Filing and business context
This is SG Blocks, Inc. (formerly CDSI Holdings Inc.)’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The request metadata names Olenox Industries Inc., but the filing itself identifies SG Blocks, Inc.; verify the issuer identity. During the reported period, the company was a shell seeking acquisition and investment opportunities. The merger with SG Blocks was completed on November 7, 2011, after quarter-end. SG Blocks provides engineered, repurposed cargo-container building products.
Financial results and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| General and administrative expense | $60,095 | $9,590 | $112,137 | $26,860 |
| Operating loss | $(60,095) | $(9,590) | $(112,137) | $(26,860) |
| Interest expense | $(1,926) | $(632) | $(6,249) | $(1,877) |
| Net loss | $(62,021) | $(10,222) | $(118,386) | $(25,912) |
Basic and diluted loss per share was $0.02 for Q3 2011 and $0.04 for the first nine months of 2011; the comparable 2010 figures were $0.00 and $0.01, respectively. No revenue was reported, so revenue-based margins are not meaningful.
At September 30, 2011, cash was $3,072, total assets were $3,072, current liabilities were $97,878, and the related-party revolving note balance was $68,500. Accrued interest on the note was $10,179. Stockholders’ deficiency was $163,306. The note bears 11% interest and is due December 31, 2012; its borrowing limit was increased to $100,000 in January 2011.
For the nine months, operating cash use was $33,514, financing provided $31,000, and cash declined $2,514 to $3,072. Investing cash flow was zero.
Changes, outlook and risks
- Compared with 2010, 2011 losses increased substantially, primarily as corporate expenses rose; management attributed much of the increase to legal costs for the pending merger and public-company costs. Interest expense also increased, partly due to greater borrowing.
- The 2010 nine-month results included $2,825 from recovery of unclaimed property; no such income was reported in 2011.
- The company disclosed an approximately $1,390 out-of-period interest adjustment for a mathematical error from Q4 2010, which management considered immaterial to both the prior-year statements and 2011.
- Management said it expected to continue operating losses and had limited cash, cash flow, and liquid assets, but believed it could continue as a going concern for the next 12 months, while acknowledging no assurance.
- The post-quarter merger issued 36,050,741 shares to SG Blocks holders and 408,750 shares to Ladenburg, and replaced SG Blocks warrants with warrants covering 1,145,509 shares. Former SG Blocks stockholders and warrant holders were reported to own 91% of the combined company on a fully diluted basis; former registrant holders 8% and Ladenburg 1%, subject to the stated warrant qualification. The filing reports 39,729,491 common shares outstanding on November 10, 2011.
- No specific financial guidance is provided. The filing states there were no legal proceedings, and management reported disclosure controls effective with no material changes to internal control over financial reporting.
Investor verification priorities
- Confirm the correct issuer and security, given the discrepancy between the request metadata and the filing’s SG Blocks identity.
- Review the merger’s final terms, post-merger capitalization, warrant dilution, and any later filings describing the combined business.
- Assess the company’s near-term liquidity, related-party financing availability and repayment terms, and ability to fund operations after the merger.
- Verify the reported $1,390 interest adjustment and its accounting treatment in the relevant filings.