Business context and reporting period
The supplied filing is SG Blocks, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not an Olenox Industries Inc. filing. Confirm the issuer before relying on this summary. SG Blocks makes modular and container-based buildings, and also reported medical testing and test-kit revenue. Its results include SG Echo, acquired in 2020, and consolidated COVID-19 ventures that were not included in the 2020 comparison.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $11.85 million | $21.04 million |
| Gross profit / margin | $2.84 million / 24% | $4.05 million / 19% |
| Operating income (loss) | $75,933 | $(1.09) million |
| Consolidated net income (loss) | $150,425 | $(993,925) |
| Net loss attributable to SG Blocks common stockholders | $(1.54) million | $(3.58) million |
| Operating cash flow | Not separately presented for the quarter | $(1.31) million |
| Cash and cash equivalents at June 30 | $2.32 million |
For the six-month period, revenue was 2,442% higher than in 2020, largely from medical activities; medical revenue was $15.74 million, or 75% of total revenue. Gross margin fell from approximately 51% to 19%. Management attributed the decline mainly to a $300,000 prior-year construction fee with no associated cost and approximately $2.4 million of losses on legacy Echo contracts amid material-cost increases and labor overruns. Second-quarter revenue rose from $629,000 to $11.85 million, while gross margin fell from approximately 60% to 24%.
At June 30, total assets were $25.46 million, current assets $9.13 million, current liabilities $7.57 million, total liabilities $8.62 million, and stockholders’ equity $16.84 million. Cash declined from $13.01 million at December 31, 2020. The filing reports lease liabilities of approximately $1.48 million; it reports no conventional notes payable outstanding at June 30. Investing cash outflow was $8.24 million, including property and equipment purchases and $3.35 million of investments and advances to equity affiliates. Financing cash outflow was $1.14 million, including a $1.84 million distribution to non-controlling interests, partly offset by $707,000 from warrant exercises.
Material changes, outlook, and risks
- In June, SG Blocks terminated its exclusive residential technology license with CPF and resumed a project-based residential construction model. The settlement included an assignment of CPF’s conditional right to a $1.25 million redemption distribution; the company said it did not expect further royalties under the terminated license.
- Construction backlog was $21.04 million at June 30, down from $25.12 million at December 31, 2020. Management expected it to convert to revenue by June 30, 2023, but noted projects may be cancelled, delayed, or changed and backlog does not assure revenue or profit.
- Management anticipated operating losses through the fourth quarter of 2021 and said cash was expected to last at least 12 months from August 13, 2021. The filing also says the company has incurred losses and negative operating cash flows, has no additional funding secured, and may need financing or changes to its business plan. The risk factors state that these circumstances raise substantial doubt about the company’s ability to continue as a going concern.
- COVID-19-related supply-chain disruptions, labor shortages, project delays, and higher material costs remained significant risks. Management also cited customer concentration: one customer accounted for approximately 71% of six-month revenue; three vendors accounted for 48% of six-month cost of revenue.
- Subsequent to quarter-end, a subsidiary obtained a $2.0 million, one-year real-estate-secured loan at 12% interest, with net proceeds of approximately $1.96 million, for development projects.
- Disclosure controls and procedures were deemed ineffective. Management identified a material weakness related to timely closing of accounting records and accounting for complex or new transactions; remediation efforts were underway, with no completion date provided.
- Litigation includes the HOLA project dispute and other claims for which outcomes or loss ranges were not estimable. The filing reported a settlement in principle of a former executive’s action, not yet finalized as of the filing, and a $67,126 settlement payment to resolve EDI’s cross-claims while SG Blocks continued its own claim.
Important facts for investors to verify
- Confirm that SG Blocks, Inc. is the intended issuer; the request names Olenox Industries Inc.
- Assess the sustainability and profitability of medical revenue, including its dependence on COVID-19 testing and a limited customer base.
- Review cash burn, access to financing, and the assumptions behind management’s liquidity and going-concern statements.
- Track backlog conversion, project cancellations, Echo contract costs, and expected margins on development projects.
- Review the terms and repayment capacity for the subsequent 12% loan, the conditional $1.25 million redemption distribution, and material litigation developments.
- Monitor remediation of the disclosed material weakness and the potential dilution from outstanding options, restricted stock units, and warrants.