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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 SEPTEMBER 30, 2006
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, 2006, 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 SEPTEMBER 30, 2006
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited):
Condensed Balance Sheets as of September 30,
2006 and December 31, 2005................................... 2
Condensed Statements of Operations for the
three months and nine months ended September 30,
2006 and 2005................................................ 3
Condensed Statements of Cash Flows for the
nine months ended September 30, 2006 and 2005................ 4
Notes to the Condensed Financial Statements..................... 5
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
1
CDSI HOLDINGS INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2006 2005
------------- ------------
ASSETS:
Current assets:
Cash and cash equivalents ................................ $ 67,409 $ 91,660
Investment securities available for sale ................. 196 1,820
----------- -----------
Total assets .......................................... $ 67,605 $ 93,480
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses .................... $ 6,350 $ 7,000
=========== -----------
Total current liabilities ............................. 6,350 7,000
----------- -----------
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 ...................................... (8,180,085) (8,156,484)
Accumulated other comprehensive income ................... 196 1,820
----------- -----------
Total stockholders' equity ............................ 61,255 86,480
----------- -----------
Total liabilities and stockholders' equity ............ $ 67,605 $ 93,480
=========== ===========
See accompanying Notes to Condensed Financial Statements
2
CDSI HOLDINGS INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Revenues ................................. $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
Cost and expenses:
General and administrative ............ 8,349 8,480 26,329 25,986
---------- ---------- ---------- ----------
8,349 8,480 26,329 25,986
---------- ---------- ---------- ----------
Operating loss ........................... (8,349) (8,480) (26,329) (25,986)
---------- ---------- ---------- ----------
Other income:
Interest income ....................... 882 809 2,728 2,245
---------- ---------- ---------- ----------
Net loss ................................. $ (7,467) $ (7,671) $ (23,601) $ (23,741)
========== ========== ========== ==========
Net loss per share (basic and diluted) ... $ (0.00) $ (0.00) $ (0.01) $ (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
3
CDSI HOLDINGS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
-----------------------------
September 30, September 30,
2006 2005
------------- -------------
Cash flows used in operating activities:
Net loss ............................................ $(23,601) $ (23,741)
Decrease in accounts payable and accrued expenses ... (650) (1,325)
-------- ---------
Net cash used in operating activities .................. (24,251) (25,066)
-------- ---------
Net cash flows from investing activities ............... -- --
-------- ---------
Net cash flows from financing activities ............... -- --
-------- ---------
Net decrease in cash ................................... (24,251) (25,066)
Cash and cash equivalents at beginning of period ....... 91,660 122,946
-------- ---------
Cash and cash equivalents at end of period ............. $ 67,409 $ 97,880
======== =========
See accompanying Notes to Condensed Financial Statements
4
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, 2006, the Company had an accumulated deficit of
$8,180,085. 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, 2006 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, 2006 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, 2005
included in the Company's Form 10-KSB filed with the Securities and
Exchange Commission (Commission File No. 0001-22563).
5
CDSI HOLDINGS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
(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 is convertible from 1,575,000 to 3,150,000
and (ii) eliminate the annual dividend on the Class B Preferred Stock. As a
result, the Class B Preferred Stock held by CDSI became convertible into
330,000 shares of Dialog Common Stock and, on February 7, 2003, CDSI
converted its preferred shares into 330,000
6
CDSI HOLDINGS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
shares of Dialog Common Stock. The Company sold 50,000 shares 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. Based on public
filings by Dialog, management currently estimates that CDSI's interest in
Dialog (currently 2,800 shares) is less than a 0.1% on a fully-diluted
basis.
(4) INVESTMENT SECURITIES AVAILABLE FOR SALE
The Company's 2,800 shares of Dialog Common Stock may be sold by the
Company pursuant to Rule 144(k) of the Securities Act of 1933. See Note 3.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", the
Company has classified these shares as "Investment Securities Available for
Sale" as of September 30, 2006. The Dialog Common Stock is carried at fair
value, and net unrealized gains are included as a component of
stockholders' equity. However, no assurance can be given that the Company
will ultimately realize fair value for its Dialog shares as there is only a
limited trading market for the shares and the Company may not be able to
sell any material portion of its shares at prevailing market prices.
(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 653,333
shares at September 30, 2006 and 2005, respectively, 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)
(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, 2006 and 2005 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2006 2005 2006 2005
------- ------- -------- --------
Net loss ........................ $(7,467) $(7,671) $(23,601) $(23,741)
Net change in unrealized gain
on investment securities ..... (644) (1,120) (1,624) (7,980)
------- ------- -------- --------
Comprehensive loss ........... $(8,111) $(8,791) $(25,225) $(31,721)
======= ======= ======== ========
(8) STOCK OPTIONS
The Company grants equity compensation under its 1997 Stock Option Plan
("the 1997 Plan"), which provides for the grant of options to purchase the
Company's stock to the employees and directors of the Company. The term of
the options granted under the 1997 Plan is limited to 10 years. As of
September 30, 2006, there were approximately 596,667 shares available for
issuance under the 1997 Plan.
Prior to January 1, 2006, the Company accounted for share-based
compensation plans in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," as permitted by SFAS No. 123.
The Company elected to use the intrinsic value method of accounting for
employee and director share-based compensation expense for its
non-compensatory employee and director stock option awards and did not
recognize compensation expense for the issuance of options with an exercise
price equal to the market price of the underlying common stock on the date
of grant.
On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R),
which requires the Company to value unvested stock options granted prior to
the adoption of SFAS No. 123(R) under the fair value method of accounting
and expense this amount in the statement of operations over the stock
option's remaining vesting period. The Company adopted this new standard,
prospectively, on January 1, 2006. Because all options outstanding were
fully vested at January 1, 2006, there was no impact on the Company's
financial statements. In addition, because all options were fully vested on
January 1, 2005, there would have been no impact of the Company's financial
statements for the three and nine months ended September 30, 2005.
As permitted by SFAS No. 123 and SFAS No. 123(R), the fair value of option
grants is estimated at the date of grant using the Black-Scholes option
pricing model. The Black-Scholes option pricing model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
expected stock price characteristics which are significantly different from
those of traded options, and because changes in the subjective input
assumptions can
8
CDSI HOLDINGS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
materially affect the fair value estimate, the existing models do not
necessarily provide a reliable single measure of the fair value of
stock-based compensation awards.
There were no option grants in the three and nine months ended September
30, 2006 and 2005. If options had been granted, the assumptions used in
computing fair value under the Black-Scholes option pricing model would
have been based on the expected option life considering both the
contractual term of the option and expected employee exercise behavior, the
interest rate associated with U.S. Treasury issues with a remaining term
equal to the expected option life and the expected volatility of the
Company's common stock over the expected term of the option.
A summary of the Company's stock option activity during the three and nine
months ended September 30, 2006 follows:
Weighted-
Average
Weighted- Remaining
Average Contractual Aggregate
Exercise Term Intrinsic
Shares Price (in years) Value(1)
------- --------- ----------- ---------
Outstanding at December 31, 2005 .... 153,333 $2.03 2.2 $--
Granted ............................. -- -- -- --
Exercised ........................... -- -- -- --
Forfeited or expired ................ -- -- -- --
------- ----- --- ---
Outstanding at September 30, 2006 ... 153,333 $2.03 1.4 $--
======= ===== === ===
Exercisable at September 30, 2006 ... 153,333 $--
======= ===
Options vested during period ........ -- $--
======= ===
- ----------
(1) The aggregate intrinsic value represents the amount by which the fair value
of the underlying common stock ($0.14 at September 30, 2006) exceeds the
option exercise price.
In addition to the options issued in connection with the stock option
plans, the Company has 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 expire in January 2007.
9
CDSI HOLDINGS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(9) CONTINGENCIES
As of September 30, 2006, 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. The Company has
responded to the inquiry and 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.
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 preferred stock of Dialog in exchange for its
interest in TDMI. The preferred stock was convertible into Dialog common stock
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 for $4,888 in the third quarter of 2004. On September 18, 2006, Dialog
effected a 1-for-100 reverse stock split. The Company's remaining 2,800 Dialog
shares may be sold by the Company pursuant to Rule 144(k) of the Securities Act
of 1933. See Notes 3 and 4 to the unaudited condensed financial statements.
Results of Operations
REVENUES
For the three and nine months ended September 30, 2006 and 2005, 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 $ 8,349 and $26,329 for
the three and nine months ended September 30, 2006, respectively, as compared to
$8,480 and $25,986 for the same periods in the prior year. The expenses were
primarily associated with costs necessary to maintain a public company.
INTEREST INCOME
Interest income was $882 and $2,728 for the three and nine months ended
September 30, 2006, compared to $809 and $2,245 for the three and nine months
ended September 30, 2005. The increase is due primarily to higher prevailing
interest rates offset by lower cash balances in 2006 versus 2005.
Liquidity and Capital Resources
At September 30, 2006, the Company had an accumulated deficit of $8.2
million. The Company has reported an operating loss in each of its fiscal
quarters since inception and it expects to continue to incur operating losses in
the immediate future. The Company has reduced operating expenses and is seeking
acquisition and investment opportunities. No assurance can be given that the
Company will not continue to incur operating losses.
The Company has limited available cash, limited cash flow, limited liquid
assets and no credit facilities. The Company has not been able to generate
sufficient cash from operations and, as a consequence, financing has been
required to fund ongoing operations. Since completion of the Company's initial
public offering of its common stock (the "IPO") in May 1997, the Company has
primarily financed its operations with the net proceeds of the IPO. The funds
were used to complete the introduction of the PC411 Service over the Internet,
to expand marketing, sales and advertising, to develop or acquire new services
or databases, to acquire CDS and for general corporate purposes.
Cash used for operations for the nine months ended September 30, 2006 and
2005 was $24, 251 and $25,066, respectively. The decrease is associated
primarily with a lower net loss and the timing of payments of accounts payable
and accrued liabilities. 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, 2006.
At September 30, 2006, the Company had cash and cash equivalents of
$67,409.
Inflation and changing prices had no material impact on revenues or the
results of operations for the nine months ended September 30, 2006 and 2005.
The Company's 2,800 shares of Dialog Common Stock may be sold pursuant to
Rule 144(k) of the Securities Act of 1933. In accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", the Company has classified these
12
CDSI HOLDINGS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
shares as "Investment Securities Available for Sale" as of September 30, 2006.
The Dialog Common Stock is carried at fair value ($196), and net unrealized
gains are included as a component of stockholders' equity. However, no assurance
can be given that the Company will ultimately realize fair value for its Dialog
shares as there is only a limited trading market for the shares and the Company
may not be able to sell any material portion of its shares at prevailing market
prices. No assurances can be given that an orderly trading market will be
maintained for Dialog's Common Stock. Dialog was delinquent in filing reports
with the Securities and Exchange Commission in 2003 and 2004 and, as a result,
its Common Stock was delisted, effective December 31, 2003, from the NASD OTC
Bulletin Board. Following the delisting, the Dialog shares traded on the OTC
Pink Sheets until the shares resumed trading on the NASD OTC Bulletin Board on
February 8, 2005. 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.
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 and disposing of the shares of Dialog Common Stock held by the
Company. 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, 2005 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
13
CDSI HOLDINGS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 9 to our unaudited condensed financial
statements.
Item 6. Exhibits
31.1 Certification of Chief Executive Officer, Pursuant to Exchange Act
Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, Pursuant to Exchange Act
Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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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, 2006 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