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EX-31.1 - EXHIBIT 31.1 - Green Energy Management Services Holdings, Inc. | ex31_1.htm |
EX-32 - EXHIBIT 32 - Green Energy Management Services Holdings, Inc. | ex32.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2009
o TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
transition period from ___________ to ____________
Commission
File Number: 000-33491
CDSS
WIND DOWN INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
75-2873882
|
(state
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
2100
MCKINNEY AVE., SUITE 1500, DALLAS, TEXAS 75201
(Address
of principal executive offices)
(214)
750-2452
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
|
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes x No o
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
Title
of Class
|
Outstanding
at November 18, 2009
|
Common
Stock, Par value $.01 per share
|
34,318,230
|
CDSS WIND DOWN INC.
FORM
10-Q
QUARTERLY
REPORT
FOR THE
QUARTERLY PERIOD ENDED
SEPTEMBER
30, 2009
Page
|
|
PART
I – FINANCIAL INFORMATION
|
|
Item 1. Financial
Statements
|
|
4
|
|
5
|
|
6
|
|
7
|
|
14
|
|
Item
4T. Controls and
Procedures
|
16
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PART
II – OTHER INFORMATION
|
|
Item
1A. Risk
Factors
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17
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Item 6.
Exhibits
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22
|
23
|
As used
in this Quarterly Report on Form 10-Q, 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 consolidated 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:
|
—
|
possible
or assumed future results of
operations;
|
|
—
|
future
revenue and earnings;
|
|
—
|
business
and growth strategies;
|
|
—
|
the
uncertainty of general business and economic conditions;
and
|
|
—
|
those
described under Risk Factors.
|
Readers
are urged to carefully review and consider the various disclosures we make which
attempt to advise them of the factors which affect our business, including
without limitation, the disclosures made under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
under the caption “Risk Factors” included herein. These important factors could
cause actual results to differ materially from the forward-looking statements
contained herein.
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-Q. 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.
PART
I—FINANCIAL INFORMATION
On
November 16, 2009 the Board of Directors terminated the plan of liquidation and
dissolution previously approved by the Board of Directors on October 13, 2006
and the shareholders of the Company on December 1, 2006. As a result,
the accompanying September 30, 2009 unaudited interim consolidated balance
sheets, statements of operations and statements of cash flows for CDSS Wind Down
Inc. required to be filed with this Quarterly Report on Form 10-Q were prepared
by management on a going concern basis without audit, together with the related
notes. Periods presented prior to September 30, 2009 are unaudited and have been
recast on a going concern basis. In our opinion, these unaudited
interim consolidated financial statements present fairly the financial position
and results of operations for the three and nine months ended September 30,
2009. See Note A for a discussion of business operations and
liquidity. The consolidated financial statements for the year ended
December 31, 2008 included in our fiscal year end December 31, 2008 Annual
Report on Form 10-K, previously filed with the Securities and Exchange
Commission, or the SEC were prepared using the liquidation basis of accounting
and are not comparable with the financial statements presented in this Quarterly
Report on Form 10-Q.
CDSS WIND DOWN INC.
UNAUDITED
CONSOLIDATED BALANCE SHEETS
September
30,
2009
|
|
|
December
31,
2008
|
|
|||
ASSETS
|
|
|
|
|
|
||
Cash
and cash equivalents
|
$
|
656
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$
|
47,581
|
|
|
$
|
48,862
|
|
Accrued
payroll tax liabilities
|
|
-
|
|
|
|
1,672
|
|
Convertible
promissory note payable to officer including accrued interest payable of
$6,287 at September 30, 2009 and $1,994 at December 31, 2008 and net
of deferred debt discount of $31,832 at September 30, 2009 and $57,876 at
December 31, 2008
|
|
43,906
|
|
|
|
13,569
|
|
Payable
to officer
|
|
48,209
|
|
|
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7,294
|
|
Total current
liabilities
|
139,696
|
71,397
|
|||||
Convertible
preferred stock, $1,000 stated value per share; 1,000,000
shares authorized, no shares issued and outstanding at September 30, 2009
and December 31, 2008
|
|
-
|
-
|
|
|||
Common
stock, $.01 par value per share; 100,000,000 shares authorized; 34,318,230
shares issued and outstanding at September 30, 2009 and December 31,
2008
|
343,182
|
343,182
|
|||||
Additional
paid-in capital
|
30,440,850
|
30,440,850
|
|
||||
Accumulated
deficit
|
(30,927,072
|
)
|
(30,859,429
|
)
|
|||
Total
stockholders’ deficit
|
|
(139,040
|
)
|
(71,397
|
)
|
||
Total
liabilities and stockholders' deficit
|
$
|
656
|
|
$
|
-
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CDSS WIND DOWN INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
General
and administrative expense
|
$
|
7,150
|
$
|
11,375
|
$
|
37,306
|
$
|
404,321
|
|||||||
Interest
expense
|
|
10,127
|
3,442
|
30,337
|
3,442
|
||||||||||
Interest
(income)
|
|
-
|
|
-
|
|
-
|
(970
|
)
|
|||||||
Net
loss
|
$
|
(17,277
|
)
|
$
|
(14,817
|
)
|
$
|
(67,643
|
)
|
$
|
(406,793
|
)
|
|||
Weighted
average common shares outstanding - basic and diluted
|
34,318,230
|
|
34,318,230
|
34,318,230
|
34,318,230
|
||||||||||
Net
loss per share
|
$ (0.00
|
)
|
$ (0.00
|
)
|
$ (0.00
|
)
|
$ (0.01
|
)
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CDSS WIND DOWN INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine
months ended
September
30,
|
|
||||||
2009
|
2008
|
|
|||||
Cash
flows used in operating activities
|
|
|
|
|
|
||
Net
loss
|
$
|
(67,643
|
)
|
$
|
(406,793
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
-
|
-
|
|||||
Amortization
of beneficial conversion feature on note payable to officer debt recorded
as interest expense
|
26,044
|
2,894
|
|||||
Change
in operating liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
1,340
|
(94,591
|
)
|
||||
Net
cash used in operating activities
|
(40,259
|
)
|
(498,490
|
)
|
|||
Net
cash provided from financing activities:
|
|||||||
Cash
advances from CEO
|
40,915
|
70,510
|
|||||
Net
change in cash
|
656
|
(427,980
|
)
|
||||
Cash
at the beginning of the period
|
-
|
428,021
|
|||||
Cash
at the end of the period
|
$
|
656
|
$
|
41
|
|||
Non-cash
items:
|
|||||||
Conversion
of cash advances from CEO into note payable
|
$
|
-
|
$
|
69,451
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CDSS WIND DOWN INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
A - NATURE OF BUSINESS AND BASIS OF PRESENTATION
Interim
Financial Statements and Change in Basis of Presentation
On
November 16, 2009 the Board of Directors terminated the plan of liquidation and
dissolution (the ”Plan of Liquidation”) previously approved by the Board of
Directors on October 13, 2006 and by the shareholders of the Company on December
1, 2006. Prior to the termination of the Plan of Liquidation, the Company had
prepared its financial statements under 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.
As a
result of the termination of the Plan of Liquidation, the liquidation of the
Company is no longer probable and therefore, the Company’s unaudited
consolidated balance sheets at September 30, 2009 and December 31, 2008, and the
unaudited consolidated statements of operations and cash flows for the three and
nine months ended September 30, 2009 and 2008 have been prepared by management
assuming the Company will continue as a going concern. Periods
presented prior to September 30, 2009 are unaudited and have been recast to
reflect amounts that are presented on a going concern basis. The
unaudited interim consolidated financial statements reflect all adjustments,
consisting of normal recurring adjustments, which in the opinion of management,
are necessary for the fair presentation of financial position and the results of
operations for the interim periods presented and have been prepared in
accordance with generally accepted accounting principles in the United States.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform to
current year presentation. Notes to the consolidated financial
statements which would substantially duplicate the disclosures contained in the
audited consolidated financial statements required on Form 10-K have been
included in this Quarterly Report on Form 10-Q because the change in the basis
of presentation in this Quarterly Report on Form 10-Q is not comparable to the
basis of presentation included in the 2008 annual report filed on Form
10-K.
The
consolidated financial statements for the year ended December 31, 2008 included
in our fiscal year end December 31, 2008 Annual Report on Form 10-K, previously
filed with the Securities and Exchange Commission were prepared using the
liquidation basis of accounting and are not comparable with the basis of
presentation of the unaudited consolidated financial statements included in this
Quarterly Report on Form 10-Q.
Liquidity
and Going Concern
The
Company’ cash position at September 30, 2009 is $656 and it has outstanding
liabilities to unrelated third parties of $47,581 and notes payable and advances
aggregating $123,947 to related parties at September 30, 2009. There
are no operations from which cash flows may be generated. The Company
has limited access to capital, no plans to raise capital and management has not
identified sources of capital from unrelated third parties. Past funding needs
of the business have been provided by financings through notes payable, cash
advances and additional investments from related parties, including the
Company's CEO., however there can be no assurance that such funds will be
available from the CEO or others in the future, or at terms acceptable to the
Company. The Company has been and continues to be dependent upon outside
financing to continue its existence and to fund alternatives being considered by
the Board of Directors. The Company will continue to require working
capital to fund operating expenses, primarily accounting, legal and compliance
reporting costs to maintain the shell company. The Company has
explored investment and funding alternatives but at September 30, 2009 the
Company had not identified any investments that would provide the ability to
raise capital, nor did the Company have any plans to raise additional amounts of
capital. Therefore, there is substantial doubt about the Company's
ability to continue as a going concern. These financial statements do
not include any adjustments that might arise from this uncertainty.
The
Business
CDSS was
incorporated in Delaware in December 1996. Its principal executive offices are
located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201. On April 30,
2004 the Company’s stock moved from the National Association of Securities
Dealers (NASD) Over-the-Counter Bulletin Board (OTCBB) exchange to the NASDAQ
Capital Market and traded under the symbol "CDSS". On May 5, 2006 the Company's
stock moved to the OTCBB following a delisting notice form the NASDAQ for
failure to meet the $1 per share minimum trading price. On January 11, 2007 the
trading symbol became "CWDW" resulting from the name change.
The
business was operated as a standalone company from May 17, 2002 until the sale
of substantially all of its assets to McAfee on December 4, 2006 when operations
ceased. Up until the Sale, the Company was engaged in the
development, marketing and licensing of security software products to large
enterprises and government agencies. Following the Sale, the Company
has had no operations but has incurred costs and expenses associated with the
wind down activities conducted under its prior Plan of Liquidation and the costs
to remain in SEC reporting compliance. During the nine months ended
September 30, 2009 the Company had no operations and no employees.
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 the Company 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
provided for the acquisition of substantially all of the assets (the “Assets”)
and the assumption of certain identified liabilities of CDSS by McAfee
(collectively, the "Sale"). The cash consideration received by CDSS for the
purchase of the Assets and operating expense reimbursement was $60,020,579 in
immediately available funds. A distribution of $0.50 per share was made on
January 5, 2007 to shareholders of record on January 2,
2007.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
In
addition, the preparation of consolidated financial statements requires the
Company to make assumptions, judgments and estimates that can have a significant
impact on our reported financial; position, results of operations and cash
flows. Management bases its assumptions, judgments and estimates on the most
recent information available and various other factors believed to be reasonable
under the circumstances. Actual results could differ materially from these
estimates under different assumptions or conditions. On a regular basis
management evaluates its assumptions, judgments and estimates and makes changes
accordingly. The Company believes that the assumptions, judgments and estimates
have the greatest potential for impact on the CDSS consolidated financial
statements and considers these estimates to be critical accounting
policies.
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.
Net
Loss Per Share
Basic net
loss per common share is computed by dividing net loss to common shareholders 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
outstanding during the periods, including the assumed conversions of dilutive
securities such as preferred stock, options, and warrants. For the three and
nine months ended September 30, 2009 and 2008, basic and diluted net loss per
common share are identical because the number of shares assumed in the exercise
of common stock options outstanding would be antidilutive and are therefore
excluded from the computation of diluted loss per common share.
For the
three and nine months ended September 30, 2009 and 2008, the effect of stock
options for 675,000 shares of common stock outstanding at September 30, 2009 and
2008 and the effects of issuing 228,788,200 shares of common stock upon the
assumed conversion of a note payable to the Company’s CEO have been excluded
from the weighted average shares computation as the effect of the above
potentially dilutive securities would be antidilutive to the net loss
per share during those periods.
Recently
Adopted Accounting Pronouncements
During
the third quarter of 2009, the Company adopted The FASB Accounting Standards
Codification (ASC or Codification) and the Hierarchy of Generally Accepted
Accounting Principles (GAAP) which establishes the Codification as the
sole source for authoritative U.S. GAAP and will supersede all accounting
standards in U.S. GAAP, aside from those issued by the SEC. The adoption of the
Codification did not have an impact on the Company’s financial position, results
of operations or cash flows. Since the adoption of the Accounting Standards
Codification (ASC) the notes to the consolidated financial statements will
no longer make reference to Statement of Financial Accounting Standards
(SFAS) or other U.S. GAAP pronouncements.
Effective
June 30, 2009, the Company implemented FASB ASC 855, Subsequent Events. This
standard establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued. The adoption of ASC 855 did not impact the Company’s consolidated
financial statements. The Company evaluated all events or transactions that
occurred after September 30, 2009 up through November 18, 2009, the date we
issued these financial statements. During this period, the Company
did not have any recognizable or non-recognizable subsequent
events.
The
Company does not expect the adoption of any other recently issued accounting
pronouncements to have a significant impact on its financial position, results
of operations or cash flows.
NOTE
B - RELATED PARTY TRANSACTIONS
At
September 30, 2009, the Company owed its CEO (i) $69,451 in the form of a
convertible promissory note, (ii) $6,287 of accrued interest related to the
note, and (iii) $48,209 in the form of a payable for cash advances to the
Company and for the payment of expenses on behalf of the Company. The
CEO has committed to advance the Company additional funds should it be necessary
for working capital expenses, on terms and conditions to be approved by the
disinterested directors of the Company and the CEO. Past funding
needs of the business have been met by cash advances from the CEO, however there
can be no assurance that such funds will continue to be available from the CEO
or other related parties in the future. The Company has been and continues to be
dependent upon outside sources of cash to pay expenses.
On August
27, 2008, the Company and Steven B. Solomon, the Company’s Chief Executive
Officer, President and Chairman of the Board of Directors, entered into a
Convertible Promissory Note (the "Note"). The Note represents
advances of approximately $69,451 by Mr. Solomon to the Company through the
issue date of the Note. The Note bears interest at eight percent (8%)
per year and is payable on August 27, 2010 or upon demand by Mr.
Solomon. If the Note had been converted in full at September 30,
2009, Mr. Solomon would have received approximately 228,788,200 shares of the
Company's common stock resulting in a beneficial ownership of approximately 90%
of the Company's then issued and outstanding common stock. On
September 30, 2009, Mr. Solomon beneficially owned a total of 235,642,684 shares
of the Company’s common stock (as if the Note were converted into shares of the
Company’s common stock at that date), and the conversion of the note would
trigger a change in control giving Mr. Solomon control of the Company through
the voting power over a majority of the shares of outstanding common
stock.
The
conversion price of the Amended Note of approximately $0.0003 per share was
below the fair value per share of the common stock at the date the note was
issued resulting in beneficial conversion feature, therefore the
amount of discount assigned to the note is limited to the proceeds of
$69,451. The fair value of the beneficial conversion feature of
$69,451 was credited to additional paid-in capital. The discount is being
amortized to interest expense ratably over the two year term of the
note.
The
Company does not have a sufficient number of authorized shares of common stock
available to permit the conversion of the Note in full at this
time. The Company has agreed to use its best efforts to obtain
shareholder approval to (a) increase the number of authorized shares of common
stock to a number sufficient to permit conversion, or (b) to effect a reverse
stock split to reduce the number of currently outstanding shares of common stock
to a number small enough to permit the conversion of the Note.
The
conversion feature of the convertible note was evaluated under ASC 815-15 and
management determined that although there was not a sufficient number of
authorized shares to convert the Note, the Company is only required to use its
best efforts to increase the number of authorized shares or effect a reverse
stock split in order to deliver shares to Mr. Solomon. As a result, the embedded
conversion feature was not bifurcated and there is no related derivative
liability.
NOTE
C - INCOME TAXES
The Sale
was a taxable transaction to the Company for United States federal income tax
purposes and accordingly the Company recognized a gain in its federal income tax
return for the year ended December 31, 2006. Net operating loss
carryforwards of approximately $44,000,000 were used to fully offset the gain
reported in the federal income tax return filed for the year ended December 31,
2006. In addition, a tax liability of approximately $894,000
resulting from the application of the federal Alternative Minimum Tax (“AMT”)
rules was computed and was fully paid during the first quarter of
2007.
Unexpired
net operating loss carryforwards of approximately $2,500,000 at December 31,
2008 remain available to offset any future upward adjustments to the gain from
the Asset Sales or adjustments to unaudited open tax years resulting from
Internal Revenue Service audit adjustments. The Company does not
believe that there will be any additional material amount of taxes payable as a
result of the Sale and it believes that it has sufficient usable net operating
loss carryforwards to offset substantially all of any income or gain recognized
for “regular” federal income tax purposes resulting from a subsequent review and
adjustment by the Internal Revenue Service. However, there can be no assurance
that the Internal Revenue Service or relevant state tax authorities will
ultimately assent to the Company’s tax treatment of the asset sale or the
availability of net operating loss carryforwards to fully offset the gains from
the transaction or subsequent income adjustments. To the extent the
Internal Revenue Service or any relevant state tax authorities ultimately
prevail in re-characterizing the tax treatment of the asset sale or the net
operating loss carryforwards, there may be adverse tax consequences to the
Company and its stockholders, including that the Company could owe income taxes
on up to the entire purchase price and that its common stockholders would be
required to return any distributions they have received.
In
evaluating the exposure associated with various tax filing positions, the
Company considers the potential for accrual of charges for probable
exposures. At September 30, 2009, the Company believes that it has
appropriately considered probable tax exposures and determined that no accrual
was required. To the extent the Company were not to prevail in
matters for which tax accruals have been established or be required to pay taxes
in excess of recorded accruals, the effective tax rate in a given financial
statement period could be materially affected. Significant judgment
is required in determining the provision for income taxes. In the ordinary
course of business, there are many transactions for which the ultimate tax
outcome is uncertain. Reported results may be subject to final
examination by taxing authorities. Because many transactions are
subject to varying interpretations of the applicable federal, state or foreign
tax laws, reported tax liabilities and taxes may be subject to change at a later
date due to final determination by the taxing authorities. The impact
of this final determination on the Company’s estimated tax obligations could be
significant.
NOTE
D – STOCKHOLDERS’ EQUITY (DEFICIT)
The
balances related to stockholders’ equity (deficit), as reflected below reflects
adjustments to recast the financial statements on a going concern basis in lieu
of the liquidation basis of accounting previously reported for
periods after December 4, 2006 and includes the transactions and cumulative
adjustments to stockholders’ equity (deficit) for the period from December 5,
2006 to December 31, 2008:
Common
Stock
|
Total | |||||||||||||||||||
Number
of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accummulated
(Deficit)
|
Stockholders'
Equity
(Deficit)
|
||||||||||||||||
Balance
at December 4, 2006 as reported
|
34,318,230 | $ | 343,182 | $ | 47,528,206 | $ | (28,493,864 | ) | $ | 19,377,524 | ||||||||||
Cumulative
net loss on a going concern basis for the period December 5, 2006 to
December 31, 2008
|
(2,365,565 | ) | (2,353,990 | ) | ||||||||||||||||
Dividend
paid to common shareholders on January 5, 2007
|
(17,152,807 | ) | (17,152,807 | ) | ||||||||||||||||
Beneficial
conversion feature of note payable to officer
|
69,451 | 69,451 | ||||||||||||||||||
Balance
at December 31, 2008
|
34,318,230 | 343,182 | 30,444,850 | (30,859,429 | ) | (71,397 | ) | |||||||||||||
Net
loss for the nine months ended September 30, 2009
|
(67,643 | ) | (67,643 | ) | ||||||||||||||||
Balance
at September 30, 2009
|
34,318,230 | $ | 343,182 | $ | 30,444,850 | $ | (30,927,072 | ) | $ | (139,040 | ) |
Stock-based
Compensation Plans
The 2002
Stock Incentive Plan (the "Plan") was adopted by the board of directors and
approved by the shareholders of CDSS. The Plan authorizes the board of directors
or a committee, which administers the plan, to grant stock options, stock
appreciation rights, restricted stock and deferred stock awards to eligible
officers, directors, employees and consultants. A total of 3,000,000 shares of
common stock were reserved for issuance under the terms of the Plan. In the
event of any sale of assets, merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the stock, the Board or committee may make an equitable substitution
or adjustment in the aggregate number of shares reserved for issuance under the
Plan. Any options granted under the Plan have a term of 10 years and generally
vest over periods of up to three years. No options were outstanding or
exercisable at September 30, 2009 and December 31, 2008 under the
Plan. There were 2,562,776 stock options available for future grant
under the Plan.
In
addition, the Company has granted options outside of the Plan. These options are
not covered under a plan approved by the stockholders. The options granted have
a term of 10 years or less and generally vest over periods of from one to three
years. At September 30, 2009 and December 31, 2008, 675,000 options awarded
outside of the Plan were outstanding and exercisable at a weighted average
exercise price of $2.04 per share and have a weighted average remaining life of
4.61 years.
For
options granted the Company recognizes compensation expense based on the
estimated grant date fair value method using the Black-Scholes valuation model.
Compensation expense is recognized on a straight-line basis over the vesting
period of the options. FASB Accounting Standards Codification (“ASC”) Subtopic
718-20 – Stock Compensation Awards Classified as Equity (formerly SFAS No. 123R
(revised 2004), “Share-Based Payment”). ASC Subtopic 718-20 requires
that stock-based compensation expense be based on awards that are ultimately
expected to vest. No options were granted during the nine months
ended September 30, 2009 and 2008, therefore no stock compensation expanse has
been recorded. As of September 30, 2009 there was no unrecognized compensation
cost related to unvested stock options.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS
On
November 16, 2009 the Board of Directors terminated the plan of liquidation and
dissolution previously approved by the Board of Directors on October 13, 2006
and the shareholders of the Company on December 1, 2006. As a result,
the accompanying September 30, 2009 unaudited interim consolidated balance
sheets, unaudited consolidated statements of operations and statements of cash
flows for CDSS Wind Down Inc. required to be filed with this Quarterly Report on
Form 10-Q were prepared by management on a going concern basis without audit,
together with the related notes. Periods presented prior to September 30, 2009
are unaudited and have been recast on a going concern basis. In our
opinion, these unaudited interim consolidated financial statements present
fairly the financial position and results of operations for the three and nine
months ended September 30, 2009. See Note A for a discussion of
business operations and liquidity. The consolidated financial
statements for the year ended December 31, 2008 included in our fiscal year end
December 31, 2008 Annual Report on Form 10-K, previously filed with the
Securities and Exchange Commission, or the SEC were prepared using the
liquidation basis of accounting and are not comparable with the financial
statements presented in this Quarterly Report on Form 10-Q.
Our year
ends on December 31, and each of our quarters end on the final day of a calendar
quarter (March 31, June 30, and September 30). The following
discussions contain forward-looking statements. Please see Cautionary Statement
Regarding Forward-Looking Statements and Risk Factors for a discussion of
uncertainties, risks and assumptions associated with these
statements.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Historical
results and trends should not be taken as indicative of future operations. Our
statements contained in this report that are not historical facts are
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, of the Exchange Act. Actual results may differ materially from those
included in the forward-looking statements. We intend these forward-looking
statements to be covered by the safe-harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and are including this statement for purposes of complying with those
safe-harbor provisions. Forward-looking statements, which are based on our
assumptions and describe future plans, strategies and expectations for
ourselves, are generally identifiable by use of the words “believe,” “expect,”
“intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar
expressions. Our ability to predict results or the actual effect of our future
plans or strategies is inherently uncertain.
Factors
which could have a material adverse affect on our operations and our future
prospects on a consolidated basis include, without limitation, the
following:
|
—
|
possible
or assumed future results of
operations;
|
|
—
|
future
revenue and earnings;
|
|
—
|
business
and growth strategies;
|
|
—
|
the
uncertainty of general business and economic conditions;
and
|
|
—
|
those
described under Risk Factors.
|
These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Additional information concerning us and our business, including additional
factors that could materially affect our financial results, is included herein
and in our other filings with the SEC.
RESULTS
OF OPERATIONS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 and
2008
Three
months ended September 30, 2009 versus Three Months ended September 30,
2008
During
the three months ended September 30, 2009 we had no operations and no
employees. Our primary expenses consisted of professional fees,
records storage fees and fees associated with public company reporting
compliance.
Operating
expenses recorded during the three months ended September 30, 2009 were $7,150
versus $11,375 during the three months ended September 30, 2008. The
decrease of $4,225 was a result of lower professional fees and miscellaneous
expenses.
Interest
expense for the three months ended September 30, 2009 was $10,127 related to the
note payable to the CEO, including debt discount amortization of $8,681 versus
$3,442 for the three months ended September 30, 2008 including debt discount
amortization of $2,894.
Nine
months ended September 30, 2009 versus Nine Months ended September 30,
2008
During
the nine months ended September 30, 2008 we had no operations, terminated all of
our employees and reduced our recurring expenses to professional fees, records
storage fees and fees associated with public company reporting
compliance.
Operating
expenses recorded during the nine months ended September 30, 2009 were $37,306
versus $404,321 during the nine months ended September 30, 2008. The
decrease of $367,015 was a result of lower employee compensation expenses,
travel expenses, professional fees, office expenses and miscellaneous
expenses. During the nine month ended September 30, 3009 the Company
had no employees or office space. The expenses incurred during the
nine months ended September 30, 2009 were primarily related to professional
fees, offsite records storage expenses and expenses related to public company
reporting compliance.
Interest
expense for the nine months ended September 30, 2009 was $30,337 related to the
note payable to the CEO, including debt discount amortization of $26,044 versus
$3,442 for the nine months ended September 30, 2008 including debt discount
amortization of $2,894. During the nine months ended September 30,
2008 the Company recorded interest income of $970 from invested
cash.
Liquidity
and Capital Resources
Our cash
position at September 30, 2009 is $656 and we had outstanding liabilities to
unrelated third parties of $47,581 and notes payable and advances aggregating
$123,947 to related parties at September 30, 2009. There are no
operations from which cash flows may be generated. Our CEO provided
cash advances to us or paid expenses on our behalf of approximately $6,000 and
$40,900 during the three and nine months ended September 30, 2009,
respectively. If available cash is not adequate to meet our
obligations, liabilities, operating costs and claims, our CEO has committed to
advance us additional funds should it be necessary for working capital purposes,
on terms and conditions to be approved by the disinterested directors of the
Company and the CEO. Past funding needs of the business have been met
by cash advances from the CEO, however there can be no assurance that such funds
will be available from the CEO or other related parties in the future or on
terms acceptable to us. We have been and continue to be dependent
upon outside sources of cash to pay operating expenses.
ITEM 4T. 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.
The
Company's management, including the Company's principal executive
officer/principal financial officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13(a) - 15(e)
and 15(d) - 15(e) under the Securities Exchange Act of 1934) as of September 30,
2009. Based upon that evaluation, the Company's principal executive
officer/principal financial officer have concluded that the disclosure controls
and procedures were not effective, because certain deficiencies involving
internal controls constituted a material weakness as discussed in our Annual
Report on Form 10-K for the year ended December 31, 2008, as filed with the
Securities and Exchange Commission. The material weakness identified
did not result in the restatement of any previously reported financial
statements or any other related financial disclosure, nor does management
believe that it had any effect on the accuracy of the Company’s financial
statements for the current reporting period. The material weakness in
our internal control over financial reporting that we identified in our Annual
Report on Form 10-K for the year ended December 31, 2008 relates to our
documentation and a lack of segregation of duties due to our limited
size.
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.
Inherent
Limitation on the Effectiveness of Internal Controls
The
effectiveness of any system of internal control over financial reporting,
including ours, is subject to inherent limitations, including the exercise of
judgment in designing, implementing, operating, and evaluating the controls and
procedures, and the inability to eliminate misconduct completely. Accordingly,
any system of internal control over financial reporting, including ours, can
only provide reasonable, not absolute assurances. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. We intend
to continue to monitor and upgrade our internal controls as necessary or
appropriate for our business, but cannot assure you that such improvements will
be sufficient to provide us with effective internal control over financial
reporting.
PART
II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
Investing
in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
In
addition to the other information in this Report, the following risk factors
should be considered carefully in evaluating the Company and its
business. This disclosure is for the purpose of qualifying for the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. It contains factors that could cause results to differ
materially from such forward-looking statements. These factors are in
addition to any other cautionary statements, written or oral, which may be made
or referred to in connection with any such forward-looking
statement.
The
following matters, among other things, may have a material adverse effect on the
business, financial condition, liquidity, or results of operations of the
Company. Reference to these factors in the context of a
forward-looking statement or statements shall be deemed to be a statement that
any one or more of the following factors may cause actual results to differ
materially from those in such forward-looking statement or
statements. Before you invest in our common stock, you should be
aware of various risks, including those described below. Investing in
our common stock involves a high degree of risk. You should carefully consider
these risk factors, together with all of the other information included in this
Report, before you decide whether to purchase shares of our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose part or all of your
investment.
WE
HAVE A HISTORY OF NET LOSSES AND WILL NEED ADDITIONAL FINANCING TO CONTINUE AS A
GOING CONCERN.
We have
no revenues or earnings from operations, and there is a risk that we will be
unable to continue as a going concern and consummate a business combination or
other similar transaction. We have no significant assets or financial resources.
We will, in all likelihood, sustain operating expenses without corresponding
revenues, at least until the consummation of a merger or other business
combination. This may result in our incurring a net operating loss that will
increase unless we consummate a business combination with a profitable business.
We cannot assure you that we can identify a suitable business opportunity and
consummate a business combination, or that any such business will be profitable
at the time of its acquisition by us or ever.
Historically,
we have incurred recurring operating losses and have a stockholders' deficit at
September 30, 2009 of approximately $139,000. We had a cash balance
of $656 at September 30, 2009 and current liabilities of approximately
$140,000. We expect that we will incur losses at least until we
complete a business combination and perhaps after such a combination as well.
There can be no assurances that we will ever be profitable. We have
limited access to capital, no plans to raise capital and no third party sources
of capital at September 30, 2009. Our past funding needs of the business have
been provided by financings through cash advances received from and notes
payable issued to our Chief Executive Officer. There can be no
assurance that such funds will be available from this related party in the
future. Without additional funds there is an uncertainty as to
whether we can continue as a going concern.
OUR
CEO BENEFIOCIALLY OWNS A MAJORITY OF OUR VOTING SHARES.
On August
27, 2008, we and Steven B. Solomon, our Chief Executive Officer, President and
Chairman of the Board of Directors, entered into a Convertible Promissory Note
(the "Note"). The Note represents advances of approximately $69,451 made by Mr.
Solomon to us through the issue date of the Note. The Note bears
interest at eight percent (8%) per year and is payable on August 27, 2010 or
upon demand by Mr. Solomon. If the Note had been converted in full at
September 30, 2009, Mr. Solomon would have received approximately 228,788,200
shares of the Company's common stock resulting in a beneficial ownership of
235,652,684 shares of the Company’s common stock by our CEO giving him potential
control of the Company through the voting power over a majority of the shares of
outstanding common stock.
WE
HAVE NO OPERATIONS AND NO ASSURANCES OF BEGINNING OPERATIONS OR THAT WE WILL BE
SUCCESSFUL IN IDENTIFYING OR ACQUIRING A BUSINESS
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. Our current activities are limited to
|
§
|
preparing
and filing ongoing tax returns;
|
|
§
|
complying
with our Securities and Exchange Commission reporting requirements;
and
|
|
§
|
records
storage.
|
From
December 5, 2006 through the September 30, 2009, all known liabilities
associated our prior operations were settled and all distributions to
shareholders were made. On November 16, 2009 the Board of Directors
terminated the plan of liquidation and dissolution (the ”Plan of Liquidation”)
previously approved by the Board of Directors on October 13, 2006 and by the
shareholders
of the Company on December 1, 2006. Having discussed alternatives to
liquidating or dissolving the Company, the Board of Directors determined to
terminate the Plan of Liquidation and to consider alternatives including the
potential for commencing a development stage company or the potential for
acquiring an operating company in a merger or asset purchase
transaction. No business opportunities have been identified and there
can be no assurance that any suitable companies or operations may be identified
or acquired in the future.
OUR
STOCK IS TRADED IN THE OVER THE COUNTER MARKET.
Our
common stock trades on the OTC Bulletin Board. The OTC Bulletin Board
is generally considered to be a less efficient market, and our stock price, as
well as the liquidity of our common stock, may be adversely impacted as a
result. The OTC Bulletin Board requires that listed companies remain current in
their filings with the Securities and Exchange Commission. If we are
unable to remain current in our SEC filings, due to lack of funds or personnel
or otherwise, we could be delisted from the OTC Bulletin Board, and our stock
would trade, if at all, on the pink sheets.
OUR
STOCK PRICE IS SUBJECT TO SIGNIFICANT FLUCTUATIONS AND VOLATILITY.
Due to
the factors noted in this Report and other factors, our stock price has been and
may continue to be subject to significant volatility. We have
experienced no revenue or earnings which have had an immediate and significant
adverse effect on the trading price of our common stock. This may
occur again in the future.
IF
WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR CHIEF EXECUTIVE
OFFICER OR OUR DIRECTORS, OUR BUSINESS MAY SUFFER.
We are
dependent on our key officers, including Steven B. Solomon, our Chairman and
Chief Executive Officer and our directors. Our business could be negatively
impacted if we were to lose the services of one or more of these
persons. In addition, the loss of our CEO would eliminate our only
source of funds to maintain compliance reporting requirements.
WE
MAY BE ADVERSELY AFFECTED BY RECENT EVENTS IN THE CAPITAL AND CREDIT
MARKETS.
Recent
declines in consumer and business confidence and spending, together with severe
reductions in the availability and cost of credit and volatility in the capital
and credit markets, have adversely affected business and economic environments.
Any proposed acquisition is exposed to risks associated with the
creditworthiness of suppliers, customers and business partners. In particular,
we may be exposed to risks associated with the ongoing decline of the markets.
These conditions have resulting in financial instability or other adverse
effects at many prospective business partners. Any of these events may adversely
affect our cash flow, profitability and financial condition.
Moreover,
the current worldwide financial crisis has reduced the availability of liquidity
and credit to fund or support the continuation and expansion of business
operations worldwide. Many lenders and institutional investors have reduced and,
in some cases, ceased to provide funding to borrowers. Continued disruption of
the credit markets has affected and could continue to adversely affect our
ability to access credit from any proposed business combination.
OUR
OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST.
Although
we have not identified any potential acquisition target or new business
opportunities, the possibility exists that we may acquire or merge with a
business or company in which our executive officers, directors, beneficial
owners or their affiliates may have an ownership interest. A transaction of this
nature would present a conflict of interest for those parties with a managerial
position and/or an ownership interest in both the Company and the acquired
entity. An independent appraisal of the acquired company may or may not be
obtained in the event a related party transaction is
contemplated.
WE
MAY BE SUBJECT TO FINAL EXAMINATIONS BY TAXING AUTHORITIES ACROSS VARIOUS
JURISDICTIONS WHICH MAY IMPACT THE AMOUNT OF TAXES THAT WE PAY
In
evaluating the exposure associated with various tax filing positions, we accrue
charges for probable exposures. At December 31, 2008, we believe we have no
probable exposures. To the extent we were not to prevail in matters for which
accruals would have been established or be required to pay amounts in excess of
any such accruals, our effective tax rate in a given financial statement period
could be materially affected. Significant judgment is required in determining
our provision for income taxes. In the ordinary course of business, there are
many transactions for which the ultimate tax outcome is uncertain. Our reported
results may be subject to final examination by taxing authorities. Because many
transactions are subject to varying interpretations of the applicable federal,
state or foreign tax laws, our reported tax liabilities and taxes may be subject
to change at a later date upon final determination by the taxing authorities.
The impact of this final determination on our estimated tax obligations could
increase or decrease amounts of cash available to us, perhaps
significantly.
OUR
ASSUMPTIONS REGARDING THE FEDERAL TAX CONSEQUENCES OF THE ASSET SALE MAY BE
INACCURATE.
The Asset
Sale was a taxable transaction to us for United States federal income tax
purposes and we recognized a gain on the asset sale under the Asset Purchase
Agreement. We do not believe, however, that there will be material tax payable
by us, other than approximately $894,000 of federal Alternative Minimum Tax
(“AMT”) as a result of limitations on the use of net operating losses under AMT
rules. This tax liability was paid during the first quarter of 2007. We believe
we have sufficient usable net operating losses to offset substantially all of
the income or gain recognized by us for “regular” federal income tax purposes as
a result of the asset sale (i.e., other than AMT). After filing of federal
income tax returns by us and our subsidiaries, we believe that we will have net
operating losses of approximately $44,000,000 to offset taxable income for the
year ended December 31, 2006, including losses arising prior to and after the
date of our 2002 spin-off from our former parent company. We expect that our
taxable income, including the gain on the Asset Sale, for federal income tax
purposes will be less than available net operating loss carry-forwards of
approximately $44,000,000. Therefore, we will not set aside any material amounts
specifically for the payment of any tax liability, other than the $894,000 AMT
payment that we have made. However, there can be no assurance that
the Internal Revenue Service or relevant state tax authorities will ultimately
assent to our tax treatment of the asset sale or the net operating losses. To
the extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in re-characterizing the tax treatment of the asset sale or
the net operating losses, there may be adverse tax consequences to us and our
stockholders, including that we could owe income taxes on up to the entire
purchase price and our common stockholders could 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 Asset Sale. 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, our stockholders could be required to return any distributions
they have received.
ITEM 6. EXHIBITS
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
Certification
of Principal Executive Officer/Principal Financial Officer, filed
herewith.
|
||
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.
|
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 Quarterly Report on Form
10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
November 20, 2009
|
CDSS
WIND DOWN INC.
|
|
By:/s/
STEVEN B. SOLOMON
|
||
Steven
B. Solomon, President and Chief Executive Officer
|
||
(Duly
Authorized Signatory and Principal Executive Officer and Acting Principal
Accounting and Financial Officer)
|
23