Business context and reporting period
This is SG Blocks, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015—not a filing identified in its text as Olenox Industries Inc. SG Blocks supplies engineered, repurposed shipping containers for construction and provides related engineering and project-management services. SG Brazil was inactive.
Financial results and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $402,039 | $1,034,270 |
| Gross profit; margin | $42,116; 11% | $234,132; 23% |
| Operating loss | $554,595 | $254,408 |
| Net loss | $357,045; $0.01 per share | $518,214; $0.01 per share |
| Operating cash flow | $(305,596) | $(506,968) |
Revenue fell 61%, mainly because a large “green steel” project contributed $675,885 in Q1 2014. Gross profit declined $192,016. Payroll and related expense rose to $311,223 from $240,313; marketing and business-development expense increased to $58,739 from $14,155.
At March 31, 2015, cash was $578,592 (versus $884,188 at year-end); management reported approximately $299,000 cash at May 7. Current assets were $1.54 million and current liabilities $5.22 million, implying negative working capital of approximately $3.68 million. Total liabilities were $5.22 million; stockholders’ deficiency was $3.64 million. Convertible debentures, net of discounts, were $3.30 million, all classified as current at quarter-end. The filing reports $3,995,700 of debentures maturing between October 1, 2015 and April 1, 2016. Interest expense was $188,347.
Net loss includes a $385,891 noncash gain from changes in fair value of financial instruments, compared with an $80,215 expense in Q1 2014. The gain reduced the reported net loss but does not represent operating cash generation. Basic and diluted weighted-average shares were 42,918,927; substantial options, warrants, and convertible debt could dilute future shareholders.
Outlook, risks, and unusual items
- Management said operating cash flows and gross profit would not cover expected costs and growth needs over the next 10–16 months; further external financing is required. No new financing commitments were in place, and the filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- A related-party revolving credit balance of $73,500, bearing 11% interest, was due June 30, 2015; accrued related-party interest was $38,854.
- In April 2015, SG Blocks granted Red Cardinal Holdings a 15-year, worldwide, non-exclusive license for a 10% royalty on actual revenues collected from licensed building sales. Red Cardinal agreed to enter within 90 days into a manufacturing contract of at least $10 million and to pay, assume, or otherwise satisfy the company’s debenture obligations as due. The company may also receive an advance for consulting services. These are forward-looking contractual arrangements, not Q1 revenue; fulfillment and timing are not established by the quarter’s results.
- The 2014 debentures carry an 8% rate, security interests and covenants, and scheduled redemptions. Default provisions include a 30% premium and potentially higher interest. Equity financing may dilute shareholders and trigger anti-dilution provisions.
- Customer concentration was significant: two customers represented approximately 44% and 40% of Q1 2015 revenue; 93% of receivables were due from four customers. A related-party vendor accounted for approximately 57% of cost of revenue.
- Management concluded disclosure controls were not effective at quarter-end. Previously identified deficiencies, together constituting a material weakness, included financial-reporting data and systems, complex accounting and disclosure requirements, and limited segregation of duties. Remediation was incomplete.
- No material litigation was reported. The office lease became month-to-month after March 31. The filing gives no specific revenue or earnings guidance.
Important facts for investors to verify
- Confirm the filing’s correct issuer: SG Blocks, Inc., despite the request metadata naming Olenox Industries Inc.
- Check whether Red Cardinal executed the promised minimum $10 million contract, made any payments or advances, and assumed or satisfied debenture obligations.
- Verify subsequent cash balances, financing raised, and the status of the June 2015 related-party loan and 2015–2016 debenture maturities.
- Assess progress in improving gross margins, winning and delivering projects, and reducing customer and supplier concentration.
- Review dilution exposure, debenture covenants and default terms, and remediation of the disclosed material weakness.