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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2013

 

 

Commission file number 000-499-68

 

COMDISCO HOLDING COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

54-2066534

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

5600 North River Road

Suite 800

Rosemont, Illinois 60018

(Address of principal executive offices) (Zip code)

 

Registrant’s telephone number, including area code: (847) 698-3000

 

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 [  ]

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer   [  ]

 

Accelerated filer [  ]

Non-accelerated filer [  ] (Do not check if a smaller reporting company)

 

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 [  ] No[X]

 

The registrant had 4,028,951 shares of common stock, $0.01 par value per share outstanding on April 30, 2013.

 



Table of Contents

 

COMDISCO HOLDING COMPANY, INC.

INDEX

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) – Three and six months ended March 31, 2013 and 2012 (Unaudited)

2

 

 

 

 

 

 

Consolidated Balance Sheets – March 31, 2013 (Unaudited) and September 30, 2012

3

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Six months ended March 31, 2013 and 2012 (Unaudited)

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) - Continued

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

 

 

ITEM 2.

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

15

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

23

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

23

 

 

 

 

PART II.

OTHER INFORMATION

23

 

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

23

 

 

 

 

 

ITEM 1A.

RISK FACTORS RELATING TO THE COMPANY

23

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

23

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

23

 

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

23

 

 

 

 

 

ITEM 5.

OTHER INFORMATION

24

 

 

 

 

 

ITEM 6.

EXHIBITS

24

 

 

 

 

SIGNATURES

25

 



Table of Contents

 

PART I.                 FINANCIAL INFORMATION

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q contains, and our periodic filings with the Securities and Exchange Commission (the “SEC”) and written and oral statements made by the Company’s sole officer and director or any authorized representative, to press, potential investors, securities analysts and others, will contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are not historical facts, but rather are predictions and generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “foresee,” “looking ahead,” “is confident,” “should be,” “will,” “predicted,” “likely” or other words or phrases of similar import. Similarly, statements that describe or contain information related to matters such as our intent, belief, or expectation with respect to financial performance, claims resolution under the Plan (as defined below), cash availability and cost-cutting measures are forward-looking statements. These forward-looking statements often reflect a number of assumptions and involve known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those currently anticipated in these forward-looking statements. In light of these risks and uncertainties, the forward-looking events might or might not occur, which may affect the accuracy of forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.

 

In this quarterly report on Form 10-Q, references to “the Company,” “Comdisco Holding,” “we,” “us” and “our” mean Comdisco Holding Company, Inc., its consolidated subsidiaries, including Comdisco, Inc., Comdisco Ventures Fund A, LLC (formerly Comdisco Ventures, Inc.), and its predecessors, except in each case where the context indicates otherwise. References to “Comdisco, Inc.” mean Comdisco, Inc. and its subsidiaries prior to the Company’s emergence from bankruptcy on August 12, 2002, except where the context indicates otherwise.

 

Important factors that could cause actual results to differ materially from those suggested by these written or oral forward-looking statements, and could adversely affect our future financial performance, include the risk factors discussed in the Company’s Annual Report on Form 10-K in Part I, Item 1A, Risk Factors and in the Company’s Quarterly Report on Form 10-Q in Part II, Item 1A, Risk Factors. Many of the risk factors that could affect the results of the Company’s operations are beyond our ability to control or predict.

 

ITEM 1.       FINANCIAL STATEMENTS

 

THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS (“CDRs”) IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER DISTRIBUTIONS WILL BE MADE. THE COMPANY FILED, ON AUGUST 12, 2004, A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.’S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND-DOWN CONTEMPLATED BY THE PLAN.  CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS QUARTERLY REPORT ON FORM 10-Q HAVE THE MEANINGS AS DEFINED IN THE PLAN.

 

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Table of Contents

 

Comdisco Holding Company, Inc.

Consolidated Statements of Comprehensive Income (Loss) – Three and six months ended March 31, 2013 and 2012 (Unaudited)

(in thousands, except per share data)

 

 

 

Three months ended
March 31,

 

Six months ended
March 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenue

 

 

 

 

 

 

 

 

 

Gain on sale of equity and warrant securities

$   

0

 

$   

122

 

$   

112

 

$   

203

 

 

Interest income

 

26

 

 

34

 

 

56

 

 

66

 

 

Foreign exchange gain

 

0

 

 

55

 

 

0

 

 

76

 

 

Total revenue

 

26

 

 

211

 

 

168

 

 

345

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

693

 

 

784

 

 

1,322

 

 

1,706

 

 

Contingent Distribution Rights

 

(118)

 

 

547

 

 

(60)

 

 

673

 

 

Foreign exchange loss

 

83

 

 

0

 

 

136

 

 

0

 

 

Bad debt recoveries

 

(87)

 

 

(24)

 

 

(104)

 

 

(373)

 

 

Total costs and expenses

 

571

 

 

1,307

 

 

1,294

 

 

2,006

 

 

Net (loss) before income taxes

 

(545)

 

 

(1,096)

 

 

(1,126)

 

 

(1,661)

 

 

Income tax expense (benefit)

 

10

 

 

(1,447)

 

 

22

 

 

(1,437)

 

 

Net earnings (loss)

 

(555)

 

 

351

 

 

(1,148)

 

 

(224)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

0

 

 

26

 

 

0

 

 

11

 

 

Reclassification adjustment for gains included in earnings

 

0

 

 

(219)

 

 

0

 

 

(219)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)

 

0

 

 

(193)

 

 

0

 

 

(208)

 

 

Comprehensive income (loss)

$   

(555)

 

$   

158

 

$   

(1,148)

 

$   

(432)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per common share

$   

(0.14)

 

$   

0.09

 

$   

(0.29)

 

$   

(0.05)

 

 

 

 

See accompanying notes to consolidated financial statements

 

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Comdisco Holding Company, Inc.

Consolidated Balance Sheets – March 31, 2013 (Unaudited) and September 30, 2012

(in thousands, except share data)

 

 

 

March 31,
2013

 

September 30, 2012

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

$   

28,424

$          

29,349

 

Cash – legally restricted

 

4,836

 

4,837

 

Short-term investment

 

4,349

 

4,496

 

Equity investments

 

697

 

697

 

Other assets

 

370

 

390

 

Total assets

$   

38,676

$          

39,769

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Accounts payable

$   

181

$          

137

 

Income taxes payable

 

1,025

 

1,037

 

Other liabilities:

 

 

 

 

 

Accrued compensation

 

1,304

 

1,221

 

Contingent Distribution Rights

 

11,279

 

11,339

 

Other liabilities

 

501

 

501

 

Total other liabilities

 

13,084

 

13,061

 

Total liabilities

 

14,290

 

14,235

 

Stockholders’ equity

 

 

 

 

 

Common Stock $.01 par value. Authorized
10,000,000 shares; originally issued 4,200,000 shares;

4,028,951 shares issued and outstanding at March 31, 2013 and September 30, 2012

 

70

 

70

 

Additional paid-in capital

 

28,414

 

28,414

 

Accumulated other comprehensive income

 

0

 

0

 

Accumulated deficit

 

(4,098)

 

(2,950)

 

 

 

 

 

 

 

Total stockholders’ equity

 

24,386

 

25,534

 

 

$   

38,676

$  

39,769

 

 

See accompanying notes to consolidated financial statements.

 

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Comdisco Holding Company, Inc.

Consolidated Statements of Cash Flows – Six months ended March 31, 2013 and 2012 (Unaudited)

(in thousands)

 

 

 

Six Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Equity investments and warrant proceeds net of sharing

 

$          112

 

$         300

 

Bad debt recoveries, interest and other revenue

 

123

 

651

 

Selling, general and administrative expenses

 

(1,143)

 

(1,636)

 

 

 

 

 

 

 

Net cash used in operating activities

 

(908)

 

(685)

 

 

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

(17)

 

38

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(925)

 

(647)

 

Cash and cash equivalents at beginning of period

 

29,349

 

30,950

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$  28,424

 

$  30,303

 

 

See accompanying notes to consolidated financial statements.

 

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Comdisco Holding Company, Inc.

Consolidated Statements of Cash Flows (Unaudited) - Continued

(in thousands)

 

 

 

Six Months Ended

 

 

March 31,

 

 

2013

 

2012

 

 

 

 

 

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

Net loss

(1,148)

   $

(224)

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

Change in Canadian income tax receivables

 

0

 

(1,516)

Taxes payable and other tax balances

 

22

 

79

Contingent Distribution Rights

 

(60)

 

673

Receivables

 

(33)

 

196

Selling, general and administrative expenses

 

153

 

39

Cost basis related to equity securities sold

 

0

 

126

Amortization of prepaid management fee expense

 

26

 

32

Other, including foreign exchange

 

132

 

(90)

Net cash used in operating activities

 (908)

   $

 (685)

 

See accompanying notes to consolidated financial statements.

 

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COMDISCO HOLDING COMPANY, INC.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2013

 

The following discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of Part I and in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, and with the Consolidated Financial Statements and related notes in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012.  Capitalized terms used but not defined in this Quarterly Report on Form 10-Q have the meanings as defined in the Company’s First Amended Joint Plan of Reorganization (the “Plan”).

 

1.   Reorganization

 

On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy court”) (consolidated case number 01-24795). Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under the Plan that became effective on August 12, 2002. For financial reporting purposes only, however, the effective date for implementation of fresh-start reporting was July 31, 2002.

 

Comdisco Holding Company, Inc. (the “Company”) was formed on August 8, 2002 for the purpose of selling, collecting or otherwise reducing to money in an orderly manner the remaining assets of the Company and all of its direct and indirect subsidiaries, including Comdisco, Inc. The Company’s business purpose is limited to the orderly sale or collection of all its remaining assets. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business activities inconsistent with its limited business purpose.

 

Status Hearings:  The Company continues to appear before the Bankruptcy court from time to time to clarify and administer matters related to the Plan and the wind down of the operations of the Company.  On June 28, 2011, the bankruptcy case of Comdisco, Inc., case no. 01-24795, was reassigned from Judge Bruce Black to Judge Jack Schmetterer.  The Judge held a status hearing on November 5, 2012. As of the date of this report, the Judge has not scheduled another status hearing date.

 

Litigation Trust: In February 1998, pursuant to the Shared Investment Plan (“SIP”), the 106 participants in the SIP (the “SIP Participants”) took out full recourse, personal loans to purchase approximately six million shares of Comdisco, Inc.’s common stock. In connection therewith, Comdisco, Inc. executed a guaranty dated February 2, 1998 (the “Guaranty”) providing a guaranty of the loans in the event of default by the SIP Participants to the lenders under the SIP (the “SIP Lenders”).  The Company and the SIP Lenders subsequently reached a settlement on the Guaranty that was approved by the Bankruptcy court on December 9, 2004.  The Plan and the litigation trust agreement provided that, under certain circumstances, subrogation rights that the Company may have against the SIP Participants who participated in the SIP and their respective promissory notes be placed in a trust for the benefit of the C-4 creditors (the “Trust Assets”).  Under the Plan, the Litigation Trust is solely responsible for collection of amounts due on the promissory notes of the 69 SIP Participants who did not take advantage of the SIP Relief (as defined in the Plan).  The Company has a limited indemnification obligation to the litigation trustee under the litigation trust agreement.

 

SIP Litigation: On February 4, 2005, the Litigation Trust commenced lawsuits both in the United States District Court for the Northern District of Illinois (the “Federal SIP Lawsuits”) and in the Circuit Court of Cook County Illinois (the “State SIP Lawsuits”) to collect on the remaining SIP Participants’ promissory notes.

 

Federal SIP Lawsuits: The Litigation Trust filed and a federal district court judge entered summary judgments (and amended judgments) against all but one of the SIP Participants who were defendants (the “SIP defendants”) in the federal cases on their respective SIP promissory notes, and the Litigation Trust has commenced collection actions against them. Additionally, the federal district court judge entered orders ordering that certain CDRs and related proceeds held by the estate of Comdisco, Inc. and Computershare (f/k/a BNY Mellon) (holder of CDRs) on behalf of those SIP defendants be turned over to the Litigation Trust.  Pursuant to these orders, the Company turned over CDRs and related proceeds and will continue to do so if additional orders are entered.

 

The SIP defendants filed appeals on those judgments.  A hearing before the U.S. Court of Appeals, Seventh Circuit (the “Seventh Circuit”) on the summary judgments in the federal case was held on April 6, 2010.  The Seventh Circuit ruled on

 

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October 18, 2010 affirming rulings in favor of the Litigation Trust, but remanding certain fraud issues to the trial court.  On November 1, 2010, the SIP defendants filed a petition for a hearing before the full appellate panel. On June 28, 2011, the Seventh Circuit ruled vacating the summary judgments and remanding the cases for further proceedings.

 

On October 18, 2011, a hearing was held before Judge Gettleman.  A hearing was set for December 22, 2011 and the parties were also required to submit a joint status report on December 9, 2011.  On December 22, 2011, a Rule 16 scheduling conference was set for January 13, 2012.  On January 13, 2012, the judge set February 24, 2012 for both parties to tender responses to interrogatories and for both parties to exchange and provide to the court, lists of proposed depositions and subjects to be addressed.  On March 2, 2012, Judge Gettleman entered an order setting the discovery cut-off date as November 29, 2012.  On October 29, 2012, the SIP defendants filed a Motion for Extension of Discovery Cut-Off Date.  This motion was heard on November 1, 2012 at which time Judge Gettleman granted the extension through January 30, 2013.  On November 20, 2012, the Litigation Trust filed a motion to strike a jury demand, which had been filed by the SIP defendants.  At a hearing on December 6, 2012, the judge continued this motion to be heard at a status hearing on February 1, 2013On February 1, 2013, the Motion to Strike Jury Demand was withdrawn without prejudice.  The Joint Motion to Permit Limited Discovery after the Discovery Cut-off was granted setting March 1, 2013 as the deadline for served and pending discovery. On April 24, 2013, the expert discovery cut-off date was set as May 28, 2013.  The next status hearing is set for June 6, 2013.

 

State SIP Lawsuits: The Litigation Trust filed summary judgments against all of the SIP Participants who are defendants (the “SIP defendants”) in the state cases. On December 18, 2009, the SIP defendants filed their response, and the Litigation Trust filed its reply on February 11, 2010.  Three of the SIP defendants filed Cross Motions for Summary Judgment.  A hearing in the Circuit Court of Cook County on all of the summary judgment motions in the state cases was held on May 12, 2010, and the judge granted the summary judgments in favor of the Litigation Trust and denied the various motions for summary judgments filed by the SIP defendants.  On July 12, 2010, the SIP defendants filed a Motion for a Temporary Stay of Proceedings until the Seventh Circuit rules on the appeal of the federal judgments.  On August 10, 2010, the judge granted a temporary stay of the proceedings until November 29, 2010.  On November 29, 2010, the judge continued the proceedings until January 27, 2011.  On January 27, 2011, Judge Sanjay Tailor was assigned to the matter.  On September 14, 2011, the SIP defendants filed a Motion to Vacate Summary Judgments and Motion for Reconsideration.  At a hearing on September 21, 2011, the judge entered a Briefing Schedule Order for these motions and documents were tendered at a status hearing on January 24, 2012.  On March 16, 2012, the judge denied in part and affirmed in part the Motion to Vacate Summary Judgments.  A status hearing was held on June 14, 2012 and the judge gave the Litigation Trust permission to file an Amended Complaint.  The judge set a discovery cut-off date of November 30, 2012.  At a status hearing on October 30, 2012, Judge Tailor set a further status hearing on November 7, 2012 at which he extended the cut-off until January 31, 2013.  On July 27, 2012, the SIP defendants filed a Motion to Dismiss the Third Amended Complaint.  On December 7, 2012, Judge Tailor granted the Motion to Dismiss and granted the Litigation Trust leave to file a Fourth Amended Complaint.  The Litigation Trust filed a Fourth Amended Complaint on January 4, 2013 and the SIP defendants filed a Motion to Dismiss portions of the Fourth Amended Complaint on January 28, 2013.  On March 20, 2013, the Litigation Trust responded to the Motion to Dismiss and also filed a cross-motion to reconsider the court’s December 7, 2012 decision.  Both of these motions were argued before the court on May 3, 2013 and both were denied.  On January 25, 2013, Judge Tailor set:  March 1, 2013 as the deadline for served and pending discovery; the expert discovery cut-off date as May 31, 2013; and, a trial date for August 5 through 23, 2013.  The parties appeared before Judge Tailor on May 9, 2013 to discuss pretrial, trial process and schedule.  At the hearing, Judge Tailor set June 5, 2013 for the parties to submit an agreed scheduling order for pretrial matters.

 

Ongoing Discovery: As of the date of this report, the Litigation Trust has been able to complete the depositions of all but one of the SIP defendants; provided its expert report to the SIP defendants’ counsel; and, the parties have served subpoenas on third parties for depositions and document production.

 

Ongoing MediationThe Litigation Trustee has engaged in settlement discussions with certain defendants in the note enforcement cases and has attended a series of meetings on November 13 and 27, 2012, December 6, 2012, January 4 and 25, 2013, February 15, 2013, and March 8, 2013 with Judge Schmetterer intended to facilitate such discussions.  As of the filing of this report, the Company has not been notified whether another mediation meeting has been scheduled by the judge.

 

Litigation Trust Termination MotionOn March 16, 2006, a motion was filed in the Bankruptcy court for the Northern District of Illinois on behalf of certain SIP Participants who had filed proofs of claim in the Comdisco, Inc. bankruptcy (“SIP Claimants”). The motion sought an order from the Bankruptcy court terminating the Litigation Trust. On July 20, 2006, the Bankruptcy court judge denied the motion of the SIP Claimants. On August 18, 2006, the SIP Claimants appealed the Bankruptcy court judge’s denial of their motion. On January 30, 2007, the federal district court judge affirmed the denial of the motion. The SIP Claimants appealed the denial to the US Circuit Court of Appeals for the 7th Circuit. A mandatory mediation was held on April 20, 2007. The mediation was adjourned and no settlement was achieved by the parties. The parties briefed the

 

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appeal, and oral arguments were held before the Appellate Court on November 26, 2007.  On August 13, 2008, the Appellate Court ruled and dismissed the appeal for lack of jurisdiction. As of the date of this filing, there have been no further proceedings on this matter.

 

Litigation Trust Reports: In 2004 and 2005, sixty-nine SIP promissory notes were transferred to the Litigation Trust.  As reported by the Litigation Trust, of the sixty-nine SIP promissory notes, nine SIP Participants have filed personal bankruptcy, thirty-five of them have settled or otherwise resolved their obligation, and twenty-five cases remain active (six in the federal court and nineteen in the state court).  As reported in the Thirty-Fourth Status Report of Comdisco Litigation Trustee, filed on April 30, 2013, the Litigation Trust did not reach any settlements in the quarter ended March 31, 2013.

 

Please refer to the quarterly reports filed by the Litigation Trust in the Bankruptcy court for more details. Any proceeds collected by the Litigation Trust, net of expenses, will be considered Trust Assets and distributed in accordance with the Plan and litigation trust agreement

 

2.   Basis of Presentation and Recently Issued Accounting Pronouncements

 

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America.  The information furnished herein includes all adjustments, consisting of normal recurring adjustments except where indicated, which are, in the opinion of management, necessary for a fair presentation of the results of operations for these interim periods.

 

The results of operations for the six months ended March 31, 2013 are not necessarily indicative of the results to be expected for the entire fiscal year ending September 30, 2013.

 

These financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended September 30, 2012 included in the Annual Report on Form 10-K, as filed with the SEC on December 12, 2012.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes.  Actual results could differ from these estimates and may affect future results of operations and cash flows.  We have evaluated subsequent events through the date of this filing.  We do not believe there are any material subsequent events which would require further disclosure.

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.  Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

 

3.   Equity Investments

 

Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group which the Company engaged in February 2004, manages the Company’s investments in equity securities on an ongoing basis.  Windspeed shares in the net receipts from the sale of the Company’s investments in equity securities at a set percentage in certain designated portions of the portfolio of companies.  The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011) until February 20, 2013 (the “Initial Extension”).  The Windspeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”).  Prior to the Initial Extension, Windspeed received fixed and declining management fees.  Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees.  In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed.  As a result of such arrangement, and as of the Initial Extension, the Company established a prepaid expense in the amount of $131,000, representing the estimated fair market value of the companies for which Windspeed will be entitled to 100% of the proceeds.  The Company has amortized all $131,000 of the prepaid expense, which includes approximately $26,000 amortized during the six months ended March 31, 2013.  Realized gains on the sale of equity securities continue to be reduced by sharing amounts under the management agreement. Through March 31, 2013, the Company had received approximately $70,855,000 in proceeds from its investments in equity securities (prior to

 

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Windspeed’s management fees and sharing) since the inception of the management agreement with Windspeed.  Windspeed has received approximately $12,592,000 in combined management fees and sharing through March 31, 2013.

 

Realized gains or losses are recorded on the trade date based upon the difference between the proceeds and the cost basis determined using the specific identification method. Net realized gains are included in revenue in the consolidated statements of operations.

 

Marketable equity securities:

 

Changes in the valuation of available-for-sale securities are included as changes in the unrealized holding gains (losses) in accumulated other comprehensive income (loss).  At March 31, 2013, the Company did not own any shares in publicly-traded companies.

 

The Company’s practice is to work in conjunction with Windspeed to sell its marketable equity securities within a reasonable period of time after the expiration of the lockup period utilizing various timing strategies which seek to maximize the return to the Company. However, in the future, there is no assurance as to whether or not the Company either will be able to liquidate such positions held for any lockup period or realize any amount on such positions.

 

Equity investments in private companies:

 

The Company’s policy for assessing the carrying value of equity investments in privately held companies is, in consultation with Windspeed, to regularly review and estimate the fair value of these securities.

 

The Company identifies and records impairment losses on equity securities when market and customer specific events and circumstances indicate the carrying value might be impaired.  All write-downs are considered permanent impairments for financial reporting purposes.

 

4.   Income Taxes

 

The Company files income tax returns in the U.S. federal jurisdiction, the State of Illinois and certain foreign jurisdictions.

 

As of the date of this filing, the federal tax years open to examination in the U.S. are fiscal years ended September 30, 2009 through September 30, 2011.

 

The Company’s Canadian subsidiary, Comdisco Canada Limited, is currently in the process of resolving certain tax matters with the Ontario provincial tax authority.  The most significant tax matter is the “Notices of Objection” to reassessments which were filed for the tax years ended September 30, 2000 and 2001.  During the year ended September 30, 2012, the Company completed final negotiations with the Canada Revenue Agency (“CRA”) related to its federal Notices of Objection and recorded an income tax benefit of approximately $1,279,000.

 

The open federal tax years for the Canadian subsidiary are tax years ended September 30, 1998, 1999, 2002 and 2009, as well as March 31, 2010 through 2013.  The Company will continue to pursue refund efforts with the province of Ontario; however, as of the date of this filing, the Company believes a tax refund is not more likely than not to be received, therefore, no income tax receivable has been recorded.  The open tax years for the province of Ontario are tax years ended September 30, 1998, 2008 and 2009, as well as March 31, 2010 through 2013. The open tax year for the provinces of Quebec and Alberta is the tax year ended September 30, 1999.

 

The Company’s Mexican subsidiary was liquidated during the quarter ended March 31, 2013.

 

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Uncertain Tax Positions:

 

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, is as follows (in thousands) (excluding interest and penalties) (Note A):

 

 

 

For the six
months ended

March 31,

 

For the year
ended

September 30,

 

 

2013

 

2012

Beginning balance

 

$ 1,438

 

$ 1,369

Decreases related to settlements of certain tax audits

 

0

 

(16)

Increases related to settlements of certain tax audits

 

0

 

0

Decreases related to prior year tax positions

 

0

 

0

Increases related to prior year tax positions

 

0

 

0

Other, including foreign exchange

 

(47)

 

85

Ending balance

 

$1,391

 

$ 1,438

 

Note (A):  The Company previously reported its reconciliation of uncertain tax positions for the year ended September 30, 2012 as the amount of the net income tax liability including interest and penalties, which is reported in the consolidated balance sheets.  During the quarter ended December 31, 2012, the Company corrected its disclosure for the year ended September 30, 2012 and reported this table as the gross income tax liability position.  As of March 31, 2013, net operating losses of $1,240,000 are available to offset this liability, such that the net balance of approximately $151,000, if realized, would impact the effective tax rate.  This change in presentation does not impact the Company’s financial position or cash flows.

 

In the next twelve months, the Company’s effective tax rate and the amount of unrecognized tax benefits could be affected positively or negatively by the resolution of any possible tax audits and the expiration of certain statutes of limitations. Based on current information, the Company believes that the range of the reasonably possible change of the unrecognized tax benefits in the next twelve months is zero to $151,000.

 

As of March 31, 2013, accrued interest and penalties included in the income tax liability amounted to approximately $677,000.  The Company recognizes accrued interest and penalties related to uncertain tax positions in the income tax provision.

 

As of March 31, 2013, the income tax liabilities included in the Company’s consolidated balance sheets all relate to the Company’s Canadian subsidiary and include $151,000 in net uncertain tax positions, $677,000 in interest and penalties for the uncertain tax positions and $197,000 in withholding tax liability on a deemed dividend for a total of $1,025,000.

 

5.   Stockholders’ Equity

 

As of March 31, 2013, the Company had 4,028,951 shares of Common Stock issued and outstanding.

 

Stockholders’ equity consists of the following (in thousands):

 

 

 

 

Common
stock

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
income

 

Retained
earnings
(accumulated
deficit)

 

 

Total

Balance at September 30, 2012

 

$    70

 

$  28,414

 

$      0

 

$ (2,950)

 

$ 25,534

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

 

 

 

 

 

 

(1,148)

 

(1,148)

Other comprehensive income (loss)

 

 

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2013

 

$    70

 

$  28,414

 

$      0

 

$ (4,098)

 

$ 24,386

 

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6.  Other Financial Information

 

Legally restricted cash is comprised of the following at March 31, 2013 and September 30, 2012 (in thousands):

 

 

 

March 31,
2013

 

September 30,
2012

Incentive compensation escrow

$

 501

$  

 496

Indemnification reserve

 

4,000

 

4,000

Other escrows

 

335

 

341

 

$

 4,836

$  

 4,837

 

The incentive compensation escrow is deferred compensation as defined by the Plan and is held until an employee terminates with the Company.  The indemnification reserve is a specific reserve set aside by the Company for any potential indemnified losses in lieu of the litigation trustee purchasing insurance coverage.  Other escrows include management fee escrows and a bank guaranty held in the Netherlands.  The bank guaranty of $335,000 is fully reserved in other accrued liabilities.

 

Other liabilities consist of the following (in thousands):

 

 

March 31,
2013

 

September 30,
2012

Accrued compensation

$  

1,304

  $

 1,221

CDRs

 

11,279

 

11,339

Other liabilities

 

501

 

501

 

$  

13,084

  $

 13,061

 

The liability for accrued compensation includes payroll and estimated amounts payable under the Plan.

 

Other liabilities include an accrued liability of approximately $335,000 for a bank guaranty held in the Netherlands.  After a lessee of the Company filed bankruptcy, the Company posted a bank guaranty to obtain its equipment (which was obtained and liquidated) from the landlord who filed a claim for unpaid rent in the lessee’s bankruptcy estate.  During the fiscal year ended September 30, 2012, the Company was advised that there will be no funds in that lessee’s bankruptcy estate to pay the landlord’s claim.  Therefore, it is anticipated that the full amount of the bank guaranty will be called upon by the landlord.

 

The amounts due to CDR holders follow the formula described in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies.”

 

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7.   Financial Information by Geographic Area

 

The following table presents total revenue by geographic location based on the location of the Company’s revenue sources (in thousands):

 

 

 

Three months ended
March 31,

 

Six months ended
March 31,

 

 

2013

 

2012

 

2013

 

2012

North America

 26

 227

 168

 333

Europe

 

0

 

(16)

 

0

 

12

Total

 26

 211

 168

 345

 

The following table presents total assets and cash and cash-equivalents, restricted cash and short-term investments by geographic location based on the location of the Company’s assets (in thousands):

 

 

 

March 31, 2013

 

September 30, 2012

 

 

Total
Assets

 

Cash and Cash
Equivalents
and Short-
term
Investments

 

Total
Assets

 

Cash and Cash
Equivalents
and Short-
term
Investments

North America

$

 38,341

$

 37,274

$

 39,430

$

 38,343

Europe

 

335

 

335

 

339

 

339

Total

$

 38,676

$

 37,609

$

39,769

$

 38,682

 

 

8.   Fair Value Measurements

 

The three levels of inputs used to measure fair value are as follows:

 

·                  Level 1 - Quoted prices in active markets for identical assets and liabilities.

 

·                  Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

·                  Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

The Company’s financial assets that are measured at fair value on a recurring basis are measured using Level 1 and Level 2 inputs.  However, the Company records the carrying value of its private equity investments at lower of cost or fair market value which is measured using Level 3 inputs.

 

The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of March 31, 2013 and September 30, 2012.  The Company currently holds no financial liabilities that are measured at fair value on a recurring basis.

 

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March 31, 2013

 

 

Level 1

 

Level 2

 

Level 3

 

Total
Fair Value

Assets

 

 

 

 

 

 

 

 

Money market accounts

 

$

 27,759,000

 

$

 0

 

$

 0

 

$

 27,759,000

Certificates of deposit

 

0

 

4,349,000

 

0

 

4,349,000

Equity investments (A)

 

0

 

0

 

5,084,000

 

5,084,000

Total

 

$

 27,759,000

 

$

 4,349,000

 

$

 5,084,000

 

$

 37,192,000

 

 

 

 

September 30, 2012

 

 

Level 1

 

Level 2

 

Level 3

 

Total
Fair Value

Assets

 

 

 

 

 

 

 

 

Money market accounts

 

$

 28,591,000

 

$

 0

 

$

 0

 

$

 28,591,000

Certificates of deposit

 

0

 

4,496,000

 

0

 

4,496,000

Equity investments (A)

 

0

 

0

 

5,166,000

 

5,166,000

Total

 

$

 28,591,000

 

$

 4,496,000

 

$

 5,166,000

 

$

 38,253,000

 

(A)  Equity investments are made up of stock in three privately held companies.

 

Reconciliation of financial assets measured at fair value on a recurring basis using Level 3 inputs for the fiscal quarters ended March 31, 2013 and September 30, 2012 is as follows:

 

 

 

Fair Value
September 30,
2012

 

Realized
(net of fees)

 

Change in
Unrealized
Estimated Value

 

Decrease due to
impairment
of assets

 

Increase due to
purchase
of shares

 

Decrease in
cost basis
due to sale

 

Decrease due to
transfer from
Level 3 to Level 1

 

Fair Value
March 31,
2013

Level 3 only
Equity investments

 

$5,166,000

 

$(112,000)

 

$             30,000

 

$                             0

 

$                      0

 

$                        0

 

$                 0

 

$5,084,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value
September 30,
2011

 

Realized
(net of fees)

 

Change in
Unrealized
Estimated Value

 

Decrease due to
impairment
of assets

 

Increase due to purchase
of shares

 

Decrease in
cost basis
due to sale

 

Decrease due to
transfer from
Level 3 to Level 1

 

Fair Value
September 30,
2012

Level 3 only
Equity investments

 

$2,145,000

 

$ (28,000)

 

$            2,887,000

 

$                           0

 

$         162,000

 

$                    0

 

$                 0

 

$5,166,000

 

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While the Company did not hold any marketable equity investments as of March 31, 2013, in accordance with the provisions of ASC Topic 320, “Accounting for Certain Investments in Debt and Equity Securities,” marketable equity investments (equity investments having a readily determinable fair value) would have a carrying value and a fair value based on quoted market prices. The Company’s investment in warrants of public companies were valued at the bid quotation. The Company’s practice is to sell its marketable equity investments upon the expiration of the lock-up period.

 

Equity investments in private companies consist primarily of small investments in approximately three private companies.  Common stock and preferred stock investments are carried at the lower of cost or fair market value in the Company’s financial statements. Warrants in non-public companies are carried at zero value.   The carrying value of equity investments in private companies is $697,000 and the fair market value measured using Level 3 inputs is $5,084,000, net of sharing.  These investments are subject to significant volatility and are difficult to value. The fair value of the Company’s equity investments in private companies, including warrants, was determined in consultation with Windspeed based on the market approach, including, but not limited to, quoted trading levels for publicly-traded securities in similar industries and/or markets, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups, estimated revenue, and customer, product and market share growth by the respective companies in the portfolio. Substantially all of these factors are outside the control of the Company and are subject to significant volatility. There can be no assurance that the Company will be able to realize the estimated fair market value. Furthermore, as of March 31, 2013, the total portfolio of three companies which has an estimated fair market value of $5,084,000 is subject to significant concentration risk, as follows: 99% of such value is in two individual companies, and approximately 88% of such value is in one individual company.  However, there is no assurance as to the timing or the amount the Company will ultimately realize on these investments.

 

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ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.  This discussion contains forward-looking information.  Please see “Forward-Looking Statements” and Part II, Item 1A, “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements.

 

THE COMPANY EMERGED FROM CHAPTER 11 BANKRUPTCY PROCEEDINGS ON AUGUST 12, 2002. THE PURPOSE OF THE COMPANY IS TO SELL, COLLECT OR OTHERWISE REDUCE TO MONEY IN AN ORDERLY MANNER THE REMAINING ASSETS OF THE CORPORATION. PURSUANT TO THE COMPANY’S FIRST AMENDED JOINT PLAN OF REORGANIZATION (THE “PLAN”) AND RESTRICTIONS CONTAINED IN THE COMPANY’S CERTIFICATE OF INCORPORATION (THE “CERTIFICATE”), THE COMPANY IS SPECIFICALLY PROHIBITED FROM ENGAGING IN ANY BUSINESS ACTIVITIES INCONSISTENT WITH ITS LIMITED BUSINESS PURPOSE. ACCORDINGLY, WITHIN THE NEXT FEW YEARS, IT IS ANTICIPATED THAT THE COMPANY WILL HAVE REDUCED ALL OF ITS ASSETS TO CASH AND MADE DISTRIBUTIONS OF ALL AVAILABLE CASH TO HOLDERS OF ITS COMMON STOCK AND CONTINGENT DISTRIBUTION RIGHTS (“CDRs”) IN THE MANNER AND PRIORITIES SET FORTH IN THE PLAN. AT THAT POINT, THE COMPANY WILL CEASE OPERATIONS AND NO FURTHER DISTRIBUTIONS WILL BE MADE. THE COMPANY FILED, ON AUGUST 12, 2004, A CERTIFICATE OF DISSOLUTION WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE TO FORMALLY EXTINGUISH COMDISCO HOLDING COMPANY, INC.’S CORPORATE EXISTENCE WITH THE STATE OF DELAWARE EXCEPT FOR THE PURPOSE OF COMPLETING THE WIND-DOWN CONTEMPLATED BY THE PLAN.

 

General

 

Wind-Down of Operations

 

Since emerging from bankruptcy proceedings on August 12, 2002, the Company has, pursuant to the Plan, focused on the monetization of its remaining assets. Therefore, comparisons of quarter-to-quarter or year-to-year results of operations should not be relied upon as an indication of the Company’s future performance.  Capitalized terms used but not defined in this section shall have the meanings as defined in the Plan.

 

The Company has reduced, and expects to continue to reduce, the size and complexity of its organizational and systems infrastructure concurrently with the monetization of its assets. As of the date of this filing, the Company had a total of five employees (one full-time and four part-time), a decrease of approximately 99 percent from approximately 600 employees upon emergence on August 12, 2002.  Approximately five consultants continue to periodically assist the Company on a consulting basis.

 

On August 12, 2004, Randolph I. Thornton’s appointment as Initial Disbursing Agent became effective. As Initial Disbursing Agent, he assumed the roles and responsibilities performed by the former Board of Directors and officers of the Company, including all measures which are necessary to complete the administration of the Plan and Chapter 11 cases.

 

Overview

 

On July 16, 2001, Comdisco, Inc. and 50 of its domestic subsidiaries voluntarily filed for bankruptcy.

 

Comdisco Holding Company, Inc., as the successor company to Comdisco, Inc., emerged from bankruptcy under a confirmed plan of reorganization that was effective on August 12, 2002. In accordance with the Plan, Comdisco Holding Company, Inc. became the successor to Comdisco, Inc.

 

Since the Company emerged from Chapter 11 bankruptcy proceedings on August 12, 2002, the Company’s business activities have been limited to the orderly sale or run-off of all of its existing asset portfolios. Pursuant to the Plan and restrictions contained in its Certificate, the Company is specifically prohibited from engaging in any business

 

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activities inconsistent with its limited business purpose. Since emerging from bankruptcy, the Company has not engaged in any new leasing or financing activities, except for previously existing customer commitments and to restructure existing equipment leases and loans to maximize the value of the Company’s assets.

 

The Company maintains sufficient cash reserves for the potential CDR liability, including any potential liability arising from any net distributions by the Litigation Trust to C-4 creditors.  The outcome and timing of any actual net distributions by the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.  See below for “Critical Accounting Policies”.

 

The Company has material restrictions on its ability, and does not expect, to make significant investments in new or additional assets. The Company continually evaluates opportunities for the orderly sale and collection of its remaining assets. Accordingly, within the next few years, it is anticipated that the Company will have reduced all of its assets to cash, resolved all litigation and made distributions of all available cash to holders of its common stock and CDRs in the manner and priorities set forth in the Plan and completed all regulatory filings. At that point, the Company will cease operations.

 

The Company’s revenues are generated primarily by sales of equity securities and interest income on cash balances. Because of the Company’s declining assets, revenue will continue to decline and, because of the Company’s limited business purpose, this trend is expected to continue. The Company’s expenses are primarily selling, general and administrative expenses and CDRs.  As a result of the wind-down of operations, the Company expects total costs and expenses to remain at, or slightly less than current levels, subject to volatility in the amount of expense associated with the liability for CDRs and the timing of payments related to selling, general and administrative expenses.

 

The Company’s operations continued to wind-down during the six months ended March 31, 2013. The Company’s assets at March 31, 2013 consisted primarily of cash and cash-equivalents, short-term investments and equity securities. The timing of the sale of equity securities is uncertain. The equity securities portfolio requires liquidity events before certain of these assets can be converted to cash. The Company expects that proceeds from the disposition of equity securities will provide future but diminishing cash flows in excess of the current carrying value of these assets. In addition, the Company, as a former lessor, has a few remaining leases in default whereby collection efforts are underway to support a recovery on those limited number of accounts. Receipts, if any, will be in excess of the respective carrying value of these assets because the related lease receivables were previously written-off.

 

Equity Investments: The Company holds common stock, preferred stock and warrants in other companies (collectively “Equity Investments”). The Company carries its private companies at the lower of cost or estimated fair market value in its financial statements. Any warrants held by the Company in private companies are carried at zero value. Any write-downs in the carrying value of such Equity Investments in private companies are considered permanent for financial reporting purposes. See Note 3 of Notes to Consolidated Financial Statements and “Critical Accounting Policies.” It is management’s expectation that the amount in private company investments ultimately realized on Equity Investments will, in the aggregate, exceed the $697,000 carrying amount reflected in the financial statements as of March 31, 2013.  The Company’s estimate of the fair value of its private company investments was made in consultation with Windspeed Acquisition Fund GP, LLC (“Windspeed”), a professional management group which the Company engaged to manage the Company’s Equity Investments on an ongoing basis in February 2004.  The Windspeed management agreement was extended on April 5, 2011 (with an effective date of February 21, 2011)  until February 20, 2013 (the “Initial Extension”).  The Windpeed management agreement was again extended effective February 21, 2013 through February 20, 2015 (the “Second Extension”).  Prior to the Initial Extension, Windspeed received fixed and declining management fees.  Under the terms of the Initial and Second Extensions, Windspeed is not, and will not, be paid any ongoing management fees.  In lieu of such management fee payment, 100% of any proceeds from certain companies in the portfolio will go to Windspeed.  As a result of such arrangement, and pursuant to the Initial Extension, the Company established a prepaid expense in the amount of $131,000, representing the estimated fair market value of the companies for which Windspeed will be entitled to 100% of the proceeds.  The Company has amortized all $131,000 of the prepaid expense, which includes approximately $26,000 amortized during the six months ended March 31, 2013.

 

The Company estimates that the realizable value for its Equity Investments in private companies, net of sharing with Windspeed, at March 31, 2013 is approximately $5,084,000. However, there is no assurance as to the timing or the amount the Company will ultimately realize on the Equity Investments.  Furthermore, as of March 31, 2013, the total portfolio of three companies, which has an estimated fair market value of approximately $5,084,000, is subject to significant concentration risk, as follows: 99% of such value is in two individual companies, and approximately 88% of such value is in one individual company.

 

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The following table summarizes the changes in the estimated value of the Company’s Equity Investments since September 30, 2012 (in thousands):

 

 

 

Private
Companies
(1) (2)

September 30, 2012 estimated realizable value

$  

 5,166

Realized, net of fees

 

(112)

Increase in unrealized estimated value

 

30

 

 

 

March 31, 2013 estimated realizable value

$  

 5,084

 

(1)  Carrying value of private companies for financial statement purposes is the lower of cost or fair value, or approximately $697,000 as of March 31, 2013.  The increase in unrealized estimated value is a result of changes in marketability.

(2)  Net of sharing with Windspeed under the management agreement.

 

Collections and recoveries: The Company has potential collections and recoveries on a limited number of remaining accounts previously written off. Recoveries involve prior lessees or debtors now in bankruptcy and against whom the Company has filed and is pursuing claims to maximize its recoveries. The Company’s cost basis in these accounts is nominal. Additionally, the Company, periodically, recovers unclaimed property from various states.

 

Critical Accounting Policies

 

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities.  These estimates are subject to known and unknown risks, uncertainties and other factors that could materially impact the amounts reported and disclosed in the consolidated financial statements.

 

The SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” which recommends that companies provide additional disclosure and analysis of those accounting policies considered most critical.

 

The Company believes the following to be among the most critical judgment areas in the application of its accounting policies:

 

·                       CDRs and CDR Liability: The Plan entitles holders of Comdisco Holding’s CDRs to share at increasing percentages in the proceeds realized from the monetization of the Company’s assets based upon the present value of distributions made to the general unsecured creditors in the bankruptcy estate of Comdisco, Inc.

 

The Company estimates the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, and other expected cash inflows in excess of book value, including estimated future interest income, estimated recoveries and any potential net distributions from the Litigation Trust which, as of the date of this filing, a reasonable estimate of future net distributions is not determinable.

 

·                       Equity Investments In Private Companies:  Equity investments in private companies consist primarily of small investments in approximately three private companies. The Company carries its common stock and preferred stock investments in private companies at the lower of cost or estimated fair market value in the financial statements. Warrants in non-public companies are carried at zero value. The Company, in consultation with Windspeed, regularly estimates the value of investments in private companies and adjusts carrying values when market and customer specific events and circumstances indicate that such assets might be impaired.  All write-downs are considered permanent impairments for financial reporting purposes.  At March 31, 2013, the carrying value of the Company’s equity investments in private

 

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companies was approximately $697,000, and the estimated fair market value was approximately $5,084,000.

 

·                       Income Taxes:  The Company establishes liabilities or reduces assets for uncertain tax positions when the Company believes certain tax positions are not more likely than not to be sustained if challenged.  Each fiscal quarter, the Company evaluates these uncertain tax positions and adjusts the related tax assets and liabilities in light of changing facts and circumstances.

 

 

The above listing is not intended to be a comprehensive list of all the Company’s accounting policies. Please refer to the Company’s annual consolidated financial statements and notes thereto, which contain the Company’s significant accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.

 

Recent Developments

 

Litigation Trust Ongoing Litigation

 

See Note 1 of Notes to Consolidated Financial Statements for further details regarding the Litigation Trust ongoing litigation.

 

 

Results of Operations

 

Three Months Ended March 31, 2013 compared to the Three Months Ended March 31, 2012

 

Revenue

 

Changes in total revenue for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 were as follows (in thousands):

 

 

 

Three months ended

 

Percent

 

 

 

 

March 31,

 

Increase

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

2012

 

(Decrease)

 

Explanation of Change

Gain on sale of equity and warrant securities

 

$      0

 

$      122

 

(100)%

 

Equity securities, which are managed by Windspeed, represent the primary remaining revenue generating asset. See “Overview” for additional information. (A)

Interest income

 

26

 

34

 

(24)%

 

Interest earned on cash balances.

Foreign exchange gain

 

0

 

55

 

(100)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$      26

 

$      211

 

(88)%

 

 

 

(A)       There were no gains on sale of equity holdings for the quarter ended March 31, 2013 compared to liquidations of positions held in the quarter ended March 31, 2012.

 

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Costs and Expenses

 

Changes in total costs and expenses for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 were as follows (in thousands):

 

 

 

Three months ended
March 31,

 

Percent
Increase

 

 

 

 

2013

 

2012

 

(Decrease)

 

Explanation of Change

Selling, general and administrative

 

$

693

 

$

784

 

(12)%

 

(A)

Contingent Distribution Rights

 

 

(118)

 

 

547

 

+(100)%

 

(B)

Foreign exchange loss

 

 

83

 

 

0

 

N/A

 

(C)

Bad debt recoveries

 

 

(87)

 

 

(24)

 

+100%

 

(D)

Total costs and expenses

 

$

571

 

$

1,307

 

(56)%

 

 

 

(A)       SG&A expense in the quarter ended March 31, 2013 has benefited from lower international accounting and legal fees as compared to the quarter ended March 31, 2012.

(B)       The reduction in CDR expense in the quarter ended March 31, 2013 is primarily the result of higher SG&A costs and foreign exchange loss in the current quarter than previously projected and higher future SG&A costs, which decreased the CDR liability.  The CDR expense in the quarter ended March 31, 2012 is primarily the result of an income tax benefit of approximately $1.5 million from the Canadian subsidiary recorded in that period, which increased the CDR liability.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” for more information.

(C)       Foreign exchange loss primarily relates to the strengthening of the U.S. dollar in the quarter ended March 31, 2013 against the Canadian Dollar as the Company’s foreign subsidiaries held monetary assets denominated in that currency.

(D)       The recoveries received during the quarter ended March 31, 2013 were slightly higher than the recoveries received during the quarter ended March 31, 2012.

 

Income Taxes

 

The Company recorded no U.S. federal income tax expense for the three months ended March 31, 2013 and 2012.

 

The Company recorded $10,000 of income tax expense for its Canadian subsidiary for the three months ended March 31, 2013.  The Company recorded approximately $1,447,000 of income tax benefit (net of increases to income tax liabilities) for its Canadian subsidiary for the three months ended March 31, 2012 primarily as a result of progress in negotiations made during the quarter ended March 31, 2012 with the Canada Revenue Agency (“CRA”) on Federal Notices of Objection for the tax years ended 2000 and 2001.  See Note 4 of Notes to Consolidated Financial Statements for information on the wind-down transactions in Canada.

 

The Company has been pursuing an income tax refund from the province of Ontario. The Company’s Canadian tax advisors have informed it that the local tax official was inclined to concur with the reassessments already issued by the Canada Revenue Agency (“CRA”) for the tax years ended September 30, 2000 and 2001.  However, the province of Ontario is not obligated to issue such reassessments, and any decision made by local tax officials is not binding until approved by a higher authority.  As a result, the Company cannot reasonably estimate, as of the date of this filing, the amount, if any, of a refund arising from such reassessment.

 

 

Net earnings (loss)

 

Net loss was approximately ($555,000), or ($0.14) per share-basic and diluted, for the three months ended March 31, 2013, compared to net earnings of approximately $351,000, or $0.09 per share-basic and diluted, for the three months ended March 31, 2012.

 

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Six Months Ended March 31, 2013 Compared to the Six Months Ended March 31, 2012

 

Revenue

 

Changes in total revenue for the six months ended March 31, 2013 compared to the six months ended March 31, 2012 were as follows (in thousands):

 

 

 

Six months ended
March 31,

 

Percent
Increase

 

 

 

 

2013

 

2012

 

(Decrease)

 

Explanation of Change

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of equity and warrant securities

 

$

112

 

$

203

 

(45)%

 

Equity securities, which are managed by Windspeed, represent the primary remaining revenue generating asset. See “Overview” for additional information. (A)

Interest income

 

 

56

 

 

66

 

(15)%

 

Interest earned on cash balances.

Foreign exchange gain

 

 

0

 

 

76

 

(100)%

 

(B)

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

168

 

$

345

 

(51)%

 

 

 

(A)       The decrease in gains on sale of equity holdings for the six months ended March 31, 2013 is a result of the slightly lower liquidations of positions held compared to the six months ended March 31, 2012.

 

(B)       Foreign exchange gain in the six months ended March 31, 2012 primarily relates to the weakening of the U.S. dollar against the Canadian Dollar, during that period, as the Company’s Canadian subsidiary held monetary assets denominated in that currency.

 

Costs and Expenses

 

Changes in total costs and expenses for the six months ended March 31, 2013 compared to the six months ended March 31, 2012 were as follows (in thousands):

 

 

 

Six months ended
March 31,

 

Percent
Increase

 

 

 

 

2013

 

2012

 

(Decrease)

 

Explanation of Change

Selling, general and administrative

 

$

1,322

 

$

1,706

 

(23)%

 

(A)

Contingent Distribution Rights

 

 

(60)

 

 

673

 

+(100)%

 

(B)

Foreign exchange loss

 

 

136

 

 

0

 

N/A%

 

(C)

Bad debt recoveries

 

 

(104)

 

 

(373)

 

(72)%

 

Collections and recoveries.(D)

Total costs and expenses

 

$

1,294

 

$

2,006

 

(35)%

 

 

 

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(A)       SG&A expense in the six months ended March 31, 2013 has benefited from lower international accounting and legal fees and lower amortization of insurance expense as compared to the six months ended March 31, 2012.

 

(B)       The decrease in CDR expense is primarily the result of higher SG&A costs and foreign exchange loss in the quarter ended March 31, 2013 than previously projected and higher future SG&A costs, which decreased the CDR liability.  The CDR expense in the six months ended March 31, 2012 is primarily the result of an income tax benefit of approximately $1.5 million from the Canadian subsidiary recorded in that period, which increased the CDR liability.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” for a discussion of the potential liability from any future recoveries and distributions by the litigation trustee.

 

(C)       Foreign exchange loss primarily related to the strengthening of the U.S. dollar in the six months ended March 31, 2013 against the Canadian Dollar as the Company’s foreign subsidiaries held monetary assets denominated in that currency.

 

(D)       The increase in proceeds during the six months ending March 31, 2012 was the result of bad debt recoveries from a previously written off claim in a foreign bankruptcy estate and a settlement on a disputed obligation owed to the Company.

 

Income taxes

 

The Company recorded no U.S. federal income tax expense for the six months ended March 31, 2013 and 2012.

 

The Company recorded approximately $22,000 of income tax expense for its Canadian subsidiary for the six months ended March 31, 2013.  The Company recorded approximately $1,437,000 of income tax benefit (net of increases to income tax liabilities) for its Canadian subsidiary for the six months ended March 31, 2012, primarily as a result of progress in negotiations made during the quarter ended March 31, 2012 with the CRA on Federal Notices of Objection for the tax years ended 2000 and 2001.  See Note 4 of Notes to Consolidated Financial Statements for information on the wind-down transactions in Canada.

 

Net Loss

 

Net loss was approximately ($1,148,000), or ($0.29) per share-basic and diluted, for the six months ended March 31, 2013 compared to a net loss of approximately ($224,000), or ($0.05) per share-basic and diluted, for the six months ended March 31, 2012.

 

Off-Balance Sheet Arrangements

 

The Company does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that could be expected to have a material current or future effect upon the Company’s financial condition or results of operations.

 

Liquidity and Capital Resources

 

The Company’s liquidity generally depends on cash on hand.  The Company’s cash flow from operating activities is dependent on a number of variables, including, but not limited to, operating costs and expenses to affect the wind down, income tax obligations, market conditions for the sale of Equity Investments and the ability of the Company to dispose or otherwise convert to cash its remaining assets. All funds generated from the collection of remaining assets are required by the Plan to be used to satisfy liabilities of the Company and, to the extent funds are available, to pay dividends on the Company’s common stock and to make distributions with respect to the CDRs in the manner and priorities set forth in the Plan. Because of the composition and nature of its remaining assets, the Company expects to generate funds from the sale or collection of its remaining assets at a decreasing rate over time.

 

At March 31, 2013, the Company had unrestricted cash and cash equivalents of approximately $28,424,000, which represented a decrease of approximately $925,000 compared to September 30, 2012.  Net cash used in operating activities for the six months ended March 31, 2013 was approximately $908,000.  The effect of exchange rate changes on

 

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cash balances held in foreign currencies was a decrease in cash and cash equivalents of approximately $17,000 for the six months ended March 31, 2013.

 

During the six months ended March 31, 2013, $112,000 in proceeds were generated from the equity portfolio and approximately $123,000 was received from bad debt recoveries, interest income and other revenue.  The Company’s cash expenditures were primarily operating expenses of approximately $1,143,000 (principally professional services and employee compensation).

 

The Company’s current and future liquidity depends on cash on hand and may be augmented by proceeds from the sale of Equity Investments, recoveries, if any, and interest income. The Company expects its cash on hand to be sufficient to fund operations and to meet its obligations (including its obligation to make distributions to its common stockholders and make payments to CDR holders) under the Plan for the foreseeable future.

 

Other escrows:  The Company maintains a bank guaranty in the Netherlands in the approximate amount of $335,000 which was provided to a landlord to induce it to release equipment leased by one of the Company’s former subsidiaries to a tenant. The tenant’s bankruptcy is still pending and the landlord’s rent claim has not been resolved which has necessitated that the Company maintain the bank guaranty. In the past, the bankruptcy trustee has consistently advised that it was not likely that the landlord would be paid any amount of its rent claim. Therefore, the Company fully reserved the amount of the guaranty. However, the Company’s European counsel was advised by the bankruptcy trustee that there may be a payment on the rent claim, but it would not disclose the amount. Any payment by the bankruptcy trustee to the landlord on the rent claim could reduce the Company’s obligation on the bank guaranty. Given the uncertainty as to the amount to be paid on the rent claim, as of the date of this filing, the Company cannot reasonably estimate the amount, if any, to be recovered on the bank guaranty.

 

Dividends

 

There were no dividends paid during the quarter ended March 31, 2013. The Company intends to treat any future dividend distributions for federal income tax purposes as part of a series of liquidating distributions in complete liquidation of the Company.

 

Contingent Distribution Rights

 

For financial reporting purposes, the Company records CDRs as a liability and as an operating expense although the CDRs trade over-the-counter.

 

The Plan entitles holders of CDRs to share at increasing percentages in the proceeds realized from the Company’s assets based upon the present value of distributions to certain C-4 creditors in the bankruptcy estate of Comdisco, Inc. As of March 31, 2013, the sharing percentage was 37%, which is the maximum sharing percent.  As of the date of this filing, there were 1,854 holders of record of the Company’s CDRs and there were 148,448,188 outstanding CDRs.

 

The Company maintains sufficient cash reserves for operations and the potential CDR liability arising from the Company’s equity and any potential net distributions from the Litigation Trust to the C-4 creditors.  The outcome and the timing of the actual net distributions from the Litigation Trust will impact both the timing and the amount of future dividends and CDR payments.

 

Since September 30, 2008, the Company has estimated, and will continue to estimate, the CDR liability based on the net equity of the Company after taking into consideration future operating costs and expenses, and other expected cash inflows in excess of book value, including estimated future interest income, estimated recoveries and any potential net distributions from the Litigation Trust for which, as of the date of this filing, a reasonable estimate of future net distributions is not determinable.

 

CDR Payment

 

There were no CDR payments during the quarter ended March 31, 2013.

 

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Table of Contents

 

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4.        CONTROLS AND PROCEDURES

 

(a)           Evaluation of Disclosure Controls and Procedures

 

Randolph I. Thornton, the principal executive officer and principal financial officer of the Company, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Mr. Thornton concluded that the Company’s disclosure controls and procedures are effective as of March 31, 2013 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its president and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b)           Changes in Internal Control over Financial Reporting

 

There has not been any change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Section 13(a)-15 or 15(d)-15 under the Exchange Act that occurred during the Company’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II.               OTHER INFORMATION

 

ITEM 1.        LEGAL PROCEEDINGS

 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent Developments” and see Note 1 of Notes to Consolidated Financial Statements for an update on the Litigation Trust ongoing litigation.

 

ITEM 1A.     RISK FACTORS RELATING TO THE COMPANY

 

There have been no material updates to the Risk Factors as set forth in Item 1A. of our Annual Report on Form 10-K, filed with the SEC on December 12, 2012.

 

ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Securities

 

None.

 

Repurchases of Common Stock

 

The Company does not regularly repurchase shares nor does the Company have a share repurchase plan.

 

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.        MINE SAFETY DISCLOSURES

 

Not applicable.

 

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Table of Contents

 

ITEM 5.        OTHER INFORMATION

 

None.

 

ITEM 6.        EXHIBITS

 

Exhibit No.

 

Description of Exhibit

 

 

 

3.1

 

Certificate of Incorporation of Registrant dated August 8, 2002 and as Amended August 12, 2004 (Incorporated by reference to Exhibit 3.1 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004, as filed with the SEC on December 14, 2004, File No. 0-49968).

 

 

 

3.2

 

By-Laws of Registrant, adopted as of August 9, 2002 (Incorporated by reference to Exhibit 3.2 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002, as filed with the SEC on January 14, 2003, File No. 0-49968).

 

 

 

11.1

 

Statement re computation of per share earnings (Filed herewith).

 

 

 

31.1

 

Certification of Principal Executive Officer and Principal Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).

 

 

 

32.1

 

Certification of the Principal Executive Officer and Principal 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).

 

 

 

101.INS*

 

Instance document (Filed herewith).

 

 

 

101.SCH*

 

Schema document (Filed herewith).

 

 

 

101.CAL*

 

Calculation linkbase document (Filed herewith).

 

 

 

101.LAB*

 

Labels linkbase document (Filed herewith).

 

 

 

101.PRE*

 

Presentation linkbase document (Filed herewith).

 

 

 

101.DEF*

 

Definition linkbase document (Filed herewith).

 

 

 

* Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  COMDISCO HOLDING COMPANY, INC.

 

 

Dated: May 15, 2013

By:

/s/ Randolph I. Thornton

 

 

Name:

Randolph I. Thornton

 

Title:

Chief Executive Officer and President

 

 

(Principal Financial and Accounting Officer)

 

25