<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 SEPTEMBER 30, 2001

                        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 [ ]

     AS OF NOVEMBER 14, 2001, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE
ISSUER'S COMMON STOCK, $.01 PAR VALUE.

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


<PAGE>

                               CDSI HOLDINGS INC.
                         QUARTERLY REPORT ON FORM 10-QSB
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

                                                                           Page
                                                                           ----
Item 1.   Condensed Consolidated Financial Statements (Unaudited):

          Condensed Consolidated Balance Sheets as of September 30,
              2001 and December 31, 2000.................................   3

          Condensed Consolidated Statements of Operations for the
              three months and nine months ended September 30,
              2001 and 2000..............................................   4

          Condensed Consolidated Statements of Cash Flows for the
              nine months ended September 30, 2001 and 2000..............   5

          Notes to the Condensed Consolidated Financial
              Statements.................................................   6

Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations........................  11


PART  II. OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K...............................  16

SIGNATURE................................................................  17



<PAGE>
                               CDSI HOLDINGS INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 September 30,       December 31,
                                                                      2001               2000
                                                                 ------------        ------------
<S>                                                               <C>                 <C>
                                ASSETS:
Current assets:
    Cash and cash equivalents ............................        $   277,731         $   253,187
                                                                  -----------         -----------

         Total current assets ............................            277,731             253,187

    Other assets .........................................             18,505              18,505
                                                                  -----------         -----------

         Total assets ....................................        $   296,236         $   271,692
                                                                  ===========         ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
    Accounts payable and accrued expenses ................        $    37,177         $    72,632
                                                                  -----------         -----------

         Total current liabilities .......................             37,177              72,632
                                                                  -----------         -----------

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 ..................................         (7,982,085)         (8,042,084)
                                                                  -----------         -----------

         Total stockholders' equity ......................            259,059             199,060
                                                                  -----------         -----------

         Total liabilities and stockholders' equity ......        $   296,236         $   271,692
                                                                  ===========         ===========

</TABLE>




      See accompanying Notes to Condensed Consolidated Financial Statements



                                     - 3 -
<PAGE>
                              CDSI HOLDINGS INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                    Three Months Ended                      Nine Months Ended
                                             ---------------------------------       ---------------------------------
                                             September 30,       September 30,       September 30,       September 30,
                                                  2001               2000               2001                 2000
                                             ------------        ------------        ------------        ------------
<S>                                           <C>                 <C>                 <C>                 <C>
Revenues .............................        $        --         $    78,919         $        --         $   255,949

Cost and expenses:
     Cost of revenues ................                 --              69,331                  --             219,814
     Research and development ........                 --                  --                  --              12,616
     Sales and marketing .............                 --                  --                  --              22,580
     Amortization of intangible assets                 --                  --                  --              45,491
     General and administrative ......             11,314              22,238              46,995             144,083
                                              -----------         -----------         -----------         -----------
                                                   11,314              91,569              46,995             444,584
                                              -----------         -----------         -----------         -----------

Operating loss .......................            (11,314)            (12,650)            (46,995)           (188,635)
                                              -----------         -----------         -----------         -----------

Other income (expense):
     Interest and other income .......              1,986               1,818               6,994               7,010
     Interest expense ................                 --                (150)                 --                (445)
     Payment of note receivable from
       ThinkDirectMarketing ..........                 --                  --             100,000                  --
                                              -----------         -----------         -----------         -----------
                                                    1,986               1,668             106,994               6,565
                                              -----------         -----------         -----------         -----------

     Net (loss) income ...............        $    (9,328)        $   (10,982)        $    59,999         $  (182,070)
                                              ===========         ===========         ===========         ===========

Net (loss) income per share (basic
     and diluted) ....................        $     (0.00)        $     (0.00)        $      0.02         $     (0.06)
                                              ===========         ===========         ===========         ===========

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

</TABLE>






      See accompanying Notes to Condensed Consolidated Financial Statements



                                     - 4 -
<PAGE>
                              CDSI HOLDINGS INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                         Nine Months Ended
                                                                                   -------------------------------
                                                                                   September 30,     September 30,
                                                                                       2001             2000
                                                                                   -------------     -------------
<S>                                                                                  <C>               <C>
Cash flows used in operating activities:
   Net (loss) income.........................................................        $   59,999        $(182,070)
   Adjustments to reconcile net income (loss) to net cash
    used in operating activities:
     Depreciation ...........................................................               --             3,771
     Amortization of intangible assets ......................................               --            45,491
     Payment of note receivable from
       ThinkDirectMarketing .................................................         (100,000)               --
     Provision for obsolescence of equipment ................................               --            20,000
     Gain on sale of assets .................................................               --            (2,141)
     Changes in assets and liabilities:
        Accounts receivable .................................................               --             9,507
        Inventory ...........................................................               --               587
        Prepaid expenses and other current assets ...........................               --            32,092
        Accounts payable and accrued expenses ...............................          (35,455)          (52,574)
                                                                                     ---------         ---------

Net cash used in operating activities .......................................          (75,456)         (125,337)
                                                                                     ---------         ---------

Cash flows provided from investing activities:
   Payment of note receivable from
     ThinkDirectMarketing ...................................................          100,000                --
   Sale of property and equipment ...........................................               --            17,000
   Acquisition of property and equipment ....................................               --              (900)
                                                                                     ---------         ---------

Net cash flows provided from
   investing activities .....................................................          100,000            16,100
                                                                                     ---------         ---------
Cash flows used in financing activities:
   Payments on note payable .................................................               --            (2,032)
                                                                                     ---------         ---------

Net cash flows used in financing activities .................................               --            (2,032)
                                                                                     ---------         ---------

Net increase (decrease) in cash .............................................           24,544          (111,269)
Cash and cash equivalents at beginning of period ............................          253,187           346,107
                                                                                     ---------         ---------

Cash and cash equivalents at end of period ..................................        $ 277,731         $ 234,838
                                                                                     =========         =========

</TABLE>





      See accompanying Notes to Condensed Consolidated Financial Statements



                                     - 5 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

              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", formerly
       known as Coinexx Corporation), a company engaged in the marketing and
       leasing of an inventory control system (the "Coinexx Star 10") for
       tobacco products. In February 2000, CDSI announced CDS will no longer
       actively engage in the business of marketing and leasing an inventory
       control system for tobacco products.

       CDSI intends to explore investments in other Internet-related businesses
       as well as 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.

(2)    PRINCIPLES OF REPORTING

       The financial statements of the Company as of September 30, 2001
       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 September 30, 2001 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 financial statements should be read in conjunction with the audited
       financial statements and notes thereto for the year ended December 31,
       2000 included in the Company's Form 10-KSB filed with the Securities and
       Exchange Commission (Commission File No. 0001-22563).

       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.



                                     - 6 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                   (Unaudited)


(3)    CDS ACQUISITION

       On May 8, 1998, the Company acquired CDS, a company engaged in the
       marketing and leasing of an inventory control system for tobacco
       products. Under the terms of the acquisition, the CDS stockholders
       received 147,500 shares of the Company's Common Stock at closing. In
       addition, the Company agreed to issue an additional 147,500 shares to CDS
       stockholders on each of the second, third and fourth anniversaries of the
       closing provided that, on each such delivery date, CDS was actively
       engaged in the business it is now engaged. As the Company is no longer
       engaged in the marketing and leasing of the Coinexx Star 10, the
       contingent shares will not be issued.

       CDS did not have any significant tangible assets at the time of
       acquisition. The fair value of the shares issued and issuable to the CDS
       stockholders as consideration for the acquisition of $339,250 and the
       legal and other costs incurred in the acquisition of $104,250 have been
       capitalized and were being amortized over an estimated useful life of
       five years. In the second quarter of 1999, based on the results of such
       business since the acquisition and future projections, the Company
       expensed the remaining unamortized acquisition costs of $340,017.

       In February 2000, CDSI announced CDS would no longer actively engage in
       the business of marketing and leasing an inventory control system for
       tobacco products. CDSI determined that CDS could not generate sufficient
       revenues from the sale and leasing of the Coinexx Star 10 to justify
       continuation of the business. The Company did not receive any material
       proceeds from the disposition of the assets of the business.

       In 1998, CDS acquired substantially all of the assets of TD Rowe
       Corporation's New York state cigarette vending route, including vending
       machines, for $59,250. CDS paid $20,000 in 1998 and the remaining $39,250
       in the first quarter of 1999. CDS amortized the costs of the vending
       route over an estimated useful life of five years. In the second quarter
       of 2000, based on the results of the vending route and future projections
       of its fair market value, the Company expensed the remaining unamortized
       acquisition costs of $40,488.

       On October 5, 2000, CDS completed the sale to Gutlove and Shirvint Inc.
       ("Gutlove") of the assets of its cigarette vending route, including
       vending machines and a van. The purchase price for the vending route,
       which is primarily located in New York state, was $34,140 in cash and the
       assumption of a $10,219 note secured by the van. The cash portion of the
       purchase price was based on the cigarette and coin inventory of the
       vending route at the open of business on October 2, 2000, and was paid
       $29,140 on October 5, 2000 with the remaining $5,000 paid on December 1,
       2000.

(4)    THINKDIRECTMARKETING TRANSACTION

       On November 5, 1998, the Company contributed the non-cash assets and
       certain liabilities of the PC411 Service to ThinkDirectMarketing Inc.
       (formerly known as Digital Asset Management, Inc.). ThinkDirectMarketing
       was organized by Dean Eaker, the former President, Chief Executive
       Officer and director of the Company, and Edward Fleiss, the former Vice
       President and Chief Technology Officer of the Company, to continue to
       operate and develop the PC411



                                     - 7 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                   (Unaudited)


       Service. The Company received 1,250 shares of preferred stock
       representing an initial 42.5% interest in ThinkDirectMarketing in
       exchange for the contribution of the PC411 Service's net assets. Acxiom
       Corporation ("Acxiom") purchased preferred stock representing a 42.5%
       interest in ThinkDirectMarketing for $1,250,000 and initially designated
       a majority of the Board of Directors of ThinkDirectMarketing.
       ThinkDirectMarketing's management, including Messrs. Eaker and Fleiss,
       held an initial 15% interest in ThinkDirectMarketing with options which
       would have increased their ownership position to 50% upon satisfaction of
       operational and financial benchmarks over a three-year period. The
       Company's carrying value in the net assets contributed to
       ThinkDirectMarketing 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
       ThinkDirectMarketing in excess of the carrying value of the Company's net
       assets contributed to ThinkDirectMarketing. The Company agreed, under
       certain conditions, to fund up to $200,000 of an $800,000 working capital
       line to be provided to ThinkDirectMarketing by Acxiom, the Company and
       Dean Eaker. The Company funded $100,000 of the working capital line in
       the second quarter of 1999.

       From July 1999 to September 2000, ThinkDirectMarketing issued
       approximately $3,112,000 of convertible notes and warrants to purchase
       ThinkDirectMarketing preferred stock. In connection with such issuances,
       Mr. Eaker and Acxiom have agreed to extend the maturity of their working
       capital lines from June 30, 1999 to December 31, 2001 and have received
       warrants to purchase preferred shares. The Eaker and Acxiom working
       capital lines are also convertible into ThinkDirectMarketing preferred
       stock. The Company agreed in July 1999 to extend the maturity of its
       working capital line from June 30, 1999 to August 31, 1999 and was
       released from any further obligation to fund additional amounts under the
       working capital line.

       In October 2000, ThinkDirectMarketing and Cater Barnard plc ("Cater
       Barnard", formerly known as VoyagerIT.com) entered into an agreement
       where Cater Barnard purchased shares of convertible preferred stock for
       $1,000,000 (the "Cater Barnard Preferred Stock") and agreed to purchase
       $4,000,000 of convertible notes (the "Notes") on various dates between
       November 10, 2000 and June 8, 2001. ThinkDirectMarketing's management has
       informed the Company that Cater Barnard completed its scheduled purchases
       of $4,000,000 of the Notes. In connection with the completion of Cater
       Barnard`s scheduled purchase of the Notes in February 2001,
       ThinkDirectMarketing converted $3,312,000 of its notes into various
       classes of preferred stock ranking pari passu with CDSI's preferred
       stock. At September 30, 2001, the aggregate stated liquidation preference
       of ThinkDirectMarketing's preferred stock was $6,852,000, of which
       $1,250,000 was owned by CDSI. Also, at September 30, 2001,
       ThinkDirectMarketing had notes payable due to Acxiom and Cater Barnard of
       $400,000 and $4,000,000 ("the Bridge Notes"), respectively.

       On October 16, 2001, Cater Barnard agreed to use its best efforts to fund
       an additional $1,250,000 to ThinkDirectMarketing by January 31, 2002 and
       on the same date, the ThinkDirectMarketing stockholders granted Cater
       Barnard an option to purchase by January 31, 2002 all of
       ThinkDirectMarketing's common stock not held by Cater Barnard for an
       aggregate purchase price of 78,750 shares of Convertible Preferred Stock
       of IMX Pharmaceuticals, Inc. ("IMX," OTC Bulletin Board: IMXN), a
       majority-owned subsidiary of Cater Barnard. The preferred stock is
       convertible into 1,575,000 shares of IMX common stock. However, if IMX
       issues common stock after October 16, 2001 at an issue price lower than
       $4.00 per share, then




                                     - 8 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                   (Unaudited)


       the number of shares of IMX Common Stock issuable upon conversion of the
       preferred stock will represent an aggregate of approximately 16.7% of the
       issued and outstanding capital stock of IMX on a fully-diluted basis at
       the time of exercise.

       In connection with such agreements, the Company agreed to extend the
       maturity of its working capital line from August 31, 1999 until the
       earlier of June 8, 2001 or the date on which Cater Barnard does not close
       on any of its scheduled purchases of the Notes. In June 2001, Cater
       Barnard completed its scheduled purchases and the Company's note
       receivable was repaid. The Company's interest in ThinkDirectMarketing
       would decrease to approximately 6% assuming the conversion and exercise
       of all notes and warrants issued in the above transactions. Assuming
       Cater Barnard exercises its option to merge ThinkDirectMarketing into
       IMX, management estimates that the Company's interest in IMX would be
       approximately 1% on a fully-diluted basis.

       ThinkDirectMarketing has incurred significant losses and negative cash
       flow since its inception and currently has only limited cash resources.
       ThinkDirectMarketing requires a significant amount of additional capital
       to continue its operations and to develop its business. No assurance can
       be given that Cater Barnard will exercise its option to acquire
       ThinkDirectMarketing or fund future operations. As a result, there is a
       substantial risk that ThinkDirectMarketing will not be able to raise
       sufficient additional capital to continue its operations or, if
       ThinkDirectMarketing is able to raise additional capital that the
       Company's ownership percentage will be further diluted.

       The Company has accounted for its non-controlling interest in
       ThinkDirectMarketing using the equity basis of accounting since November
       5, 1998. The Company's equity in ThinkDirectMarketing's losses for the
       year ended December 31, 1999 was adjusted to reflect the difference in
       the Company's contribution of its net assets to ThinkDirectMarketing and
       the fair value of those assets recorded by ThinkDirectMarketing. In the
       second quarter of 1999, the carrying value of the Company's investment in
       ThinkDirectMarketing, including the $100,000 note receivable, was reduced
       to zero as the cumulative equity in ThinkDirectMarketing's losses
       exceeded the Company's investment in ThinkDirectMarketing of $635,798,
       which consisted of the initial carrying value of $535,798 and the
       $100,000 working capital loan to ThinkDirectMarketing. Since the Company
       has no intention or commitment to fund future ThinkDirectMarketing
       losses, commencing in the second quarter of 1999, the Company suspended
       recognizing its share of the additional losses of ThinkDirectMarketing.
       The Company recorded income of $100,000 in the second quarter of 2001 in
       connection with the repayment of the $100,000 note receivable from
       ThinkDirectMarketing.

(5)    RELATED PARTY TRANSACTIONS

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



                                     - 9 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                   (Unaudited)


(6)    NET (LOSS) INCOME PER SHARE

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

       Stock options and warrants (both vested and non-vested) totaling
       2,979,288 shares at September 30, 2001 and 2000, respectively, 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 loss per common share.




                                     - 10 -
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES

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

OVERVIEW

         The Company owns 100% of the issued and outstanding shares of common
stock of CDS and an approximate 6% interest on a fully diluted basis in
ThinkDirectMarketing. In February 2000, the Company terminated all operations
relating to marketing and leasing the Coinexx Star 10 inventory control system.
In October 2000, CDS sold the assets of its cigarette vending route, the only
current source of revenue for CDS and the Company.

         The Company intends to seek new Internet-related businesses or other
business opportunities. As the Company has only limited cash resources, the
Company's ability to complete any acquisition or investment opportunities it may
identify will depend on its ability to raise additional financing, as to which
there can be no assurance. As of the date of this report, the Company has not
identified any potential acquisition or investment. There can be no assurance
that the Company will successfully identify, complete or integrate any future
acquisition or investment, or that acquisitions or investments, if completed,
will contribute favorably to its operations and future financial condition.

CDS

         CDS was acquired in May 1998. Under the terms of the acquisition, the
former stockholders of CDS received an aggregate of 147,500 shares of Common
Stock at closing. In addition, the former stockholders were to receive an
additional 147,500 shares of Common Stock on each of May 8, 2000, 2001 and 2002
so long as CDS was actively engaged in the business of marketing and leasing the
Coinexx Star 10 inventory control system. As CDS is no longer actively engaged
in that business, the contingent shares of Common Stock will not be issued to
the former stockholders of CDS.

       CDS did not have any significant tangible assets at the time of
acquisition. The fair value of the Common Stock issued and issuable to the CDS
stockholders as consideration for the acquisition of $339,250 and the legal and
other costs incurred in connection with the acquisition of $104,250 have been
capitalized and were being amortized over a five-year period. In the second
quarter of 1999, based on the results of the business since the acquisition and
future projections, the Company expensed the remaining unamortized acquisition
costs of $340,017.

       In 1998, CDS acquired substantially all of the assets of TD Rowe
Corporation's New York state cigarette vending route, including vending
machines, for $59,250. CDS paid $20,000 in 1998 and the remaining $39,250 in the
first quarter of 1999. CDS amortized the costs of the vending route over an
estimated useful life of five years. In the second quarter of 2000, based on the
results of the vending route and future projections of its fair market value,
the Company expensed the remaining unamortized acquisition costs of $40,488.

       On October 5, 2000, CDS completed the sale to Gutlove of the assets of
its cigarette vending route, including vending machines and a van. The purchase
price for the vending route, which is primarily located in New York state, was
$34,140 in cash and the assumption of a $10,219 note secured by the van. The
cash portion of the purchase price was based on the cigarette and coin inventory
of the vending route at the open of business on October 2, 2000, and was paid
$29,140 on October 5, 2000 with the remaining $5,000 paid on December 1, 2000.



                                     - 11 -
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES

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


THINKDIRECTMARKETING

         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 ThinkDirectMarketing. See Note 4 to the
financial statements for additional information concerning the Company's
investment in ThinkDirectMarketing.

         The Company's interest in ThinkDirectMarketing is accounted for using
 the equity method of accounting. Commencing in the second quarter of 1999, the
 carrying value of the Company's investment in ThinkDirectMarketing was reduced
 to zero, and the Company suspended recognizing its share of the additional
 losses of ThinkDirectMarketing. In the second quarter of 2001,
 ThinkDirectMarketing repaid a $100,000 note receivable due to the Company. As a
 result, CDS recorded $100,000 of income associated with the repayment for the
 nine months ended September 30, 2001.

RESULTS OF OPERATIONS

         For the three and nine months ended September 30, 2001 and 2000, the
results of operations of CDS, the Company's primary operating unit, were as
follows:


<TABLE>
<CAPTION>
                                         Three Months Ended               Nine Months Ended
                                           September 30,                     September 30,
                                   ---------------------------         ---------------------------
                                     2001              2000              2001              2000
                                   ---------         ---------         ---------         ---------
<S>                                <C>               <C>               <C>               <C>
CDS

Revenues ..................        $      --         $  78,919         $      --         $ 255,949
Cost of sales .............               --            69,331                --           219,814
Research and development ..               --                --                --            12,616
Sales and marketing .......               --                --                --            22,580
Amortization of intangibles               --                --                --            45,491
General and administrative                --             6,619                --           112,368
                                   ---------         ---------         ---------         ---------
     Total expenses .......               --            75,950                --           412,869
                                   ---------         ---------         ---------         ---------
Operating income (loss) ...        $      --         $   2,969         $      --         $(156,920)
                                   =========         =========         =========         =========

CORPORATE AND OTHER

Revenues ..................        $      --         $      --         $      --         $      --
General and administrative            11,314            15,619            46,995            31,715
                                   ---------         ---------         ---------         ---------
     Total expenses .......           11,314            15,619            46,995            31,715
                                   ---------         ---------         ---------         ---------
Operating loss ............        $ (11,314)        $ (15,619)        $ (46,995)        $ (31,715)
                                   =========         =========         =========         =========

</TABLE>



                                     - 12 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

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


CDS

         REVENUES. CDS had revenues of $78,919 and $255,949 for the three and
nine months ended September 30, 2000. The revenues for the three-month period
resulted from sales of cigarettes. The revenues for the nine-month period
resulted from the following: $1,102 from machine leases, $8,162 from machine
sales and $246,685 from the sales of cigarettes. In February 2000, the Company
terminated all operations relating to marketing and leasing the Coinexx Star 10
inventory control system. On October 5, 2000, CDS completed the sale to Gutlove
of the assets of the cigarette vending route, including vending machines and a
van.

         COST OF REVENUES. Cost of revenues of $69,331 and $219,814 for CDS for
the three and nine months ended September 30, 2000, respectively, consisted
primarily of costs of cigarettes of $69,331 and $209,729. Cost of revenues also
included warehouse expenses and shipping of machines held for lease. CDS
depreciated its machines held for lease over five years once the asset was
placed in service.

         SALES AND MARKETING EXPENSES. Sales and marketing expenses for CDS were
$0 and $22,580 for the three and nine months ended September 30, 2000,
respectively. The expenses consisted primarily of personnel costs.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for CDS were $6,619 and $112,368 for the three and nine months ended
September 30, 2000, respectively. The expenses consisted primarily of payroll,
consulting and office expenses.

         AMORTIZATION OF INTANGIBLE ASSETS. CDS amortized its intangible assets
over a 60-month life. In the second quarter of 2000, based on the results of the
vending route and future projections of its fair market value, the Company
expensed the remaining unamortized acquisition costs of $40,488.

CORPORATE AND OTHER

         Expenses associated with corporate activities were $11,314 and $46,995
for the three and nine months ended September 30, 2001, respectively, as
compared to $15,619 and $31,715 for the same periods in the prior year. The
expenses were primarily associated with costs necessary to maintain a public
company.

OTHER INCOME (EXPENSE)

         Interest and other income was $1,986 and $6,994 for the three and nine
months ended September 30, 2001, compared to $1,818 and $7,010 for the three and
nine months ended September 30, 2000. The change is principally related to
higher balances of cash and cash equivalents in 2001 offset by lower interest
rates in 2001. CDS recorded $100,000 in income in the second quarter of 2001
relating to the repayment of a loan receivable from ThinkDirectMarking. The
carrying value of the loan had been reduced to zero in the second quarter of
1999 when CDS suspended recognizing its share of the additional losses of
ThinkDirectMarketing.




                                     - 13 -
<PAGE>

                       CDSI HOLDINGS INC. AND SUBSIDIARIES

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


LIQUIDITY AND CAPITAL RESOURCES

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

         Cash used for operations for the nine months ended September 30, 2001
and 2000 was $75,456 and $125,337, respectively. The decrease is primarily due
to a decreased operating loss of $242,069 offset by the Company's receipt of
$100,000 note receivable from ThinkDirectMarketing and lower amortization
expense of $45,491.

         Cash provided from investing activities for the nine months ended
September 30, 2001 and 2000 was $100,000 and $16,100, respectively. The change
primarily relates to the Company's receipt of $100,000 from the note receivable
from ThinkDirectMarketing in 2001 offset by $17,000 received from the sale of
property and equipment in 2000.

         Capital expenditures of $900 for the nine months ended September 30,
2000 consisted primarily of the purchase of office equipment. The Company does
not expect significant capital expenditures during the year ended December 31,
2001.

         At September 30, 2001, the Company had cash and cash equivalents of
$277,731. 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 nine months ended September 30, 2001 and 2000.

         Management is currently evaluating alternatives to supplement the
Company's present cash and cash equivalents to meet its liquidity requirements
over the next twelve months. Such alternatives include seeking additional
investors and/or lenders and disposing of the interest in ThinkDirectMarketing.
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.

         ThinkDirectMarketing has incurred significant losses and negative cash
flow since its inception and currently has only limited cash resources.
ThinkDirectMarketing requires a significant amount of additional capital to
continue its operations and to develop its business. As a result, there is a
substantial risk that ThinkDirectMarketing will not be able to raise sufficient
additional capital to continue its operations or, if ThinkDirectMarketing is
able to raise additional capital that the Company's ownership percentage will be
further diluted.




                                     - 14 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

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


         On October 16, 2001, Cater Barnard plc, an investor in
ThinkDirectMarketing, agreed to use its best efforts to fund an additional
$1,250,000 to ThinkDirectMarketing by January 31, 2002 and on the same date, the
ThinkDirectMarketing stockholders granted Cater Barnard an option to purchase by
January 31, 2002 all of ThinkDirectMarketing's common stock not held by Cater
Barnard for an aggregate purchase price of 78,750 shares of Convertible
Preferred Stock of IMX Pharmaceuticals, Inc. ("IMX," OTC Bulletin Board: IMXN),
a majority-owned subsidiary of Cater Barnard. The preferred stock is convertible
into 1,575,000 shares of IMX common stock. However, if IMX issues common stock
after October 16, 2001 at an issue price lower than $4.00 per share, then the
number of shares of IMX Common Stock issuable upon conversion of the preferred
stock will represent an aggregate of approximately 16.7% of the issued and
outstanding capital stock of IMX on a fully-diluted basis at the time of
exercise. Assuming Cater Barnard exercises its option to merge
ThinkDirectMarketing into IMX, management estimates that the Company's interest
in IMX would be approximately 1% on a fully-diluted basis. No assurance can be
given that Cater Barnard will exercise its option to acquire
ThinkDirectMarketing or fund future operations.

         The Company or its affiliates, including New Valley, may, from time to
time, based upon present market conditions, purchase shares of the Common Stock
in the open market or in privately negotiated transactions.

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 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 for the year ended
December 31, 2000 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.



                                     - 15 -
<PAGE>
                       CDSI HOLDINGS INC. AND SUBSIDIARIES

                           PART II. OTHER INFORMATION


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) EXHIBITS

             None

         (b) REPORTS ON FORM 8-K

             None.






                                     - 16 -
<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: November 14, 2001                By: /s/ J. Bryant Kirkland III
                                           -------------------------------------
                                           J. Bryant Kirkland III
                                           Vice President, Treasurer
                                           and Chief Financial Officer
                                           (Duly Authorized Officer and
                                              Chief Accounting Officer)








                                     - 17 -