Business context and reporting period
Important identity note: The supplied filing is SG Blocks, Inc.’s Form 10-Q, not a filing under the name Olenox Industries Inc. It covers the quarter and six months ended June 30, 2017; financial statements are unaudited. SG Blocks modifies shipping containers for commercial, industrial and residential construction and provides related engineering and project-management services.
Results are presented as “Successor” for 2017 and “Predecessor” for 2016. Fresh-start accounting following the June 2016 emergence from Chapter 11 created a new reporting entity, so the periods are not fully comparable.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2017 | $1.002 million | $1.606 million |
| Revenue, 2016 | $0.828 million | $1.056 million |
| Gross profit, 2017 | $146,000 | $299,000 |
| Gross margin, 2017 | 14.6% | 18.6% |
| Operating loss, 2017 | $522,000 | $1.143 million |
| Net loss, 2017 | $1.706 million | $2.396 million |
| Net cash used in operations, 2017 | — | $243,000 |
Revenue increased 21% in the quarter and 52% for the six-month period versus the respective 2016 periods, primarily from additional projects in progress. Six-month gross margin was approximately unchanged from 2016 at 18.6%; quarterly gross margin was lower than the prior-year 17.1%. Operating expenses rose to $1.442 million for the half-year, including higher payroll and amortization.
The six-month net loss includes a $1.018 million loss on conversion of convertible debentures. Interest expense was $330,000. Adjusted EBITDA, a non-GAAP measure, was a loss of $640,000 for the half-year and $319,000 for the quarter.
At June 30, cash and cash equivalents were $5.632 million, short-term investment $30,000, current assets $6.335 million and current liabilities $1.883 million. Total liabilities were $1.883 million; convertible debentures were fully repaid or converted, leaving no debt reported at quarter-end. Stockholders’ equity was $11.941 million. The June public offering provided approximately $6.827 million in net proceeds; the company repaid $1.5 million of remaining debenture principal. Operating cash use improved from $833,000 in the first half of 2016.
Material changes and unusual items
- The June offering sold 1.5 million shares at $5.00 per share. In July, underwriters purchased a further 225,000 shares, bringing reported total offering proceeds to approximately $7.9 million net. Offering costs of $715,173 were paid after quarter-end.
- All 1,801,670 preferred shares converted to common stock, and $1.9375 million of debentures converted into 516,667 common shares; the remaining debenture balance was repaid. The conversion generated the $1.018 million reported loss.
- Construction and engineering backlog was $9.732 million across 14 projects at June 30, versus $541,000 at December 31, 2016. Management expected all backlog revenue to be realized by December 31, 2017, but customer decisions and project timing could prevent or delay realization.
- Common shares outstanding were 3,982,238 at June 30 and 4,207,238 as of August 4, 2017. Outstanding options and warrants may cause additional dilution.
Outlook, risks and contingencies
Management said it did not believe additional funding would be needed for operations, and intended to use offering proceeds in part to support growth and market expansion. It also cautioned that plans may not materialize and that additional financing could be required and may not be available on acceptable terms. No formal earnings guidance is provided.
Key risks include the company’s continued operating losses, uncertain conversion of backlog into completed projects and cash, estimates of costs to complete contracts, and concentrated customers and suppliers. Three customers represented 86% of second-quarter 2017 revenue; two vendors represented 81% of quarterly cost of revenue. Receivables were also concentrated. The company disclosed no legal proceedings and no material off-balance-sheet arrangements apart from operating leases; ordinary-course indemnification exposures were described as potentially unlimited, with no liability recorded.
The filing states disclosure controls were effective and reports no material second-quarter change in internal control over financial reporting. The cover page indicates “No” to whether all required Exchange Act reports had been filed during the preceding 12 months. The filing also warns that fresh-start accounting limits comparability and that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the issuer identity: the filing names SG Blocks, Inc., whereas the request identifies Olenox Industries Inc.
- Review subsequent filings for actual backlog conversion, customer project starts, revenue recognition and contract cost revisions.
- Reconcile offering proceeds, offering costs paid after quarter-end, debt repayment and the post-quarter share count.
- Assess ongoing cash burn and whether management’s funding expectations remain supportable; note the filing’s cover-page response on prior reporting compliance.
- Consider customer and supplier concentration, potential dilution from options and warrants, and the limited comparability of predecessor and successor results.