SG Blocks, Inc. — FY2013 Form 10-K Summary
Entity note: Request metadata names OLENOX INDUSTRIES INC., but the supplied filing is for SG Blocks, Inc. The filing covers the fiscal year ended December 31, 2013; it is not a standalone fourth-quarter report. Figures below are in U.S. dollars.
Business context and reporting period
SG Blocks converts and modifies cargo shipping containers for commercial, industrial, and residential construction, and provides engineering and project-management services. Its Brazil subsidiary was inactive at year-end. The company relies on subcontractors and suppliers, including stockholder ConGlobal Industries, under an exclusive supply and collaboration agreement that was being renegotiated.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $5.733 million | $2.451 million |
| Gross profit / margin | $584,000 / 10% | $453,000 / 19% |
| Operating loss | $(1.859) million | $(1.940) million |
| Net loss | $(2.163) million | $(1.766) million |
| Net loss per share | $(0.05) | $(0.04) |
| Cash used in operations | $(1.076) million | $(1.269) million |
| Cash at year-end | $594,000 | $868,000 |
Revenue grew 134%, led by container (“green steel”) sales and project management. Gross margin fell to 10% from 19%, principally due to $197,240 of losses on five jobs for one customer. Interest expense rose to $689,000 from $8,000, reflecting convertible-debt interest, debt-discount accretion, and debt-issuance-cost amortization. A $359,000 fair-value gain on financial instruments partly offset expenses.
At December 31, 2013, current assets were $930,000 against current liabilities of $3.087 million (current ratio approximately 0.30); total liabilities were $3.087 million and stockholders’ deficiency was $2.089 million. Convertible debentures, net of discounts, were $1.803 million and classified as current. The company reported an accumulated deficit of $9.200 million. No income-tax benefit was recorded because deferred tax assets were fully offset by a valuation allowance.
Material changes and unusual items
- Revenue increased by $3.282 million year over year, but gross profit rose only $131,000 and gross margin declined by about 9 percentage points.
- Project-management revenue rose to $2.428 million from $326,000; container sales rose to $3.196 million from $1.528 million; engineering revenue fell to $109,000 from $597,000.
- Revenue was concentrated: two customers accounted for approximately 57% of 2013 revenue; two customers accounted for 87% of year-end receivables.
- ConGlobal supplied 31% of 2013 cost of revenue, and related-party charges for its services were $1.595 million.
- Construction backlog for signed engineering and project-management contracts fell to $50,000 at year-end from $1.406 million a year earlier.
- After year-end, April 2014 financing raised $1.825 million in subscription proceeds through new senior convertible debentures, alongside an exchange of existing debt. The new debentures carry 8% interest, a $0.25 conversion price, and an April 2016 final maturity; related warrants and anti-dilution adjustments could materially dilute shareholders. The filing also describes scheduled redemptions, security interests in company and subsidiary assets, and a subsidiary guarantee.
Outlook, risks, and controls
Management said expected gross profit and operating cash flows would not cover anticipated costs and estimated that growth and public-company funding needs would consume available cash over the next 10 to 16 months. The company stated that additional external funding was necessary; no assurance was given that it could be obtained on acceptable terms. The auditor’s report and management both cited substantial doubt about the company’s ability to continue as a going concern. Management provided no specific revenue or earnings guidance.
Key risks include ongoing losses and financing dependence; thin gross margins and job-cost overruns; customer, supplier, and related-party concentration; reliance on ConGlobal; construction-cycle, financing, subcontractor, material, weather, and regulatory risks; and potential dilution from convertible debt, warrants, and options. Disclosure controls and internal control over financial reporting were deemed ineffective at year-end, with material weaknesses involving reporting data, complex accounting and disclosure requirements, and limited segregation of duties. The auditor did not attest to internal-control effectiveness. The filing reported no legal proceedings and no material off-balance-sheet arrangements other than operating leases.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied 10-K is SG Blocks, Inc., not OLENOX INDUSTRIES INC.
- Review the audited financial statements and subsequent-event notes, especially the going-concern qualification, April 2014 financing terms, redemption schedule, and collateral provisions.
- Assess whether backlog, new orders, customer collections, and margins improved after year-end, given the low reported backlog and customer concentration.
- Reconcile all potentially dilutive securities and anti-dilution terms against current shares outstanding; the filing reports substantial outstanding options, warrants, and convertible debt.
- Check whether ConGlobal’s agreement was renewed or renegotiated and whether management remediated the disclosed control weaknesses.