UNITED STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K





x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008





o TRANSITION PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____________ to ____________





COMMISSION FILE NUMBER: 000-33491





CDSS WIND DOWN INC.


(Exact name of registrant as specified in its charter))





DELAWARE
75-2873882(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER IDENTIFICATION NO.)





2100 MCKINNEY AVE., SUITE 1500, DALLAS, TEXAS 75201


(Address of principal executive offices)                             (Zip Code)


(214) 750-2452


(Registrant’s telephone number, including area code)





Securities registered pursuant to section 12(b) of the act: None





Securities registered pursuant to section 12(g) of the act:


Common stock, par value $.01 per share


(Title of class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes o No þ





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


Yes o No þ





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes þ No o





Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.


þ





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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filero

Accelerated fileroNon-accelerated filero (Do not check if a smaller reporting company)

Smaller reporting companyþ





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes þ No o





The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which common equity was last sold, or the average of the bid and asked price of such common equity, was $28,835 as of April 13, 2008.





As of April 13, 2008, there were 34,318,230 shares of common stock, $.01 par value per share, outstanding.





DOCUMENTS INCORPORATED BY REFERENCE: None










CDSSWIND DOWN INC.


FORM 10-K


ANNUAL REPORT


FOR THE YEAR ENDED


DECEMBER 31, 2008





Table of Contents
PagePART IItem 1.
Business
3Item 1A.
Risk Factors
5Item 1B.
Unresolved Staff Comments
8Item 2.
Properties
8Item 3.
Legal Proceedings
8Item 4.
Submission of Matters to a Vote of Security Holders
8PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
9Item 6.
Selected Financial Data
9Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
12Item 8.
Financial Statements and Supplementary Data
12Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
20Item 9A(T).
Controls and Procedures
20Item 9B.
Other Information
21PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
22Item 11.
Executive Compensation
25Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
26Item 13.
Certain Relationships and Related Transactions, and Director Independence
27Item 14.
Principal Accounting Fees and Services
28PART IVItem 15.
Exhibits, Financial Statement Schedules
29Signatures


2
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PARTI





As used in this Annual Report on Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “our,” “the Company” and “CDSS” refer to CDSS Wind Down Inc., a Delaware corporation and its wholly-owned subsidiaries.




Forward-Looking Statements




This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent our current expectations, assumptions, estimates and projections about CDSS and include, but are not limited to,
the following:





•
any statements regarding the execution, timing and expenses associated with the complete dissolution of CDSS;


•
any statements regarding the disposition of our existing assets; and


•
any statements regarding liquidating distributions, if and when any are paid, to our Shareholders.





Readers are urged to carefully review and consider the various disclosures we make which attempt to advise them of the factors which affect our business, including without limitation, the disclosures made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under the
caption “Risk Factors” included herein. These important factors, which could cause actual results to differ materially from the forward-looking statements contained herein, include, without limitation, our ability to accurately estimate the expenses associated with executing our plan of complete liquidation and dissolution.





Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described elsewhere in this report. For a detailed discussion of these risks and uncertainties, see the “Risk Factors” section
in this Form 10-K. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.





ITEM1.  BUSINESS





On December 4, 2006, Citadel Security Software Inc. and its subsidiaries (collectively, "Citadel" hereafter) closed the sale of substantially all of its assets to McAfee Security, LLC, a Delaware limited liability company and a wholly owned subsidiary of McAfee, Inc., pursuant to the Asset Purchase Agreement (the "Asset Purchase Agreement")
between Citadel and McAfee, Inc. and a subsidiary ("McAfee"). On December 12, 2006 Citadel Security Software Inc. changed its name to CDSS Wind Down Inc. (“CDSS” or the “Company”). The Asset Purchase Agreement provides for the acquisition of substantially all of the assets (the “Assets”) and the assumption of certain identified liabilities of CDSS by McAfee (collectively, the "Sale"). The cash consideration received by CDSS for the purchase of the Assets and operating expense
reimbursement was $60,020,579 in immediately available funds. A distribution of $17,152,808 or $0.50 per share was made on January 5, 2007 to shareholders of record on January 2, 2007. We do not currently anticipate that we will have any additional funds to distribute to common stockholders.





CDSS was incorporated in Delaware in December 1996. Our principal executive offices are located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201. On April 30, 2004 the Company’s stock moved from the National Association of Securities Dealers (NASD) Over-the-Counter Bulletin Board (OTCBB) exchange to the NASDAQ Capital Market
and traded under the symbol "CDSS". On May 5, 2006 the Company's stock moved to the OTCBB following a delisting notice form the NASDAQ for failure to meet the $1 per share minimum trading price. On January 11, 2007 the trading symbol became CWDW" resulting from the name change.


3
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PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION





As of the date of this Report  and at December 31, 2008, we had not filed a certificate of dissolution in Delaware; however at a Special Meeting of Stockholders held on December 1, 2006, our stockholders approved a plan of liquidation and dissolution (the "Plan of Dissolution"), previously approved by our board of directors on October
13, 2006. In connection with the closing of the Asset Sale on December 4, 2006, our business and operations were effectively transferred to McAfee pursuant to the Asset Purchase Agreement, and we no longer have any significant operating assets or contracts, and our activities are currently limited to:





·
filing a certificate of dissolution with the Secretary of State of the State of Delaware and thereafter remaining in existence as a non-operating entity for three years;


·
selling any of our remaining assets;


·
paying or settling the obligations owed to our remaining creditors;


·
terminating or settling any of our remaining commercial agreements, relationships or outstanding obligations;


·
resolving any outstanding litigation;


·
collecting any outstanding amounts due to CDSS;


·
establishing a contingency reserve for payment of our expenses and liabilities;


·
completing of tax filings;


·
complying with our Securities and Exchange Commission reporting requirements; and


·
making distributions to our stockholders, although none are anticipated.





Delaware law provides that, following the approval of the plan of liquidation and dissolution by the stockholders, the board of directors may take such actions as it deems necessary in furtherance of the dissolution of CDSS and the wind up of its operations and affairs. Notwithstanding stockholder authorization or consent to the Plan of Dissolution
and its contemplated transactions, the Board of Directors may modify, amend or abandon the Plan of Dissolution and its contemplated transactions without further action by the stockholders to the extent permitted by law.





As of the date of this Report and at December 31, 2008, we had not filed a certificate of dissolution because we had not yet settled all of our outstanding obligations. Based on our remaining assets and our projections of operating expenses and liquidation costs, we believe that there will not be any remaining funds to distribute to our common
stockholders. A distribution of $0.50 per share was made on January 5, 2007 to stockholders of record on January 2, 2007.





Following the 30-day indemnity period following the closing of the Asset Sale (which expired on January 3, 2007), the satisfaction of the holdback provisions of the Asset Purchase Agreement and payment of our initial liquidating distribution (paid on January 5, 2007), our board of directors may, at any time, turn our management over to a third
party to complete the liquidation of our remaining assets and distribute any remaining proceeds from the Asset Sale to our stockholders pursuant to the plan of liquidation and dissolution. This third-party management may be in the form of a liquidating trust, which, if adopted by our board of directors, would succeed to all of our assets, liabilities and obligations. Our board of directors may appoint one or more of its members, one or more of our officers or a third party to act as trustee or trustees of such
liquidating trust. If, however, all of our assets are not distributed within three years after the date our certificate of dissolution is filed with the State of Delaware, we will transfer our remaining assets to a liquidating trust if we have not already done so.





During the liquidation of our assets, we may pay our officers, directors, employees, and agents, or any of them, compensation for services rendered in connection with the implementation of the plan of liquidation and dissolution. At December 31, 2008 we had no employees.


4
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ITEM1A.  RISK FACTORS





In addition to other information in this Form 10-K, the following risk factors should be carefully considered in evaluating us and our liquidation and dissolution because such factors may have a significant impact on the execution of our Plan of Dissolution and the timing and amount of liquidating distributions, if any, to our stockholders.
As a result of the risk factors set forth below and elsewhere in this Form 10-K, and the risks discussed in our other Securities and Exchange Commission filings, actual results could differ materially from those projected in any forward-looking statements.





WE CANNOT ASSURE YOU OF THE EXACT AMOUNT OR TIMING OF ANY FUTURE DISTRIBUTION TO OUR STOCKHOLDERS UNDER THE PLAN OF DISSOLUTION.





The liquidation and dissolution process is subject to numerous uncertainties and may not result in any remaining capital for future distribution to our stockholders. The precise nature, amount and timing of any future distribution to our stockholders will depend on and could be delayed by, among other things, sales of our non-cash assets,
claim settlements with creditors, settlement of remaining obligations under operating leases, and unexpected or greater than expected expenses. Furthermore, we cannot provide any assurances that we will actually make additional distributions. The estimates we have provided are based on currently available information, and actual distribution payments, if any, could be substantially less than the range we have estimated. Any amounts to be distributed to our stockholders may be less than the price or prices at
which our common stock has recently traded or may trade in the future. We currently believe that we will not make any additional liquidating distributions. Furthermore, notwithstanding stockholder authorization or consent to the Plan of Dissolution and its contemplated transactions, the Board of Directors may modify, amend or abandon the Plan of Dissolution and its contemplated transactions without further action by the stockholders to the extent permitted by law. We may engage in a merger or similar transaction
if such a transaction is presented to us and is approved by our stockholders. We have not entered into any agreement with respect to such a transaction.





WE MAY NOT BE ABLE TO SETTLE ALL OF OUR OBLIGATIONS TO CREDITORS.





If we do not settle all of our obligations to creditors we may be prevented from completing our Plan of Dissolution. Our obligations to creditors include primarily contractual obligations to vendors. Any inability to reach settlement with our creditors could delay or even prevent us from completing the Plan of Dissolution in a reasonable time
and therefore amounts required to settle our obligations to creditors would be in excess of our estimates at December 31, 2008 and would reduce the amount of remaining capital available for future distribution to stockholders.





WE WILL CONTINUE TO INCUR CLAIMS, LIABILITIES AND EXPENSES THAT WILL REDUCE THE AMOUNT AVAILABLE FOR DISTRIBUTION OUT OF THE LIQUIDATION TO STOCKHOLDERS.





Claims, liabilities and expenses from operations, such as operating costs, directors’ and officers’ insurance, income, franchise, payroll and local taxes, legal, accounting and consulting fees and miscellaneous office expenses, will continue to be incurred as we wind down. These expenses will reduce the amount of assets available
for future distribution out of the liquidation to stockholders. If available cash is not adequate to provide for our obligations, liabilities, expenses and claims, or if we enter into a merger or similar transaction, we may not be able to distribute meaningful cash out of the liquidation or any cash at all, to our stockholders.


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WE MAY BE SUBJECT TO FINAL EXAMINATIONS BY TAXING AUTHORITIES ACROSS VARIOUS JURISDICTIONS WHICH MAY IMPACT THE AMOUNT OF TAXES THAT WE PAY AND THE ULTIMATE DISTRIBUTIONS TO OUR STOCKHOLDERS





In evaluating the exposure associated with various tax filing positions, we accrue charges for probable exposures. At December 31, 2008, we believe we have no probable exposures. To the extent we were not to prevail in matters for which accruals would have been established or be required to pay amounts in excess of any such accruals, our effective
tax rate in a given financial statement period could be materially affected. Significant judgment is required in determining our provision for income taxes. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain. Our reported results may be subject to final examination by taxing authorities. Because many transactions are subject to varying interpretations of the applicable federal, state or foreign tax laws, our reported tax liabilities and taxes may be
subject to change at a later date upon final determination by the taxing authorities. The impact of this final determination on our estimated tax obligations could increase or decrease amounts of cash available for distribution to our stockholders, perhaps significantly.





OUR ASSUMPTIONS REGARDING THE FEDERAL TAX CONSEQUENCES OF THE ASSET SALE MAY BE INACCURATE.





The Asset Sale was a taxable transaction to us for United States federal income tax purposes and we recognized a gain on the asset sale under the Asset Purchase Agreement. We do not believe, however, that there will be material tax payable by us, other than approximately $894,000 of federal Alternative Minimum Tax (“AMT”) as a
result of limitations on the use of net operating losses under AMT rules. This tax liability was paid during the first quarter of 2007. We believe we have sufficient usable net operating losses to offset substantially all of the income or gain recognized by us for “regular” federal income tax purposes as a result of the asset sale (i.e., other than AMT). After filing of federal income tax returns by us and our subsidiaries, we believe that we will have net operating losses of approximately $44,000,000
to offset taxable income for the year ended December 31, 2006, including losses arising prior to and after the date of our 2002 spin-off from our former parent company. We expect that our taxable income, including the gain on the Asset Sale, for federal income tax purposes will be less than available net operating loss carry-forwards of approximately $44,000,000. Therefore, we will not set aside any material amounts specifically for the payment of any tax liability, other than the $894,000 AMT payment that we
have made. However, there can be no assurance that the Internal Revenue Service or relevant state tax authorities will ultimately assent to our tax treatment of the asset sale or the net operating losses. To the extent the Internal Revenue Service or any relevant state tax authorities ultimately prevail in re-characterizing the tax treatment of the asset sale or the net operating losses, there may be adverse tax consequences to us and our stockholders, including that we could owe income taxes on up to the entire
purchase price and our common stockholders would not receive any distributions or be required to return any distributions they have received.





OUR ASSUMPTION THAT WE WILL NOT HAVE TO PAY TEXAS FRANCHISE TAX AS A RESULT OF THE CLOSING OF THE ASSET PURCHASE AGREEMENT MAY BE INACCURATE.





We do not believe we will be obligated to pay any Texas franchise tax as a result of the closing of the transaction. Beneficial ownership of all of our assets was held by our subsidiary Canberra Operating, L.P., a Texas limited partnership, and Texas franchise tax did not apply to dispositions of assets by limited partnerships. To confirm
our position, following the closing we applied to the Texas Comptroller of Public Accounts for a statement that no franchise or sales tax was due as a result of the closing of the Asset Purchase Agreement. If the Texas Comptroller challenges our position, we could be required to pay the Texas franchise tax, which would further reduce the amount we could distribute to our stockholders or our stockholders could be required to return any distributions they have received.


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DISTRIBUTION OF CASH OUT OF THE LIQUIDATION, IF ANY, TO OUR STOCKHOLDERS COULD BE DELAYED.





Although our Board of Directors has not established a firm timetable for distributions to our stockholders out of the liquidation, the Board of Directors intends, subject to contingencies inherent in winding down our business, to make such distributions as promptly as practicable as creditor claims are paid or settled. However, we are currently
unable to predict the precise timing of any such distributions. The timing of such distributions will depend on and could be delayed by, among other things, the timing of sales of our non-cash assets and claim settlements with creditors, and could be abandoned if we enter into a merger or similar transaction. Additionally, a creditor could seek an injunction against the making of such distributions to our stockholders on the grounds that the amount to be distributed was needed to provide for the payment of our
liabilities and expenses. Any action of this type could delay or substantially diminish the amount available for such distribution to our stockholders. We do not currently anticipate that we will have any additional funds to distribute to common stockholders.





IF WE FAIL TO CREATE AN ADEQUATE CONTINGENCY RESERVE FOR PAYMENT OF OUR EXPENSES AND LIABILITIES, EACH STOCKHOLDER COULD BE HELD LIABLE FOR PAYMENT TO OUR CREDITORS OF HIS OR HER PRO RATA SHARE OF AMOUNTS OWED TO CREDITORS IN EXCESS OF THE CONTINGENCY RESERVE, UP TO THE AMOUNT ACTUALLY DISTRIBUTED TO SUCH STOCKHOLDER.





In the event we fail to create an adequate contingency reserve for payment of our expenses and liabilities, each stockholder could be held liable for payment to our creditors of such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such stockholder.





Although the liability of any stockholder is limited to the amounts previously received by such stockholder from us (and from any liquidating trust or trusts) in the dissolution, this means that a stockholder could be required to return all distributions previously made to such stockholder and receive nothing from us under the Plan of Dissolution.
Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. While we will endeavor to make adequate reserves for all known and contingent liabilities, there is no guarantee that the reserves established by us will be adequate to cover all such expenses and
liabilities.





WE WILL CONTINUE TO INCUR THE EXPENSES OF COMPLYING WITH PUBLIC COMPANY REPORTING REQUIREMENTS.





We have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act,” even though compliance with such reporting requirements is economically burdensome until we are fully dissolved.





OUR BOARD OF DIRECTORS MAY AT ANY TIME TURN MANAGEMENT OF THE LIQUIDATION OF CDSS OVER TO A THIRD PARTY, AND SOME OR ALL OF OUR DIRECTORS MAY RESIGN FROM OUR BOARD AT THAT TIME.





Our Board of Directors may at any time turn the management of CDSS over to a third party to complete the liquidation of our remaining assets and distribute the available proceeds to our stockholders, and some or all of our directors may resign from our board at that time. If management is turned over to a third party and all of our directors
resign from our board, the third party would have sole control over the liquidation process, including the sale or distribution of any remaining assets.


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IF WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER OR OUR DIRECTORS, OUR BUSINESS MAY SUFFER.





We are dependent on our key officer, and directors, including Steven B. Solomon, our Chairman and Chief Executive Officer. Steven B. Solomon is also our acting Chief Financial Officer. Our business could be negatively impacted if we were to lose the services of one or more of these persons.





FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND STOCK PRICE.





Section 404 of the Sarbanes-Oxley Act of 2002 (“the Sarbanes-Oxley Act”) requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and include a report of management on our internal control over financial reporting in our annual report on Form 10-K. That report must contain
an assessment by management of the effectiveness of our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified.





We have identified material weaknesses in our internal controls over financial reporting. See “Item 9A(T)—Controls and Procedures—Management’s Report on Internal Control Over Financial Reporting” for a discussion of these material weaknesses. As of the date of this Annual Report on Form 10-K, we plan to improve
our processes regarding documentation deficiencies and to increase the involvement of the board of directors to improve the lack of segregation of duties as discussed at Item 9A(T)—“Controls and Procedures—Management’s Report on Internal Control Over Financial Reporting” but there can be no assurance that these measures will be successful.  If we are unsuccessful, our business and operating results could be harmed and the reliability of our financial statements could be
impaired, which could adversely affect our stock price. The requirements of Section 404 of the Sarbanes-Oxley Act are ongoing and also apply to future years. We cannot assure you that in the future additional material weaknesses or significant deficiencies will not exist or otherwise be discovered.




ITEM1B.  UNRESOLVED STAFF COMMENTS





None.





ITEM2.  PROPERTIES





None.





ITEM3. LEGAL PROCEEDINGS





None.





ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.


8
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PARTII





ITEM5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





MARKET INFORMATION





On May 20, 2002 the Company’s stock began trading on the Over-The-Counter Bulletin Board under the symbol CDSS. In April, 2004 the Company's stock began trading on the NASDAQ Capital Market under the symbol CDSS. On May 5, 2006 the Company's stock moved to the OTCBB following a delisting notice form the NASDAQ for failure to meet the
$1 per share minimum trading price and other listing criteria. On January 11, 2007 the trading symbol became "CWDW" resulting from the name change to CDSS Wind Down Inc.





As of April 13, 2009, the last sales price per share of the Company’s common stock, as reported by the OTCBB, was $0.0011 per share. The following table presents the quarterly range of high and low closing prices for our common stock from January 1, 2007 through December 31, 2008, as reported by the Over-The-Counter Bulletin Board for
the respective periods the stock was traded on these markets (high and low quotations from the Over-The-Counter Bulletin Board reflect inter-dealer prices, and all prices do not reflect retail markup, markdown or commission, and may not necessarily represent actual transactions).






HIGH


LOWYEAR ENDED DECEMBER 31, 20081st Quarter

$
0.0040


$
0.00202nd Quarter

$
0.0045


$
0.00103rd Quarter

$
0.0050


$
0.00104th Quarter

$
0.0030


$
0.0005YEAR ENDED DECEMBER 31, 20071st Quarter

$
0.51


$
0.022nd Quarter

$
0.02


$
0.013rd Quarter

$
0.02


$
0.014th Quarter

$
0.01


$
0.00





At December 31, 2008 there were approximately 826 holders of record of the Company’s outstanding common stock. Holders of common stock are entitled to dividends when and if declared by the Board of Directors out of legally available funds. An initial distribution of $0.50 per share was made on January 5, 2007 to stockholders of record
on January 2, 2007. We do not currently anticipate that we will have any additional funds to distribute to common stockholders.





ITEM6.  SELECTED FINANCIAL DATA








Balance at December 31,2008



2007



2006Net assets (deficit) in liquidation

$
(151,273
)

$
(71,848
)

$
17,696,007





The Selected Financial Data is presented based on the liquidation basis of accounting.


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ITEM7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2007





The Company had no operations for either the twelve months ended December 31, 2008 or the twelve months ended December 31, 2007.  Expenditures to wind down the entity were $488,470 and $1,585,897 for the year ended December 31, 2008 and 2007, respectively.  Wind
down expenses in both twelve month periods primarily consisted of accounting, legal and compliance fees as well as the compensation of employees during those periods.  All employees were terminated at the end of the first quarter of 2008.  Future wind down expenses are expected to primarily consist of records storage costs, legal, accounting, compliance fees associated with public reporting and other costs of maintaining the entity.





CHANGES IN NET DEFOCITS IN LIQUIDATION





At December 31, 2008, the Company had approximately $151,273 net deficit in liquidation compared to $71,848 at December 31, 2007.  During the year ended December 31, 2008 the company settled liabilities of approximately $488,470 and estimated additional liabilities of $147,307 to wind down the Company.  During the twelve
months ending December 31, 2007, the Company paid approximately $17.2 million to shareholders and options holders. All other adjustments to the accruals for wind down expenses and operating lease liabilities netted to an approximate $570,000 decline in net assets.





The Company’s CEO has committed to advance the Company up to $40,000 in funding should it be necessary for liquidation or working capital expenses through December 2009, on terms and conditions to be approved by the disinterested directors of the Company and the CEO.





LIQUIDATION BASIS OF ACCOUNTING





As of the date of this Report and at December 31, 2008, we had not filed a certificate of dissolution pending settlement of all of our liabilities, however the consolidated financial statements for the years ended December 31, 2008 and 2007, respectively, were prepared on the liquidation basis of accounting. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted. Uncertainties as to the precise ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributable to stockholders. Claims, liabilities and future expenses for operations, although currently declining in the aggregate, will continue to be incurred with execution
of the plan. These costs will reduce the amount of net assets available for ultimate distribution to stockholders.  If available cash is not adequate to provide for our obligations, liabilities, operating costs and claims, the Company’s CEO has committed to advance the Company up to $40,000 in funding should it be necessary for liquidation or working capital expenses through December 2009, on terms and conditions to be approved by the disinterested directors of the Company and the CEO.





The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts necessarily requires many estimates and assumptions. In addition, there are substantial risks and uncertainties associated with carrying out the liquidation of the Company’s existing operations. The valuations presented in the
accompanying Statement of Net Deficit in Liquidation represent estimates, based on present facts and circumstances, of the net realizable values of assets and costs associated with carrying out the dissolution and liquidation plan based on the assumptions set forth below. The actual values and costs are expected to differ from the amounts shown herein and could be greater or lesser than the amounts recorded. Accordingly, it is not possible to predict the aggregate amount that will ultimately be distributable
to stockholders and no assurance can be given that the amount to be received in liquidation will equal or exceed the net assets in liquidation per share in the accompanying Statement of Net Assets in Liquidation or the price or prices at which our Common Stock has generally traded or is expected to trade in the future. The cautionary statements regarding estimates of net assets in liquidation set forth in the Forward-Looking Statements portion of this report are incorporated herein by reference.


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A distribution of $0.50 per share was made on January 5, 2007 to stockholders of record on January 2, 2007.  Based on our projections of operating expenses and liquidation costs as of December 31, 2008, we anticipate that we will not have any additional funds to distribute to common stockholders.





During the liquidation of our assets, we may pay our officers, directors, employees, and agents, or any of them, compensation for services rendered in connection with the implementation of the plan of liquidation and dissolution. At December 31, 2008 we had no employees.





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations
during the reporting period. Actual results could differ from those estimates.





The preparation of consolidated financial statements using the liquidation basis of accounting requires the Company to make assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation. Management bases its assumptions, judgments and estimates on the most recent information available and
various other factors believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis management evaluates its assumptions, judgments and estimates and makes changes accordingly. The Company believes that the assumptions, judgments and estimates involved in the accounting for the estimated costs to be incurred during liquidation have the greatest potential for impact on the CDSS consolidated financial
statements and considers these estimates to be critical accounting policies.





Estimated Accrued Liquidation Costs





The Company has applied the liquidation basis of accounting in its financial statements assuming that it will be liquidated by December 31, 2009 if all liabilities are settled. On June 14, 2007, the Company terminated its remaining lease obligations related to its Dallas office space. On June 30, 2007, the Company paid a total of approximately
$618,000 related to its lease liability, including a one-time termination fee of $500,000 and $118,000 in rents due. Costs and expenses of approximately $363,000 expected to be incurred during the wind down period prior to liquidation were accrued at December 31, 2007 and paid in 2008. These costs and expenses include estimates of compensation, benefits and employment taxes of $268,262 for employees that were retained to assist with the wind down, as well as legal, accounting and professional fees, and other
administrative expenses of $95,100 anticipated to be incurred during the remaining period of the wind down. These estimates are based on assumptions regarding the Company’s ability to settle outstanding obligations to creditors and resolve outstanding liabilities. If there are delays, or the Company is not successful in achieving these objectives, actual costs incurred during liquidation may increase, increasing the deficit in liquidation. The Company’s reported results may be subject to final examination
by taxing authorities. Because many transactions are subject to varying interpretations of the applicable federal, state or foreign tax laws, our reported tax liabilities and taxes may be subject to change at a later date upon final determination by the taxing authorities.


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ITEM7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.





ITEM8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Set forth below are the audited financial statements for the Company for the years ended December 31, 2008 and 2007 and the reports thereon of KBA Group LLP.








REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








The Board of Directors and Stockholders


CDSS Wind Down Inc.





We have audited the accompanying consolidated statements of net deficit in liquidation of CDSS Wind Down Inc. and subsidiaries, (the “Company”)  as of December 31, 2008 and 2007 and the related consolidated statements of changes in net assets (deficit) in liquidation for the years ended December 31, 2008 and 2007.  These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





As described in Note A to the consolidated financial statements, the Company reports on the liquidation basis of accounting.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated net deficit in liquidation of CDSS Wind Down Inc. and subsidiaries as of December 31, 2008 and 2007 and the changes in net assets (deficit) in liquidation for the years ended December 31, 2008 and 2007 in conformity
with accounting principles generally accepted in the United States of America applied on the basis described in the preceding paragraph.








/s/ KBA GROUP LLP


Dallas, Texas


April 15, 2009


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CDSS WIND DOWN INC.


CONSOLIDATED STATEMENTS OF NET DEFICIT IN LIQUIDATION





December 31,2008


2007ASSETSCash and cash equivalents

$
-


$
428,021Total assets

$
-


$
428,021LIABILITIESAccounts payable and accrued expenses

$
48,862



133,263Accrued payroll tax liabilities


1,672



3,244Convertible promissory note payable to officer (including accrued interest payable of $1,994)


71,445



-Payable to officer


7,294



-Estimated costs to be incurred during liquidation


22,000



363,362Total liabilities


151,273



499,869Net deficit in liquidation

$
(151,273
)

$
(71,848
)





The accompany notes are an integral part of this financial statement.


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CDSS WIND DOWN INC.


CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (DEFICIT) IN LIQUIDATION





Year Ended
December 31,2008


Year Ended
December 31,2007Net assets (deficit) in liquidation, beginning of period

$
(71,848
)

$
17,696,007Changes in net assets (deficit) in liquidation:Payments to shareholders and option holders


-



(17,152,808
)Payments of severance and bonus


-



(6,528,274
)Payments of stock option cash-out liability


-



(212,953
)Payments of income taxes


-



(1,054,517
)Payments of wind-down operating expenses


(488,470
)


(1,585,897
)Contribution to CT Holdings Enterprises Inc.






(227,962
)Payments of lease liability


-



(813,474
)(488,470
)


(27,575,885
)Change in estimate of operating lease liability


-



740,543Settlement of operating lease liability


-



500,000Change in estimate of wind-down operating expenses


(147,307
)


(1,033,499
)Change in payroll tax liability


(1,573
)


59,910Change in estimated assets and liabilities during liquidation


557,925



9,541,076Net deficit in liquidation, end of period

$
(151,273
)

$
(71,848
)





The accompany notes are an integral part of this financial statement.


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CDSS WIND DOWN INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008





NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description of Business





On December 4, 2006, Citadel Security Software Inc. and its subsidiaries (collectively, "Citadel" or the “Company”) closed the sale of substantially all of its assets to McAfee Security, LLC, a Delaware limited liability company and a wholly owned subsidiary of McAfee, Inc., pursuant to the Asset Purchase Agreement (the "Asset
Purchase Agreement") between and McAfee, Inc. and a subsidiary ("McAfee"). On December 12, 2006 Citadel Security Software Inc. changed its name to CDSS Wind Down Inc. (“CDSS”). The Asset Purchase Agreement provides for the acquisition of substantially all of the assets (the “Assets”) and the assumption of certain identified liabilities of CDSS by McAfee (collectively, the "Sale"). The cash consideration received by CDSS for the purchase of the Assets and operating expense reimbursement
was $60,020,579 in immediately available funds. A distribution of $0.50 per share was made on January 5, 2007 to shareholders of record on January 2, 2007.  CDSS does not anticipate that it will make any further distributions to its common stockholders.





CDSS was incorporated in Delaware in December 1996. Its principal executive offices are located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201. On April 30, 2004 the Company’s stock moved from the National Association of Securities Dealers (NASD) Over-the-Counter Bulletin Board (OTCBB) exchange to the NASDAQ Capital Market
and traded under the symbol "CDSS". On May 5, 2006 the Company's stock moved to the OTCBB following a delisting notice form the NASDAQ for failure to meet the $1 per share minimum trading price. On January 11, 2007 the trading symbol became "CWDW" resulting from the name change.





The business was operated as a standalone company from May 17, 2002 until the sale of substantially all of its assets to McAfee on December 4, 2006.  Following the Sale, the Company has had no operations but has incurred costs and expenses associated with the wind down activities.





Plan of Complete Liquidation and Dissolution





As of the date of this Report  and at December 31, 2008, the Company had not filed a certificate of dissolution in Delaware; however at a Special Meeting of Stockholders held on December 1, 2006, the stockholders approved a plan of liquidation and dissolution (the "Plan of Dissolution"), previously approved by the board of directors
on October 13, 2006. In connection with the closing of the Asset Sale on December 4, 2006, the business and operations were effectively transferred to McAfee pursuant to the Asset Purchase Agreement, and the Company no longer has any significant operating assets or contracts, and its activities are currently limited to:




·
filing a certificate of dissolution with the Secretary of State of the State of Delaware and thereafter remaining in existence as a non-operating entity for three years;


·
paying or settling the obligations owed to the Company’s remaining creditors;


·
terminating or settling any of the Company’s remaining commercial agreements, relationships or outstanding obligations;


·
resolving any outstanding potential litigation;


·
collecting any outstanding amounts due to CDSS;


·
establishing a contingency reserve for payment of the Company’s expenses and liabilities;


·
completing tax filings;


·
complying with Securities and Exchange Commission reporting requirements; and


·
making distributions to stockholders, although none are anticipated.


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Delaware law provides that, following the approval of the plan of liquidation and dissolution by the stockholders, the board of directors may take such actions as it deems necessary in furtherance of the dissolution of CDSS and the wind up of its operations and affairs. Notwithstanding stockholder authorization or consent to the Plan of Dissolution
and its contemplated transactions, the Board of Directors may modify, amend or abandon the Plan of Dissolution and its contemplated transactions without further action by the stockholders to the extent permitted by law.





As of the date of this Report and at December 31, 2008, the Company had not filed a certificate of dissolution because it had not yet settled all of its outstanding obligations. A distribution of $0.50 per share was made on January 5, 2007 to stockholders of record on January 2, 2007. However, based management’s projections of operating
expenses and liquidation costs, management believes that there will not be any further funds available for distribution to common stockholders.





Following the 30-day indemnity period following the closing of the Asset Sale (which expired on January 3, 2007), the satisfaction of the holdback provisions of the Asset Purchase Agreement and payment of the initial liquidating distribution (paid on January 5, 2007), the board of directors may, at any time, turn the management of the Company
over to a third party to complete the liquidation of the remaining assets and distribute proceeds, if any, from the Asset Sale to the stockholders pursuant to the plan of liquidation and dissolution, although none are likely. This third-party management may be in the form of a liquidating trust, which, if adopted by the board of directors, would succeed to all of the Company’s assets, liabilities and obligations. The board of directors may appoint one or more of its members, one or more of the Company officers
or a third party to act as trustee or trustees of such liquidating trust. If, however, all of our assets are not distributed within three years after the date the certificate of dissolution is filed with the State of Delaware, the Company will transfer any remaining assets to a liquidating trust if it has not already done so.





During the liquidation of the Company’s assets, the Company may pay its officers, directors, employees, and agents, or any of them, compensation for services rendered in connection with the implementation of the plan of liquidation and dissolution. At December 31, 2008 the Company had no employees.





Basis of Presentation





As a result of the sale of assets in December 2006 and the stockholders’ approval of a Plan of Dissolution and the imminent nature of the liquidation, the Company adopted the liquidation basis of accounting for all periods subsequent to December 4, 2006. The consolidated financial statements for the years ended December 31, 2008 an 2007
are presented on the liquidation basis of accounting, which contemplates realization of Assets and satisfaction of liabilities in the normal course of business. This basis of accounting is considered appropriate when, among other things, liquidation of a company is probable and the net realizable values of assets are reasonably determinable. Under this basis of accounting, assets are valued at their estimated net realizable values and liabilities are stated at their estimated settlement amounts.





Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations
during the reporting period. Actual results could differ from those estimates.





The preparation of consolidated financial statements using the liquidation basis of accounting requires the Company to make assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation. Management bases its assumptions, judgments and estimates on the most recent information available and
various other factors believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis management evaluates its assumptions, judgments and estimates and makes changes accordingly. The Company believes that the assumptions, judgments and estimates involved in the accounting for the estimated costs to be incurred during liquidation have the greatest potential for impact on the CDSS consolidated financial
statements and considers these estimates to be critical accounting policies.


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Estimated Costs to be Incurred





The Company has applied the liquidation basis of accounting in its financial statements assuming that it will be liquidated during the year ended December 31, 2009 if all liabilities are settled. Costs and expenses of approximately $22,000 expected to be incurred during the wind down period prior to liquidation were accrued at December 31,
2008. These costs and expenses include estimates of legal, accounting and professional fees, and other administrative expenses anticipated to be incurred during the remaining period of the wind down. These estimates are based on assumptions regarding the Company’s ability to settle outstanding obligations to creditors and resolve outstanding liabilities. If there are delays, or the Company is not successful in achieving these objectives, actual costs incurred during liquidation may increase, increasing
the deficit in liquidation. The Company’s reported results may be subject to final examination by taxing authorities. Because many transactions are subject to varying interpretations of the applicable federal, state or foreign tax laws, the Company’s reported tax liabilities and taxes may be subject to change at a later date upon final determination by the taxing authorities.





The Company’s CEO has committed to advance the Company up to $40,000 in funding should it be necessary for liquidation or working capital expenses through December 2009 and settle liabilities at December 31, 2008, on terms and conditions to be approved by the disinterested directors of the Company and the CEO.





Cash and Cash Equivalents





The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents.





Income Taxes





Income taxes are accounted for using the asset and liability method. Deferred income tax expenses are provided based upon estimated future tax effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes calculated based upon provisions of enacted
laws.





NOTE B - CONCENTRATION OF CREDIT RISK





Financial instruments that potentially subject the Company to concentrations of credit risk are principally cash and cash equivalents. Cash and cash equivalent deposits are at risk to the extent that they exceed FDIC insured amounts. When available, the Company invests excess cash through banks, primarily in highly liquid money market accounts.





NOTE C - INCOME TAXES





The Asset Sale was a taxable transaction to the Company for United States federal income tax purposes and accordingly the Company recognized a gain in its federal income tax return for the year ended December 31, 2006.  In the federal income tax return filed for the year ended December 31, 2006, the gain from the Asset Sale recognized
was fully offset by net operating loss carryforwards of approximately $44,000,000.  In addition, a tax liability of approximately $894,000 was computed resulting from the application of the federal Alternative Minimum Tax (“AMT”) rules. This AMT tax liability was fully paid during the first quarter of 2007.  Unexpired net operating loss carryforwards of approximately $2,500,000 remain available to offset any future upward adjustments to the gain from the Asset Sales or adjustments
to unaudited open tax years resulting from Internal Revenue Service audit adjustments.  The Company does not believe that there will be any additional material amount of taxes payable by it as a result of the Asset Sale and it believes that it has sufficient usable net operating loss carryforwards to offset substantially all of any income or gain recognized for “regular” federal income tax purposes resulting from a subsequent review and adjustment by the Internal Revenue Service. However,
there can be no assurance that the Internal Revenue Service or relevant state tax authorities will ultimately assent to the Company’s tax treatment of the asset sale or the availability of net operating loss carryforwards to fully offset the gains from the transaction or subsequent income adjustments.  To the extent the Internal Revenue Service or any relevant state tax authorities ultimately prevail in re-characterizing the tax treatment of the asset sale or the net operating loss carryforwards,
there may be adverse tax consequences to the Company and its stockholders, including that the Company could owe income taxes on up to the entire purchase price and that its common stockholders would be required to return any distributions they have received.


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In evaluating the exposure associated with various tax filing positions, the Company considers accrual of charges for probable exposures.  At December 31, 2008, the Company believes that it has appropriately considered probable tax exposures.  To the extent the Company were not to prevail in matters for which tax accruals
have been established or be required to pay taxes in excess of recorded accruals, the effective tax rate in a given financial statement period could be materially affected.  Significant judgment is required in determining the provision for income taxes. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain.  Reported results may be subject to final examination by taxing authorities.  Because many transactions are subject to
varying interpretations of the applicable federal, state or foreign tax laws, reported tax liabilities and taxes may be subject to change at a later date due to final determination by the taxing authorities.  The impact of this final determination on the Company’s estimated tax obligations could be significant and could increase or decrease amounts of cash available for liquidation expenses or subsequent distribution to stockholders.





NOTE D – PREFERRED STOCK, COMMON STOCK, AND STOCK OPTIONS





At December 31, 2008 and 2007, the Company has 1,000,000 authorized shares of preferred stock at a stated value of $1,000 per share.  No preferred shares are issued and outstanding at December 31, 2008 and 2007.  In addition, the Company has 100,000,000 authorized shares of common stock of which 34,318,230 are issued and
outstanding at December 31, 2008 and 2007 with a par value of $0.01 per share.





Stock-based Compensation Plans





The 2002 Stock Incentive Plan (the "Plan") was adopted by the board of directors and approved by the shareholders of CDSS. The Plan authorizes the board of directors or a committee, which administers the plan, to grant stock options, stock appreciation rights, restricted stock and deferred stock awards to eligible officers, directors, employees
and consultants. A total of 3,000,000 shares of common stock were reserved for issuance under the terms of the Plan. In the event of any sale of assets, merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting the stock, the Board or committee may make an equitable substitution or adjustment in the aggregate number of shares reserved for issuance under the Plan. Any options granted under the Plan have a term of 10 years and generally vest over periods
of up to three years. No options were outstanding or exercisable at December 31, 2008 or 2007 under the Plan.  There were 2,562,776 stock options available for future grant under the Plan.





In addition, the Company has granted options outside of the Plan. These options are not covered under a plan approved by the stockholders. The options granted have a term of 10 years or less and generally vest over periods of from one to three years. At December 31, 2008 and 2007, 675,000 options awarded outside of the Plan were outstanding
and exercisable at a weighted average exercise price of $2.04 per share and have a weighted average remaining life of 5.36 years.





For options granted the Company recognizes compensation expense based on the estimated grant date fair value method using the Black-Scholes valuation model. Compensation expense is recognized on a straight-line basis over the vesting period of the options. SFAS No. 123R requires that stock-based compensation expense be based on awards that
are ultimately expected to vest.  No options were granted during the years ended December 31, 2008 and 2007, therefore no stock compensation expanse has been recorded. As of December 31, 2008 and 2007, there was no unrecognized compensation cost related to unvested stock options.





NOTE E - COMMITMENTS AND CONTINGENCIES





Leases





On June 14, 2007, the Company terminated its remaining lease obligations related to its Dallas office space. On June 30, 2007, the Company paid a total of approximately $618,000 related to its lease liability, including a one-time termination fee of $500,000 and $118,000 in rents due.


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Employment Agreements and Change of Control Agreements





On December 23, 2005, the Company approved change of control agreements for six of its executives. The agreements provided for payments of six months of the executive’s annual base salary in the event of certain terminations of employment following a deemed change of control (“Change of Control Payments”), and a payment of
one year’s annual base salary in the event the executive remains employed with the Company or the successor on the first anniversary of the date of the agreement, following a deemed change of control (“Stay Bonuses”). As a result of the Sale, and in connection with their acceptance of employment with McAfee, three of the six executives waived their right to receive any Change of Control Payments or Stay Bonuses from CDSS.





Three executives entered into employment agreements that provided for payments, that are in addition to the payments under the change of control agreements, of six months of the executive’s annual base salary, in the event of certain terminations of employment in connection with or following a deemed change of control, which includes
a sale of all or substantially all of the Company's assets (“Employment Severance Payments”). Also, CDSS agreed to make the required Change of Control Payments and Employment Severance Payments following the closing of the Sale, regardless of whether the remaining executives’ employment was terminated. This allowed CDSS to retain the services of the remaining executives after the closing, to the extent required in connection with the CDSS liquidation and dissolution, without requiring the remaining
executives to forego their payments. As a result, CDSS made total Change of Control Payments and Employment Severance Payments of approximately $533,000 to three executives following the Sale, approximately $342,000 of which was paid in December 2006 and approximately $191,000 of which was made in January 2007.





In addition, the Company agreed to pay the CFO a retention bonus of $95,557 if he was still employed with CDSS on March 31, 2007, or earlier if the board of directors determines that his services are no longer needed in connection with CDSS’s liquidation and dissolution. This retention bonus was paid during 2007.





The Company entered into an employment agreement with the CEO, dated October 1, 2002, as amended on October 1, 2003, as well as a change of control agreement dated December 2005 (“CEO Employment Agreements”). The CEO Employment Agreements collectively provide, in the event of certain terminations following a deemed change of control,
for the following:





·
a payment equal to three times the CEO’s annual base salary;


·
a payment equal to three times the CEO’s annual bonus;


·
an option exercise bonus; and


·
gross-up payments for taxes related to these payments.





After execution of the Asset Purchase Agreement, the Company amended the CEO Employment Agreements to provide that, in lieu of the payments to be received under the CEO Employment Agreements, and in consideration of his non-competition agreement with McAfee, he received, after the completion of the asset sale, $6,089,234 in a lump sum (which
includes tax gross-up) without a requirement of termination of his employment with CDSS. This amount reflected a reduction of approximately $500,000 from the amounts to which he would have otherwise been contractually entitled. This arrangement allowed CDSS to retain the services of the CEO after the closing, to the extent required in connection with CDSS’s liquidation, without requiring the CEO to forego the payments to which he was entitled. The amended agreement also provided that, in consideration of
his non-competition agreement with McAfee, the CEO forgave the Company’s obligation to pay him a bonus and cancel his stock options and, in exchange, the Company issued him 3,650,000 shares of common stock.  The shares of common stock were issued in 2006 and the officer severance and bonus amount of $6,089,234 was paid during 2007.




NOTE F- RELATED PARTY TRANSACTIONS





On August 27, 2008, the Company and Steven B. Solomon, the Company’s Chief Executive Officer, President and Chairman of the Board of Directors, entered into a Convertible Promissory Note (the "Note"). The Note represents advances of approximately $69,450 by Mr. Solomon to the Company through the issue date of the Note.  The
Note bears interest at eight percent (8%) per year and is payable on August 27, 2010 or upon demand by Mr. Solomon.  If the Note had been converted in full at December 31, 2008, Mr. Solomon would have received 228,788,200 shares of the Company's common stock resulting in a beneficial ownership of approximately 90% of the Company's then issued and outstanding common stock.  The fair value of these beneficially owned common shares at December 31, 2008 was approximately $706,928.


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Prior to the issuance of the Note, Mr. Solomon beneficially owned 6,854,484 shares of the Company's common stock.  Therefore, on August 27, 2008, Mr. Solomon beneficially owned a total of 235,652,684 shares of the Company’s common stock (if the Note were converted into shares of the Company’s common stock), or more than
50% of the Company’s common stock outstanding on that date, giving him potential control of the Company through the voting power over a majority of the shares of outstanding common stock.





The Company does not have a sufficient number of authorized shares of common stock available to permit the conversion of the Note in full at this time.  The Company has agreed to use its best efforts to obtain shareholder approval to (a) increase the number of authorized shares of common stock to a number sufficient to permit conversion,
or (b) to effect a reverse stock split to reduce the number of currently outstanding shares of common stock to a number small enough to permit the conversion of the Note.





At December 31, 2008, the Company has amounts owed to its CEO of (i) $69,450 in the form of a convertible promissory note, (ii) $1,994 of accrued interest related to the Note, and (iii) $7,294 in the form of a payable for cash advances to the Company and the payment of expenses on behalf of the Company.  The CEO has committed to
advance the Company up to an additional $40,000 should it be necessary for liquidation or working capital expenses through December 31, 2009, on terms and conditions to be approved by the disinterested directors of the Company and the CEO.





During the year ended December 31, 2007, CDSS paid $109,500 in legal expenses and made an income tax payment of approximately $119,000 on behalf of CT Holdings Enterprises, Inc. (“CTHE”), a related party.  During the years ended December 31, 2008 and 2007, the Company incurred legal fees in the amount of approximately
$23,000 and $196,000, respectively, to a law firm in which an attorney who is a partner and was a relative of the Company’s CEO.





ITEM9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM9A(T). CONTROL AND PROCEDURES





(a) Evaluation of Disclosure Controls and Procedures.




We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed by us in the reports we file or submit 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 and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.





Our management, with the participation of our Chief Executive Officer (who is also our Acting Chief Financial Officer), evaluated the effectiveness of our company's disclosure controls and procedures as of the end of the period covered in this Annual Report on Form 10-K. Based on this evaluation and because of the material weakness described
below, our Chief Executive Officer and Acting Chief Financial Officer has concluded that as a result of the material weaknesses described in the Management Report on Internal Control Over Financial Reporting in this Form 10-K, our disclosure controls and procedures were not effective as of the end of the period covered in this Annual Report on Form 10-K. To address the material weaknesses described below, we have expanded our disclosure controls and procedures to include additional analysis and other procedures
over the preparation of the financial statements included in this report. Accordingly, our management has concluded that the financial statements included in this report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.


20
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(b) Management's annual report on internal control over financial reporting




Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as such term is defined in Rule 13a-15(f) under Securities Exchange Act of 1934.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.





Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.




Our management, including our Chief Executive Officer (who is also our Acting Chief financial Officer), evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control — Integrated Framework.  Based on this evaluation, our management, including our Chief Executive Officer, concluded that, as of December 31, 2008, our internal control over financial reporting was not effective.





Our management has concluded that, as of December 31, 2008 we did not maintain effective controls over the preparation, review, presentation and disclosure of our financial statements.  Specifically, we identified weaknesses in controls over our documentation and a lack of segregation of duties due to our limited size while we are
in the wind down of the business.  While we believe we have other controls in place that mitigate the risk of material misstatement, these control deficiencies could result in a misstatement of the presentation and disclosure of our statement of operations that would result in a material misstatement in our annual or interim financial statements that would not be prevented or detected. Accordingly, management determined that these control deficiencies constitutes a material weakness in our internal
control over financial reporting as of December 31, 2008.





Notwithstanding the existence of material weakness in our internal controls over financial reporting, our management, including our Chief Executive Officer and Acting Chief Financial Officer, believe that the financial statements included in this report fairly present in all material respects our financial condition, results of operations
and cash flows for the periods presented.




This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of  the Securities and Exchange Commission
that permit the company to provide only management's report in this annual report.




(c) Changes in Internal Control over Financial Reporting.





There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.




ITEM9B. OTHER INFORMATION





None.


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PARTIII





ITEM10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT





The following sets forth the names of our directors at March 31, 2009, their principal occupations and the year in which each current director of CDSS initially joined the Board of Directors and the year in which their term as director expires.





Name

Age

Position with Company

Director Since

Term ExpiresSteven B. Solomon

44

Chairman of the Board, President, Chief Executive Officer, Secretary

1996

2007Major General (Ret) John Leide

71

Director

2001

2007Chris A. Economou

53

Director

2001

2008Joe M. Allbaugh

56

Director

2003

2009Mark Rogers

48

Director

2005

2009





STEVEN B. SOLOMON has served as a director and the President and Chief Executive Officer of CDSS since its formation in December 1996, as President and Chief Executive Officer of CT Holdings Enterprises, Inc. ("CT Holdings") since May 1997 and as a director of CT Holdings since February
1996. Until May 2004 Mr. Solomon served as a Director of Parago, Inc., an incubation venture of CT Holdings that is an application solution provider and Internet-based business process outsourcer that provides an on-line suite of promotional offerings designed to automate promotional management and optimize the customer care services offered by its clients, and he served as Chairman of the Board of Directors of Parago from January 1999 to April 2001, and Chief Executive Officer of Parago from January 1999 to
August 2000. From February 1996 through April 1997, Mr. Solomon served as Chief Operating Officer of CT Holdings. Mr. Solomon also served from May 2000 to August 2006 as a director of River Logic, Inc., an incubation venture of CT Holdings that creates and operates integrated networks of decision support tools, elearning solutions and ecommerce capabilities designed to enable decision makers to leverage knowledge and information to gain competitive advantage.  From November 1, 2007 until his resignation
on September 30, 2008 Mr. Solomon served as a member of the board of directors and as its Executive Chairman of Performing Brands, Inc. (formerly Boo Koo Holdings, Inc.) a developer and marketer of energy drinks.  Mr. Solomon currently serves as Chief Executive Officer and a director of Palmaz Scientific Inc. a privately held medical device company.





MAJOR GENERAL (RET.) JOHN LEIDE has served as a director of CDSS since December 2001. His military career includes service in infantry, special operations, security and intelligence matters for more then 30 years, including four combat tours. He served as Director of Intelligence, J-2,
United States Central Command, and performed in that capacity during the Gulf War for General Schwarzkopf throughout Operations Desert Shield and Desert Storm. During his final military position before retiring as an Army Major General in August 1995, General Leide was Director, National Military Intelligence Collection Center (NMICC), Director, Central MASINT (Measurements and Signatures) Office, and Director, Defense Human Intelligence Service (DHS), for the Department of Defense. Upon retirement from the US
Army in 1995, John was appointed president of the Global Information Technologies strategic business unit with Electronic Data Systems (EDS) and served in that position until 1997. He then joined Avenue Technologies of Alexandria, Virginia, a defense and security information superiority company, where he served as Executive Vice President from 1997 to 1999. General Leide then assumed duties as President of Appenine Associates Ltd., an international defense and security services company from 1999 to 2003. John
also served as a Senior Executive Advisor to General Dynamics Land Systems from 2000 to 2004. He presently serves as senior consultant to a number of national and international intelligence and security companies and governmental agencies, in strategic, operational, tactical and security matters. Major General Leide has been inducted into both the United States Military Intelligence Hall of Fame and the United States Defense Attaché Hall of Fame.





CHRIS A. ECONOMOU has served as a director of CDSS since November 2001 and as a director of CT Holdings Enterprises Inc. since February 1996, and as a director of LoneStar Hospitality Corp. from June 1993 until its merger with CT Holdings Enterprises Inc. Mr. Economou has been engaged
in the private practice of law in Fort Lauderdale, Florida, primarily in the transactional and corporate areas since 1981. Mr. Economou also served as a director of Parago during its incubation phase from January 1999 to February 2000.


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JOE M. ALLBAUGH joined the Company as a director of CDSS in December 2003. Since March 2003, Mr. Allbaugh has served as President and CEO of The Allbaugh Company, LLC, a Washington, D.C. based corporate strategy and consulting firm with offices in Austin, Texas and Oklahoma City, Oklahoma.
As the former Director of the Federal Emergency Management Agency (FEMA) from February 15, 2001 to March 1, 2003, Mr. Allbaugh managed an agency with 2,500 employees and an annual budget of $3 billion. After the 9/11 terrorist attacks on the World Trade Center, Pennsylvania and the Pentagon, Mr. Allbaugh played a critical role in coordinating the federal government’s response to the attacks, a response and recovery that exceeded $8.8 billion. He was also a member of the President’s Homeland Security
Advisory Council. From January 1995 to July 1999, Mr. Allbaugh served as Chief of Staff to then-Governor George W. Bush. From July 1999 to December 2000 Mr. Allbaugh served as the National Campaign Manager for Bush-Cheney 2000 Inc. where he successfully organized and managed a $192 million presidential campaign.





MARK ROGERS has served as a director of the Company since July 2005. Mr. Rogers is the President of Alchemy Ventures, Inc., a firm that designs, structures and funds alternative investment products. He also advises start-up companies with strategy and financings including mergers and
acquisitions. He has served as a director of CT Holdings since July 1996.





The Board of Directors consists of a majority of “independent directors” as such term is defined in the Nasdaq Stock Market Marketplace Rules. The Board of Directors has determined that Joe M. Allbaugh, Chris A. Economou, Major General (Ret.) John Leide and Mark Rogers are independent directors, based on representations from each
such director that they meet the relevant NASDAQ and SEC definitions.





Classified Board of Directors





The current directors are divided into three classes with staggered three-year terms. As a result, a portion of our board of directors is elected each year. At each annual meeting of stockholders, a class of directors will be elected to serve for a three-year term to succeed the directors of the same class whose terms are then expiring. Only
our board of directors may change the authorized number of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of our company.





Meetings and Committees of the Board of Directors





During the year ended December 31, 2008, there were two meetings of the Board of Directors. All directors attended 75% or more of the aggregate of meetings of the Board and their committees held during their respective terms, with the exception of Messrs. Economou and Rogers. In addition, the Board took action by written consent one time.





CDSS’s board of directors established three standing committees to assist in the discharge of its responsibilities. These committees include an audit committee composed exclusively of outside directors, Mr. Economou, General Leide and Mr. Rogers, an executive committee and a compensation committee. The executive committee has authority
to act in place of the full board in matters delegated to it to the extent permitted under Delaware law. Messrs. Solomon and Economou serve as members of the executive committee. The executive committee did not meet or take action by written consent in 2008. CDSS’s board of directors may also establish such other committees as it deems appropriate, in accordance with applicable Delaware law and CDSS’s by-laws.





The Compensation Committee reviews and recommends to the Board the compensation and employee benefits of officers of the Company and administers the 2002 Stock Incentive Plan, as amended. The Compensation Committee did not meet during year ended December 31, 2008. At March 31, 2009 the Compensation Committee consisted of Messrs. Rogers, Economou
and Leide, all of whom are independent directors as defined in the Nasdaq Stock Market Marketplace Rules.





The Board does not have a nominating committee, as nominations are made by the independent members of the Board as a whole.





The Board seeks to identify qualified individuals to become board members and determine the composition of the Board and its committees. When considering a potential director candidate, the Board looks for personal and professional integrity, demonstrated ability and judgment and business experience. The Board will review and consider director
nominees recommended by stockholders. There are no differences in the manner in which the Board evaluates director nominees based on whether the nominee is recommended by a stockholder.


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The Company’s by-laws provide that any stockholder wishing to present a nomination for the office of director must do so in writing delivered to the Company. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 45 or more than 75 days prior
to the first anniversary (the anniversary) of the date on which the Corporation first mailed its proxy materials for the preceding year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such
annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. Each notice must set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination or nominations; (d) the class and number of shares of the Company which are beneficially owned by such stockholder and the person to be nominated as of the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such nominees as of the date of such stockholder’s
notice; (e) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (f) the consent of each nominee to serve as a director of the Company if so elected.





The Audit Committee meets with the Company’s financial management and independent registered public accounting firm and reviews the accounting principles and the scope and control of the Company’s financial reporting practices, and makes reports and recommendations to the Board with respect to audit matters. The Audit Committee
also recommends to the Board the appointment of the firm selected to be independent certified public accountants for the Company and monitors the performance of such firm; reviews and approves the scope of the annual audit and evaluates with the independent registered public accounting firm the Company’s annual audit and annual financial statements; and reviews with management the status of internal accounting controls and internal audit procedures and results. The Audit Committee met four times during
fiscal year 2008 and took action by written consent one time. The Audit Committee is required to have at least two members, each of whom must be “independent directors” as defined in the Marketplace Rules of the Nasdaq Stock Market. Messrs. Economou, Leide and Rogers are the current members of the Audit Committee. The Board has determined that Messrs. Economou, Leide and Rogers are financially literate in the areas that are of concern to the Company, and are able to read and understand fundamental
financial statements. The Board has also determined that Messrs. Economou, Leide and Rogers each meet the independence requirements set forth in the Marketplace Rules of the Nasdaq Stock Market.





The Securities and Exchange Commission (“SEC”) has adopted rules to implement certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public company audit committees. One of the rules adopted by the SEC requires a company to disclose whether it has an “audit committee financial expert” serving on its audit
committee. In addition, SEC regulations and NASDAQ listing standards require the Company to have a financial expert on our Audit Committee. Based on its review of the criteria of an audit committee financial expert under the rule adopted by the SEC, the Board of Directors believes that Mr. Rogers is as an audit committee financial expert.





The Company’s Board of Directors has adopted a written charter for the Audit Committee of the Board. A copy of the written Audit Committee charter was attached as an exhibit to the proxy statement for CDSS’s 2004 annual stockholder meeting and the Company will provide to any person without charge, upon request to the Company’s
Chief Executive Officer, at its executive offices, 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201, a copy of such charter..





Corporate Governance Guidelines





The Board has adopted corporate governance guidelines. The guidelines govern, among other things, Board member responsibilities, committee composition and charters. A copy of the corporate governance guidelines may be requested and obtained for free from the Company. The Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  the Company will provide to any person without charge, upon request to the Company’s Chief Executive Officer, at its executive offices, 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201, a copy of such code of ethics and is filed as an exhibit to this document.


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Section 16(a) Beneficial Ownership Reporting Compliance




Section 16(a) of the Securities Exchange Act requires directors and executive officers, and persons who own more than 10% of a registered class of its equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and shareholders beneficially owning more than 10% of the Company's outstanding shares are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely upon review of the copies of such reports furnished to the Company during the year ended December 31, 2008 and on written representations from certain reporting persons, the Company believes that all filing requirements
applicable to its executive officers, directors and shareholders beneficially owning more than 10% of its outstanding shares were complied with during the fiscal year ended December 31, 2008.





ITEM11.  EXECUTIVE COMPENSATION





2008 SUMMARY COMPENSATION TABLE





Name and Principal Position

Year

Salary
($)


Bonus
($)


Stock
Awards
($)


Option
Awards
($)


All Other
Compensation
($)


Total
($)Steven B. Solomon
Chief Executive Officer and Acting Chief Financial Officer

2008

$
57,468


$
150,000



-



-


$
7,994
(2)

$ 215,4622007

$
225,000


$
300,000



-



-


$
24,313
(3)

$ 549,3132006

$
225,000


$
331,250


$
1,971,000
(1)


-


$
690,000
(4)$
5,399,234
(5)$
68,535
(6)

$
11,733,269$
3,048,250
(7)








(1)
FAS 123R grant date value of 3,650,000 shares of common stock issued in exchange for the forgiveness of the Company’s obligation to pay Mr. Solomon a bonus and the cancellation of his stock options for 3,650,000 shares of stock.


(2)
Includes a car allowance of $2,375, and payments of $5,619 for life, health and disability insurance premiums including the income tax gross up on the payment of the premiums.


(3)
Includes a car allowance of $11,400, and payments of $12,913 for life, health and disability insurance premiums including the income tax gross up on the payment of the premiums.


(4)
Change of control bonus payment resulting from the Asset Sale completed on December 4, 2006 accrued at December 31, 2006 and paid in 2007.


(5)
Payment to our CEO for entering into a non-competition agreement payment including estimated tax gross up of $4,184,146 accrued at December 31, 2006 and paid in 2007.


(6)
Includes a car allowance of $11,400, payment of unused vacation of $18,127, compensation of $24,358 related to an incentive award trip, and payments of $14,650 for life, health and disability insurance premiums including the income tax gross up on the payment of the premiums.


(7)
Dividend on common stock owned by the named executive paid January 5, 2007 representing the first distribution payment to stockholders of $0.50 per share as a result of the Asset Sale completed on December 4, 2006 accrued at December 31, 2006 and paid in 2007.





Grants of Plan Based Awards





No awards were granted to any named executive officer during the years ended December 31, 2008 and 2007. Our CEO held no stock options at December 31, 2008.





Report of the Compensation Committee





The Compensation Committee, which is composed solely of independent members of the Board of Directors, assists the Board in fulfilling its responsibilities with regard to compensation matters, and is responsible under its Committee charter for determining the compensation of our executive officers.  The philosophy of the Company's
compensation program is to attract, retain and reward executives capable of leading the Company to achieve its business objectives. The Compensation Committee reviews the compensation program of the Chief Executive Officer. The Compensation Committee also oversees the administration of the Company's equity incentive and compensation plans.


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The Compensation Committee has the authority to determine and discharge the responsibilities of the Board relating to the compensation of the Company's executive officers. The Compensation Committee may not delegate this authority to any other person. The Compensation Committee operates independently of management, but the Chief Executive
Officer of the Company may make recommendations to the committee from time to time regarding salaries, bonuses or equity awards for officers other than himself. In making its decisions regarding the compensation of executive officers, the committee considers the Chief Executive Officer's evaluations of their performance and his recommendations regarding their compensation.





The Company's executive officer compensation program is comprised of base salary and the annual cash incentive compensation. The Company provides its executive officer and other employees with a base salary to provide a fixed amount of compensation for regular services rendered during the fiscal year. During 2008, the Compensation Committee
maintained the compensation set forth in existing arrangements as it believed that would effectively meet its goal of retaining and motivating skilled executives to lead the Company.





Compensation Committee


Joe M. Allbaugh, Chris A. Economou and Major General (Ret.) John Leide





The foregoing Compensation Committee Report shall not be deemed “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.





ITEM12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





As of April 13, 2009, there were issued and outstanding approximately 34,318,230 shares of common stock. There were no shares of Preferred Stock outstanding following their redemption in connection with the Asset Sale. There is no other class of voting security of CDSS issued or outstanding. The following table sets forth the number of shares
of common stock beneficially owned as of April 15, 2009, by (i) each person known to the Company to own more than 5% of the common stock, (ii) each director, (iii) each executive officer and (iv) all directors, and executive officers as a group. We calculated beneficial ownership according to Rule 13d-3 of the Securities Exchange Act as of that date. Shares issuable upon exercise of options or warrants that are exercisable within 60 days after April 15, 2009 are included as beneficially owned by the option holder
or warrant holder. Beneficial ownership generally includes voting and investment power with respect to securities. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned.





Name and Address

Number of
Shares
Beneficially
Owned


Approximate
Percent Of
ClassSteven B. Solomon


6,854,484
(1)


20.0
%Major General (Ret) John Leide78 Clubhouse DrivePalm Coast, Florida 32137


226,100
(2)


*Joe M. Allbaugh101 Constitution Avenue, NW, Suite 525 EastWashington, DC 20001-2133


375,000
(2)


1.1
%Chris Economou150 North Federal Highway, Suite 210Fort Lauderdale, Florida 33301


406,100
(2)


1.2
%Mark Rogers751 Laurel St., #119San Carlos, California 94070


242,875
(3)


*All Officers and directors as a group(5 people)


8,104,559
(4)


23.2
%





* Less than 1%


(1)
Excludes 228,788,200 shares of common stock that may be acquired by Mr. Solomon upon conversion of a convertible promissory note issued August 2008.


(2)
Includes 200,000 immediately exercisable stock options.


(3)
Includes 50,000 immediately exercisable stock options.


(4)
Includes 650,000 immediately exercisable stock options, excludes 228,788,200 shares of common stock that may be acquired by Mr. Solomon upon conversion of a convertible promissory note issued August 2008..


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EQUITY COMPENSATION PLANS





The 2002 Stock Incentive Plan, as amended (the "Plan") was adopted by the board of directors and approved by the stockholders of CDSS. The Plan authorizes the Board or a committee, which administers the plan, to grant stock options, stock appreciation rights, restricted stock and deferred stock awards to eligible officers, directors, employees
and consultants. A total of 3,000,000 shares of common stock were reserved for issuance under the terms of the Plan. In the event of any sale of assets, merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting the stock, the Board or committee may make an equitable substitution or adjustment in the aggregate number of shares reserved for issuance under the Plan. Options cancelled since the inception of the Plan due to employee terminations amounted
to 3,418,276 and were added back to the options available for future grants under the Plan. Option holders under the Plan have exercised 437,224 options since the inception of the Plan through December 31, 2008.  No options were outstanding or exercisable under the Plan at December 31, 2008 or 2007.  Typically, any options granted would have a term of 10 years and generally vest over periods of up to three years. The underlying shares of the initial 1,500,000 shares of common stock in the
Plan were registered on Form S-8 in July 2003.





The board of directors had also granted options outside of the Plan. These options are not covered under a plan approved by the stockholders. Options had been granted to officers, directors, employees, stockholders and consultants to the Company. The options granted typically have a term of 10 years or less.  At December 31, 2008
and 2007, 675,000 options awarded outside of the Plan were outstanding and exercisable at a weighted average exercise price of $2.04 per share. No options were granted under the Plan in 2008 or 2007.





Plan category

Number of securities tobe issued upon exerciseof outstanding options,warrants and rights
(a)


Weighted-averageexercise price ofoutstanding options,warrants and rights
(b)


Number of securitiesavailable for futureissuance under equitycompensation plans[excluding
securitiesreflected in column (a)]
(c)Equity compensation plans approved by security holders


-



-



2,562,776Equity compensation plans not approved by security holders


675,000


$
2.04


Not Applicable





ITEM13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





On August 27, 2008, the Company and Steven B. Solomon, the Company’s Chief Executive Officer, President and Chairman of the Board of Directors, entered into a Convertible Promissory Note (the "Note"). The Note represents advances of approximately $69,450 by Mr. Solomon to the Company through the issue date of the Note.  The
Note bears interest at eight percent (8%) per year and is payable on August 27, 2010 or upon demand by Mr. Solomon.  If the Note had been converted in full at December 31, 2008, Mr. Solomon would have received 228,788,200 shares of the Company's common stock resulting in a beneficial ownership of approximately 90% of the Company's then issued and outstanding common stock.  The fair value of these beneficially owned common shares at December 31, 2008 was approximately $706,928.





Prior to the issuance of the Note, Mr. Solomon beneficially owned 6,854,484 shares of the Company's common stock.  Therefore, on August 27, 2008, Mr. Solomon beneficially owned a total of 235,652,684 shares of the Company’s common stock (if the Note were converted into shares of the Company’s common stock), or more than
50% of the Company’s common stock outstanding on that date, giving him potential control of the Company through the voting power over a majority of the shares of our outstanding common stock.


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The Company does not have a sufficient number of authorized shares of common stock available to permit the conversion of the Note in full at this time.  The Company has agreed to use its best efforts to obtain shareholder approval to (a) increase the number of authorized shares of common stock to a number sufficient to permit conversion,
or (b) to effect a reverse stock split to reduce the number of currently outstanding shares of common stock to a number small enough to permit the conversion of the Note.





At December 31, 2008, the Company has amounts owed to its CEO of (i) $69,450 in the form of a convertible promissory note, (ii) $1,994 of accrued interest related to the Note, and (iii) $7,294 in the form of a payable for cash advances to the Company and the payment of expenses on behalf of the Company.  The CEO has committed to
advance the Company up to an additional $40,000 should it be necessary for liquidation or working capital expenses through December 31, 2009, on terms and conditions to be approved by the disinterested directors of the Company and the CEO.





During the year ended December 31, 2007, CDSS paid $109,500 in legal expenses and made an income tax payment of approximately $119,000 on behalf of CT Holdings Enterprises, Inc. (“CTHE”), a related party.





During the years ended December 31, 2008 and 2007, the Company incurred legal fees in the amount of approximately $23,000 and $196,193, respectively, to a law firm in which an attorney who is a partner and was a relative of the Company’s CEO.





ITEM14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES




Fees for services KBA Group LLP provided during fiscal years 2007 and 2006:





(1) Audit Fees:





Fees for audit services provided by KBA Group LLP total approximately $51,175 for 2008 and approximately $115,675 for 2007, including fees associated with the annual audit, the reviews of the Company’s quarterly reports on Form 10-Q and review of registration statements.





(2) Non-Audit Related Fees:





KBA Group LLP did not bill the Company any non-audit related fees during 2008 or 2007.





(3) Tax Fees:





KBA Group LLP did not bill the Company any tax fees during 2008 or 2007.





(4) All Other Fees:





KBA Group LLP did not bill the Company any other fees during 2008 or 2007.





(5) Audit Committee’s Pre-Approval Policies and Procedures





(i) The audit committee of the board of directors approves the scope of services and fees of the Independent Registered Public Accounting Firm on an annual basis, generally prior to the beginning of the services.





(ii) The audit committee of the board of directors approved 100% of the fees for the services above.


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PARTIV





ITEM15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES





The following documents are filed as part of this 10-K:





1.  FINANCIAL STATEMENTS





The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:





·
Report of KBA Group LLP, Independent Registered Public Accounting Firm


·
Consolidated Statements of Net Deficit In Liquidation as of December 31, 2008 and 2007


·
Consolidated Statements of Changes In Net Assets (Deficit) in Liquidation for the years ended December 31, 2008 and 2007.


·
Notes to Financial Statements





2.  FINANCIAL STATEMENT SCHEDULES





All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.





3.  EXHIBITS





The exhibits listed below are filed as part of or incorporated by reference in this report.





INDEX TO EXHIBITS





EXHIBITNUMBER

DESCRIPTION31.1

Certification of Principal Executive Officer/Principal Financial Officer, filed herewith.32

Certification of Chief Executive Officer/Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.


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SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.





Date: April 15, 2009
CDSS WIND DOWN INC.By:/s/ STEVEN B. SOLOMONSteven B. Solomon, President  and Chief Executive Officer
(Duly Authorized Signatory and Principal Executive Officer and Acting Principal Accounting and Financial Officer)




POWER OF ATTORNEY





KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven B. Solomon his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof.





Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:








SIGNATURE

TITLE

DATE/s/
STEVEN B. SOLOMON

President, Chief Executive Officer

April 15, 2009Steven B. Solomon

and Director(Principal Executive Officer and ActingPrincipal Financial and Accounting Officer)/s/
JOHN LEIDE

Director

April 15, 2009Major General (Ret.)John Leide/s/
CHRIS A. ECONOMOU

Director

April 15, 2009Chris A. Economou/s/
MARK ROGERS

Director

April 15, 2009Mark Rogers/s/
JOE M. ALLBAUGH

Director

April 15, 2009Joe M. Allbaugh






30