What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-04-18 compared with 2021-04-15 · 101 added, 106 removed, 164 unchanged (56% of the section changed)

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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.

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

Under the Loan Agreement, as amended agreed to advance to CPF GP the first installment of the principal amount, equal to $500,000, no later than January 31, 2020 and the second installment of the principal amount, equal to $250,000, no later than April 15, 2020.

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

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

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

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

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

The Company Note and Galvin Note bear interest at five percent (5%) per annum, payable, together with the unpaid principal amount of the promissory notes, on the earlier of the July 31, 2023 maturity date or upon the liquidation, redemption sale or issuance of a dividend upon the LLC interests in CPF MF 2019-1 LLC, a Texas limited liability company of which CPF GP is the general partner;

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

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

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

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

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

On June 15, 2021, we terminated the exclusive license with CPF by mutual agreement and changed our business model back to a project-based construction model.

In March 2020, we began increasing our focus on providing our Modules as health care facilities for deployable medical response solutions.

In May, we entered into a partnership with Grimshaw and Osang for deployment of our D-Tec suite of prefabricated health facilities for on-site immediate COVID-19 testing.

In May, we entered into a partnership with Grimshaw Design for the deployment of our D-Tec suite of prefabricated health facilities for on-site immediate COVID-19 testing.

In September we entered the U.S.

test lab market by forming a joint venture with Clarity Labs, a manufacturer and market leader of rapid diagnostic tests, to launch CLIA-certified laboratories.

Our joint venture with Clarity has allowed us to not only supply our D-Tec suite of prefabricated health facilities but also allows us to provide testing services at such facilities.

We have supplied our building modular coronavirus testing centers and provide testing services for Los Angeles International Airport (LAX), Memorial in Wayne County, Michigan and have been selected as a Trusted Testing Partner (TTP) for Hawaii’s COVID-19 travel testing program.

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

Our joint venture with Clarity has allowed us to not only supply our prefabricated health facilities but also allows us to provide testing services at such facilities.

We have supplied our building modular coronavirus testing centers and provide testing services for Los Angeles International Airport (LAX), Memorial Hospital in Wayne County, Michigan and have been selected as a Trusted Testing Partner (TTP) for Hawaii’s COVID-19 travel testing program.

In September 2020, we acquired substantially all the assets of Echo DCL, LLC ("Echo"), 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.

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

In November 2020, we and Memorial Hospital, of Michigan (“Memorial”), entered into a Professional Services and Capital Support Contract (“PSCSC”) with Wayne County, Michigan which engages the Company as a sub-contractor to render services and support to support Memorial, as the primary contractor, in connection with the fulfillment of statements of work submitted from Wayne County to Memorial to construct portable on-site laboratory facilities for COVID-19 testing.

The program deploys the D-Tec Product Series designed by Grimshaw Architects and developed by SG Block s.

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

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

In November 2020, we and Memorial Hospital (“Memorial”) in Wayne County, Michigan entered into a Professional Services and Capital Support Contract (“PSCSC”) with Wayne County, Michigan which engaged the Company as a sub-contractor to render services and support to support Memorial, as the primary contractor, in connection with the fulfillment of statements of work submitted from Wayne County to Memorial to construct portable on-site laboratory facilities for COVID-19 testing.

The program deploy the D-Tec Product Series designed by Grimshaw Architects and developed by SG Block s.

Two D-Tec 1 Collection Units were deployed throughout Wayne County and provided COVID- 19 test samples to the CLIA lab for clinical testing services.

The COVID- 19 testing program with Memorial ceased operations in November 2021.

Our operations are currently conducted out of two segments (i) construction services (and engineering services) and (ii) medical revenue.

During the year ended December 31, 2021, a significant portion of our revenue, approximately 82% of our revenue, was derived from our medical revenue segment, while approximately 18% of our revenue was derived from construction services.

Results of Operations

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Total Revenue

Total Cost of revenue

Total Operating expenses

Total Operating loss

Total Other income (expense)

Net profit attributable non-controlling interests

Construction services (includes engineering)

Medical revenue

Year over year % growth:

Construction services

Medical revenue

Net revenue % mix:

Construction services

Medical revenue

Operating Income (Loss)

Construction services

Corporate and Support

Other Income (Expenses)

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

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

During the year ended December 31, 2020, we derived revenue from the following three categories of sources:

construction services, engineering services and medical revenue.

The medical revenue segment is a new segment for the year ended December 31, 2020 that commenced when we began sales of COVID tests and includes revenue from our sales of COVID tests, revenue related to COVID-19 samples collected from our Clarity Mobile joint venture and other laboratory testing equipment sold.

During the year ended December 31, 2021, we derived revenue substantially all of our revenue from the following two segments:

construction services and medical revenue.

Total revenue for the year ended December 31, 2021 was $ 38,341,702 compared to $8,755,623 for the year ended December 31, 2020 .

This increase of $5,770,788 or 193% was primarily due to our growth in medical related projects of approximately $5,020,000 which included an increase in medical revenue of $4,241,500 from the collection of COVID-19 tests samples, the sale of COVID-19 test kits, and an increase in construction sales of $778,500 from sales of construction of laboratory and collection units.

Revenue from construction services increased by a total $1,295,936 which included the increase of $778,500 discussed in the previous sentence for medical related projects and revenue increases in government projects of approximately of $750,000, special use projects of approximately $1,410,000, hospitality project of approximately $485,000, and another project of approximately $300,000.

We had a decrease of approximately ($2,260,000) related to our retail and office customer types.

Cost of Revenue and Gross Profit

Cost of revenue was $6,535,444 for the year ended December 31, 2020, compared to $2,307,488 for the year ended December 31, 2019.

The increase of $4,227,956 or 183%, is primarily related to higher procurement of COVID-19 testing supplies and medical equipment surrounding our medical customer 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.

Gross profit was $ 2,220,179 and $ 677,347 for the years ended December 31, 2020 and 2019, respectively.

Gross profit percentage increased to 25% for the year ended December 31, 2020 compared to 23% for the year ended December 31, 2019, primarily due to higher margins on revenue derived from our lab testing and other medical related construction contracts.

We also had a single contract in the amount of $300,000 with no estimated costs in 2020.

Payroll and Related Expenses

Payroll and related expenses for the year ended December 31, 2020 were $2,992,207 compared to $2,392,587 for the year ended December 31, 2019.

This increase was primarily caused by an increase of approximately $488,000 in stock-based compensation expense and increase in non-chargeable production salaries of approximately of $102,000 during the year ended December 31, 2020 compared to the year ended December 31, 2019.

We recognized $1,204,095 in stock-based compensation expense related to payroll and related expenses for the year ended December 31, 2020, compared to $ 715,904 for December 31, 2019.

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

Other operating expenses (general and administrative expenses, marketing and business development expenses, pre-project expenses and goodwill impairment) for the year ended December 31, 2020 were $3,810,804 compared to $4,988,722 for the year ended December 31, 2019.

The decrease was primarily due to no impairment loss recognized in 2020 compared to an impairment loss of approximately $2,938,000 in 2019, a decrease in marketing and business development costs of approximately $10,000, offset by an increase in pre-project expenses of approximately $109,000, and an increase in general and administrative expenses of $1,661,573 that included an increase in rent expenses of approximately $140,000, an increase of approximately $41,000 in depreciation expense, an increase of approximately $504,000 in legal fees, an increase of approximately $78,000 in insurance fees, an increase of approximately $96,000 in building and shop supplies, an increase in information technology expenses of approximately $52,000 and an increase of approximately $519,000 in consulting and advisory services.

We recognized $57,120 in stock-based compensation expense related to legal expenses for the year ended December 31, 2020.

We recognized $13,500 in stock-based compensation expense related to marketing expenses for the year ended December 31, 2019.

Revenue increased 338% in 2021, compared to the prior year.

Medical revenue increased 644% in 2021 compared to the prior year.

The revenue growth primarily reflects a full year of COVID-19 testing revenue in 2021 versus 2020 which represents testing revenue for the fourth quarter of 2020.

The overall volume of testing samples collected at LAX airport increased significantly from 2020 due to us being on-site at LAX airport for the entire year of 2021.

The majority of the medical revenue came from operations of our Clarity Mobile joint venture.

Construction services revenue increased 50% in 2021 compared to the prior year.

The revenue growth primarily is due to the acquisition of Echo DCL, LLC in September 2020.

The revenue growth reflects increased modular revenue from SG Echo's manufacturing facility.

We manufactured several smaller prototype modules in 2021 in order to gain larger unit orders from our existing customer base.

Operating Income (Loss)

Operating Loss was $5,982,850 for the year ended December 31, 2021, compared to $4,582,832 for the year ended December 31, 2020, representing an increase of $1,400,018 or 31%.

in 2021 compared to the prior year.

Construction services operating loss in 2021 was $7,041,313 as compared to the prior year's operating income of $161,213, primarily due to higher procurement and manufacturing costs of modifying containers and wood modular units.

The costs of materials such as lumber, plumbing, roofing, and other supplies to modify and build these units were increased due in part to COVID-19 supply chain issues.

We purchased Echo in 2020 and assumed their current projects that had lower gross margins due to the increase in materials prices.

In addition, we incurred higher than expected material and labor costs on several prototype modules projects in 2021 in order to win future revenue orders.

We do not anticipate the same number of prototype projects in 2022.

We expect construction operating loss to continue to be negatively impacted through at least Q1 2022 by COVID-19 related costs and we have completed in 2021 all but one of the assumed contracts from the purchase of Echo.

Medical revenue operating income in 2021 was $8,405,332, as compared to the prior year's operating income of $996,956, primarily due to increased testing samples being collected at our COVID-19 laboratory at LAX airport and the selection of higher priced COVID-19 tests available for our customers seeking a rapid COVID-19 test result, partially offset by increased labor costs and lower than anticipated testing volume with our COVID-19 testing program with Memorial Healthcare and Wayne County, Michigan.

We have ceased operations with Memorial Healthcare in Q4 2021.

Development operating loss in 2021 is related to operating expenses incurred for certain development projects that were started in 2021 and currently being developed for future use.

No revenue has been generated by development in 2021 to offset these operating expenses.

Corporate and support operating loss increased in 2021, as compared to the prior year, and such increase is primarily due to increases overhead costs in public expenses related to SEC compliance and legal costs, increase payroll due to additional head count and stock compensation in order to retain key employees, increases in IT support and increase in insurance expenses to support the various operations of the Company.

Other Income (Expense)

Interest expense for the year en ded December 31, 2020 was $ 9,275 mainly related to a 9% secured note in the principal amount of $200,000 issued on February 4, 2020 to an accredited investor .

For the year ended December 31, 2019, we recognized $178,995 in interest expense related to the RedDiamond Partners LLC Securities Purchase Agreement that was executed in November 2019 and repaid in full in December 2019.

Interest income for the year ended December 31, 2020 was $61,675 mainly derived from bank interest and interest associated with an outstanding note receivable and there was no interest income for the year ended December 31, 2019.

For the year ended December 31, 2020, we recognized $23,282 in other income compared to $14,506 during the year ended December 31, 2019.

For the year ended December 31, 2020, there was a loss on asset disposal of $1,012 compared to $ 52,039 for a loss from equity affiliates during the year ended December 31, 2019.

Interest income for the year ended December 31, 2021 was $57,266 mainly derived from bank interest and interest associated with an outstanding note receivable.

There was $61,675 of interest income for the December 31, 2020.

Other income for the year ended December 31, 2021 and 2020 was $62,602 and $23,282, respectively.

Interest expense for the year ended December 31, 2021 and 2020 was $1,254 and $9,275, respectively.

The interest expense for 2020 w as mainly related to the Securities Purchase Agreement entered into on February 4, 2020 with an accredited investor.

Loss on asset disposal for the year ended December 31, 2021 and 2020 was $44,081 and $1,012, 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 2020, we have 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.

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.

With the continuing global spread of the novel coronavirus ("COVID-19") pandemic during 2021, 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 variants 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, in particular supply chain issues, which we expect to continue and to continue 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 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.

In addition, the continued 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.

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As of December 31, 2021 and December 31, 2020, we had an aggregate of $13,024,381 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.

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 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 (the “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 the Debenture in the aggregate principal amount of $480,770 (representing an original issue discount of 22%), which Debenture was secured by a security interest in all of our existing and future assets, subject to existing security interests and exceptions.

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

The Debenture was repaid in full out of the proceeds of our December 2019 public offering.

T o date, we have financed our operations from revenue generated from operations and sales of our equity and to a lesser extent debt financing.

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

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We 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 underwriter.

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

At December 31, 2020, we had a cash balance and short-term investment of $13,010,356.

In October 2021, we completed a registered direct offering and concurrent private offering pursuant to which we sold an aggregate of 975,000 shares of common stock and pre-funded warrants to purchase up to 2,189,384 shares of Common Stock and warrants to purchase 1,898,630 shares of Common Stock which resulted in net proceeds of approximately $ 10,488,000 after deducting underwriting commission and other expenses related to the offering .

At December 31, 2021 and December 31, 2020 , we had a cash balance and short-term investments of $13,024,381 and $13,010,356.

As of December 31, 2021, our stockholders’ equity was 20,352,054 compared to $18,253,256 as of December 31, 2020.

Our net loss for the years ended December 31, 2021 and 2020 was $5,908,372 and $4,508,162, respectively.

This decrease was primarily due to an increase in revenue and a decrease in operating expenses of $578,348, an increase of other income of $70,451 and a decrease of $169,720 in interest expenses in 2020.

This increase was primarily due to an increase in gross profit of approximately $108,000 offset by an increase in operating expenses of approximately $1,508,000 in 2021.

Net cash used in operating activities was $662,759 and $2,887,950 for the years ended December 31, 2021 and 2020, respectively.

The increase resulted mainly from an increase of approximately $45,000 in working capital, an increase of approximately $531,000 in non-cash stock compensation expense, a decrease of non-cash goodwill impairment loss of approximately $2,938,00 that was recognized in 2019, offset by a decrease in the overall net loss of approximately $2,410,000 in the year ended December 31, 2020 compared to year ended December 31, 2019.

The increase resulted mainly from an increase of approximately $2,678,356 in working capital, an increase of approximately $386,000 in non-cash stock compensation expense, an increase of approximately $348,000 in depreciation, an increase in loss on asset disposal of approximately $43,000, an increase in bad debt expense of approximately $157,000 offset by an increase in the overall net loss of approximately $1,400,000 in the year ended December 31, 2021 compared to year ended December 31, 2020.

We anticipate our cash balance is sufficient to last at least twelve months from April 15, 2022.

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.

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.

Cash Flow Summary

For The Year Ended

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash and cash equivalents

Operating activities used net cash of $662,759 during the Year ended December 31, 2021, and $2,887,950 during the Year ended December 30, 2020.

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

Cash used in operating activities decreased by approximately $2,225,000 primarily due to an decrease in working capital of approximately $2,675,000 due in part to increases in accrued losses from the legacy SG Echo contracts we assumed and increases in accounts payable with the additions of operations of new entities, SG DevCorp, Chicago Airport Testing, and SG Echo, from the corresponding period of the prior year.

In addition, we had an increase of approximately $386,000 in stock-based compensation, an increase of approximately $348,000 in depreciation expense, an increase of approximately $157,000 in bad debt expense and an increase in the overall net loss of approximately $1,400,200, during the Year ended December 31, 2021 compared to the Year ended December 31, 2020.

Investing activities used net cash of $9,471,257 during the Year ended December 31, 2021, and $3,045,723 during the Year ended December 30, 2020.

Cash used in investing activities increased from the corresponding period of the prior year primarily due to the purchase of property, plant and equipment of approximately $3,250,000 which includes the land purchase for the Lago Vista - Austin project, purchase of intangible assets of $42,500, an investments in two SG DevCorp entities totaling approximately $3,600,000 and we received proceeds from the sale of equipment for $225,000.

Financing activities provided net cash of $10,148,041 during the year ended December 31, 2021, and provided net cash of $17,318,358 during the Year ended December 31, 2020.

Cash provided by financing activities decreased by approximately $7,170,000 due to a decrease in proceeds from public stock offerings and proceeds from long-term note payable in the year ended 31, 2021.

C ash used by financing activities for the year ended December 31, 2021 increased by approximately $3,745,000 as compared to the year ended December 31, 2020 due to distributions paid to our non-controlling interest partner , offset by an increase of approximately $707,000 in proceeds from conversion of outstanding warrants to common stock and proceeds from short-term note payable of $2,000,000.

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

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As of December 31, 2021, we had 11 projects tota ling $3,217,909 under contract, which , if they all proceed to construction, will result in us constructing approximately 101,392 square feet of modular space.

Of these contracts, all twenty one (21) 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.

Of these contracts, all eleven (11) projects combine all three phases or parts thereof and including construction.

We expect that all of this revenue will be realized by December 31, 2022.

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

The increase in backlog at December 31, 2020 from the prior year is primarily attributable to two contracts during the third quarter of 2020 in the amount of approximately $4 million and approximately $2.95 million and three contracts during the fourth quarter of 2020 in the amount of approximately $2.7 million, $0.80 million and $.70 million offset by work in progress or completed contracts for the year ended 2020 for approximately $6,300,000.

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

The decrease in backlog at December 31, 2021 is primarily attributable to one new contract we entered into during the first quarter of 2021 for approximately $1,325,000, one new contract in the third quarter of 2021 for approximately $857,000 and one partial contract cancellation of approximately ($1,300,000), one new contract we entered into during the fourth quarter of 2021 for approximately $780,000 and one contract cancellation of approximately ($16,920,000) offset by work in progress or completed contracts during the year ended 2021 for approximately $6,793,000.

We expect that all of this revenue will be realized by December 31, 2022.

Backlog does not include COVID tests or testing services provided through our joint venture, Clarity Mobile Venture.

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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.

Prior to entering into the ELA, we were subject to an agreement to construct and develop a certain property (“Original Agreement”), which now is subject to the ELA.

Because of this, we are no longer obliged to perform under the Original Agreement.

Upon entering the ELA, we had an outstanding accounts receivable balance of $ 306,143 which was forfeited and we recognized this amount as deferred contract costs.

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

We incurred total deferred contract costs of $ 203,926 .

We considered this amount an incremental cost of obtaining that ELA, because we expect to recover these costs through future royalty payments.

We plan to amortize the asset over sixty months, which is the initial term of the ELA because the asset relates to the services transferred to the customer during the contract term.

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.

The ELA is described below.

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

We have determined that the ELA granted 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.

On June 15, 2021 we terminated the Exclusive License Agreement with CPF that we had entered into on October 3, 2019.

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

On October 9, 2019, we entered into a Right of First Refusal Agreement (the “ Agreement ”) with CMC Development LLC (“ CMC ”).

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The Agreement also provides that CMC has engaged us 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 ELA.

In May 2020, we 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.

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, we recognized $250,000 in revenue related to such products, which is included in medical revenue on the accompanying consolidated statements of operations.

On April 14, 2021, we filed suit against Osang for breach of contract and fraud seeking damages in the amount of $12 to $15 million in U.S.

District Court in the Eastern District of New York (CV 21-1990).

Legal Proceedings.

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

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

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

We reported this as a cancellation within our backlog footnote, see Note 13 on this discussion.

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

We 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 been rendered, which is at a point in time.

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

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

In addition, we formed Chicago Airport Testing, LLC which collects rental revenue.

During the year ending December 31, 2021, we recognized approximately $31,400,000 in revenue related to activities through the two JV's, which is included in medical revenue on the accompanying consolidated statements of operations.

We acquired a 10% non-dilutable equity interest for JDI-Cumberland Inlet, LLC and acquired a 50% membership interest in Norman Berry II Owner LLC in the second quarter of 2021.

We have determined we are not the primary beneficiary and thus will not consolidate the activities on the consolidated financial statements.

We will use the equity method to report the activities as an investment in on our consolidated financial statements.

Goodwill represents the excess of reorganization value over the fair value of identified net assets upon emergence from bankruptcy.

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EBITDA (non-GAAP)

Addback goodwill impairment

Addback loss on asset disposal

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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-K

Item 7. Management’s Discussion and Analysis