SCHEDULE 14C and SCHEDULE 14F-1
(Rule 14c-101 and Rule 14f-1)
INFORMATION REQUIRED IN INFORMATION STATEMENT

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934

Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934
And Rule 14f-1 Thereunder

(Amendment No. 1)

Check the appropriate box:

x  Preliminary information statement		o Confidential, for use of the Commission only (as permitted by Rule 14c-5(d)(2))
o  Definitive information statement

CDSI HOLDINGS INC.

(Name of Registrant as Specified in Its Charter)

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CDSI HOLDINGS INC.
100 S.E. Second Street
Miami, Florida 33131
(305) 579-8000

 

INFORMATION STATEMENT PURSUANT TO SECTION 14C AND SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14C-1 AND RULE 14F-1 THEREUNDER

September __, 2011

 

No vote or other action by our stockholders is required in response to this information statement. We are not asking you for a proxy and you are requested not to send us a proxy.

This information statement is being furnished to holders of record of the common stock of CDSI Holdings Inc., a Delaware corporation (the “Company”), at the close of business on July 29, 2011 in accordance with the requirements of Sections 14(c) and 14(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 14c-1 and 14f-1 promulgated under the Exchange Act. This also notifies the Company’s stockholders that on or about July 27, 2011, the Company received a written consent in lieu of a meeting of stockholders from the holders of a majority of the Company’s common stock for the following:

The Change of Control, Charter Amendments and Stock Plan are further described under the heading “Description of Stockholder Matters” below.

As of July 29, 2011, the Company had issued and outstanding 3,270,000 shares of common stock, the Company’s only class of securities that would be entitled to vote for directors at a stockholders’ meeting if one were to be held. Each share of common stock is entitled to one vote.

Please read this information statement carefully. It describes the Change of Control, Charter Amendments and Stock Plan in detail and contains certain biographical and other information concerning the Company’s current and proposed executive officers and directors.

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SUMMARY OF THE MATERIAL TERMS OF THE TRANSACTIONS

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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of common stock beneficially owned as of July 29, 2011 by (i) those persons or groups known to beneficially own more than 5% of the Company’s common stock, (ii) each current director and executive officer of the Company and (iii) all executive officers and directors as a group. The information presented does not reflect the ownership interests of such individuals as a result of the merger transaction described above.

The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act. Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares. Except as otherwise indicated in the table below, the business address of each individual or entity is 100 S.E. Second Street, Miami, Florida 33131.

Name of Beneficial Owner		Number of Shares				Percent of Class
Vector Group Ltd.(1)			1,490,000				45.6	%
T. Baulch(2)			200,583				6.1	%
Glenn L. Halpryn(3)			150,000				4.6	%
J. Bryant Kirkland III			—				—
Richard J. Lampen			—				—
Robert Lundgren(4)			—				—
All executive officers and directors as a group (4 persons)			150,000				4.6	%

Security Ownership of Proposed Board Members

The following table sets forth the number of shares of common stock owned by each person who is expected to serve as an officer and/or director of the Company following the Change of Control. For purposes of presentation, the information relating to the ownership interests of such individuals is provided after giving effect to the merger transaction described above (and as such, is based on 39,729,491 shares being issued and outstanding).

Name of Beneficial Owner		Number of Shares				Percent of Class
Paul Galvin(1)(2)			4,571,480				11.5	%
Joseph Tacopina(1)(2)			4,571,480				11.5	%
Stevan Armstrong(1)(3)			3,327,265				8.4	%
J. Scott Magrane(1)(4)			381,137				1.0	%
Christopher Melton(1)(5)			194,909				*
J. Bryant Kirkland III(6)(7)			—				—
Richard J. Lampen(6)(7)			1,453,333				3.7	%
Brian Wasserman(1)			—				—
Jennifer Strumingher(1)(5)			—				—
All executive officers and directors as a group (9 persons)			9,928,124				25.0	%

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EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following sets forth information regarding (i) the Company’s current executive officers and directors and (ii) the Company’s executive officers and directors following the Change of Control. Except with respect to the Merger Agreement, there is no agreement or understanding between the Company and each current or proposed director or executive officer pursuant to which he was selected as an officer or director.

Name		Age		Current Position		Position following Change of Control
Richard J. Lampen		57		President, Chief Executive Officer and Director		Director
J. Bryant Kirkland III		45		Vice President, Chief Financial Officer, Secretary, Treasurer and Director		Director
Robert M. Lundgren		52		Director		None
Glenn L. Halpryn		50		Director		None
Paul Galvin		48		None		Chief Executive Officer and Director
Stevan Armstrong		63		None		President, Chief Operating Officer and Director
Joseph Tacopina		45		None		Director
J. Scott Magrane		64		None		Director
Christopher Melton		39		None		Director
Brian Wasserman		45		None		Chief Financial Officer
Jennifer Strumingher		36		None		Chief Administrative Officer

Richard J. Lampen has served as President and Chief Executive Officer of the Company since November 1998 and as a director since January 1997. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, Mr. Lampen will resign from his positions as an officer of the Company but will remain a director of the Company. Mr. Lampen has also served as Executive Vice President of Vector (NYSE:VGR) since July 1996. Mr. Lampen has also served as President and Chief Executive Officer of Ladenburg Thalmann Financial Services Inc. (NYSE AMEX:LTS), an entity in which Vector owns an approximate 8% equity interest, since September 2006. Since October 2008, Mr. Lampen has served as President and Chief Executive Officer of Castle Brands Inc. (NYSE AMEX:ROX), a publicly traded developer and importer of premium branded spirits in which Vector held an approximate 10.7% equity interest at July 27, 2011. From October 1995 to December 2005, Mr. Lampen served as the Executive Vice President and General Counsel of New Valley Corporation, where he also served as a director. From May 1992 to September 1995, Mr. Lampen was a partner at Steel Hector & Davis, a law firm located in Miami, Florida. From January 1991 to April 1992, Mr. Lampen was a Managing Director at Salomon Brothers Inc, an investment bank, and was an employee at Salomon Brothers Inc from 1986 to April 1992. Mr. Lampen is also a director of Ladenburg Thalmann Financial Services and Castle Brands Inc. Mr. Lampen received a Bachelor of Arts degree from The Johns Hopkins University in 1975 and received a Juris Doctorate degree in 1978 from Columbia Law School. Mr. Lampen’s pertinent experience, qualifications, attributes and skills include managerial experience and the knowledge and experience he has attained through his service as a director of publicly-traded corporations.

J. Bryant Kirkland III has served as the Company’s Vice President, Chief Financial Officer, Secretary and Treasurer since January 1998 and as a director since November 1998. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, Mr. Kirkland will resign from his positions as an officer of the Company but will remain a director of the Company. Mr. Kirkland has served as a Vice President of Vector since 2001 and became Vice President, Treasurer and Chief Financial Officer of Vector on April 1, 2006. From November 1994 to December 2005, Mr. Kirkland served in various financial capacities with New Valley Corporation, the predecessor to New Valley LLC. Mr. Kirkland served as Vice President, Treasurer and Chief Financial Officer from January 1998 to December 2005. Mr. Kirkland also served as Chief Financial Officer of Ladenburg Thalmann Financial Services Inc. from June 2001 to October 2002. Mr. Kirkland received a Bachelor of Science in Business Administration from the University of North Carolina in 1987 and a Masters of Business Administration from Barry University in December 2006. Mr. Kirkland’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise.

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Robert M. Lundgren has served as a director since January 1997. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, Mr. Lundgren will resign from his positions as a director of the Company. He also served as the Company’s Vice President, Chief Financial Officer, Secretary and Treasurer from January 1997 through January 14, 1998. Mr. Lundgren has served as Chief Financial Officer of Westminster Christian School in Palmetto Bay, Florida since January 2010. He previously served as Director of Finance and Operations of Palmer Trinity School in Miami, Florida from July 2002 to December 2009. Mr. Lundgren was an independent consultant from October 2001 until July 2002. From January 14, 1998 to October 2001, Mr. Lundgren was employed by Solar Cosmetic Labs, Inc. as Chief Financial Officer. From November 1994 through January 14, 1998, Mr. Lundgren was employed by New Valley Corporation where he served as Vice President and Chief Financial Officer from May 1996 to January 14, 1998. From November 1992 through November 1994, Mr. Lundgren worked for Deloitte & Touche as a Senior Manager in the audit practice. Mr. Lundgren has been a certified public accountant since 1981 and holds a Bachelor of Science in Accounting from Wake Forest University. Mr. Lundgren’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise.

Glenn L. Halpryn has served as a director since April 2010. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, Mr. Halpryn will resign from his positions as a director of the Company. Since August 2010 Mr. Halpryn has served as a Director of ChromaDex Corporation (OTCBB: CDXC.OB). ChromaDex Corporation and its subsidiaries supply phytochemical reference standards and reference materials, related contract services, and products for the dietary supplement, nutraceutical, food and beverage, functional food, pharmaceutical and cosmetic markets. Mr. Halpryn has been the Chief Executive Officer and a Director of Transworld Investment Corporation, a private investment company, since June 2001. Mr. Halpryn currently serves as a Director of Sorrento Therapeutics (OTCBB: SRNE.OB), a biopharmaceutical company, Castle Brands Inc. (NYSE AMEX:ROX), a developer and international marketer of premium branded spirits, and SearchMedia Holdings Limited (NYSE AMEX:IDI), a China-based billboard and in-elevator advertising company. From September 2008 until May 2010, Mr. Halpryn served as a Director of Winston Pharmaceuticals, Inc. (OTCBB: WPHM.OB), a pharmaceutical company specializing in skin creams and pain medications. From October 2002 to September 2008, Mr. Halpryn served as a Director of Ivax Diagnostics, Inc. (NYSE AMEX:IVD). Mr. Halpryn served as Chairman of the board of directors and Chief Executive Officer of Orthodontix, Inc. (now Protalix Bio Therapeutics, Inc.) (NYSE AMEX:PLX) from April 2001 to December 2006. From April 1988 to June 1998, Mr. Halpryn was Vice Chairman of Central Bank, a Florida state-chartered bank. Since June 1987, Mr. Halpryn has been the President of and a beneficial holder of stock of United Security Corporation, a broker-dealer registered with FINRA. Mr. Halpryn's pertinent experience, qualifications, attributes and skills include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through his services as a director of publicly-traded corporations.

Paul M. Galvin has been the Chief Executive Officer of SG Blocks and its predecessor entity, SG Blocks, LLC (“SG LLC”), since April 2009 and a board member of SG Blocks and its predecessor entity since January 2007. Mr. Galvin is a founder of SG LLC. Mr. Galvin brings to SG Blocks 20 years of experience developing and managing real estate including residential condominiums, luxury sales, market rate and affordable rental projects. Prior to his involvement in real estate, he founded a non-profit organization that focused on public health, housing and child survival, and where he served for over a decade in a leadership position. During that period Mr. Galvin designed, developed, and managed emergency food and shelter programs through New York City’s Human Resources Administration and other Federal and State entities. From November 2005 to June 2007, Mr. Galvin was Chief Operating Officer of Yucaipa Investments where he worked with religious institutions that needed to monetize underperforming assets. There he designed and managed systems that produced highest and best use analysis for hundreds of religious assets and used them to acquire and re-develop properties across the United States. Mr. Galvin holds a B.S. in Accounting from LeMoyne College and a Master’s Degree in Social Policy from Fordham University. He was formerly an adjunct professor at Fordham University’s Graduate School of Welfare. Mr. Galvin is currently a Board Member of SentiCare, Inc. He previously served for ten years on the Sisters of Charity Healthcare System Advisory Board. Mr. Galvin’s pertinent experience, qualifications, attributes and skills include managerial experience and the knowledge and experience he has attained in real estate industry.

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Stevan Armstrong has been the President and Chief Operating Officer of SG Blocks and its predecessor entity since April 2009 and a board member of SG Blocks and its predecessor entity since January 2007. Mr. Armstrong is a founder of SG LLC. Prior to joining SG Blocks, he was a minority partner (owner) and Chief Construction Officer for Stratford Companies, a large Senior Housing development group, from 2003 until fully phasing out in March 2010, where he had complete responsibility for all engineering, design construction and commissioning of over $250,000,000 of facilities over a three year period. Prior to that, he was Executive Vice President for Operations of Hospital Affiliates Development Corp., a proprietary health care company specializing in the development of healthcare and senior care projects both domestically and internationally. Mr. Armstrong managed the design and construction of healthcare and elderly care housing projects in 40 states and 16 foreign countries with overall responsibility for operations. His background includes structural design engineering for large-scale healthcare projects, project scheduling and management of developmental of construction budgets. He spent much of his early career working on site as a field engineer and construction specialist. Mr. Armstrong served 30 years on active and reserve duty as a Civil Engineering Corps Officer for the United States Navy, retiring as Assistant Chief of Staff for Operations for the Atlantic Seabees (Navy Construction Battalions) both Active and Reserve based out of Norfolk Virginia with 8000 engineering and construction troops reporting to headquarters. Mr. Armstrong was responsible for their operations both in the United States and worldwide. Mr. Armstrong holds a Bachelor of Architectural Engineering from Penn State University and an M.S. in Engineering from George Washington University. Mr. Armstrong brings extensive design, construction experience and engineering expertise to SG Blocks and his pertinent experience, qualifications, attributes and skills include real estate and development expertise.

Joseph Tacopina has been a director of SG Blocks and its predecessor entity since January 2008. Mr. Tacopina founded the Law Offices of Joseph Tacopina, P.C. in 1994 and continues to practice law at his firm. Since September 2009, he has also led the Talent Representation practice at Madison Avenue Sports and Entertainment, a talent representation, marketing and advising firm. Mr. Tacopina is a member of the Federal Bar Council, the New York Counsel of Defense Lawyers, and the Judicial Committee for the Association of the Bar of the City of New York. He also serves on the Legislative Committee for the National Association of Criminal Defense Lawyers. Additionally, Mr. Tacopina volunteers his time as an adjunct professor at Fordham Law School and lectures nationwide on a variety of legal issues. Mr. Tacopina is a graduate of Skidmore College and the University of Bridgeport Law School. Mr. Tacopina’s pertinent experience, qualifications, attributes and skills include legal and securities compliance.

J. Scott Magrane is a Managing Director at Coady Diemar Partners, an investment banking firm he co-founded in 2004. Prior to co-founding Coady Diemar Partners, Mr. Magrane spent 15 years with Goldman Sachs & Co. where his responsibilities encompassed all manner of corporate finance and strategic advisory activities. While at Goldman, he started the firm's Energy Technology effort. Mr. Magrane began his career and spent 10 years with Blyth Eastman Dillon & Co. and Paine Webber where he specialized in energy and power project finance. Mr. Magrane holds a BA from the College of Wooster and an MBA from Wharton. Mr. Magrane has spent over 26 years advising power related enterprises including energy technology companies, utilities, independent power companies, rural electric cooperatives and governments. Mr. Magrane’s pertinent experience, qualifications, attributes and skills include corporate finance and strategic advisory expertise.

Christopher Melton has served on the board of directors of World Education and Development Fund, a non-profit organization that focuses on education for underprivileged children in Latin America, since 2008 and as a director of Bestival Ltd, a music festival on the Isle of Wight UK, since 2004. From 2000 to 2008, Mr. Melton was a Portfolio Manager for Kingdon Capital Management (“Kingdon”) in New York City where he ran an $800 million book in media, telecom and Japanese investment. Mr. Melton opened Kingdon’s office in Japan where he set up a Japanese research company. From 1997 to 2000, Mr. Melton served as a Vice President at JP Morgan Investment Management as an equity research analyst, where he helped manage $500 million in REIT funds under management. Mr. Melton was a Senior Real Estate Equity Analyst at RREEF Funds (“RREEF”) in Chicago from 1995 to 1997. RREEF is the real estate investment management business of Deutsche Bank's Asset Management division. Mr. Melton earned a BA in Political Economy of Industrial Societies from UC Berkeley in 1995. Mr. Melton’s pertinent experience, qualifications, attributes and skills

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include financial literacy and expertise, managerial experience and the knowledge and experience he has attained through his services as a director of various companies and through his personal real estate investment and development activities.

Brian Wasserman, CPA, has, pursuant to a consulting agreement, served as the Chief Financial Officer of SG Blocks since June 2011. Mr. Wasserman has been a Partner and a Director of Forensic Services at Janover, LLC, a public accounting firm since January 2010 and the Chief Executive Officer of BAW Holding Corp., a financial consulting business, since September 2005. Mr. Wasserman was a founder, the Chief Financial Officer and Treasurer of Newtek Business Services, Inc. (“Newtek” — NASDAQ Symbol “NEWT”) from September 1997 through July 2005. Newtek is a direct distributor of a wide range of business services and financial products to the small- and medium-sized business market under the Newtek brand. Newtek serves as a “one-stop-shop” provider of business services to the small- and medium-sized business market. From 1992 thru 1997, Mr. Wasserman was the Chief Financial Officer for a Wall Street investment banking firm, the General Partner of various investment limited partnerships and the Treasurer of Engex, Inc., a publicly traded closed end mutual fund. Mr. Wasserman is a licensed New York State Certified Public Accountant and holds a BS in Accounting from Lehigh University. From 1987 thru 1992, Brian worked for Coopers & Lybrand (now PricewatershouseCoopers) and earned the title of Manager.

Jennifer Strumingher has been with SG Blocks and its predecessor entity since February 2008, and has served as its Chief Administrative Officer since March 2010 and as a board member since April 2009. From May 2007 to February 2008, Ms. Strumingher was involved in private real estate renovations. From November 2005 to May 2007, Ms. Strumingher worked for a boutique contemporary knitwear company in brand positioning, sales and product marketing. Prior to that Ms. Strumingher was an Equity Sales Manager for PaineWebber, Inc. from July 1996 to December 2000 where she communicated and marketed PaineWebber’s equity research to a select group of clients. Additionally, Ms. Strumingher conducted verbal and written client portfolio reviews using sector analysis to maximize profits, minimize risk and diversify holdings. Ms. Strumingher holds a B.S. in Management and Marketing from Binghamton University (State University of New York) School of Management.

Director Independence and Board Committees

The Company’s board currently consists of Messrs. Lampen, Kirkland, Halpryn and Lundgren. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, Messrs. Halpryn and Lundren will resign and Paul Galvin, Joseph Tacopina, Stevan Armstrong, J. Scott Magrane and Christopher Melton will be appointed to the board. The Company currently utilizes the definition of “independent” set forth in the NASDAQ Stock Market’s listing standards. The Company believes that Messrs. Kirkland, Tacopina, Magrane and Melton will be considered independent upon the Change of Control.

The Company currently has an audit committee consisting of Messrs. Lundgren and Halpryn. Mr. Lundgren is an “audit committee financial expert.” During the fiscal year ending December 31, 2010, the audit committee met on four occasions. The audit committee has also met on three occasions and acted by unanimous written consent on one occasion thus far in 2011. Upon consummation of the transactions contemplated by the Merger Agreement and the Change of Control, the audit committee will consist of J. Bryant Kirkland III, J. Scott Magrane and Christopher Melton each of whom is an independent director. Mr. Kirkland will be an “audit committee financial expert.”

Since the Company is not a “listed company” under SEC rules, the Company is not required to have a compensation committee. Furthermore, the Company does not believe it is necessary for the Board to appoint such committee, or have a separately designated lead director, because the volume of matters that came before the Board for consideration permits all directors to give sufficient time and attention to such matters to be involved in all decision making.

The Board is responsible for overseeing risk management, and receives reports from management periodically.

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Nominating Committee and Shareholder-Director Communications

The Company’s board does not have a nominating committee because the board does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time. Given the limited scope of the Company’s operations, the board believes a specific nominating policy would be premature and of little assistance until the Company’s business operations are at a more advanced level.

Currently, the entire board decides on nominees, on the recommendation of any member of the board, followed by the board’s review of the candidates’ resumes and interviews of candidates. There has not been any defined policy or procedural requirements for stockholders to submit recommendations or nomination for directors. However, the board will consider suggestions from individual stockholders, subject to evaluation of the person’s merits. Stockholders should communicate nominee suggestions directly to any of the board members, accompanied by biographical details and a statement of support for the nominees. The suggested nominee must also provide a statement of consent to being considered for nomination. Although there are no formal criteria for nominees, the Board believes that persons should be actively engaged in business endeavors, have a financial background, be familiar with acquisition strategies and money management and be able to promote a diversity of views based on the person’s education, experience and professional employment. Based on the information gathered, the board then makes a decision on whether to recommend the candidates as nominees for director. The Company does not pay any fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees.

Family Relationships

There are no family relationships among the Company’s existing or incoming directors or officers.

Involvement in Certain Legal Proceedings

During the past ten years, no existing or incoming officer or director of the Company has:

(1) Petitioned for bankruptcy under the federal bankruptcy laws or had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent or similar officer appointed by a court, any business of which such person was a general partner or executive officer either at the time of the bankruptcy or proceeding or within two years prior to that time;

(2) Been convicted in a criminal proceeding or is a named subject of any pending criminal proceeding (excluding traffic violations and other minor offenses);

(3) Been subject to any order, judgment or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting his involvement the following activities

(4) Been subject to any order, judgment or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days his right to engage in any type of activity described in 3(a) above, or to be associated with persons engaged in any such activity;

(5) Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

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(6) Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated a federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated;

(7) Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or fining, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(8) Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Board of Directors’ Meetings

During the fiscal year ending December 31, 2010, the board of directors acted by unanimous written consent on one occasion. The board has also met on three occasions and acted by unanimous written consent on one occasion thus far in 2011.

The board does not have a formal policy of attendance of directors at the annual meeting. It does encourage such attendance. The Company did not have an annual meeting of stockholders in 2009 or 2010.

Compliance with Section 16(a) of the Exchange Act

Each director and executive officer of the Company and each beneficial owner of 10% or more of the Company’s common stock is required to report his or her transactions in shares of the Company’s common stock to the SEC within a specified period following a transaction. Based on the Company’s review of filings with the SEC and written representations furnished to the Company during the fiscal year ended December 31, 2010, the directors, executive officers, and 10% beneficial owners filed all such reports within the specified time period.

EXECUTIVE AND DIRECTOR COMPENSATION

Current Executive Compensation

Richard J. Lampen and J. Bryant Kirkland III, who serve as the Company’s sole executive officers, did not receive any salary or other compensation from the Company in 2010 or 2009, other than normal compensation paid to directors (as described below).

The Company is not party to any employment agreements or other compensation plans.

Directors’ Compensation

The Company pays each director an annual retainer of $5,000, payable quarterly, and reimburses the directors for reasonable travel expenses incurred in connection with their activities on the Company’s behalf. For the fiscal year ended December 31, 2010, each of Messrs. Lampen, Kirkland and Lundgren received the full $5,000 and Mr. Halpryn received $2,500 (as he was not a director for the full fiscal year).

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

General

Certain accounting and related finance functions are performed on behalf of the Company by employees of Vector, the Company’s principal stockholder. Expenses incurred relating to these functions are allocated to the Company and paid as incurred to Vector based on management’s best estimate of the cost involved. The amounts allocated were immaterial for the fiscal years ended December 31, 2009 and 2010.

On March 26, 2009, the Company entered into a $50,000 Revolving Credit Promissory Note (the “Revolver”) with Vector due December 31, 2012. The loan bears interest at 11% per annum. There was a balance $37,500 outstanding under the Revolver at December 31, 2010. On January 26, 2011, the Company and Vector entered into an amendment to the Revolver increasing the amount that we may borrow thereunder from $50,000 to $100,000. The Revolver had a balance of $53,500 at March 31, 2011. Accrued interest on the Revolver was $6,640 as of March 31, 2011. On April 11, 2011, the Company borrowed an additional $5,000 under the Revolver.

Transaction Relationships

Vector, the Company’s principal stockholder, is also a stockholder of SG Blocks and as such, will receive 2,018,518 additional shares of common stock of the Company upon consummation of the merger. Messrs. Lampen and Kirkland are each executive officers of Vector.

In October and December 2010, Ladenburg acted as placement agent for SG Blocks in a private placement and raised aggregate gross proceeds of $2,875,000. Ladenburg was paid an aggregate cash fee of $201,250 for its services in the private placement and was also issued warrants to purchase shares of common stock of SG Blocks, which will represent the right to purchase an aggregate of 1,044,583 shares of the Company’s common stock upon consummation of the merger. SG Blocks also agreed that if Ladenburg introduced it to an existing publicly traded company with which to consummate a merger, it would cause Ladenburg to be issued shares of common stock of the combined merger entity equal to 1% of the outstanding shares of such entity on a fully diluted basis. Ladenburg introduced the Company to SG Blocks and accordingly, will be issued an aggregate of 408,750 shares of the Company’s common stock (representing 1% of the Company’s stock on a fully diluted basis) upon consummation of the merger. Vector invested $500,000 in SG Blocks as part of the private placement.

Mr. Lampen is the president and chief executive officer of Ladenburg’s parent company. Additionally, Vector, through a wholly-owned subsidiary, owns approximately 8% of the outstanding common stock of Ladenburg.

From March 2011 to July 2011, William Walters, a senior advisor to, and a registered representative at, Ladenburg, received consulting fees from SG Blocks in the total amount of $100,000 and in the future may receive additional consideration based on business generated by him, if any. Any potential fees will be determined on a case by case basis and will be dependent on the margins of the project. Additionally, Mr. Walters’ wife is a consultant to SG Blocks and in the future may receive consideration of between 5% and 7% of gross sales on business generated by her, if any.

DESCRIPTION OF STOCKHOLDER MATTERS

On July 27, 2011, the Company obtained the written consent of a majority of its outstanding common stock approving (i) the Change of Control, (ii) an increase in the number of authorized shares of the Company’s common stock from 25,000,000 shares to 100,000,000 shares, (iii) the change of the name of the Company to “SG Blocks, Inc.” and (iii) the adoption of a 2011 Incentive Stock Plan to be effective upon consummation of the merger. The foregoing eliminated the need for a special stockholder meeting to approve such items. The Company’s board of directors had previously approved each of the foregoing items.

Each of the Change of Control, Charter Amendments and the Stock Plan will be effective upon consummation of the merger with SG Blocks, which is anticipated to take place in September 2011 after the satisfaction by the Company and SG Blocks of certain closing conditions; provided, however, that in no event will such actions be effective earlier than at least 20 days after the mailing of this information to the Company’s stockholders.

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The following is a description of the actions taken by majority written consent:

Change of Control

On July 27, 2011, the Company entered into the Merger Agreement with Merger Sub, SG Blocks and certain stockholders of SG Blocks. A copy of the Merger Agreement is attached to this information statement as Annex A. Upon the consummation of the transactions contemplated by the Merger Agreement, Merger Sub will be merged with and into SG Blocks, with SG Blocks surviving the merger and becoming a wholly-owned subsidiary of the Company.

Upon consummation of the merger, the holders of common stock of SG Blocks will receive an aggregate of 36,050,741 shares of the Company’s common stock. Additionally, Ladenburg will receive in the merger 408,750 shares of the Company’s common stock pursuant to contractual obligations between SG Blocks and Ladenburg. Upon consummation of the merger, all outstanding SG Blocks warrants shall be cancelled and substituted with warrants of similar tenor to purchase an aggregate of 1,145,509 shares of the Company’s common stock. As a result of the foregoing, the current holders of common stock of the Company will own an aggregate of 8% of the common stock of the Company on a fully diluted basis, the stockholders and warrantholders of SG Blocks will beneficially own an aggregate of 91% of the common stock of the Company on a fully diluted basis and Ladenburg will own an aggregate of 1% of the common stock of the Company on a fully diluted basis (not including warrants to purchase shares of the Company’s stock it will receive in the merger as a result of it currently holding warrants to purchase shares of SG Blocks common stock).

Upon consummation of the merger, (i) Robert Lundgren and Glenn Halpryn will resign from their Board positions with the Company and (ii) Paul M. Galvin, SG Blocks’ Chief Executive Officer, Joseph Tacopina, a director of SG Blocks, Stevan Armstrong, SG Blocks’ President and Chief Operating Officer, J. Scott Magrane and Christopher Melton will be appointed to the Company’s Board.

Additionally, upon consummation of the merger, (i) each of Richard J. Lampen and J. Bryant Kirkland III will resign from their positions as officers of the Company and (ii) Paul Galvin will become the Chief Executive Officer of the Company, Brian Wasserman will become the Chief Financial Officer of the Company, Stevan Armstrong will become the President and Chief Operating Officer of the Company and Jennifer Strumingher will become the Chief Administrative Officer of the Company.

As a result of the foregoing, the Change of Control will occur with respect to the Company’s stock ownership and management upon consummation of the merger with SG Blocks.

The merger and the Merger Agreement are described in more detail below in the section titled “The Merger.”

Charter Amendments

In connection with the Merger Agreement, the Company will change its name to “SG Blocks, Inc.” and increase its authorized shares of common stock from 25,000,000 shares to 100,000,000 shares. Since the Company’s business operations will be conducted through SG Blocks upon consummation of the merger, the Company believes that the name “SG Blocks, Inc.” better describes its business model.

The increase in the authorized number of shares of common stock is necessary for the Company to have sufficient stock to issue to the holders of common stock of SG Blocks to complete the merger and have additional authorized shares of common stock for financing its business, for acquiring other businesses, for forming strategic partnerships and alliances and for stock dividends and stock splits. The Company currently has no such plans, proposals, or arrangements, written or otherwise, to issue any of the additional authorized shares of common stock for such purposes. Notwithstanding the foregoing, authorized but unissued shares of common stock may enable the Company’s board of directors to render it more difficult or to discourage an attempt to obtain control of the Company and thereby protect continuity of or entrench its management, which may adversely affect the market price of the Company’s common stock. If in the due exercise of its fiduciary obligations, for example, the Company’s board of directors were to determine that a takeover proposal were not in the best interests of the Company, such shares could be issued by the board of directors without stockholder approval in one or more private placements or other transactions that might prevent or render more difficult or make more costly the completion of any attempted takeover transaction by diluting voting or

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other rights of the proposed acquirer or insurgent stockholder group, by creating a substantial voting block in institutional or other hands that might support the position of the incumbent board of directors, by effect effecting an acquisition that might complicate or preclude the takeover, or otherwise.

To effect the foregoing changes, the Company will file an amended and restated certificate of incorporation with the Secretary of State of the State of Delaware. Concurrently with the filing of the amended and restated certificate of incorporation, the Company plans to notify the Financial Industry Regulatory Authority of the proposed name change and to work with FINRA to obtain a new trading symbol for its common stock.

It is not mandatory for the Company’s stockholders to surrender their stock certificates as a result of the Charter Amendments. The Company’s transfer agent will adjust the record books of the Company to reflect the name change. New certificates will not be mailed to stockholders; however, new certificates will be issued during the ordinary course of business.

Stock Plan

In connection with the Merger Agreement, the Company adopted the 2011 Incentive Stock Plan. A copy of the Stock Plan is attached to this information statement as Annex B. The Stock Plan is designed to enable the Company to offer its employees, officers, directors, consultants and advisors whose services are considered valuable, to encourage a sense of proprietorship in the Company and to stimulate the active interest of such persons in the development and financial success of the Company and its subsidiaries. The various types of incentive awards that may be provided under the Stock Plan are intended to enable the Company to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.

All of the Company’s officers, directors, employees, consultants and advisors, as well as those of its subsidiaries, are eligible to be granted awards under the Stock Plan. An incentive stock option may be granted under the Stock Plan only to a person who, at the time of the grant, is an employee of the Company or its subsidiaries. No awards have been granted under the Stock Plan as of the date of this information statement. All awards will be subject to and approval by the board of directors.

Administration

The Stock Plan is administered by the Company’s board of directors. Subject to the provisions of the Stock Plan, the board of directors determines, among other things, the persons to whom from time to time awards may be granted, the specific type of awards to be granted, the number of shares subject to each award, share prices, any restrictions or limitations on the awards, and any vesting, exchange, deferral, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions related to the awards.

Stock Subject to the Stock Plan

The Stock Plan reserves 8,000,000 shares of common stock for issuance in accordance with the Stock Plan’s terms. Shares of stock subject to other awards that are forfeited or terminated will no longer be available for future award grants under the Stock Plan. If a holder pays the exercise price of a stock option by surrendering any previously owned shares of common stock or arranges to have the appropriate number of shares otherwise issuable upon exercise withheld to cover the withholding tax liability associated with the stock option exercise, then, such shares shall no longer be available for future award grants under the Stock Plan.

Under the Stock Plan, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend or similar type of corporate restructuring affecting the Company’s stock, the board shall make an appropriate and equitable adjustment in the number and kind of shares reserved for issuance under the Stock Plan and in the terms of outstanding awards under the Stock Plan.

Types of Awards

Options.  The Stock Plan provides both for “incentive” stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended (“Code”), and for options not qualifying as incentive options, both of which may be granted with any other stock based award under the Stock Plan. The board determines

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the exercise price per share of common stock purchasable under an incentive or non-qualified stock option, which may not be less than 100% of the fair market value on the day of the grant or, if greater, the par value of a share of common stock. However, the exercise price of an incentive stock option granted to a person possessing more than 10% of the total combined voting power of all classes of stock may not be less than 110% of the fair market value on the date of grant. The aggregate fair market value of all shares of common stock with respect to which incentive stock options are exercisable by a participant for the first time during any calendar year, measured at the date of the grant, may not exceed $100,000 or such other amount as may be subsequently specified under the Code or the regulations thereunder. An incentive stock option may only be granted within a ten-year period commencing on July 25, 2011 and may only be exercised within ten years from the date of the grant, or within five years in the case of an incentive stock option granted to a person who, at the time of the grant, owns common stock possessing more than 10% of the total combined voting power of all classes of the Company’s stock. Subject to any limitations or conditions the board may impose, stock options may be exercised, in whole or in part, at any time during the term of the stock option by giving written notice of exercise to us specifying the number of shares of common stock to be purchased. The notice must be accompanied by payment in full of the purchase price, either in cash or, if provided in the agreement, in the Company’s securities or in combination of the two.

Generally, stock options granted under the Stock Plan may not be transferred other than by will or by the laws of descent and distribution and all stock options are exercisable during the holder’ s lifetime, or in the event of legal incapacity or incompetency, the holder’s guardian or legal representative. However, a holder, with the approval of the board, may transfer a non-qualified stock option to (i) a trust for the benefit of the optionee or (ii) a member of the optionee’s immediate family (or a trust for his or her benefit).

Generally, if the holder is an employee, no stock options granted under the Stock Plan may be exercised by the holder unless he or she is employed by the Company or a subsidiary at the time of the exercise and has been so employed continuously from the time the stock options were granted. However, in the event the holder’s employment is terminated due to disability, the holder may still exercise his or her vested stock options for a period of 60 days from the date of termination or until the expiration of the stated term of the stock option, whichever period is shorter. Similarly, should a holder die while employed by the Company or a subsidiary, his or her legal representative or legatee under his or her will may exercise the decedent holder’s vested stock options for a period of 12 months from the date of his or her death or until the expiration of the stated term of the stock option, whichever period is shorter. If the holder’s employment is terminated due to normal retirement, the holder may still exercise his or her vested stock options for a period of 60 days from the date of termination or until the expiration of the stated term of the stock option, whichever period is shorter. If the holder’s employment is terminated for any reason other than death, disability or normal retirement, the stock option will automatically terminate, except that if the holder’s employment is terminated without cause or for good reason by the employee, then the portion of any stock option that is vested on the date of termination may be exercised for the lesser of 30 days after termination of employment or the balance of the stock option’s term.

Stock Appreciation Rights.  A stock appreciation right entitles the holder to receive a number of shares of common stock having a fair market value equal to the excess fair market value of one share of common stock over the exercise price of the stock appreciation right on the date of grant, multiplied by the number of shares subject to the stock appreciation rights.

Restricted Stock.  Under the Stock Plan, shares of restricted stock may be awarded either alone or in addition to other awards granted under the Stock Plan. The board determines the persons to whom grants of restricted stock are made, the number of shares to be awarded, the price if any to be paid for the restricted stock by the person receiving the stock from the Company, the time or times within which awards of restricted stock may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted stock awards.

Restricted stock awarded under the Stock Plan may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of, other than to the Company, during the applicable restriction period. In order to enforce these restrictions, the Stock Plan requires that all shares of restricted stock awarded to the holder remain in the Company’s physical custody until the restrictions have terminated and all vesting

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requirements with respect to the restricted stock have been fulfilled. A breach of any restriction regarding the restricted stock will cause a forfeiture of the restricted stock and any retained distributions. Except for the foregoing restrictions, the holder will, even during the restriction period, have all of the rights of a stockholder, including the right to receive and retain all regular cash dividends and other cash equivalent distributions as we may designate, pay or distribute on the restricted stock and the right to vote the shares.

Other Equity Incentives and Stock-Based Awards.  Under the Stock Plan, the board may grant equity incentives and other stock-based awards, subject to limitations under applicable law, that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of common stock, as deemed consistent with the purposes of the Stock Plan. These other stock-based awards may entail the transfer of actual shares of common stock or payment in cash or otherwise of amounts based on the value of shares of common stock. These other stock-based awards may be awarded either alone, in addition to, or in tandem with any other awards under the Stock Plan.

Accelerated Vesting and Exercisability.  If a change of control of the Company occurs (defined under the Stock Plan as (i) a tender offer for more than 50% or more of the outstanding voting securities of the Company unless the Company’s stockholders continue to own more than 50% of the outstanding voting securities of the surviving or resulting company, (ii) a merger or consolidation of the Company unless the Company’s stockholders continue to own more than 50% of the outstanding voting securities of the surviving or resulting company, (iii) a sale of substantially all of the Company’s assets unless the Company’s stockholders continue to own more than 50% of the assets or (iv) the acquisition by any one person, or more than one person acting as a group, acquires the ownership of stock of the Company that, together with the stock held by such person or group, constitutes more than 50% of the outstanding voting securities of the Company), and the Company’s board of directors does not authorize or otherwise approve such acquisition, then each outstanding option shall terminate within a specified number of days after notice to the optionee thereunder, and each optionee shall receive, with respect to each share of common stock subject to such option, an amount equal to the excess of the fair market value of such shares immediately prior to such change of control over the exercise price per share of such option.

Notwithstanding any provisions of the Stock Plan or any award granted thereunder to the contrary, no acceleration shall occur with respect to any award to the extent such acceleration would cause the Stock Plan or an award granted thereunder to fail to comply with Section 409A of the Code.

Award Limitation.  The maximum number of shares of stock that may be subject to options and stock appreciation rights granted under the Stock Plan to any individual in any calendar year shall not exceed 2,000,000.

Other Limitations.  The board may not modify or amend any outstanding option or stock appreciation right to reduce the exercise price of such option or stock appreciation right, as applicable, below the exercise price as of the date of grant of such option or stock appreciation right. In addition, no option or stock appreciation right may be granted in exchange for, or in connection with, the cancellation or surrender of an option or stock appreciation right or other award having a higher exercise price.

Federal Income Tax Consequences

The United States federal income tax discussion set forth below is intended for general information only and does not purport to be a complete analysis of all of the potential tax effects of the Stock Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. State, local and United States income tax consequences that may have applied in prior years are not discussed, and may vary from locality to locality.

Incentive stock options

There will be no federal income tax consequences to the optionee or to the Company upon the grant of an incentive stock option. If the optionee holds the option shares for the required holding period of at least two years after the date the option was granted and one year after exercise, the difference between the exercise price and the amount realized upon sale or disposition of the option shares will be long-term capital gain or loss, and the Company will not be entitled to a federal income tax deduction. If the optionee disposes of the option shares in a sale, exchange or other disqualifying disposition before the required holding period

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ends, he or she will recognize taxable ordinary income in an amount equal to the excess of the fair market value of the option shares at the time of exercise over the exercise price, and the Company will be allowed a federal income tax deduction equal to such amount. While the exercise of an incentive stock option does not result in current taxable income, the excess of the fair market value of the option shares at the time of exercise over the exercise price will be an item of adjustment for purposes of determining the optionee’s alternative minimum taxable income.

Non-incentive Stock Options

There will be no federal income tax consequences to the optionee or to the Company upon the grant of a non-incentive stock option under the Stock Plan. When the optionee exercises a non-incentive stock option, however, he or she will recognize ordinary income in an amount equal to the excess of the fair market value of the stock received upon exercise of the option at the time of exercise over the exercise price, and the Company will be allowed a corresponding federal income tax deduction. Any gain that the optionee realizes when he or she later sells or disposes of the option shares will be short-term or long-term capital gain, depending on how long the shares were held.

Stock Appreciation Rights

A participant receiving a stock appreciation right under the Stock Plan will not recognize income, and the Company will not be allowed a tax deduction, at the time the award is granted. When the participant exercises the stock appreciation right, the amount of cash and the fair market value of any shares of stock received will be ordinary income to the participant and the Company will be allowed a corresponding federal income tax deduction at that time.

Restricted Stock

Unless a participant makes an election to accelerate recognition of the income to the date of grant described below, a participant will not recognize income, and the Company will not be allowed a tax deduction, at the time a restricted stock award is granted, provided that the award is nontransferable and is subject to a substantial risk of forfeiture. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the stock as of that date (less any amount he or she paid for the stock), and the Company will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m) of the Internal Revenue Code. If the participant files an election under Section 83(b) of the Internal Revenue Code within 30 days after the date of grant of the restricted stock, he or she will recognize ordinary income as of the date of grant equal to the fair market value of the stock as of that date (less any amount paid for the stock), and the Company will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m) of the Internal Revenue Code. Any future appreciation in the stock will be taxable to the participant at capital gains rates. However, if the stock is later forfeited, the participant will not be able to recover the tax previously paid pursuant to the Section 83(b) election.

Other Stock-Based Awards

The federal income tax treatment of other stock-based awards will depend on the nature of and restrictions applicable to, the award.

Code Section 409A

The Stock Plan permits the grant of various types of incentive awards, which may or may not be exempt from Section 409A of the Internal Revenue Code. If an award is subject to Section 409A, and if the requirements of Section 409A are not met, the taxable events as described above could apply earlier than described, and could result in the imposition of additional taxes and penalties. Restricted stock awards, stock options and stock appreciation rights that comply with the terms of the Stock Plan are designed to be exempt from the application of Section 409A. It is the Company’s intention that any award agreement governing awards subject to Section 409A will comply with these rules.

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Tax Withholding

The Company has the right to make such provisions as it may deem appropriate, consistent with applicable law, in connection with any stock option, stock appreciation right, restricted stock or equity incentive award granted under the Stock Plan with respect to the withholding of any taxes (including income or employment taxes) or any other tax matters.

New Plan Benefits

The selection of employees to receive awards under the Stock Plan will be determined by the board in its discretion. Therefore, the actual value of benefits under the Stock Plan that will be received by any individual or group is not determinable.

THE MERGER

The discussion in this information statement of the merger and the principal terms of the Merger Agreement by and among the Company, Merger Sub, SG Blocks and certain of the stockholders of SG Blocks is subject to, and is qualified in its entirety by reference to, the Merger Agreement. A copy of the Merger Agreement is attached to this information statement as Annex A.

The Parties

The parties to the Merger Agreement are the Company, Merger Sub, SG Blocks and certain of the stockholders of SG Blocks. The mailing address of each of the Company and Merger Sub is 100 S.E. Second Street, 32^nd Floor, Miami, Florida 33131 and the telephone number of each is 305-579-8000. The mailing address of SG Blocks is 350 Madison Avenue, 14^th Floor, New York, New York 10016 and its telephone number is 646-747-2424.

Structure of the Merger

The Merger Agreement provides for the merger of Merger Sub with and into SG Blocks, with SG Blocks surviving the merger and becoming a wholly owned subsidiary of the Company. Thereafter, the Company will operate under the name “SG Blocks, Inc.”

Upon consummation of the merger, the holders of common stock of SG Blocks will receive an aggregate of 36,050,741 shares of the Company’s common stock. Additionally, Ladenburg will receive in the merger 408,750 shares of the Company’s common stock pursuant to contractual obligations between SG Blocks and Ladenburg. Upon consummation of the merger, all outstanding SG Blocks warrants shall be cancelled and substituted with warrants of similar tenor to purchase an aggregate of 1,145,509 shares of the Company’s common stock.

As a result of the foregoing, the current holders of common stock of the Company will own an aggregate of 8% of the common stock of the Company on a fully diluted basis, the stockholders and warrantholders of SG Blocks will beneficially own an aggregate of 91% of the common stock of the Company on a fully diluted basis and Ladenburg will own an aggregate of 1% of the common stock of the Company on a fully diluted basis (not including warrants to purchase shares of the Company’s stock it will receive in the merger as a result of it currently holding warrants to purchase shares of SG Blocks common stock).

Indemnification

To provide a fund for payment to the Company with respect to its post-closing rights to indemnification under the Merger Agreement, there will be placed in escrow (with an independent escrow agent) 817,500 shares of the Company’s common stock to be received by the holders of SG Blocks common stock. This escrow fund will be the sole remedy for the Company for its rights to indemnification under the Merger Agreement. Claims for indemnification may be asserted against the escrow fund by the Company once its damages exceed a $500,000 deductible and will be reimbursable to the full extent of the damages in excess of such amount up to a maximum of the escrow fund. Claims for indemnification may be asserted until the 5th business day after the Company has filed with the SEC its Annual Report on Form 10-K for the fiscal year ending December 31, 2011.

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Lock-up Agreements

All of the officers and directors of SG Blocks and each stockholder of SG Blocks currently owning in excess of 20% of the SG Blocks common stock have agreed not to sell their shares for the 12-month period commencing on the consummation of the merger, subject to certain exceptions.

Background of the Merger

The terms of the Merger Agreement are the result of arms’-length negotiations between representatives of the Company and SG Blocks. The following is a brief discussion of the background of these negotiations, the Merger Agreement and related transactions.

In October and December 2010, Ladenburg acted as placement agent for SG Blocks in a private placement and raised aggregate gross proceeds of $2,875,000. In connection with the private placement, SG Blocks agreed that if Ladenburg introduced it to an existing publicly traded company with which to consummate a merger, it would cause Ladenburg to be issued shares of common stock of the combined merger entity equal to 1% of the outstanding shares of such entity on a fully diluted basis. Ladenburg thereafter introduced the Company to SG Blocks.

From December 2010 to February 2011, representatives of the Company and SG Blocks discussed the terms of a potential transaction between the two entities. On February 25, 2011, Graubard Miller, counsel for the Company, sent a draft of a non-binding letter of intent setting forth the proposed terms of the potential transaction to representatives of SG Blocks and its counsel. Between February 25, 2011 and March 21, 2011, the parties negotiated various aspects of the letter of intent. On March 21, 2011, Olshan Grundman Frome Rosenzweig & Wolosky LLP, counsel for SG Blocks, sent a revised draft of the non-binding letter of intent to representatives of the Company.

On March 22, 2011, a meeting of the Company’s board of directors was held. All directors attended, as did, by invitation, Jeffrey M. Gallant of Graubard Miller. Prior to the meeting, a draft of the non-binding letter of intent was delivered to the directors. The board discussed the specific terms of the non-binding letter of intent and the proposed transaction with SG Blocks. The board then determined to move forward with the proposed transaction with SG Blocks and authorized management to execute the non-binding letter of intent. Accordingly, later in the day on March 22, 2011, the parties executed the non-binding letter of intent. The parties then commenced work on the Merger Agreement and related transaction agreements.

On April 4, 2011, counsel for the Company circulated a draft of the Merger Agreement to SG Blocks and its counsel. From April 4, 2011 and proceeding through July 27, 2011, the Company and SG Blocks and their respective counsel negotiated various terms of the transaction and the Merger Agreement.

On July 27, 2011, a meeting of the Company’s board of directors was held to consider approval of the transactions. All directors attended, as did, by invitation, Jeffrey M. Gallant of Graubard Miller. Prior to the meeting, information summarizing the terms and structure of the merger and the Merger Agreement were delivered to the directors, along with the latest draft of the Merger Agreement and other related materials, as well as a draft of the Stock Plan. After considerable review and discussion between the directors, the Merger Agreement and related transactions, including the increase in the number of authorized shares of the Company’s common stock from 25,000,000 shares to 100,000,000 shares, the change of the name of the Company to “SG Blocks, Inc.” and the adoption of the Stock Plan, were unanimously approved by the board.

The Merger Agreement was signed on July 27, 2011. The terms of the Merger Agreement did not differ materially from the terms of the executed non-binding letter of intent. After the close of the markets on July 28, 2011, the Company issued a press release and subsequently filed a Current Report on Form 8-K on August 2, 2011 announcing the execution of the Merger Agreement and discussing the terms of the merger.

On September 8, 2011, the parties amended the Merger Agreement to extend the date on which either party may terminate the agreement if the merger is not consummated by November 30, 2011.

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Reasons for the Merger

The Company’s board of directors concluded that the Merger Agreement with SG Blocks was in the best interests of the Company and its stockholders. The following are material factors that were considered by the Company’s board of directors:

Appraisal Rights

Under Delaware law, the Company’s stockholders do not have appraisal rights in connection with the merger or the Change of Control.

Anticipated Accounting Treatment

The merger will be accounted for as a “reverse merger” and recapitalization since immediately following the completion of the transaction, the stockholders of SG Blocks immediately prior to the merger will have effective control of the Company through its 91% fully diluted stockholder interest in the combined entity. In addition, through SG Blocks’ 91% fully diluted stockholder interest, SG Blocks will maintain effective control of the combined entity through control of a substantial proportion of the board of directors by maintaining four of the seven board seats. Additionally, all of SG Blocks’ senior executive positions will continue on as management of the combined entity after consummation of the merger. For accounting purposes, SG Blocks will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of SG Blocks. Accordingly, SG Blocks’ assets, liabilities and results of operations will become the historical financial statements of the Company, and the Company’s assets, liabilities and results of operations will be consolidated with SG Blocks effective as of the merger date. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.

Regulatory Matters

The merger and the transactions contemplated by the Merger Agreement are not subject to any additional federal or state regulatory requirement or approval except for filings with the State of Delaware necessary to effectuate the merger.

Required Vote

Under Delaware law, the Company’s stockholders were not required to vote to approve the Merger Agreement. However, on July 27, 2011, the Company obtained the written consent of a majority of its outstanding common stock approving (i) the Change of Control, (ii) an increase in the number of authorized shares of the Company’s common stock from 25,000,000 shares to 100,000,000 shares, (iii) the change of the name of the Company to “SG Blocks, Inc.” and (iii) the adoption of a 2011 Incentive Stock Plan to be effective upon consummation of the merger. The foregoing eliminated the need for a special stockholder meeting to approve such items.

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THE MERGER AGREEMENT

The following is a summary of the material provisions of the Merger Agreement, a copy of which is attached as Annex A to this information statement. Such summary is qualified by reference to the complete text of the Merger Agreement and is incorporated herein by reference. For a discussion of the merger structure, the merger consideration indemnification and lock-up provisions of the Merger Agreement, see the section titled “The Merger” above.

Representations and Warranties

The Merger Agreement contains representations and warranties of each of the Company, Merger Sub, SG Blocks and the signing stockholders of SG Blocks relating to, among other things,:

Covenants

The Company and SG Blocks have each agreed to take such actions as are necessary, proper or advisable to consummate the merger. They have also agreed to continue to operate their respective businesses in the ordinary course prior to the closing and not to take certain specified actions without the prior written consent of the other party.

The Merger Agreement also contains additional covenants of the parties, including covenants providing for:

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Conditions to Closing

General Conditions

Consummation of the merger is conditioned on SG Blocks’ stockholders approving the Merger Agreement and related transactions (which has already been obtained) and less than 10% of such stockholders seeking appraisal rights under the Delaware General Corporation Law. In addition, the consummation of the transactions contemplated by the Merger Agreement is conditioned upon, among other things:

CDSI’s and Merger Sub’s Conditions to Closing

The obligations of the Company and Merger Sub to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon each of the following, among other things:

SG Blocks’ and Signing Stockholders’ Conditions to Closing

The obligations of SG Blocks and the signing stockholders of SG Blocks to consummate the transactions contemplated by the Merger Agreement, in addition to the conditions described above, are conditioned upon each of the following, among other things:

Waivers

If permitted under applicable law, either the Company or SG Blocks may waive any inaccuracies in the representations and warranties made to such party contained in the Merger Agreement and waive compliance with any agreements or conditions for the benefit of itself or such party contained in the Merger Agreement.

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Termination

The Merger Agreement may be terminated at any time, but not later than the closing, as follows:

Fees and Expenses

All fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such expenses whether or not the merger is consummated; provided, however, that the fees and expenses incurred by the Company shall not exceed $150,000.

Confidentiality; Access to Information

The Company and SG Blocks will afford to the other party and its financial advisors, accountants, counsel and other representatives prior to the completion of the merger reasonable access during normal business hours, upon reasonable notice, to all of their respective properties, books, records and key personnel to obtain all information concerning the business, including the status of business development efforts, properties, results of operations and personnel, as each party may reasonably request. The Company and SG Blocks will maintain in confidence any non-public information received from the other party, and use such non-public information only for purposes of consummating the transactions contemplated by the Merger Agreement.

Amendments

The Merger Agreement may be amended by the parties thereto at any time by execution of an instrument in writing signed on behalf of each of the parties.

Public Announcements

The parties have agreed that until the closing or termination of the Merger Agreement, the parties will:

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PRO FORMA INFORMATION

The following unaudited pro forma condensed combined financial statements give effect to the proposed merger between the Company and SG Blocks and certain other transactions between the Company and SG Blocks as provided for in the Merger Agreement.

On July 27, 2011, the Company and SG Blocks signed the Merger Agreement whereby at the closing 100% of the shares of SG Blocks will be canceled and extinguished and converted into 36,050,741 shares of the Company’s common stock. As a result of the transaction, the former owners of SG Blocks will become the controlling stockholders of the Company. Accordingly, the merger of the Company and SG Blocks is a reverse merger that will be accounted for as a recapitalization of SG Blocks. Upon completion of the merger, the Company 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 June 30, 2011 combines the balance sheets of the Company and SG Blocks and gives pro forma effect to: (i) the reverse merger between the Company and SG Blocks in which SG Blocks is deemed to be the acquiring entity for accounting purposes, (ii) 408,750 shares of the Company’s common stock issued to Ladenburg and (iii) certain other transactions completed at the time of the merger as if the Company and SG Blocks completed such transactions as of June 30, 2011. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2010 and six months ended June 30, 2011 combine the statement of operations of the Company and SG Blocks 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 the Company and SG Blocks appearing elsewhere herein. 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:

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SG BLOCKS, INC.

Proforma Balance Sheet
(Unaudited)

June 30, 2011		Note:				CDSI Holdings Inc.(1)				SG Blocks, Inc.(2)				Proforma Adj. – Debit				Proforma Adj. – Credit				Proforma As Adjusted
Assets
Current assets:
Cash and cash equivalents						$	13,430			$	1,542,998											$	1,556,428
Accounts receivable, net							—				170,163												170,163
Costs and estimated earnings in excess of billings on uncompleted contracts							—				—												—
Inventory							—				344,923												344,923
Prepaid expenses and other current assets							—				11,111												11,111
Total current assets							13,430				2,069,195				—				—				2,082,625
Equipment, net											8,084												8,084
Totals						$	13,430			$	2,077,279			$	—			$	—			$	2,090,709
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses						$	37,962			$	426,159											$	464,121
Accrued compensation and related costs							—				—												—
Accrued interest							8,253				2,588												10,841
Related party accrued expenses							—				25,109												25,109
Short-term notes payable							—				51,247												51,247
Related party notes payable							—				—												—
Billings in excess of costs and estimated earnings on uncompleted contracts							—				—												—
Deferred revenue							—				406,660												406,660
Convertible promissory notes, net of discount of $90,989							—				—												—
Derivative conversion option liabilities							—				—												—
Warrant liabilities											110,420												110,420
Total current liabilities							46,215				1,022,183				—				—				1,068,398
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				8,720,243								4,502,801
Accumulated deficit			3				(8,357,429	)			(3,946,285	)			—				8,357,429				(3,946,285	)
Total stockholders' equity (deficit)							(101,285	)			1,055,096				8,722,024				8,722,024				953,811
Totals						$	13,430			$	2,077,279			$	8,722,024			$	8,722,024			$	2,090,709

NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET

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SG BLOCKS, INC.

Proforma Statement of Operations
(Unaudited)

Six Months Ended June 30, 2011		Note:				CDSI Holdings Inc.(1)				SG Blocks, Inc.(2)				Proforma Adj. – Debit				Proforma Adj. – Credit				Proforma As Adjusted
Revenue:
SG block sales						$	—			$	2,523,599											$	2,523,599
Engineering services							—				4,190												4,190
Project management							—				64,894												64,894
							—				2,592,683				—				—				2,592,683
Cost of revenue:
SG block sales							—				2,178,696												2,178,696
Engineering services							—				713												713
Project management							—				37,904												37,904
							—				2,217,313				—				—				2,217,313
Gross profit							—				375,370				—				—				375,370
Operating expenses:
Payroll and related expenses							—				468,597												468,597
General and administrative expenses			3				52,042				311,537								52,042				311,537
Marketing and business development expense			4				—				165,600				92,610								258,210
Pre-project expenses							—				45,165												45,165
Total							52,042				990,899				92,610				52,042				1,083,509
Operating loss							(52,042	)			(615,529	)			(92,610	)			(52,042	)			(708,139	)
Other income (expense):
Interest expense			3				(4,323	)			(2,034	)			(4,323	)							(2,034	)
Interest income							—				27												27
Change in fair value of derivative liabilities							—				1,929												1,929
Cancellation of trade liabiliites and unpaid interest							—				30,498												30,498
Total							(4,323	)			30,420				(4,323	)			—				30,420
Net loss						$	(56,365	)		$	(585,109	)		$	(96,933	)		$	(52,042	)		$	(677,719	)
Net loss per share – basic and diluted: Basic and diluted						$	(0.02	)														$	(0.02	)
Weighted average shares outstanding: Basic and diluted							3,270,000																37,944,887

NOTES TO UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENTS OF OPERATIONS

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SG BLOCKS, INC.

Proforma Statement of Operations
(Unaudited)

Year Ended December 31, 2010		Note:				CDSI Holdings Inc.(1)				SG Blocks, Inc.(2)				Proforma Adj. – Debit				Proforma Adj. – Credit				Proforma As Adjusted
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

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OTHER INFORMATION ABOUT THE COMPANY

Business of the Company

The Company is a shell company as defined in Rule 12b-2 of the Exchange Act and holds limited amounts of cash.

The Company was incorporated in Delaware in December 1993 under the name PC411, Inc. In January 1999, the Company changed its name to CDSI Holdings Inc. to reflect the change in its principal business.

The Company was originally formed to develop an on-line service that transmits name, address, telephone number and other related information digitally to users of personal computers. In November 1998, the Company transferred substantially all of the non-cash assets and certain liabilities used in its on-line data distribution business to ThinkDirectMarketing Inc. (“TDMI”) in exchange for an initial 42.5% interest in that company. The other investors of TDMI included Acxiom Corporation, Cater Barnard plc and TDMI’s management and employees. In January 2002, Dialog Group Inc. (“Dialog”) acquired all the stock of TDMI that it did not already own. In April 2007, the Company sold its remaining 2,800 shares of Dialog Common Stock for $204.

In May 1998, the Company acquired Controlled Distribution Systems, Inc. (“CDS”), which was primarily engaged in marketing and leasing a prepaid, wireless, remote-operated retail inventory control and dispensing system for tobacco products called the Coinexx Star 10. In December 1998, CDS acquired substantially all of the assets of TD Rowe Corporation’s New York cigarette vending route. In February 2000, the Company terminated all operations relating to marketing and leasing the Coinexx Star 10 system. In October 2000, CDS sold the assets of its cigarette vending route, including vending machines and a van.

In November 2003, the Company and its wholly-owned subsidiary CDS merged with CDSI Holdings Inc. as the surviving corporation. Since such date, the Company has been seeking new business opportunites.

Facilities

The Company’s corporate offices are located in the executive offices of Vector at 100 S.E. Second Street, Miami, Florida 33131. The Company believes that its current facilities are adequate for the foreseeable future.

Legal Proceedings

There are no legal proceedings pending against the Company.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s financial statements and related notes thereto included elsewhere in this information statement.

Results of Operations

Revenues

The Company did not generate revenues from operations for the three and six months ended June 30, 2011 and 2010, respectively.

Expenses

Expenses associated with corporate activities were $41,210 and $52,042 for the three and six months ended June 30, 2011, as compared to $9,352 and $17,270 for the same periods in the prior year. The expenses in 2011 consisted of legal expenses associated with the merger with SG Blocks, and other expenses associated with costs necessary to maintain a public company, which consist primarily of directors’ fees, accounting fees, and stock transfer fees. The expenses in 2010 were primarily associated with costs necessary to maintain a public company, which consist primarily of directors’ fees, accounting fees, and stock transfer fees.

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Other income (expenses)

Interest expense was $1,613 and $4,323 for the three and six months ended June 30, 2011, compared to interest expense of $624 and $1,245 for the same periods in the prior year. Included in the increase in interest expense for the six months ended June 30, 2011 was the impact of an error identified by the Company, which resulted in an out-of-period adjustment of approximately $1,390. The error was a mathematical error made in the fourth quarter of 2010. The Company assessed the materiality of this error on the 2010 financial statements in accordance with ASC 250-10-S99-1 and concluded that the error was immaterial to such financial statements. The Company does not believe the impact of correcting the error in the current year will be material to the Company’s 2011 financial statements. This adjustment was recognized within interest expense in the condensed statement of operations. In addition, interest expense increased due to additional borrowings from the Company’s revolving credit promissory note entered into in March 2009.

The recovery of unclaimed property relates to refunds receivable for unclaimed property in a state where the Company previously conducted business. In December 2009, the Company filed for refunds of approximately $2,800 and in July 2010 was notified that the refund claims had been approved for payment.

Liquidity and Capital Resources

At June 30, 2011, the Company had an accumulated deficit of approximately $8.4 million. The Company has reported an operating loss in each of its fiscal quarters since inception and the Company expects to continue to incur operating losses in the immediate future. The Company has reduced operating expenses and has been seeking acquisition and investment opportunities. No assurance can be given that the Company will not continue to incur operating losses.

The Company has limited available cash, limited cash flow, and limited liquid assets. The Company has not been able to generate sufficient cash from operations and, as a consequence, financing has been required to fund ongoing operations. Since completion of the Company’s initial public offering of its common stock (the “IPO”) in May 1997, the Company has primarily financed its operations with the net proceeds of the IPO. The funds were used to complete the introduction of the PC411 Service over the Internet, to expand marketing, sales and advertising, to develop or acquire new services or databases, to acquire CDS and for general corporate purposes.

Cash used for operations for the six months ended June 30, 2011 and 2010 was $23,156 and $21,194, respectively. The increase is associated with the timing of payments of accounts payable and accrued liabilities. The Company evaluates its accruals on a quarterly basis and makes adjustments when appropriate.

Cash provided from financing activities was $31,000 and $30,000 for the six months ended June 30, 2011 and 2010, respectively. In the first six months of 2011, cash provided from financing activities was from borrowings under the revolving credit agreement of $31,000. In the first six months of 2010, cash provided from financing activities was from the proceeds from the sale of common stock of $15,000 and borrowings under the revolving credit agreement of $15,000.

The Company does not expect significant capital expenditures during the year ended December 31, 2011.

At June 30, 2011, the Company had cash and cash equivalents of $13,430.

Inflation and changing prices had no material impact on revenues or the results of operations for the periods ended June 30, 2011 and 2010.

In March 2009, the Company entered into a revolving credit promissory note where its principal stockholder, Vector, agreed to lend the Company $50,000 to meet its liquidity requirements over the next twelve months. The facility bears interest at 11% per annum and is due on December 31, 2012. On January 26, 2011, the Company and Vector entered into an amendment to the revolving credit promissory note increasing the amount that the Company may borrow thereunder from $50,000 to $100,000. The facility had a balance of $68,500 at June 30, 2011. Accrued interest on the revolving credit promissory note was $8,253 as of June 30, 2011. Interest expense on the facility was $1,613 and $4,323 for the three and six months ended June 30, 2011, compared to interest expense of $624 and $1,245 for the same periods in the prior year.

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Although there can be no assurance, the Company believes that it will be able to continue as a going concern for the next twelve months.

The Company or its affiliates, including Vector, may, from time to time, based upon present market conditions, purchase shares of the Company’s common stock in the open market or in privately negotiated transactions.

Price Range of Securities and Dividends

The Company’s common stock is currently traded on the OTC Bulletin Board under the symbol “CDSI”. The following table sets forth for the periods indicated, the reported high and low closing bid quotations per share for the Company’s common stock. The sale prices set forth below reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily represent actual transactions.

		High				Low
2010
Fourth Quarter		$	0.30			$	0.14
Third Quarter			0.20				0.18
Second Quarter			0.30				0.07
First Quarter			0.14				0.07
2009
Fourth Quarter		$	0.12			$	0.07
Third Quarter			0.10				0.06
Second Quarter			0.13				0.05
First Quarter			0.13				0.10

As of January 14, 2011, there were 24 holders of record of the Company’s common stock.

The Company has never declared or paid dividends on its common stock and does not expect to pay any dividends in the foreseeable future.

BUSINESS OF SG BLOCKS

Overview

On October 25, 2010, SG LLC, a Missouri limited liability company, merged with and into SG Blocks, which now continues the business of SG LLC (the “Conversion Merger”). SG LLC was formed on January 23, 2007 and SG Blocks was formed on August 16, 2010. SG Blocks was not engaged in any business prior to the Conversion Merger.

The principal business of SG Blocks is to provide code engineered cargo shipping containers. SG Blocks modifies and delivers containers to meet the growing demand for safe and green construction. Rather than consuming new steel and lumber, SG Blocks capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building. Offering a product that typically exceeds building code requirements, SG Blocks seeks to enable developers, architects, builders and owners to achieve greener construction, faster execution and stronger buildings of higher value. Since its inception in 2007, SG Blocks has developed and implemented the technology to break away from standardized container-construction while maintaining reduced costs. Committed to providing a construction methodology that will lessen the global carbon footprint, SG Blocks does not simply recycle (which requires additional energy consumption to break down material and then reform it for another purposes) — it utilizes existing steel material and repurposes it into modules that can be put to a higher and better use with significantly less energy input. In addition to providing code engineered cargo shipping containers for construction use, SG Blocks also continues to advance a patent pending structural steel framing system and the use thereof.

SG Blocks’ products have been featured in reports by several leading media outlets including USA Today, CNN, Washington Post, ABC World News, NBC Nightly News and Bob Vila. In addition, Popular Mechanics selected one of SG Blocks’ buildings as a “best green design” in its April 2009 edition.

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Description of Business

SG Blocks first selects shipping containers appropriate for the project, often that have reached the end of their useful life. These durable steel containers are then designed, proprietarily engineered and manufactured into a modified structure which is referred to in this “Description of Business” section as “SG Blocks^TM”. A combination of engineering and architecture are used to make the containers adaptable for a wide variety of uses including housing, office buildings, barracks, hotels, schools, dormitories, hospitals, clinics and institutional facilities.

From a design perspective, SG Blocks^TM can be used to build virtually any style of construction, from traditional to modern. SG Blocks^TM can be delivered with a highly durable surface finish or ready to be clad with any type of standard or green technology friendly building skin.

SG Blocks^TM have a particular application in meeting safe and sustainable housing needs in the United States and globally. The building system is designed to meet the needs of builders, developers, government officials, urban planners, architects, and engineers looking for fast and affordable alternatives that meet safe housing needs and standards, particularly in hurricane and earthquake prone areas. Criteria and testing processes have been developed to evaluate each container. Conversion and assembly is subjected to quality control, making the containers “code-ready.” Conformance with International Code Council requirements is an ongoing objective as this standard is used by a vast majority of governmental jurisdictions in the United States.

SG Blocks is a hands-off supplier. Partners, affiliates and customers carry the responsibility for container storage, modification, transportation and welding, leaving SG Blocks to manage the logistical task of coordinating the efforts of its strategic partners. These alliances help SG Blocks maintain a steady supply of containers available around the world. SG Blocks is actively exploring international opportunities, including in Brazil where it has formed a subsidiary.

Green Building

There is a worldwide movement toward green and carbon neutrality. Sustainable or “green” building is the practice of designing, constructing, operating, maintaining and removing buildings in ways that conserve natural resources and reduce their impact on climate change. Builders are increasingly incorporating “green” components in all projects as they adopt the LEED system, a third-party certification program and the nationally accepted benchmark for the design, construction and operation of high performance green buildings. SG Blocks believes its structural system contributes significantly towards LEED certification, and help minimize the wasteful practices of traditional construction methods.

Description of the Product

SG Blocks’ structural building system represents a change from the way buildings have typically been built in the past. It also represents a contribution to the greening of the building industry with the advancement of new technology. Of great importance to the technology is the recycling of standard shipping containers. Intermodal containers generally come in either 40 foot or 20 foot long units that are either 8’6” (standard cube) or 9’6” (high cube).

The payload rating in a shipping configuration for a 40 foot container is roughly 60,000 pounds. The payload rating normally associated with residential or commercial structures is in most cases half of that amount. These units are designed for 9-high stacking aboard ships. The structures in this condition need to be able to withstand 15 long tons of load transversely and 7.5 long tons longitudinally. This far exceeds any gravity or lateral loads a normal residential or commercial building will ever experience.

This strong structure is the beginning of the SG Blocks building system. Various combinations as desired of siding, brick, and stucco can be added and the interior finished as any conventional structure would be. Upon completion, structures look and feel as if they were erected using traditional construction methods. However, the SG Blocks product is generally stronger, more durable, environmentally sensitive, and finished in less time than traditional construction methods.

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The Process of the SG Blocks Conversion

Containers are selected, tested and evaluated against SG Blocks’ engineering, environmental, and utilization criteria and standards. The used containers are then certified as SG Blocks, ready for the manufacturing and fabrication processes. SG Blocks then provides specific and detailed engineering and fabrication details and modifies the containers in various configurations which often require structural changes, wall reconfigurations, the creation of window and door openings, and ceiling alterations to allow sheetrock hanging. The exterior walls and roof structure are then insulated with a high tech waterproof ceramic insulation. The SG Blocks are then shipped directly to the building site or are run through a modular factory and then delivered to the site. The builder places them into position on their foundation and connects them together by welding. The builder may then add roof trusses or other roof systems, and quickly the builder has an insulated structure under roof. The potential for savings in building time can be significant, particularly if interior pre-finish modularization is introduced at this step.

Historical Use of Shipping Containers in Construction

Although shipping containers have been reused as building structures since their introduction in the 1950s, such applications have been limited. Typically, shipping containers have been reused to provide temporary shelter or storage. However, the idea of fabricating containers in large quantities for the building sector market is a relatively novel idea.

Over the past few years, several companies and individuals have been touting the use of shipping containers for construction purposes. Very few, however, have actually designed and built structures to meet building code requirements. In contrast, SG Blocks has already completed projects for the US Military, municipalities and Fortune 500 companies. As a result, SG Blocks believes it is positioned as the leader in this new technology industry.

SG Blocks believes it has debunked the architectural notion that structures built with containers look as if they were built with containers. Through concentrated education and promotion, SG Blocks believes that it has already begun to position its concept into the vocabulary of the architecture and building industries.

Competition

The building industry is highly competitive. SG Blocks competes against numerous local, regional, national and international builders and others in the real estate business around the world. Going forward SG Blocks is committed to further educating the building community on the benefits of its technology to illustrate SG Blocks is more of a complement to than competition for builders. SG Blocks may compete for investment opportunities, financing, available land, raw materials and skilled labor with entities that possess greater financial, marketing and other resources than it does. Competition may increase if there is future consolidation in the land development and building industry or from new building technologies that could arise. Additionally, many of those working with containers focus on the architecture and design element. As they are not fabricators, SG Blocks can provide the final product.

SG Blocks believes that it can distinguish itself from its competitors on the basis of cost and construction time. SG Blocks’ construction method is typically 10% to 20% less expensive than traditional construction methods, particularly in urban locations and multi-story projects. Construction time is typically reduced by 30 – 40% using SG Blocks’ construction method, reducing construction and soft costs substantially. The SG Blocks are designed to be hurricane, tornado and blast resistant, able to withstand harsh climate conditions and their flexibility of construction allows architects, developers, and owners to design the product to meet their needs.

Having already worked with regulatory agencies and obtained jurisdictional approvals from building departments, SG Blocks has gained practical experience needed to complement its engineering, architectural and technological knowledge. Standard permit approvals at the municipal level is the principal compliance and approval requirement for SG Blocks.

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Intellectual Property

The creation of a proprietary, patentable intellectual property platform, driven by technological innovation, is a central strategy and a key differentiator for SG Blocks. This use of advanced technology is positioning SG Blocks as a primary resource for container based structure information and support. Such advanced application of technology creates a valuable marketing and closing tool for leads, a barrier to competitive entry, and is a cornerstone in the strategic development of SG Blocks’ global, scalable business platform. SG Blocks is now routinely called upon to provide the product for innovative architects who design container based systems. SG Blocks relies primarily on trade secrets to protect its intellectual property and proprietary technology at this time.

The SGB Network

Two of SG Blocks’ most important affiliates are also shareholders:

SG Blocks has nine employees, not including Brian Wasserman who is serving as the Chief Financial Officer of SG Blocks pursuant to a consulting agreement. SG Blocks also hires independent contractors on an as-needed basis.

SG BLOCKS’ MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction and Certain Cautionary Statements

The following discussion and analysis of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of SG Blocks. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes appearing elsewhere in this information statement.

The statements in this information statement may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results to differ materially from the anticipated results expressed in the forward-looking statements such as intensified competition and/or operating problems in its operating business projects and their impact on revenues and profit margins or additional factors.

General

SG Blocks is a Delaware corporation, which offers the building industry a safer, greener, faster, longer lasting and more economical alternative to conventional construction methods. SG Blocks redesigns, repurposes, and converts heavy-gauge steel cargo shipping containers into safe green building blocks for commercial, industrial, and residential building construction.

On July 27, 2011, the Company entered into the Merger Agreement by and among Merger Sub, a Delaware corporation and a wholly-owned subsidiary of the Company, SG Blocks, a Delaware corporation, and certain stockholders of SG Blocks. The Merger Agreement provides for the merger of Merger Sub with and into SG Blocks, with SG Blocks surviving the merger and becoming a wholly-owned subsidiary of the Company. Upon consummation of the merger, the Company will be renamed SG Blocks.

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SG Blocks is a provider of code engineered cargo shipping containers that it modifies and delivers to meet the growing demand for safe and green construction. Rather than consuming new steel and lumber, SG Blocks capitalizes on the structural engineering and design parameters a shipping container must meet and repurposes them for use in building.

The following summaries of the merger and related transactions, the Merger Agreement and the other agreements entered into by the parties are qualified in their entirety by reference to the text of the agreements, certain of which are attached as exhibits hereto and are incorporated herein by reference.

Upon consummation of the merger, the holders of common stock of SG Blocks will receive an aggregate of 36,050,741 shares of the Company’s common stock. Additionally, Ladenburg will receive in the merger 408,750 shares of the Company’s common stock. Upon consummation of the merger, all outstanding SG Blocks warrants shall be cancelled and substituted with warrants of similar tenor to purchase an aggregate of 1,145,509 shares of the Company’s common stock.

The merger of the Company and SG Blocks is a reverse merger that will be accounted for as a recapitalization of SG Blocks.

Results of Operations

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009:

Year Ended December 31

		2010				2009				Change
Loss from operations			(933,858	)			(218,137	)			(715,721	)
Other expenses:			(313,786	)			(80,982	)			(232,804	)
Net Loss			(1,247,644	)			(299,119	)			(948,525	)

Revenue

Revenue for the year ended December 31, 2010 was $1,916,565 compared to $478,340 for the year ended December 31, 2009. This increase of $1,438,225 results from significantly increased block “green steel” sales to a single customer (2010 sales of approximately $990,000 vs 2009 sales of approximately 285,000) and an increase in new engineering and project management jobs during 2010.

Cost of Revenue and Gross Profit

Cost of revenue increased by $1,049,466 to $1,339,159 for the year ended December 31, 2010 from $289,693 for the year ended December 31, 2009. The increase in cost of revenue results from an increase in sales offset by a decrease in the gross profit percentage. Gross profit increased to $577,406 for the year ended December 31, 2010 from a gross profit of $188,647 for the year ended December 31, 2009. The gross profit percentage was 30.1% for the year ended December 31, 2010 as compared to a gross profit percentage of 39.4% for the year ended December 31, 2009. This decrease in gross profit percentage results from an increase in the gross profit percent in block “green steel” sales (from 29.6% in 2009 to 32.5% in 2010) offset by a decrease in gross profit percent in engineering (from 58.9% in 2009 to 42.4% in 2010) and project management (from 49.1% in 2009 to 20.1 % in 2010) projects.

Compensation

Compensation expense for the year ended December 31, 2010 was $963,075 compared to $172,537 for the year ended December 31, 2009. The increase of $790,538 results from an increase in sales, marketing and administrative personnel.

Other Operating Expenses

Other operating expense for the year ended December 31, 2010 was $548,189 compared to $234,247 for the year ended December 31, 2009. The increase of $313,942 results from an increase of approximately (i) $81,000 in consulting and professional fees, (ii) $65,000 in marketing costs, (iii) $25,000 in travel and entertainment expenses, (iv) 64,000 in insurance costs and (v) $78,000 other general and administrative expenses.

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Interest Expense

Interest expense for the year ended December 31, 2010 was $ 396,155 compared to $81,083 for the year ended December 31, 2009. This increase results from the beneficial conversion feature embedded in the convertible notes and related debt discount and contractual interest on increased borrowings.

Other income (expense)

During 2010 there was other income recognized from a cancellation of trade liabilities and accrued interest of $73,057 while there were no such debt cancellations during 2009. Additionally in 2010 there was other income of $9,275 recognized due to a change in fair value of derivative conversion option liabilities.

Income Tax Benefit

A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and accordingly no income tax benefit was provided.

Six Months Ended June 30, 2011 Compared to the Six Months ended June 30, 2010:

Six months ended June 30

		2011				2010				Change
Loss from operations			(615,529	)			(275,179	)			(340,350	)
Other income (expenses):			30,420				(67,448	)			97,868
Net Loss			(585,109	)			(342,627	)			(242,482	)

Revenue

Revenue for the six months ended June 30, 2011 was $2,592,683 compared to $1,256,042 for the six months ended June 30, 2010. This increase of $1,336,641 results from an increase of $1,805,004 in block “green steel” sales reduced by $468,363 of lower sales in engineering and project management jobs.

Cost of Revenue and Gross Profit

Cost of revenue increased by $1,365,504 to $2,217,313 for the six months ended June 30, 2011 from $851,809 for the six months ended June 20, 2010. The increase in cost of revenue results from an increase in sales offset by a decrease in the gross profit percentage. Gross profit decreased to $375,370 for the six months ended June 20, 2011 from a gross profit of $404,233 for the six months ended June 30, 2010. The gross profit percentage was 14.5% for the six months ended June 30, 2011 as compared to a gross profit percentage of 32.2% for the six months ended June 30, 2010. This decrease in gross profit percentage results from a decrease in the gross profit percent in block “green steel” sales (from 32.5% during the period in 2010 compared to 13.7% during the period in 2011) offset by an increase in gross profit percent in project management (from 28.8% during the period in 2010 to 41.6% during the period in 2011) and engineering (from 50.6% during the period in 2010 to 83.0% during the period in 2011).

Compensation

Compensation expense was relatively unchanged for the six months ended June 30, 2011 ($468,597) compared to compensation expense for the six months ended June 30, 2010 ($465,648).

Other Operating Expenses

Other operating expense for the six months ended June 30, 2011 was $522,302 compared to $213,764 for the six months ended June 30, 2010. The increase of $308,538 results from an increase of approximately (i) $58,000 in consulting and professional fees, (ii) $78,000 in marketing costs, (iii) $44,000 in travel and entertainment expenses, and (iv) $130,000 of general and administrative expenses.

Interest Expense

Interest expense for the six months ended June 30, 2011 was $2,034 compared to $94,905 for the six months ended June 30, 2010. This decrease results from the maturity and payment or conversion of outstanding interest bearing debts.

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Other income (expense)

During the six months ended June 30, 2011 and June 30, 2010 there was other income recognized from (1) cancellation of trade liabilities and unpaid interest of $30,498 and $41,982, respectively and (2) a change in the fair value of the warrant liability of $1,929 and $0, respectively.

Income Tax Benefit

A 100% valuation allowance was provided against the deferred tax asset consisting of available net operating loss carry forwards and accordingly no income tax benefit was provided.

Impact of Inflation

The impact of inflation upon SG Blocks’ revenue and income/(loss) from continuing operations during each of the past two fiscal years has not been material to its financial position or results of operations for those years because SG Blocks does not maintain any inventories whose costs are affected by inflation.

Liquidity and Capital Resources

Since SG Blocks’ inception in 2008, SG Blocks has generated losses from operations and it anticipates that it will continue to generate losses from operations for the foreseeable future. As of December 31, 2010 and December 31, 2009, SG Blocks’ stockholders’ equity/(deficit) was approximately $440,200 and ($1,191,200), respectively. SG Blocks’ net loss from operations for the years ended December 31, 2010 and 2009 was $ 933,858 and $218,137, respectively. Net cash used in operating activities was $804,405 and $745,906 for the years ended December 31, 2010 and December 31, 2009, respectively. Operations since inception have been funded with the proceeds from equity and debt financings and sales activity. As of December 31, 2010, SG Blocks had cash, cash equivalents of $1,038,661. SG Blocks anticipates that its existing capital resources will enable it to continue operations through at least July 1, 2012.

SG Blocks incurred a net loss of $1,247,644 for the year ended December 31, 2010. SG Blocks’ cash balance as of December 31, 2010 was $1,038,661 and SG Blocks had working capital as of that date of $435,793. Cash used in SG Blocks’ operating activities amounted to $804,405 for the year ended December 31, 2010.

SG Blocks has funded its working capital needs primarily by the issuance of debt and common stock. During 2009, SG Blocks generated net cash proceeds of $1,027,858 from the issuance of notes payable and capital contributions. During 2009, SG Blocks paid off $124,834 of outstanding notes payable. During 2010, SG Blocks generated net cash proceeds of $2,739,797 from the issuance of notes payable and issuance of common stock. During 2010, SG Blocks paid off $999,224 of outstanding notes payable. Also, from January 1, 2011 to June 14, 2011 SG Blocks generated net cash proceeds of $1,200,000 from the issuance of common stock.

Based on the recent progress SG Blocks made in the execution of its business plan, SG Blocks believes that its currently available cash, which includes funds it expects to generate from operations, will enable it to operate its business through at least July 1, 2012. However, SG Blocks will require additional capital in order to execute the longer term aspects of its business plan. If SG Blocks is unable to raise additional capital or encounter unforeseen circumstances that place constraints on its capital resources, SG Blocks will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing its business development activities or suspending the pursuit of its business plan. SG Blocks cannot provide any assurance that it will raise additional capital. SG Blocks has not secured any commitments for new financing at this time, nor can it provide any assurance that new financing will be available to it on acceptable terms, if at all.

Off-Balance Sheet Arrangements

As of December, 2010 and June 30, 2011, SG Blocks had no material off-balance sheet arrangements other than operating leases.

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In the ordinary course of business, SG Blocks enters into agreements with third parties that include indemnification provisions which, in its judgment, are normal and customary for companies in its industry sector. These agreements are typically with consultants and certain vendors. Pursuant to these agreements, SG Blocks generally agrees to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by SG Blocks. The maximum potential amount of future payments SG Blocks could be required to make under these indemnification provisions is unlimited. SG Blocks has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, SG Blocks has no liabilities recorded for these provisions as of December 31, 2010.

Critical Accounting Estimates and New Accounting Pronouncements

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principals generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

Share-Based Payments.  SG Blocks adopted authoritative accounting guidance which establishes standards for share-based transactions in which it receives employee's services in exchange for equity instruments, such as common stock. These authoritative accounting standards require that SG Blocks expense the fair value of stock options and similar awards, as measured on the awards' grant date.

SG Blocks estimates the value of stock awards using valuation models developed by it. The determination of the fair value of share-based payment awards on the date of grant is affected by SG Blocks’ stock price as determined by the valuation model and the assumptions used regarding a number of complex and subjective variables.

If factors change and SG Blocks employs different assumptions in the application of the relevant accounting guidance in future periods, the compensation expense that it records may differ significantly from what it has recorded in the current period. There is a high degree of subjectivity involved when using determining the fair value of our stock to estimate share-based compensation. Consequently, there is a risk that SG Blocks’ estimates of the fair values of its share-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments. Employee stock grants may be forfeited as worthless or otherwise result in zero value as compared to the fair values originally estimated on the grant date and reported in SG Blocks’ financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in SG Blocks’ financial statements.

Derivative Instruments.  Since inception, SG Blocks has issued warrants to purchase its common stock and convertible notes. In accordance with current accounting guidelines, SG Blocks has treated these derivative financial instruments as liabilities on its balance sheet, measured at fair value at issuance date, and re-measured at fair value on each reporting date. SG Blocks records changes in the fair value of these derivative liabilities in income or loss on each balance sheet date. SG Blocks uses both a Black-Scholes option and lattice pricing model, which uses the underlying price of its common stock as one of the inputs to determine the fair value at issuance date and at each subsequent reporting period. As a result, the fair value of the derivative instruments is impacted by changes in the market price of its common stock. The market price of its common stock can be volatile and is subject to factors beyond SG Blocks’ control. These factors include, but are not limited to, trends in the industry in which SG Blocks operates, the market of OTC Bulletin Board quoted stocks in general and sales of SG Blocks’ common stock. As a result, the value of its common stock may change from measurement date to measurement date, thereby resulting in f1uctuations in the fair value of the derivative instruments, which can materially impact its operating results.

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Revenue Recognition.  SG Blocks accounts for its long-term contracts associated with the design, engineering, manufacture and project management of building projects and related services, using the percentage-of-completion accounting method. Under this method, revenue is recognized based on the extent of progress towards completion of the long-term contract.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance. General and administrative costs, marketing and business development expenses and pre-project expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

The asset, “Costs and estimated earnings in excess of billing on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billing in excess of revenue recognized.

SG Blocks offers a one-year warranty on completed contracts. SG Blocks has not incurred any losses to date and nor does it anticipate incurring any losses for warranties that are currently outstanding. Accordingly no warranty reserve is considered necessary for any of the periods presented.

SG Blocks also supplies repurposed containers to its customers. In these cases, SG Blocks serves as a supplier to its customers for standard and made to order products that it sells at fixed prices. Revenue from these contracts is generally recognized when the products have been delivered to the customer, accepted by the customer and collection is reasonably assured. Revenue is recognized upon completion of the following: an order for product is received from a customer; written approval for the payment schedule is received from the customer and the corresponding required deposit or payments are received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is delivered to the customer’s shipping point.

Amounts billed to customers in a sales transaction for shipping and handling are classified as revenue. Products sold are generally paid for based on schedules provided for in each individual customer contract including upfront deposits and progress payments as products are being manufactured.

Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue when they are earned.

New Accounting Pronouncements

In January 2010, FASB issued ASU No. 2010-06 — Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2 fair value measurements. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The adoption of this guidance did not have a material impact on SG Blocks’ consolidated financial statements.

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In February 2010, FASB issued ASU No. 2010-9 — Amendments to Certain Recognition and Disclosure Requirements. This update addresses certain implementation issues related to an entity’s requirement to perform and disclose subsequent-events procedures and removes the requirement that public companies disclose the date of their financial statements in both issued and revised financial statements. According to the FASB, the revised statements include those that have been changed to correct an error or conform to a retrospective application of U.S. GAAP. The adoption of this ASU did not have a material impact on SG Blocks’ consolidated financial statements.

In March 2010, FASB issued ASU No. 2010-11 — Scope Exception Related to Embedded Credit Derivatives. Embedded credit-derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting as clarified by recently issued FASB guidance. Other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately. This update provides guidance on whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and separate accounting. The guidance is effective at the beginning of a company’s first fiscal quarter beginning after June 15, 2010. SG Blocks does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-13, Compensation — Stock Compensation: Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 clarifies that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early adoption permitted. SG Blocks is currently evaluating the potential impact of this standard.

In May 2011, FASB issued ASU No. 2011.04, “Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU addresses fair value measurement and disclosure requirements within Accounting Standards Codification Topic 820 for the purpose of providing consistency and common meaning between U.S. GAAP and IFRSs. Generally, this ASU is not intended to change the application of the requirements in Topic 820. Rather, this ASU primarily changes the wording to describe many of the requirements in U.S. GAAP for measuring fair value or for disclosing information about fair value measurements. This ASU is effective for periods beginning after December 15, 2011. It is not expected to have any material impact on SG Blocks’ consolidated financial statements or disclosures.

Related Party Transactions

ConGlobal Industries, Inc. is a minority stockholder of SG Blocks and provides containers and labor on domestic projects. SG Blocks recognized Cost of Goods Sold of $845,692, $254,251 and $1,851,782, for services ConGlobal Industries, Inc. rendered during the years ended December 31, 2010 and 2009 and for the six months ended June 30, 2011, respectively. For the year ended December 31, 2010 and for the six months ended June 30, 2011, $36,622 and $1,750, respectively, of such expenses are included in accounts payable and accrued expenses in the accompanying balance sheet.

The Lawrence Group is a minority stockholder of SG Blocks and is a building design, development and project delivery firm. SG Blocks recognized Pre-project Expenses of $5,483 and $7,527 for consulting services The Lawrence Group rendered during the years ended December 31, 2010 and 2009, respectively. For the years ended December 31, 2010 and 2009 and for the six months ended June 30, 2011, $103,782, $98,300, and $103,782, respectively, of such expenses are included in accounts payable and accrued expenses in the accompanying balance sheets.

SG Blocks has accrued certain reimbursable expenses of owners of SG Blocks. Such expenses amounted to $47,363, $35,226 and $25,109, for the years ended December 31, 2010 and 2009 and for the six months ended June 30, 2011, respectively.

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OTHER INFORMATION

The Company is subject to the information requirements of the Exchange Act and files annual, quarterly and current event reports, proxy statements and other information with the SEC. You can read the Company’s SEC filings, including the information statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document the Company files with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

CDSI HOLDINGS INC.

Dated: September _, 2011

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CDSI HOLDINGS INC.

		Page
Report of Independent Registered Public Accounting Firm			F-2
Audited Financial Statements:
Balance Sheets			F-3
Statements of Operations			F-4
Statements of Stockholders’ Equity (Deficiency)			F-5
Statements of Cash Flows			F-6
Notes to Financial Statements			F-7
Condensed Financial Statements (Unaudited):
Condensed Balance Sheets as of June 30, 2011 and December 31, 2010			F-11
Condensed Statements of Operations for the three and six months ended June 30, 2011 and 2010			F-12
Condensed Statements of Cash Flows for the six months ended June 30, 2011 and 2010			F-13
Notes to the Condensed Financial Statements			F-14

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of
CDSI Holdings Inc.:

We have audited the accompanying balance sheets of CDSI Holdings Inc. (the “Company”) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity (deficiency), and cash flows for each of the years in the two-year period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the CDSI Holdings, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United State of America.

/s/ Becher Della Torre Gitto & Company PC

Becher Della Torre Gitto & Company PC
Ridgewood, NJ

January 31, 2011

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CDSI HOLDINGS INC.

Balance Sheets

		December 31, 2010				December 31, 2009
Assets:
Current assets:
Cash and cash equivalents		$	5,586			$	9,004
Total assets		$	5,586			$	9,004
Liabilities and Stockholders’ Deficiency:
Current liabilities:
Accounts payable and accrued expenses		$	9,076			$	9,798
Accrued interest on revolving credit promissory note			3,930				1,422
Total current liabilities			13,006				11,220
Revolving credit promissory note from related party			37,500				22,500
Commitments and contingencies			—				—
Stockholders’ deficiency:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding			—				—
Common stock, $.01 par value. Authorized 25,000,000 shares; 3,270,000 and 3,120,000 shares issued and outstanding			32,700				31,200
Additional paid-in capital			8,223,444				8,209,944
Accumulated deficit			(8,301,064	)			(8,265,860	)
Accumulated other comprehensive income			—				—
Total stockholders’ deficiency			(44,920	)			(24,716	)
Total liabilities and stockholders’ deficiency		$	5,586			$	9,004

 
 
See accompanying notes to financial statements.

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CDSI HOLDINGS INC.

Statements of Operations

		Years Ended December 31,
		2010				2009
Revenues		$	—			$	—
Cost and expenses:
General and administrative			35,520				31,343
			35,520				31,343
Operating loss			(35,520	)			(31,343	)
Other income (expense):
Interest income			1				1
Interest expense			(2,510	)			(1,422	)
Recovery of unclaimed property			2,825				—
Total other income (expense)			316				(1,421	)
Net loss		$	(35,204	)		$	(32,764	)
Net loss per share (basic and diluted)		$	(0.01	)		$	(0.01	)
Shares used in computing net loss Per share			3,223,562				3,120,000

 
 
See accompanying notes to financial statements.

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CDSI HOLDINGS INC.

Statements of Stockholders’ Equity (Deficiency)

		Common Stock								Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive Income				Total Stockholders’ Equity (Deficiency)
		Shares				Amount
Balance at January 1, 2009			3,120,000			$	31,200			$	8,209,944			$	(8,233,096	)		$	—			$	8,048
Net loss			—				—				—				(32,764	)			—				(32,764	)
Balance at January 1, 2010			3,120,000			$	31,200			$	8,209,944			$	(8,265,860	)		$	—			$	(24,716	)
Issuance of common stock			150,000				1,500				13,500				—				—				15,000
Net loss			—				—				—				(35,204	)			—				(35,204	)
Balance at December 31, 2010			3,270,000			$	32,700			$	8,223,444			$	(8,301,064	)		$	—			$	(44,920	)

 
 
See accompanying notes to financial statements.

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CDSI HOLDINGS INC.

Statements of Cash Flows

		Years Ended December 31,
		2010				2009
Cash flows from operating activities:
Net loss		$	(35,204	)		$	(32,764	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in assets and liabilities:
Decrease in accounts payable and accrued expenses			(722	)			(1,852	)
Increase in accrued interest on revolving credit promissory note			2,508				1,422
Net cash used in operating activities			(33,418	)			(33,194	)
Net cash from investing activities			—				—
Net cash from financing activities:
Borrowings under revolving credit promissory note			15,000				22,500
Proceeds from issuance of common stock			15,000				—
Net cash provided by financing activities			30,000				22,500
Net decrease in cash			(3,418	)			(10,694	)
Cash and cash equivalents at beginning of period			9,004				19,698
Cash and cash equivalents at end of period		$	5,586			$	9,004
Supplemental cash flow information:
Cash paid during year for:
Interest			—				—
Income taxes			—				—

 
 
See accompanying notes to financial statements.

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CDSI HOLDINGS INC.
  
Notes to Financial Statements

(1) Business and Organization

CDSI Holdings Inc. (the “Company” or “CDSI”) was incorporated in Delaware on December 29, 1993 and is a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934. On January 12, 1999, the Company’s stockholders voted to change the corporate name of the Company from PC411, Inc. to CDSI Holdings Inc. Prior to May 1998, the Company’s principal business was an on-line electronic delivery information service that transmits name, address, telephone number and other related information digitally to users of personal computers (the “PC411 Service”). In May 1998, the Company acquired Controlled Distribution Systems, Inc. (“CDS”), a company engaged in the marketing and leasing of an inventory control system for tobacco products. In February 2000, CDSI announced CDS will no longer actively engage in the business of marketing and leasing the inventory control system. In November 2003, the Company and its wholly-owned subsidiary CDS merged with the Company as the surviving corporation.

At December 31, 2010, the Company had an accumulated deficit of approximately $8,301,064. The Company has reported an operating loss in each of its fiscal quarters since inception and it expects to continue to incur operating losses in the immediate future. The Company has reduced operating expenses and is seeking acquisition and investment opportunities. There is a risk the Company will continue to incur operating losses.

CDSI intends to seek new business opportunities. As CDSI has only limited cash resources, CDSI’s ability to complete any acquisition or investment opportunities it may identify will depend on its ability to raise additional financing, as to which there can be no assurance. There can be no assurance that the Company will successfully identify, complete or integrate any future acquisition or investment, or that acquisitions or investments, if completed, will contribute favorably to its operations and future financial condition.

(2) Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include money market funds with a maturity of three months or less.

Fair Value of Financial Instruments

The fair values of the Company’s cash and cash equivalents and accrued expenses approximate their carrying values due to the relatively short maturities of these instruments. The carrying value of the Revolving Credit Promissory Note is estimated to approximate fair value as the stated note approximates its fair value.

Income Taxes

The Company utilizes the liability method of accounting for deferred income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Computation of Basic and Diluted Net Loss per Share

Basic net loss per share of common stock has been computed by dividing the net loss applicable to common shareholders by the weighted average number of shares of common stock outstanding during the year. Diluted loss per share is computed by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

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CDSI HOLDINGS INC.
  
Notes to Financial Statements – Continued

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Presentation

Certain reclassifications have been made to the 2009 financial information to conform to the 2010 presentation.

Concentrations of Risks

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash held in overnight money market accounts. The Company has no formal policy requiring collateral to support the financial instruments subject to credit risk.

Subsequent Events

On March 26, 2009, the Company and Vector entered into a $50,000 Revolving Credit Promissory Note (the “Revolver”) due December 31, 2012. The loan bears interest at 11% per annum and is due on December 31, 2012. On January 26, 2011, The Company and Vector entered into an amendment to the Revolver increasing the amount that we may borrow thereunder from $50,000 to $100,000.

The Company has evaluated subsequent events through January 31, 2011, the date which the financial statements were available to be issued.

(3) Investments and Fair Value Measurements

The Company utilizes a three-tier framework for assets and liabilities required to be measured at fair value. In addition, the Company uses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost) to value these assets and liabilities as appropriate. The Company uses an exit price when determining the fair value. The exit price represents amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The Company utilizes a three-tier fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1		Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2		Inputs other than quoted prices that are observable for the assets or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3		Unobservable inputs in which there is little market data, which requires the reporting entity to develop their own assumptions

This hierarchy requires the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The Company’s population of recurring financial assets and liabilities subject to fair value measurements and the necessary disclosures consists of approximately $0 and $7,096 of cash invested in a money market fund as of December 31, 2010 and 2009, respectively.

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CDSI HOLDINGS INC.
  
Notes to Financial Statements – Continued

(3) Investments and Fair Value Measurements – (continued)

The fair value determination of the money market fund is a Level 1 asset under the fair value hierarchy. The money market fund is invested in Treasury Funds with quoted prices in active markets.

(4) Related Party Transactions

Certain accounting and related finance functions are performed on behalf of the Company by employees of the Company’s principal stockholder, Vector Group Ltd. (“Vector”). Expenses incurred relating to these functions are allocated to the Company and paid as incurred to Vector based on management’s best estimate of the cost involved. The amounts allocated were immaterial for all periods presented herein.

On March 26, 2009, the Company and Vector entered into a $50,000 Revolving Credit Promissory Note (the “Revolver”) due December 31, 2012. The loan bears interest at 11% per annum and is due on December 31, 2012. There was a balance $37,500 outstanding under the Revolver at December 31, 2010. Interest expense on the Revolver was $2,510 and $1,422 for the years ended December 31, 2010 and 2009, respectively. On January 26, 2011, The Company and Vector entered into an amendment to the Revolver increasing the amount that we may borrow thereunder from $50,000 to $100,000.

(5) Issuance of Common Stock

On April 23, 2010, the Company entered into a stock purchase agreement pursuant to which the Company sold 150,000 shares of the Company’s common stock (the “Shares”) for an aggregate purchase price of $15,000, or $0.10 per Share. The Shares are restricted securities and no registration rights have been granted. The issuance of the Shares was exempt from the registration requirements under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, because the transaction did not involve a public offering.

(6) Stock Options

The Company granted equity compensation under its 1997 Stock Option Plan (the “1997 Plan”), which expired on January 29, 2007 and provided for the grant of options to purchase the Company’s stock to the employees and directors of the Company. The term of the options granted under the 1997 Plan was limited to 10 years from the date of grant.

The Company accounts for stock options by estimating at the date of grant using the Black-Scholes option pricing model.

The final outstanding 9,000 options granted under the 1997 Plan to acquire shares of common stock expired during 2009.

A summary of the Company’s stock option activity is as follows:

		Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value
Outstanding at January 1, 2009			9,000			$	0.44				0.03			$	—
Granted			—				—				—				—
Exercised			—				—				—				—
Forfeited or expired			(9,000	)(1)			0.44				—				—
Outstanding at December 31, 2009 and 2010			—			$	—				—			$	—
Exercisable at December 31, 2009 and 2010			—											$	—
Options vested during period			—											$	—

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CDSI HOLDINGS INC.
  
Notes to Financial Statements – Continued

(7) Preferred Stock

The Company has the authority to issue 5,000,000 shares of Preferred Stock, which may be issued from time to time in one or more series.

(8) Income Taxes

During the years ended December 31, 2010 and 2009, the Company had no income and therefore made no provision for Federal and state income taxes.

At December 31, 2010 and 2009, the Company had approximately $7,093,000 and $7,060,000, respectively, of net operating loss carryforwards for federal and state tax reporting purposes available to offset future taxable income, if any; such carryforwards expire between 2011 and 2030 (federal) and 2011 and 2030 (state). Deferred tax assets and liabilities principally relate to net operating loss carryforwards and aggregate approximately $2,500,000 before valuation allowance. In assessing the realizability of the net deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. As of December 31, 2010, the Company has provided a full valuation allowance against net deferred tax assets due to the Company’s uncertainty of future taxable income against which the deferred tax asset may be utilized. Accordingly, no deferred tax asset has been recorded on the accompanying balance sheet.

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CDSI HOLDINGS INC.

CONDENSED BALANCE SHEETS
(Unaudited)

		June 30, 2011				December 31, 2010
Assets:
Current assets:
Cash and cash equivalents		$	13,430			$	5,586
Total assets		$	13,430			$	5,586
Liabilities and Stockholders’ Deficiency:
Current liabilities:
Accounts payable and accrued expenses		$	37,962			$	9,076
Accrued interest on revolving credit promissory note			8,253				3,930
Total current liabilities			46,215				13,006
Revolving credit promissory note from related party			68,500				37,500
Commitments and contingencies			—				—
Stockholders’ deficiency:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; no shares issued and outstanding			—				—
Common stock, $.01 par value. Authorized 25,000,000 shares; 3,270,000 shares issued and outstanding			32,700				32,700
Additional paid-in capital			8,223,444				8,223,444
Accumulated deficit			(8,357,429	)			(8,301,064	)
Accumulated other comprehensive income			—				—
Total stockholders’ deficiency			(101,285	)			(44,920	)
Total liabilities and stockholders’ deficiency		$	13,430			$	5,586

 
 
See accompanying Notes to Condensed Financial Statements.

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CDSI HOLDINGS INC.

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30, 2011				June 30, 2010				June 30, 2011				June 30, 2010
Revenues		$	—			$	—			$	—			$	—
Cost and expenses:
General and administrative			41,210				9,352				52,042				17,270
			41,210				9,352				52,042				17,270
Operating loss			(41,210	)			(9,352	)			(52,042	)			(17,270	)
Other income (expense):
Interest expense			(1,613	)			(624	)			(4,323	)			(1,245	)
Recovery of unclaimed property			—				2,825				—				2,825
Total other income (expense)			(1,613	)			2,201				(4,323	)			1,580
Net loss		$	(42,823	)		$	(7,151	)		$	(56,365	)		$	(15,690	)
Net loss per share (basic and diluted)		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	(0.00	)
Shares used in computing net loss per share			3,270,000				3,232,087				3,270,000				3,176,353

 
 
See accompanying Notes to Condensed Financial Statements.

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CDSI HOLDINGS INC.

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

		Six Months Ended
		June 30, 2011				June 30, 2010
Cash flows from operating activities:
Net loss		$	(56,365	)		$	(15,690	)
Changes in assets and liabilities:
Increase in other receivable			—				(2,825	)
Increase (decrease) in accounts payable and accrued expenses			28,886				(3,924	)
Increase in accrued interest on revolving credit promissory note			4,323				1,245
Net cash used in operating activities			(23,156	)			(21,194	)
Net cash from investing activities			—				—
Net cash from financing activities
Borrowings under revolving credit promissory note			31,000				15,000
Proceeds from issuance of common stock			—				15,000
Net cash provided by financing activities			31,000				30,000
Net increase in cash and cash equivalents			7,844				8,806
Cash and cash equivalents at beginning of period			5,586				9,004
Cash and cash equivalents at end of period		$	13,430			$	17,810

 
 
See accompanying Notes to Condensed Financial Statements.

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CDSI HOLDINGS INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

(1) Business and Organization

CDSI Holdings Inc. (the “Company” or “CDSI”) was incorporated in Delaware on December 29, 1993 and is a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934. On January 12, 1999, the Company’s stockholders voted to change the corporate name of the Company from PC411, Inc. to CDSI Holdings Inc. Prior to May 1998, the Company’s principal business was an on-line electronic delivery information service that transmitted name, address, telephone number and other related information digitally to users of personal computers (the “PC411 Service”). In May 1998, the Company acquired Controlled Distribution Systems, Inc. (“CDS”), a company engaged in the marketing and leasing of an inventory control system for tobacco products. In February 2000, CDSI announced CDS would no longer actively engage in the business of marketing and leasing the inventory control system. In November 2003, the Company and its wholly-owned subsidiary CDS merged with the Company as the surviving corporation.

At June 30, 2011, the Company had an accumulated deficit of $8,357,429. The Company has reported an operating loss in each of its fiscal quarters since inception and it expects to continue to incur operating losses in the immediate future. There is a risk the Company will continue to incur operating losses.

Through June 30, 2011, CDSI was seeking acquisition and investment opportunities. On July 27, 2011, CDSI entered into a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) by and among CDSI, CDSI Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of CDSI (“Merger Sub”), SG Blocks, Inc., a Delaware corporation (“SG Blocks”), and certain stockholders of SG Blocks (“Signing Stockholders”). See Note 6. Upon the consummation of the transactions contemplated by the Merger Agreement, Merger Sub will be merged with and into SG Blocks, with SG Blocks surviving the merger and becoming a wholly-owned subsidiary of CDSI. As CDSI has only limited cash resources, CDSI’s ability to complete the transactions contemplated by the Merger Agreement or any other acquisition or investment opportunities it may identify will depend on its ability to raise additional financing, as to which there can be no assurance. There can be no assurance that the Company will successfully complete or integrate any acquisition or investment, or that acquisitions or investments, if completed, will contribute favorably to its operations and future financial condition.

(2) Principles of Reporting

The condensed financial statements of the Company as of June 30, 2011 presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position as of June 30, 2011 and the results of operations and cash flows for all periods presented, have been made. Results for the interim periods are not necessarily indicative of the results for the entire year.

These unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (Commission File No. 000-22563).

Use of Estimates

The preparation of the unaudited condensed financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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CDSI HOLDINGS INC.
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

(3) Other Income

The Company recorded other income of $2,825 for the three and six months ended June 30, 2010 due to the recovery of unclaimed property.

(4) Comprehensive Loss

The Company's comprehensive loss was $42,823 and $56,365 for the three and six months ended June 30, 2011, respectively. The Company's comprehensive loss was $7,151 and $15,690 for the three and six months ended June 30, 2010, respectively.

(5) Related Party Transactions

There was a balance of $68,500 and $37,500 outstanding under the 11% Revolving Credit Promissory Note (the “Revolver”) due 2012 at June 30, 2011 and December 31, 2010, respectively. Accrued interest on the Revolver was $8,253 as of June 30, 2011. Interest expense on the Revolver was $1,613 and $624 for the three months ended June 30, 2011 and 2010, respectively. Interest on the Revolver was $4,323 and $1,245 for the six months ended June 30, 2011 and 2010, respectively. Included in the increase in interest expense in the 2011 six-month period was the impact of an error identified by the Company, which resulted in an out-of-period adjustment of approximately $1,390. The error was a mathematical error made in the fourth quarter of 2010. The Company assessed the materiality of this error on the 2010 financial statements in accordance with ASC 250-10-S99-1 and concluded that the error was immaterial to such financial statements. The impact of correcting this error in the current year will not be material to the Company’s 2011 financial statements. This adjustment was recognized within interest expense in the condensed statement of operations.

On January 26, 2011, the Company and Vector entered into an amendment to the Revolver increasing the amount that the Company may borrow thereunder from $50,000 to $100,000.

(6) Subsequent Event

On July 27, 2011, CDSI entered into the Merger Agreement with Merger Sub, SG Blocks and the Signing Stockholders. Upon the consummation of the transactions contemplated by the Merger Agreement, Merger Sub will be merged with and into SG Blocks, with SG Blocks surviving the merger and becoming a wholly-owned subsidiary of CDSI (the “Merger”).

Upon consummation of the Merger, the holders of common stock of SG Blocks will receive an aggregate of 36,050,741 shares of CDSI common stock. Additionally, Ladenburg Thalmann & Co. Inc. (“Ladenburg”) will receive in the Merger 408,750 shares of CDSI common stock pursuant to contractual obligations between SG Blocks and Ladenburg.

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

As a result of the foregoing transactions, the current holders of common stock of CDSI will own an aggregate of 8% of the common stock of CDSI 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 basis and Ladenburg will own an aggregate of 1% of the common stock of CDSI on a fully diluted basis (not including the warrants to purchase shares of CDSI common stock it will receive in the Merger as a result of it currently holding warrants to purchase shares of SG Blocks common stock).

If approved, the Merger is expected to be consummated in September 2011, after the required approval by the stockholders of SG Blocks and the fulfillment of certain other conditions, as described in the Merger Agreement.

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SG BLOCKS, INC.

Financial Statements

December 31, 2010 and 2009
and June 30, 2011

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SG BLOCKS, INC.

Table of Contents

Financial Statements		Page
Balance Sheets			F-19
Statements of Operations			F-20
Statement of Changes in Stockholders’ Equity (Deficit)			F-21
Statements of Cash Flows			F-22
Notes to Financial Statements			F-23 – F-38

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INDEPENDENT AUDITORS’ REPORT

To the Stockholders of
SG Blocks, Inc.

We have audited the accompanying balance sheets of SG Blocks, Inc. (the “Company”) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards established by the Auditing Standards Board (United States) and in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SG Blocks, Inc., as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

September 16, 2011

/s/ MARCUM LLP
Marcum LLP
New York, NY

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SG BLOCKS, INC.

Balance Sheets

		December 31, 2010				December 31, 2009				June 30, 2011
										(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	1,038,661			$	154,527			$	1,542,998
Accounts receivable, net			189,235				285,241				170,163
Costs and estimated earnings in excess of billings on uncompleted contracts			—				14,036				—
Inventory			376,150				77,112				344,923
Prepaid expenses and other current assets			27,778				34,000				11,111
Total current assets			1,631,824				564,916				2,069,195
Equipment, net			4,412				3,790				8,084
Totals		$	1,636,236			$	568,706			$	2,077,279
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses		$	620,457			$	464,882			$	426,159
Accrued compensation and related costs			140,310				—				—
Accrued interest			554				69,075				2,588
Related party accrued expenses			47,363				35,226				25,109
Short-term notes payable			51,247				265,000				51,247
Related party notes payable			—				84,224				—
Billings in excess of costs and estimated earnings on uncompleted contracts			1,800				84,078				—
Deferred revenue			221,951				89,190				406,660
Convertible promissory notes, net of discount of $90,989			—				569,011				—
Derivative conversion option liabilities			—				99,261				—
Warrant liabilities			112,349				—				110,420
Total current liabilities			1,196,031				1,759,947				1,022,183
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 1,000,000 shares authorized; 0 issued and outstanding at December 31, 2010 and 2009 and June 30, 2011			—				—				—
Common stock, $0.001 par value, 5,000,000 shares authorized; 1,541,000 issued and outstanding at December 31, 2010, 848,167 issued and outstanding at December 31, 2009 and 1,781,000 issued and outstanding at June 30, 2011			1,541				848				1,781
Additional paid-in capital			3,799,840				921,443				4,999,600
Accumulated deficit			(3,361,176	)			(2,113,532	)			(3,946,285	)
Total stockholders' equity (deficit)			440,205				(1,191,241	)			1,055,096
Totals		$	1,636,236			$	568,706			$	2,077,279

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SG BLOCKS, INC.

Statements of Operations

		Year Ended December 31, 2010				Year Ended December 31, 2009				Six Months Ended June 30, 2011				Six Months Ended June 30, 2010
										(Unaudited)				(Unaudited)
Revenue:
SG block sales		$	1,190,004			$	284,460			$	2,523,599			$	718,596
Engineering services			181,312				95,795				4,190				74,765
Project management			545,249				98,085				64,894				462,681
			1,916,565				478,340				2,592,683				1,256,042
Cost of revenue:
SG block sales			803,453				200,330				2,178,696				485,532
Engineering services			104,369				39,412				713				36,917
Project management			431,337				49,951				37,904				329,360
			1,339,159				289,693				2,217,313				851,809
Gross profit			577,406				188,647				375,370				404,233
Operating expenses:
Payroll and related expenses			963,075				172,537				468,597				465,648
General and administrative expenses			351,006				155,043				311,537				160,044
Marketing and business development expense			161,425				71,034				165,600				44,337
Pre-project expenses			35,758				8,170				45,165				9,383
Total			1,511,264				406,784				990,899				679,412
Operating loss			(933,858	)			(218,137	)			(615,529	)			(275,179	)
Other income (expense):
Interest expense			(396,155	)			(81,083	)			(2,034	)			(94,905	)
Interest income			37				101				27				34
Change in fair value of derivative liabilities			9,275				—				1,929				(14,559	)
Cancellation of trade liabilities and unpaid interest			73,057				—				30,498				41,982
Total			(313,786	)			(80,982	)			30,420				(67,448	)
Net loss		$	(1,247,644	)		$	(299,119	)		$	(585,109	)		$	(342,627	)

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SG BLOCKS, INC.

Statement of Changes in Stockholders' Equity (Deficit)

For the Years Ended December 31, 2009 and December 31, 2010 and
For the Six Months Ended June 30, 2011 (Unaudited)

		$0.001 Par Value Common Stock								Additional Paid-in Capital				Accumulated Deficit				Total
		Shares				Amount
Balance – January 1, 2009			848,167			$	848			$	902,643			$	(1,814,413	)		$	(910,922	)
Capital contributed			—				—				18,800				—				18,800
Net loss			—				—				—				(299,119	)			(299,119	)
Balance – December 31, 2009			848,167				848				921,443				(2,113,532	)			(1,191,241	)
Issuance of common stock			65,048				65				159,935				—				160,000
Repurchase and retirement of common stock			(17,749	)			(18	)			(49,982	)			—				(50,000	)
Stockholder loan conversion			33,559				34				94,966				—				95,000
Reclassification of derivative conversion options liabilities upon settlement of convertible notes			—				—				162,781				—				162,781
Shares issued upon settlement of convertible debt			19,320				19				96,581				—				96,600
Stock-based compensation			17,655				18				83,490				—				83,508
Stock issued in private offering, net of warrant liabilities in the amount of $112,349, and closing costs in the amount of $431,450			575,000				575				2,330,626				—				2,331,201
Net loss			—				—				—				(1,247,644	)			(1,247,644	)
Balance – December 31, 2010			1,541,000				1,541				3,799,840				(3,361,176	)			440,205
Issuance of common stock			240,000				240				1,199,760				—				1,200,000
Net loss			—				—				—				(585,109	)			(585,109	)
Balance – June 30, 2011 (unaudited)			1,781,000			$	1,781			$	4,999,600			$	(3,946,285	)		$	1,055,096

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SG BLOCKS, INC.

Statements of Cash Flows

		Year Ended December 31, 2010				Year Ended December 31, 2009				Six Months Ended June 30, 2011				Six Months Ended June 30, 2010
										(Unaudited)				(Unaudited)
Cash flows from operating expenses:
Net loss		$	(1,247,644	)		$	(299,119	)		$	(585,109	)		$	(342,627	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense			1,412				923				1,048				574
Interest expense related to amortization and acceleration of debt discount			163,784				8,272				—				49,632
Interest expense related to shares issued upon settlement of convertible debt			96,600				—				—				—
Change in fair value of derivative liabilities			(9,275	)			—				(1,929	)			14,559
Stock-based compensation			83,508				—				—				83,508
Bad debts expense			28,362				6,000				—				—
Cancellation of trade liabilities and unpaid interest			73,057				—				30,498				41,982
Changes in operating assets and liabilities:
Accounts receivable			67,644				(253,031	)			19,072				83,606
Costs and estimated earnings in excess of billings on uncompleted contracts			14,036				(14,036	)			—				(35,196	)
Inventory			(299,038	)			(42,112	)			31,227				42,112
Prepaid expenses and other current assets			6,222				—				16,667				28,975
Cash – overdraft			—				(99,639	)			—				—
Accounts payable and accrued expenses			82,518				(169,843	)			(224,796	)			343,929
Accrued compensation and related costs			140,310				(20,254	)			(140,310	)			(141,208	)
Accrued interest			(68,521	)			56,198				2,034				(6,094	)
Billings in excess of costs and estimated earnings on uncompleted contracts on uncompleted contracts			(82,278	)			11,254				(1,800	)			(30,606	)
Deferred revenue			132,761				89,190				184,709				(89,190	)
Related party accrued expenses			12,137				(19,709	)			(22,254	)			(10,117	)
Net cash provided by (used in) operating activities			(804,405	)			(745,906	)			(690,943	)			33,839
Cash flows used in investing activities
Purchase of equipment			(2,034	)			(2,591	)			(4,720	)			—
Cash flows from financing activities:
Proceeds from convertible notes payable			95,000				660,000				—				—
Principal payments on convertible notes payable			(660,000	)			—				—				—
Proceeds from short-term notes payable			41,247				60,000				—				—
Principal payments on short-term notes payable			(255,000	)			(20,000	)			—				(105,000	)
Proceeds from related party notes payable			—				189,058				—				—
Principal payments on related party notes payable			(84,224	)			(104,834	)			—				(84,224	)
Stockholder capital contributions			—				118,800				—				—
Proceeds from issuances of common stock			160,000				—				1,200,000				100,000
Purchase and retirement of common stock			(50,000	)			—				—				—
Proceeds from issuance of common stock and warrants in private offering			2,443,550				—				—				—
Net cash provided by (used in) financing activities			1,690,573				903,024				1,200,000				(89,224	)
Net increase in cash			884,134				154,527				504,337				(55,385	)
Cash and cash equivalents – beginning of year/period			154,527				—				1,038,661				154,527
Cash and cash equivalents – end of year/period		$	1,038,661			$	154,527			$	1,542,998			$	99,142
Supplemental disclosure of cash flow information:
Cash paid during the year/period for:
Interest		$	129,033			$	14,505			$	—			$	10,881
Supplemental disclosure of non-cash information:
Conversion of debt to common stock		$	95,000			$	—			$	—			$	—