) Assumed liability ( 285,204 ) Contract liabilities ( 32,807 ) Lease liability ( 57,120 ) $ 964,620 As part of the Echo Acquisition, the Company recorded an earnout 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. 10 . Leases 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 plant lease includes an option to extend the lease for up to five years. Supplemental balance sheet information related to leases is as follows: Balance Sheet Location December 31, 2020 Operating Leases Right-of-use assets, net $ 1,486,067 Current liabilities Lease liability, current maturities ( 307,737 ) Non-current liabilities Lease liability, net of current maturities ( 1,178,458 ) Total operating lease liabilities $ ( 1,486,195 ) Finance Leases Right-of-use assets $ 51,478 Current liabilities Lease liability, current maturities ( 18,917 ) Non-current liabilities Lease liability, net of current maturities ( 31,136 ) Total finance lease liabilities $ ( 50,053 ) Weighted Average Remaining Lease Term Operating leases 4.66 years Finance leases 2.61 years Weighted Average Discount Rate Operating leases 3 % Finance leases 3 % F-21 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 10. Leases (continued) As the leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments, which is reflective of the specific term of the leases and economic environment of each geographic region. Anticipated future lease costs, which are based in part on certain assumptions to approximate minimum annual rental commitments under non-cancelable leases, are as follows: Year Ending December 31, Operating Financing Total 2021 $ 348,117 $ 20,160 $ 368,277 2022 348,984 20,160 369,144 2023 330,300 11,760 342,060 2024 324,000 — 324,000 2025 243,000 — 243,000 Total lease payments 1,594,401 52,080 1,646,481 Less: Imputed interest 108,206 2,027 110,233 Present value of lease liabilities $ 1,486,195 $ 50,053 $ 1,536,248 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. 11. 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. F- 22 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 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. 12. Income Taxes The Company’s provision (benefit) for income taxes consists of the following for the year ended December 31, 2020 and 2019: 2020 2019 Deferred: Federal $ ( 974,181 ) $ ( 828,472 ) State and local ( 567,767 ) 564,363 Total deferred ( 1,541,948 ) ( 264,109 ) Total provision (benefit) for income taxes ( 1,541,948 ) ( 264,109 ) Less: valuation reserve 1,541,948 264,109 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: F-23 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 12. Income Taxes (continued) 2020 2019 Benefit for income taxes at federal statutory rate 21.0 % 21.0 % State and local income taxes, net of federal benefit 3.9 1.1 Goodwill impairment — ( 9.1 ) Change in state rate — ( 11.2 ) Less valuation allowance ( 24.9 ) ( 1.8 ) Effective income tax rate 0.0 % 0.0 % The tax effects of these temporary differences along with the net operating losses, net of an allowance for credits, have been recognized as deferred tax assets (liabilities) at December 31, 2020 and 2019 as follows: 2020 2019 Net operating loss carryforward $ 4,127,323 $ 2,857,456 Bad debt reserve 197,785 173,840 Employee stock compensation 800,036 445,799 Intangible assets ( 529,260 ) ( 502,709 ) Depreciation ( 44,979 ) ( 850 ) Accrued expenses 47,184 82,628 Charity 205 181 Net deferred tax asset 4,598,294 3,056,345 Valuation allowance ( 4,598,294 ) ( 3,056,345 ) Net deferred tax asset $ — $ — The Company establishes a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the deferred assets will not be realized. During 2020 certain adjustments were made to the Company’s net operating loss carryforward tax asset for IRC Section 382 limitations. The valuation allowance increased by $ 1,541,948 and $ 264,109 during 2020 and 2019, respectively. As of December 31, 2020, the Company had a net operating loss carryforward of approximately $ 16.6 million for Federal and State tax purposes. The net operating loss expires beginning 2030 through 2037 for those losses generated in 2017 and prior years. Approximately $ 5.5 million of such net operating losses will carryforward indefinitely and be available to offset up to 80 % of future taxable income each year. Subsequent to December 31, 2019, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was passed, which temporarily removes such 80 % limitation for years 2019 and 2020. The Company’s net operating loss carryforward may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section 382 of the Internal Revenue Code. As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740. The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expenses. As of December 31, 2020, the Company has no unrecognized tax positions, including interest and penalties. The tax years 2017 - 2019 are still open to examination by the major tax jurisdictions in which the Company operates. The Company files returns in the United States Federal tax jurisdiction and various other state jurisdictions. F- 24 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 13. Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. At December 31, 2020, there were options, including options granted 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. Because the Company had a net loss as of December 31, 2020, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, the Company has used the same number of shares outstanding to calculate both the basic and diluted loss per share. At December 31, 2019, there were options , including options to non-employees and non-directors, restricted stock units and warrants to purchase 53,170 , 21,859 and 53,189 shares of common stock, respectively, outstanding that could potentially dilute future net income per share. 14. 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: 2020 2019 Balance - beginning of period $ 17,634,261 $ 97,657,379 New contracts and change orders during the period 13,816,785 17,659,053 Adjustments and cancellations, net ( 27,370 ) ( 94,697,336 ) Subtotal 31,423,676 20,619,096 Less: contract revenue earned during the period ( 6,306,215 ) ( 2,984,835 ) Balance - end of period $ 25,117,461 $ 17,634,261 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: F- 25 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 2020 Within 1 year $ 12,261,211 1 to 2 years 12,856,250 Thereafter — Total Backlog $ 25,117,461 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. 15. Stockholders’ Equity Public Offerings – In June 2017, the Company issued 75,000 shares of its common stock at $ 100.00 per share through the Public Offering. The Company incurred $ 1,388,615 in issuance costs from the Public Offering and issued 3,750 warrants valued at $ 55,475 to the underwriters (as discussed in Note 16). In July 2017, as permitted by the underwriting agreement entered into in connection with the Public Offering, the underwriters exercised their option to purchase an additional 11,250 shares of common stock at $ 100.00 per share. The Company incurred $ 176,771 in issuance costs from this issuance. In connection with this exercise, certain affiliates of the underwriters were granted additional warrants to purchase 563 shares of common stock in the aggregate valued at $ 8,321 (as discussed in Note 16). In connection with and prior to the Public Offering, the Company issued 90,084 shares of its common stock upon conversion of all outstanding preferred stock and 25,833 shares of its common stock upon conversion of the previously outstanding convertible debentures. In December 2019, the Company completed a public offering of its common stock (the “Public Offering”). In connection with the Public Offering, the Company sold 857,500 shares of common stock at a public offering price of $ 3.00 per share, resulting in aggregate net proceeds of $ 2,117,948 after deducting underwriting discounts and commissions and other expenses related to the offering. The Company incurred $ 454,552 in issuance costs from the Public Offering and no warrants to purchase were issued to the underwriters. In April 2020, the Company also completed a public offering of its common stock (the "April Public Offering"). 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. In May 2020, the Company completed a public offering of its common stock (the "May Public Offering"). In connection with the May Public Offering, the Company sold 6,000,000 shares of common stock at a public offering price of $ 2.50 per share. Pursuant to the terms of the related Underwriting Agreement dated May 6, 2020 by and among the Company 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 the Company's 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 the Company's Common Stock (the "Option Shares"). After giving effect to the full exercise of the over-allotment option, the total number of shares of Common Stock sold by the Company in the May Public Offering was 6,900,000 shares of Common Stock and total net proceeds to the Company, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were approximately $ 15,596,141 . 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. 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. Concurrently with the sale of the common stock, pursuant to the Purchase Agreement, the Company also sold common stock purchase warrants to such investors to purchase up to an aggregate of 42,388 shares of common stock. The Company incurred $ 379,816 in issuance costs from the offering and issued 4,239 warrants to the underwriters. The warrants are further discussed in Note 16 . F- 26 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 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. Following the meeting, on June 5, 2019 , the Company filed a certificate of amendment to the amended and restated certificate of incorporation to decrease its authorized shares of common stock accordingly. There was no change to the number of authorized shares of preferred stock. Underwriting Agreement – In August 2019 , the Company issued 45,000 shares of its common stock at $ 17.00 per share pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement”) to the public. The Company incurred $ 181,695 in issuance costs from the offering and issued warrants to purchase 2,250 shares of common stock to the underwriter. The warrants are further discussed in Note 16. 16. Warrants In conjunction with the June 2017 Public Offering, the Company issued to certain affiliates of the underwriters, as compensation, warrants to purchase an aggregate of 4,313 shares of common stock at an exercise price of $ 125.00 per share. The warrants are exercisable at the option of the holder on or after June 21, 2018 and expire June 21, 2023 . The fair value of warrants was calculated utilizing a Black-Scholes model and amounted to $ 63,796 . The fair market value of the warrants as of the date of issuance has been included in issuance costs in additional paid-in capital. In conjunction with the Purchase Agreement in April 2019, the Company also sold warrants to purchase up to an aggregate of 42,388 shares of common stock at an initial exercise price of $ 27.50 per share. The warrants are exercisable at the option of the holder on or after October 29, 2019 and expire October 29, 2024 . T he Company issued to certain affiliates of the underwriters, as compensation, warrants to purchase an aggregate of 4,239 shares of common stock at an initial exercise price of $ 27.50 per share. The warrants are exercisable at the option of the holder on or after October 29, 2019 and expire April 24, 2024 . In conjunction with the Underwriting Agreement in August 2019, the Company issued to the underwriter, as compensation, warrants to purchase an aggregate of 2,250 shares of common stock at an initial exercise price of $ 21.25 per share. The warrants are exercisable at the option of the holder on or after February 1, 2020 and expire August 29, 2024 . In conjunction with the Underwriting Agreement in May 2020, the Company issued to the underwriter, as compensation, warrants to purchase an aggregate of 300,000 shares of common stock at an initial exercise price of $ 3.14 per share. The warrants are exercisable at the option of the holder on or after November 6, 2020 and expire May 5, 2025 . F-27 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 17. 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”). 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”). The Incentive Plan authorizes the issuance of up to 1,000,000 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. Each of the Company’s employees, directors, and consultants are eligible to participate in the Incentive Plan. As of December 31, 2020, there were 179,547 shares of common stock available for issuance under the Incentive Plan. Stock-based compensation expense is included in the consolidated statements of operations as follows: Year Ended December 31, 2020 2019 Payroll and related expenses $ 1,204,095 $ 715,904 Marketing and business development expenses 57,120 13,500 Total $ 1,261,215 $ 729,404 The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations: Year Ended December 31, 2020 2019 Stock options $ 10,667 $ 150,580 RSUs 1,250,548 578,824 Total $ 1,261,215 $ 729,404 Because the Company does not have significant historical data on employee exercise behavior, the Company uses the “Simplified Method” to calculate the expected life of the stock-based option awards granted to employees. The simplified method is calculated by averaging the vesting period and contractual term of the options. F-28 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 17. Share-based Compensation (continued) The following table summarizes stock-based option activities and changes during the years ended December 31, 2020 and 2019, as described below: Shares Weighted Average Fair Value Per Share Weighted Average Exercise Price Per Share Weighted Average Remaining Terms (in years) Aggregate Intrinsic Value Outstanding – December 31, 2018 55,253 $ 24.80 $ 81.20 8.41 $ — Granted — — — Exercised — — — Cancelled ( 2,083 ) — — Outstanding – December 31, 2019 53,170 $ 24.80 $ 81.20 7.40 $ — Granted — — — Exercised — — — Cancelled ( 16,733 ) — — Outstanding – December 31, 2020 36,437 35.54 78.71 6.34 $ — Exercisable – December 31, 2019 52,649 24.80 81.20 7.39 — Exercisable – December 31, 2020 36,332 $ 24.80 $ 78.67 6.34 $ — For the years ended December 31, 2020 and December 31, 2019, the Company recognized stock-based compensation expense of $ 10,667 and $ 150,580 , respectively, related to stock options. 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. 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. The fair value of the stock price at December 31, 2020 was $ 6.10 per share. Restricted Stock Units On March 22, 2019, a total of 15,703 of restricted stock units were granted to Mr. Galvin, Mr. Armstrong, Mr. Shetty, six employees and one consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $ 54.00 per share, which represents the closing price of the Company's common stock on February 26, 2019. Restricted stock units granted to Mr. Galvin, Mr. Armstrong, Mr. Shetty, and an aggregate of six employees and one consultant of 6,139 , 772 , 5,729 and an aggregate of 3,063 , respectively, vest in installments over either a one -year, two -year, three -year and four -year period and will fully vest by the end of December 31, 2022. The fair value of these units upon issuance amounted to $ 847,957 . On January 15, 2019 and February 26, 2019, a total of 526 of restricted stock units were granted to two of the Company’s non-employee directors, under the Incentive Plan, at the calculated fair value of $ 58.80 and $ 55.20 per share, respectively, which represents the average closing price of the Company’s common stock for the ten trading days immediately preceding and including the grant date. The restricted stock units granted on January 15, 2019 will vest on January 15, 2020, subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Company’s Board of Directors or death or disability. The restricted stock units granted on February 26, 2019 vest on the earlier of (A) the first anniversary of the date of the grant or (B) the date of the 2019 annual meeting of the Company’s stockholders subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Board of Directors or death or disability. F-29 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 17. Share-based Compensation (continued) Effective June 5, 2019, a total of 9,189 of restricted stock units were granted to the Company’s non-employee directors, under the Company’s stock-based compensation plan, at the calculated fair value of $ 16.40 per share, which represents the average closing price of the Company’s common stock for the ten trading days immediately preceding and including the grant date. Restricted stock units granted to directors on June 5, 2019 vest on the earlier of (A) the first anniversary of the date of the grant or (B) the date of the annual meeting of the Company’s stockholders that occurs in the year immediately following the date of the grant; and are payable six months after the termination of the director from the Board or death or disability. On April 14, 2020, a total of 35,331 of restricted stock units were granted to Mr. Galvin, Mr. Armstrong, Mr. Sheeran , five employees and two consultants of the Company, under the Company's stock-based compensation plan, at the fair value of $ 4.76 per share, which represents the closing price of the Company's common stock on April 14, 2020. Restricted stock units granted to Mr. Galvin, Mr. Armstrong, Mr. Sheeran, and an aggregate of five employees and one consultant of 11,331, 1,000, 3,000 and an aggregate of 8,000, respectively, will vest in full on the first anniversary of the vesting commencement date and one consultant received 12,000 restricted stock units that vested immediately on April 15, 2020. The fair value of these units upon issuance amounted to $168,176. On April 14, 2020, a total of 12,000 of restricted stock units were granted to three of the Company’s non-employee directors, under the Incentive Plan, at the calculated fair value of $ 4.76 per share, which represents the closing price of the Company’s common stock on April 14, 2020. The restricted stock units granted on April 14, 2020 will fully vest on April 14, 2021, subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Company’s Board of Directors or death or disability. The fair value of these units upon issuance amounted to $ 57,120 . On September 23, 2020, a total of 425,000 of restricted stock units were granted to Mr. Armstrong, Mr. Sheeran, seven employees and one consultant of the Company, under the Company's stock-based compensation plan, at the fair value of $ 1.81 per share, which represents the closing price of the Company's common stock on September 23, 2020. Restricted stock units granted to Mr. Armstrong, Mr. Sheeran, and an aggregate of seven employees and one consultant of 50,000, 75,000 and an aggregate of 300,000, respectively, and 1/3 will vest on September 23, 2020, 1/3 on the one year anniversary of the grant date and 1/3 on the two year anniversary of the grant date. The fair value of these units upon issuance amounted to $769,250. On November 11, 2020, a total of 46,826 of restricted stock units were granted to three of the Company’s non-employee directors, under the Incentive Plan, at the calculated fair value of $ 2.39 per share, which represents the closing price of the Company’s common stock on November 11, 2020. The restricted stock units granted on November 11, 2020 will vest 1/2 on November 11, 2020 and 1/2 on the one year anniversary of the grant date, subject to each individual’s continued service as a director of the Company through such date, and are payable six months after the termination of the director from the Company’s Board of Directors or death or disability. The fair value of these units upon issuance amounted to $111,920. On December 9, 2020, a total of 372,000 of restricted stock units were granted to Mr. Galvin, under the Company's stock-based compensation plan, at the fair value of $ 3.28 per share, which represents the closing price of the Company's common stock on December 9, 2020. Restricted stock units granted to Mr. Galvin will vest 1/2 on December 9, 2020 and 1/2 on the first year anniversary of the grant date. The fair value of these units upon issuance amounted to $1,220,160. For the year ended December 31, 2020 and 2019 , the Company recognized stock-based compensation of $ 1,250,548 and $ 578,824 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. The following table summarized restricted stock unit activities during the year ended December 31, 2020: Number of Shares Non-vested balance at January 1, 2020 8,938 Granted 891,157 Vested ( 368,591 ) Forfeited/Expired ( 4,000 ) Non-vested balance at December 31, 2020 527,504 F-30 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 18. Commitm ents and Contingencies Legal Proceedings The Company is subject to certain claims and lawsuits arising in the normal course of business. The Company assesses liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in our consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, the Company does not record an accrual, consistent with applicable accounting guidance. Based on information currently available, advice of counsel, and available insurance coverage, the Company believes that the established accruals are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on the consolidated financial condition. However, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution of a matter will not exceed established accruals. As a result, the outcome of a particular matter or a combination of matters may be material to the results of operations for a particular period, depending upon the size of the loss or the income for that particular period. Pizzarotti Litigation - On or about August 10, 2018 Pizzarotti, LLC filed a complaint against the Company and Mahesh Shetty, the Company’s former President and CFO, and others, seeking unspecified damages for an alleged breach of contract by the Company and another entity named Phipps & Co. (“Phipps”). The lawsuit was filed as Pizzarotti, LLC. v. Phipps & Co., et al., Index No. 653996/2018 and commenced in the Supreme Court of the State of New York for the County of New York. On or about April 1, 2019, Phipps filed cross-claims against the Company and Mr. Shetty asserting claims for indemnification, contribution, fraud, negligence, negligent misrepresentation, and breach of contract. SG Blocks has likewise cross claimed against Phipps for indemnification and contribution, claiming that any damages to the Plaintiff were the result of the acts or omissions of Phipps and its principals. Pizzarotti’s suit arose from a contract dated April 3, 2018 that it executed with Phipps whereby Pizzarotti, a construction manager, engaged Phipps to perform stone procuring and tile work at a construction project located at 161 Maiden Lane, New York 10038. Pizzarotti’s claims against the Company arise from a purported assignment agreement dated August 10, 2018, whereby Pizzarotti claims that the Company agreed to assume certain obligations of Phipps under a certain trade contract between Pizzarotti and Phipps & Co. Phipps’ claims against the Company arise from a purported Assignment Agreement, dated as of May 30, 2018, between Pizzarotti, Phipps and the Company (the “Assignment Agreement”), pursuant to which, it is alleged, that the Company agreed to provide a letter of credit in connection with the sub-contracted work to be provided by Phipps to Pizzarotti. The Company believes that the Assignment Agreement was void for lack of consideration and moved to dismiss the case on those and other grounds. On June 17, 2020, the New York Supreme Court entered an order dismissing certain claims against the Company brought by cross claimant Phipps & Co. Specifically, the court dismissed Phipps’ claims for indemnification, contribution, fraud, negligence and negligent misrepresentation. The court did not dismiss Phipps’ claim for breach of the Assignment Agreement. The issue of the validity of the Assignment Agreement, and the Company’s defenses to the claims brought by the plaintiff Pizzarotti, and cross claimant Phipps, are being litigated. 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 parties have engaged in written discovery but no depositions have been conducted as of yet. By motion dated February 24, 2021, Pizzarotti moved to stay the entire action pending the outcome of a separate litigation captioned Pizzarotti, LLC v. FPG Maiden Lane, LLC et. al., Index No. 651697/2019, involving some of the same parties (but excluding the Company). 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. 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. F-31 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 18. Commitm ents and Contingencies (continued) 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”). 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. (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.”). The Company maintains that Teton breached the GVL Contract by (i) failing to timely deliver the Teton GVL Modules, (ii) delivering Teton GVL Modules that were defective in their design and manufacture, (iii) otherwise failed to meet South Carolina Building Code regulations and (iv) breached applicable warranties. As a result of the breach and defects in performance, design and manufacture by Teton, Company asserts that it has sustained approximately $ 761,401.66 in actual and consequential damages, excluding attorney’s fees. On October 16, 2019, Teton filed for Chapter 11 in the United States Bankruptcy Court for Southern District of Texas, Houston Division styled In re: 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. On or about March 16, 2020, the Bankruptcy Court converted Teton’s Chapter 11 reorganization case to a Chapter 7 liquidation case. On July 18, 2019, Ronald Sommers, the Chapter 7 Trustee, filed a Report of No Distribution stating that there is no property available for distribution to creditors. On August 20, 2019, the Bankruptcy Court closed the Teton bankruptcy case. As such, there is no prospect of any recovery against Teton. 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. 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. 2. SG Blocks, Inc. v HOLA Community Partners, et. al. On April 13, 2020, Plaintiff SG Blocks, Inc. (“SG Blocks”) 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. 2:20-cv-03432-ODW (“HOLA Action”). The Company asserted seven claims against HOLA Defendants arising out of and related to the HOLA Project, to wit , for: (1) breach of contract; (2) conversion; (3) default and judicial foreclosure under the Agreement as a security agreement; (4) misappropriation of trade secrets under California Civil Code section 3426; (5) misappropriation of trade secrets under 18 U.S.C. § 1836; and (6) intentional interference with contractual relations. On April 20, 2020, HOLA filed a separate action against the Company in the Los Angeles Superior Court arising out of the HOLA Project, asserting claims of (1) negligence; (2) strict products liability; (3) strict products liability, (4) breach of contract; (5) breach of express warranty; (6) violation of Business and Professions Code § 7031(b); and (7) violation of California’s unfair competition law, Business and Professions Code section 17200 (“UCL”) (“HOLA State Court Action”). The HOLA State Court Action was removed to the Central District of California and consolidated with the HOLA Action. 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; (2) conversion; (3) default and judicial foreclosure under the Agreement as a security agreement; (4) misappropriation of trade secrets under California Civil Code section 3426; (5) misappropriation of trade secrets under 18 U.S.C. § 1836; but denied dismissal of the Company’s claims for intentional interference with contractual relations. 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. 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. v. 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. SG Blocks, Inc. claims that EDI International, PC, tortiously interfered with SG Blocks, Inc's economic relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc. EDI International, PC, filed a cross-complaint for alleged unpaid fees and tortious interference with EDI International, PC's contractual relationship with HOLA Community Partners and Heart of Los Angeles Youth, Inc. EDI International, PC's cross-complaint seeks in excess of $ 30,428.71 in damages. On July 8, 2020, SG Blocks, Inc. added PVE LLC as a defendant in the lawsuit, claiming PVE LLC is liable to the same extent as EDI International, PC. The case is currently in the discovery stage and a trial date has been set for May 2, 2022. 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. Other Litigation 1. Shetty v. SG Blocks, Inc. et. al ., Case No. 20-CV-00550, United States District Court, Eastern District of New York. 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. §201 et. seq. (“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. 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. 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. 2. SG Blocks, Inc. v. Osang Healthcare Company, Ltd. , On April 14, 2021, the Company commenced an action against Osang Healthcare Company, Ltd. (“Osang”) in the United States District Court, Eastern District of New York, Case No. 21-01990 (“Osang Action”) . The Company has asserted that Osang materially breached a certain Managed Supply Agreement (“MSA”) entered into between the parties on October 12, 2020, pursuant to which the Company received on consignment two million (2,000,000) units of Osang’s “Genefinder Plus RealAmp Covid-19 PCR Test” (the “Covid-19 Test”) for domestic and international distribution. 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. 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. Commitments 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. F-32 SG BLOCKS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2020 and 2019 19. 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 . F-33