OLENOX INDUSTRIES INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Introduction and Certain Cautionary Statements The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our consolidated financial statements and related notes and schedules included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, intensified competition and operating problems in our operating business projects and their impact on revenues and profit margins or additional factors, and those discussed in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report. In addition, certain information presented below is based on unaudited financial information. Background 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. 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 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. 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. 34 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 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 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. 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. In November 2020, Clarity Mobile Venture, our joint venture partnership, 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 ("LAWA") to provide a full-service modular laboratory and testing facility onsite at the airport . The facility is located across from LAWA Terminal 6 and opened in December 2020. The facility administers PCR tests with results available within three hours for passengers and airline crew, and no later than 24 hours for LAWA airport employees. Additionally, other rapid coronavirus tests including antigen tests have been provided. 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. 35 Table of Contents Results of Operations Our operations for the years ended December 31, 2021 and 2020 may not be indicative of our future operations. Years Ended December 31, 2021 and 2020: For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 Total Revenue Construction services (includes engineering) $ 6,793,690 $ 4,514,123 Medical revenue 31,548,012 4,241,500 Consolidated 38,341,702 8,755,623 Year over year % growth: Construction services 50% % — Medical revenue 644% % — Consolidated 338 % — Net revenue % mix: Construction services 18 % 52 % Medical revenue 82 % 48 % Consolidated 100 % 100 % Operating Income (Loss) Construction services (7,041,313 ) 161,212 Medical 8,405,332 996,956 Development (203,078 ) — Corporate and Support (7,143,791 ) (5,741,001 ) Consolidated (5,982,850 ) (4,582,832 ) Other Income (Expenses) 74,478 74,670 Add: Net profit attributable to common stockholders of SG Blocks, Inc. 4,924,302 184,567 Net loss attributable to common stockholders of SG Blocks, Inc. (10,832,674 ) (4,692,729 ) 36 Revenue 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 . 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. 37 Other Income (Expense) 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 A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carryforwards and, accordingly, no income tax benefit was provided. Impact of Inflation The impact of inflation upon our revenue and income (loss) from continuing operations during each of the past two fiscal years has not been material to its financial position or results of operations for those years because we do not maintain any inventories whose costs are affected by inflation. Impact of Coronavirus (COVID-19) 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 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. Some products or services may become unavailable if the regional or global spread were significant enough to prevent alternative sourcing. 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. 38 Liquidity and Capital Resources 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. 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”). 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. In April 2020, we completed a public offering where we pursuant to which we issued 440,000 shares of common stock at a public offering price of $4.25 per share which resulted in net proceeds of approximately $1,522,339 after deducting underwriting discounts and commissions and other expenses related to the offering. We incurred a total of approximately $347,661 in 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. On May 15, 2020, ThinkEquity exercised in full such option with respect to all 900,000 shares of our common stock. After giving effect to the full exercise of the over-allotment option, the total number of shares of common stock sold by us in the public offering was 6,900,000 shares of common stock and total net proceeds to us, after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $15,596,141. 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. 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 . 39 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 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 $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 December 31, 2021 2020 Net cash provided by (used in): Operating activities $ (662,759 ) $ (2,887,950 ) Investing activities (9,471,257 ) (3,045,723 ) Financing activities 10,148,041 17,318,358 Net increase (decrease) in cash and cash equivalents $ 14,025 $ 11,384,685 40 Table of Contents 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: the design phase, the architectural and engineering phase and the construction phase. Each phase is independent of the other, but builds through a progression of concept through delivery of a completed structure. These phases may be embodied in a single contract or in separate contracts, which is typical of a design build process model. As of 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 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 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. 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. 41 Off-Balance Sheet Arrangements As of December 31, 2021 and 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. These agreements are typically with consultants and certain vendors. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. 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 December 31, 2021 . Critical Accounting Policies and New Accounting Pronouncements Critical Accounting Policies Our financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In connection with the preparation of the financial statements, we are required to make assumptions and estimates and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that we believe to be relevant at the time the consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in “Note 3—Summary of Significant Accounting Policies” of the notes to our consolidated financial statements included elsewhere in this Annual Report. We believe that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results. Share-based payments . We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, including non-employee directors, the fair value of the award is measured on the grant date. For non-employees, the fair value of the award is generally re-measured on interim financial reporting dates and vesting dates until the service period is complete. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. We recognize stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award. Stock-based compensation expense to employees and all directors is reported within payroll and related expenses in the consolidated statements of operations. Stock-based compensation expense to non-employees is reported within marketing and business development expense in the consolidated statements of operations. Convertible instruments . SGB bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract; (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable GAAP measures with changes in fair value reported in earnings as they occur; and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. 42 SGB determined that the embedded conversion options that were included in the previously outstanding convertible debentures should be bifurcated from their host and a portion of the proceeds received upon the issuance of the hybrid contract has been allocated to the fair value of the derivative. 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 – The Company determines, at contract inception, whether it will transfer control of a promised good or service over time or at a point in time, regardless of the length of contract or other factors. The recognition of revenue aligns with the timing of when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps in accordance with its revenue policy: (1) Identify the contract with a customer (2) Identify the performance obligations in the contract (3) Determine the transaction price (4) Allocate the transaction price to performance obligations in the contract (5) Recognize revenue as performance obligations are satisfied On certain contracts, the Company applies recognition of revenue over time, which is similar to the method the Company applied under previous guidance (i.e. percentage of completion). Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress toward complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident. For product or equipment sales, the Company applies recognition of revenue when the customer obtains control over such goods, which is at a point in time. On October 3, 2019, 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. 43 On October 9, 2019, we entered into a Right of First Refusal Agreement (the “ Agreement ”) with CMC Development LLC (“ CMC ”). See Note 3 for a discussion on the Right of First Refusal Agreement. Under the agreement, we have a right of first refusal with respect to being engaged as a designer and builder of any real estate projects for which CMC has secured the rights to develop and in which CMC has a greater than fifty percent (50%) interest in the owner or developer entity and has the right to select the builder for such real estate project (the “ ROFR Rights ”). In exchange for such ROFR Rights, we agreed to issue to CMC 2,500 shares of restricted stock of our common stock, of which 1,250 shares will vest and be issued on September 30, 2020 and the remaining 1,250 shares will vest and be issued on September 30, 2021, unless the Agreement is earlier terminated. In the event that the Agreement is earlier terminated, CMC will still be entitled to receive the entire amount of such restricted stock that has vested as of such earlier termination date, but in no event less than 1,250 shares of such restricted stock. The Agreement also provides for customary indemnification and confidentiality obligations between the parties. The 2,500 shares of restricted stock of our common stock has yet to be issued to CMC. 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 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. 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 . Goodwill represents the excess of reorganization value over the fair value of identified net assets upon emergence from bankruptcy. In accordance with the accounting guidance on goodwill, SGB performs its impairment test of goodwill at the reporting unit level each fiscal year, or more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying value. Our evaluation of goodwill completed during the year ended December 31, 2021, resulted in no impairment loss. Intangible assets – Intangible assets consist of $2,766,000 of proprietary knowledge and technology, which is being amortized over 20 years. In addition, included in intangible assets is $97,164 of trademarks, and $47,800 of website costs that are being amortized over 5 years. We evaluated intangible assets for impairment during the year ended December 31, 2021, and determined that there are no impairment losses. 44 New Accounting Pronouncements See Note 3 to the accompanying consolidated financial statements for all recently adopted and new accounting pronouncements. Non-GAAP Financial Information In addition to our results under GAAP, we also present EBITDA and Adjusted EBITDA for historical periods. EBITDA and Adjusted EBITDA are non-GAAP financial measures and have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We calculate EBITDA as net income (loss) before interest expense, income tax benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before certain non-recurring adjustments such as loss on conversion of convertible debentures, change in fair value of financial instruments and stock compensation expense. EBITDA and Adjusted EBITDA are presented because they are important metrics used by management as one of the means by which it assesses our financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing us and our results of operations. EBITDA and Adjusted EBITDA have certain limitations. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income (loss), or any other measures of financial performance derived in accordance with GAAP. These measures also should not be construed as an inference that our future results will be unaffected by unusual o r non-recurring items for which these non-GAAP measures make adjustments. Additionally, EBITDA and Adjusted EBITDA are not intended to be liquidity measures because of certain limitations, including, but not limited to: ● They do not reflect our cash outlays for capital expenditures; ● They do not reflect changes in, or cash requirements for, working capital; and ● Although depreciation and amortization are non-cash charges, the assets are being depreciated and amortized and may have to be replaced in the future, and these non-GAAP measures do not reflect cash requirements for such replacements. 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 Annual Report, limiting their usefulness as a comparative measure. 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. Management compensates for these limitations by using EBITDA and Adjusted EBITDA as supplemental financial metrics and in conjunction with our results prepared in accordance with GAAP. The non-GAAP information should be read in conjunction with our consolidated financial statements and related notes. 45 The following is a reconciliation of EBITDA and Adjusted EBITDA to the nearest GAAP measure, net loss: For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 Net loss attributable to common stockholders of SG Blocks, Inc. $ (10,832,674 ) $ (4,692,729 ) Addback interest expense 1,254 9,275 Addback interest income (57,266 ) (61,675 ) Addback depreciation and amortization 605,405 239,982 EBITDA (non-GAAP) (10,283,281 ) (4,505,147 ) Addback loss on asset disposal 44,081 1,012 Addback litigation expense 570,934 461,613 Addback stock-based compensation expense 1,647,391 1,261,215 Adjusted EBITDA (non-GAAP) $ (8,020,875 ) $ (2,781,307 ) ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.