UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-KSB





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


THE
SECURITIES EXCHANGE ACT OF 1934


FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2007





o TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





COMMISSION
FILE NUMBER: 000-33491





CDSS
WIND DOWN INC.


(NAME OF
SMALL BUSINESS ISSUER IN ITS CHARTER)





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





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


(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)


(214)
750-2452


(ISSUER’S
TELEPHONE NUMBER)








SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE


SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:


COMMON
STOCK, PAR VALUE $.01 PER SHARE


(TITLE OF
CLASS)








Check
whether the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. o





Check
whether the issuer  (1) filed all reports required to be filed by
Section13 or 15(d) of the Exchange Act during the past 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





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. þ




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
$60,796 as of April 14, 2008.





As of
April 14, 2008, there were 34,318,230 shares of common stock, $.01 par value per
share, outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE: None


Transitional
Small Business Disclosure Format (Check one):   Yes o No þ









CDSSWIND DOWN INC.


FORM
10-KSB


ANNUAL
REPORT


FOR THE
YEAR ENDED


DECEMBER
31, 2007








Table
      of Contents
            PagePART
      IItem
      1.     Description of
      Business
            4Item
      2.     Description of
      Property
            9Item
      3.     Legal
      Proceedings
            9Item
      4.     Submission of Matters to
      a Vote of Security Holders
            10PART
      IIItem
      5.     Market for Common Equity and
      Related Stockholder Matters and Small Business Issuer Purchases of Equity
      Securities
            10Item
      6.     Management’s Discussion and
      Analysis or Plan of Operations
            10Item
      7.     Financial
      Statements
            14Item
      8.     Changes in and Disagreements
      with Accountants on Accounting and Financial
Disclosure
            33Item
      8A(T).   Controls and
      Procedures
            33Item
      8B.  Other Information
            34PART
      IIIItem
      9.     Directors, Executive Officers,
      Promoters, Control Persons and Corporate Governance; Compliance with
      Section 16(a) of the Exchange Act
            34Item
      10.   Executive
      Compensation
            38Item
      11.   Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
            40Item
      12.   Certain Relationships and Related
      Transactions, and Director Independence
            42Item
      13.   Exhibits
            42Item
      14.   Principal Accountant Fees and
      Services
            42Signatures
            43





3
 Table of Contents





PART
I





As used
in this Annual Report on Form 10-KSB, 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 or Plan 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-KSB. 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.





ITEM
1.  DESCRIPTION OF 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.





4
 Table of Contents





CDSS
formerly provided enterprise vulnerability management and policy compliance and
enforcement software solutions that enable organizations to reduce the risk
associated with computer network vulnerabilities. CDSS developed and marketed
full life cycle vulnerability management software solutions under the Hercules®
brand name powered by automated vulnerability remediation technology which
allows enterprises to neutralize security vulnerabilities across Windows, Linux,
Mac and Unix platforms. 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.





PLAN
OF COMPLETE LIQUIDATION AND DISSOLUTION





As of the
date of this Report  and at December 31, 2007, 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.





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.





5
 Table of Contents





As of the
date of this Report and at December 31, 2007, 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, 2007 we had three employees, including our CEO, all involved in the wind
down of the Company pursuant to the Plan of Dissolution.





RISK
FACTORS





In
addition to other information in this Form 10-KSB, 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-KSB, 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.





6
 Table of Contents





OUR
COMMON STOCK IS CONTINUING TO TRADE EVEN THOUGH WE ARE IN THE PROCESS OF
LIQUIDATION AND LIQUIDATING DISTRIBUTIONS, IF ANY, MAY BE BELOW ANY TRADING
PRICE.





Our
common stock continues to trade on the OTCBB under the symbol “CWDW.” Trading in
our stock is inherently risky, highly speculative and the market for our stock
is highly illiquid. The only value associated with our shares is the right to
receive further distributions as part of the liquidation process or to
participate in a merger or similar transaction. Because of the difficulty in
estimating the amount and timing of the liquidating distributions, and due to
the other risk factors discussed herein, our common stock may be subject to
significant volatility and may trade above the amount of any liquidating
distribution that is made.





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. 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 thousand to
terminate its lease obligations. This included a one-time termination fee of
$500 thousand and $118 thousand for rents due. 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,
2007 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.





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, 2007, 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.





7
 Table of Contents





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 $45,000,000 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 $45,000,000. 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.





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.





8
 Table of Contents





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.





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-KSB. 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 8A(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-KSB, 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 8A(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.


ITEM
1B.  UNRESOLVED STAFF COMMENTS





None





ITEM  2.  DESCRIPTION OF PROPERTY





At
December 31, 2007, CDSS subleased approximately 750 square feet of office space
from a third party on a month to month basis in Dallas, Texas.





ITEM
3. LEGAL PROCEEDINGS





None.





9
 Table of Contents





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None





PART
II





ITEM
5.   MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND SMALL BUSINESS 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
March 31, 2008, the last sales price per share of the Company’s common stock, as
reported by the OTCBB, was $0.005 per share. The following table presents the
quarterly range of high and low closing prices for our common stock from January
1, 2006 through December 31, 2007, as reported by The NASDAQ Capital Market and
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, 20071st
      Quarter
            
            $
            0.51
            
            
            $
            0.022nd
      Quarter
            
            $
            0.02
            
            
            $
            0.013rd
      Quarter
            
            $
            0.02
            
            
            $
            0.014th
      Quarter
            
            $
            0.01
            
            
            $
            0.00YEAR
      ENDED DECEMBER 31, 20061st
      Quarter
            
            $
            0.85
            
            
            $
            0.242nd
      Quarter
            
            $
            0.79
            
            
            $
            0.453rd
      Quarter
            
            $
            0.54
            
            
            $
            0.324th
      Quarter
            
            $
            0.52
            
            
            $
            0.43





At
December 31, 2007 there were approximately 752 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.





ITEM
6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS





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





The
twelve month period ending December 31, 2006 are not comparable to the same
current period ending December 31, 2007 and, therefore, have been excluded. We
have only explained the results for the period ending December 31,
2007.





10
 Table of Contents





CHANGES
IN NET ASSETS IN LIQUIDATION





At
December 31, 2006, the Company had $17.7 million in net assets in liquidation.
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 thousand decline. The sum of all
these changes resulted in a net assets in liquidation deficit of approximately
($72) thousand at December 31, 2007.





The
Company’s CEO has committed to advance the Company up to $75,000 in funding
should it be necessary for liquidation or working capital expenses through
December 2008, 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, 2007, we had not filed a certificate of
dissolution pending settlement of all of our liabilities, however the
consolidated financial statements for the period December 4, 2006 to December
31, 2006 and the year ended December 31, 2007 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 net value of our non-cash
assets and the 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. Although we do not believe
that a precise estimate of those expenses can currently be made, we believe that
available cash and amounts received from Asset Sale will be adequate to provide
for our obligations, liabilities, operating costs and claims. 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 $75,000 in
funding should it be necessary for liquidation or working capital expenses
through December 2008, 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 Assets
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.





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





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, 2007 we had three  employees, including our CEO, who is also our
acting CFO, all involved in the wind down of the company pursuant to the Plan of
Dissolution.





11
 Table of Contents





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





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 period December
4, 2006 to December 31, 2006, and for the year ended December 31, 2007 are
presented on the liquidation basis of accounting. 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 amounts of revenue and expenses 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. Management 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 approximately April, 2008
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. 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, reducing net assets available 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.





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.




12
 Table of Contents




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTINGFIRM
 
 
 The Board
of Directors and Stockholders
 CDSS Wind
Down Inc.
 
 We have
audited the accompanying consolidated statements of net assets in liquidation of
CDSS Wind Down Inc. and subsidiaries, formerly Citadel Security Software
Inc., (the “Company”)  as of December 31, 2007 and 2006 and the
related consolidated statements of changes in net assets in liquidation for the
year ended December 31, 2007 and the period from December 5, 2006 to December
31, 2006.  We have also audited the consolidated statements of
operations, stockholders’ deficit and cash flows for the period from January 1,
2006 to December 4, 2006.  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 stockholders
of the Company approved a plan of liquidation and dissolution on December 1,
2006, and the Company commenced liquidation shortly thereafter. As a result, the
Company has changed its basis of accounting for the period subsequent to
December 4, 2006, from the going-concern basis to a liquidation
basis.
 
 As
described in Note A to the consolidated financial statements, effective January
1, 2006, the Company adopted Statement of Financial Accounting Standards No.
123R, Share-Based Payment.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated net assets in liquidation of CDSS
Wind Down Inc. and subsidiaries as of December 31, 2007 and 2006 and the
changes in net assets in liquidation for the year ended December 31, 2007 and
for the period from December 5, 2006 to December 31, 2006 and the
consolidated results of their operations and their cash flows for the period
from January 1, 2006 to December 4, 2006, 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 14,
2008


13
 Table of Contents





ITEM
7. FINANCIAL STATEMENTS





CDSS WIND
DOWN INC.


CONSOLIDATED
STATEMENTS OF NET ASSETS IN LIQUIDATION





December
      31,
            
            
            December
      31,2007
            
            
            2006ASSETSCash
      and cash equivalents
            
            $
            428,021
            
            
            $
            28,053,007Prepaid
      expenses
            
            
            -
            
            
            
            188,331Other
      current assets
            
            
            -
            
            
            
            52,000Total
      assets
            
            
            428,021
            
            
            
            28,293,338LIABILITIESAccounts
      payable and accrued expenses
            
            
            133,263
            
            
            
            424,120Accrued
      payroll tax liabilities
            
            
            3,244
            
            
            
            63,154Accrued
      stock option cash-out liability
            
            
            -
            
            
            
            255,510Accrued
      officer severance and bonus
            
            
            -
            
            
            
            6,306,536Estimated
      settlement of operating lease liabilities
            
            
            -
            
            
            
            1,554,017Estimated
      costs to be incurred during liquidation
            
            
            363,362
            
            
            
            1,100,073Income
      taxes payable
            
            
            -
            
            
            
            893,921Total
      liabilities
            
            
            499,869
            
            
            
            10,597,331Net
      (deficit) / assets in liquidation
            
            $
            (71,848
            )
            
            $
            17,696,007





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





14
 Table of Contents





CDSS WIND
DOWN INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION





Year
      Ended
              December
      31,
              2007
            
            
            Period
      from
              December
      5, 2006
              to
      December 31,
              2006Net
      assets in liquidation, beginning of period
            
            $
            17,696,007
            
            
            $
            19,377,524Changes
      in net assets 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
            
            
            (1,585,897
            )
            
            
            (1,307,242
            )Contribution
      to CT Holdings Enterprises Inc.
            
            
            (227,962
            )
            
            
            -Interest
      income
            
            
            -
            
            
            
            126,789Payments
      of lease liability
            
            
            (813,474
            )
            
            
            -(27,575,885
            )
            
            
            1,180,453Change
      in estimate of operating lease liability
            
            
            740,543
            
            
            
            -Accrue
      estimated lease settlement costs
            
            
            -
            
            
            
            (1,014,275
            )Settlement
      of operating lease liability
            
            
            500,000
            
            
            
            -Change
      in estimate of wind-down operating expenses
            
            
            (1,033,499
            )
            
            
            -Change
      in payroll tax liability
            
            
            59,910
            
            
            
            -Change
      in estimated assets and liabilities during liquidation
            
            
            9,541,076
            
            
            
            513,211Net
      assets / (deficit) in liquidation, end of period
            
            $
            (71,848
            )
            
            $
            17,696,007





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





15
 Table of Contents





CDSS WIND
DOWN INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


PERIOD
FROM JANUARY 1, 2006 TO DECEMBER 4, 2006


(GOING
CONCERN BASIS)





RevenueLicense
      fees
            
            $
            4,937,764Content,
      subscription, and customer support services
            
            
            6,184,723Professional
      services
            
            
            1,069,366Total
      revenue
            
            
            12,191,853Costs
      of revenueSoftware
      amortization
            
            
            2,191,690Content,
      subscription, and customer support services costs
            
            
            1,339,799Professional
      services costs
            
            
            316,178Shipping
      and other costs
            
            
            219,838Total
      costs of revenue
            
            
            4,067,505Operating
      expensesSelling,
      general and administrative expense
            
            
            15,434,977Product
      development expense
            
            
            2,390,390Depreciation
      and amortization of property and equipment
            
            
            1,455,112Litigation
      settlement
            
            
            1,250,000Officer
      severance and bonus
            
            
            6,306,536Total
      operating expenses
            
            
            26,837,015Operating
      loss
            
            
            (18,712,667
            )Interest
      income
            
            
            16,515Interest
      expense (including $614,411 to related parties)
            
            
            (1,433,208
            )Gain
      related to sale of assets
            
            
            55,546,329Other
      income
            
            
            2,360Income
      before income taxes
            
            
            35,419,329Provision
      for income taxes
            
            
            (893,921
            )Net
      income
            
            $
            34,525,408Net
      income per sharebasic
            
            $
            1.13diluted
            
            $
            0.83Weighted
      average common shares outstandingbasic
            
            
            30,518,230diluted
            
            
            41,461,599





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





16
 Table of Contents





CDSS WIND
DOWN INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)


PERIOD
FROM JANUARY 1, 2006 TO DECEMBER 4, 2006


(GOING
CONCERN BASIS)





Series
      A
            
            
            Series
      B
            
            
            
            
            
            
            
            
            AdditionalPreferred
      Stock
            
            
            Preferred
      Stock
            
            
            Common
      Stock
            
            
            Paid-in
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            TotalBalances
      at January 1, 2006
            
            
            15,000
            
            
            $
            10,422,299
            
            
            
            7,000
            
            
            $
            5,247,688
            
            
            
            30,518,230
            
            
            $
            305,182
            
            
            $
            46,179,211
            
            
            $
            (63,019,272
            )
            
            $
            (864,892
            )Redemption
      of preferred stock
            
            
            (15,000
            )
            
            
            (10,422,299
            )
            
            
            (7,000
            )
            
            
            (5,247,688
            )
            
            
            
            
            
            
            
            
            
            
            (3,170,013
            )
            
            
            
            
            
            
            (18,840,000
            )Stock-based
      compensation expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,800,000
            
            
            
            38,000
            
            
            
            4,408,008
            
            
            
            
            
            
            
            4,446,008Deferred
      compensation to officers
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            111,000
            
            
            
            
            
            
            
            111,000Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            34,525,408
            
            
            
            34,525,408Balances
      at December 4, 2006
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            34,318,230
            
            
            $
            343,182
            
            
            $
            47,528,206
            
            
            $
            (28,493,864
            )
            
            $
            19,377,524





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





17
 Table of Contents





CDSS WIND
DOWN INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


PERIOD
FROM JANUARY 1, 2006 TO DECEMBER 4, 2006


(GOING
CONCERN BASIS)





CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            34,525,408Adjustments
      to reconcile net income to net cash used inoperating
      activities:Gain
      on sale of assets to McAfee
            
            
            (55,546,329
            )Depreciation
      and amortization
            
            
            3,646,802Provision
      for returns, allowances and bad debts
            
            
            825Stock-based
      compensation expense
            
            
            4,557,008Amortization
      of deferred credit for tenant incentiverecorded
      as leasehold improvements
            
            
            (95,843
            )Amortization
      of debt issuance costs recorded as interest expense
            
            
            32,812Changes
      in operating assets and liabilities:Accounts
      receivable - trade
            
            
            2,466,405Prepaid
      expenses and other current assets
            
            
            34,611Accounts
      payable and accrued expenses
            
            
            506,430Accrued
      compensation and payroll tax obligations
            
            
            328,367Accrued
      officer severance and bonus
            
            
            6,306,536Income
      taxes payable
            
            
            893,921Deferred
      revenue
            
            
            (362,107
            )NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (2,705,154
            )CASH
      FLOWS FROM INVESTING ACTIVITIESCapitalized
      software development costs
            
            
            (1,254,584
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of assets to McAfee, net of transaction
      costs
            
            
            57,953,240Redemption
      of preferred stock
            
            
            (18,840,000
            )Payments
      of long-term debt
            
            
            (3,750,000
            )Proceeds
      from note payable to an officer
            
            
            3,000,000Payment
      of note payable to an officer
            
            
            (3,000,000
            )Advances
      from an officer
            
            
            1,678,171Payments
      on notes and advances from related parties
            
            
            (1,753,643
            )Net
      payments from factoring accounts receivable
            
            
            (924,777
            )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            34,362,991Net
      increase in cash and cash equivalents
            
            
            30,403,253Cash
      and cash equivalents at the beginning of the period
            
            
            1,320,376Cash
      and cash equivalents at the end of the period
            
            $
            31,723,629





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





18
 Table of Contents





CDSS
WIND DOWN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007





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. CDSS anticipates that it will not make further
distributions to its common stockholders. A distribution of $0.50 per share was
made on January 5, 2007 to shareholders of record on January 2,
2007.





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.





CDSS
formerly provided enterprise vulnerability management and policy compliance and
enforcement software solutions that enable organizations to reduce the risk
associated with computer network vulnerabilities. CDSS developed and marketed
full life cycle vulnerability management software solutions under the Hercules®
brand name powered by automated vulnerability remediation technology which
allows enterprises to neutralize security vulnerabilities across Windows, Linux,
Mac and Unix platforms. 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.





Plan
of Complete Liquidation and Dissolution





As of the
date of this Report  and at December 31, 2007, 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;


·
            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;





19
 Table of Contents





·
            collecting
      any outstanding amounts due to
CDSS;





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





·
            completing
      of tax filings;





·
            complying
      with Securities and Exchange Commission reporting requirements;
      and





·
            making
      distributions to 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, 2007, 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, although none
are likely. 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, 2007 we had three employees, including our CEO, all involved in the wind
down of the Company pursuant to the Plan of Dissolution.





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 period December
5, 2006 to December 31, 2006, and for the year ended December 31, 2007 are
presented on the liquidation basis of accounting. 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.





20
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Use
of Estimates





The
preparation consolidated 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 reported results of operations during the reporting periods. The
liquidation basis of accounting requires us to make assumptions, judgments and
estimates that can have a significant impact on our reported net assets in
liquidation. We base our assumptions, judgments and estimates on the most recent
information available and various other factors that we believe to be reasonable
under the circumstances. Actual results could differ materially from these
estimates under different assumptions or conditions. On a regular basis we
evaluate our assumptions, judgments and estimates and make changes accordingly.
We believe that the assumptions, judgments and estimates involved in the
accounting for the Estimated Costs to be Incurred During Liquidation have the
greatest potential impact on our consolidated financial statements.





Estimated
Costs to be Incurred





The
Company has applied the liquidation basis of accounting in its financial
statements assuming that it will be liquidated by approximately April 2008 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. 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, reducing net assets available 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.





The
Company’s CEO has committed to advance the Company up to $75,000 in funding
should it be necessary for liquidation or working capital expenses through
December 2008, on terms and conditions to be approved by the disinterested
directors of the Company and the CEO.





Revenue
Recognition





Prior to
the Sale, the Company's customers consisted of large and small corporations,
healthcare organizations, financial institutions and government and educational
agencies. The Company's revenue recognition policies were designed to follow the
guidance provided by Statement of Position (“SOP”) 97-2, “Software Revenue
Recognition,” as amended by SOP 98-9 and Staff Accounting Bulletin (“SAB”) 104,
“Revenue Recognition.” Revenue from license fees was generally recognized when a
fixed fee order had been received and delivery to the customer had occurred. If
software media and documentation were shipped FOB “Origin”, license fee revenue
was recognized when shipped. If software media and documentation were shipped
FOB “Destination”, license fee revenue was recognized when delivered. In
addition, revenue was recognized only when the collectibility of the invoiced
amounts was probable and acceptance criteria, if any, had been met.





Customer
support contracts provided the customer the right to telephone support, software
updates, point releases of new features and functionality; and content
subscriptions provided the customer with vulnerability remediation content
updates on a when and if available basis. Content and customer support contracts
included access to the vulnerability remediation content database for the term
of the agreement and were sold separately from the license. The related revenue
was recognized ratably over the term of the support contract. Professional
services revenue was recognized as the services were performed assuming all
other revenue recognition criteria were met. In arrangements that included
multiple elements, including perpetual software licenses and maintenance and/or
services, revenue was allocated to the various elements based on vendor specific
objective evidence (“VSOE”) and recognized based on management's estimate of the
fair value of each component as described in SOP 97-2, SOP 98-9 and SAB
104.





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Customers
could obtain a license from Citadel's direct sales organization, or license
products through promotions or agreements with independent third party resellers
and strategic partners. The Company's products were not licensed through retail
distribution channels. A customer could return a product only under very limited
circumstances during the first thirty to ninety days from the date of shipment
for a replacement if the media is damaged or for a full refund if the software
did not perform in accordance with written specifications. Accordingly, the
Company recorded a provision for returns against license revenue in the same
period the revenue was recorded. The provision was subject to estimation by
management and had been based on historical product returns, average invoice
size, revenue volume and other known data as well as market and economic
conditions. As a result of the Sale, the Company no longer generates receivable
balances from sales revenue. At December 31, 2007, the Company had no
receivables.





Citadel
utilized a sell-through business model for distributors and resellers under
which revenue was recognized on products sold through distributors and resellers
at the time the distributors and resellers license the products to the end-user.
When distributor and reseller agreements provided for a contractual right of
return, future price concessions, or minimum purchase commitments, Citadel
recorded an estimated allowance for returns and allowances based on historical
returns and other facts and circumstances known at the time the estimate was
made. When payment was contingent upon the distributor's future licensing of
products, Citadel recognized revenue upon sell-through by the reseller or
distributor. Revenue generated from products licensed through various marketing
channels where the right of return might expressly or implicitly exist was
reduced by reserves for estimated product returns. Such reserves were estimates
developed by management based on returns history and current economic and market
trends.





Under the
Company’s sell-through business model, and as a convenience to government
customers, the Company’s products could be licensed through government
contractors, including system integrators. These government contractors held the
preferred purchasing and contracting vehicles for the various government
agencies to purchase information technology products and services including the
Company’s products and services. The Company typically entered into a
subcontract with these prime contractors to sell through to the government
agency. The Company’s contracts with these government contractors generally did
not contain an express right of return; however, these government contractors
may order products in advance of receiving the order from the government agency.
When the government contractor has not delivered the product to the end user
customer, the Company deferred revenue recognition until the government
contractor had received confirmation of delivery to the end user agency or the
Company had received payment for the product and any contingencies had
lapsed.





The
Company also offered its products to customers under subscription licenses with
one-year to three-year terms. The customer could renew the subscription at the
end of the subscription term or convert the subscription into a perpetual use
license at any time for an additional fee. Under a subscription license the
customer received the right to use the product, to post sale customer support
and to content (i.e., the vulnerability remedy updates) for the term of the
subscription and for as long as the customer met its payment obligation. The
subscription fee payment was generally due in equal payments at the beginning of
the subscription term or on a monthly basis and then on each anniversary date
thereafter. Revenue from subscriptions was recognized ratably over the term of
the subscription. If a customer failed to adhere to the payment terms of the
subscription, the revenue recognized was limited to the ratable recognition of
the amount of payments actually received. For the period from January 1, 2006 to
December 4, 2006, the Company had approximately $242,000 of contracts under
subscription of which the Company recognized approximately $190,000 of
subscription revenue.





Software
Development Costs





Prior to
the Sale, the Company followed the guidance provided in Statement of Financial
Accounting Standards (“SFAS”) No. 86 “Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed” regarding the accounting for
the costs of developing its products. Purchased software (i.e., software
acquired from a third party) was recorded at the lower of acquisition cost or
net realizable value. The Company developed software for licensing to its
customers and capitalized software development costs when technological
feasibility has been established. Technological feasibility generally occurred
at the time a detailed design and analysis plan was completed and programming of
the software code began. Software development costs that qualified for
capitalization included the salaries and benefits of the software engineers
assigned to the projects, internal and external quality assurance testing costs,
overhead allocations primarily associated with facilities costs, the costs of
outsourced development activities and costs of independent product testing and
certification labs. Software development costs that did not qualify for
capitalization were expensed and classified as product development expense in
the statements of operations as incurred. Product development expense and the
capitalization rate fluctuated from period to period depending upon the number
and status of software development projects that were in process and the related
number of people assigned to those projects.





22
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Purchased
software and capitalized software development costs were amortized using the
greater of the revenue method or the straight-line method with useful lives
ranging from one to five years. Amortization of capitalized software development
cost was classified in costs of revenue on the statements of operations. The
Company’s products operated on or with other third party operating systems and
software. When determining the useful life of a product, the Company considered
factors such as the current state of the technology, operating systems upon
which the Company’s products operated, competitive products and the potential
use of its products by the end user. The Company made an assessment of the
useful lives of its products at each quarterly balance sheet date.





The
Company evaluated the estimated net realizable value of each software product at
each quarterly balance sheet date. The Company’s estimate was based on
historical and forecasted net revenue for each product. Net revenue was the
product revenue reduced by the estimated costs of revenue and, if in
development, the estimated cost to complete the development of the product. If
the net book value exceeded the estimate of net realizable value, the
Company would have recorded a write-down to net realizable value on each product
affected. The Company determined that no write-down of capitalized software
development costs was required through the period January 1, 2006 to December 4,
2006. Citadel’s SecurePC and NetOFF products were no longer actively marketed
beginning in January 2006 and customer support for these products will cease in
April 2007. These legacy products were fully amortized in prior years and as a
result, there was no write-off required for any capitalized software development
costs or purchased software associated with these products.





A summary
of capitalized costs, expenses and amortization discussed above is presented in
the following table:





Period from
              January 1,
              2006 to
              December 4,
              2006Product
      development expense, net of capitalized software development
      costs
            
            $
            2,390,390Software
      development costs capitalized
            
            $
            1,254,584Software
      amortization expense
            
            $
            2,191,690





Capitalized
costs, expenses and amortization were $0 in 2007 due to the Company’s switch to
the liquidation basis of accounting after the sale of the Company to
McAfee.





Net
Loss per Common Share





Prior to
the Sale, the Company reported net income per share in accordance with SFAS No.
128, Earnings per Share.Basic net income per common share is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period. Diluted net income per share is computed using the weighted average
number of common shares outstanding plus potentially dilutive common shares
using the treasury stock method at the average market price during the reporting
period, including the assumed conversions of dilutive securities such as
preferred stock, options, and warrants.





23
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Period
      from
              January
      1,
              2006
      to
              December
      4,
              2006Basic
      income per share:Net
      income
            
            $
            34,525,408Weighted
      average number of common shares outstanding during the
    period
            
            
            30,518,230Basic
      net income per share
            
            $
            1.13Diluted
      income per share:Net
      income
            
            $
            34,525,408Weighted
      average number of common shares outstanding during the
    period
            
            
            30,518,230Shares
      issuable from assumed exercise of options
            
            
            1,427,240Shares
      issuable from assumed conversion of preferred stock
            
            
            9,516,129Total
      shares for purposes of calculating diluted net income per
      share
            
            
            41,461,599Diluted
      net income per share
            
            $
            0.83





For the
period from January 1, 2006 to December 4, 2006 the weighted average shares
outstanding were 30,518,230 and the diluted weighted average shares outstanding
were 41,461,599. The dilutive effect of stock options for 4,623,250 shares of
common stock has been included in the computation of diluted income per share to
common shareholders for this period. In addition, the effect of the "as if"
conversion of the preferred stock into 9,516,129 shares of common stock has been
included in the diluted income per share computation. The effect of Citadel
stock options for 3,097,000 shares of Citadel common stock and 4,336,641 Citadel
warrants outstanding at December 4, 2006 have been excluded from the weighted
average shares computation as they are antidilutive. In addition, the effect of
the “as if” conversion of the preferred stock outstanding at December 4, 2006
into 9,516,129 shares of common stock has been excluded from the computation of
net loss per share to common shareholders as the effect is
antidilutive.





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.





We
adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes, on January 1, 2007. FIN 48 provides that a tax benefit from an
uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits of the
position. This interpretation also provides guidance on measurement,
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The adoption of FIN 48 had no impact on our
consolidated financial statements.





24
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Advertising
Expense





Prior to
the Sale, the Company expensed costs associated with advertising as they are
incurred and included these costs in selling, general and administrative
expense. Advertising expense, including design and production of product
collaterals, industry trade shows and printing, for the period from January 1,
2006 to December 4, 2006 was approximately $763,000.





Stock-Based
Compensation





Prior to
the Sale, on January 1, 2006, the Company adopted the modified prospective
method of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”),
which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”
(“SFAS No. 123”). SFAS No. 123R supersedes Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees,” (“APB Opinion No. 25”), and
amends SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. Under the modified prospective
application, SFAS No. 123R is applied to new awards and to awards modified,
repurchased or cancelled after the effective date. Compensation cost for the
portion of awards for which requisite service has not been rendered that are
outstanding as of the effective date is recognized as the requisite service is
rendered on or after the effective date. The compensation cost for that portion
of awards is based on the grant date fair value of those awards as calculated
for pro-forma disclosures under SFAS No. 123. CDSS’s consolidated financial
statements as of and for the period from January 1, 2006 to December 4, 2006
reflect the impact of adopting SFAS No. 123R.





Stock-based
compensation expense recognized during the period is based on the value of the
portion of the stock-based payment awards that is ultimately expected to vest.
As stock-based compensation expense recognized in the consolidated statement of
operations for 2006 is based on awards ultimately expected to vest, it has been
reduced for estimated forfeitures. SFAS No. 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.





The
Company calculates the fair value of each option award on the date of grant
using the Black-Scholes option pricing model. The Company’s computation of
expected volatility is based on historical volatility. The Company’s
computation of expected life was determined based on historical experience of
similar awards, giving consideration to the contractual terms of the awards,
vesting schedules and expectation of future employee behavior. The interest rate
for the periods within the contractual life of the award is based on the U.S.
Treasury yield curve in effect at the time of the grant.





The
adoption of SFAS No. 123R required the Company to record substantial non-cash
stock compensation expenses prior to the Sale. While the adoption of SFAS No.
123R did not have a significant effect on the Company's financial condition or
cash flows, it did have a significant effect on the Company's results of
operations prior to the sale. Stock-based compensation expense presented in the
accompanying consolidated financial statements (going concern basis) for the
period from January 1, 2006 to December 31, 2006 totaled
$4,557,008.





NOTE
B - SALE TO MCAFEE





On
December 4, 2006, CDSS closed the sale of substantially all of its assets to
McAfee, pursuant to the Asset Purchase Agreement. The Asset Purchase Agreement
provided for the acquisition of substantially all of the assets and the
assumption of the certain liabilities of CDSS by McAfee. The cash consideration
received by CDSS for the asset purchase was $60,020,579 in immediately available
funds, before transaction costs of approximately $2,067,000. The gain on
the sale was as follows:





25
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Proceeds
      from Sale
            
            $
            60,020,579Cash
      transaction costsInvestment
      banking fees
            
            
            782,334Professional
      fees
            
            
            1,285,005Net
      proceeds
            
            
            57,953,240Assets
      sold or written offAccounts
      receivable
            
            
            102,860Property
      and equipment, net
            
            
            3,671,116Capitalized
      software development costs, net
            
            
            3,494,215Other
            
            
            647,935Liabilities
      assumed or derecognizedDeferred
      revenue
            
            
            (4,716,562
            )Other
            
            
            (792,653
            )Gain
      on sale
            
            $
            55,546,329





Following
the closing, the Company redeemed all of its shares of preferred stock
outstanding for $18,840,000 and repaid notes payable, advances and accrued
interest of approximately $8,172,000, including approximately $4,044,000 of
payments to the Company's CEO. A distribution dividend of $0.50 per share was
paid to shareholders on January 5, 2007. The Company does not expect to make any
additional distributions. 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, reducing net assets available 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. The impact of this final determination on our estimated
tax obligations could increase or decrease amounts of cash available for
distribution to our shareholders, perhaps significantly.





NOTE
C - 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. The
Company invests excess cash through banks, primarily in highly liquid money
market accounts.





NOTE
D - INCOME TAXES





The
difference between the provision for income taxes and the amount computed by
applying the federal statutory rate of 35% to income before provision for income
taxes is explained below:





Year
      Ended
              December
      31,
              2006Benefit
      computed at federal statutory rate
            
            $
            11,808,000Decrease
      in valuation allowance
            
            
            (8,820,000
            )Alternative
      minimum tax on asset sale
            
            
            894,000Net
      operating loss carryforward
            
            
            (4,326,000
            )Share
      based compensation
            
            
            1,684,000Tax
      rate differential
            
            
            (290,000
            )Permanent
      differences
            
            
            45,000Other
            
            
            (101,000
            )$
            894,000





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For
federal income tax purposes, at December 31, 2007 the Company had a net
operating loss carryforward of approximately $3,000,000. In 2002, the Company
was spun out of its former parent in a pro rata stock dividend distribution to
shareholders of the former parent. At that time, there was uncertainty of the
availability approximately $12 million of net operating loss carryforwards
related to the Company's business but incurred by the former parent. As a
result, the Company elected not to consider these net operating losses in its
tax computations until such time that the tax position could be clarified. In
2006, the Company clarified its tax position regarding these net operating loss
carryforwards and determined that the $12 million could be utilized to offset
future earnings of the Company and has adjusted the tax computation to reflect
the availability of these net operating losses. At December 31, 2005 $33 million
of estimated net operating losses were available to the Company. During 2006
approximately $45 million of net operating losses were utilized to offset taxes
on 2006 pre-tax income and a liability for alternative minimum tax
of approximately $894,000 was provided. The net operating loss
carryover, which is subject to annual limitations as prescribed by the Internal
Revenue Code, is available to offset future taxable income and begins to expire
in 2024. A valuation allowance has been recorded for the entire amount of the
net deferred tax asset due to uncertainty of realization.





NOTE
E - COMMON STOCK





During
the year ended December 31, 2006 the Company issued 450,000 unregistered shares
as a result of exercise of options by the CEO and former CFO. Pursuant to the
terms of the Sale to McAfee and the resulting deemed change of control, the
Company amended its employment agreements with Mr. Solomon, the CEO, to provide
that, if the Sale was completed, and in consideration of his non-competition
agreement with McAfee, Mr. Solomon would agree to forgive CDSS’s obligation to
pay him a bonus and cancel his stock option agreements and, in exchange, the
Company would issue him 3,650,000 shares of common stock of which 400,000 shares
have not been registered. The Company also amended its agreement with Mr.
Connelly, the former CFO, to provide that, if the Sale was completed, Mr.
Connelly would agree to forgive CDSS’s obligation to pay him a bonus and cancel
a stock option agreement for 50,000 shares of common stock and, in exchange, the
Company would issue him 50,000 unregistered shares of common stock. The Company
agreed with Mr. Joe Allbaugh, a director that upon a deemed change of control
the Company would pay Mr. Allbaugh a bonus equal to the aggregate exercise price
of 100,000 of the options granted to him. In October 2006, the Company
amended its agreement with Mr. Allbaugh to provide that, upon completion of the
asset sale, Mr. Allbaugh would agree to forgive the Company's obligation to pay
him the bonus and cancel his stock options and, in exchange, the Company would
issue him 100,000 shares of common stock. As a result of these amendments,
Messrs. Solomon, Connelly and Allbaugh will receive distributions on their
shares, on the same basis as other common stockholders. The Company issued these
shares to Messrs. Solomon, Connelly and Allbaugh on December 18, 2006.
Approximately $2,052,000 was recorded as stock compensation expense related to
these modifications.





No common
stock was issued in the year ended December 31, 2007.





NOTE
F - REDEEMABLE PREFERRED STOCK





Pursuant
to the Preferred Holder Agreement dated October 2, 2006 between CDSS, Satellite
Strategic Finance Associates, LLC and Satellite Strategic Finance Partners,
Ltd., the Company redeemed its outstanding shares of Series A and Series B
Convertible Preferred Stock for $18.84 million on December 15, 2006. The
Preferred Holder Agreement also requires an additional payment of up to $4.71
million to the extent distributions to CDSS's common stockholders exceed $19.75
million or $0.57 per share. The Company made a distribution to shareholders of
$0.50 per share on January 5, 2007 and does not anticipate making any further
distributions to common or the former preferred shareholders.





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 Table of Contents





NOTE
G - STOCK OPTIONS AND WARRANTS





For
options granted during the period from January 1, 2006 to December 4, 2006, the
Company has recognized 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. As a result of the Sale and the resulting
stock option transactions, stock-based compensation for the period from January
1, 2006 to December 4, 2006 has been adjusted for actual
forfeitures.





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. Since the inception of the plan CDSS has granted 4,435,000 awards under
the Plan through December 4, 2006, the date of the Sale. 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 4, 2006. Due to the Sale, 1,719,000 outstanding
options were exercisable on December 4, 2006; 579,500 stock options became
eligible for the cash out program discussed below, and 1,139,500 were
cancelled. No options were outstanding or exercisable at December 31, 2007 or
2006 under the Plan. The options granted had a term of 10 years and generally
vested 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.





In
addition, the Company granted options outside of the Plan. These options are not
covered under a plan approved by the stockholders. Prior to the Sale options
were granted to officers, directors, employees, stockholders and consultants to
the Company. The options granted have a term of 10 years or less and generally
vest over periods of from one to three years. At December 4, 2006 there
were 2,751,250 options outstanding that had been awarded outside of the
Plan of which 2,323,714 were exercisable and 427,536 were unvested and not
subject to acceleration. As a result of the Sale, 3,700,000 were exercised,
1,282,500 cancelled by their terms, 793,750 were eligible for the cash-out
program. At December 31, 2007 and 2006, 675,000 options awarded outside of the
Plan were outstanding and exercisable at a weighted average exercise price of
$2.04 per share.





Acceleration
of Vesting due to Deemed Change of Control and Cash-Out Program





The Plan
provides that all stock options outstanding under the stock option plan will
fully vest in connection with the closing of the Sale. As permitted by the Plan,
we accelerated the vesting of 941,453 unvested options effective 15 days before
the scheduled closing of the Sale. The Plan also provides that, in the
discretion of the board of directors, any holder of stock options outstanding at
the closing of a deemed change of control may receive a payment equal to the
difference between the price received by stockholders in the deemed change of
control and the exercise price of such holder's stock option “Cash-out
Program”). The Company implemented the Cash-out Program in connection with the
closing of the Sale and the subsequent distributions to stockholders. As a
result, holders of options that remain unexercised on the record date of the
initial anticipated liquidating distribution received from the Company, at the
same time liquidating distributions are made to holders of the Company’s common
stock, cash payments equal to the product of the total number of shares that
were subject to such option immediately prior to the closing of the Sale,
and the amount per share then being distributed in respect of the Company’s
common stock. However, these cash payments were paid only to the extent, if any,
per share liquidating distributions in respect of the Company’s common stock
exceed the per share exercise price of such option.





28
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Employees,
officers, directors and consultants also held stock options granted outside the
Plan ("Outside-the-Plan"). Seven individuals held one or more Outside-the-Plan
options with exercise prices below $0.54 per share. All of such "in-the-money"
options were fully vested. CDSS entered into agreements with the holders of
these options to provide for a cash-out component similar to the options issued
under the Plan.





On
December 4, 2006, an aggregate of 8,270,250 stock options were fully vested, of
which 941,453 became fully vested as a result of the deemed change of control.
Total stock compensation expense for the period January 1, 2006 to December 4,
2006 was $4,557,008 of which $914,160 was attributable to the vesting
acceleration and $111,000 was associated with the vesting of shares of
restricted stock. Of the fully vested stock options at December 4, 2006, an
aggregate of 1,373,250 stock options were eligible to receive a payment of under
the cash-out program. The remaining 6,897,000 stock options expired by the terms
of the stock option agreements and the 2002 stock incentive plan where
applicable. At December 31, 2006 a Cash-out Program liability of $255,510 was
accrued, assuming that the maximum per share distribution of $0.54 per share
would be available for distribution to shareholders. On January 5, 2007 an
aggregate payment of $200,610 was made to holders of stock options eligible
under the Cash-out Program. The aggregate payment represented the difference
between the $0.50 per share distribution to shareholders and each option
holder's per share exercise price, multiplied by the number of options eligible
for the cash-out payment. As we do not anticipate any further distributions to
common shareholders, the remaining liability has been reversed during
2007.





Valuation
Assumptions





The
Company calculated the fair value of each option award on the date of grant
using the Black-Scholes option pricing model. The following assumptions were
used for the period from January 1, 2006 to December 4, 2006:





Risk-free
      interest rates
            
            
            4.29%-5.03
            %Expected
      lives
            
            5.8
      yearsDividend
      yield
            
            
            0
            %Expected
      volatility
            
            
            97%-121
            %Weighted-average
      volatility
            
            
            111
            %





The
Company’s computation of expected volatility is based on historical volatility.
The Company’s computation of expected life was determined based on historical
experience of similar awards, giving consideration to the contractual terms of
the awards, vesting schedules and expectation of future employee behavior. The
interest rate for the periods within the contractual life of the award is based
on the U.S. Treasury yield curve in effect at the time of the
grant.





Stock
Option Activity





The
following table summarizes the activity under the Plan for the year ended
December 31, 2006:





2002 Stock Incentive Plan2006WeightedAverageExerciseShares
            
            
            PriceOutstanding
      at beginning of the year
            
            
            2,327,000
            
            
            $
            1.59Granted
            
            
            134,000
            
            
            
            0.45Exchanged
      for common stock
            
            
            (100,000
            )
            
            
            -Exercised
            
            
            0
            
            
            
            -Cash-out
      program
            
            
            (579,500
            )
            
            
            0.40Cancelled
            
            
            (1,781,500
            )
            
            
            1.93Outstanding
      at end of the year
            
            
            -
            
            
            
            -Vested
      and expected to vest at December 31, 2006
            
            
            -
            
            
            
            -Options
      exercisable at December 31, 2006
            
            
            -
            
            
            
            -





29
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The
following table summarizes the activity under the Plan for the year ended
December 31, 2006:





Outside the Plan2006WeightedAverageWeighted
            
            
            RemainingAverage
            
            
            ContractualShares
            
            
            Exercise Price
            
            
            TermOutstanding
      at beginning of the year
            
            
            6,516,250
            
            
            $
            0.99
            
            
            
            -Granted
            
            
            -
            
            
            
            -
            
            
            
            -Exchanged
      for common stock
            
            
            (3,700,000
            )
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Cash-out
      program
            
            
            (793,750
            )
            
            
            0.32
            
            
            
            -Cancelled
            
            
            (1,347,500
            )
            
            
            2.36
            
            
            
            -Outstanding
      at end of the year
            
            
            675,000
            
            
            
            2.04
            
            
            7.36 yearsVested
      and expected to vest at December 31, 2006
            
            
            675,000
            
            
            
            2.04
            
            
            7.36 yearsOptions
      exercisable at December 31, 2006
            
            
            675,000
            
            
            
            2.04
            
            
            7.36 years





The
675,000 options remain outstanding at December 31, 2007.





The
aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the quoted price of the Company’s common
stock that were ”in-the-money” at December 31, 2007. At December 31, 2007, no
options were “in-the-money”.





The
weighted average grant-date fair value of options granted in the year ended
December 31, 2006 was $0.38. No options were granted during the year ended
December 31, 2007.





As of
December 31, 2007, there was no unrecognized compensation cost related to
unvested stock options.





Modifications
to Option Terms





Pursuant
to the terms of certain option agreements and the Asset Purchase Agreement, Mr.
Solomon, CEO, Mr. Connelly, CFO and Mr. Allbaugh, a director were issued
3,650,000, 50,000 and 100,000 shares of common stock, respectively in return for
cancelling their stock option agreements and forgoing a cash bonus equaling the
exercise price of their options. See NOTE E - COMMON STOCK for further
discussion. Pursuant to SFAS123(R) the change in the terms of the option award
is a modification of the award requiring a charge to income for the difference
between the fair value of the stock option immediately before the modification
and immediately following the modification. The fair value of these awards
of approximately $2,052,000 was recorded as a charge to stock compensation
expense with an offset to Additional Paid in Capital. In addition, the Company
modified certain options held by seven individuals including officers, directors
and employees that were issued outside the Citadel incentive stock award plan.
The modification of the awards was to provide the cash out component to the
option award. The fair value of the awards immediately prior to the modification
and immediately after the modification was determined to be equal because the
modification for the cash out provision did not affect any of the components of
the Black-Scholes valuation model.





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NOTE
H - COMMITMENTS AND CONTINGENCIES





Leases





At
December 31, 2007, CDSS subleased approximately 750 square feet of office space
from a third party on a month to month basis in Dallas,
Texas.   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.





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.





The
remaining 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
as paid in December 2006 and approximately $191,000 of which was made in January
2007 and is included in “officer severance and bonus” in the Consolidated
Statement of Net Assets in Liquidation at December 31, 2006.





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 accrued as part of
the officer severance and bonus at December 31, 2006 and 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.





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After
execution of the Asset Purchase Agreement, the Company amended the CEO
Employment Agreements with 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 will receive, 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 reflects a
reduction of approximately $500,000 from the amounts to which he would otherwise
be contractually entitled. This arrangement allows 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 is
entitled. The amended agreement also provides that, in consideration of his
non-competition agreement with McAfee, the CEO forgives the Company’s obligation
to pay him a bonus and cancel his stock options and, in exchange, the Company
will issue him 3,650,000 shares of common stock. (See additional discussion in
NOTE E - COMMON STOCK. At December 31, 2006, $6,089,234 is included in
“officer severance and bonus” in the Consolidated Statement of Net Assets in
Liquidation at December 31, 2006.  This amount was paid during
2007.




NOTE
I - SIGNIFICANT CUSTOMERS





Prior to
the Sale, the Company operated in one business segment, the security software
segment, but licenses it software and offers its services to a diverse group of
customers in the Fortune 2000 in many industries, as well as, governmental
agencies at the federal, state and local levels. The following customers
represented more than 10% of total revenue during the period from January 1,
2006 to December 4, 2006:





End
      User Customer:Defense
      Information Systems Agency
            
            
            27
            %Department
      of Veteran Affairs
            
            
            12
            %Department
      of Energy
            
            
            34
            %Industry
      Segment:Government
            
            
            82
            %Corporate
            
            
            12
            %Financial
      institutions
            
            
            5
            %All
      other, primarily health
            
            
            1
            %Geographic
      Segments:United
      States
            
            
            99
            %Outside
      of the United States
            
            
            1
            %





NOTE
J- RELATED PARTY TRANSACTIONS





On
December 4, 2006, as a result of the Sale, the Company settled a note payable to
the CEO which included a t $500,000 prepayment fee recorded as interest expense.
The Company paid the CEO interest of approximately $115,000 on this note during
the period from January 1, 2006 to December 4, 2006.





In
connection with the Sale, CDSS entered into an agreement with CT Holdings on
December 4, 2006 (the “Agreement”). Pursuant to the Agreement with CT
Holdings:





1.
            CDSS
      and CT Holdings canceled and terminated the Tax Disaffiliation Agreement
      dated as of May 17, 2002, and Transition Services Agreement dated as of
      May 17, 2002 between CDSS and CT
Holdings;


2.
            Each
      party released the other from all outstanding liabilities to each
      other;


3.
            CDSS
      assigned to CT Holdings causes of action and rights of CDSS related to
      claims against CDSS’s insurance carrier related to prior
      litigation;


4.
            CT
      Holdings waived any and all rights in and to any of the assets transferred
      by CDSS pursuant to the Asset Purchase Agreement;
  and


5.
            CT
      Holdings waived any prohibition or restriction to the transactions
      contemplated by the asset purchase agreement set forth in the Agreement
      and Plan of Distribution dated as of May 17, 2002 between CDSS and CT
      Holdings or otherwise.





32
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As part
of the spin off transaction in May 2002, CDSS entered into a transition services
agreement with CT Holdings, its former parent. The agreement provided that CT
Holdings and CDSS provide each other services in such areas as information
management and technology, sharing of office space, personnel and indirect
overhead expenses, employee benefits administration, payroll, financial
accounting and reporting, claims administration and reporting, and other areas
where CT Holdings and CDSS may need transitional assistance and support. The
transition services agreement provided generally that each of CDSS and CT
Holdings will undertake to provide substantially the same level of service and
use substantially the same degree of care as their respective personnel provided
and used in providing such services prior to the execution of the agreement. On
December 4, 2006, pursuant to the terms of the Agreement discussed above, the
transition services agreement was terminated. For the period from January 1,
2006 to December 4, 2006, due to the uncertainty of collection, the Company had
expensed the fees of approximately $632,000 to general and administrative
expense on a monthly basis as incurred. Approximately $687,000 of amounts due
from CT Holdings under the transition services agreement were forgiven pursuant
to the terms of the Asset Purchase Agreement.





In April
2003, a CT Holdings legal claim associated with a lawsuit was settled for
$225,000 in cash. CDSS advanced $225,000 to CT Holdings in return for a demand
note payable bearing interest at 12% per year and a release for any potential
claims pertaining to the CT Holdings litigation. Since CT Holdings has a
significant cash deficiency and stockholder's deficit this demand note
receivable was fully reserved in the second quarter of 2003 as there can be no
assurance that this note will be collected. On December 4, 2006, pursuant to the
terms of the Agreement discussed above, the $225,000 note and $102,379 accrued
interest (also fully reserved) was forgiven.





During
the years ended December 31, 2007, and 2006 the Company incurred legal fees in
the amount of approximately $196,000,  and $565,000, respectively, to
a law firm in which an attorney who is a partner and who was a former CT
Holdings' employee and is a relative CDSS's CEO.





ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





None.





ITEM
8A(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-KSB. 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-KSB, our disclosure controls and procedures were not
effective as of the end of the period covered in this Annual Report on Form
10-KSB. 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.


(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 theUnited States.




33
 Table of Contents





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,
2007.  In making this assessment, our management used the criteriaset forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework.  Basedon this evaluation, our
management, including our Chief Executive Officer, concluded that, as of
December 31, 2007, our internal control over financial reporting was
noteffective.




Our
management has concluded that, as of December 31, 2007 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, 2007.
 
 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. In 2008, we
intend to improve our controls regarding documentation and to increase the
involvement of members of our board of directors to improve the lack of
segregation.




ITEM
8B. OTHER INFORMATION





None.





PART
III





ITEM
9. 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, 2008, 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
            
            43
            
            Chairman
      of the Board, President, Chief Executive Officer,
Secretary
            
            1996
            
            2007Major
      General (Ret) John Leide
            
            70
            
            Director
            
            2001
            
            2007Chris
      A. Economou
            
            52
            
            Director
            
            2001
            
            2008Joe
      M. Allbaugh
            
            55
            
            Director
            
            2003
            
            2009Mark
      Rogers
            
            47
            
            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. Since November 1, 2007, Mr. Solomon has served as Executive Chairman
and a member of the board of directors of Boo Koo Holdings, Inc., a developer
and marketer of energy drinks.





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 Table of Contents





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.





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.





35
 Table of Contents





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
fiscal year 2007, there were three 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. Allbaugh and Leide. 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 2007. 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 met one time during
fiscal year 2007. At February 12, 2008 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.





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.





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 Table of Contents





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 certified public accountants 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
2007 and took action by written consent two times. 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 is available on CDSS’s website, www.cdsswd.com.





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 code of ethics is available on CDSS’s website, www.cdsswd.com.





37
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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, 2007 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, 2007.




ITEM
10.  EXECUTIVE COMPENSATION





2007
SUMMARY COMPENSATION TABLE





Name
      and Principal Position
            Year
            
            Salary
              ($)
            
            
            Bonus
              ($)
            
            
            Stock
              Awards
              ($)
            
            
            Option
              Awards
              ($)
      (17)
            
            
            All
      Other
              Compensation
              ($)
            
            
            Total
              ($)Steven
      B. Solomon
              Chief
      Executive Officer
            2007
            
            $
            225,000
            
            
            $
            300,000
            
            
            
            -
            
            
            
            -
            
            
            $
            690,000
            (2)$
            5,399,234
            (3)$
            24,313
            (6)
            
            $
            9,686,797$
            3,048,250
            (5)2006
            
            $
            225,000
            
            
            $
            331,250
            
            
            $
            1,971,000
            (1)
            
            
            -
            
            
            $
            690,000
            (2)$
            5,399,234
            (3)$
            68,535
            (4)
            
            $
            11,733,269$
            3,048,250
            (5)Richard
      Connelly (a)
              Chief
      Financial Officer
            2007
            
            $
            48,045
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            95,557
            (2)
            
            $
            400,216$
            95,557
            (7)$
            95,557
            (8)$
            65,500
            (10)2006
            
            $
            185,000
            
            
            
            -
            
            
            $
            27,000
            (8)
            
            
            -
            
            
            $
            95,557
            (2)
            
            $
            574,808$
            82,125
            (5)$
            95,557
            (7)$
            95,557
            (8)$
            24,069
            (9)$
            65,500
            (10)Carl
      Banzhof (b)
              Chief
      Technology Officer
            2007
            
            
            -
            
            
            $
            75,000
            
            
            
            -
            
            
            
            -
            
            
            $
            40,500
            (10)
            
            $
            115,5002006
            
            $
            170,192
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            $
            170,192




(a)
            Mr.
      Connelly submitted his notice of resignation effective March 31,
      2007.




(b)
            Mr.
      Banzhof was employed from March 3196 until his resignation due to the
      change of control on December 4,
2006.




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 Table of Contents





(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)
            Change
      of control bonus payment resulting from the Asset Sale completed on
      December 4, 2006.




(3)
            Payment
      to our CEO for entering into a non-competition agreement payment including
      estimated tax gross up of $4,184,146. 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.




(4)
            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




(5)
            Includes
      a car allowance of $11,400, compensation of $11,599 related to annual
      incentive award trip, and payments of $10,661 for life, health and
      disability insurance premiums including the income tax gross up on the
      payment of the premiums.




(6)
            Severance
      payment resulting from the Asset Sale completed on December 4,
      2006.




(7)
            Retention
      bonus payable to Mr. Connelly on March 31,
2007.




(8)
            Includes
      payments of unused vacation pursuant to the terms of the Asset Sale and
      payments of life, health and disability insurance premiums plus income tax
      gross up on the payment of the
premiums.




(9)
            Stock
      option cash out payment to holders of options that remained unexercised on
      the record date of the initial anticipated liquidating distribution
      received from us, at the same time liquidating distributions are made to
      holders of common stock, cash payments equal to the product of the total
      number of shares that were subject to such option immediately prior to the
      closing of the Asset Sale, and the amount per share then being distributed
      in respect of our common stock. A payment was made on January 5, 2007
      contemporaneously with the dividend of $0.50 per share made to
      stockholders.




(10)
            FAS
      123R value of 50,000 shares of restricted common stock issued on December
      19, 2005 including the related tax
gross-up.




Grants
of Plan Based Awards





No awards
were granted to any named executive officer during the year ended December 31,
2006. Our CEO, CFO and the named executive officers held no stock options at
December 31, 2006.





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.




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.




39
 Table of Contents





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 2007,
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


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.





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





As of
March 31, 2008, 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 February 12,
2008, 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
March 31, 2008 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
            
            
            19.97
            %Major
      General (Ret) John Leide78
      Clubhouse DrivePalm
      Coast, Florida 32137
            
            226,100
      (1)
            
            
            0.66
            %Joe
      M. Allbaugh101
      Constitution Avenue, NW, Suite 525 EastWashington,
      DC 20001-2133
            
            375,000
      (1)
            
            
            1.09
            %Chris
      Economou150
      North Federal Highway, Suite 210Fort
      Lauderdale, Florida 33301
            
            406,100
      (1)
            
            
            1.18
            %Mark
      Rogers751
      Laurel St., #119San
      Carlos, California 94070
            
            242,875
      (2)
            
            
            0.71
            %All
      Officers and directors as a group(6 people)
            
            7,510,824
      (3)
            
            
            21.89
            %





40
 Table of Contents





(1)
            Includes 200,000 immediately
      exercisable stock options.





(2)
            Includes 50,000 immediately
      exercisable stock options.





(3)
            Includes 650,000 immediately
      exercisable stock options.





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 4,
2006.  Due to the Asset Sale 1,819,000 outstanding options
were  exercisable on December 4, 2006; 579,500 stock options became
eligible for the cash out program discussed below, the terms of 100,000 options
were modified and exercised, and 1,139,500 were cancelled.  No options
were outstanding or exercisable under the Plan at December 31, 2006 or
2007.  The options granted 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 have a term of 10 years or less. At December 4, 2006 there were
6,451,250 options outstanding that had been awarded outside of the Plan, of
which 6,023,714 were exercisable and 427,536 were unvested and not subject to
acceleration.  As a result of the Asset Sale, 3,700,000 were
exercised, 1,282,500 cancelled by their terms, and 793,750 were eligible for the
cash-out program.  At December 31, 2006 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 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





41
 Table of Contents





ITEM
12.    CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE





During
the years ended December 31, 2007 and December 31, 2006, the Company incurred
legal fees in the amount of approximately $196,193 and $565,000, respectively,
to a law firm in which an attorney who is a partner was a relative of the
Company’s CEO.





ITEM
13.    EXHIBITS





The
exhibits listed in the accompanying index to exhibits are filed or incorporated
by reference as part of this Annual Report.





ITEM
14.    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 $115,675 for 2007
and approximately $139,000 for 2006, 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 2007 or
2006.





(3) Tax
Fees:





KBA Group
LLP did not bill the Company any tax fees during 2007 or 2006.





(4) All
Other Fees:





KBA Group
LLP did not bill the Company any other fees during 2007 or 2006.





(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.





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.





42
 Table of Contents





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-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.





Date: April
      14, 2008
            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-KSB 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
      14, 2008Steven
      B. Solomon
                
                and
      Director(Principal
      Executive Officer and ActingPrincipal
      Financial and Accounting Officer)/s/
                JOHN
      LEIDE
                
                Director
                
                April
      14, 2008Major
      General (Ret.)John
      Leide/s/
                CHRIS
      A. ECONOMOU
                
                Director
                
                April
      14, 2008Chris
      A. Economou/s/
                MARK
      ROGERS
                
                Director
                
                April
      14, 2008Mark
      Rogers/s/
                JOE
      M. ALLBAUGH
                
                Director
                
                April
      14, 2008Joe
      M. Allbaugh
   43