UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarterly period ended
February 29, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 0-22972
CLST HOLDINGS, INC.
(Exact name of registrant as specified in its
charter)
Delaware
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75-2479727
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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17304 Preston Road, Dominion
Plaza, Suite 420
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Dallas, Texas
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75252
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(Address of principal executive offices)
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(Zip Code)
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(972) 267-0500, Extension 4101
(Registrants telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the 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 is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer 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
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act.). Yes
o
No
x
On April 7, 2008, there were
20,553,205 outstanding shares of common stock, $0.01 par value per share.
CLST HOLDINGS, INC.
INDEX TO FORM 10-Q
2
PART IFINANCIAL
INFORMATION
Item 1.
Financial Statements
CLST
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(In thousands, except share and per share data)
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February 29,
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November 30,
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2008
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2007
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ASSETS
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(unaudited)
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Current assets:
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Cash and cash equivalents
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$
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16,494
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$
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11,799
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Accounts receivable - other
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1,165
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5,697
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Prepaid expenses and other current assets
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234
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556
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Total current assets
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17,893
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18,052
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Property and equipment, net
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3
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1
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Deferred income taxes
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4,786
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4,786
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Other assets
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1,016
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1,136
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$
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23,698
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$
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23,975
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LIABILITIES
AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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14,273
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$
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14,244
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Accrued expenses
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872
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868
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Total liabilities, commitments and
contingencies
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15,145
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15,112
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, $.01 par value, 5,000,000
shares authorized; none issued
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Common stock, $.01 par value, 200,000,000
shares authorized; 21,187,229 shares issued and 20,553,205 shares outstanding
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212
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212
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Additional paid-in capital
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126,034
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126,034
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Accumulated other comprehensive
incomeforeign currency translation adjustments
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217
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217
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Accumulated deficit
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(116,263
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)
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(115,953
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)
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10,200
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10,510
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Less: Treasury stock (634,024 shares at
cost)
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(1,647
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)
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(1,647
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)
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8,553
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8,863
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$
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23,698
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$
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23,975
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See accompanying notes to unaudited consolidated
financial statements.
3
CLST
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Three months ended February 29, 2008 and February 28,
2007
(unaudited)
(In thousands, except per share data)
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2008
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2007
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Selling, general and administrative
expenses
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$
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458
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$
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2,525
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Operating loss
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(458
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)
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(2,525
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)
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Other income (expense):
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Interest expense
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(96
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)
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Loss on settlement of note receivable
related to sale of Asia-Pacific operations
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(494
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)
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Other, net
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133
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27
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Total other income (expense)
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133
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(563
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)
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Loss from continuing operations before income
taxes
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(325
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)
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(3,088
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)
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Income tax expense (benefit)
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(5
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)
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840
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Loss from continuing operations
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(320
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)
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(3,928
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)
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Discontinued operations, net of taxes of $5
thousand and $518 thousand for 2008 and 2007, respectivley
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10
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962
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Net loss
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$
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(310
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)
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$
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(2,966
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)
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Net loss per share:
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Basic and diluted:
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Loss from continuing operations
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$
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(0.02
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)
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$
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(0.19
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)
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Discontinued operations, net of taxes
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0.00
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0.05
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Net loss per share
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$
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(0.02
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)
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$
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(0.14
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)
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Weighted average number of shares:
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Basic and diluted
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20,553
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20,482
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See accompanying notes to unaudited consolidated
financial statements.
4
CLST
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME
Three months ended February 29, 2008 and February 28,
2007
(Unaudited)
(In thousands, except per share data)
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Accumulated
other
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Common Stock
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Treasury Stock
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Additional
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comprehensive
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Accumulated
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Shares
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Amount
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Shares
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Amount
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paid-in capital
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loss
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deficit
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Total
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Balance at November 30, 2007
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21,187
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$
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212
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(634
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)
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$
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(1,647
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)
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$
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126,034
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$
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217
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$
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(115,953
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)
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$
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8,863
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Comprehensive income:
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Net loss
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(310
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)
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(310
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)
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Total comprehensive loss
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(310
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)
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Balance at February 29, 2008
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21,187
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$
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212
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(634
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)
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$
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(1,647
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)
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$
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126,034
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$
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217
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$
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(116,263
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)
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$
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8,553
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Balance at November 30, 2006
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21,188
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$
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212
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(29
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)
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$
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(94
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)
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$
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124,346
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$
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(8,603
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)
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$
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(99,091
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)
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$
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16,770
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|
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|
|
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|
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Comprehensive income:
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|
|
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|
|
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|
|
|
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Net loss
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|
|
|
|
|
|
|
|
|
|
|
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(2,966
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)
|
(2,966
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)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
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(116
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)
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(116
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)
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Total comprehensive loss
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|
|
|
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(3,082
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)
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Amortization of restricted stock
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|
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|
199
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199
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Stock option expense
|
|
|
|
|
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3
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|
|
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|
|
3
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance at February 28, 2007
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21,188
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|
$
|
212
|
|
(29
|
)
|
$
|
(94
|
)
|
$
|
124,548
|
|
$
|
(8,719
|
)
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$
|
(102,057
|
)
|
$
|
13,890
|
|
See accompanying notes to unaudited consolidated
financial statements.
5
CLST
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended February 29, 2008 and February 28,
2007
(Unaudited)
(In thousands)
|
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2008
|
|
2007
|
|
|
|
|
|
|
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Cash flows from operating activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(310
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)
|
$
|
(2,966
|
)
|
Adjustments to reconcile net loss to net
cash provided by operating activities:
|
|
|
|
|
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Stock based compensation
|
|
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|
202
|
|
Depreciation and amortization
|
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88
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Changes in operating assets and
liabilities:
|
|
|
|
|
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Accounts receivable - other
|
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4,532
|
|
|
|
Prepaid expenses and other current assets
|
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322
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|
(1,603
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)
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Other assets
|
|
120
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|
643
|
|
Accounts payable
|
|
29
|
|
|
|
Accrued expenses
|
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4
|
|
(1,008
|
)
|
Income taxes payable
|
|
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|
95
|
|
Discontinued operations - U.S., Miami,
Mexico, and Chile operations
|
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24,528
|
|
|
|
|
|
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Net cash provided by operating activities
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|
4,697
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|
19,979
|
|
|
|
|
|
|
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Cash flows from investing activities:
|
|
|
|
|
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Purchases of property and equipment
|
|
(2
|
)
|
(4
|
)
|
Discontinued operations - U.S., Miami,
Mexico, and Chile operations
|
|
|
|
(2,868
|
)
|
|
|
|
|
|
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Net cash used in investing activities
|
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(2
|
)
|
(2,872
|
)
|
|
|
|
|
|
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Cash flows from financing activities:
|
|
|
|
|
|
Borrowings on notes payable
|
|
|
|
137,619
|
|
Payments on notes payable
|
|
|
|
(164,913
|
)
|
Borrowings on Term Loan
|
|
|
|
1,890
|
|
Payments on Term Loan
|
|
|
|
(250
|
)
|
Redemption of 12% Senior Subordinated Notes
|
|
|
|
(1,915
|
)
|
Additions to deferred loan costs
|
|
|
|
(2
|
)
|
Discontinued operations - U.S., Miami,
Mexico, and Chile operations
|
|
|
|
(2,721
|
)
|
|
|
|
|
|
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Net cash used in financing activities
|
|
|
|
(30,292
|
)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
4,695
|
|
(13,185
|
)
|
Cash and cash equivalents at beginning of
period
|
|
11,799
|
|
20,673
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
16,494
|
|
$
|
7,488
|
|
See accompanying notes to unaudited consolidated
financial statements.
6
CLST
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis for Presentation
Although the interim consolidated financial statements of CLST Holdings, Inc.,
formerly CellStar Corporation, and subsidiaries (the Company) are unaudited,
Company management is of the opinion that all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the results
have been reflected therein. Net income (loss) for any interim period is not
necessarily indicative of results that may be expected for any other interim
period or for the entire year.
These statements should be read in conjunction with the consolidated
financial statements and related notes included in the Companys Annual Report
on Form 10-K for the year ended November 30, 2007. The consolidated
financial statements include the accounts of all subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
The Company has reclassified to discontinued operations, for all
periods presented, the results and related charges for the North American and
Latin American Regions. (See footnote 2.)
(b) Interest Expense
In 2007 it was decided that 90% of interest expense would be allocated
to discontinued operations based on the small amount of borrowings in the four
months before the sale, where as before interest expense was allocated based on
working capital and a percentage of revenues, by subsidiary based on large
amounts of borrowings.
(2) Discontinued Operations
During fiscal year 2007 we sold all of our
U.S. operations, including our
Miami-based Latin American operations (the US Sale), Mexico operations (the Mexico Sale) and Chile
operations. For more information on these transactions, please see the Companys
Annual Report on Form 10-K filed on March 12, 2008.
The results of discontinued operations for U.S., Miami, Mexico and
Chile for the three months ended February 29, 2008 and February 28,
2007, are as follows (in thousands):
|
|
February 29,
|
|
February 28,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
196,071
|
|
Cost of sales
|
|
|
|
181,636
|
|
Gross profit
|
|
|
|
14,435
|
|
Selling, general and administrative
expenses
|
|
|
|
9,945
|
|
Operating income
|
|
|
|
4,490
|
|
Other income (expense):
|
|
|
|
|
|
Interest expense
|
|
|
|
(865
|
)
|
Loss on sale of accounts receivable
|
|
|
|
(527
|
)
|
Minority Interest
|
|
|
|
(1,719
|
)
|
Gain on transactions
|
|
|
|
|
|
Other, net
|
|
15
|
|
101
|
|
Total other income (expense)
|
|
15
|
|
(3,010
|
)
|
|
|
|
|
|
|
Income before income taxes
|
|
15
|
|
1,480
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
5
|
|
518
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
$
|
10
|
|
$
|
962
|
|
7
(3) Stock-Based Compensation
The Company had granted stock options to directors, officers and key
employees of the Company for purchase of the Companys common stock pursuant to
the CellStar Corporation 2003 Long-Term Incentive Plan (the 2003 Plan), the
CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan and our
1994 Amended and Restated Director Non-Qualified Stock Option Plan. Options
granted generally vest ratably over four year periods.
The Company used the Black-Scholes option pricing model to determine
the fair value of all option grants. We did not grant any options during the
three months ended February 29, 2008 and February 28, 2007. We do not
expect to issue any stock-based compensation in future periods.
For the three months ended February 28, 2007, the Company recorded
$3,000 for stock-based compensation expense related to stock option grants made
in prior years. This amount is included in selling, general and administrative
expenses.
During 2005 and 2006, we granted shares of restricted stock to our
executive officers, directors and certain employees pursuant to the 2003 Plan.
The shares of restricted stock vested in thirds over a three-year period,
beginning on the first anniversary of the grant date. The restricted stock
became 100% vested if any of the following occurred: (i) the participants
death; (ii) the termination of the participants service as a result of
disability; (iii) the termination of the participant without cause; (iv) the
participants voluntary termination after the attainment of age 65; or (v) a
change in control. The total value of the awards, $2.6 million, was expensed
over the service period. The 2003 Plan permitted withholding of shares by the
Company upon vesting to pay withholding tax. These withheld shares were
considered as treasury stock and were available to be re-issued under the 2003
Plan. During the year ended November 30, 2006, 144,025 shares vested, of
which 29,389 shares were withheld by the Company to pay withholding tax.
At February 28, 2007, the total remaining unearned compensation
related to restricted stock awards was $1.5 million which was to be amortized
over the service periods through March 2009. Included in selling general
and administrative expense is $0.2 million of expenses related to the
restricted stock grants for the three months ended February 28, 2007.
There were no such expenses recorded during the first quarter of 2008, and the
Company does not anticipate any expenses in future periods.
The
Company terminated its 2003 Plan in the fourth quarter of 2007.
(4) Settlement of note receivable related to the sale of
Asia-Pacific
On March 5, 2007, we announced that we had signed an agreement,
effective February 27, 2007, with Fine Day Holdings Limited (Fine Day)
and Mr. Horng An-Hsien (Mr. Horng), the Chairman and sole
shareholder of Fine Day, and formerly an executive officer of the Company,
accepting a settlement of an outstanding note receivable related to the September 2005
sale of our Hong Kong and Peoples Republic of China (PRC) operations.
Since
September 2, 2005, Fine Day had made timely interest payments to us on the
promissory note. However, Fine Day informed us in February 2007 that it
would not be able to pay quarterly interest payments or the principal amount of
the note at maturity after the March 1, 2007 interest payment. In
settlement of the outstanding note, we agreed to accept a $650,000 cash
payment, along with the transfer to the Company of all of Mr. Horngs
shares of our common stock, approximately 474,000 shares. The carrying value of
the note, prior to the agreement, was $2.4 million. As a result of the
settlement, we recorded a loss of $0.5 million for the quarter ended February 28,
2007. The shares of stock were valued at $2.56 per share based on the closing
price on April 12, 2007. The transaction closed on April 12, 2007,
and we recorded an additional loss of $43,000 during the quarter ended May 31,
2007 to reflect the change in the value of the stock up to the time of closing.
At August 31, 2007, the shares of stock previously owned by Mr. Horng
are included in treasury stock.
(5) Net Loss Per Share
Options to purchase 0.1 million and 0.5 million shares of common stock
for the three months ended February 29, 2008 and February 28, 2007,
respectively, were not included in the computation of diluted earnings per
share because the exercise price was higher than the average market price.
Shares of unvested restricted stock of 0.7 million for the three months ended February 28,
2007, were not included because of the loss from continuing operations.
(6) Settlement of Note Receivable from Peru
On December 2, 2007, the Company
received approximately $95,000 from Muniz Ramirez Perez-Taiman
representing the final payment due the Company from the 2002 sale of its
operations in Peru. The accounts receivable had been previously fully reserved
and, therefore, the amount was recorded as a credit to bad debt expense.
8
(7) Commitments
and Contingencies
We
have an agreement with one employee to assist with the final wind down of our
business. Under the agreement the employee is to receive her base salary as
well as a bonus upon the completion of certain objectives during the
liquidation process. The estimated commitment remaining under the agreement at February 29,
2008 is $54,000.
We
are party to various claims, legal actions and complaints arising in the
ordinary course of business. Our management believes that the disposition of
these matters will not have a materially adverse effect on our consolidated
financial condition or results of operations.
The Company has been
informed of the existence of an investigation that may relate to the Company or
its South American operations.
Specifically, the Company understands that authorities in a foreign
country are reviewing allegations from unknown parties that remittances were
made from South America to Company accounts in the United States in 1999. The Company does not know the nature or
subject of the investigation, or the potential involvement, if any, of the
Company or its former subsidiaries. The
Company does not know if allegations of wrongdoing have been made against the
Company, its former subsidiaries or any current or former Company personnel or
if any of them are subjects of the investigation. However, the fact that the Company is aware
of an allegation of transfer of money from South America to the United States
and may have questioned witnesses about such alleged transfers means that the
Company cannot rule out the possibility of involvement.
On
October 30, 2007, Ms. Sherrian Gunn, the former Chief Executive
Officer, filed an Original Petition asserting a claim for breach of Employment
Agreement. Ms. Gunn seeks
approximately $365,000, plus attorney fees and interest. The Company has accrued approximately
$365,000 as of February 29, 2008 related to the litigation.
(8) New Accounting Pronouncements
In
July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109, which clarifies the
accounting for uncertainty in tax positions. This interpretation requires that
we recognize in our financial statements the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. The provisions of FIN 48 were effective as of
the beginning of the Companys 2008 fiscal year, with the cumulative effect of
the change in accounting principle recorded as an adjustment to retained
earnings. The Company is currently evaluating the impact of adopting FIN 48 on
its financial statements, and as such, has not analyzed our open tax
returns. As a result, our auditors have
not performed any review or testing related to the Companys adoption of FIN
48.
In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements
(SFAS 157), which defines fair
value, establishes a market-based framework or hierarchy for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value and, while not expanding or
requiring new fair value measurements, the application of this statement may
change current practices. The
requirements of SFAS 157 are effective for the fiscal year beginning December 1,
2008. However, in February 2008 the FASB decided that an entity need
not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis until the subsequent year. Accordingly, the adoption
of this standard on December 1, 2007 is limited to financial assets and
liabilities, which did not have an impact on our financial statements.
In December 2007,
the FASB released Statement No. 141 R, Business Combinations (SFAS 141R),
which establishes principles for how the acquirer shall recognize acquired
assets, assumed liabilities and any noncontrolling interest in the acquiree,
recognize and measure the acquired goodwill in the business combination, or
gain from a bargain purchase, and determines disclosures associated with
financial statements. This statement replaces SFAS 141 but retains the
fundamental requirements in SFAS 141 that the acquisition method of
accounting (which SFAS 141called the purchase method) be used for all business
combinations and for an acquirer to be identified for each business
combination. The requirements of SFAS 141R apply to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. Early
application is not permitted.
From time to time, new
accounting pronouncements are issued by the FASB or other standards setting
bodies which we adopt as of the specified effective date. Unless otherwise
discussed, our management believes the impact of recently issued standards
which are not yet effective will not have a material impact on our consolidated
financial statements upon adoption.
9
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company
recorded a loss of $0.3 million or $0.02 per
share for the first quarter 2008, compared to a loss of $3.0 million or $0.14
per share for the same period in 2007. The results for the first quarter 2007
included income from discontinued operations net of taxes of $1.0 million.
We have sold all of our major assets and only a small administrative
staff remains to wind up our business. Our stockholders approved the U.S. Sale,
the Mexico Sale, the plan of dissolution, and the name change to CLST Holdings, Inc.
on March 28, 2007, and we continue to follow the plan of dissolution.
However, consistent with the plan of dissolution and its fiduciary duties, our
board of directors will continue to consider the proper implementation of the
plan of dissolution and the exercise of the authority granted to it thereunder,
including the authority to abandon the plan of dissolution. Our board of
directors has in the past year considered whether it is possible, and if it
would be in the best interest of the Company, to de-register with the
Securities and Exchange Commission (the SEC) and thereby eliminate the
Companys responsibilities to file reports with the SEC. Due to the number of
current stockholders and the steps the Company
would need to take
to reduce the number of stockholders, our board of directors is not currently
considering de-registering with the SEC, but may reconsider doing so in the
future.
On July 19, 2007, we paid a $1.50 per share dividend under the
plan of dissolution, resulting in the distribution to stockholders of
approximately $30.8 million. On November 1, 2007 we paid an
additional $0.60 per share dividend to stockholders, which brings the
cumulative dividends paid to stockholders to $2.10 per share or approximately
$43.2 million.
On December 21, 2007, we announced, consistent with its fiduciary
duties, that the Board of Directors is now giving careful consideration to the
strategic alternatives available to the Company, with a view to maximizing
stockholder value. Among other matters, the Board is reviewing potential
acquisitions and the value of the Companys tax assets. If the Board determines
that it is in the best interest of the Company to pursue an acquisition, it will
likely require the Company to obtain debt and/or equity financing. Even if we
obtain access to the necessary capital, we may be unable to identify suitable
acquisition opportunities, negotiate acceptable terms or successfully acquire
identified targets. It is unlikely the Board of Directors will make any further
distributions to the Companys stockholders under the Plan while it considers
the strategic alternatives available to the Company. As a result of the
on-going evaluation, we are not giving any guidance to stockholders regarding
an expected range of cumulative distributions. It is possible that the Board of
Directors will, in the exercise of its fiduciary duty, elect to abandon the
plan of dissolution for a strategic alternative that it believes will maximize
stockholder value, and that no further liquidating distributions will be made.
Discussion of Critical Accounting Policies
Our discussion
and analysis of our financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in accordance
with accounting policies that are described in the Notes to the Consolidated
Financial Statements. The preparation of the consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. We continually evaluate our judgments and
estimates in determination of our financial condition and operating results.
Estimates are based on information available as of the date of the financial
statements and, accordingly, actual results could differ from these estimates,
sometimes materially. Critical accounting policies and estimates are defined as
those that are both most important to the portrayal of our financial condition
and operating results and require managements most subjective judgments. The
most critical accounting policies and estimates are described below. The
following is applicable to our discontinued operations.
Stock-Based
Compensation
Prior to fiscal 2006, the Company accounted for its stock options under
the recognition and measurement provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Effective December 1,
2005, the Company adopted the provisions of SFAS No. 123 (Revised 2004), Share-Based
Payments (SFAS 123(R)), and selected the modified prospective method to
initially report stock-based compensation amounts in the consolidated financial
statements. The Company used the Black-Scholes option pricing model to
determine the fair value of all option grants. The Company did not grant any
options during the years ended November 30, 2007 and 2006.
During 2006, the Company granted shares of restricted stock to
executive officers, directors and certain employees of the Company pursuant to
the 2003 Plan. The shares of restricted stock vested in thirds over a
three-year period, beginning on the first anniversary of the grant date. The
restricted stock was to become 100% vested if any of the following occurred: (i) the
participants death; (ii) the termination of participants service as
result of disability; (iii) the termination of the participant without
cause; (iv) the participants voluntary termination after the attainment
of age 65; or (v) a change in control. The total value of the awards,
$2.6 million, was being expensed over the service period. The 2003 Plan
permitted withholding of shares by the Company upon vesting to pay withholding
tax. These withheld shares were considered as treasury stock and were available
to be re-issued under the
10
2003 Plan,
prior to the termination of the 2003 Plan on September 25, 2007.
Restricted stock issued under the 2003 Plan vested upon the completion of the
U.S. Sale and no new shares will be issued.
Sales Transactions
During fiscal year 2007 we sold all of our U.S.
operations, including our
Miami-based
Latin American operations (the US Sale),
Mexico operations (the Mexico Sale) and Chile operations. For more
information on these transactions, please see the Companys Annual Report on Form 10-K
filed on March 12, 2008.
Cautionary Statements
On February 20, 2007, we filed a proxy statement with the SEC
recommending that stockholders approve the U.S. Sale, the Mexico Sale, and a
plan of liquidation and dissolution for the Company. On March 28, 2007,
our stockholders approved these proposals, and the U.S. Sale closed on March 30,
2007 and the Mexico Sale closed on April 12, 2007. Also on June 11,
2007, we sold our Chile operations and as a result, we no longer have any
revenue generating operations. Prior to the closing of the U.S. Sale, the
Mexico Sale and the Chile Sale, our operating performance was subject to a
variety of risks, which are more fully described in Item 1A of our Annual
Report on Form 10-K for the twelve months ended November 30, 2006,
and our proxy statement filed February 20, 2007. The amount and timing of
any distributions paid to stockholders in connection with the liquidation and
dissolution of the Company are subject to uncertainties and depend on the
resolution of certain contingencies more fully described in the proxy statement
and elsewhere in this Form 10-K.
In the plan of dissolution approved during our Special Meeting of
stockholders on March 28, 2007, we stated that no distribution of proceeds
from the U.S. and Mexico sales would be made until the investigation by the SEC
was resolved (see Part II, Item 1Legal Proceedings for more
information). On June 26, 2007, we received a letter from the staff of the
SEC giving notice of the completion of their investigation with no enforcement
action recommended to the SEC. On June 27, 2007, our Board declared a cash
distribution of $1.50 per share on common stock to stockholders of record as of
July 9, 2007. On July 19, 2007, we issued the $1.50 per share
dividend in the total amount of $30.8 million. On November 1, 2007 we
paid an additional $0.60 per share dividend to stockholders, which brings the
cumulative dividends paid to stockholders to $2.10 per share or approximately
$43.2 million.
On December 21, 2007 we announced, consistent with its fiduciary
duties, that the Board of Directors is now giving careful consideration to the
strategic alternatives available to the Company, with a view to maximizing
stockholder value. Among other matters, the Board is reviewing potential
acquisitions and the value of the Companys tax assets. If the Board determines
it is in the best interest of the Company to pursue an acquisition, it will
likely pursue debt financing or equity issuance in order to finance such
acquisition. It is unlikely the Board of Directors will make any further
distributions to the Companys stockholders under the Plan while it considers
the strategic alternatives available to the Company. As a result of the
on-going evaluation, we are not giving any guidance to stockholders regarding
an expected range of cumulative distributions. It is possible that the Board of
Directors will, in the exercise of its fiduciary duty, elect to abandon the
plan of dissolution for a strategic alternative that it believes will maximize
stockholder value, and that no further liquidating distributions will be made.
Results of Operations
As previously
stated, we have sold all of our major assets and only a small administrative
staff remains to wind up our business. The Company has no significant
operations today other than the expenses associated with the small
administrative staff winding down the Company. As discussed below, the Companys selling, general and administrative
expenses were $0.5 million for the first quarter 2008 compared to $2.5 million
for the first quarter 2007. The reduction in expenses in 2008 is due to the
fact that the Company reduced its staff, relocated its headquarters, eliminated
its 401K and benefits plans, and in general has reduced expenses in all
categories as a result of the sale of its operations.
Three Months Ended February 29, 2008,
Compared to Three Months Ended February 28, 2007
Revenues and Gross Profit
.
The Company does not have any revenues nor
gross profit to report due to the sale of its operations in 2007.
Selling, General, and Administrative Expenses
.
The Companys selling, general and administrative expenses were $0.5
million for the first quarter 2008 compared to $2.5 million for the first
quarter 2007. The reduction in expenses in 2008 is due to the fact that the
Company reduced its staff, relocated its headquarters, eliminated its 401K and
benefits plans, and in general has reduced expenses in all categories as a
result of the sale of its operations.
Total Other Income
.
The Companys total other income
for the first quarter 2008 was $0.1 million, compared to an expense during the
same quarter in 2007 of $0.6 million. The first quarter 2007 also included a
$0.5 million loss from a note receivable related to the
11
sale of our Asia-Pacific
operations and interest expense of $0.1 million. During the first quarter of
2008, the Company had only interest income.
Income taxes
. The
Company recorded tax expense of $0.8 million from continuing operations, and
tax expense of $0.5 million related to discontinued operations in the first
quarter of 2007. Net tax expense for the
first quarter of 2008 was $0, which includes the impact of continuing and
discontinued operations.
Discontinued Operations
.
During the first quarter of 2007, the Company reported $1.0
million of income from discontinued operations. For first quarter 2008, income
from discontinued operations was less than $0.1 million.
Liquidity and Capital Resources
As of February 29, 2008 the
Company has cash and cash equivalents of $16.5 million. The Company had no loans
outstanding as of February 29, 2008.
Prior to the sales of our operations, we were able to use funds
generated from each of the respective operations, trade credit lines available
from our suppliers, borrowings under our revolving credit facility, factoring
of accounts receivable, and sale of assets to meet our operating needs.
Subsequent to the sale of our operations, we will meet our needs with existing
funds and interest and investment income generated by the Companys cash and
cash equivalents. At November 30, 2007, we had cash and cash equivalents
of $11.8 million.
Operating Activities
The net cash we received from operating activities for the first
quarter 2008 was $4.7 million compared to $20.0 million in the first quarter
2007, including $24.5 million of cash flow from discontinued operations. The
primary reason for the increase was the collection of $4.7 million of accounts
receivable from Brightpoint, Inc., (the purchaser of our U.S. and
Miami operations)
, our escrow agent with respect to the U.S. Sale, and a
payment of $0.1 million related to the sale of our operations in Colombia,
which took place in April 2004.
Investing Activities
The Company
did not have any significant investing
activities during the first quarter 2008.
Financing Activities
The Company
did not have any financing activities during
the first quarter 2008.
Contractual Obligations
We have an agreement with one employee to assist with the final wind
down of our business. Under the agreement, the employee is to receive base
salary as well as a bonus upon the completion of certain objectives during the
liquidation process. The maximum payments remaining under this agreement at February 29,
2008 is $54,000, and we expect to pay this amount out of our available cash.
Included in accounts payable at February 29, 2008, is
approximately $14.2 million associated with liabilities which may be
resolved in the liquidation process. In the event these liabilities are
resolved for less than book value, net operating loss carryforwards will be
used to offset any tax liability associated with reductions of the recorded
liabilities.
New Accounting Pronouncements
Accounting
Pronouncements Not Yet Adopted
In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109,
which clarifies the accounting for uncertainty in tax positions. This
interpretation requires that we recognize in our financial statements the
impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 were effective as of the beginning of the Companys
2008 fiscal year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to retained earnings. The Company is
currently evaluating the impact of adopting FIN 48 on our financial
statements and as such has not analyzed its open tax returns, As a result, our
auditors have not performed any review or testing related to the Companys
adoption of FIN 48.
In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements
(SFAS 157), which defines fair
value, establishes a market-based framework or hierarchy for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
applicable whenever another accounting pronouncement requires or permits assets
and liabilities to be measured at fair value and, while not expanding or
requiring new fair value measurements, the application of this statement may
change current practices. The
requirements of SFAS 157 are effective for the fiscal year beginning December 1,
2008. However, in
12
February 2008 the FASB
decided that an entity need not apply this standard to nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis until the subsequent year.
Accordingly, the adoption of this standard on December 1, 2007 is limited
to financial assets and liabilities, which did not have an impact on our
financial statements.
In December 2007, the FASB released Statement No. 141 R, Business
Combinations (SFAS 141R), which establishes principles for how the
acquirer shall recognize acquired assets, assumed liabilities and any
noncontrolling interest in the acquiree, recognize and measure the acquired
goodwill in the business combination, or gain from a bargain purchase, and
determines disclosures associated with financial statements. This statement
replaces SFAS 141 but retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which
SFAS 141called the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. The
requirements of SFAS 141R apply to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Early application is not
permitted.
From time to time, new accounting pronouncements are issued by the FASB
or other standards setting bodies which we adopt as of the specified effective
date. Unless otherwise discussed, our management believes the impact of
recently issued standards which are not yet effective will not have a material
impact on our consolidated financial statements upon adoption.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
This information has been
omitted as the Company qualifies as a smaller reporting company.
Item
4T. Controls and Procedures
There were changes in our
internal control over financial reporting during the year ended November 30,
2007 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. We completed the U.S.
Sale on March 30, 2007 and the Mexico Sale on April 12, 2007. In
conjunction with the U.S. and Mexico Sales, a substantial number of our
employees either resigned or transferred to the acquiring entities. Also as a
result of the U.S. Sale, the Chief Executive Officer, Chief Administrative
Officer, and Chief Financial Officer resigned. To supplement controls, we used
consultants to perform reviews of certain key reconciliations and accounting
records that were previously performed by employees. Additionally on June 11,
2007, we completed the sale of our operations in Chile. We anticipate that
changes will continue to be made to our internal controls as a result of the
reduction of employees and consolidation of functions to reflect our new size
and on-going wind down of operations.
Our Chief Executive Officer
and Chief Financial Officer has evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e))
as of the end of the period covered by this report. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer has concluded that the
Companys disclosure controls and procedures were effective at November 30,
2007.
The Company is neither a
large accelerated filer nor an accelerated filer as those terms are defined in
SEC Rule 12b-2. Beginning with our filing deadline for our Annual Report
on Form 10-K for Fiscal 2008, we will have to include managements
evaluation of internal control over financial reporting (Item 308T(a) of
Regulation S-K) and the full text-version of the CEO and CFO
certifications referencing managements responsibility for internal controls.
However, in this fiscal year the Company will not have to include the auditor
attestation on internal control required by Item 308(b) of
Regulation S-K. Managements evaluation will have to disclose that the
annual report does not include such an auditor attestation and that it was not
subject to attestation pursuant to temporary rules of the SEC with our
Annual Report on Form 10-K for Fiscal 2009, we will have to include both
managements evaluation of internal control and the auditor attestation.
13
PART II OTHER INFORMATION
Item 1. Legal
Proceedings
The Company has been
informed of the existence of an investigation that may relate to the Company or
its South American operations. Specifically, the Company understands that
authorities are reviewing allegations from unknown parties that remittances
were made from South America to Company accounts in the United States in 1999.
The Company does not know the nature or subject of the investigation, or the
potential involvement, if any, of the Company or its former subsidiaries. The
Company does not know if allegations of wrongdoing have been made against the
Company, its former subsidiaries or any current or former Company personnel or
if any of them are subjects of the investigation. However, the fact that the
investigators are aware of an allegation of transfers of money from South
America to the United States and may have questioned witnesses about such
alleged transfers means that the Company can not predict whether or not the
investigation will result in a material adverse effect on the consolidated
financial condition or results of operations of the Company.
We are party to various
claims, legal actions and complaints arising in the ordinary course of
business. Our management believes that the disposition of these matters will
not have a materially adverse effect on the consolidated financial condition or
results of operations of the Company.
Item 1A. Risk
Factors
This information has been
omitted as the Company qualifies as a smaller reporting company. Please refer
to Item 1A, Risk Factors, of the Companys Annual Report on Form 10-K for
the fiscal year ended November 30, 2007, filed with the SEC on March 12,
2008.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
Not
applicable.
Item 3. Defaults Upon
Senior Securities
Not
applicable.
Item 4. Submission
of Matters to a Vote of Security Holders
We did not submit
any matters to a vote of security holders in the fourth quarter of 2007.
Item
5. Other Information
Not applicable
Item 6. Exhibits
3.1
|
|
Amended and Restated Certificate of Incorporation of CellStar
Corporation (the Certificate of Incorporation). (1)
|
|
|
|
3.2
|
|
Certificate of Amendment to Certificate of Incorporation. (2)
|
|
|
|
3.3
|
|
Certificate of Amendment to Certificate of Incorporation dated as of
February 20, 2002. (3)
|
|
|
|
3.4
|
|
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation dated as of March 30, 2007. (4)
|
|
|
|
3.5
|
|
Amended and Restated Bylaws of CellStar Corporation, effective as of
May 1, 2004. (5)
|
|
|
|
31.1
|
|
Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (6)
|
|
|
|
32.1
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (6)
|
14
(1) Previously filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended August 31, 1995, and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended May 31, 1998, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Companys Annual Report Form on
Form 10-K for the fiscal year ended November 30, 2002 and
incorporated herein by reference.
(4) Previously filed as an exhibit to the Companys Quarterly
Report on Form 10-Q for the quarter ended February 28, 2007, and
incorporated herein by reference.
(5) Previously filed as an exhibit to the Form 10-Q for the
quarter ended May 31, 2004, and incorporated herein by reference.
(6) Filed herewith.
15
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CLST HOLDINGS, INC.
By:
|
/s/ ROBERT A. KAISER
|
|
|
Robert A. Kaiser
|
|
|
Chief Executive Officer,
President,
|
|
|
Chief Financial Officer,
Treasurer
|
|
|
(Principal Financial
Officer)
|
|
|
|
|
|
April 11, 2008
|
16
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