================================================================================ 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, 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 [X] NO [ ] AS OF NOVEMBER 14, 2007, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE ISSUER'S COMMON STOCK, $.01 PAR VALUE. ================================================================================ CDSI HOLDINGS INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements (Unaudited): Condensed Balance Sheets as of September 30, 2007 and December 31, 2006.................................... 3 Condensed Statements of Operations for the three months and nine months ended September 30, 2007 and 2006................................................. 4 Condensed Statements of Cash Flows for the nine months ended September 30, 2007 and 2006................. 5 Notes to the Condensed Financial Statements....................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 11 Item 3. Controls and Procedures........................................... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 16 Item 6. Exhibits.......................................................... 16 SIGNATURE.................................................................. 17
2 PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements (Unaudited): CDSI HOLDINGS INC. CONDENSED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2007 2006 --------------- --------------- ASSETS: Current assets: Cash and cash equivalents .................................. 53,781 61,812 Investment securities available for sale ................... -- 224 --------------- --------------- Total assets .......................................... $ 53,781 $ 62,036 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued expenses ...................... $ 6,188 $ 7,600 --------------- --------------- Total current liabilities ............................. 6,188 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 ........................................ (8,193,551) (8,186,932) Accumulated other comprehensive income ..................... -- 224 --------------- --------------- Total stockholders' equity ............................ 47,593 54,436 --------------- --------------- Total liabilities and stockholders' equity ............ $ 53,781 $ 62,036 =============== ===============
See accompanying Notes to Condensed Financial Statements 3 CDSI HOLDINGS INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended ---------------------------------- ---------------------------------- September 30, September 30, September 30, September 30, 2007 2006 2007 2006 --------------- --------------- --------------- --------------- Revenues .................................... $ $ -- $ $ -- --------------- --------------- --------------- --------------- Cost and expenses: General and administrative ............. 8,713 8,349 27,355 26,329 --------------- --------------- --------------- --------------- 8,713 8,349 27,355 26,329 --------------- --------------- --------------- --------------- Operating loss .............................. (8,713) (8,349) (27,355) (26,329) --------------- --------------- --------------- --------------- Other income: Gain on sale of Dialog common stock .... -- -- 204 -- Recovery of unclaimed property ......... -- -- 18,624 -- Interest income ........................ 638 882 1,908 2,728 --------------- --------------- --------------- --------------- Total other income ..................... 638 882 20,736 2,728 --------------- --------------- --------------- --------------- Net loss .................................... $ (8,075) $ (7,467) $ (6,619) $ (23,601) =============== =============== =============== =============== Net loss per share (basic and diluted) ...... $ (0.00) $ (0.00) $ (0.00) $ (0.01) =============== =============== =============== =============== Shares used in computing net loss per share ......................... 3,120,000 3,120,000 3,120,000 3,120,000 =============== =============== =============== ===============
See accompanying Notes to Condensed Financial Statements 4 CDSI HOLDINGS INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ---------------------------------- September 30, September 30, 2007 2006 --------------- --------------- Cash flows from operating activities: Net loss ............................................ $ (6,619) $ (23,601) Adjustments to reconcile net loss to net cash used in operations: Gain on sale of Dialog common stock ................. (204) -- Changes in assets and liabilities: Decrease in accounts payable and accrued expenses ... (1,412) (650) --------------- --------------- Net cash used in operating activities .................. (8,235) (24,251) --------------- --------------- 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 .............. (8,031) (24,251) Cash and cash equivalents at beginning of period ....... 61,812 91,660 --------------- --------------- Cash and cash equivalents at end of period ............. $ 53,781 $ 67,409 =============== ===============
See accompanying Notes to Condensed Financial Statements 5 CDSI HOLDINGS INC. NOTES TO CONDENSED 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 September 30, 2007, the Company had an accumulated deficit of $8,193,551. 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 financial statements of the Company as of September 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 September 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 unaudited 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). 6 CDSI HOLDINGS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) USE OF ESTIMATES The preparation of the unaudited condensed financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed 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 7 CDSI HOLDINGS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) shares into 330,000 shares of Dialog Common Stock. The Company sold 50,000 shares (500 shares adjusted for reverse stock split) of Dialog stock for $4,888 in the third quarter of 2004. 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 $0 and $204 from the sale for the three and nine months ended September 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 $0 and $204 from the sale for the three and nine months ended September 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 LOSS PER SHARE Basic loss 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 128,000 shares at September 30, 2007 and 653,333 shares at September 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. 8 CDSI HOLDINGS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (7) COMPREHENSIVE LOSS Comprehensive loss of the Company includes net loss and changes in the value of investment securities available for sale that have not been included in net income. Comprehensive loss applicable to Common Shares for the three and nine months ended September 30, 2007 and 2006 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Net loss .............................. $ (8,075) $ (7,467) $ (6,619) $ (23,601) Net unrealized gains on investment securities available for sale: Change in unrealized gains ......... -- (644) (20) (1,624) Net unrealized gains reclassified into net income, net of taxes ... -- -- (204) -- ----------- ----------- ----------- ----------- Net change in unrealized gain on investment securities ........ -- (644) (224) (1,624) ----------- ----------- ----------- ----------- Comprehensive loss ................. $ (8,075) $ (8,111) $ (6,843) $ (25,225) =========== =========== =========== ===========
(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 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. 9 CDSI HOLDINGS INC. NOTES TO CONDENSED 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 September 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 September 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 financial statements related to such inquiry. The Company has 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. 10 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 unaudited 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 gains of $0 and $204 for the three and nine months ended September 30, 2007. See Notes 3 and 4 to the unaudited condensed financial statements. Results of Operations REVENUES For the three and nine months ended September 30, 2007 and 2006, the Company did not generate revenues from operations. 11 CDSI HOLDINGS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EXPENSES Expenses associated with corporate activities were $8,713 and $27,355 for the three and nine months ended September 30, 2007, respectively, as compared to $8,349 and $26,329 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 $638 and $1,908 for the three and nine months ended September 30, 2007, compared to $882 and $2,728 for the three and nine months ended September 30, 2006. The decrease is due primarily to lower prevailing interest rates and lower cash balances in 2007 versus 2006. 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 nine months ended September 30, 2007. The recovery of unclaimed property relates to refunds receivable for unclaimed property in a state where we previously conducted business. We 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 September 30, 2007 the Company had an accumulated deficit of $8,193,551. The Company has reported an operating loss in each of its fiscal quarters since inception and it expects to continue to incur operating losses in the immediate future. The Company has reduced operating expenses and is seeking acquisition and investment opportunities. No assurance can be given that the Company will not continue to incur operating losses. The Company has limited available cash, limited cash flow, limited liquid assets and no credit facilities. The Company has not been able to generate sufficient cash from operations and, as a consequence, financing has been required to fund ongoing operations. Since completion of the Company's initial public offering of its common stock (the "IPO") in May 1997, the Company has primarily financed its operations with the net proceeds of the IPO. The funds were used to complete the introduction of the PC411 Service over the Internet, to expand marketing, sales and advertising, to develop or acquire new services or databases, to acquire CDS and for general corporate purposes. Cash used for operations for the nine months ended September 30, 2007 and 2006 was $8,235 and $24,251, respectively. The decrease is associated primarily with a lower net loss offset by the timing of payments of accounts payable and accrued liabilities. The Company evaluates its accruals on a quarterly basis and makes adjustments when appropriate. Cash provided from investing activities of $204 for the nine months ended September 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 financial statements. 12 CDSI HOLDINGS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company does not expect significant capital expenditures during the year ended December 31, 2007. At September 30, 2007, the Company had cash and cash equivalents of $53,781. 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, 2007 and 2006. We are not authorized to transact business in any state other than Delaware, which is our state of incorporation. We received an inquiry from the Florida Department of State inquiring whether we should have registered with the Florida Department of State in previous years, beginning in 1998. We have responded to the inquiry and believe our activities in prior years did not meet the requirements for such registration; however, no assurance can be provided that our position will be accepted by the Florida Department of State. 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 financial statements related to such inquiry. 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. 13 CDSI HOLDINGS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. 14 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. 15 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. 16 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, 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) 17