##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-KSB
 
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year ended December 31, 2005
 Commission File Number: 0001-22563
 
 CDSI HOLDINGS INC.
  
 Delaware
(State or other jurisdiction of
incorporation or organization)
    
    95-4463937
(I.R.S. Employer
Identification No.)100 S.E. Second Street, 32nd Floor, Miami, Florida
(Address of principal executive offices)
    
    33131
(Zip Code)
 305-579-8000
 
 Securities registered under Section 12(b) of the Exchange Act:
 Securities registered under Section 12(g) of the Exchange Act:
   ̈
 x  ̈
 x
 x
     ̈ x




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##### 



PART I
 ITEM 1. DESCRIPTION OF BUSINESS
 FORWARD-LOOKING STATEMENTS
 Certain statements made in this Annual Report on Form 10-KSB are forward-looking statements
(within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans
and objectives of management for future operations. Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results, performance or achievements
of the Company to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking statements included
herein are based on current expectations that involve numerous risks and uncertainties. The
Companys plans and objectives are based, in part, on assumptions involving judgments with respect
to, among other things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that its assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements included in this report
will prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, particularly in view of the Companys limited
operations, the inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be achieved. Readers
are cautioned not to place undue reliance on such forward-looking statements, which speak only as
of the date on which such statements are made. Factors that could cause actual results to differ
materially from those express or implied by such forward-looking statements include, but are not
limited to, the factors set forth in this report under the headings The Company, Risk Factors
and Managements Discussion and Analysis of Financial Condition and Results of Operations. The
Company does not undertake to update any forward-looking statement that may be made from time to
time on its behalf.
 THE COMPANY
 Overview
  -1-




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Company History
   ThinkDirectMarketing, Inc.
    -2-




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##### 



Employees
  RISK FACTORS
 Accumulated Deficit; History of Losses.
 Limited Resources and No Source of Operating Revenues
 A Limited Trading Market Exists for Dialog Group Inc.
 Additional Financing Requirements.
 Blind Pool; Broad Discretion of Management.
 -3-




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##### 



Acquisition and Investment Risks.
 Dependence Upon Executive Officers and Board of Directors
 Limited Trading Market
 Absence of Full-Time Management Personnel.
 Concentration of Stock Ownership.
 Absence of Dividends.
 Limitation on Director Liability.
 Dilution.
 -4-




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##### 



Forward-looking Statements.
 ITEM 2. PROPERTIES
  ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -5-




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##### 



PART II
 ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER
               PURCHASES OF EQUITY SECURITIES
  High
    
    
    Low2005Fourth Quarter
    
    $
    0.200
    
    
    $
    0.147Third Quarter
    
    
    0.200
    
    
    
    0.136Second Quarter
    
    
    0.190
    
    
    
    0.120First Quarter
    
    
    0.420
    
    
    
    0.1002004Fourth Quarter
    
    $
    0.140
    
    
    $
    0.080Third Quarter
    
    
    0.090
    
    
    
    0.045Second Quarter
    
    
    0.140
    
    
    
    0.080First Quarter
    
    
    0.160
    
    
    
    0.080
  Dividend Policy
  Recent Sales of Unregistered Securities
  Issuer Purchases of Equity Securities
  -6-




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##### 



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Overview
  ThinkDirectMarketing, Inc.
   Results of Operations
 Revenues
  Expenses
  Other Income
  -7-




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Liquidity and Capital Resources
          -8-




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##### 



ITEM 7. FINANCIAL STATEMENTS
  ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 8A. CONTROLS AND PROCEDURES
   ITEM 8B. OTHER INFORMATION
  -9-




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##### 



PART III
MANAGEMENT
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
  Name
    Age
    PositionRichard J. Lampen
    
    
    52
    
    
    President, Chief Executive Officer and DirectorJ. Bryant Kirkland III
    
    
    40
    
    
    Vice President, Chief Financial Officer, Secretary, Treasurer and DirectorRobert M. Lundgren
    
    
    47
    
    
    DirectorHenry Morris
    
    
    52
    
    
    Director
 Richard J. Lampen
 J. Bryant Kirkland III
 Robert M. Lundgren
 -10-




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##### 



Henry Morris
  Audit Committee
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 nd
 ITEM 10. EXECUTIVE COMPENSATION
 Executive Compensation
  -11-




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##### 



Summary Compensation Table
 Long TermCompensationName and
    
    
    
    
    
    Annual Compensation
    
    Common Shares
    
    All OtherPrincipal Position
    
    Year
    
    Salary
    
    Bonus
    
    Underlying Options
    
    CompensationRichard J. Lampen
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President and Chief
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Officer(1)
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Richard J. Lampen, who has served as President and Chief Executive Officer of the
Company since November 5, 1998, did not receive any salary or other compensation from the
Company in 2005, 2004 or 2003, other than the normal compensation paid to directors of the
Company. See Compensation of Directors. Stock Options
   Employment Agreements
  Compensation of Directors
  -12-




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##### 



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Number of Shares ofName and Address(1)
    
    Common Stock
    
    Percentage of OwnershipNew Valley LLC(2)(3)
    
    
    1,990,000
    
    
    
    55.0
    %J. Bryant Kirkland III(4)
    
    
    9,000
    
    
    
    *Richard J. Lampen(4)
    
    
    9,000
    
    
    
    *Henry Morris(4)
271 Madison Avenue
New York, NY 10016
    
    
    9,000
    
    
    
    *Robert Lundgren(4)
14545 SW 79th Court
Miami, FL 33158
    
    
    16,333
    
    
    
    *All executive officers and directors
as a group (4 persons)(4)
    
    
    43,333
    
    
    
    1.4
    %
 
 *
    
    Less than 1%(1)
    
    Unless otherwise indicated, each named person has sole voting and investment power
with respect to the shares set forth opposite such named persons name.(2)
    
    Includes 500,000 shares subject to warrants, which are currently exercisable and
expire on January 29, 2007.(3)
    
    New Valley LLC, a wholly-owned subsidiary of Vector, has voting and investment power
with regard to such shares. Richard J. Lampen, an executive officer and a director of the
Company, and J. Bryant Kirkland III, an executive officer and a director of the Company, serve
as Executive Vice President and Vice President, respectively, of Vector. Neither Mr. Kirkland
nor Mr. Lampen has investment authority or voting control over the Companys securities owned
by New Valley. The other executive officers of Vector are Bennett S. LeBow, Executive
Chairman, Howard M. Lorber, President and Chief Executive Officer, Joselynn D. Van Siclen,
Vice President, Treasurer and Chief Financial Officer, and Marc N. Bell, Vice President and
General Counsel. The directors of Vector are Messrs. LeBow and Lorber, Henry C. Beinstein,
Ronald J. Bernstein, Robert J. Eide, Jeffrey S. Podell and Jean E. Sharpe.(4)
    
    Includes shares subject to options and/or warrants currently exercisable or
exercisable within 60 days of the date hereof. -13-




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##### 



Equity Compensation Plan Information
  Number of securities
remainingNumber of securities to
    
    
    
    
    
    available for future issuancebe issued upon exercise
    
    Weighted-average exercise
    
    under equity compensationof outstanding options,
    
    price of outstanding
    
    plans (excluding securitieswarrants and rights
    
    options, warrants and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approvedby security holders
(1)
    
    
    653,333
    
    
    $
    4.88
    
    
    
    596,667Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    653,333
    
    
    $
    4.88
    
    
    
    596,667
 
 (1)
    
    Includes options to purchase 153,333 shares of the Companys Common Stock under the 1997
Stock Option Plan and an option to purchase 500,000 shares of Common Stock issued in 1997 to a
wholly-owned subsidiary of New Valley, which were approved by stockholders. For additional
information concerning the options, see Note 6 to the Companys Financial Statements. -14-




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##### 



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  ITEM 13. EXHIBITS
 ExhibitsThe Exhibits listed below are filed as part of this report.3.1
    
    Form of Restated Certificate of Incorporation of the Company (1)3.2
    
    Certificate of Amendment to the Restated Certificate of Incorporation of the Company (2)3.3
    
    Form of By-Laws of the Company (1)10.1
    
    Form of 1997 Stock Option Plan (1)10.2
    
    Form of PC411, Inc. New Valley Corporation Stock Option Plan and Agreement (1)31.1
    
    Certification of Chief Executive Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed herewith.(1)
    
    Previously filed as an Exhibit to the Companys Registration Statement on Form S-1 (File No.
333-21545). This Exhibit is incorporated herein by reference.(2)
    
    Previously filed as an Exhibit to the Companys Form 8-K filed January 14, 1999. This
Exhibit is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Audit Fees
 -15-




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##### 



Audit-Related Fees.
 Tax Fees
 All Other Fees
 -16-




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##### 



SIGNATURES
  CDSI Holdings Inc.By:
    /s/ J. Bryant Kirkland IIIJ. Bryant Kirkland IIIVice President and Chief Financial
Officer POWER OF ATTORNEY
   Signature
    
    Title/s/ Richard J. Lampen

Richard J. Lampen
    
    Director, President and
Chief Executive Officer/s/J. Bryant Kirkland III

J. Bryant Kirkland III
    
    Director, Vice President and
Chief Financial Officer
(principal accounting and financial officer)/s/Henry Morris

Henry Morris
    
    Director/s/Robert Lundgren

Robert Lundgren
    
    Director
 -17-




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CDSI HOLDINGS INC.




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##### 



CDSI HOLDINGS INC.
 Index to Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Audited Financial Statements:Balance Sheet
    
    F-3Statements of Operations
    
    F-4Statements of Stockholders Equity
    
    F-5Statements of Cash Flows
    
    F-6Notes to Financial Statements
    
    F-7




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##### 



Report of Independent Registered Public Accounting Firm
 
     
  F-2




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##### 



CDSI HOLDINGS INC.
  December 31,2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    91,660Investment securities available for sale
    
    
    1,820Total assets
    
    $
    93,480Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    7,000Total current liabilities
    
    
    7,000Commitments and contingencies
    
    
    Stockholders equity: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; 3,120,000 shares issued and outstanding
    
    
    31,200Additional paid-in capital
    
    
    8,209,944Accumulated deficit
    
    
    (8,156,484
    )Accumulated other comprehensive income
    
    
    1,820Total stockholders equity
    
    
    86,480Total liabilities and stockholders equity
    
    $
    93,480
  F-3




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##### 



CDSI HOLDINGS INC.
  Years Ended December 31,2005
    
    
    2004Revenues
    
    $
    
    
    
    $
    Cost and expenses:General and administrative
    
    
    34,061
    
    
    
    41,77634,061
    
    
    
    41,776Operating loss
    
    
    (34,061
    )
    
    
    (41,776
    )Other income:Gain on sale of investments
    
    
    
    
    
    
    4,888Interest income
    
    
    3,125
    
    
    
    1,6753,125
    
    
    
    6,563Net loss
    
    $
    (30,936
    )
    
    $
    (35,213
    )Net loss per share (basic and diluted)
    
    $
    (0.01
    )
    
    $
    (0.01
    )Shares used in computing net loss
per share
    
    
    3,120,000
    
    
    
    3,120,000
  F-4




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##### 



CDSI HOLDINGS INC.
  AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    EquityBalance at January 1, 2004
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,090,335
    )
    
    $
    18,150
    
    
    $
    168,959Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,213
    )
    
    
    
    
    
    
    (35,213
    )Net realized gains
reclassified into net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,888
    )
    
    
    Change in unrealized loss on
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,762
    )
    
    
    (7,650
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,863
    )Balance at December 31, 2004
    
    
    3,120,000
    
    
    $
    31,200
    
    
    
    8,209,944
    
    
    
    (8,125,548
    )
    
    
    10,500
    
    
    
    126,096Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,936
    )
    
    
    
    
    
    
    (30,936
    )Net realized gains
reclassified into net
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized loss on
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,680
    )
    
    
    (8,680
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,616
    )Balance at December 31, 2005
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,156,484
    )
    
    $
    1,820
    
    
    $
    86,480
  F-5




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CDSI HOLDINGS INC.
  Years Ended December 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (30,936
    )
    
    $
    (35,213
    )Adjustments to reconcile net loss to
net cash used in operating activities:Gain on sale of investments
    
    
    
    
    
    
    (4,888
    )Changes in assets and liabilities:Accounts payable and accrued expenses
    
    
    (350
    )
    
    
    (6,175
    )Net cash used in operating activities
    
    
    (31,286
    )
    
    
    (46,276
    )Net cash flows provided from investing activities:Proceeds from sale of investments
    
    
    
    
    
    
    4,888Net cash flows provided from investing activities
    
    
    
    
    
    
    4,888Net cash flows provided from financing activities
    
    
    
    
    
    
    Net decrease
in cash
    
    
    (31,286
    )
    
    
    (41,388
    )Cash and cash equivalents beginning of period
    
    
    122,946
    
    
    
    164,334Cash and cash equivalents at end of period
    
    $
    91,660
    
    
    $
    122,946Supplemental cash flow information:Cash paid during year for:Interest
    
    
    
    
    
    
    Income taxes
    
    
    
    
    
    
    
  F-6




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CDSI HOLDINGS INC.
  (1)
    
    Business and Organization
    (2)
    
    Summary of Significant Accounting Policies
 Cash and Cash Equivalents
  Fair Value of Financial Instruments
  F-7




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##### 



CDSI HOLDINGS INC.
  Investment Securities Available for Sale
  Income Taxes
  Computation of Basic and Diluted Net Loss per Share
  Use of Estimates
  Concentrations of Risks
  F-8




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##### 



CDSI HOLDINGS INC.
  (3)
    
    ThinkDirectMarketing, Inc. Transaction
     F-9




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##### 



CDSI HOLDINGS INC.
  (4)
    
    Investment Securities Available for Sale
  (5)
    
    Related Party Transactions
  (6)
    
    Stock Options
  F-10




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##### 



CDSI HOLDINGS INC.
   Exercise
    
    Number
    
    Weighted Average
    
    NumberPrice
    
    Outstanding
    
    Contractual Life (Years)
    
    Exercisable$0.28
    
    
    6,000
    
    
    
    2.85
    
    
    
    6,0000.44
    
    
    12,000
    
    
    
    3.04
    
    
    
    12,0001.50
    
    
    110,000
    
    
    
    2.25
    
    
    
    110,0005.50
    
    
    25,333
    
    
    
    1.39
    
    
    
    25,333153,333
    
    
    
    
    
    
    
    153,333
      (7)
    
    Preferred Stock
  F-11




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##### 



CDSI HOLDINGS INC.
  (8)
    
    Income Taxes
   (9)
    
    Contingencies
  F-12