What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-20 compared with 2020-11-19 · 108 added, 159 removed, 179 unchanged (60% of the section changed)

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and its subsidiaries.

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and notes for the year ended December 31, 2019, which were included in our Annual Report for the year then ended December 31, 2019, as filed with the Securities and Exchange Commission (the "SEC") on March 30, 2020 and Amendment No.

The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and notes for the year ended December 31, 2020, which were included in our Annual Report on Form 10-K for the year then ended December 31, 2020, as filed with the Securities and Exchange Commission (the "SEC") on April 15, 2021 and Amendment No.

1 thereto filed with the SEC on April 30, 2021 (the "2020 Form 10-K").

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and any factors discussed in "Part II - Item 1 A.

Risk Factors" to this Quarterly Report on Form 10-Q as well as our 2019 Form 10-K and other filings with the Securities Exchange Commission.

Risk Factors" to this Quarterly Report on Form 10-Q as well as our 2020 Form 10-K as amended by the Amendment No.

1 thereto, and other filings with the Securities Exchange Commission.

In addition, certain information presented below is based on unaudited financial information.

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Forward-looking statements speak only as of the date of this report.

The Company will not undertake to update any forward-looking statement herein or that may be made from time to tim e on behalf of the Company .

The Company will not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Company.

Using our proprietary technology and design and engineering expertise, we modify code-engineered cargo shipping containers and purpose-built modules for use for safe and sustainable commercial, industrial and residential building construction.

Rather than consuming new steel and lumber, our proprietary technology and design and engineering expertise allows for the redesign, repurpose and conversion of heavy-gauge steel cargo shipping containers into SGBlocks™, which are safe green building blocks for commercial, industrial, and residential building construction.

Our technology and expertise is also used to purpose-build modules, or prefabricated steel modular units customized for use in modular construction (“SGPBMs” and, together with SGBlocks™, “Modules”), primarily to augment or complement an SGBlocks™ structure.

Our core customer base is comprised of architects, landowners, builders and developers who use our Modules in commercial and residential structures.

Our operating model combines product design and outsourcing of the modifications and finish out of Modules using proprietary algorithms developed by the Company to produce and deliver Modules across the country.

We believe this combination enables us to generate economies of scale while maintaining high customer service levels in the environmentally-friendly construction space.

Prior to October 2019, our business model was solely a project-based construction model pursuant to which we were responsible for the design and construction of finished products that incorporated our technology primarily to customers in the multi-family housing, restaurant, military and education industries throughout the United States.

In October 2019, we changed our business model for our residential building construction to a royalty fee model when we entered into a five year exclusive license with CPF GP 2019-1 LLC ("CPF") pursuant to which CPF licensed on an exclusive bases our proprietary technology, intellectual property, any improvements thereto, and any related permits, with the right to develop and commercialize products in the United States and its territories within the field of design and project management platforms for residential use, including, without limitation, single-family residences and multi-family residences, but specifically excluding military housing.

CPF, at the time the License Agreement was entered into, was already a significant customer for our Modules and had completed a $5.0 million equity financing to develop a 302-unit multifamily project in Sullivan County, New York.

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

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

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

In October 2019, we changed our business model for our residential building construction to a royalty fee model when we entered into a five year exclusive license with CPF pursuant to which CPF licensed on an exclusive basis our proprietary technology, intellectual property, any improvements thereto, and any related permits, with the right to develop and commercialize products in the United States and its territories within the field of design and project management platforms for residential use, including, without limitation, single-family residences and multi-family residences, but specifically excluding military housing.

The Ridge Avenue Project, a residential housing project in Atlanta has also been excluded from the CPF license.

Now, in the United States with respect to residential construction (other than the excluded residential structures) we are not permitted to and are no longer responsible for constructing the Modules that are based on our technology or the related costs and instead that service (including with respect to agreement that were in existence as of the effective date of the license with CPF) is performed by CPF and its subcontractors and any revenue for such residential construction will no longer generated from sales of products directly to the end customer but instead will be generated from royalties received from CPF based on the gross revenue that CPF receives from sales of products that are based upon our technology.

Depending upon the success of this new business model, we may expand the licensing business model to commercial and industrial construction.

We also are continuing to seek opportunities and potential projects in other target markets, which may develop into licensing opportunities in the future.

In April 2020, we expanded our product offerings and began focusing on the medical projects when we entered into the COVID-19 diagnostic market through the distribution of COVID-19 diagnostic tests .

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

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

In addition, in January 2021, the Company and other third parties formed Airport Testing LLC (“CAT”).

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

In September 2020, we acquired substantially all the assets of Echo, a Texas limited liability company, except for Echo's real estate holdings for which we obtained a right of first refusal.

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

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

This acquisition has allowed us to expand our reach for our Modules and offers us an opportunity to vertically integrate a large portion of our cost of goods sold, as well as increase margins, productivity and efficiency in the areas of design, estimating, manufacturing and delivery.

On February 24, 2021, we announced the execution of our option to acquire Echo's real estate holdings.

R ecent Business Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In January 2021, the Company and other third parties formed Chicago Airport Testing LLC (“CAT”).

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

Additionally, during February 2021, the Company formed SGB Development Corp.

(“SGB”), which was formed for the purpose of real property development utilizing our technologies.

Subsequent to March 31, 2021, we acquired an approximately .50-acre site in Lago Vista, Texas which we plan to build approximately 270,000 square feet of one and two-bedroom condominium units manufactured at our factory in Durant, Oklahoma.

SGB will manage the development of this site.

Results of Operations

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

Nine Months Ended September 30, 2020 and 2019:

For the Nine Months Ended September 30, 2020

For the Nine Months Ended September 30, 2019

Total Revenue

Total Cost of revenue

Total Operating expenses

Total Operating loss

Total Other income (expense)

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

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

Cost of Revenue and Gross Profit

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

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

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

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

Payroll and Related Expenses

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

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

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

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

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

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

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

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

Results of Operations (continued)

Other Income (Expense)

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

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

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

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

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

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

Three Months Ended September 30, 2020 and 2019 :

For the Three Months Ended September 30, 2020

For the Three Months Ended September 30, 2019

Our operations for the three months ended March 31, 2021 and 2020 may not be indicative of our future operations.

Three Months Ended March 31, 2021 and 2020:

For the Three Months Ended

March 31, 2021

For the Three Months Ended

March 31, 2020

Total Revenue

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Total Other income (expense)

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

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

Net profit attributable non-controlling interests

Net loss attributable to common stockholders of SG Blocks, Inc.

During the quarter ended March 31, 2021, we derived revenue from the following three categories of sources:

construction services, engineering services and medical revenue.

The medical revenue source was a new source that commenced operations in the fourth quarter of 2020 and continued with strong revenue related to COVID-19 samples collected from our Clarity Mobile joint venture in the first quarter 2021.

Total revenue for the three months ended March 31, 2021 was $9,187,627 compared to $198,756 for the three months ended March 31, 2020.

This increase of $8,988,871 or approximately 4523% was mainly driven by an increase in revenue of approximately $5,896,000 in medical revenue (lab testing, test kit sales and equipment) from mainly the collection of COVID-19 test samples with additional medical revenue from the opening and subletting of the Chicago Area Testing facility, an increase in revenue of approximately $1,460,000 in special use projects which includes one legacy contract commitment related to the SG Echo acquisition, an increase in revenue of approximately $1,085,000 in government projects, an increase in revenue of approximately of $312,000 in medical related construction projects and a moderate increase in construction revenue related to office and hotel projects for approximately $131,000 and $166,000, respectively, for the three months ended March 31, 2021, as compared to March 31, 2020.

Cost of Revenue and Gross Profit

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

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

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

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

Cost of revenue was $7,979,446 for the three months ended March 31, 2021, compared to $152,775 for the three months ended March 31, 2020.

The increase of $7,826,671 or a increase of approximately 5123%, is primarily related to higher testing volumes which required an increase in procurement of COVID-19 tests and testing supplies and higher procurement and manufacturing costs of modifying containers and wood modular units.

Due to capabilities of Echo, we have now increased our sales of wood modular units to our customer base.

Gross profit was $ 1,208,181 and $ 45,981 for the three months ended March 31, 2021 and 2020, respectively.

Gross profit margin percentage decreased to approximately 13.2% for the three months ended March 31, 2021 compared to approximately 23.1% for the three months ended March 31, 2020.

The decrease in gross profit margin percentage was primarily due to a single legacy contract commitment from the acquisition of SG Echo that incurred a loss of approximately $1.0 million due to escalations in material pricing related to COVID-19 and labor overages.

Payroll and Related Expenses

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

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

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

Results of Operations (continued)

Payroll and related expenses for the three months ended March 31, 2021 were $827,522 compared to $271,808 for the three months ended March 31, 2020.

This increase was primarily caused by an increase in salaries and additional head count to help manage the growth of SG Echo and other recently launched subsidiaries such as Chicago Airport Testing, Clarity Mobile Ventures, and SGB Development Corp.

of approximately $305,000, and an increase of approximately $247,000 in stock-based compensation expense, recognized for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

We recognized $286,186 in stock-based compensation expense related to payroll and related expenses for the three months ended March 31, 2021, compared to $38,764 for March 31, 2020.

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

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

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

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

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

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses) for the three months ended March 31, 2021 were $1,542,116 compared to $523,652 for the three months ended March 31, 2020.

The increase resulted primarily from an increase in rent expense of approximately $46,000 related to COVID-19 cold storage charges and rental expense for the Chicago Airport Testing facility, an increase in information technology expense of approximately $83,000, an increase in insurance expense of approximately $17,500 for additional insurance coverage for Clarity Mobile Venture, an increase in contract labor expense of approximately $184,500 with the majority related to Clarity Mobile Venture call center support and Chicago Airport Testing for the start-up of operations.

The Company had an increase of approximately $382,000 in laboratory medical expenses mainly from the start-up of operations in Wayne County, Michigan, an increase of $31,500 for manager’s oversight fees related to Clarity Mobile Venture, an increase in depreciation expense of $50,000 and increase in marketing expense by approximately $56,000, We recognized no stock-based compensation expense related to legal expenses and marketing expenses for the three months ended March 31, 2021 and 2020.

Other Income (Expense)

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

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

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

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

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

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

Interest income for the three months ended March 31, 2021 was $17,470 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $4,863 of interest income for the three months ended March 31, 2020.

Interest expense for the three months ended March 31, 2021 and 2020 was $ 363 and $2,811, respectively.

Income Tax Provision

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Impact of Coronavirus (COVID-19)

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

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

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

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

To date, we have experienced some delays in projects due to COVID-19 which we expect to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict.

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 ability of the Company's customers and licensees to obtain financing and therefore impact demand for the Company's products.

Order lead times could be extended or delayed and pricing could increase.

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

In addition, the pandemic could result in an economic downturn that could affect the ability of our customers and licensees to obtain financing and therefore impact demand for our products.

Order lead times could be extended or delayed and increases we have experienced in pricing could continue to 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.

While the Company expects to derive revenue from its newly entered into distributorship agreement discussed below, the Company cannot at this time estimate the impact that sales under the agreement will have on its revenue.

Accordingly, we are considering alternative product sourcing in the event that product supply becomes problematic.

We expect this global pandemic to have an impact on the Company's revenue and results of operations, the size and duration of which we are currently unable to predict.

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

Liquidity and Capital Resources

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

As of March 31, 2021 and December 31, 2020, we had an aggregate of $10,540,290 and $13,010,356, respectively, of cash and cash equivalents and short-term investments.

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

In June 2017, we completed a public offering, resulting in net proceeds of approximately $6,800,000 after deducting underwriting discounts and commissions and other expenses.

In July 2017, in connection with a public offering, the underwriters exercised their option to purchase 11,250 additional shares of common stock from us in full at a price to the public of $100.00 per share.

In July 2017, in connection with a public offering, the underwriters exercised their option to purchase 11,250 additional shares of common stock.

As a result of the exercise and closing of the option to purchase additional shares, total net proceeds from the public offering were approximately $7,900,000 after deducting underwriting discounts and commissions and related expenses.

We incurred a total of $1,565,386 in issuance costs in connection with the Public Offering.

In April 2019, we issued 42,388 shares of our common stock at a price of $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, we also sold common stock purchase warrants to such investors to purchase up to an aggregate of 42,388 shares of common stock.

We incurred $379,816 in issuance costs from the offering and issued 4,239 warrants to the underwriters.

In April 2019, we issued 42,388 shares of our common stock at a price of $22.00 per share through a Securities Purchase Agreement with certain institutional investors and accredited investors.

In August 2019, we issued 45,000 shares of our common stock at a price of $17.00 per share pursuant to the terms of an Underwriting Agreement to the public.

We incurred $181,695 in issuance costs from the offering and issued warrants to purchase 2,250 shares of common stock to the underwriter.

In December 2019, we completed the public offering where we issued 857,500 shares of common stock at a public offering price of $3.00 per share resulting in net proceeds of approximately $2,117,948 after deducting underwriting discounts and commissions and other expenses.

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

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

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

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

During the third quarter of 2020, the Note to investor of $200,000 and unpaid accrued interest of $86,263 was converted into 73,665 shares of common stock.

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

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

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

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

We incurred a total of approximately $1,653,859 i n issuance costs in connection with the offering and issued warrants to purchase 300,000 shares of common stock to the underwriter.

Liquidity and Capital Resources (continued)

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

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

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

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

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

We anticipate that we will continue to generate losses from operations until the fourth quarter of 2021.

At March 31, 2021 and December 31, 2020 we had a cash balance and short-term investment of $10,540,290 and $13,010,356, respectively.

As of March 31, 2021, our stockholders’ equity was $18,283,097, compared to $18,437,823 as of December 31, 2020.

Our net loss for the three months ended March 31, 2021 was $1,144,350 and net cash used in operating activities was $2,183,116.

We anticipate our cash balance is sufficient to last at least twelve months from May 20, 2021.

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

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Cash Flow Summary

Nine Months Ended

September 30,

Three Months Ended

Net cash provided by (used in):

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Net increase (decrease) in cash and cash equivalents

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

Operating activities used net cash of $2,183,116 during the three months ended March 31, 2021, and $1,026,812 during the three months ended March 31, 2020.

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

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

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

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

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

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

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

Cash used in operating activities increased by approximately $1,156,000 primarily due to an decrease in working capital of approximately $1,097,000, an increase of approximately $247,000 in stock-based compensation, an increase of approximately $90,000 in depreciation expense, an increase in the overall net loss of approximately $397,000, in the three months ended March 31, 2021 compared to three months ended March 31, 2020.

Investing activities used net cash of $990,388 during the three months ended March 31, 2021, and $400,000 net cash the three months ended March 31, 2020.

Cash used in investing activities increase from the corresponding period of the prior year primarily due to the purchase of property, plant and equipment of approximately, $862,000, purchase of intangible assets of $42,500, and payments on assumed liabilities related to the Echo DCL, LLC acquisition of approximately $86,000.

Financing activities provided net cash of $703,438 during the three months ended March 31, 2021, and $199,878 net cash during the three months ended March 31, 2020.

Cash provided by financing activities increased by $503,560 due to an increase in proceeds from conversion of outstanding warrants to common stock.

We provide services to our construction and engineering customers in three separate phases:

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

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

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

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

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

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

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

As of March 31, 2021, we had 16 projects totaling $22,871,480 under contract, which, if they all proceed to construction, will result in our constructing approximately 230,481 square feet of container and modular space.

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

We expect that all of this revenue will be realized by March 31, 2023.

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

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

The decrease in backlog of approximately $2,246,000 from December 31, 2020 is primarily attributable to one new contract we entered into during the first quarter of 2021 for approximately $1,325,000 and offset by work in progress or completed contracts during the first three months of 2021 for approximately $3,300,000.

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

Off-Balance Sheet Arrangements

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

As of March 31, 2021 and December 31, 2020, we had no material off-balance sheet arrangements to which we are a party.

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

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

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

Accordingly, we have no liabilities recorded for these provisions as of March 31, 2021 .

Critical Accounting Policies and New Accounting Pronouncements

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The derivative was subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Revenue recognition .

We apply recognition of revenue over time, which is similar to the method we applied under previous guidance (i.e., percentage of completion).

We determine, at contract inception, whether we 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.

Revenue recognition – we determine, 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 we expect to be entitled in exchange for those goods or services.

To achieve this core principle, we apply the following five steps in accordance with our revenue policy:

To achieve this core principle, we apply the following five steps in accordance with its revenue policy:

(1) Identify the contract with a customer

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(5) Recognize revenue as performance obligations are satisfied

On certain contracts, we apply recognition of revenue over time, which is similar to the method we 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.

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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.

On October 3, 2019, we entered into an Exclusive License Agreement (“ELA” ) pursuant to which we granted an exclusive license for our technology as outlined in the ELA.

See Note 3 to the accompanying consolidated financial statements for a discussion on the ELA.

Under the ELA, we 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.

We determined that the ELA grants the licensee a right to access our 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 we have the right to payment of royalties.

For product or equipment sales, we apply recognition of revenue when the customer obtains control over such goods, which is at a point in time.

On October 3, 2019, we 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, we will receive royalty payments based upon gross revenues earned by the licensee for commercialized products within the field of design and project management platforms for residential use, including single-family residences and multi-family residences, but excluding military housing.

We have determined that the ELA grants the licensee a right to access our 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 we have the right to payment of royalties.

No revenue has been recognized under the ELA for the three months ended March 31, 2021.

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

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

In addition, we formed Chicago Airport Testing, LLC which collects rental revenue Included in the consideration we expected to be entitled to receive, we estimate its contractual allowances, payer denials and price concessions.

During the three months ending March 31, 2021, we recognized $5,955,963 in revenue related to activities through the JV, which is included in medical revenue on the accompanying consolidated statements of operations .

Critical Accounting Policies (continued)

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In accordance with the accounting guidance on goodwill, we perform our 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 value.

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

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

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

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

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

Our evaluation of goodwill completed during the year ended December 31, 2020, resulted in no impairment loss.

There was no impairment during the three months ended March 31, 2021.

Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology which is being amortized over 20 years, $97,164 of trademarks which is being amortized over 5 years, $47,800 of website fees which is being amortized over 5 years.

Our evaluation of intangible assets for impairment during the year ended December 31, 2020, determined that there were no impairment losses.

There was no impairment during the three months ended March 31, 2021.

New Accounting Pronouncements

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Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than as presented in this Quarterly Report on Form 10-Q, limiting their usefulness as a comparative measure.

Non-GAAP Financial Information (continued)

In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same or similar to some of the adjustments made in our calculations, and our presentation of EBITDA and Adjusted EBITDA should not be construed to mean that our future results will be unaffected by such adjustment.

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The non-GAAP information should be read in conjunction with our consolidated financial statements and related notes.

Non-GAAP Financial Information (continued)

The following is a reconciliation of EBITDA and Adjusted EBITDA to the nearest GAAP measure, net loss:

Three Months Ended

September 30, 2020

Three Months Ended

September 30, 2019

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2019

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Addback interest expense

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EBITDA (non-GAAP)

Addback loss on asset disposal

Addback litigation expense

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis