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



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

                        COMMISSION FILE NUMBER 0001-22563

                               CDSI HOLDINGS INC.
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)


           DELAWARE                                           95-4463937
(STATE OR OTHER JURISDICTION OF                            (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                          IDENTIFICATION NUMBER)


   100 S.E. SECOND STREET, 32ND FLOOR
                MIAMI, FL                                        33131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)


                                 (305) 579-8000
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)


     CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PRECEDING 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

                                 YES [X] NO [ ]

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES NO

                                 YES [X] NO [ ]

     AS OF AUGUST 14, 2007, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE
ISSUER'S COMMON STOCK, $.01 PAR VALUE.

     TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ]  NO [X]


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


<PAGE>






                               CDSI HOLDINGS INC.
                         QUARTERLY REPORT ON FORM 10-QSB
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007


                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

<Table>
<Caption>
                                                                                    PAGE
                                                                                   -------
<S>           <C>                                                                   <C>
Item 1.       Condensed Consolidated Financial Statements (Unaudited):

              Condensed Consolidated Balance Sheets as of June 30, 2007
                  and December 31, 2006.........................................    2

              Condensed Consolidated Statements of Operations for the
                  three months and six months ended June 30, 2007 and
                  2006..........................................................    3

              Condensed Consolidated Statements of Cash Flows for the
                  six months ended June 30, 2007 and 2006.......................    4

              Notes to the Condensed Quarterly Consolidated Financial               5
                  Statements....................................................

Item 2.       Management's Discussion and Analysis of Financial
                  Condition and Results of Operations...........................    10

Item 3.       Controls and Procedures...........................................    13


PART  II. OTHER INFORMATION

Item 1.       Legal Proceedings.................................................    14

Item 6.       Exhibits  ........................................................    14

SIGNATURE.......................................................................    15
</Table>



<PAGE>





                               CDSI HOLDINGS INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<Table>
<Caption>
                                                                  June 30,        December 31,
                                                                    2007              2006
                                                                -----------       -----------
<S>                                                             <C>              <C>
                                ASSETS:

Current assets:
    Cash and cash equivalents ............................      $    41,769       $    61,812
    Investment securities available for sale .............               --               224
    Unclaimed property receivable ........................           18,624                --
                                                                -----------       -----------

         Total assets ....................................      $    60,393       $    62,036
                                                                ===========       ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
    Accounts payable and accrued expenses ................      $     4,725       $     7,600
                                                                -----------       -----------

         Total current liabilities .......................            4,725             7,600
                                                                -----------       -----------

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            31,200
    Additional paid-in capital ...........................        8,209,944         8,209,944
    Accumulated deficit ..................................       (8,185,476)       (8,186,932)
    Accumulated other comprehensive income ...............               --               224
                                                                -----------       -----------

         Total stockholders' equity ......................           55,668            54,436
                                                                -----------       -----------

         Total liabilities and stockholders' equity ......      $    60,393       $    62,036
                                                                ===========       ===========

</Table>








      See accompanying Notes to Condensed Consolidated Financial Statements



                                       2
<PAGE>


                               CDSI HOLDINGS INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<Table>
<Caption>
                                                               Three Months Ended                    Six Months Ended
                                                          -----------------------------       -----------------------------
                                                            June 30,          June 30,          June 30,         June 30,
                                                              2007              2006              2007             2006
                                                          -----------       -----------       -----------       -----------

<S>                                                       <C>               <C>               <C>               <C>
Revenues ...........................................      $        --       $        --       $        --       $        --

Cost and expenses:
     General and administrative ....................            8,691             9,024            18,642            17,980
                                                          -----------       -----------       -----------       -----------
                                                                8,691             9,024            18,642            17,980
                                                          -----------       -----------       -----------       -----------

Operating loss .....................................           (8,691)           (9,024)          (18,642)          (17,980)
                                                          -----------       -----------       -----------       -----------

     Other income:
     Gain on sale of Dialog common stock ...........              204                --               204                --
     Recovery of unclaimed property ................           18,624                --            18,624                --
                                                                                                                -----------
     Interest income ...............................              558               915             1,270             1,846
                                                          -----------       -----------       -----------       -----------
     Total other income ............................           19,386               915            20,098             1,846
                                                          -----------       -----------       -----------       -----------

Net income (loss) ..................................      $    10,695       $    (8,109)      $     1,456       $   (16,134)
                                                          ===========       ===========       ===========       ===========

Net income (loss) per share (basic and diluted) ....      $      0.00       $     (0.00)      $      0.00       $     (0.01)
                                                          ===========       ===========       ===========       ===========

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

</Table>















     See accompanying Notes to Condensed Consolidated Financial Statements




                                       3
<PAGE>


                               CDSI HOLDINGS INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>

                                                                           Six Months Ended
                                                                     -----------------------------
                                                                      June 30,            June 30,
                                                                        2007                2006
                                                                     --------             --------
<S>                                                                  <C>                  <C>
Cash flows from operating activities:
   Net income (loss) ....................................            $  1,456             $(16,134)
   Adjustments to reconcile net income (loss) to net cash
     used in operations:
   Gain on sale of Dialog common stock ..................                (204)                  --
   Changes in assets and liabilities:
   Increase in unclaimed property receivable ............             (18,624)                  --
   Decrease in accounts payable and accrued expenses ....              (2,875)                  --
                                                                     --------             --------

Net cash used in operating activities ...................             (20,247)             (16,134)
                                                                     --------             --------

Net cash flows provided from investing activities:
Sale of investment securities ...........................                 204                   --
                                                                     --------             --------
Net cash from investing activities ......................                 204                   --
                                                                     --------             --------

Net cash from financing activities ......................                  --                   --
                                                                     --------             --------

Net decrease in cash and cash equivalents ...............             (20,043)             (16,134)
Cash and cash equivalents at beginning of period ........              61,812               91,660
                                                                     --------             --------

Cash and cash equivalents at end of period ..............            $ 41,769             $ 75,526
                                                                     ========             ========



</Table>






      See accompanying Notes to Condensed Consolidated Financial Statements



                                       4
<PAGE>





                               CDSI HOLDINGS INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


 (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. Effective November 12, 2003, the Company and its
       wholly-owned subsidiary CDS merged with the Company as the surviving
       corporation.

       At June 30, 2007, the Company had an accumulated deficit of $8,185,476.
       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 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. 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)   PRINCIPLES OF REPORTING


       The condensed financial statements of the Company as of June 30, 2007
       presented herein have been prepared by the Company and are unaudited. In
       the opinion of management, all adjustments, consisting only of normal
       recurring adjustments, necessary to present fairly the financial position
       as of June 30, 2007 and the results of operations and cash flows for all
       periods presented have been made. Results for the interim periods are not
       necessarily indicative of the results for the entire year.

       These condensed financial statements should be read in conjunction with
       the audited financial statements and notes thereto for the year ended
       December 31, 2006 included in the Company's Form 10-KSB, as amended,
       filed with the Securities and Exchange Commission (Commission File No.
       0001-22563).



                                       5
<PAGE>



                               CDSI HOLDINGS INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


       USE OF ESTIMATES

       The preparation of the 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.

(3)     THINKDIRECTMARKETING 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
       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 was then 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. 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 was 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 preferred shares into 330,000 shares of


                                       6
<PAGE>


                               CDSI HOLDINGS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


       Dialog Common Stock. The Company sold 50,000 shares of Dialog stock for
       $4,888 in 2004 (500 shares adjusted for reverse stock split). See Note 4.
       On September 18, 2006, Dialog effected a 1-for-100 reverse stock split.
       On April 10, 2007, the Company sold its remaining 2,800 shares of Dialog
       stock for $204 and the Company recorded a gain of $204 from the sale for
       the three and six months ended June 30, 2007.

(4)    INVESTMENT SECURITIES AVAILABLE FOR SALE

       In accordance with Statement of Financial Accounting Standards No. 115,
       "Accounting for Certain Investments in Debt and Equity Securities", the
       Company classified its 2,800 shares of Dialog Common Stock as "Investment
       Securities Available for Sale" as of December 31, 2006. The Dialog Common
       Stock was carried at fair value, based on the last trade prior to
       December 31, 2006 and net unrealized gains were included as a component
       of stockholders' equity. On April 10, 2007, the Company sold its
       remaining 2,800 shares of Dialog stock for $204 and the Company recorded
       a gain of $204 from the sale for the three and six months ended June 30,
       2007. See Note 3.


(5)    RELATED PARTY TRANSACTIONS

       Certain 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.

(6)    NET INCOME (LOSS) PER SHARE

       Basic income (loss) per share of common stock is computed by dividing net
       income (loss) applicable to common stockholders by the weighted average
       shares of common stock outstanding during the period (3,120,000 shares).
       Diluted income (loss) per share results reflects the potential dilution
       from the exercise or conversion of securities into common stock.

       Stock options and warrants (both vested and non-vested) totaling 128,000
       shares at June 30, 2007 and 653,333 shares at June 30, 2006 were excluded
       from the calculation of diluted per share results presented because their
       effect was anti-dilutive. Accordingly, diluted net income (loss) per
       common share is the same as basic net income (loss) per common share.




                                       7
<PAGE>

                               CDSI HOLDINGS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


(7)    COMPREHENSIVE INCOME (LOSS)

       Comprehensive income (loss) of the Company includes net income (loss) and
       changes in the value of investment securities available for sale that
       have not been included in net income (loss). Comprehensive income (loss)
       applicable to common shares for the three and six months ended June 30,
       2007 and 2006 is as follows:

<Table>
<Caption>
                                                                             THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,
                                                                             -----------------------       -------------------------
                                                                               2007           2006           2007           2006
                                                                             --------       --------       --------       --------

<S>                                                                          <C>            <C>            <C>            <C>
      Net income (loss) ...............................................      $ 10,695       $ (8,109)      $  1,456       $(16,134)

      Net unrealized gains on investment securities available for sale:

      Change in unrealized gains ......................................            36           (280)           (20)          (980)
      Net unrealized gains reclassified
         into net income, net of taxes ................................          (204)            --           (204)            --
                                                                             --------       --------       --------       --------
      Net change in unrealized gain
         on investment securities .....................................          (168)          (280)          (224)          (980)
                                                                             --------       --------       --------       --------

         Comprehensive income (loss) ..................................      $ 10,527       $ (8,389)      $  1,232       $(17,114)
                                                                             ========       ========       ========       ========
</Table>



(8)    STOCK OPTIONS

       In 2004, the Financial Accounting Standards Board issued Statement of
       Financial Accounting Standards No. 123 (revised 2004), "Share-Based
       Payment" ("SFAS No. 123R"). SFAS No. 123R requires companies to measure
       compensation cost for share-based payments at fair value. The Company
       adopted this new standard, prospectively, on January 1, 2007. Because all
       options outstanding were fully vested at January 1, 2006, there was no
       impact on the Company's condensed financial statements.

       Approximately 25,333 options to acquire shares of Common Stock expired in
       the second quarter of 2007.

       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.
       The options expired in March 2007.





                                       8
<PAGE>



                               CDSI HOLDINGS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                   (UNAUDITED)


(9)    INCOME TAXES

       On January 1, 2007, the Company adopted the Financial Accounting
       Standards Board's Interpretation No. 48, "Accounting for Uncertainty in
       Income Taxes (an interpretation of FASB Statement No. 109) ("FIN No.
       48")." The Company did not recognize any adjustment in the liability for
       unrecognized tax benefits that impacted its December 31, 2006 accumulated
       deficit. The Company did not have any unrecognized tax benefits as of
       January 1, 2007 or June 30, 2007.

       The Company files U.S. federal income tax returns and tax returns in
       various states. The Company's tax returns have never been audited.

       The Company classifies all interest and penalties as income tax expense.


(10)   CONTINGENCIES

       As of June 30, 2007, 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 condensed financial statements
       related to such inquiry.

       The Company has recently filed for refunds of approximately $21,700 for
       unclaimed property in a state the Company previously conducted business.
       In June 2007, the Company was notified that $18,624 of the refund claims
       had been approved for payment. The amount was received in July 2007. The
       Company is continuing to pursue the remaining refunds; however, no
       assurance can be given that the Company will prevail in receiving such
       refund claims.




                                       9
<PAGE>





                               CDSI HOLDINGS INC.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

OVERVIEW

         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.
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 Financial Statements for additional information
concerning the Company's former investment in TDMI.

         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 convertible preferred stock of Dialog in
exchange for its interest in TDMI, and, on February 7, 2003, CDSI converted its
Class B Preferred Shares into 330,000 shares of Dialog Common Stock. The Company
sold 50,000 shares of Dialog stock (500 shares adjusted for reverse stock split)
for $4,888 in 2004. On September 18, 2006, Dialog effected a 1-for-100 reverse
stock split. On April 10, 2007, the Company sold its remaining 2,800 shares of
Dialog stock for $204 and recorded a gain of $204 for the three and six months
ended June 30, 2007. See Notes 3 and 4 to the Condensed Financial Statements.

RESULTS OF OPERATIONS

         REVENUES

         For the three and six months ended June 30, 2007 and 2006 the Company
did not generate revenues from operations.

         EXPENSES

         Expenses associated with corporate activities were $8,691 and $18,642
for the three and six months ended June 30, 2007, respectively, as compared to
$9,024 and $17,980 for the same periods in the prior year. The expenses were
primarily associated with costs necessary to maintain a public company.

         OTHER INCOME

         Interest income was $558 and $1,270 for the three and six months ended
June 30, 2007, compared to $915 and $1,846 for the three and six months ended
June 30, 2006. The increase is due primarily to higher prevailing interest rates
offset by lower cash balances in 2006 versus 2005. On April 10, 2007, the
Company sold its remaining 2,800 shares of Dialog stock for $204 and recorded a
gain of $204 for the three and six months ended June 30, 2007.



                                       10
<PAGE>


                               CDSI HOLDINGS INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS - (CONTINUED)


         The recovery of unclaimed property relates to refunds receivable for
unclaimed property in a state where we previously conducted business. We
recently filed for refunds of approximately $21,700 and in June 2007 were
notified that $18,624 of the refund claims had been approved for payment. The
amount was received in July 2007. We are continuing to pursue the remaining
refunds; however, no assurance can be given that we will prevail in receiving
such refund claims.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 2007, the Company had an accumulated deficit of
approximately $8.2 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 Controlled Distribution Systems, Inc. and for
general corporate purposes.

         Cash used for operations for the six months ended June 30, 2007 and
2006 was $20,247 and $16,134, respectively. The increase is associated primarily
with increased expenses and lower interest income.

         Cash provided from investing activities of $204 for the six months
ended June 30, 2007 consisted of gains on the sale of 2,800 shares of Dialog
Common Stock. See Notes 3 and 4 to the unaudited condensed consolidated
financial statements.

          The Company does not expect significant capital expenditures during
the year ended December 31, 2007.

         At June 30, 2007, the Company had cash and cash equivalents of $41,769.
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.

         Inflation and changing prices had no material impact on revenues or the
results of operations for the periods ended June 30, 2007 and 2006.

       We are not authorized to transact business in any state other than
Delaware, which is its state of incorporation. We received an inquiry from the
Florida Department of State (the "FDS") inquiring whether we should have
registered with the FDS in previous years, beginning in 1998. In March 2006, we
responded to the inquiry and stated we believe our activities in previous years


                                       11
<PAGE>

                               CDSI HOLDINGS INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS - (CONTINUED)


did not meet the requirements for such registration; however, no assurance can
be provided that our position will be accepted. We are unable to quantify the
amount of any registration fees and other costs attributable to any failure to
register and have not accrued any amounts in our condensed financial statements
related to such inquiry.

         We recently filed for refunds for unclaimed property of approximately
$21,700 and in June 2007 were notified that $18,624 of the refund claims had
been approved for payment. The amount was received in July 2007. We are
continuing to pursue the remaining refunds; however, no assurance can be given
that we will prevail in receiving such refund claims.

         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. 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 Vector Group Ltd., 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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         The Company and its representatives may from time to time make oral or
written "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), including any
statements that may be contained in the foregoing "Management's Discussion and
Analysis of Financial Condition and Results of Operations", in this report and
in other filings with the Securities and Exchange Commission and in its reports
to stockholders, which represent the Company's expectations or beliefs with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties and, in connection
with the "safe-harbor" provisions of the Reform Act, the Company has identified
under "Risk Factors" in Item 1 of the Company's Form 10-KSB, as amended, for the
year ended December 31, 2006 filed with the Securities and Exchange Commission
and in this section important factors that could cause actual results to differ
materially from those contained in any forward-looking statements made by or on
behalf of the Company.

         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. The Company does not undertake to update any
forward-looking statement that may be made from time to time on its behalf.



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<PAGE>


                               CDSI HOLDINGS INC.

ITEM 3.  CONTROLS AND PROCEDURES

         Under the supervision and with the participation of the Company's
management, including its principal executive officer and principal financial
officer, the Company has evaluated the effectiveness of its disclosure controls
and procedures as of the end of the period covered by this report, and, based on
that evaluation, its principal executive officer and principal financial officer
have concluded that these controls and procedures are effective. There were no
changes in the Company's internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.

         Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by it 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 it in the reports that it
files or submits 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.



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<PAGE>



                               CDSI HOLDINGS INC.


                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

         Reference is made to Note 10 to our unaudited condensed financial
statements.

Item 6.  EXHIBITS

         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.




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<PAGE>






                                    SIGNATURE



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                     CDSI HOLDINGS INC.
                                     (Registrant)



Date: August 14, 2007                By:   /s/J. Bryant Kirkland III
                                           ------------------------------------
                                           J. Bryant Kirkland III
                                           Vice President, Treasurer
                                           and Chief Financial Officer
                                           (Duly Authorized Officer and
                                              Chief Accounting Officer)



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