================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008 COMMISSION FILE NUMBER 0001-22563 CDSI HOLDINGS INC. (Exact name of Registrant 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 (Registrant's telephone number, including area code) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (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 LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER OR A SMALLER REPORTING COMPANY. SEE DEFINITION OF "LARGE ACCELERATED FILER", "ACCELERATED FILER" AND "SMALLER REPORTING COMPANY" IN RULE 12B-2 OF THE EXCHANGE ACT. [ ] LARGE ACCELERATED FILER [ ] ACCELERATED FILER [ ] NON-ACCELERATED FILER [X] SMALLER REPORTING COMPANY 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, 2008, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE ISSUER'S COMMON STOCK, $.01 PAR VALUE. ================================================================================ CDSI HOLDINGS INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008 TABLE OF CONTENTS
Page PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements (Unaudited): Condensed Balance Sheets as of September 30, 2008 and December 31, 2007...................................... 2 Condensed Statements of Operations for the three months and nine months ended September 30, 2008 and 2007................................................... 3 Condensed Statements of Cash Flows for the nine months ended September 30, 2008 and 2007................... 4 Notes to the Condensed Quarterly Financial Statements............. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 8 Item 4T. Controls and Procedures........................................... 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 12 Item 2. Unregistered sales of equity securities and use of proceeds...... 12 Item 6. Exhibits.......................................................... 12 SIGNATURE............................................................................... 13
1 CDSI HOLDINGS INC. CONDENSED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2008 2007 ------------ ------------ ASSETS: Current assets: Cash and cash equivalents .................................. $ 24,551 $ 50,288 ----------- ----------- Total assets .......................................... $ 24,551 $ 50,288 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued expenses ...................... $ 7,000 $ 6,650 ----------- ----------- Total current liabilities ............................. 7,000 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 ........................................ (8,223,593) (8,197,506) Accumulated other comprehensive income ..................... -- -- ----------- ----------- Total stockholders' equity ............................ 17,551 43,638 ----------- ----------- Total liabilities and stockholders' equity ............ $ 24,551 $ 50,288 =========== ===========
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, 2008 2007 2008 2007 ------------- ------------- ------------- ------------- Revenues ................................... $ -- $ -- $ -- $ -- ------------- ------------- ------------- ------------- Cost and expenses: General and administrative ............ 6,608 8,713 26,523 27,355 ------------- ------------- ------------- ------------- 6,608 8,713 26,523 27,355 ------------- ------------- ------------- ------------- Operating loss ............................. (6,608) (8,713) (26,523) (27,355) ------------- ------------- ------------- ------------- Other income: Gain on sale of Dialog common stock ... -- -- -- 204 Recovery of unclaimed property ........ -- -- -- 18,624 Interest income ....................... 71 638 435 1,908 ------------- ------------- ------------- ------------- Total other income .................... 71 638 435 20,736 ------------- ------------- ------------- ------------- Net loss ................................... $ (6,537) $ (8,075) $ (26,088) $ (6,619) ============= ============= ============= ============= Net loss per share (basic and diluted) ..... $ (0.00) $ (0.00) $ (0.01) $ (0.00) ============= ============= ============= ============= 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, 2008 2007 ------------- ------------- Cash flows from operating activities: Net loss ............................................ $ (26,088) $ (6,619) Adjustments to reconcile net loss to net cash used in operations: Gain on sale of Dialog common stock ................. -- (204) Changes in assets and liabilities: Increase in accounts payable and accrued expenses ... 351 (1,412) ------------- ------------- Net cash used in operating activities .................. (25,737) (8,235) ------------- ------------- 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 .............. (25,737) (8,031) Cash and cash equivalents at beginning of period ....... 50,288 61,812 ------------- ------------- Cash and cash equivalents at end of period ............. $ 24,551 $ 53,781 ============= =============
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 transmited 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, 2008, the Company had an accumulated deficit of $8,223,593. 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 September 30, 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 September 30, 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 unaudited 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 Annual Report on 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 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) 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 15,000 shares at September 30, 2008 and 128,000 shares at September 30, 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. 6 (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 and nine months ended September 30, 2008 and 2007 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ------------------------ 2008 2007 2008 2007 ---------- ---------- ---------- ---------- Net loss ............................. $ (6,537) $ (8,075) $ (26,088) $ (6,619) Net unrealized gains on investment securities available for sale: Change in unrealized gains ........... -- -- -- (20) Net unrealized gains reclassified into net income, net of taxes ..... -- -- -- (204) ---------- ---------- ---------- ---------- Net change in unrealized gain on investment securities .......... -- -- -- (224) ---------- ---------- ---------- ---------- Comprehensive loss ................ $ (6,537) $ (8,075) $ (26,088) $ (6,843) ========== ========== ========== ==========
(6) CONTINGENCIES As of September 30, 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. 7 CDSI HOLDINGS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We intend to seek new business opportunities. As we have only limited cash resources, our ability to complete any acquisition or investment opportunities we may identify will depend on our ability to raise additional financing, as to which there can be no assurance. There can be no assurance that we will successfully identify, complete or integrate any future acquisition or investment, or that acquisitions or investments, if completed, will contribute favorably to our operations and future financial condition. Results of Operations REVENUES For the three and nine months ended September 30, 2008 and 2007, the Company did not generate revenues from operations. EXPENSES Expenses associated with corporate activities were $6,608 and $26,523 for the three and nine months ended September 30, 2008, respectively, as compared to $8,713 and $27,355 for the same periods in the prior year. The expenses were primarily associated with costs necessary to maintain a public company, which consist primarily of directors' fees, accounting fees, and stock transfer fees. The decrease in the nine month period in 2008 was primarily associated with lower director fees offset by the costs associated with testing management's internal control over financial reporting in 2008. The decrease in the three month period was primarily due to lower directors' fees in 2008 compared to 2007. OTHER INCOME Interest income was $71 and $435 for the three and nine months ended September 30, 2008 compared to $638 and $1,908 for the three and nine months ended September 30, 2007. The decrease is due primarily to lower prevailing interest rates and lower cash balances in 2008 versus 2007 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. In January 2007, 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. All claims were accepted as an additional $3,167 was received in the fourth quarter of 2007. 8 CDSI HOLDINGS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Liquidity and Capital Resources At September 30, 2008 the Company had an accumulated deficit of $8,223,593. 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, 2008 and 2007 was $25,737 and $8,235, respectively. The increase was primarily the result of the recovery of unclaimed property of $18,624 in 2007. 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. The Company does not expect significant capital expenditures during the year ended December 31, 2008. At September 30, 2008, the Company had cash and cash equivalents of $24,551. 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, 2008 and 2007. 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 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 and may include an investment or loan from Vector Group Ltd., our principal stockholder. 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. 9 CDSI HOLDINGS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) 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 Annual Report on 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. 10 ITEM 4T. 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. 11 CDSI HOLDINGS INC. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Note 6 to our unaudited condensed financial statements. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No securities of ours which were not registered under the Securities Act of 1933 have been issued or sold by us during the three months ended September 30, 2008. No securities of ours were repurchased by us or our affiliated purchasers during the three months ended September 30, 2008. 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. 12 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, 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) 13