##### Table of Contents



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, 2008
 Commission File Number: 0001-22563
 
 CDSI HOLDINGS INC.
  
 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
 
 Securities registered under Section 12(b) of the Exchange Act:  Securities registered under Section 12(g) of the Exchange Act:
 o x
 o x
 x o
 x
   Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company x(Do not check if a smaller reporting company)
 x o




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##### 



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.
    
    Submission to Matters to a Vote of Security Holders
    
    
    5PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity     Securities
    
    
    6Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7Item 8.
    
    Financial StatementsItem 9.
    
    Changes in and disagreements with Accountants on Accounting and Financial Disclosure
    
    
    8Item 9A(T)
    
    Controls and Procedures
    
    
    8Item 9B.
    
    Other information
    
    
    9PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    10Item 11.
    
    Executive Compensation
    
    
    12Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    14Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    15Item 14.
    
    Principal Accounting Fees and Services
    
    
    15PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    16SIGNATURES
    
    
    17EX-4.1EX-31.1EX-31.2EX-32.1EX-32.2
  -1-




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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 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. We do not undertake to update any forward-looking statement that may be
made from time to time on our behalf.
 THE COMPANY
 Overview
  -2-




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##### Table of Contents



Company History
   ThinkDirectMarketing, Inc.
  Employees
  
 ITEM 1A.
    
    RISK FACTORS
 Accumulated Deficit; History of Losses.
 Limited Resources and No Source of Operating Revenues
 -3-




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Additional Financing Requirements.
 Blind Pool; Broad Discretion of Management.
 Acquisition and Investment Risks.
 Dependence Upon Executive Officers and Board of Directors
 Limited Trading Market
 Absence of Full-Time Management Personnel.
 Concentration of Stock Ownership.
 Absence of Dividends.
 -4-




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##### Table of Contents



Limitation on Director Liability.
 Dilution.
 Forward-looking Statements.
 
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -5-




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##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF
EQUITY SECURITIES
  High
    
    
    Low2007Fourth Quarter
    
    $
    0.25
    
    
    $
    0.16Third Quarter
    
    
    0.30
    
    
    
    0.18Second Quarter
    
    
    0.22
    
    
    
    0.17First Quarter
    
    
    0.25
    
    
    
    0.152008Fourth Quarter
    
    $
    0.20
    
    
    $
    0.07Third Quarter
    
    
    0.26
    
    
    
    0.20Second Quarter
    
    
    0.45
    
    
    
    0.14First Quarter
    
    
    0.39
    
    
    
    0.16
  Dividend Policy
  Recent Sales of Unregistered Securities
  Issuer Purchases of Equity Securities
  -6-




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##### Table of Contents



ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  Results of Operations
 Revenues
  Expenses
  Other Income
   Liquidity and Capital Resources
    -7-




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ITEM 8.
    
    FINANCIAL STATEMENTS
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A (T).  CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
  -8-




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(b) Managements Annual Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework
  (c) Inherent Limitations on Effectiveness of Controls
  (d) Changes in Internal Control Over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
  -9-




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##### Table of Contents



PART III
MANAGEMENT
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionRichard J. Lampen
    
    
    55
    
    
    President, Chief Executive Officer and DirectorJ. Bryant Kirkland III
    
    
    43
    
    
    Vice President, Chief Financial Officer,Secretary, Treasurer and DirectorRobert M. Lundgren
    
    
    50
    
    
    Director
 Richard J. Lampen
 J. Bryant Kirkland III
 Robert M. Lundgren
 -10-




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Audit Committee
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 nd
 -11-




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##### Table of Contents



ITEM 11.  EXECUTIVE COMPENSATION
 Executive Compensation
  Summary Compensation Table
 Non-Equity
    
    DeferredOption
    
    Incentive Plan
    
    Compensation
    
    All Other
    
    TotalName and
    
    
    
    
    
    
    
    
    
    Bonus
    
    Stock Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    CompensationPrincipal Position
    
    Year
    
    Salary ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Richard J. Lampen
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NonePresident and Chief
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NoneExecutive
Officer(1)
 
 (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 2008 or 2007,
other than the normal compensation paid to directors of ours. See Compensation of
Directors. Stock Options
   -12-




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##### Table of Contents



Option Awards
    
    
    Stock AwardsEquityIncentiveEquity
    
    
    PlanEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive
    
    
    Awards:Number
    
    
    
    
    
    Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan
    
    
    Market orof
    
    
    
    
    
    Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    
    PayoutSecurities
    
    Number
    
    
    Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    Value ofUnder-
    
    of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    Unearnedlying
    
    Securities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    Market
    
    
    Shares,
    
    
    Shares,Unexer-
    
    Under-
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    of Shares
    
    
    Value of
    
    
    Units or
    
    
    Units orcised
    
    lying
    
    
    Unexer-
    
    
    
    
    
    
    
    
    
    
    or Units
    
    
    Shares or
    
    
    Other
    
    
    OtherOptions
    
    Options
    
    
    cised
    
    
    
    
    
    
    Option
    
    
    of Stock
    
    
    Units of
    
    
    Rights
    
    
    Rights(#)
    
    (#)
    
    
    Unearned
    
    
    Option
    
    
    Expir-
    
    
    That
    
    
    Stock That
    
    
    That Have
    
    
    That HaveExercis-
    
    Unexercis-
    
    
    Options
    
    
    Exercise
    
    
    ation
    
    
    Have Not
    
    
    Have Not
    
    
    Not Vested
    
    
    Not VestedName
    
    able
    
    able
    
    
    (#)
    
    
    Price ($)
    
    
    Date
    
    
    Vested (#)
    
    
    Vested ($)
    
    
    (#)
    
    
    ($)Richard J. Lampen
    
    3,000
    
    
    
    
    
    
    
    
    
    $
    0.44
    
    
    
    1/12/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Employment Agreements and Other Compensation Plans
  Compensation of Directors
   Changes inPension ValueFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    andEarned
    
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    
    Nonqualifiedor Paid
    
    
    Stock
    
    
    Option
    
    
    Incentive Plan
    
    
    Deferred
    
    
    All Otherin Cash
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    CompensationName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    Earnings ($)
    
    
    ($)
    
    
    Total ($)Richard J. Lampen
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000J. Bryant Kirkland III
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000Robert M. Lundgren
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000Henry Morris1
    
    $
    1,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,250
 
 1
    
    Mr. Morris resigned from our Board of Directors on
March 27, 2008. -13-




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Number of Shares ofName and Address(1)
    
    Common Stock
    
    Percentage of OwnershipVector Group Ltd.(2)
    
    
    1,490,000
    
    
    
    47.8
    %Jay Gottlieb(3)
    
    
    275,000
    
    
    
    8.8
    %27 Misty Brooke Lane
New Fairfield, CT 06812J. Bryant Kirkland III(4)
    
    
    
    
    
    
    0.0
    %Richard J. Lampen(4)
    
    
    
    
    
    
    0.0
    %Robert Lundgren(4)
    
    
    
    
    
    
    0.0
    %14545 SW 79th Court
Miami, FL 33158All executive officers and directors
as a group (3 persons)(4)
    
    
    
    
    
    
    0.0
    %
 
 (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. Prior to
November 2007, Vectors subsidiary, New Valley LLC, held 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 Bennett S. LeBow,
Executive Chairman, Howard M. Lorber, President and Chief Executive Officer and Marc N. Bell,
Vice President and General Counsel. The directors of Vector are Messrs. LeBow and Lorber,
Henry C. Beinstein, Ronald J. Bernstein, Robert J. Eide, Jeffrey S. Podell and Jean E. Sharpe.(3)
    
    Based on Schedule 13G filed on February 10, 2009 by Jay Gottlieb.(4)
    
    Includes shares subject to options and/or warrants currently exercisable or
exercisable within 60 days of the date hereof. -14-




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##### Table of Contents



Equity Compensation Plan Information
  Number of securities remainingNumber of securities to
    
    
    
    
    
    
    available for future issuancebe issued upon exercise
    
    
    Weighted-average exercise
    
    
    under equity compensationof outstanding options,
    
    
    price of outstanding
    
    
    plans (excluding securitieswarrants and rights
    
    
    options, warrants and rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans
approved by
security holders
(1)
    
    
    9,000
    
    
    $
    0.44
    
    
    
    Equity compensation
plans
not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    9,000
    
    
    $
    0.44
    
    
    
    
 
 (1)
    
    Includes options to purchase 9,000 shares of our Common Stock under the 1997 Stock Option
Plan, which were approved by stockholders. These options expired on January 12, 2009. For
additional information concerning the options, see Note 6 to our Financial Statements. 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  Audit Fees
 -15-




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Audit-Related Fees.
 Tax Fees
 All Other Fees
 
 PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)(1) INDEX TO 2008 CONSOLIDATED FINANCIAL STATEMENTS:
  (a)(3) EXHIBITS
  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, as lender, and CDSI Holdings Inc., as borrower.*10.1
    
    
    Form of 1997 Stock Option Plan (1)31.1
    
    
    Certification of Chief Executive Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    
    Certification of Chief Financial Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    
    Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    
    Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed herewith.(1)
    
    Previously filed as an Exhibit to 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. -16-




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##### Table of Contents



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

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

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

Robert Lundgren
    
    Director
 -17-




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CDSI HOLDINGS INC.




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##### Table of Contents



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
    
    
    F-5Statements of Cash Flows
    
    
    F-6Notes to Financial Statements
    
    
    F-7
 F-1




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Report of Independent Registered Public Accounting Firm
 
    /s/ Becher Della Torre Gitto & Company PC
  F-2




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##### Table of Contents



CDSI HOLDINGS INC.
 
  December 31,
    
    
    December 31,2008
    
    
    2007Assets:Current assets:Cash and cash equivalents
    
    $
    19,698
    
    
    $
    50,288Total assets
    
    $
    19,698
    
    
    $
    50,288Liabilities and Stockholders Equity:Current liabilities:Accounts payable and accrued expenses
    
    $
    11,650
    
    
    $
    6,650Total current liabilities
    
    
    11,650
    
    
    
    6,650Commitments 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
    
    
    
    31,200Additional paid-in capital
    
    
    8,209,944
    
    
    
    8,209,944Accumulated deficit
    
    
    (8,233,096
    )
    
    
    (8,197,506
    )Accumulated other comprehensive income
    
    
    
    
    
    
    Total stockholders equity
    
    
    8,048
    
    
    
    43,638Total liabilities and stockholders equity
    
    $
    19,698
    
    
    $
    50,288
  F-3




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CDSI HOLDINGS INC.
 
  Years Ended December 31,2008
    
    
    2007Revenues
    
    $
    
    
    
    $
    Cost and expenses:General and administrative
    
    
    36,029
    
    
    
    35,07036,029
    
    
    
    35,070Operating loss
    
    
    (36,029
    )
    
    
    (35,070
    )Other income:Gain on sale of Dialog common stock
    
    
    
    
    
    
    204Recovery of unclaimed property
    
    
    
    
    
    
    21,791Interest income
    
    
    439
    
    
    
    2,501439
    
    
    
    24,496Net loss
    
    $
    (35,590
    )
    
    $
    (10,574
    )Net loss per share (basic and diluted)
    
    $
    (0.01
    )
    
    $
    (0.00
    )Shares used in computing net lossPer share
    
    
    3,120,000
    
    
    
    3,120,000
  F-4




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##### Table of Contents



CDSI HOLDINGS INC.
 
  AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    EquityBalance at January 1, 2007
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,186,932
    )
    
    $
    224
    
    
    $
    54,436Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,574
    )
    
    
    
    
    
    
    (10,574
    )Net realized gain reclassified
into net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204
    )
    
    
    (204
    )Change in unrealized gain on
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Net change in unrealized gain
on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,798
    )Balance at January 1, 2008
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,197,506
    )
    
    $
    
    
    
    $
    43,638Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,590
    )
    
    
    
    
    
    
    (35,590
    )Balance at December 31, 2008
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,233,096
    )
    
    $
    
    
    
    $
    8,048
  F-5




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##### Table of Contents



CDSI HOLDINGS INC.
 
  Years Ended December 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (35,590
    )
    
    $
    (10,574
    )Adjustments to reconcile net loss to
net cash used in operating activities:Changes in assets and liabilities:Gain on investment securities
    
    
    
    
    
    
    (204
    )Accounts payable and accrued expenses
    
    
    5,000
    
    
    
    (950
    )Net cash used in operating activities
    
    
    (30,590
    )
    
    
    (11,728
    )Net cash flows provided from investing activities:Sale of investment securities
    
    
    
    
    
    
    204Net cash flows provided from investing activities
    
    
    
    
    
    
    204Net cash flows provided from financing activities
    
    
    
    
    
    
    Net decrease in cash
    
    
    (30,590
    )
    
    
    (11,524
    )Cash and cash equivalents at beginning of period
    
    
    50,288
    
    
    
    61,812Cash and cash equivalents at end of period
    
    $
    19,698
    
    
    $
    50,288Supplemental cash flow information:Cash paid during year for:Interest
    
    
    
    
    
    
    Income taxes
    
    
    
    
    
    
    
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##### Table of Contents



CDSI HOLDINGS INC.
 
  (1)
    
    Business and OrganizationCDSI 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, 2008, the Company had an accumulated deficit of approximately $8,233,096. 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 PoliciesCash and Cash EquivalentsCash and cash equivalents include money market funds with a maturity of three months or less.Fair Value of Financial InstrumentsThe 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.
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##### Table of Contents



CDSI HOLDINGS INC.
  Income TaxesThe 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 ShareBasic 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. Stock options
and warrants totaling 9,000 and 128,000 shares at December 31, 2008 and 2007, respectively,
were excluded from the calculation of diluted per share results presented because their effect
was anti-dilutive. Accordingly, diluted net loss per common share is the same as basic net
loss per common share.Use of EstimatesThe 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.Concentrations of RisksFinancial 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.
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##### Table of Contents



CDSI HOLDINGS INC.
  (3)
    
    Sale of Dialog StockDialog Group Inc. owns the PC411 Service. In April 2007, the Company sold its remaining 2,800
shares of Dialog stock for $204 and recorded a gain of $204 from the sale for the year ended
December 31, 2007.(4)
    
    Investments and Fair Value MeasurementsOn January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, for financial
assets and financial liabilities. SFAS No. 157 does not require any new fair value
measurements but rather introduces a framework for measuring fair value and expands required
disclosure about fair value measurements of assets and liabilities.SFAS No. 157 discusses 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). The statement
clarifies that fair value is an exit price, representing amounts that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market
participants.SFAS No. 157 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 directory 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 $19,394 of cash invested
in a money market fund. The fair value determination of the money market fund is a Level 1
asset under the SFAS 157 hierarchy. The money market fund is invested in Treasury Funds with
quoted prices in active markets.
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##### Table of Contents



CDSI HOLDINGS INC.
  (5)
    
    Related Party TransactionsCertain accounting and related finance functions are performed on behalf of the Company by
employees of the parent 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. No amounts were outstanding under the Revolver at March 27, 2009.(6)
    
    Stock OptionsThe 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 under the provisions of SFAS No. 123(R), which requires
the Company to value unvested stock options granted prior to the adoption of SFAS No. 123(R)
under the fair value method of accounting and expense this amount in the statement of
operations over the stock options remaining vesting period. The Company adopted this new
standard, prospectively, on January 1, 2006. Because all options outstanding were fully vested
at January 1, 2006, there was no impact on the Companys financial statements.As permitted by SFAS No. 123 and SFAS No. 123(R), the fair value of option grants is estimated
at the date of grant using the Black-Scholes option pricing model. There were no option grants
in the years ended December 31, 2008 and 2007.Approximately 25,333 and 119,000 options to acquire shares of Common Stock expired during 2007
and 2008. In addition to the options issued to employees, the Company had granted New Valley
LLC, a wholly-owned subsidiary of Vector, options to acquire 500,000 shares of Common Stock at
$5.75 per share, which fully vested upon the completion of the Companys initial public
offering in May 1997. These options expired in March 2007.
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##### Table of Contents



CDSI HOLDINGS INC.
  A summary of the Companys stock option activity during the years ended December 31, 2007 and
2008, respectively, are as follows:
 Weighted-AverageWeighted-
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    Value(1)Outstanding at January 1, 2007
    
    
    153,333
    
    
    $
    2.03
    
    
    
    1.2
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (25,333
    )
    
    
    5.50
    
    
    
    
    
    
    
    Outstanding at December 31, 2007
    
    
    128,000
    
    
    $
    1.34
    
    
    
    .35
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (119,000
    )
    
    
    1.41Outstanding at December 31, 2008
    
    
    9,000
    (2)
    
    $
    0.44
    
    
    
    0.03
    
    
    $
    Exercisable at December 31, 2008
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    $
    Options vested during period
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    The aggregate intrinsic value represents the amount by which the fair value of the
underlying common stock ($0.10 and $0.19 at December 31, 2008 and 2007, respectively)
exceeds the option exercise price.(2)
    
    These options expired on January 12, 2009. (7)
    
    Preferred StockThe 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.
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##### Table of Contents



CDSI HOLDINGS INC.
  (8)
    
    Income TaxesDuring the years ended December 31, 2008 and 2007, the Company had no income and therefore
made no provision for Federal and state income taxes.At December 31, 2008 and 2007, the Company had approximately $7,025,000 and $6,995,000,
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 2009 and
2028 (federal) and 2006 and 2028 (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, 2008, 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.(9)
    
    ContingenciesAs of December 31, 2008, the Company was not authorized to transact business in any state
other than Delaware, which is its state of incorporation. The Company received an inquiry
from the Florida Department of State (the FDS) inquiring whether the Company should have
registered with the FDS in previous years, beginning in 1998. In March 2006, the Company
responded to the inquiry and stated it believes its activities in previous years did not meet
the requirements for such registration; however, no assurance can be provided that the
Companys position will be accepted by the FDS. The Company is unable to quantify the amount
of any registration fees and other costs attributable to any failure to register and has not
accrued any amounts in its financial statements related to such inquiry.The Company received refunds of approximately $21,791 in 2007 for unclaimed property in a
state the Company previously conducted business.
 F-12