SG BLOCKS, INC. - FORM 8-K/A - EX-99.2 - November 14, 2011

Attached files

file filename
8-K/A - SG BLOCKS, INC.form8ka08066_11042011.htm
EX-10.6 - SG BLOCKS, INC.ex106to8ka08066_11042011.htm
EX-99.1 - SG BLOCKS, INC.ex991to8ka08066_11042011.htm
Exhibit 99.2
 
SG Blocks, Inc.
INTRODUCTION TO PRO FORMA CONDENSED
COMBINED FINANICAL STATEMENTS
(Unaudited)

The following unaudited pro forma condensed combined financial statements give effect to the proposed merger between SG Blocks, Inc. (“SG Blocks”) and CDSI Holdings Inc. (“CDSI”) and certain other transactions between SG Blocks and CDSI as provided for in the Merger Agreement and Plan of Reorganization Agreement dated July 27, 2011.

On July 27, 2011, SG Blocks and CDSI signed a Merger Agreement and Plan of Reorganization whereby at the closing 100% of the shares of SG Blocks will be cancelled and extinguished and converted into 36,050,764 shares of CDSI. As a result of the transaction, the former owners of SG Blocks will become the controlling stockholders of CDSI. Accordingly, the merger of SG Blocks and CDSI is a reverse merger that will be accounted for as a recapitalization of SG Blocks. Upon completion of the merger, CDSI will change its name to SG Blocks, Inc.  The unaudited pro forma information is presented for illustration purposes only in accordance with the assumptions set forth below and in the notes to the pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet as of September 30, 2011 combines the balance sheets of SG Blocks and CDSI and gives pro forma effect to: (i) the reverse merger between SG Blocks and CDSI in which SG Blocks is deemed to be the acquiring entity for accounting purposes, (ii) 408,750 shares of CDSI common stock issued to Ladenburg, Thalmann & Co., and (iii) certain other transactions completed at the time of the merger as if SG Blocks and CDSI completed such transactions as of September 30, 2011. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2010 and nine months ended September 30, 2011 combine the statement of operations of SG Blocks and CDSI for each of those periods and give pro forma effect to these transactions as if they were completed on January 1, 2010 and January 1, 2011, respectively.
 
 
The unaudited pro forma balance sheet and statements of operations should be read in conjunction with the separate historical financial statements of SG Blocks appearing elsewhere herein, and the historical financial statements of CDSI, as filed with the Securities and Exchange Commission and issued in Form 10-K for the year ended December 31, 2010. These pro forma condensed combined financial statements may not be indicative of what would have occurred if the reverse acquisition had actually occurred on the indicated dates and they should not be relied upon as an indication of future results of operations.

Substance of the transaction

At the closing of the merger, the Company will:

 
o
In connection with the merger the registrant will issue 36,050,764 shares of CDSI common stock with a par value of $0.01 to the shareholders of SG Blocks in exchange for all outstanding shares of SG Blocks common stock.

 
o
In connection with the merger the registrant will issue 408,750 shares of CDSI common stock to Ladenburg Thalmann & Co., Inc., for merger related consulting fees. The value of these shares was based on valuation models developed by the Company.

 
o
Upon consummation of the merger, all outstanding SG Blocks warrants will be cancelled and substituted with warrants of similar tenor to purchase an aggregate 1,145,509 shares of CDSI common stock.

 
o
As a result of the merger, the current holders of common stock of CDSI will own an aggregate of 8% of CDSI common stock on a fully diluted basis, the stockholders and warrant holders of SG Blocks will beneficially own an aggregate of 91% of the common stock of CDSI on a fully diluted bases and Ladenburg Thalmann & Co,, Inc will own an aggregate of 1% of the common stock of CDSI on a fully diluted basis (not including warrants to purchase shares of SG Blocks stock it will receive in the merger as a result of it currently holding warrants to purchase shares of SG Blocks common stock). The accumulated deficit of CDSI will be eliminated to reflect the legal capitalization of the combined entity upon the completion of the merger.
 
 
 
 
 
Proforma Balance Sheet
                                    
September 30, 2011
  
Note:
    
CDSI Holdings, Inc. (1)
    
SG Blocks, Inc.
(2)
    
Proforma Adj. - Debit
    
Proforma Adj. - Credit
    
Proforma As Adjusted
  
(Unaudited)
                                    
                                       
Assets
                                    
                                       
Current assets:
                                    
 
Cash and cash equivalents
         $ 3,072     $ 955,136                 $ 958,208  
 
Short-term investments
           -       39,069                   39,069  
 
Accounts receivable, net
           -       181,769                   181,769  
 
Costs and estimated earnings in excess of billings
       -       -                   -  
 
  on uncompleted contracts
           -       -                   -  
 
Inventory
           -       510,518                   510,518  
 
Prepaid expenses and other current assets
       -       7,778                   7,778  
 
     Total current assets
           3,072       1,694,270       -       -       1,697,342  
                                                 
Equipment, net
                   8,689                       8,689  
                                                 
 
     Totals
         $ 3,072     $ 1,702,959     $ -     $ -     $ 1,706,031  
                                                 
Liabilities and Stockholders' Equity (Deficit)
                                  
                                                 
Current liabilities:
                                              
 
Accounts payable and accrued expenses
     $ 87,699     $ 429,351                     $ 517,050  
 
Accrued compensation and related costs
       -       -                       -  
 
Accrued interest
           10,179       -                       10,179  
 
Related party accrued expenses
       -       -                       -  
 
Short-term notes payable
           -       10,000                       10,000  
 
Related party notes payable
           -       -                       -  
 
Billings in excess of costs and estimated earnings
       -       -                       -  
 
  on uncompleted contracts
           -       -                       -  
 
Deferred revenue
           -       598,494                       598,494  
 
Convertible promissory notes, net of discount of $90,989
       -       -                       -  
 
Derivative conversion option liabilities
       -       -                       -  
 
Warrant liabilities
           -       161,460                       161,460  
 
     Total current liabilities
           97,878       1,199,305       -       -       1,297,183  
                                                 
Revolving credit promissory note from related party
       68,500       -                       68,500  
                                                 
Stockholders' equity (deficit):
                                              
 
Preferred stock
           -       -       -       -       -  
 
Common stock
     3       32,700       1,781       1,781       364,595       397,295  
 
Additional paid-in capital
     3       8,223,444       4,999,600       8,782,264               4,440,780  
 
Accumulated deficit
     3       (8,419,450 )     (4,497,727 )     -       8,419,450       (4,497,727 )
 
     Total stockholders' equity (deficit)
       (163,306 )     503,654       8,784,045       8,784,045       340,348  
                                                   
 
     Totals
           $ 3,072     $ 1,702,959     $ 8,784,045     $ 8,784,045     $ 1,706,031  
                                                   
                                                   
 
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
  
                                                   
(1) Derived from the historical balance sheet of CDSI appearing in its form 10-Q filed on November 10,2011.
  
(2) Derived from the historical balance sheet of SG Blocks appearing elsewhere in this form 8-K.
  
(3) To record effect of reorganization and merger pursuant to the Merger Agreement dated July 27,2011 including:  
 
a. Cancellation and extinguishment of all issued and outstanding SG Blocks common stock
  
 
b. Issuance of 36,050,741 CDSI common stock to the SG Blocks shareholders
  
 
c. Issuance of 408,750 CDSI common stock to Ladenburg Thalmann & Co., Inc.
          
 
 
 
 
 
Proforma Statement of Operations
                                    
Nine Months Ended September 30, 2011
  
Note:
    
CDSI Holdings, Inc. (1)
    
SG Blocks, Inc. (2)
    
Proforma Adj. - Debit
    
Proforma Adj. - Credit
    
Proforma As Adjusted
  
(Unaudited)
                                    
                                     
Revenue:
                                    
SG block sales
         $ -     $ 2,735,629                 $ 2,735,629  
Engineering services
           -       6,740                   6,740  
Project management
           -       79,244                   79,244  
            -       2,821,613       -       -       2,821,613  
                                               
Cost of revenue:
                                              
SG block sales
           -       2,370,930                       2,370,930  
Engineering services
           -       2,111                       2,111  
Project management
           -       44,041                       44,041  
            -       2,417,082       -       -       2,417,082  
                                               
Gross profit
           -       404,531       -       -       404,531  
                                               
Operating expenses:
                                              
Payroll and related expenses
           -       697,305                       697,305  
General and administrative expenses
     3       112,137       567,568               112,137       567,568  
Marketing and business development expense
     4       -       229,632       122,986               352,618  
Pre-project expenses
             -       56,748                       56,748  
     Total
             112,137       1,551,253       122,986       112,137       1,674,239  
                                                 
Operating loss
             (112,137 )     (1,146,722 )     (122,986 )     (112,137 )     (1,269,708 )
                                                 
Other income (expense):
                                                
Interest expense
     3       (6,249 )     (2,520 )     (6,249 )             (2,520 )
Interest income
             -       69                       69  
Change in fair value of derivative liabilities
       -       (49,111 )                     (49,111 )
Cancellation of trade liabiliites and unpaid interest
       -       61,733                       61,733  
     Total
             (6,249 )     10,171       (6,249 )     -       10,171  
                                                 
Net loss
           $ (118,386 )   $ (1,136,551 )   $ (129,235 )   $ (112,137 )   $ (1,259,537 )
                                                 
Net loss per share - basic and diluted:
                                                
Basic and diluted
           $ (0.04 )                           $ (0.03 )
                                                 
Weighted average shares outstanding:
                                  
Basic and diluted
             3,270,000                               38,539,751  
 
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
  
                                                 
(1) Derived from the historical statement of operations of CDSI appearing in its form 10-Q filed on November 10, 2011.
  
(2) Derived from the historical statement of operations of SG Blocks appearing elsewhere in this form 8-K.
  
(3) Reflects elimination of operations of CDSI.
                                  
(4) Reflects a merger expense calculated based on the enterprise value of SG Blocks divided by the shares outstanding immediately after the merger.
  
 
 
 
 
 
 
Proforma Statement of Operations
                          
Year Ended December 31, 2010
  
Note:
    
CDSI Holdings, Inc. (1)
    
SG Blocks, Inc. (2)
    
Proforma Adj. - Debit
    
Proforma Adj. - Credit
    
Proforma As Adjusted
  
(Unaudited)
                                    
                                     
Revenue:
                                    
SG block sales
         $ -     $ 1,190,004                 $ 1,190,004  
Engineering services
           -       181,312                   181,312  
Project management
           -       545,249                   545,249  
            -       1,916,565       -       -       1,916,565  
                                               
Cost of revenue:
                                              
SG block sales
           -       803,453                       803,453  
Engineering services
           -       104,369                       104,369  
Project management
           -       431,337                       431,337  
            -       1,339,159       -       -       1,339,159  
                                               
Gross profit
           -       577,406       -       -       577,406  
                                               
Operating expenses:
                                              
Payroll and related expenses
           -       963,075                       963,075  
  General and administrative expenses
   3       35,520       351,006               35,520       351,006  
  Marketing and business development expense
       161,425                       161,425  
Pre-project expenses
           -       35,758                       35,758  
     Total
           35,520       1,511,264       -       35,520       1,511,264  
                                               
Operating loss
           (35,520 )     (933,858 )     -       (35,520 )     (933,858 )
                                               
Other income (expense):
                                              
Interest expense
     3       (2,510 )     (396,155 )     (2,510 )             (396,155 )
Interest income
     3       1       37       1               37  
  Change in fair value of derivative liabilities
       9,275                       9,275  
  Cancellation of trade liabiliites and unpaid interest
       73,057                       73,057  
Recovery of unclaimed property
     3       2,825       -       2,825               -  
     Total
             316       (313,786 )     316       -       (313,786 )
                                                 
Net loss
           $ (35,204 )   $ (1,247,644 )   $ 316     $ (35,520 )   $ (1,247,644 )
                                                 
Net loss per share - basic and diluted:
                                  
Basic and diluted
           $ (0.01 )                           $ (0.05 )
                                                 
Weighted average shares outstanding:
                                  
Basic and diluted
             3,223,562                               23,497,814  
                                                 
                                                 
 
NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENTS OF OPERATIONS
                       
(1) Derived from the historical statement of operations of CDSI appearing in its form 10-K filed on January 31, 2011.
(2) Derived from the historical statement of operations of SG Blocks appearing elsewhere in this form 8-K.
(3) Reflects elimination of operations of CDSI.
              

SG BLOCKS, INC. Reports