##### 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, 2009
 Commission File Number: 000-22563
 
 CDSI HOLDINGS INC.
  
 Delaware
    
    95-4463937(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 100 S.E. Second Street, 32ndFloor, 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 þ
 o þ
 þ o
 o o
 þ
  o Large accelerated filer
    
    o Accelerated filer
    
    o Non-accelerated filer
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 þ o




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##### 



CDSI HOLDINGS INC.
FORM 10-K
 T A B L E O F C O N T E N T S
 PagePART IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    3Item 1B. Unresolved Staff Comments
    
    
    5Item 2. Properties
    
    
    5Item 3. Legal Proceedings
    
    
    5Item 4. Reserved
    
    
    5PART IIItem 5.
Market for Registrants Common Equity, Related Stockholder
Matters and Issuer
Purchases of Equity Securities
    
    
    6Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7Item 8. Financial Statements
    
    
    8Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure
    
    
    8Item 9A(T)Controls and Procedures
    
    
    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
    
    
    15SIGNATURES
    
    
    17EX-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
   Company History
   - 2 -




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Employees
  
 ITEM 1A.
    
    RISK FACTORS
 Accumulated Deficit; History of Losses.
 Limited Resources and No Source of Operating Revenues
 Additional Financing Requirements.
 Blind Pool; Broad Discretion of Management.
 Acquisition and Investment Risks.
 - 3 -




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




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ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    RESERVED
 - 5 -




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASE OF
EQUITY SECURITIES
  High
    
    
    Low2009Fourth Quarter
    
    $
    0.12
    
    
    $
    0.07Third Quarter
    
    
    0.10
    
    
    
    0.06Second Quarter
    
    
    0.13
    
    
    
    0.05First Quarter
    
    
    0.13
    
    
    
    0.102008Fourth 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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ITEM 7.
    
    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
  (b) Managements Annual Report on Internal Control over Financial Reporting
  - 8 -




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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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PART III
MANAGEMENT
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Name
    
    Age
    
    PositionRichard J. Lampen
    
    
    56
    
    
    President, Chief Executive Officer and DirectorJ. Bryant Kirkland III
    
    
    44
    
    
    Vice President, Chief Financial Officer,
Secretary, Treasurer and DirectorRobert M. Lundgren
    
    
    51
    
    
    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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ITEM 11. EXECUTIVE COMPENSATION
 Executive Compensation
  Summary Compensation Table
 NonqualifiedNon-Equity
    
    
    DeferredIncentive Plan
    
    
    Compensation
    
    
    
    
    
    
    TotalName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option
    
    
    Compensation
    
    
    Earnings
    
    
    All Other
    
    
    CompensationPrincipal Position
    
    Year
    
    
    Salary ($)
    
    
    Bonus ($)
    
    
    Stock Awards ($)
    
    
    Awards ($)
    
    
    ($)
    
    
    ($)
    
    
    Compensation ($)
    
    
    ($)Richard J. Lampen
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NonePresident and ChiefExecutive
Officer(1)
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    None
 
 (1)
    
    Richard J. Lampen, who has served as our President and Chief Executive Officer since
November 5, 1998, did not receive any salary or other compensation from us in 2009 or 2008,
other than the normal compensation paid to directors of ours. See Compensation of
Directors. Stock Options
   Employment Agreements and Other Compensation Plans
  Compensation of Directors
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Changes in PensionValue andFees
    
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    
    NonqualifiedEarned
    
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    
    Deferredor Paid
    
    
    
    
    
    
    Option
    
    
    Compensation
    
    
    Compensation
    
    
    All OtherName
    

in Cash ($)
    
    
    Stock Awards ($)
    
    
    Awards ($)
    
    
    ($)
    
    
    Earnings ($)
    
    
    Compensation ($)
    
    
    Total ($)Richard J. Lampen
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000J. Bryant Kirkland III
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000Robert M. Lundgren
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,000
 - 13 -




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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
    %T. Baulch(3)
    
    
    200,583
    
    
    
    6.4
    %5315-B FM 1960 West, #239
Houston, TX 77069Jay Gottlieb(4)
    
    
    191,200
    
    
    
    6.1
    %27 Misty Brooke Lane
New Fairfield, CT 06812J. Bryant Kirkland III
    
    
    
    
    
    
    0.0
    %Richard J. Lampen
    
    
    
    
    
    
    0.0
    %Robert Lundgren
    
    
    
    
    
    
    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. Richard J.
Lampen, an executive officer and a director of ours, and J. Bryant Kirkland III, an executive
officer and a director of ours, serve as Executive Vice President and Vice President,
respectively, of Vector. Neither Mr. Kirkland nor Mr. Lampen has investment authority or
voting control over our securities owned by Vector. The other executive officers of Vector
are Howard M. Lorber, President and Chief Executive Officer and Marc N. Bell, Vice President
and General Counsel. The directors of Vector are Mr. Lorber, Bennett S. LeBow, Henry C.
Beinstein, Ronald J. Bernstein, Robert J. Eide, Jeffrey S. Podell and Jean E. Sharpe.(3)
    
    Based on Schedule 13G filed on February 16, 2010 by T. Baulch.(4)
    
    Based on Schedule 13G filed on February 11, 2010 by Jay Gottlieb. - 14 -




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Equity Compensation Plan Information
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  Audit Fees
 Audit-Related Fees.
 Tax Fees
 All Other Fees
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)(1) INDEX TO 2009 CONSOLIDATED FINANCIAL STATEMENTS:
  - 15 -




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(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.,
Lender, and CDSI Holdings Inc., as borrower. (3)31.1
    
    Certification of Chief Executive Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed herewith.(1)
    
    Previously filed as an Exhibit to our Registration Statement on Form S-1 (File No.
333-21545). This Exhibit is incorporated herein by reference.(2)
    
    Previously filed as an Exhibit to our Form 8-K filed January 14, 1999. This Exhibit is
incorporated herein by reference.(3)
    
    Previously filed as an Exhibit to our Form 10-K for the
year ended December 31, 2008. This exhibit is incorporated
herein by reference. - 16 -




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




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Report of Independent Registered Public Accounting Firm
 
     
  F - 2




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CDSI HOLDINGS INC.
 
  December 31,
    
    
    December 31,2009
    
    
    2008Assets:Current assets:Cash and cash equivalents
    
    $
    9,004
    
    
    $
    19,698Total assets
    
    $
    9,004
    
    
    $
    19,698Liabilities and Stockholders (Deficiency) Equity:Current liabilities:Accounts payable and accrued expenses
    
    $
    11,220
    
    
    $
    11,650Total current liabilities
    
    
    11,220
    
    
    
    11,650Revolving credit promissory note from related party
    
    
    22,500
    
    
    
    Commitments and contingencies
    
    
    
    
    
    
    Stockholders (deficiency) 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
    
    
    (8,265,860
    )
    
    
    (8,233,096
    )Accumulated other comprehensive income
    
    
    
    
    
    
    Total stockholders (deficiency) equity
    
    
    (24,716
    )
    
    
    8,048Total liabilities and stockholders (deficiency) equity
    
    $
    9,004
    
    
    $
    19,698
  F - 3




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CDSI HOLDINGS INC.
 
  Years Ended December 31,2009
    
    
    2008Revenues
    
    $
    
    
    
    $
    Cost and expenses:General and administrative
    
    
    31,343
    
    
    
    36,02931,343
    
    
    
    36,029Operating loss
    
    
    (31,343
    )
    
    
    (36,029
    )Other income (expense):Interest income
    
    
    1
    
    
    
    439Interest expense
    
    
    (1,422
    )
    
    
    (1,421
    )
    
    
    439Net loss
    
    $
    (32,764
    )
    
    $
    (35,590
    )Net loss per share (basic and diluted)
    
    $
    (0.01
    )
    
    $
    (0.01
    )Shares used in computing net loss
per share
    
    
    3,120,000
    
    
    
    3,120,000
  F - 4




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CDSI HOLDINGS INC.
 
  Accumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    Other
    
    
    StockholdersCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    (Deficiency)Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    EquityBalance at January 1, 2008
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,197,506
    )
    
    $
    
    
    
    $
    43,638Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,590
    )
    
    
    
    
    
    
    (35,590
    )Balance at January 1, 2009
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,233,096
    )
    
    $
    
    
    
    $
    8,048Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,764
    )
    
    
    
    
    
    
    (32,764
    )Balance at December 31, 2009
    
    
    3,120,000
    
    
    $
    31,200
    
    
    $
    8,209,944
    
    
    $
    (8,265,860
    )
    
    $
    
    
    
    $
    (24,716
    )
  F - 5




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CDSI HOLDINGS INC.
 
  Years Ended December 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (32,764
    )
    
    $
    (35,590
    )Adjustments to reconcile net loss to
net cash used in operating activities:Changes in assets and liabilities:(Decrease) increase in accounts payable
and accrued expenses
    
    
    (430
    )
    
    
    5,000Net cash used in operating activities
    
    
    (33,194
    )
    
    
    (30,590
    )Net cash from investing activities
    
    
    
    
    
    
    Net cash from financing activities:Borrowings under revolving credit promissory note
    
    
    22,500
    
    
    
    Net cash flows provided from financing activities
    
    
    22,500
    
    
    
    Net decrease in cash
    
    
    (10,694
    )
    
    
    (30,590
    )Cash and cash equivalents at beginning of period
    
    
    19,698
    
    
    
    50,288Cash and cash equivalents at end of period
    
    $
    9,004
    
    
    $
    19,698Supplemental cash flow information:Cash paid during year for:Interest
    
    
    
    
    
    
    Income taxes
    
    
    
    
    
    
    
  F - 6




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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 transmited 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, 2009, the Company had an accumulated deficit of approximately $8,265,860. 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. The carrying value of the Revolving Credit Promissory Note is
estimated to approximate fair value as the stated note approximates its fair value.
 F - 7




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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 shares at December 31, 2008,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.Subsequent EventsThe Company has evaluated events that occurred subsequent to December 31, 2009, through the
financial statement issue date (March 29, 2010), and determined that there were no recordable or reportable
subsequent events.
 F - 8




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CDSI HOLDINGS INC.
  (3)
    
    Investments and Fair Value MeasurementsThe Company utilizes a three-tier framework for assets and liabilities required to be
measured at fair value. In addition, the Company uses valuation techniques, such as the
market approach (comparable market prices), the income approach (present value of future
income or cash flow), and the cost approach (cost to replace the service capacity of an asset
or replacement cost) to value these assets and liabilities as appropriate. The Company uses an
exit price when determining the fair value. The exit price represents amounts that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants.The Company utilizes a three-tier fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels. The following is a
brief description of those three levels:
 Level 1
    
    Observable inputs such as quoted prices (unadjusted) in
active markets for identical assets or liabilities.Level 2
    
    Inputs other than quoted prices that are observable for the
assets or liability, either directly or indirectly. These
include quoted prices for similar assets or liabilities in
active markets and quoted prices for identical or similar
assets or liabilities in markets that are not active.Level 3
    
    Unobservable inputs in which there is little market data,
which requires the reporting entity to develop their own
assumptions
 This hierarchy requires the use of observable market data, when available, and to minimize the
use of unobservable inputs when determining fair value.The Companys population of recurring financial assets and liabilities subject to fair value
measurements and the necessary disclosures consists of approximately $7,096 and $19,394 of
cash invested in a money market fund as of December 31, 2009 and 2008, respectively. The fair
value determination of the money market fund is a Level 1 asset under the fair value
hierarchy. The money market fund is invested in Treasury Funds with quoted prices in active
markets.
 (4)
    
    Related Party TransactionsCertain accounting and related finance functions are performed on behalf of the Company by
employees of the Companys principal stockholder, Vector Group Ltd. (Vector). Expenses
incurred relating to these functions are allocated to the Company and paid as incurred to
Vector
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CDSI HOLDINGS INC.
  based on managements best estimate of the cost involved. The amounts allocated were
immaterial for all periods presented herein.On March 26, 2009, the Company and Vector entered into a $50,000 Revolving Credit Promissory
Note (the Revolver) due December 31, 2012. The loan bears interest at 11% per annum and is
due on December 31, 2012. There was a balance $22,500 outstanding under the Revolver at
December 31, 2009. In addition, the Company has recorded accrued interest expense of $1,422 to
Vector in Accounts payable and other accrued expenses in its Balance Sheet at December 31,
2009.
 (5)
    
    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 by estimating at the date of grant using the
Black-Scholes option pricing model. There were no option grants in the years ended December
31, 2009 and 2008.Approximately 9,000 and 119,000 options to acquire shares of Common Stock expired during 2009
and 2008, respectively.
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CDSI HOLDINGS INC.
  A summary of the Companys stock option activity is as follows:
 Weighted-AverageWeighted-
    
    
    RemainingAverage Exercise
    
    
    Contractual Term
    
    
    Aggregate IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    ValueOutstanding at January 1, 2008
    
    
    128,000
    
    
    $
    1.34
    
    
    
    .35
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (119,000
    )
    
    
    1.41
    
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    9,000
    
    
    $
    0.44
    
    
    
    0.03
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (9,000
    )(1)
    
    
    0.44
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Exercisable at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Options vested during period
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    These options expired on January 12, 2009. (6)
    
    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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CDSI HOLDINGS INC.
  (7)
    
    Income TaxesDuring the years ended December 31, 2009 and 2008, the Company had no income and therefore
made no provision for Federal and state income taxes.At December 31, 2009 and 2008, the Company had approximately $7,050,000 and $7,025,000,
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 2010 and
2029 (federal) and 2010 and 2029 (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, 2009, 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