SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549







FORM
10-K








ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the Fiscal Year ended December 31, 2010





Commission
File Number: 000-22563







CDSI
HOLDINGS INC.


(Name of
registrant as specified in its charter)







Delaware
              
              95-4463937(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)100
      S.E. Second Street, 32nd
      Floor, Miami, Florida
              
              33131(Address
      of principal executive offices)
              
              (Zip
      Code)305-579-8000(Issuer’s
      telephone number)










Securities registered under Section
12(b) of the Exchange Act:  None


Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, par value $.01 per share





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈
Yes]   x
No





Indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act.     ̈ Yes
x
No





Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x
Yes    ̈
No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   ̈
Yes    ̈
No





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant’s knowledge, in
definitive proxy or information statement incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.  x





Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer.  See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.    ̈ Large
accelerated filer      ̈
Accelerated filer      ̈
Non-accelerated filerSmaller Reporting Company x





Indicate by check mark whether the
Registrant is a shell company as defined in Rule 12b-2 of the Exchange
Act.  x
Yes    ̈
No





The aggregate market value of the
common stock held by non-affiliates of CDSI Holdings Inc. as of June 30, 2010
was approximately $472,700.





As of January 31, 2011, the issuer
had a total of 3,270,000 shares of common stock
outstanding.








CDSI
HOLDINGS INC.


FORM
10-K





TABLE OF
CONTENTS





PagePART
      IItem
      1.
                              Business
                              2Item
      1A.
                              Risk
      Factors
                              3Item
      1B.
                              Unresolved
      Staff Comments
                              5Item
      2.
                              Properties
                              5Item
      3.
                              Legal
      Proceedings
                              5Item
      4.
                              Reserved
                              5PART
      IIItem
      5.
                              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                              6Item
      7.
                              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              7Item
      8.
                              Financial
      Statements
                              8Item
      9.
                              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                              8Item
      9A(T)
                              Controls
      and Procedures
                              9Item
      9B.
                              Other
      information
                              10PART
      IIIItem
      10.
                              Directors,
      Executive Officers and Corporate Governance
                              11Item
      11.
                              Executive
      Compensation
                              14Item
      12.
                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                              16Item
      13.
                              Certain
      Relationships and Related Transactions, and Director
      Independence
                              17Item
      14.
                              Principal
      Accounting Fees and Services
                              17PART
      IVItem
      15.
                              Exhibits
      and Financial Statement Schedules
                              18SIGNATURES
                              19


- 1
-





PART
I





ITEM
1.                BUSINESS





FORWARD-LOOKING
STATEMENTS





Certain
statements made in this Annual Report on Form 10-K 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 ours 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.  Our 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 us.  Although we believe that our 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 our limited
operations, the inclusion of such information should not be regarded as a
representation by us or any other person that the objectives and plans of ours
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 expressed 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”.  We do
not undertake to update any forward-looking statement that may be made from time
to time on our behalf.





THE
COMPANY





Overview





CDSI Holdings Inc. is a shell company
as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and holds
limited amounts of cash.





We intend
to seek new business opportunities.  As we have only limited cash
resources, our ability to complete any acquisition or investment opportunities
we may identify will depend on our ability to raise additional financing, as to
which there can be no assurance.  There can be no assurance that we
will successfully identify, complete or integrate any future acquisition or
investment, or that acquisitions or investments, if completed, will contribute
favorably to our operations and future financial condition.


- 2
-





Company
History





We were incorporated in Delaware in
December 1993 under the name PC411, Inc.  In January 1999, we changed
our name to CDSI Holdings Inc. to reflect the change in our principal
business.





We were 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, we transferred substantially all of the non-cash assets and certain
liabilities used in our 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, we sold
our remaining 2,800 shares of Dialog Common Stock for $204.





In May 1998 we 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, we
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, we and our
wholly-owned subsidiary CDS merged with CDSI Holdings Inc. as the surviving
corporation.





Employees





As of December 31, 2010, we had two
employees, our President and Chief Executive Officer and our Vice President and
Chief Financial Officer, both of whom are also employees of Vector Group Ltd.
(“Vector”), our largest stockholder. We believe that we have good relations with
our employees.





ITEM
1A.             RISK
FACTORS





Accumulated Deficit; History of
Losses.At December 31, 2010, we had an accumulated deficit of
approximately $8.3 million.  We have reported an operating loss in
each of our fiscal quarters since inception and expect to continue to incur
operating losses in the immediate future.  We have reduced operating
expenses and are seeking acquisition and investment
opportunities.  There is a risk that we will continue to incur
operating losses.





Limited Resources and No Source of
Operating Revenues.  At December 31, 2010, we had cash and cash
equivalents of $5,586 and negative working capital of $7,420.  Since
the sale of CDS’s vending route in October 2000, we have had no source of
operating revenue.  We will not achieve any significant revenues until
the consummation of an acquisition or investment, if ever.  Moreover,
there can be no assurance that any acquisition or investment, if achieved, will
result in material revenues from our operations or that we will operate on a
profitable basis.





Additional Financing
Requirements.Our ability to complete any acquisition or
investment opportunities we may identify will depend upon the availability of,
and our ability to secure, new equity or debt financing.  Further,
there can be no assurance that we will be able to generate levels of revenues
and cash flows sufficient from any acquisition or investment to fund operations
or that we will be able to obtain financing on satisfactory terms, if at all, to
achieve profitable operations.


- 3
-





“Blind Pool”; Broad Discretion of
Management.  Prospective investors who invest in us will do so
without an opportunity to evaluate the specific merits or risks of any proposed
transactions.  As a result, investors will be entirely dependent on
the broad discretion and judgment of management in connection with the
application of our working capital and the selection of an acquisition or
investment target.  There can be no assurance that determinations
ultimately made by us will permit us to achieve profitable
operations.





Acquisition and Investment
Risks.  As part of our business strategy, we may evaluate new
acquisition and investment opportunities.  Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations and
products or services of the acquired companies, the expenses incurred in
connection with the acquisition and subsequent assimilation of operations and
products or services and the potential loss of key employees of the acquired
company.  There can be no assurance that we will successfully
identify, complete or integrate any future acquisitions or investments or that
completed acquisitions or investments will contribute favorably to our
operations and future financial condition.





Dependence Upon Executive Officers
and Board of Directors.  The ability of us to successfully
effect a transaction will be largely dependent upon the efforts of our
management and the Board of Directors.  We only have two employees,
none of whom work full-time for us.  No assurance can be given that
the Board of Directors and management will be successful in consummating a
transaction and achieving profitability.





Limited Trading
Market.  Since 1999, our common stock has been traded on the
OTC Bulletin Board of the National Association of Security Dealers,
Inc.  There is a limited trading market in our shares and a
stockholder could likely find it difficult to sell or to obtain quotations as to
prices of our shares.  During 2010, the average daily trading volume
of our Common Stock was approximately 1,209 shares, with 207 days of 252 trading
days having no trading activity.  No assurances can be given that our
Common Stock will continue to trade on the OTC Bulletin Board or that an orderly
trading market will be maintained for our common stock.





Absence of Full-Time Management
Personnel.Our current President
and Chief Executive Officer and our Vice President and Chief Financial Officer
are executive officers of Vector.  Neither of these individuals
devotes his full time and attention to our affairs.





Concentration of Stock
Ownership.  Vector beneficially owns approximately 45.6% of our
outstanding common stock.  As a result, Vector effectively controls
all matters requiring stockholder approval, including the election of directors,
the appointment of officers and approval of significant corporate transactions
including a merger, an acquisition or a sale of all or substantially all of our
assets.  Such concentration of ownership may also have the effect of
delaying or preventing a change in control.  In addition, we are
subject to a State of Delaware statute regulating business combinations, which
may also hinder or delay a change of control.





Absence of
Dividends.We have never paid nor do we expect in the
foreseeable future to pay any dividends.





Limitation on Director
Liability.
To the extent permitted under the Delaware General Corporation Law, our Restated
Certificate of Incorporation limits the liability of directors for monetary
damages for breaches of a director's fiduciary duty, including breaches that
constitute gross negligence.  As a result, under certain
circumstances, neither us nor our stockholders may be able to recover damages
from directors.


- 4
-


Dilution.  Our Board
of Directors, without any action by the stockholders, is authorized to designate
and issue additional classes or series of capital stock (including classes or
series of preferred stock) as it deems appropriate and to establish the rights,
preferences and privileges of such classes or series.  The issuance of
any new class or series of capital stock would not only dilute the ownership
interest of our current stockholders but may also adversely affect the voting
power and other rights of holders of common stock.  The rights of
holders of preferred stock and other classes of common stock that may be issued
may be superior to the rights of the holders of the existing class of common
stock in terms of the payment of ordinary and liquidating dividends and voting
rights.





Forward-looking
Statements.  This report contains forward-looking statements
that involve risks and uncertainties.  Words such as “anticipate,”
“believes,” “expects,” “future” and “intends” and similar expressions are used
to identify forward-looking statements.  You should not unduly rely on
these forward-looking statements, which apply only as of the date of this
report.  Our actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks described above and elsewhere in this report.





ITEM
1B.             UNRESOLVED
STAFF COMMENTS





None





ITEM
2.                PROPERTIES





Our corporate offices are located in
the executive offices of Vector.  We believe that our current
facilities are adequate for the foreseeable future.





ITEM
3.                LEGAL
PROCEEDINGS





We are not a party to any legal
proceedings.





ITEM
4.                RESERVED


- 5
-





PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASE OF EQUITY SECURITIES





Our 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 our 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
                                  
                                  
                                  Low2010Fourth
      Quarter
                                  
                                  $
                                  0.30
                                  
                                  
                                  $
                                  0.14Third
      Quarter
                                  
                                  
                                  0.20
                                  
                                  
                                  
                                  0.18Second
      Quarter
                                  
                                  
                                  0.30
                                  
                                  
                                  
                                  0.07First
      Quarter
                                  
                                  
                                  0.14
                                  
                                  
                                  
                                  0.072009Fourth
      Quarter
                                  
                                  $
                                  0.12
                                  
                                  
                                  $
                                  0.07Third
      Quarter
                                  
                                  
                                  0.10
                                  
                                  
                                  
                                  0.06Second
      Quarter
                                  
                                  
                                  0.13
                                  
                                  
                                  
                                  0.05First
      Quarter
                                  
                                  
                                  0.13
                                  
                                  
                                  
                                  0.10





As of
January 14, 2011, there were 24 holders of record of our common
stock.





Dividend Policy





We have never declared or paid
dividends on our common stock and do not expect to pay any dividends in the
foreseeable future.





Recent Sales of Unregistered
Securities





On April
23, 2010, we entered into a stock purchase agreement pursuant to which we sold
150,000 shares of our 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.





Issuer
Purchases of Equity Securities





No
securities of ours were repurchased by us during 2010.


- 6
-





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Overview





We intend
to seek new business opportunities.  As we have only limited cash
resources, our ability to complete any acquisition or investment opportunities
we may identify will depend on our ability to raise additional financing, as to
which there can be no assurance.  There can be no assurance that we
will successfully identify, complete or integrate any future acquisition or
investment, or that acquisitions or investments, if completed, will contribute
favorably to our operations and future financial condition.





Results
of Operations





Revenues





For the years ended December 31, 2010
and 2009, we did not generate revenues from operations.





Expenses





Expenses
associated with corporate activities were $35,520 and $31,343 for the years
ended December 31, 2010 and 2009, respectively.  The expenses in both
years were primarily associated with costs necessary to maintain a public
company, which consist primarily of directors’ fees, auditing fees and stock
transfer fees.





Other
Income





Interest
expense was $2,510 and $1,422 for the years ended December 31, 2010 and 2009,
respectively.  The increase in interest expense is related to the
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 we previously conducted business. In December 2009, we
filed for refunds of approximately $2,800 and in July 2010 were notified that
the refund claims had been approved for payment.




Liquidity
and Capital Resources





At
December 31, 2010, we had an accumulated deficit of $8,301,064.  We
have reported an operating loss in each of our fiscal quarters since inception
and we expect to continue to incur operating losses in the immediate
future.  We have reduced operating expenses and are seeking
acquisition and investment opportunities.  No assurance can be given
that we will not continue to incur operating losses.





We have
limited available cash, limited cash flow, limited liquid assets and no credit
facilities.  We have not been able to generate sufficient cash from
operations and, as a consequence, financing has been required to fund ongoing
operations.  Since completion of our initial public offering of our
common stock (the “IPO”) in May 1997, we have primarily financed our 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.


- 7
-





Cash used
for operations for the years ended December 31, 2010 and 2009 was $33,418 and
$33,194, respectively. The increase is associated primarily with the timing of
payments of accounts payable and accrued liabilities offset by the increase in
accrued interest on the Revolver.  We evaluate our accruals on a
quarterly basis and make adjustments when appropriate.





Cash from
financing activities for the years ended December 31, 2010 and 2009 was $30,000
and $22,500, respectively.  Cash provided by financing activities was
from the proceeds from the sale of common stock of $15,000 and borrowings under
the Revolving Credit Promissory Note (the “Revolver”) of $15,000 for the year
ended December 31, 2010.   Cash provided by financing activities
was from the borrowings under the Revolver of $22,500 for the year ended
December 31, 2009.





We do not
expect significant capital expenditures during the year ended December 31,
2010.





At
December 31, 2010, we had cash and cash equivalents of $5,586.





Inflation
and changing prices had no material impact on revenues or the results of
operations for the years ended December 31, 2010 and 2009.





In March
2009, we entered into the Revolver, a revolving credit promissory note where our
principal stockholder, Vector, agreed to lend us $50,000 to meet our liquidity
requirements over the next twelve months.  The facility bears interest
at 11% per annum and is due on December 31, 2012. The facility had a balance of
$37,500 at December 31, 2010.  Interest expense on the facility was
$2,510 and $1,422 for the years ended December 31, 2010 and 2009,
respectively.  On January 26, 2011, we and Vector entered into an
amendment to the Revolver increasing the amount that we may borrow thereunder
from $50,000 to $100,000.





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





We or our
affiliates, including Vector, may, from time to time, based upon present market
conditions, purchase shares of the common stock in the open market or in
privately negotiated transactions.





ITEM
      8.
            FINANCIAL
      STATEMENTS





Our
financial statements and the notes thereto, together with the report thereon of
Becher Della Torre Gitto & Company PC dated January 31, 2011, appear
beginning on page F-1 of this report.





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None


- 8
-





ITEM
      9A (T).
            CONTROLS
      AND PROCEDURES





(a) Evaluation of
Disclosure Controls and Procedures




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of
December 31, 2010.  Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of December 31,
2010, such disclosure controls and procedures were effective in ensuring
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934, as amended, is (i) recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and (ii) accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.




(b)
Management’s Annual Report on Internal Control over Financial
Reporting




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended.  Under the supervision and
with the participation of management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of our internal control
over financial reporting as of December 31, 2010 based on the framework
contained in the report titled“Internal Control —
Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).  This evaluation
included review of the documentation of controls, evaluation of the design
effectiveness of controls, testing of the operating effectiveness of controls
and a conclusion on this evaluation.  Based on that evaluation, management
concluded that our internal control over financial reporting was effective as of
December 31, 2010.




This
annual report does not include an attestation report of Becher Della Torre Gitto
& Company PC, our independent registered public accounting firm, regarding
internal control over financial reporting. Our report is not subject to
attestation by our independent registered public accounting firm pursuant to
rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this annual report.





(c)
Inherent Limitations on Effectiveness of Controls




Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls or our internal control over
financial reporting will prevent or detect all errors and all fraud.  A
control system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met.  Further, the design of a control system must reflect the fact
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and breakdowns can occur because of simple error or mistake.
 Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
any design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.  Because of the inherent limitations in a cost-effective
control system, misstatements due to errors or fraud may occur and not be
detected. Our disclosure controls and procedures are designed to provide a
reasonable level of assurance that their objectives are
achieved.


- 9
-




(d)
Changes in Internal Control Over Financial Reporting




There
were no changes in our internal controls over financial reporting that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.





ITEM
      9B.
            OTHER
      INFORMATION





None.


- 10
-





PART
III


MANAGEMENT





ITEM
10.              DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Set forth below are the names, ages and
positions of our directors and executive officers as of January 31,
2011.





Name
                
                Age
                
                PositionRichard
      J. Lampen
                
                57
                
                President,
      Chief Executive Officer and DirectorJ.
      Bryant Kirkland III
                
                45
                
                Vice
      President, Chief Financial Officer, Secretary,
      Treasurer and DirectorRobert
      M. Lundgren
                
                52
                
                DirectorGlenn
      L. Halpryn
                
                50
                
                Director





Richard J.
Lampen, age 57, has served as President and Chief Executive Officer of
ours since November 1998 and as our director since
January 1997.  Mr. Lampen has also served as Executive Vice
President of Vector since July 1996.  Mr. Lampen has also served as
President and Chief Executive Officer of Ladenburg Thalmann Financial Services
Inc. (AMEX:LTS), an entity which Vector owns an approximate 8% equity interest,
since September 2006.  Since October 2008, Mr. Lampen has served as
interim President and Chief Executive Officer of Castle Brands Inc. (AMEX:ROX),
a publicly traded developer and importer of premium branded spirits in which
Vector held an approximate 11% equity interest at December 31,
2010.  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, age
45, has served as our Vice President, Chief Financial Officer, Secretary and
Treasurer since January 1998 and as our director since November
1998.  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, since November 1994 and from January 1998 to
December 2005 as the Vice President, Treasurer and Chief Financial Officer of
New Valley Corporation.  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.


- 11
-





Robert M.
Lundgren, age 52, has served as our director since January
1997.  He also served as our 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, 50 -
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. (AMEX:ROX), a developer and
international marketer of premium branded spirits, and SearchMedia Holdings
Limited (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. (AMEX:IVD). Mr. Halpryn
served as Chairman of the board of directors and Chief Executive Officer of
Orthodontix, Inc. (now Protalix Bio Therapeutics, Inc.) (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.





Each director of ours holds office
until the next annual meeting of stockholders or until his successor is elected
and qualified.  At present, our By-laws provide for not less than two
directors or more than nine directors. Currently, there are four
directors.  The By-laws permit the Board of Directors to fill any
vacancy and such director may serve until the next annual meeting of
stockholders or until his successor is elected and
qualified.  Officers serve at the discretion of the Board of
Directors.





Audit
Committee





The Audit Committee of our Board of
Directors consists of Mr. Lundgren and Mr. Halpryn.  Our Board of
Directors has determined that Mr. Lundgren is an “audit committee financial
expert” and “independent’ as those terms are defined under the applicable
Securities and Exchange Commission rules.  In determining that Mr.
Lundgren was “independent”, the Board used the definition of independence in
Rule 4200(a)(15) of the NASD’s listing standards.


- 12
-





Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities
Exchange Act of 1934 requires our officers and directors, and persons who own
more than ten percent of a registered class of our equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC").  Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms which they file.  Based solely on review of
the copies of such forms furnished to us, or written representations that no
Forms 5 were required, we believe that, during and with respect to the fiscal
year ended December 31, 2010, all officers and directors complied with
applicable Section 16(a) filing requirements.





Code
of Ethics





We have adopted a Code of Ethics that
applies to our two employees, our President and Chief Executive Officer and our
Vice President and Chief Financial Officer.  We will provide, without
charge, a copy of the Code of Ethics on the written request of any person
addressed to our Chief Financial Officer at CDSI Holdings Inc., 100 S.E. Second
Street, 32nd Floor,
Miami, Florida 33131.


- 13
-





ITEM
11.              EXECUTIVE
COMPENSATION





Executive
Compensation





The following table sets forth the
combined remuneration paid or accrued by us during our last two fiscal years to
those persons who were, at December 31, 2010, our Principal Executive Officer or
who were executive officers whose cash compensation exceeded $100,000 (the
"named executive officers”).





Summary
Compensation Table





Name and
                                                                Principal Position
                                                              
                                                              Year
                                                              
                                                              Salary ($)
                                                              
                                                              
                                                              Bonus ($)
                                                              
                                                              
                                                              Stock
                                                                Awards ($)
                                                              
                                                              
                                                              Option
                                                                Awards
                                                                ($)
                                                              
                                                              
                                                              Non-Equity
                                                                IncentivePlan
                                                                Compensation
                                                                ($)
                                                              
                                                              
                                                              Nonqualified
                                                                Deferred
                                                                Compensation
                                                                Earnings
                                                                ($)
                                                              
                                                              
                                                              All Other
                                                                Compensation
                                                                ($)
                                                              
                                                              Total
                                                                Compensation
                                                                ($)Richard
      J. Lampen
                                                              
                                                              2010
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              NonePresident
      and ChiefExecutive
      Officer(1)
                                                              
                                                              2009
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              None








(1)
            Richard
      J. Lampen, who has served as our President and Chief Executive Officer
      since November 5, 1998, did not receive any salary or other compensation
      from us in 2010 or 2009, other than the normal compensation paid to
      directors of ours.  See "Compensation of
    Directors."





Stock
Options





In order to attract and retain persons
necessary for our business, we adopted the 1997 Stock Option Plan (the "Option
Plan") covering up to 750,000 shares, pursuant to which officers, directors and
key employees of ours and our consultants are eligible to receive incentive
and/or non-incentive stock options.  The Option Plan, which expired on
January 29, 2007, was administered by the Board of Directors or the Compensation
Committee.  All options outstanding expired on January 12,
2009.





Employment
Agreements and Other Compensation Plans





We are
not party to any employment agreements or other compensation plans.





Compensation
of Directors





We pay each director an annual retainer
of $5,000, payable quarterly, and reimburse the directors for reasonable travel
expenses incurred in connection with their activities on our
behalf.


- 14
-





The table
below summarizes the compensation paid by us to non-employee directors for the
fiscal year ended December 31, 2010.





Name
                                        
                                        Fees
                                          Earned
                                          or Paid
                                          in Cash
                                          ($)
                                        
                                        
                                        Stock
                                          Awards
                                          ($)
                                        
                                        
                                        Option
                                          Awards
                                          ($)
                                        
                                        
                                        Non-Equity
                                          IncentivePlan
                                          Compensation
                                          ($)
                                        
                                        
                                        Changes in
                                          Pension
                                          Value and
                                          Nonqualified
                                          Deferred
                                          Compensation
                                          Earnings($)
                                        
                                        
                                        All Other
                                          Compensation
                                          ($)
                                        
                                        
                                        Total ($)Richard
      J. Lampen
                                        
                                        $
                                        5,000
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        $
                                        5,000J.
      Bryant Kirkland III
                                        
                                        $
                                        5,000
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        $
                                        5,000Robert
      M. Lundgren
                                        
                                        $
                                        5,000
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        $
                                        5,000Glenn
      L. Halpryn
                                        
                                        $
                                        2,500
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        
                                        
                                        $
                                        2,500


- 15
-





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
      AND RELATED STOCKHOLDER MATTERS





The following table sets forth, as of
January 31, 2011, the beneficial ownership of our common stock (the only class
of voting securities) by (i) each person known to us to own beneficially more
than five percent of the common stock, (ii) each of our directors, (iii) each of
our named executive officers (as such term is defined in the Summary
Compensation Table above) and (iv) all directors and executive officers as a
group.  Unless otherwise indicated, each person possesses sole voting
and investment power with respect to the shares indicated as beneficially owned,
and the business address of each person is 100 S.E. Second Street, Miami,
Florida 33131.





Name and Address(1)
                          
                          Number of
                            Shares of
                            Common Stock
                          
                          
                          Percentage of OwnershipVector
      Group Ltd.(2)
                          
                          
                          1,490,000
                          
                          
                          
                          45.6
                          %T.
      Baulch(3)
                            5315-B
      FM 1960 West, #239
                            Houston,
      TX 77069
                          
                          
                          200,583
                          
                          
                          
                          6.1
                          %Glenn
      L. Halpryn
                            4400
      Biscayne Boulevard, #950
                            Miami,
      FL 33137
                          
                          
                          150,000
                          
                          
                          
                          4.6
                          %J.
      Bryant Kirkland III
                          
                          
                          -
                          
                          
                          
                          0.0
                          %Richard
      J. Lampen
                          
                          
                          -
                          
                          
                          
                          0.0
                          %Robert
      Lundgren
                            14545
      SW 79th Court
                            Miami,
      FL 33158
                          
                          
                          -
                          
                          
                          
                          0.0
                          %All
      executive officers and directors
                            as
      a group (4 persons)
                          
                          
                          150,000
                          
                          
                          
                          4.6
                          %





(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)
            Vector
      has voting and investment power with regard to such
      shares.  Richard J. Lampen, an executive officer and a director
      of ours, and J. Bryant Kirkland III, an executive officer and a director
      of ours, serve as Executive Vice President and Vice President,
      respectively, of Vector.  Neither Mr. Kirkland nor
      Mr. Lampen has investment authority or voting control over our
      securities owned by Vector.  The other executive officers of
      Vector are Howard M. Lorber, President and Chief Executive Officer and
      Marc N. Bell, Vice President and General Counsel.  The directors
      of Vector are Mr. Lorber, Bennett S. LeBow, Henry C. Beinstein, Ronald J.
      Bernstein, Robert J. Eide, Jeffrey S. Podell and Jean E.
      Sharpe.


(3)
            Based
      on Schedule 13G filed on February 16, 2010 by T.
  Baulch.


- 16
-





Equity
Compensation Plan Information





There were no outstanding options,
warrants, rights and other equity compensation under any equity plans as of
December 31, 2010.





ITEM
13.             CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS





Certain
accounting and related finance functions are performed on behalf of us by
employees of our principal stockholder, Vector.  Expenses incurred
relating to these functions are allocated to us 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, we 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 and is due on December 31, 2012.  There was
a balance $37,500 outstanding under the Revolver at December 31,
2010.  On January 26, 2011, we and Vector entered into an amendment to
the Revolver increasing the amount that we may borrow thereunder from $50,000 to
$100,000.





ITEM
14.             PRINCIPAL
ACCOUNTING FEES AND SERVICES





The Audit
Committee reviews and approves audit and permissible non-audit services
performed by Becher Della Torre Gitto & Company PC, as well as the fees
charged for such services.  In our review of non-audit service fees
and our appointment of Becher Della Torre Gitto & Company PC as our
independent accountants, the Audit Committee considered whether the provision of
such services is compatible with maintaining Becher Della Torre Gitto &
Company PC’s independence.  All of the services provided and fees
charged by Becher Della Torre Gitto & Company PC in 2010 and 2009 were
pre-approved by the Audit Committee.





Audit Fees.  The
aggregate fees billed by Becher Della Torre Gitto & Company PC for
professional services for the audit of our annual financial statements for 2010
and the review of the financial statements included in our quarterly reports on
Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30,
2010 was $11,594. The aggregate fees billed by Becher Della Torre Gitto &
Company PC for professional services for the audit of our annual financial
statements for 2009 and the review of the financial statements included in our
quarterly reports on Form 10-Q for the quarters ended March 31, 2009, June 30,
2009 and September 30, 2009 was $11,100.





Audit-Related Fees. There
were no other fees billed by Becher Della Torre Gitto & Company PC during
the last two fiscal years for assurance and related services that were
reasonably related to the performance of the audit or review of our financial
statements and not reported under “Audit Fees” above.





Tax Fees.  There
were no fees billed by Becher Della Torre Gitto & Company PC during the last
two fiscal years for professional services rendered by such firms for tax
compliance, tax advice and tax planning.





All Other
Fees.  There were no other fees billed by Becher Della Torre
Gitto & Company PC during the last two fiscal years for products and
services provided by such firms.


- 17
-





ITEM
15.             EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES





(a)(1)  INDEX
TO 2010 CONSOLIDATED FINANCIAL STATEMENTS:





Our
financial statements and the notes thereto, together with the report thereon of
Becher Della Torre Gitto & Company PC dated January 31, 2011, appear
beginning on page F-1 of this report.





(a)(3)  EXHIBITS





The
following is a list of exhibits filed herewith as part of this Annual Report on
Form 10-K:





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)


4.1
            Revolving
      Credit Promissory Note, dated as of March 26, 2009, by and between Vector
      Group Ltd., Lender, and CDSI Holdings Inc., as
      borrower.  (3)


4.2
            Amendment,
      dated as of January 26, 2011, to the Revolving Credit Promissory Note
      between Vector Group Ltd., Lender, and CDSI Holdings Inc., as borrower.
      (4)


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 our Registration Statement on Form S-1 (File No.
      333-21545).  This Exhibit is incorporated herein by
      reference.





(2)
            Previously
      filed as an Exhibit to our Form 8-K filed January 14,
      1999.  This Exhibit is incorporated herein by
      reference.





(3)
            Previously
      filed as an Exhibit to our Form 10-K for the year ended December 31,
      2008.  This Exhibit is incorporated herein by
      reference.




(4)
              Previously
      filed as an Exhibit to our Form 8-K filed January 26,
      2011.  This Exhibit is incorporated by
  reference.





- 18
-





SIGNATURES





In accordance with Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on January 31, 2011, on its behalf by the undersigned, thereunto
duly authorized.





CDSI
      Holdings Inc.By:
              /s/ J. Bryant Kirkland IIIJ.
      Bryant Kirkland IIIVice
      President, Treasurer andChief
      Financial Officer





POWER
OF ATTORNEY





The undersigned directors and officers
of CDSI Holdings Inc. hereby constitute and appoint Richard J. Lampen and J.
Bryant Kirkland III, and each of them, with full power to act without the other
and with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact with full power to execute in our name and behalf in the
capacities indicated below, this Annual Report on Form 10-K and any and all
amendments thereto and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby ratify and confirm all that such attorneys-in-fact, or any of them,
or their substitutes shall lawfully do or cause to be done by virtue
hereof.





In accordance with the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities indicated on January 31,
2011.




Signature
              
              Title/s/Richard J. Lampen
              
              Director,
      President andRichard
      J. Lampen
              
              Chief
      Executive Officer/s/J. Bryant Kirkland III
              
              Director,
      Vice President, Treasurer andJ.
      Bryant Kirkland III
              
              Chief
      Financial Officer(principal
      accounting and financial officer)/s/Robert Lundgren
              
              DirectorRobert
      Lundgren/s/Glenn L. Halpryn
              
              DirectorGlenn
      L. Halpryn
  - 19
-




CDSI
HOLDINGS INC.




Financial
Statements




December
31, 2010 and 2009




(With
Report of Independent Registered Public Accounting Firm
Thereon)







CDSI
HOLDINGS INC.




PageReport
      of Independent Registered Public Accounting Firm
              
              F-2Audited
      Financial Statements:Balance
      Sheets
              
              F-3Statements
      of Operations
              
              F-4Statements
      of Stockholders’ Equity (Deficiency)
              
              F-5Statements
      of Cash Flows
              
              F-6Notes
      to Financial Statements
              
              F-7









Report
of Independent Registered Public Accounting Firm




To theStockholders 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


F-2


CDSI
HOLDINGS INC.




Balance
Sheets





December 31,
                
                
                December 31,2010
                
                
                2009Assets:Current
      assets:Cash
      and cash equivalents
                
                $
                5,586
                
                
                $
                9,004Total
      assets
                
                $
                5,586
                
                
                $
                9,004Liabilities
      and Stockholders’ Deficiency:Current
      liabilities:Accounts
      payable and accrued expenses
                
                $
                9,076
                
                
                $
                9,798Accrued
      interest on revolving credit promissory note
                
                
                3,930
                
                
                
                1,422Total
      current liabilities
                
                
                13,006
                
                
                
                11,220Revolving
      credit promissory note from related party
                
                
                37,500
                
                
                
                22,500Commitments
      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
                
                
                
                31,200Additional
      paid-in capital
                
                
                8,223,444
                
                
                
                8,209,944Accumulated
      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.


F-3




CDSI
HOLDINGS INC.




Statements
of Operations





Years Ended December 31,2010
                
                
                2009Revenues
                
                $
                —
                
                
                $
                —Cost
      and expenses:General
      and administrative
                
                
                35,520
                
                
                
                31,34335,520
                
                
                
                31,343Operating
      loss
                
                
                (35,520
                )
                
                
                (31,343
                )Other
      income (expense):Interest
      income
                
                
                1
                
                
                
                1Interest
      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.


F-4




CDSI
HOLDINGS INC.




Statements
of Stockholders’ Equity (Deficiency)





Accumulated
                    
                    
                    TotalAdditional
                    
                    
                    
                    
                    
                    Other
                    
                    
                    Stockholders’Common Stock
                    
                    
                    Paid-in
                    
                    
                    Accumulated
                    
                    
                    Comprehensive
                    
                    
                    EquityShares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Deficit
                    
                    
                    Income
                    
                    
                    (Deficiency)Balance
      at January 1, 2009
                    
                    
                    3,120,000
                    
                    
                    $
                    31,200
                    
                    
                    $
                    8,209,944
                    
                    
                    $
                    (8,233,096
                    )
                    
                    $
                    —
                    
                    
                    $
                    8,048Net
      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
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    15,000Net
      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.


F-5


CDSI
HOLDINGS INC.





Statements
of Cash Flows




Years Ended December 31,2010
                
                
                2009Cash
      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
                
                
                
                1,422Net
      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
                
                
                
                22,500Proceeds
      from issuance of common stock
                
                
                15,000
                
                
                
                —Net
      cash provided by financing activities
                
                
                30,000
                
                
                
                22,500Net
      decrease in cash
                
                
                (3,418
                )
                
                
                (10,694
                )Cash
      and cash equivalents at beginning of period
                
                
                9,004
                
                
                
                19,698Cash
      and cash equivalents at end of period
                
                $
                5,586
                
                
                $
                9,004Supplemental
      cash flow information:Cash
      paid during year for:Interest
                
                
                —
                
                
                
                —Income
      taxes
                
                
                —
                
                
                
                —




See
accompanying notes to financial statements.


F-6


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.


F-7


CDSI
HOLDINGS INC.




Notes to
Financial Statements - Continued





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.





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.


F-8




CDSI
HOLDINGS INC.




Notes to
Financial Statements - Continued




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.


F-9




CDSI
HOLDINGS INC.




Notes to
Financial Statements - 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.


F-10


CDSI
HOLDINGS INC.




Notes to
Financial Statements - Continued





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




Weighted-AverageWeighted-
              
              
              RemainingAverage
                Exercise
              
              
              Contractual
                Term
              
              
              Aggregate
                IntrinsicShares
              
              
              Price
              
              
              (in years)
              
              
              ValueOutstanding
      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
              
              
              —
              
              
              
              
              
              
              
              
              
              
              $
              —







(1)These options expired on January 12,
2009.




(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.


F-11


CDSI
HOLDINGS INC.




Notes to
Financial Statements - Continued




(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.


F-12