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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 MARCH 31, 2008
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 MAY 15, 2008, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE ISSUER'S
COMMON STOCK, $.01 PAR VALUE.
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CDSI HOLDINGS INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited):
Condensed Balance Sheets as of March 31, 2008 and
December 31, 2007......................................... 3
Condensed Statements of Operations for the three months
ended March 31, 2008 and 2007............................. 4
Condensed Statements of Cash Flows for the three months
ended March 31, 2008 and 2007............................. 5
Notes to Condensed Quarterly 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
CDSI HOLDINGS INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2008 2007
----------- ------------
ASSETS:
Current assets:
Cash and cash equivalents............................... $ 44,574 $ 50,288
----------- ----------
Total assets......................................... $ 44,574 $ 50,288
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses................... $ 12,786 $ 6,650
----------- ----------
Total current liabilities............................ 12,786 6,650
----------- ----------
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..................................... (8,209,356) (8,197,506)
----------- ----------
Total stockholders' equity........................... 31,788 43,638
----------- ----------
Total liabilities and stockholders' equity........... $ 44,574 $ 50,288
=========== ==========
See accompanying Notes to Condensed Financial Statements
3
CDSI HOLDINGS INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
2008 2007
------------ ------------
Revenues..................................... $ -- $ --
Expenses:
General and administrative................ 12,109 9,951
---------- ----------
12,109 9,951
---------- ----------
Operating loss............................... (12,109) (9,951)
---------- ----------
Interest income........................... 259 712
---------- ----------
Net loss..................................... $ (11,850) $ (9,239)
========== ==========
Net loss per share (basic and diluted)....... $ (0.00) $ (0.00)
========== ==========
Shares used in computing net loss per share.. 3,120,000 3,120,000
========== ==========
See accompanying Notes to Condensed Financial Statements
4
CDSI HOLDINGS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
2008 2007
------------ -------------
Cash flows from operating activities:
Net loss............................................ $(11,850) $ (9,239)
Increase in accounts payable and accrued expenses... 6,136 3,378
-------- --------
Net cash used in operating activities.................. (5,714) (5,861)
-------- --------
Net cash from investing activities..................... -- --
-------- --------
Net cash from financing activities..................... -- --
-------- --------
Net decrease in cash and cash equivalents.............. (5,714) (5,861)
Cash and cash equivalents at beginning of period....... 50,288 61,812
-------- --------
Cash and cash equivalents at end of period............. $ 44,574 $ 55,951
======== ========
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 March 31, 2008, the Company had an accumulated deficit of approximately
$8,209,356. The Company has reported an operating loss in each of its
fiscal quarters since inception and it expects to continue to incur
operating losses in the immediate future. The Company has reduced operating
expenses and is seeking acquisition and investment opportunities. There is
a risk the Company will continue to incur operating losses.
CDSI intends to seek new business opportunities. As CDSI has only limited
cash resources, CDSI's ability to complete any acquisition or investment
opportunities it may identify will depend on its ability to raise
additional financing, as to which there can be no assurance. There can be
no assurance that the Company will successfully identify, complete or
integrate any future acquisition or investment, or that acquisitions or
investments, if completed, will contribute favorably to its operations and
future financial condition.
(2) PRINCIPLES OF REPORTING
The condensed financial statements of the Company as of March 31, 2008
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 March 31, 2008 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, 2007 included in the Company's Form 10-KSB, 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 condensed 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 condensed financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
(3) 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.
(4) 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 18,000
shares at March 31, 2008 and 153,333 shares at March 31, 2007 were excluded
from the calculation of diluted per share results presented because their
effect was anti-dilutive. Accordingly, diluted net loss per common share is
the same as basic net loss per common share.
7
CDSI HOLDINGS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) 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 loss. Comprehensive loss applicable to Common Shares for
the three months ended March 31, 2008 and 2007 is as follows:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2008 MARCH 31, 2007
------------------ ------------------
Net loss ..................... $(11,850) $(9,239)
Change in unrealized gain
on investment securities .. -- (56)
-------- -------
Total comprehensive loss ..... $(11,850) $(9,295)
======== =======
8
CDSI HOLDINGS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(6) CONTINGENCIES
As of March 31, 2008, the Company was not authorized to transact business
in any state other than Delaware, which is its state of incorporation. The
Company received an inquiry from the Florida Department of State (the
"FDS") inquiring whether the Company should have registered with the FDS in
previous years, beginning in 1998. In March 2006, the Company responded to
the inquiry and stated it believes its activities in previous years did not
meet the requirements for such registration; however, no assurance can be
provided that the Company's position will be accepted by the FDS. The
Company is unable to quantify the amount of any registration fees and other
costs attributable to any failure to register and has not accrued any
amounts in its condensed financial statements related to such inquiry.
9
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.
RESULTS OF OPERATIONS
REVENUES
For the three months ended March 31, 2008 and 2007, the Company did not
generate revenues from operations.
10
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 $12,109 for the three
months ended March 31, 2008, as compared to $9,951 for the same period in the
prior year. The amounts were primarily due to the costs necessary to maintain a
public company, which consist primarily of directors' fees, accounting fees, and
stock transfer fees.
OTHER INCOME
Interest income was $259 for the three months ended March 31, 2008,
compared to $712 for the three months ended March 31, 2007. The decrease is due
primarily to lower cash balances and lower interest rates in 2008 versus 2007.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2008, the Company had an accumulated deficit of approximately
$8,209,356. 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 three months ended March 31, 2008 and 2007
was $5,714 and $5,861, respectively. The decrease is associated primarily with
the timing of payments of accounts payable and accrued liabilities offset by an
increased net loss. The Company evaluates its accruals on a quarterly basis and
makes adjustments when appropriate.
The Company does not expect significant capital expenditures during the
year ended December 31, 2008.
At March 31, 2008, the Company had cash and cash equivalents of $44,574.
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 March 31, 2008 and 2007.
11
CDSI HOLDINGS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 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 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.
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 for the year ended
December 31, 2007 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.
12
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
have evaluated the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report, and, based on their evaluation,
our principal executive officer and principal financial officer have concluded
that these controls and procedures are effective.
There were no changes in our internal control over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
13
CDSI HOLDINGS INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 6 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.
14
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: May 15, 2008 By: /s/ J. Bryant Kirkland III
------------------------------------
J. Bryant Kirkland III
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
15