<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                          -----------------------------

                                   FORM 10-KSB

                          -----------------------------

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                       COMMISSION FILE NUMBER: 0001-22563

                           ---------------------------

                               CDSI HOLDINGS INC.
                 (Name of small business issuer in its charter)

                           ---------------------------
<TABLE>

<S>                                                                                    <C>
                           DELAWARE                                                    95-4463937
               (State or other jurisdiction of                                      (I.R.S. Employer
                incorporation or organization)                                     Identification No.)

   100 S.E. SECOND STREET, 32ND FLOOR, MIAMI, FLORIDA                                     33131
             (Address of principal executive offices)                                  (Zip Code)
</TABLE>

                                  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
                Redeemable Class A Common Stock Purchase Warrants

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes [X]  No [ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

          The issuer's revenues for the year ended December 31, 2002 were $0.

          The aggregate market value of the voting stock of the issuer held by
non-affiliates of the issuer on March 24, 2003 based on the average bid and
asked price on such date was $65,400

          As of March 24, 2003 the issuer had a total of 3,120,000 shares of
Common Stock outstanding.



          Transitional Small Business Disclosure Format: Yes [ ] No [X]

================================================================================

<PAGE>



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

                           FORWARD-LOOKING STATEMENTS

         CERTAIN STATEMENTS MADE IN THIS ANNUAL REPORT ON FORM 10-KSB ARE
"FORWARD-LOOKING STATEMENTS" (WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995) REGARDING THE PLANS AND OBJECTIVES OF MANAGEMENT
FOR FUTURE OPERATIONS. SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON CURRENT
EXPECTATIONS THAT INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. THE COMPANY'S PLANS
AND OBJECTIVES ARE BASED, IN PART, ON ASSUMPTIONS INVOLVING JUDGMENTS WITH
RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET
CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE
COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT ITS ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE
INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS REPORT WILL PROVE TO BE ACCURATE. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, PARTICULARLY IN VIEW OF THE COMPANY'S LIMITED OPERATIONS, THE INCLUSION
OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR
ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH SUCH STATEMENTS ARE MADE.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESS
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO,
THE FACTORS SET FORTH IN THIS REPORT UNDER THE HEADINGS "THE COMPANY," "RISK
FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY
FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME ON ITS BEHALF.


                                   THE COMPANY

OVERVIEW

         CDSI Holdings Inc. (the "Company") owns 100% of the issued and
outstanding shares of common stock of Controlled Distribution Systems, Inc.
("CDS") and an approximate 0.4% interest on a fully diluted basis in Dialog
Group Inc. (formerly known as IMX Pharmaceuticals Inc.). Prior to February 2000,
CDS was a company that 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. Prior to October 2000, CDS also
owned traditional cigarette vending machines and a related vending route. In
February 2000, the Company terminated all operations relating to marketing and
leasing the Coinexx Star 10 system. On October 5, 2000, CDS completed the sale
to Gutlove & Shirvant, Inc. ("Gutlove") of the assets of its cigarette vending
route, including vending machines and a van. Dialog is a marketing services
company that provides direct mail and telemarketing services.



                                       1
<PAGE>



         The Company intends to seek new business opportunities. As the Company
has only limited cash resources, the Company'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. As
of the date of this report, the Company has not identified any potential
acquisition or investment. 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.

COMPANY HISTORY

         The Company was incorporated in Delaware in December 1993 under the
name PC411, Inc. In January 1999, it changed its name to CDSI Holdings Inc. to
reflect the change in its principal business. The Company was originally formed
to develop an on-line service that transmits name, address, telephone number and
other related information digitally to users of personal computers. In May 1998
the Company acquired CDS and, in December 1998, CDS acquired substantially all
of the assets of TD Rowe Corporation's New York cigarette vending route. In
November 1998, the Company transferred substantially all of the non-cash assets
and certain liabilities used in its on-line data distribution business to
ThinkDirectMarketing Inc. ("TDMI") in exchange for an initial 42.5% interest in
that company. The other investors of TDMI included Acxiom Corporation, Cater
Barnard plc and TDMI's management and employees. In January 2002, Dialog
acquired all the stock of TDMI that it did not already own, and, based on public
filings by Dialog, the Company presently holds approximately a 0.4% interest in
Dialog on a fully diluted basis in Dialog.

THINKDIRECTMARKETING, INC.

         On November 5, 1998, the Company contributed substantially all the
 non-cash assets and certain liabilities related to its on-line electronic
 delivery information service to TDMI, and received preferred stock of TDMI. On
 January 31, 2002, Dialog acquired all the shares of TDMI that it did not
 already own by exercising an option previously granted by the remaining TDMI
 stockholders. The Company received 8,250 shares of Dialog Class B Convertible
 Preferred Stock in exchange for its interest in TDMI. Each share of Dialog
 Class B Preferred Stock was entitled to receive an annual dividend of $4.00 on
 December 31 of each year. The dividend was payable at the option of Dialog in
 shares of its Common Stock, which trades on the NASD OTC Electronic Bulletin
 Board under the symbol "DLGG". The shares of Dialog Class B Preferred Stock to
 be received by the Company were initially convertible into 165,000 shares of
 Dialog Common Stock.

       On November 4, 2002, the holders of Dialog Class B Preferred Stock and
 Dialog agreed to (i) increase the number of common shares into which the Dialog
 Class B Preferred Stock is convertible from 1,575,000 to 3,150,000 and (ii)
 eliminate the annual dividend on the Class B Preferred Stock. As a result, the
 Class B Preferred Stock held by CDSI became convertible into 330,000 shares of
 Dialog Common Stock and, on February 7, 2003, CDSI converted its Class B
 Preferred Shares into 330,000 shares of Dialog Common Stock. Based on public
 filings by Dialog, management estimates that CDSI's interest in Dialog is
 approximately 0.4 % on a fully-diluted basis.

         Dialog is registered under the Securities Exchange Act of 1934 and
files periodic and other information with the Securities and Exchange
Commission. In December 2001, Dialog emerged from bankruptcy proceedings,
divested its former operations and acquired TDMI and Findstar, plc. Findstar is
a sales-led organization with telemarketing capabilities currently responsible


                                       2
<PAGE>

for the sale and distribution of Panda Software anti-virus software and products
in the United Kingdom. Dialog has recently announced its acquisition of
Healthcare Dialog, Inc., a provider of relationship marketing communications
services to the healthcare industry, and IP2M, Inc., a marketing company that
has developed a marketing platform in healthcare that integrates radio,
television and the Internet to assist clients in targeting customers. Dialog has
also announced that it is negotiating to acquire the 50% of Healthcare Horizons,
Inc. not presently owned by Dialog and the assets of Azimuth Target Marketing,
Inc.

EMPLOYEES

         As of December 31, 2002, the Company had two employees, its President
and Chief Executive Officer and its Vice President and Chief Financial Officer,
both of whom are also employees of New Valley Corporation ("New Valley"), its
largest stockholder. The Company believes that it has good relations with its
employees. None of its employees is represented by a collective bargaining
agreement.

                                  RISK FACTORS

         ACCUMULATED DEFICIT; HISTORY OF LOSSES. At December 31, 2002, the
Company had an accumulated deficit of approximately $8 million. The Company has
reported an operating loss in each of its fiscal quarters since inception and
expects to continue to incur operating losses in the immediate future. The
Company has reduced operating expenses and is seeking acquisition and investment
opportunities. No assurance can be given that the Company will not continue to
incur operating losses.

         LIMITED RESOURCES AND NO SOURCE OF OPERATING REVENUES. At December 31,
2002, the Company had cash and cash equivalents of $215,087 and working capital
of $200,981. Since the sale of CDS's vending route in October 2000, the Company
has had no source of operating revenue. The Company 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 its operations or that it will
operate on a profitable basis.

         ADDITIONAL FINANCING REQUIREMENTS. The Company's ability to complete
any acquisition or investment opportunities it may identify will depend upon the
availability of, and its ability to secure, new equity or debt financing. The
Company has no commitments for any financing. Further, there can be no assurance
that the Company will be able to generate levels of revenues and cash flows
sufficient from any acquisition or investment to fund operations or that the
Company will be able to obtain financing on satisfactory terms, if at all, to
achieve profitable operations.

         "BLIND POOL"; BROAD DISCRETION OF MANAGEMENT. Prospective investors who
invest in the Company 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 the Company's working capital and the
selection of an acquisition or investment target. There can be no assurance that
determinations ultimately made by the Company will permit the Company to achieve
profitable operations.

         ACQUISITION AND INVESTMENT RISKS. As part of its business strategy, the
Company 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 the Company will
successfully identify, complete or integrate any future acquisitions or
investments or that completed acquisitions or investments will contribute
favorably to the Company's operations and future financial condition.



                                       3
<PAGE>

         DEPENDENCE UPON EXECUTIVE OFFICERS AND BOARD OF DIRECTORS. The ability
of the Company to successfully effect a transaction will be largely dependent
upon the efforts of its management and the Board of Directors. The Company only
has two employees, none of whom work full-time for the Company. 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. During 1999, the Company's securities were
delisted from the Nasdaq SmallCap market for failure to comply with the minimum
listing maintenance requirements. As a result, the Company's securities
currently trade on the OTC Bulletin Board of the National Association of
Security Dealers, Inc. Consequently, a stockholder could likely find it more
difficult to sell or to obtain quotations as to prices of the Company's
securities. In addition, there is a limited trading market in the Company's
securities. During 2002, the average daily trading volume of the Company's
Common Stock was approximately 3,055 shares, with 202 days having no trading
activity. No assurances can be given that the Company's Common Stock will
continue to trade on the OTC Bulletin Board or that an orderly trading market
will be maintained for the Company's Common Stock.

         ABSENCE OF FULL-TIME MANAGEMENT PERSONNEL. In November 1998, all of the
Company's executive officers resigned and were hired by TDMI. In addition, in
February 1999, the former President of CDS resigned. The Company's current
President and Chief Executive Officer and its Vice President and Chief Financial
Officer are executive officers of New Valley. Neither of these individuals
devotes his full time and attention to the affairs of the Company.

         CONCENTRATION OF STOCK OWNERSHIP. Alki Corp., the successor to Direct
Assist Holding, Inc., a wholly-owned subsidiary of New Valley, beneficially owns
approximately 55.0% of the Company's outstanding Common Stock. As a result, New
Valley, through its subsidiary, 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 the Company's assets. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. In addition, the Company is subject to a State
of Delaware statute regulating business combinations, which may also hinder or
delay a change of control.

         ABSENCE OF DIVIDENDS. The Company has never paid nor does it expect in
the foreseeable future to pay any dividends.

         LIMITATION ON DIRECTOR LIABILITY. To the extent permitted under the
Delaware General Corporation Law, the Company's 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 the Company
nor its stockholders may be able to recover damages from directors.

         DILUTION. The Board of Directors of the Company, 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 the current stockholders of the
Company 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.




                                       4
<PAGE>

         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. The
Company's 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 2. PROPERTIES

         The Company's corporate offices are located in the executive offices of
New Valley. CDS leased approximately 5,738 square feet of office space in Fort
Lee, New Jersey that was previously used for its corporate offices, sales,
customer service and administrative functions. In 2001 and 2002, the Company
sublet at its cost the New Jersey facility on a month-to-month basis. In January
2003, the sublease tenant abandoned the facility. In February 2003, the Company
reached an understanding with the lessor where it would be released from the
remaining lease obligations of $76,124 in exchange for the forfeiture of a
security deposit of $18,505. The parties are in the process of completing the
documentation for the settlement. The Company believes that its current
facilities are adequate for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

         The Company is not a party to any pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.



                                       5
<PAGE>



                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

                                   HIGH                        LOW
                              ----------------          -------------------
           2002
       First Quarter             $  0.080                $      0.035
       Second Quarter               0.065                       0.035
       Third Quarter                0.080                       0.050
       Fourth Quarter               0.020                       0.100


           2001
       First Quarter            $   0.13                    $   0.04
       Second Quarter               0.12                        0.04
       Third Quarter                0.10                        0.04
       Fourth Quarter               0.07                        0.03

         As of March 24, 2003, there were 30 holders of record of the Company's
Common Stock.

         DIVIDEND POLICY

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

         RECENT SALES OF UNREGISTERED SECURITIES

         No other securities were issued in 2002.



                                       6
<PAGE>



ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS


OVERVIEW

         Based on public filings by Dialog, management estimates that the
Company owns an approximate 0.4% interest in Dialog on a fully diluted basis.
The Company intends to seek new investments in other business opportunities. As
the Company has only limited cash resources, the Company'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.

THINKDIRECTMARKETING, INC.

         On November 5, 1998, the Company contributed substantially all the
non-cash assets and certain liabilities related to its on-line electronic
delivery information service to TDMI, and received preferred stock of TDMI. See
Note 3 to the Condensed Consolidated Financial Statements for additional
information concerning the Company's former investment in TDMI.

         The Company's interest in TDMI was accounted for using the equity
method of accounting. Commencing in the second quarter of 1999, the carrying
value of the Company's investment in TDMI was reduced to zero, and the Company
suspended recognizing its share of the additional losses of TDMI. In the second
quarter of 2001, TDMI repaid a $100,000 note receivable due to the Company. As a
result, the Company recorded $100,000 of income associated with the repayment
for the year ended December 31, 2001.

         On January 31, 2002, Dialog acquired all the shares of TDMI it did not
already own by exercising an option previously granted by the remaining TDMI
stockholders. The Company received preferred stock of Dialog in exchange for its
interest in TDMI. The preferred stock was convertible into Dialog common stock
and, on February 7, 2003, CDSI converted its Class B Preferred Shares into
330,000 shares of Dialog Common Stock.

RESULTS OF OPERATIONS

         REVENUES

         For the years ended December 31, 2002 and 2001, the Company did not
generate revenues from operations.

         EXPENSES

         Expenses associated with corporate activities were $51,948 and $56,688
for the years ended December 31, 2002 and 2001, respectively. The expenses were
primarily associated with costs necessary to maintain a public company. The
decrease in expenses is associated with lower audit expenses in 2002. The



                                       7
<PAGE>

expenses have been reduced by adjustments of previously established accruals of
$5,000 and $15,000 for the years ended December 31, 2002 and 2001, respectively.
These adjustments related to liabilities established when the Company conducted
an on-line electronic directory service. The Company evaluates accruals on a
quarterly basis and adjusts as appropriate.

         OTHER INCOME (EXPENSE)

         Interest and other income was $2,569 and $7,988 for the years ended
December 31, 2002 and 2001, respectively. The difference was primarily due to
lower interest rates in 2002. The Company recorded $100,000 in income in 2001
relating to the repayment of a loan receivable from TDMI. The carrying value of
the loan had been reduced to zero in the second quarter of 1999 when the Company
suspended recognizing its share of the additional losses of TDMI.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2002, the Company had an accumulated deficit of
approximately $8 million. 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. No assurance
can be given that the Company will not continue to incur operating losses.

         The Company has limited available cash, limited cash flow, limited
liquid assets and no credit facilities. The Company has not been able to
generate sufficient cash from operations and, as a consequence, financing has
been required to fund ongoing operations. Since completion of the Company's
initial public offering of its common stock (the "IPO") in May 1997, the Company
has primarily financed its operations with the net proceeds of the IPO. The
funds were used to complete the introduction of the PC411 Service over the
Internet, to expand marketing, sales and advertising, to develop or acquire new
services or databases, to acquire CDS and for general corporate purposes.

           In connection with the IPO, the Company issued 2,322,500 Redeemable
Class A Warrants (the "Warrants"), including 1,000,000 of which were held by New
Valley. The Warrants, which entitled the holder to purchase one share of Common
Stock at an initial exercise price of $6.10, expired unexercised on May 13,
2002.

         Cash used for operations for the years ended December 31, 2002 and 2001
was $50,598 and $87,502, respectively. The decrease is primarily due to a lower
balance in accrued expenses at December 31, 2001 versus December 31, 2000, which
resulted in lower payments of accounts payable and accrued liabilities for the
year ended December 31, 2002 as compared to the year ended December 31, 2001.
Included in the Company's accrued liabilities as of December 31, 2002 is $1,500
of liabilities established in the disposal of the Company's former business of
marketing and leasing an inventory control system for tobacco products. The
Company evaluates its accruals on a quarterly basis and makes adjustments when
appropriate.

         The Company does not expect significant capital expenditures during the
year ended December 31, 2003.

         At December 31, 2002, the Company had cash and cash equivalents of
$215,087. The Company does not currently have any commitments for any additional
financing, and there can be no assurance that any such commitments can be
obtained. Any additional equity financing may be dilutive to its existing
stockholders, and debt financing, if available, may involve pledging some or all
of its assets and may contain restrictive covenants with respect to raising
future capital and other financial and operational matters.



                                       8
<PAGE>

         Inflation and changing prices had no material impact on revenues or the
results of operations for the year ended December 31, 2002 and 2001.

         Management is currently evaluating alternatives to supplement the
Company's present cash and cash equivalents to meet its liquidity requirements
over the next twelve months. Such alternatives include seeking additional
investors and/or lenders and disposing of the share of Dialog common stock held
by the Company. On February 7, 2003, the Company converted its Class B Preferred
Shares into Dialog Common Stock, which is traded on the NASD OTC Bulletin Board.
However, there is only a limited trading market for the Dialog shares, and the
Company may not be able to sell any material portion of its shares at prevailing
market prices. Although there can be no assurance, the Company believes that it
will be able to continue as a going concern for the next twelve months.

         The Company or its affiliates, including New Valley, 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 7. FINANCIAL STATEMENTS

         Reference is made to the Financial Statements, the report thereon and
notes thereto, commencing on page F-1 to this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         None



                                       9
<PAGE>



                                    PART III
                                   MANAGEMENT


ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS


         Set forth below are the names, ages and positions of the Company's
directors and executive officers as of March 24, 2003.

<TABLE>
<CAPTION>

                   NAME                             AGE                               POSITION
-------------------------------------------     ------------    -----------------------------------------------------
<S>                                                  <C>        <C>
Richard J. Lampen......................              49         President, Chief Executive Officer and Director
J. Bryant Kirkland III.................              37         Vice President, Chief Financial Officer,
                                                                  Secretary, Treasurer and Director
Robert M. Lundgren.....................              44         Director
Henry Morris...........................              49         Director
</TABLE>


         RICHARD J. LAMPEN, age 49, has served as President and Chief Executive
Officer of the Company since November 1998 and as a director of the Company
since January 1997. Since October 1995, Mr. Lampen has been the Executive Vice
President of New Valley, a publicly held company principally engaged in the real
estate business and seeking to acquire additional operating companies. Since
July 1996, he has served as the Executive Vice President of New Valley
affiliate, Vector Group Ltd. ("Vector"), a New York Stock Exchange listed
holding company. 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 a director of New Valley and Ladenburg Thalmann Financial
Services Inc. Mr. Lampen has served as a director of a number of other
companies, including U.S. Can Corporation, The International Bank of Miami,
N.A., Spec's Music Inc. and Panaco, Inc., as well as a court-appointed
independent director of Trump Plaza Funding, 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.

         J. BRYANT KIRKLAND III, age 37, has served as the Company's Vice
President, Chief Financial Officer, Secretary and Treasurer since January 1998
and as a director of the Company since November 1998. Mr. Kirkland has served in
various financial capacities with New Valley since November 1994 and since
January 1998 as the Vice President, Treasurer and Chief Financial Officer of New
Valley. Since January 2001, Mr. Kirkland has served as a Vice President of
Vector and from June 2001 until October 2002, Mr. Kirkland served as Chief
Financial Officer of Ladenburg Thalmann Financial Services Inc. Mr. Kirkland
received a Bachelor of Science in Business Administration from the University of
North Carolina in 1987.

         ROBERT M. LUNDGREN, age 44, has served as a director of the Company
since January 1997. He also served as Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company from January 1997 through January 14,
1998. Mr. Lundgren has served as Director of Finance and Operations of Palmer
Trinity School in Miami since July 2002. Mr. Lundgren was an independent
consultant from October 2001 to July 2002. Mr. Lundgren was employed by Solar
Cosmetic Labs, Inc. as Chief Financial Officer from January 15, 1998 to October
2001. From November 1994 through January 14, 1998, Mr. Lundgren was employed by
New Valley 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 &



                                       10
<PAGE>

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.

         HENRY MORRIS, age 49, became a director of the Company in May 1997.
Since 1989, Mr. Morris has been the Chairman and President of Morris & Carrick,
Inc., a political and media consulting firm. Mr. Morris is also Chairman of the
Board and Chief Executive Officer of Curran & Connors, Inc., a designer and
producer of annual reports and corporate literature. Mr. Morris received a
Bachelor of Arts degree in 1974 from Columbia College and a Juris Doctorate
degree in 1978 from Columbia Law School.

         Each director of the Company holds office until the next annual meeting
of stockholders, or until his successor is elected and qualified. At present,
the Company's 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.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's 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 the Company with copies of all Section
16(a) forms which they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations that no Forms 5 were
required, the Company believes that, during and with respect to the fiscal year
ended December 31, 2002, all officers and directors complied with applicable
Section 16(a) filing requirements.

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following table sets forth the combined remuneration paid or
accrued by the Company during its last three fiscal years to those persons who
were, at December 31, 2002, the Company's Chief Executive Officer or who were
executive officers whose cash compensation exceeded $100,000 (the "named
executive officers").

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                                   LONG TERM
                                                  ANNUAL COMPENSATION            COMPENSATION
         NAME AND                                 -------------------            COMMON SHARES          ALL OTHER
    PRINCIPAL POSITION           YEAR           SALARY           BONUS        UNDERLYING OPTIONS      COMPENSATION
    ------------------           ----           ------           -----        ------------------      ------------

<S>                              <C>             <C>              <C>            <C>                   <C>
Richard J. Lampen                2002            ---              ---                 --                   ---
  President and Chief            2001            ---              ---                 --                   ---
  Executive Officer(1)           2000            ---              ---                 --                   ---

</TABLE>

--------------------

(1)      Richard J. Lampen, who has served as President and Chief Executive
         Officer of the Company since November 5, 1998, did not receive any
         salary or other compensation from the Company in 2002, 2001 or 2000,
         other than the normal compensation paid to directors of the Company.
         See "Compensation of Directors."


                                       11
<PAGE>


STOCK OPTIONS

         In order to attract and retain persons necessary for the business of
the Company, the Company adopted the 1997 Stock Option Plan (the "Option Plan")
covering up to 750,000 shares, pursuant to which officers, directors and key
employees of the Company and consultants to the Company are eligible to receive
incentive and/or non-incentive stock options. The Option Plan, which expires ten
years from the date of its adoption, is administered by the Board of Directors
or the Compensation Committee. The selection of participants, allotment of
shares, determination of price and other conditions relating to the grant of
options is determined by the Board of Directors or the Compensation Committee.
Incentive stock options granted under the Option Plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the
Option Plan to a stockholder owning more than 10% of the outstanding Common
Stock may not exceed five years and its exercise price may be not less than 110%
of the fair market value of the shares on the date of the grant.

         Under the Option Plan, each director who is not a full-time employee of
the Company, immediately upon first taking office, is granted options to
purchase 6,000 shares of Common Stock exercisable at the fair market value of
such shares on the date of grant. Options for 3,000 shares covered thereby are
exercisable immediately and options for 3,000 shares become exercisable on the
first anniversary of the date of grant. Subsequently, the Option Plan provides
for annual grants of options to purchase 3,000 shares of Common Stock upon
reelection as a director of the Company. At the Company's annual meeting on
January 12, 1999, each director was granted options to purchase 3,000 shares of
Common Stock at $0.44 per share.

EMPLOYMENT AGREEMENTS

         There is no employment agreement between the Company and Mr. Lampen,
the named executive officer.

COMPENSATION OF DIRECTORS

         The Company pays each director who is not a full-time employee of the
Company an annual retainer of $5,000, payable quarterly, and reimburses the
directors for reasonable travel expenses incurred in connection with their
activities on behalf of the Company. See "Stock Options."




                                       12
<PAGE>



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of March 24, 2003, the beneficial
ownership of the Company's Common Stock (the only class of voting securities) by
(i) each person known to the Company to own beneficially more than five percent
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's 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.

<TABLE>
<CAPTION>

                                                           NUMBER OF SHARES OF
                NAME AND ADDRESS(1)                           COMMON STOCK               PERCENTAGE OF OWNERSHIP
-----------------------------------------------------     ----------------------    ----------------------------------
<S>                                                              <C>                               <C>
New Valley Corporation(2)(3).....................                1,990,000                         55.0%
Alki Corp. (3)
204D Weldin Building
Wilmington, DE 19810
                                                                                                      *
J. Bryant Kirkland III(4)........................                    9,000
                                                                                                      *
Richard J. Lampen(4).............................                    9,000
                                                                                                      *
Henry Morris(4)..................................                    9,000
        271 Madison Avenue
        New York, NY 10016
                                                                                                      *
Robert Lundgren(4)...............................                   16,333
       4920 N.W. 165th Street
       Miami, FL 33014

All executive officers and directors
      As a group (4 persons)(4)..................                   43,333                          1.4%

</TABLE>

-------------------
*    Less than 1%

(1)  Unless otherwise indicated, each named person has sole voting and
     investment power with respect to the shares set forth opposite such named
     person's name.

(2)  Includes 500,000 shares subject to warrants, which are currently
     exercisable or exercisable within 60 days of the date hereof.

(3)  Both New Valley and Alki Corp. (successor to Direct Assist Holding, Inc.)
     ("Alki"), a wholly-owned subsidiary of New Valley, have shared voting and
     investment power with regard to such shares. J. Bryant Kirkland III, an
     executive officer and a director of the Company, serves as Vice President,
     Chief Financial Officer and Treasurer of New Valley and Alki and Richard J.
     Lampen, an executive officer and a director of the Company, serves as
     Executive Vice President of New Valley and Alki and as a director of New
     Valley. Neither Mr. Kirkland nor Mr. Lampen has investment authority or
     voting control over the Company's securities owned by New Valley or Alki.
     The other executive officers and directors of New Valley are Bennett S.
     LeBow, Chairman and Chief Executive Officer of New Valley; Howard M.
     Lorber, President of New Valley and a director of New Valley and Chairman,
     President and Chief Executive Officer of Alki; Marc N. Bell, Vice
     President, Associate General Counsel and Secretary of New Valley and Alki;
     and Henry C. Beinstein, Arnold I. Burns, Ronald J. Kramer, Barry W. Ridings
     and Victor M. Rivas, directors of New Valley.

(4)  Includes shares subject to options and/or warrants currently exercisable or
     exercisable within 60 days of the date hereof.


                                       13
<PAGE>



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Certain accounting and related finance functions are performed on
behalf of the Company by employees of the Company's principal stockholder, New
Valley. Expenses incurred relating to these functions are allocated to the
Company and paid as incurred to New Valley based on management's best estimate
of the cost involved. The amounts allocated were immaterial for all periods
presented herein.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K


         EXHIBITS

         The Exhibits listed below are filed as part of this report.

2.1      Stock Purchase Agreement, dated as of October 1, 1998, by and between
         Digital Asset Management Inc., Acxiom and the Company (1)

3.1      Form of Restated Certificate of Incorporation of the Company (2)

3.2      Certificate of Amendment to the Restated Certificate of Incorporation
         of the Company (3)

3.3      Form of By-Laws of the Company (2)

10.1     Form of 1997 Stock Option Plan (2)

10.2     Form of PC411, Inc. New Valley Corporation Stock Option Plan and
         Agreement (2)

10.3     Agreement and Plan of Merger, dated as of May 6, 1998, among Coinexx
         Corporation, R. Mark Elmore, PC411, Inc. and PC411 Acquisition Corp.
         (4)

10.4     Asset Purchase Agreement, dated as of September 18, 2000, between
         Gutlove and Shirvint, Inc. and Controlled Distribution Systems, Inc.
         (5)

10.5     Investors' Rights Agreement, dated January 31, 2002, by and between IMX
         Pharmaceuticals, Inc. and the former stockholders of
         ThinkDirectMarketing, Inc. (6)

21       Subsidiaries of the Company*

99.1     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.*

99.2     Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section
         1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002.*

----------------------------
*    Filed herewith.

(1)  Previously filed as an Exhibit to the Company's Form 10-Q for the quarter
     ended September 30, 1998. This Exhibit is incorporated herein by reference.

(2)  Previously filed as an Exhibit to the Company's Registration Statement on
     Form S-1 (File No. 333-21545). This Exhibit is incorporated herein by
     reference.

(3)  Previously filed as an Exhibit to the Company's Form 8-K filed January 14,
     1999. This Exhibit is incorporated herein by reference.

(5)  Previously filed as an Exhibit to the Company's Form 8-K filed October 19,
     2000. This Exhibit is incorporated herein by reference.

(6)  Previously filed as an Exhibit to IMX Pharmaceuticals Inc.'s Form 8-K filed
     January 31, 2002 (File No. 000-30294). This Exhibit is incorporated herein
     by reference.


                                       14
<PAGE>

         REPORTS ON FORM 8-K

         None.

ITEM 14. CONTROLS AND PROCEDURES

         The Company's principal executive officer and principal financial
officer have evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures within 90 days of the filing date
of this annual report and have concluded that these controls and procedures are
effective. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.

         Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files under the Exchange Act is accumulated and communicated to its
management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding disclosure.



                                       15
<PAGE>



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d), the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
March 31, 2003, on its behalf by the undersigned, thereunto duly authorized.

                                       CDSI Holdings Inc.

                                   By:  /s/ J. BRYANT KIRKLAND III
                                        -------------------------------------
                                        J. Bryant Kirkland III
                                        Vice President and Chief 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-KSB 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.

         Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on March 31, 2003.


         SIGNATURE                               TITLE
--------------------------     -------------------------------------------


/s/ Richard J. Lampen            Director, President and
--------------------------       Chief Executive Officer
Richard J. Lampen


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


/s/ Henry Morris                 Director
--------------------------
Henry Morris


/s/ Robert Lundgren              Director
--------------------------
Robert Lundgren



                                       16
<PAGE>


                                  CERTIFICATION

I, Richard J. Lampen, certify that:

1.       I have reviewed this annual report on Form 10-KSB of CDSI Holdings
         Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: March 31, 2003


                                     /s/ RICHARD J. LAMPEN
                                     ------------------------------------------
                                         Richard J. Lampen
                                         Chairman and Chief Executive Officer




                                       17
<PAGE>



                                  CERTIFICATION

I, J. Bryant Kirkland III, certify that:

1.       I have reviewed this annual report on Form 10-KSB of CDSI Holdings
         Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: March 31, 2003


                                  /s/ J. BRYANT KIRKLAND III
                                  --------------------------------------------
                                    J. Bryant Kirkland III
                                    Vice President and Chief Financial Officer




                                       18




<PAGE>
                      CDSI HOLDINGS INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

        (With Report of Independent Certified Public Accountants Thereon)






<PAGE>



                       CDSI HOLDINGS INC. AND SUBSIDIARIES


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                         PAGE
                                                                         ----

Report of Independent Certified Public Accountants                        F-2

Audited Financial Statements:

     Consolidated Balance Sheet                                           F-3

     Consolidated Statements of Operations                                F-4

     Consolidated Statements of Stockholders' Equity                      F-5

     Consolidated Statements of Cash Flows                                F-6

     Notes to Consolidated Financial Statements                           F-8




                                      F-1
<PAGE>




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS






The Stockholders and Board of Directors of
CDSI Holdings Inc.:



In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of CDSI
Holdings Inc. and its subsidiaries (the "Company") at December 31, 2002, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.





/s/PricewaterhouseCoopers LLP

Miami, Florida
March 21, 2003




                                      F-2
<PAGE>


                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>

                                                                         DECEMBER 31,
                                                                             2002
                                                                         -----------
<S>                                                                      <C>
                                ASSETS

Current assets:
    Cash and cash equivalents ....................................       $   215,087
                                                                         -----------
           Total assets ..........................................       $   215,087
                                                                         ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses ........................       $    14,106
                                                                         -----------

           Total current liabilities
                                                                         -----------

Commitments and contingencies ....................................                --

Stockholders' equity:
    Preferred stock, $.01 par value.  Authorized 5,000,000 shares;
      no shares issued and outstanding ...........................                --
    Common stock, $.01 par value.  Authorized 25,000,000 shares;
      3,120,000 shares issued and outstanding
                                                                              31,200
    Additional paid-in capital ...................................         8,209,944
    Accumulated deficit ..........................................        (8,040,163)
                                                                         -----------
           Total stockholders' equity ............................           200,981
                                                                         -----------
           Total liabilities and stockholders' equity ............       $   215,087
                                                                         ===========

</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>


                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                        YEAR ENDED DECEMBER 31,
                                                      ------------------------------
                                                          2002               2001
                                                      -----------        -----------
<S>                                                        <C>                <C>
Revenues ......................................       $        --         $       --
                                                      -----------        -----------

Cost and expenses:
    General and administrative ................            51,948             56,688
                                                      -----------        -----------
                                                           51,948             56,688
                                                      -----------        -----------
         Operating loss .......................           (51,948)           (56,688)
                                                      -----------        -----------

Other income (expense):
    Interest income ...........................             2,569              7,988

    Payment of note receivable
         from ThinkDirectMarketing ............                --            100,000
                                                      -----------        -----------
                                                            2,569            107,988
                                                      -----------        -----------
         Net (loss) income ....................       $   (49,379)       $    51,300
                                                      ===========        ===========

Net (loss) income per share (basic and diluted)       $     (0.02)       $      0.02
                                                      ===========        ===========

Shares used in computing net (loss) income
    per share .................................         3,120,000          3,120,000
                                                      ===========        ===========

</TABLE>





          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>


                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY




<TABLE>
<CAPTION>


                                            COMMON STOCK                 ADDITIONAL                                  TOTAL
                                       -------------------------          PAID-IN             ACCUMULATED        STOCKHOLDERS'
                                        SHARES           AMOUNT            CAPITAL              DEFICIT               EQUITY
                                      ---------          -------          ----------          -----------        --------------
<S>                                   <C>                <C>              <C>                 <C>                   <C>
Balance at December 31, 2000          3,120,000          $31,200          $8,209,944          $(8,042,084)          $ 199,060

Net income .................                 --               --                  --               51,300              51,300
                                      ---------          -------          ----------          -----------           ---------

Balance at December 31, 2001          3,120,000          $31,200          $8,209,944          $(7,990,784)          $ 250,360

Net loss ...................                                                                      (49,379)            (49,379)
                                      ---------          -------          ----------          -----------           ---------
Balance at December 31, 2002          3,120,000          $31,200          $8,209,944           (8,040,162)            200,981
                                      =========          =======          ==========          ===========           =========

</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F-5
<PAGE>


                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                                       -----------------------------
                                                                          2002                2001
                                                                       ---------           ---------
<S>                                                                    <C>                 <C>
Cash flows from operating activities:
    Net (loss) income .......................................          $ (49,379)          $  51,300
    Adjustments to reconcile net (loss) income to
      net cash used in operating activities:
         Payment of note receivable from TDMI ...............                 --            (100,000)
         Changes in assets and liabilities:
             Other assets ...................................            (18,505)                 --
             Accounts payable and accrued expenses ..........             17,286             (38,802)
                                                                       ---------           ---------
                Net cash used in operating activities .......            (50,598)            (87,502)
                                                                       ---------           ---------

Cash flows from investing activities:

    Payment of note receivable from ThinkDirectMarketing Inc.                 --             100,000
                                                                       ---------           ---------
                Net cash provided by investing activities ...                 --             100,000
                                                                       ---------           ---------

                Net (decrease) increase in cash .............            (50,598)             12,498


Cash and cash equivalents beginning of period ...............            265,685             253,187
                                                                       ---------           ---------

Cash and cash equivalents at end of period ..................          $ 215,087           $ 265,685
                                                                       =========           =========

</TABLE>


                                      F-6
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES


               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)



<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                                           ------------------------------------------
                                                                                  2002                  2001
                                                                           -------------------   --------------------
<S>                                                                              <C>                        <C>
Supplemental cash flow information:
   Cash paid during year for:
      Interest                                                                         --                    --
      Income taxes                                                                     --                    --



</TABLE>






          See accompanying notes to consolidated financial statements.




                                      F-7
<PAGE>


                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(1)    BUSINESS AND ORGANIZATION

       CDSI Holdings Inc. (the "Company" or "CDSI") was incorporated in Delaware
       on December 29, 1993. 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 8, 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"). On May 8, 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.

       At December 31, 2002, the Company had an accumulated deficit of
       approximately $8 million. 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. No assurance can be given that the Company will not
       continue to incur operating losses.

       CDSI intends to explore investments in other 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. As of the date of this report, the Company has not identified
       any potential acquisition or investment. 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

       The consolidated financial statements include the accounts of the Company
       and its majority-owned subsidiaries. All significant intercompany
       transactions have been eliminated.






                                      F-8
<PAGE>



                       CDSI HOLDINGS INC. AND SUBSIDIARIES

            Notes to Consolidated Financial Statements - (Continued)


       CASH AND CASH EQUIVALENTS

       Cash and cash equivalents include money market funds with a weighted
       average 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.

       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) INCOME PER SHARE

       Basic net (loss) income per share of Common Stock has been computed by
       dividing the net (loss) income 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. Stock options and warrants
       totaling 656,788 and 2,979,288 shares at December 31, 2002 and 2001,
       respectively, were excluded from the calculation of diluted per share
       results presented because their effect was anti-dilutive. Accordingly,
       diluted net (loss) income per common share is the same as basic net
       (loss) income per common share. On May 13, 2002, a total of 2,322,500 of
       the stock options and warrants expired.

       USE OF ESTIMATES

       The preparation of financial statements in conformity with 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.

       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.


(3)    THINKDIRECTMARKETING, INC. TRANSACTION

       On November 5, 1998, the Company contributed the non-cash assets and
       certain liabilities of the PC411 Service to ThinkDirectMarketing, Inc.
       ("TDMI") (formerly known as Digital Asset Management, Inc.). The Company
       received preferred stock representing an initial 42.5% interest in TDMI
       in exchange for the contribution of the PC411 Service's net assets. The
       Company's carrying value in the net assets contributed to TDMI totaled
       $73,438. The Company recorded $462,360 as a capital contribution in
       connection with the transaction, which represented the Company's 42.5%
       interest in the capital raised by TDMI in excess of the carrying value of





                                      F-9
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


       the Company's net assets contributed to TDMI. The Company agreed, under
       certain conditions, to fund up to $200,000 of an $800,000 working capital
       line. The Company funded $100,000 of the working capital line in the
       second quarter of 1999. In July 1999, the Company agreed to extend the
       maturity of its working capital line and was released from any further
       obligation to fund additional amounts under the working capital line.

       In October 2000, TDMI and Cater Barnard plc (formerly known as
       VoyagerIT.com) entered into an agreement whereby Cater Barnard purchased
       for $5,000,000 shares of TDMI's convertible preferred stock and
       convertible notes on various dates between November 10, 2000 and June 8,
       2001. On October 16, 2001, Cater Barnard agreed to use its best efforts
       to fund an additional $1,250,000 to TDMI by January 31, 2002 and on the
       same date, the TDMI stockholders granted Cater Barnard an option to
       purchase by January 31, 2002 all of TDMI's common stock not held by Cater
       Barnard for an aggregate purchase price of 78,750 shares of Convertible
       Preferred Stock of Dialog Group Inc. ("Dialog," formerly known as IMX
       Pharmaceuticals, Inc.). Dialog is a majority-owned subsidiary of Cater
       Barnard to which Cater Barnard had transferred its interest in TDMI. The
       preferred stock was initially convertible into 1,575,000 shares of Dialog
       common stock.

       On January 31, 2002, Dialog acquired all the shares of TDMI it did not
       already own by exercising the option previously granted to Cater Barnard.
       CDSI received 8,250 shares of Dialog Class B Convertible Preferred Stock
       in exchange for its interest in TDMI. Each share of Dialog Class B
       Preferred Stock was entitled to receive an annual dividend of $4.00 on
       December 31 of each year. The dividend was payable at the option of
       Dialog in shares of its Common Stock, which trades on the NASD OTC
       Electronic Bulletin Board under the symbol "DLGG". The shares of Dialog
       Class B Preferred Stock to be received by the Company were initially
       convertible into 165,000 shares of Dialog Common Stock.

       On November 4, 2002, the holders of Dialog Class B Preferred Stock and
       Dialog agreed to (i) increase the number of common shares into which the
       Dialog Class B Preferred Stock is convertible from 1,575,000 to 3,150,000
       and (ii) eliminate the annual dividend on the Class B Preferred Stock. As
       a result, the Class B Preferred Stock held by CDSI became convertible
       into 330,000 shares of Dialog Common Stock. Based on public filings by
       Dialog, management estimates that CDSI's interest in Dialog is
       approximately 0.4% on a fully-diluted basis. On February 7, 2003, CDSI
       converted its preferred shares into 330,000 shares of Dialog Common
       Stock.

       Under an Investors' Rights Agreement dated January 31, 2002 between
       Dialog and the former TDMI stockholders, if Dialog receives a written
       request from at least 50% of the former TDMI stockholders to register the
       Dialog Common Stock issuable on conversion of the Dialog Class B
       Preferred Stock, it must use its best efforts to file, within 90 days of
       the receipt of such request, a registration statement covering the
       registration of such securities under the Securities Act of 1933.

       The Company accounted for its non-controlling interest in TDMI using the
       equity basis of accounting since November 5, 1998. In the second quarter
       of 1999, the carrying value of the Company's investment in TDMI,
       including the $100,000 note receivable, was reduced to zero as the
       cumulative equity in TDMI's losses exceeded the Company's investment in
       TDMI. Since the Company had no intention or commitment to fund future
       TDMI losses, commencing in the second quarter of 1999, the Company
       suspended recognizing its share of the additional losses of TDMI. The
       Company recorded income of $100,000 for the year ended December 31, 2001
       in connection with the repayment of the $100,000 note receivable from
       TDMI.




                                      F-10
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(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, New
       Valley Corporation ("New Valley"). Expenses incurred relating to these
       functions are allocated to the Company and paid as incurred to New Valley
       based on management's best estimate of the cost involved. The amounts
       allocated were immaterial for all periods presented herein.


(5)    STOCK OPTIONS

       The Company's 1997 Stock Option Plan (the "1997 Plan") provides 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 is limited to 10 years. Subject to certain limitations under the
       1997 Plan, the number of awards, the terms and conditions of any award
       granted thereunder (including the exercise price, grant price or purchase
       price) are at the discretion of the Board of Directors. The Board of
       Directors has reserved 750,000 shares of the Company's common stock for
       issuance under the 1997 Plan and, at December 31, 2002, 153,333 of the
       granted options were outstanding and exercisable.

       Stock options issued in 1995 and 1996 under a 1994 stock option plan,
       which was terminated in 1997, vested over a three-year period and have an
       exercise price of $11.52 per share. At December 31, 2002, 3,455 of the
       granted options were outstanding and exercisable.

       The following table summarizes information regarding outstanding and
       exercisable options as of December 31, 2002:

<TABLE>
<CAPTION>

         EXERCISE                NUMBER                    WEIGHTED AVERAGE                    NUMBER
          PRICE               OUTSTANDING              CONTRACTUAL LIFE (YEARS)             EXERCISABLE
     -----------------       ----------------         ----------------------------         --------------
<S>                                <C>                           <C>                             <C>
            $0.28                  6,000                         7.85                            6,000
             0.44                 12,000                         8.03                           12,000
             1.50                110,000                         6.00                          110,000
             5.50                 25,333                         6.54                           25,333
            11.52                  3,455                         4.00                            3,445
                                 -------                                                       -------
                                 156,788                                                       156,788
                                 =======                                                       =======
</TABLE>

       The Company applies APB Opinion No. 25 and related Interpretations in
       accounting for its stock options. In 1995, the Financial Accounting
       Standards Board issued SFAS No. 123, "Accounting for Stock-Based
       Compensation", which, if fully adopted, changes the methods of
       recognition of cost on certain stock options. Had compensation cost for
       the Company's stock options been determined based on the fair value at
       the date of grant consistent with SFAS 123, the Company's net loss and
       basic and diluted net (loss) income per share would have been $(49,379)
       or $(0.02) in 2002 and $51,300 or $0.02 in 2001.

       No options were granted or forfeited for the year ended December 31, 2002
       and the weighted average exercise price per share of options outstanding
       is $2.24.

       In addition to the options issued in connection with the stock option
       plans, the Company has granted Direct Assist Holding Inc., a wholly-owned
       subsidiary of New Valley, options to acquire 500,000 shares of Common
       Stock at $5.75 per share, which fully vested upon the completion of the
       IPO. The options expire in January 2007.


(7)    LEASE

       At December 31, 2002, the Company was obligated under a noncancelable
       operating lease agreement for CDS's former facility in New Jersey,
       expiring in June 2003. The lease requires the Company to pay utilities,
       insurance, capital and operating expenses. In 2001 and 2002, the Company
       sublet at its cost the New Jersey facility on a month-to-month basis. In



                                      F-11
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


       January 2003, the sublease tenant abandoned the facility. In February
       2003, the Company reached an agreement with the lessor where it would be
       released from the lease obligations of $76,124 in exchange for the
       forfeiture of a security deposit of $18,505. Total rental expense, net of
       sublease income, for the years ended December 31, 2002 and 2001 was $0
       and $0, respectively.


(8)    STOCKHOLDERS' EQUITY

       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.

       REDEEMABLE CLASS A WARRANTS

       Each Redeemable Class A Warrant (the "Warrant") issued in the IPO
       entitles the holder to purchase one share of Common Stock at an initial
       exercise price of $6.10 at any time through May 13, 2002. There were
       2,322,500 Warrants outstanding at December 31, 2001, of which 1,000,000
       were held by New Valley. The Warrants expired on May 13, 2002 and, as a
       result, no Warrants were outstanding at December 31, 2002.


(9)   INCOME TAXES

       During the years ended December 31, 2002 and 2001, the Company had no
       income and therefore made no provision for Federal and state income
       taxes.

       At December 31, 2002, the Company had approximately $6,825,000 of net
       operating loss carryforwards for federal and state tax reporting purposes
       available to offset future taxable income, if any; such carryforwards
       expire between 2009 and 2022 (federal) and 2005 and 2022 (state),
       respectively. Deferred tax assets and liabilities principally relate to
       net operating loss carryforwards and aggregate approximately $2,320,000
       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, 2002, 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